American Airlines 2010 Annual Report Download - page 37

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On January 25, 2011, American closed on a $657 million offering of Class A and Class B Pass Through Trust
Certificates (the Certificates). The equipment notes expected to be held by each pass through trust will be issued
for each of (a) 15 Boeing 737-823 aircraft delivered new to American from 1999 to 2001, (b) six Boeing 757-223
aircraft delivered new to American in 1999 and 2001, (c) two Boeing 767-323ER aircraft delivered new to
American in 1999 and (d) seven Boeing 777-223ER aircraft delivered new to American from 1999 to 2000. At
closing, 27 of the aircraft were encumbered by either private mortgages or by liens to secure debt incurred in
connection with the issuance of enhanced equipment trust certificates in 2001, all of which mature in 2011. As a
result, the proceeds from the sale of the Certificates of each trust will initially be held in escrow with a depositary,
pending the financing of each aircraft under an indenture relating to the Certificates. Interest of 5.25% and 7.00%
per annum on the issued and outstanding Series A equipment notes and Series B equipment notes, respectively,
will be payable semiannually on January 31 and July 31 of each year, commencing on July 31, 2011, and
principal on such equipment notes is scheduled for payment on January 31 and July 31 of certain years,
commencing on July 31, 2011. The payment obligations of American under the equipment notes will be fully and
unconditionally guaranteed by AMR Corporation.
The Company’s substantial indebtedness and other obligations have important consequences. For example,
they: (i) limit the Company’s ability to obtain additional funding for working capital, capital expenditures,
acquisitions, investments and general corporate purposes, as well as adversely affect the terms on which such
funding could be obtained; (ii) require the Company to dedicate a substantial portion of its cash flow from
operations to payments on its indebtedness and other obligations, thereby reducing the funds available for other
purposes; (iii) make the Company more vulnerable to economic downturns and catastrophic external events; and
(iv) limit the Company’s ability to withstand competitive pressures and reduce its flexibility in responding to
changing business and economic conditions.
The Company’s possible remaining financing sources primarily include: (i) a very limited amount of additional
secured aircraft debt or sale leaseback transactions involving owned aircraft; (ii) debt secured by other assets;
(iii) securitization of future operating receipts; (iv) the sale or monetization of certain assets; (v) unsecured debt;
and (vi) issuance of equity or equity-like securities. Besides unencumbered aircraft, the Company’s most likely
sources of liquidity include the financing of route authorities, takeoff and landing slots, spare parts, and the sale or
financing of certain of AMR’s business units and subsidiaries, such as AMR Eagle. The Company’s ability to
obtain future financing is limited by the value of its unencumbered assets. Almost all of the Company’s aircraft
assets (including aircraft eligible for the benefits of Section 1110 of the U.S. Bankruptcy Code) are encumbered.
Also, the market value of these aircraft assets has declined in recent years, and may continue to decline. The
Company believes it has at least $2 billion in assets that could be used as possible financing sources as of the
date of this filing. However, many of these assets may be difficult to finance, and the availability and level of the
financing sources described above cannot be assured. The Company also believes it has the ability to refinance
aircraft as those aircraft become unencumbered.
In July 2010, the Company entered into an amendment to Purchase Agreement No. 1977 with The Boeing
Company (Boeing) to exercise rights to acquire additional Boeing 737-800 aircraft. Pursuant to the amendment,
American exercised rights to purchase 35 Boeing 737-800 aircraft for delivery in 2011 and 2012. In conjunction
with this transaction, American has arranged for backstop financing of the additional Boeing 737-800 aircraft
deliveries, subject to certain terms and conditions.
As of December 31, 2010, American had 15 Boeing 737-800 purchase commitments for 2011 and 28 Boeing 737-
800 purchase commitments in 2012 and in addition to those commitments, American had firm commitments for
eleven Boeing 737-800 aircraft and seven Boeing 777-200 aircraft scheduled to be delivered in 2013-2016. AMR
Eagle has firm commitments for 8 Bombardier CRJ-700 aircraft scheduled to be delivered in 2011. Payments for
the Company’s aircraft purchase commitments will approximate $884 million in 2011, $951 million in 2012, $491
million in 2013, $291 million in 2014, $169 million for 2015, and $79 million for 2016. These amounts are net of
purchase deposits currently held by the manufacturers.
On January 14, 2011, the Company entered into an amendment to Purchase Agreement No. 1980 with Boeing to
exercise rights to acquire two Boeing 777-300ER aircraft for delivery in 2012. The Company’s total purchase
commitments are expected to be approximately $2.8 billion as of the end of the first quarter 2011, reflecting this
transaction and aircraft purchase deposits paid during that period.