American Airlines 2010 Annual Report Download - page 39

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Certain of the Company’s debt financing agreements contain loan to value ratio covenants and require the
Company to periodically appraise the collateral. Pursuant to such agreements, if the loan to value ratio exceeds a
specified threshold, the Company may be required to subject additional qualifying collateral (which in some cases
may include cash collateral) or, in the alternative, to pay down such financing, in whole or in part, with premium (if
any).
Compensation On January 18, 2011, the Company approved the 2011 Annual Incentive Plan (AIP) for
American. All U.S. based employees of American are eligible to participate in the AIP. The AIP is American's
annual bonus plan and provides for the payment of awards in the event certain financial and/or customer service
metrics are satisfied.
Working Capital AMR (principally American) historically operates with a working capital deficit, as do most other
airline companies. In addition, the Company has historically relied heavily on external financing to fund capital
expenditures. More recently, the Company has also relied on external financing to fund operating losses,
employee pension obligations and debt maturities.
Off Balance Sheet Arrangements American has determined that it holds a significant variable interest in, but is
not the primary beneficiary of, certain trusts that are the lessors under 83 of its aircraft operating leases. These
leases contain a fixed price purchase option, which allows American to purchase the aircraft at a predetermined
price on a specified date. However, American does not guarantee the residual value of the aircraft. As of
December 31, 2010, future lease payments required under these leases totaled $1.1 billion.
Certain special facility revenue bonds have been issued by certain municipalities primarily to purchase equipment
and improve airport facilities that are leased by American and accounted for as operating leases. Approximately
$1.5 billion of these bonds (with total future payments of approximately $3.2 billion as of December 31, 2010) are
guaranteed by American, AMR, or both. Approximately $177 million of these special facility revenue bonds
contain mandatory tender provisions that require American to make operating lease payments sufficient to
repurchase the bonds at various times: $112 million in 2014 and $65 million in 2015. Although American has the
right to remarket the bonds, there can be no assurance that these bonds will be successfully remarketed. Any
payments to redeem or purchase bonds that are not remarketed would generally reduce existing rent leveling
accruals or are considered prepaid facility rentals and would reduce future operating lease commitments.
In addition, the Company had other operating leases, primarily for aircraft and airport facilities, with total future
lease payments of $6.5 billion as of December 31, 2010. Entering into aircraft leases allows the Company to
obtain aircraft without immediate cash outflows.