American Airlines 2010 Annual Report Download - page 67

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64
3. Investments and Fair Value Measurements (Continued)
2 The majority of the Company’s short-term investments mature in one year or less except for $467 million of
Bank notes/Certificates of deposit/Time deposits, $605 million of U.S. Government agency investments and
$647 million of Corporate obligations which have maturity dates exceeding one year.
No significant transfers between Level 1 and Level 2 occurred during the year ended December 31, 2010.
The Company’s policy regarding the recording of transfers between levels is to record any such transfers at
the end of the reporting period.
4. Commitments, Contingencies and Guarantees
As of December 31, 2010, American had 15 Boeing 737-800 aircraft purchase commitments in 2011 and 28
Boeing 737-800 aircraft purchase commitments in 2012 and, in addition to those commitments, American had firm
purchase commitments for eleven Boeing 737-800 aircraft and seven Boeing 777 aircraft scheduled to be
delivered in 2013 through 2016. American also previously announced plans (subject to certain reconfirmation
rights) to acquire 42 Boeing 787-9 aircraft, with the right to acquire an additional 58 Boeing 787-9 aircraft.
American has selected GE Aviation as the exclusive provider of engines for its expected order of Boeing 787-9
aircraft. As of December 31, 2010, AMR Eagle had firm purchase commitments for 8 Bombardier CRJ-700 aircraft
scheduled to be delivered in 2011.
As of December 31, 2010, payments for the above purchase commitments will approximate $884 million in 2011,
$951 million in 2012, $491 million in 2013, $291 million in 2014, $169 million in 2015 and $79 million for 2016.
These amounts are net of purchase deposits currently held by the manufacturers. American has granted Boeing
a security interest in American’s purchase deposits with Boeing. The Company’s purchase deposits totaled $375
million and $639 million at December 31, 2010 and 2009, respectively.
On January 14, 2011, the Company entered into an amendment to Purchase Agreement No. 1980 with the
Boeing Company 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 at the end of the first
quarter 2011, reflecting this transaction and aircraft purchase deposits paid during that period.
On December 18, 2007, the European Commission issued a Statement of Objection (SO) against 26 airlines,
including the Company. The SO alleges that these carriers participated in a conspiracy to set surcharges on
cargo shipments in violation of European Union (EU) law. During 2010 the EU notified the Company it was
dismissing its investigation against the Company.
On August 26, 2010, the Federal Aviation Administration (FAA) proposed a $24.2 million civil penalty against
American, claiming that American failed to properly perform certain portions of an FAA Airworthiness Directive
concerning certain wiring to the McDonnell Douglas MD-80 aircraft auxiliary hydraulic pump. American plans to
challenge the proposed civil penalty. The Company has concluded that the amount of the penalty, if any, that
may be paid is not estimable at December 31, 2010.
The Company has contracts related to facility construction or improvement projects, primarily at airport locations.
The contractual obligations related to these projects totaled approximately $73 million as of December 31, 2010.
The Company expects to make payments of $60 million and $5 million in 2011 and 2012, respectively. In
addition, the Company has an information technology support related contract that requires minimum annual
payments of $100 million in 2011 and declining to $70 million in 2014 through 2019.
American has a capacity purchase agreement with Chautauqua Airlines, Inc. to provide Embraer -140 regional jet
services to certain markets under the brand AmericanConnection®. Under these arrangements, the Company
pays the AmericanConnection® carrier a fee per block hour to operate the aircraft. The block hour fees are
designed to cover the AmericanConnection® carrier’s fully allocated costs plus a margin. Assumptions for certain
costs such as fuel, landing fees, insurance, and aircraft ownership are trued up to actual values on a pass through
basis. In consideration for these payments, the Company retains all passenger and other revenues resulting from
the operation of the AmericanConnection® regional jets. Minimum payments under the contracts are $56 million
in 2011 and $15 million in 2012. In addition, if the Company terminates the Chautauqua contract without cause,
Chautauqua has the right to put its 15 Embraer aircraft to the Company. If this were to happen, the Company
would take possession of the aircraft and become liable for lease obligations totaling approximately $21 million per
year with lease expirations in 2018 and 2019.