American Airlines 2012 Annual Report Download - page 17

When our Chapter 11 Cases commenced, our cost structure was heavily driven by labor costs, pension obligations and existing levels of indebtedness. In our
Chapter 11 Cases, we have been able to substantially reduce our labor costs across employee groups and pension obligations, and significantly reduce and
restructure our indebtedness. Nevertheless, whether or not the Merger is consummated, when we emerge from our Chapter 11 Cases, we expect to have
significant debt, pension costs, lease and other obligations, including those related to aircraft acquisitions. Moreover, any actions outside the ordinary course
that are taken during our Chapter 11 Cases will be subject to Bankruptcy Court approval, and our ability to take these actions is not entirely within our
control. Whether or not the Merger is consummated, there is no guarantee that we will be able to successfully achieve the desired cost savings or meet our
planned continuing obligations. Failure to implement substantial cost savings could materially hamper our ability to operate profitably after emergence, and
could result in our inability to continue as a going concern.
If the Merger is not consummated, third parties may propose competing Chapter 11 plans of reorganization and we may receive unsolicited offers
for our Company or our assets.
Chapter 11 gives us the exclusive right to file a plan of reorganization during the first 120 days after filing for Chapter 11 reorganization. That period can be
extended for cause for up to a total of 18 months from the Petition Date, or until May 31, 2013, with approval of the Bankruptcy Court, subject to the ability
of third parties to file motions to terminate this exclusive right. While AMR intends to file its plan of reorganization during this so-called “exclusivity period,”
there can be no assurance that it will be able to do so. After the expiration of the exclusivity period, third parties can file one or more Chapter 11 plans for the
Debtors. Although the Merger Agreement contains restrictions on AMR's ability to negotiate with third parties unless and until the Merger Agreement is
terminated, after the exclusivity period is terminated, a third party could file an alternative plan of reorganization that contemplates AMR's continuing as a
going concern, AMR's being broken up, AMR's companies or their assets being acquired by a third party, AMR being merged with a competitor, or some other
proposal. We may not believe that such an alternative plan of reorganization is in our claimholders' best interests or fully values the benefits to be achieved by
our reorganization. If AMR cannot successfully obtain Bankruptcy Court approval of its plan of reorganization during the exclusivity period, AMR may have
limited ability to prevent an alternative plan of reorganization from being filed with and approved by the Bankruptcy Court.
AMR has not yet prepared or filed with the Bankruptcy Court a plan of reorganization for itself and its debtor subsidiaries, which we expect will provide for
approval of the Merger. AMR's current exclusivity period to file a plan of reorganization extends through and including April 15, 2013, subject to the ability of
third parties to file motions to terminate our exclusivity period. If AMR files a plan of reorganization on or prior to such date, AMR will have an exclusive
period to solicit and obtain acceptances of such plan of reorganization through and including June 17, 2013.
An unsolicited proposal or alternative plan of reorganization could potentially delay our emergence from our Chapter 11 Cases and expose us to a number of
other risks, including potential limitations on our ability to execute our desired plan of reorganization; difficulties in hiring, retaining and motivating key
personnel; negative reactions among our employees, vendors, strategic partners and service providers; a failure to provide stakeholders full value for the
benefits that could be achieved by the Company post-emergence pursuant to our desired plan of reorganization; and unease and uncertainty among our
customer base. In addition, any potential alternative transaction proposed while our Chapter 11 Cases are pending would be expressly subject to Bankruptcy
Code requirements and Bankruptcy Court approval.
We may be subject to claims that will not be discharged in our Chapter 11 Cases.
The Bankruptcy Code provides that the confirmation of a plan of reorganization discharges a debtor from substantially all debts arising prior to confirmation.
As of February 13, 2013, approximately 13,366 claims totaling about $290.0 billion have been filed with the Bankruptcy Court against AMR and the debtor
subsidiaries. Of those claims, approximately 350 claims aggregating approximately $59 million were filed after the Bar Date. We expect new and amended
claims to be filed in the future, including claims amended to assign values to claims originally filed with no designated value. We have identified, and we
expect to continue to identify, many claims that we believe should be disallowed by the Bankruptcy Court because they are duplicative, are without merit, are
overstated or for other reasons, including that the claims were filed after the Bar Date. As of February 13, 2013, the Bankruptcy Court has disallowed
approximately $100.2 billion of claims and has not yet ruled on AMR's other objections to claims, the disputed portions of which aggregate to an additional
$14.8 billion. We expect to continue to file objections in the future. With few exceptions, all claims that arose prior to the filing of our Chapter 11 Cases (i) will
be subject to compromise and/or treatment under the plan of reorganization or (ii) will be discharged in accordance with the Bankruptcy Code and the terms of
the plan of reorganization. However, there can be no assurance that the aggregate amount of such claims that are not subject to treatment under the plan of
reorganization or that are not discharged will not be material.
Our historical consolidated financial information will likely not be comparable to financial information for future periods.
During the course of our Chapter 11 Cases, our financial results may be volatile as asset impairments, asset dispositions, bankruptcy professional fees,
contract terminations and rejections and claims assessments, among other things, could significantly impact our consolidated financial statements. Upon
emergence from our Chapter 11 Cases, the amounts reported in our subsequent consolidated
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