<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1998.
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From to
.
Commission file number 1-2691.
American Airlines, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-1502798
(State or other (I.R.S. Employer
jurisdiction Identification No.)
of incorporation or
organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, (817) 963-1234
including area code
Not Applicable
(Former name, former address and former fiscal year , if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No .
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock, $1 par value - 1,000 shares as of November 6, 1998
The registrant meets the conditions set forth in, and is filing
this form with the reduced disclosure format prescribed by,
General Instructions H(1)(a) and (b) of Form 10-Q.
<PAGE> 2
INDEX
AMERICAN AIRLINES, INC.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -- Three and nine months
ended September 30, 1998 and 1997
Condensed Consolidated Balance Sheets -- September 30, 1998 and
December 31, 1997
Condensed Consolidated Statements of Cash Flows -- Nine months
ended September 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements -- September
30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
<PAGE> 3
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In millions)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues
Passenger $3,871 $3,713 $11,238 $10,744
Cargo 157 167 485 501
Other 244 227 702 641
Total operating revernues 4,272 4,107 12,425 11,886
Expenses
Wages, salaries and
benefits 1,376 1,314 4,070 3,865
Aircraft fuel 387 452 1,180 1,411
Commissions to agents 292 314 882 924
Depreciation and
amortization 239 237 708 716
Maintenance, materials
and repairs 216 193 606 540
Other rentals and
landing fees 206 202 596 592
Food service 183 175 520 506
Aircraft rentals 133 133 399 398
Other operating expenses 682 618 1,960 1,822
Total operating expenses 3,714 3,638 10,921 10,774
Operating Income 558 469 1,504 1,112
Other Income (Expense)
Interest income 29 35 81 69
Interest expense (50) (50) (147) (153)
Interest capitalized 27 4 66 9
Related party interest-net (1) (20) (18) (64)
Miscellaneous - net 1 (4) (16) (15)
6 (35) (34) (154)
Earnings Before Income Taxes 564 434 1,470 958
Income tax provision 218 168 572 378
Net Earnings $ 346 $ 266 $ 898 $ 580
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 4
AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Note 1)
<S> <C> <C>
Assets
Current Assets
Cash $ 66 $ 47
Short-term investments 1,679 1,762
Receivables, net 1,359 1,057
Receivable from affiliates 465 -
Inventories, net 531 555
Deferred income taxes 358 360
Other current assets 170 201
Total current assets 4,628 3,982
Equipment and Property
Flight equipment, net 7,744 7,790
Other equipment and property, net 1,251 1,232
Purchase deposits for flight equipment 1,330 695
10,325 9,717
Equipment and Property Under Capital Leases
Flight equipment, net 1,631 1,652
Other equipment and property, net 94 92
1,725 1,744
Route acquisition costs, net 923 945
Other assets, net 1,397 1,365
$ 18,998 $ 17,753
Liabilities and Stockholder's Equity
Current Liabilities
Accounts payable $ 1,079 $ 855
Payable to affiliates - 595
Accrued liabilities 1,897 1,720
Air traffic liability 2,268 2,044
Current maturities of long-term debt 22 21
Current obligations under capital leases 116 112
Total current liabilities 5,382 5,347
Long-term debt, less current maturities 909 937
Obligations under capital leases,
less current obligations 1,362 1,382
Deferred income taxes 1,225 999
Other liabilities, deferred gains,
deferred credits and
postretirement benefits 3,871 3,734
Stockholder's Equity
Common stock - -
Additional paid-in capital 1,732 1,732
Retained earnings 4,517 3,622
6,249 5,354
$ 18,998 $ 17,753
</TABLE>
The accompanying notes are an integral part of these financial
statements.
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AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
<S> <C> <C>
Net Cash Provided by Operating Activities $ 2,231 $ 1,917
Cash Flow from Investing Activities:
Capital expenditures, including purchase
deposits for flight equipment (1,393) (410)
Net decrease (increase) in short-term
investments 83 (1,009)
Proceeds from sale of equipment
and property 178 173
Net cash used for investing activities (1,132) (1,246)
Cash Flow from Financing Activities:
Payments on long-term debt and capital
lease obligations (128) (139)
Sale-leaseback transactions 108 -
Funds transferred to affiliates, net (1,060) (556)
Net cash used for financing activities (1,080) (695)
Net increase (decrease) in cash 19 (24)
Cash at beginning of period 47 37
Cash at end of period $ 66 $ 13
Cash Payments For:
Interest $ 128 $ 239
Income taxes 161 226
Financing Activities Not Affecting Cash:
Capital lease obligations incurred $ 108 $ -
</TABLE>
The accompanying notes are an integral part of these financial
statements.
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<PAGE> 6
AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, these
financial statements contain all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial
position, results of operations and cash flows for the periods
indicated. Results of operations for the periods presented herein
are not necessarily indicative of results of operations for the
entire year. The balance sheet at December 31, 1997 has been
derived from the audited financial statements at that date. For
further information, refer to the consolidated financial statements
and footnotes thereto included in the American Airlines, Inc.
(American or the Company) Annual Report on Form 10-K for the year
ended December 31, 1997.
2.Accumulated depreciation of owned equipment and property at
September 30, 1998 and December 31, 1997, was $6.2 billion and $5.7
billion, respectively. Accumulated amortization of equipment and
property under capital leases at September 30, 1998 and December
31, 1997, was $1.0 billion and $965 million, respectively.
3.The Miami International Airport Authority is currently remediating
various environmental conditions at Miami International Airport
(Airport) and funding the remediation costs through landing fee
revenues. Future costs of the remediation effort may be borne by
carriers operating at the Airport, including American, through
increased landing fees and/or other charges. The ultimate
resolution of this matter is not expected to have a significant
impact on the financial position or liquidity of American.
4.During 1998, the Company exercised its purchase rights to
acquire 25 Boeing 737-800s and 23 Boeing 777-200IGWs. As of
November 16, 1998, the Company had commitments to acquire the
following aircraft: 100 Boeing 737-800s, 34 Boeing 777-200IGWs,
seven Boeing 757-200s and four Boeing 767-300ERs. Deliveries of
these aircraft will occur during the remainder of 1998 and will
continue through 2004. Payments for these aircraft will
approximate $150 million during the remainder of 1998, $2.2 billion
in 1999, $1.7 billion in 2000 and an aggregate of approximately
$1.8 billion in 2001 through 2004. The exercise of these aircraft
purchase rights will allow the Company to continue the retirement
of its Boeing 727-200 and McDonnell Douglas DC-10 fleets, which the
Company anticipates to be complete by 2004, as well as to provide
for modest growth.
5.In March 1998, the Company exercised its option to sell seven MD-11
aircraft to Federal Express Corporation (FedEx), thereby committing
to sell its entire MD-11 fleet to FedEx. Eight aircraft have been
delivered as of September 30, 1998. The remaining 11 aircraft will
be delivered to FedEx between 1999 and 2003.
6.As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130). SFAS 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the
adoption of SFAS 130 had no impact on the Company's net income or
stockholder's equity. SFAS 130 requires unrealized gains or losses
on the Company's available-for-sale securities and changes in
minimum pension liabilities, which prior to adoption were reported
separately in stockholder's equity, to be included in other
comprehensive income. During the third quarter of 1998 and 1997,
total comprehensive income was approximately $348 million and $267
million, respectively. Total comprehensive income for the nine
months ended September 30, 1998 and 1997 was approximately $900
million and $582 million, respectively.
Effective January 1, 1998, the Company adopted the provisions of
Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities," (SOP 98-5). SOP 98-5 requires costs of start-up
activities to be expensed as incurred. The adoption of SOP 98-5
did not have a material impact on the Company's financial position
or results of operations for the three or nine months ended
September 30, 1998.
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<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
For the Nine Months Ended September 30, 1998 and 1997
American recorded net earnings for the nine months ended September
30, 1998 of $898 million. This compares to net earnings of $580
million for the third quarter of 1997. American's operating income
of $1.5 billion increased 35.3 percent, or $392 million, compared to
$1.1 billion for the same period in 1997.
American's passenger revenues increased by 4.6 percent, or $494
million, primarily as a result of strong demand for air travel driven
by continued economic growth in the U.S. and Europe and a healthy
pricing environment. American's yield (the average amount one
passenger pays to fly one mile) of 13.63 cents increased by 2.9
percent compared to the same period in 1997. Domestic yields
increased 5.6 percent from the first nine months of 1997.
International yields decreased 2.8 percent, reflecting an 8.2 percent
decrease in the Pacific and a 4.4 percent decrease in Latin America.
The decrease in Pacific yields was primarily due to the weakness in
Asian economies and increased industry capacity while the decrease in
Latin America was due primarily to an increase in industry capacity
in Central and South America and a decline in economic conditions.
American's traffic or revenue passenger miles (RPMs) increased 1.6
percent to 82.4 billion miles for the nine months ended September 30,
1998. American's capacity or available seat miles (ASMs) increased
0.7 percent to 116.5 billion miles in the first nine months of 1998.
American's domestic traffic increased 0.4 percent on a capacity
decrease of 1.6 percent and international traffic grew 4.6 percent on
capacity increases of 6.1 percent. The increase in international
traffic was driven by a 16.4 percent increase in traffic to the
Pacific on capacity growth of 23.1 percent, a 6.1 percent increase in
traffic to Latin America on growth of 8.6 percent and a 1.2 percent
increase in traffic on capacity growth of 0.4 percent in Europe.
American's yield and traffic were both negatively impacted in 1997 by
the effects of the pilot contract negotiations throughout the first
three months of 1997. During the first nine months of 1998,
American's yield and traffic were adversely impacted by the
imposition of the transportation tax for the entire period compared
to slightly less than seven months during the same period in 1997.
American's other revenues increased $61 million, or 9.5 percent,
primarily as a result of an increase in aircraft maintenance work
performed by American for other airlines and increased administrative
and employee travel service charges and service contracts.
American's operating expenses increased 1.4 percent, or $147 million.
American's Jet Operations cost per ASM increased by 0.4 percent to
9.27 cents. Wages, salaries and benefits increased 5.3 percent, or
$205 million, primarily due to an increase in the average number of
equivalent employees, contractual wage rate and seniority increases
that are built into the Company's labor contracts and an increase in
the provision for profit sharing. The increased headcount is due
primarily to increased volumes of work at American's maintenance
bases and increases associated with American's flight dependability
initiatives. Aircraft fuel expense decreased 16.4 percent, or $231
million, due to a 17.9 percent decrease in American's average price
per gallon, including taxes, partially offset by a 1.8 percent
increase in American's fuel consumption. Commissions to agents
decreased 4.5 percent, or $42 million, despite a 4.6 percent increase
in passenger revenues, due to the continued benefit from the
commission rate reduction initiated during September 1997.
Maintenance, materials and repairs expense increased $66 million, or
12.2 percent, due primarily to higher airframe and engine maintenance
at American's maintenance bases as a result of the maturing of its
fleet. Other operating expenses increased by $138 million, or 7.6
percent, primarily related to spending on the Company's Year 2000
compliance program and higher costs, such as credit card fees,
resulting from higher passenger revenues.
Other Income (Expense) decreased 77.9 percent, or $120 million,
primarily due to a $57 million increase in capitalized interest on
aircraft purchase deposits and a decrease of $46 million in related
party interest - net due primarily to a decline in the balance of
American's intercompany balance with its parent company, AMR
Corporation (AMR).
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<PAGE> 8
AIRCRAFT COMMITMENTS
During 1998, the Company exercised its purchase rights to acquire 25
Boeing 737-800s and 23 Boeing 777-200IGWs. As of November 16, 1998,
the Company had commitments to acquire the following aircraft: 100
Boeing 737-800s, 34 Boeing 777-200IGWs, seven Boeing 757-200s and
four Boeing 767-300ERs. Deliveries of these aircraft will occur
during the remainder of 1998 and will continue through 2004.
Payments for these aircraft will approximate $150 million during the
remainder of 1998, $2.2 billion in 1999, $1.7 billion in 2000 and an
aggregate of approximately $1.8 billion in 2001 through 2004. The
exercise of these aircraft purchase rights will allow the Company to
continue the retirement of its Boeing 727-200 and McDonnell Douglas
DC-10 fleets, which the Company anticipates to be complete by 2004,
as well as to provide for modest growth. While the Company expects
to fund the majority of these capital expenditures from the Company's
existing cash balance and internally generated cash, some new
financing may be raised depending upon capital market conditions and
the Company's evolving view of its long-term needs.
YEAR 2000 COMPLIANCE
The Company has implemented a Year 2000 compliance program designed
to ensure that the Company's computer systems and applications and
embedded operating systems will function properly beyond 1999. The
SABRE Group, a majority owned subsidiary of AMR, which operates and
maintains substantially all of the computer systems and applications
utilized by the Company, has also implemented a Year 2000 compliance
program. Substantially all of the Company's core systems are either
completed or in the final testing phases of the Year 2000 project.
The Company and The SABRE Group expect their Year 2000 projects to be
substantially completed in the first quarter of 1999 and believe they
have allocated adequate resources to meet this goal. However, there
can be no assurance that the systems of other parties (e.g., Federal
Aviation Administration, Department of Transportation, airport
authorities, data providers) upon which the Company's businesses also
rely will be Year 2000 compliant on a timely basis. The Company's
business, financial condition, or results of operations could be
materially adversely affected by the failure of its systems and
applications or those operated by other parties to properly operate
or manage dates beyond 1999. The Company is currently evaluating
responses from and addressing issues with significant vendors to
determine the extent to which the Company's systems are vulnerable to
those third parties which fail to remedy their own Year 2000 issues.
The Company is developing contingency plans designed to enable it to
continue operations, even in the event of certain third party
failures, to the extent that such operations can be conducted safely.
The Company expects to incur significant costs from The SABRE
Group, internal staff costs and consulting and other expenses related
to infrastructure and facilities enhancements necessary to prepare its
system for the Year 2000. The Company's total estimated cost of the
Year 2000 compliance program is approximately $125 million to $160
million, of which approximately $101 million was incurred as of
September 30, 1998. The Company expects to have incurred most of the
expenses related to its Year 2000 compliance program by the end of
1998. A significant portion of these costs are not likely to be
incremental costs to the Company, but rather will represent the
redeployment of current information technology spending. Maintenance
or modification costs associated with making existing computer systems
Year 2000 compliant are expensed as incurred and are funded through
cash from operations.
The expected costs and completion dates for the Year 2000 project
are forward-looking statements based on management's best estimates,
which were derived utilizing numerous assumptions of future events
including the continued availability of resources, third party
modification plans and other factors. Actual results could differ
materially from these estimates as a result of factors such as the
availability and cost of trained personnel, the ability to locate and
correct all relevant computer codes and similar uncertainties.
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<PAGE> 9
NEW EUROPEAN CURRENCY
In January 1999, certain European countries are scheduled to
introduce a new currency unit called the "euro". The Company has
implemented a project intended to ensure that software systems
operated by the Company's businesses are designed to properly handle
the euro. The SABRE Group, which operates and maintains
substantially all of the software systems utilized by the Company,
has also implemented a euro project. The Company and The SABRE Group
expect their euro projects to be substantially completed by the
fourth quarter of 1998 and believe they have allocated adequate
resources to meet this goal. The Company estimates that the
introduction of the euro, including the total cost for the euro
project, will not have a material effect on the Company's business,
financial condition, or results of operations. Costs associated with
the euro project will be expensed as incurred and will be funded
through cash from operations. Statements related to the Company's
euro project are forward-looking statements that are based on
management's best estimates. Actual results could differ materially
from these estimates.
DALLAS LOVE FIELD
In 1968, as part of an agreement between the cities of Fort Worth and
Dallas to build and operate Dallas/Fort Worth Airport (DFW), a bond
ordinance was enacted by both cities (the Bond Ordinance). The Bond
Ordinance required both cities to direct all scheduled interstate
passenger operations to DFW and was an integral part of the bonds
issued for the construction and operation of DFW. In 1979, as part of
a settlement to resolve litigation with Southwest Airlines, the cities
agreed to expand the scope of operations allowed under the Bond
Ordinance at Dallas' Love Field. Congress enacted the Wright
Amendment to prevent the federal government from acting inconsistent
with this agreement. The Wright Amendment limited interstate
operations at Love Field to the four states contiguous to Texas (New
Mexico, Oklahoma, Arkansas and Louisiana) and prohibited through
ticketing to any destination outside that perimeter. In 1997, without
the consent of either city, Congress amended the Wright Amendment by
(i) adding three states (Kansas, Mississippi and Alabama) to the
perimeter and (ii) removing some federal restrictions on large
aircraft configured with 56 seats or less (the 1997 Amendment). In
October 1997, the City of Fort Worth filed suit in state district
court against the City of Dallas and others seeking to enforce the
Bond Ordinance. Fort Worth contends that the 1997 Amendment does not
preclude the City of Dallas from exercising its proprietary rights to
restrict traffic at Love Field in a manner consistent with the Bond
Ordinance and, moreover, that Dallas has an obligation to do so.
American has joined in this litigation. In the same lawsuit, DFW
filed claims alleging that irrespective of whether the Bond Ordinance
is enforceable, the DFW Use Agreement prohibits American and other DFW
signatory airlines from moving any interstate operations to Love
Field. Thereafter, Dallas filed a separate declaratory judgment
action in federal district court seeking to have the court declare
that, as a matter of law, the 1997 Amendment precludes Dallas from
exercising any restrictions on operations at Love Field. Further, in
May 1998, Continental Airlines and Continental Express filed a lawsuit
in federal court seeking a judicial declaration that the Bond
Ordinance cannot be enforced to prevent them from operating flights
from Love Field to Cleveland using regional jets. In August 1998, the
Department of Transportation (DOT) initiated its own proceeding
intending to address federal law questions concerning the Bond
Ordinance, local proprietary powers, DFW's Use Agreement with DFW
carriers such as American, and the Wright and 1997 Amendments.
As a result of the foregoing, the future of interstate flight
operations at Love Field and American's DFW hub are uncertain. An
increase in operations at Love Field to new interstate destinations
could adversely impact American's business.
Recently, American initiated limited intrastate service to Austin
from Love Field.
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<PAGE> 10
OTHER INFORMATION
During the fourth quarter of 1998, the Company announced that it will
reduce its planned growth for 1999 by retiring an additional
eight McDonnell Douglas DC-10-10 and two additional Boeing 727-200
aircraft earlier than anticipated, for a total of 16 jet aircraft to
be retired in 1999. The 10 incremental aircraft retirements will save
the Company approximately $40 million during the next three years in
aircraft maintenance and modification costs.
Several items of legislation have been introduced in Congress that
would, if enacted; (i) authorize the withdrawal of slots from major
carriers -- including American -- at key airports for redistribution
to new entrants and smaller carriers and/or (ii) provide financial
assistance, in the form of guarantees and/or subsidized loans, to
smaller carriers for aircraft purchases. In addition, the Department
of Justice is investigating the competitive practices of major
carriers at major hub airports, including American's practices at
DFW. Also, in April 1998, DOT issued proposed pricing and capacity
rules that would severely limit major carriers' ability to compete
with new entrant carriers. The outcomes of the proposed legislation,
the investigations and the proposed DOT rules are unknown. However,
to the extent that (i) slots are taken from American at key airports,
(ii) restrictions are imposed upon American's ability to respond to a
competitor, or (iii) competitors have a financial advantage in the
purchase of aircraft because of federal assistance, American's
business may be adversely impacted.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) No. 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal
Use", effective for fiscal years beginning after December 15, 1998.
The adoption of SOP 98-1 is not expected to have a material impact on
the Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS
133), which is required to be adopted in years beginning after June
15, 1999. SFAS 133 permits early adoption as of the beginning of any
fiscal quarter after its issuance. SFAS 133 will require the Company
to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature
of the hedge, changes in the fair value of derivatives will either be
offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in
other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings. The Company is
currently evaluating the impact of SFAS 133; however, based on
current market conditions, SFAS 133 is not expected to have a
material impact on the Company's financial condition or results of
operations.
FORWARD-LOOKING INFORMATION
Statements in this report contain various forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which represent the Company's expectations or beliefs
concerning future events. When used in this report, the words
"expects," "plans," "anticipates," and similar expressions are
intended to identify forward-looking statements. All forward-looking
statements in this report are based upon information available to the
Company on the date of this report. The Company undertakes no
obligation to publicly update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.
Forward-looking statements are subject to a number of factors that
could cause actual results to differ materially from our expectations.
Additional information concerning these and other factors is contained
in the Company's Securities and Exchange Commission filings, included
but not limited to the Form 10-K for the year ended December 31, 1997.
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<PAGE> 11
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
In January 1985, American announced a new fare category, the "Ultimate
SuperSaver," a discount, advance purchase fare that carried a 25
percent penalty upon cancellation. On December 30, 1985, a class
action lawsuit was filed in Circuit Court, Cook County, Illinois
entitled Johnson vs. American Airlines, Inc. The Johnson plaintiff
alleges that the 10 percent federal excise transportation tax should
have been excluded from the "fare" upon which the 25 percent penalty
was assessed. Summary judgment was granted in favor of American but
subsequently reversed and vacated by the Illinois Appellate Court. In
August 1997, the Court denied the plaintiffs' motion for class
certification. American is vigorously defending the lawsuit.
In connection with its frequent flyer program, American was sued in
two cases (Wolens et al v. American Airlines, Inc. and Tucker v.
American Airlines, Inc.) seeking class action certification that were
consolidated and are currently pending in the Circuit Court of Cook
County, Illinois. The litigation arises from certain changes made to
American's AAdvantage frequent flyer program in May 1988 which limited
the number of seats available to participants traveling on certain
awards and established blackout dates during which no AAdvantage seats
would be available for certain awards. In the consolidated action,
the plaintiffs allege that these changes breached American's contract
with AAdvantage members, seek money damages for the alleged breach and
attorney's fees and seek to represent all persons who joined the
AAdvantage program before May 1988 and accrued mileage credits before
the seat limitations were introduced. The complaint originally
asserted several state law claims, however only the plaintiffs' breach
of contract claim remains after the U. S. Supreme Court ruled that
federal law preempted the other claims. Although the case has been
pending for numerous years, it still is in its preliminary stages.
The court has not ruled as to whether the case should be certified as
a class action. American is vigorously defending the lawsuit.
Gutterman et al. v. American Airlines, Inc. is also pending in the
Circuit Court of Cook County, Illinois, arising from an announced
increase in AAdvantage mileage credits required for free travel. In
December 1993, American announced that the number of miles required to
claim a certain travel award under American's AAdvantage frequent
flyer program would be increased effective February 1, 1995, giving
rise to the Gutterman litigation filed on that same date. The
Gutterman plaintiffs claim that the announced increase in award
mileage level violated the terms and conditions of the agreement
between American and AAdvantage members. On June 23, 1998, the Court
certified the case as a class action although to date no notice has
been sent to the class. The class consists of all members who earned
miles between January 1, 1992 (the date the change was announced) and
February 1, 1995 (the date the change was made). On July 13, 1998,
the Court denied American's motion for summary judgment as to the
claims brought by plaintiff Steven Gutterman. On July 30, 1998, the
plaintiffs filed a motion for summary judgment as to liability.
American is vigorously defending the lawsuit.
A federal grand jury in Miami is investigating whether American
handled hazardous materials and processed courier shipments, cargo and
excess baggage in accordance with applicable laws and regulations. In
connection with this investigation, federal agents executed a search
warrant at American's Miami facilities on October 22, 1997. In
addition, American has been served with two subpoenas calling for the
production of documents relating to the handling of courier shipments,
cargo, excess baggage and hazardous materials. American has produced
documents responsive to the subpoenas and intends to cooperate fully
with the government's investigation.
On August 7, 1998, a purported class action was filed against
American Airlines in state court in Travis County, Texas (Boon Ins.
Agency v. American Airlines, Inc., et al.) claiming that the $75
reissuance fee for changes to non-refundable tickets is an
unenforceable liquidated damages clause and seeking a refund of the
fee on behalf of all passengers who paid it, as well as interest and
attorneys' fees. On September 23, 1998, Continental, Delta and
America West were added as defendants to the lawsuit. To date, no
discovery has been taken and no class has been certified. American
intends to vigorously defend this lawsuit.
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<PAGE> 12
PART II
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
27 Financial Data Schedule
The Company did not file any reports on Form 8-K during the three
months ended September 30, 1998.
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<PAGE> 13
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AMERICAN AIRLINES, INC.
Date: November 16, 1998 BY: /s/ Gerard J. Arpey
Gerard J. Arpey
Senior Vice President - Finance and
Planning and Chief Financial Officer
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
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