<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 June 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 X 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 August 7, 1998
The registrant meets the conditions set forth in, and is filing
this form with the reduced disclosure format prescribed by,
General Instructions I(1)(a) and I(1)(b) of Form 10-Q.
<PAGE> 2
INDEX
AMERICAN AIRLINES, INC.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Operations -- Three and six months ended
June 30, 1998 and 1997
Condensed Consolidated Balance Sheet -- June 30, 1998 and December
31, 1997
Condensed Consolidated Statement of Cash Flows -- Six months ended
June 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements -- June 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 STATEMENT OF OPERATIONS
(Unaudited) (In millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues
Passenger $3,789 $3,641 $7,367 $7,031
Cargo 166 172 328 334
Other 238 216 458 414
Total operating revenues 4,193 4,029 8,153 7,779
Expenses
Wages, salaries and
benefits 1,380 1,281 2,694 2,551
Aircraft fuel 391 456 793 959
Commissions to agents 305 312 590 610
Depreciation and
amortization 234 238 469 479
Maintenance, materials
and repairs 192 185 390 347
Other rentals and
landing fees 199 200 390 390
Food service 174 171 337 331
Aircraft rentals 133 133 266 265
Other operating expenses 635 609 1,278 1,204
Total operating expenses 3,643 3,585 7,207 7,136
Operating Income 550 444 946 643
Other Income (Expense)
Interest income 25 31 52 34
Interest expense (46) (51) (97) (103)
Interest capitalized 22 3 39 5
Related party interest -net (8) (25) (17) (44)
Miscellaneous - net (1) (6) (17) (11)
(8) (48) (40) (119)
Earnings Before Income Taxes 542 396 906 524
Income tax provision 211 156 354 210
Net Earnings $ 331 $ 240 $ 552 $ 314
</TABLE>
The accompanying notes are an integral part of these financial statements.
-1-
<PAGE> 4
AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited) (In millions)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
(Note 1)
<S> <C> <C>
Assets
Current Assets
Cash $ 88 $ 47
Short-term investments 1,714 1,762
Receivables, net 1,329 1,057
Inventories, net 568 555
Deferred income taxes 360 360
Other current assets 196 201
Total current assets 4,255 3,982
Equipment and Property
Flight equipment, net 7,689 7,790
Other equipment and property, net 1,249 1,232
Purchase deposits for flight equipment 1,084 695
10,022 9,717
Equipment and Property Under Capital Leases
Flight equipment, net 1,583 1,652
Other equipment and property, net 92 92
1,675 1,744
Route acquisition costs, net 930 945
Other assets, net 1,459 1,365
$ 18,341 $ 17,753
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 919 $ 855
Payable to affiliates 259 595
Accrued liabilities 1,695 1,720
Air traffic liability 2,280 2,044
Current maturities of long-term debt 28 21
Current obligations under capital leases 111 112
Total current liabilities 5,292 5,347
Long-term debt, less current maturities 916 937
Obligations under capital leases, less
current obligations 1,283 1,382
Deferred income taxes 1,137 999
Other liabilities, deferred gains,
deferred credits and postretirement benefits 3,812 3,734
Stockholders' Equity
Common stock - -
Additional paid-in capital 1,732 1,732
Retained earnings 4,169 3,622
5,901 5,354
$ 18,341 $17,753
</TABLE>
The accompanying notes are an integral part of these financial
statements.
-2-
<PAGE> 5
AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) (In millions)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
<S> <C> <C>
Net Cash Provided by Operating Activities $1,080 $ 798
Cash Flow from Investing Activities:
Capital expenditures, including purchase
deposits for flight equipment (818) (313)
Net decrease (increase) in short-term
investments 48 (358)
Proceeds from sale of equipment and
property 161 169
Net cash used for investing activities (609) (502)
Cash Flow from Financing Activities:
Payments on long-term debt and capital
lease obligations (94) (87)
Funds transferred to affiliates, net (336) (238)
Net cash used for financing activities (430) (325)
Net increase (decrease) in cash 41 (29)
Cash at beginning of period 47 37
Cash at end of period $ 88 $ 8
Cash Payments For:
Interest $ 96 $ 132
Income taxes 143 205
</TABLE>
The accompanying notes are an integral part of these financial
statements.
-3-
<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 June
30, 1998 and December 31, 1997, was $6.0 billion and $5.7 billion,
respectively. Accumulated amortization of equipment and property
under capital leases at June 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 August
14, 1998, the Company had commitments to acquire the following
aircraft: 100 Boeing 737-800s, 34 Boeing 777-200IGWs, 11 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 $600 million
during the remainder of 1998, $2.2 billion in 1999, $1.8 billion in
2000 and an aggregate of approximately $1.9 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 June 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
stockholders' 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 stockholders' equity, to be included in other
comprehensive income. During the second quarter of 1998 and 1997,
total comprehensive income was approximately $331 million and $241
million, respectively. Total comprehensive income for the six
months ended June 30, 1998 and 1997 was approximately $552 million
and $314 million, respectively.
Effective January 1, 1998, the Company adopted early 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 and organization costs 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 six
months ended June 30, 1998.
-4-
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
For the Six Months Ended June 30, 1998 and 1997
American recorded net earnings for the six months ended June 30, 1998
of $552 million. This compares to net earnings of $314 million for
the second quarter of 1997. American's operating income of $946
million increased 47.1 percent, or $303 million, compared to $643
million for the same period in 1997.
American's passenger revenues increased by 4.8 percent, or $336
million, primarily as a result of strong demand for air travel driven
by continual 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 13.82 cents increased by 3.4
percent compared to the same period in 1997. Domestic yields
increased 5.4 percent from the first six months of 1997.
International yields decreased 1.1 percent, reflecting a 5.3 percent
decrease in the Pacific and a 3.2 percent decrease in Latin America,
partially offset by a 1.7 percent increase in Europe. The decrease
in Pacific yields was primarily due to the weakness in Asian
economies and increased industry capacity. 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, while
the increase in European yields was partially attributable to the
cancellation of American's New York Kennedy - Zurich, New York -
Brussels and Miami - Frankfurt routes in 1997.
American's traffic or revenue passenger miles (RPMs) increased 1.3
percent to 53.3 billion miles for the six months ended June 30, 1998.
American's capacity or available seat miles (ASMs) increased 0.5
percent to 76.7 billion miles in the first six months of 1998.
American's domestic traffic increased 5.7 percent on capacity
increases of 0.2 percent and international traffic grew 2.7 percent
on capacity increases of 3.9 percent. The increase in international
traffic was driven by a 3.9 percent increase in traffic to Latin
America on capacity growth of 7.3 percent, a 5.6 percent increase in
traffic to the Pacific on growth of 11.5 percent and a 0.6 percent
increase in traffic on a capacity decrease of 1.1 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 six 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 four months during the same period in 1997.
American's other revenues increased $44 million, or 10.6 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 1.0 percent, or $71 million.
American's Jet Operations cost per ASM increased by 0.3 percent to
9.30 cents. Wages, salaries and benefits increased 5.6 percent, or
$143 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 17.3 percent, or $166
million, due to a 18.6 percent decrease in American's average price
per gallon, including taxes, partially offset by a 1.6 percent
increase in American's fuel consumption. Commissions to agents
decreased 3.3 percent, or $20 million, despite a 4.8 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 $43 million, or
12.4 percent, due primarily to higher volumes for both airframe and
engine maintenance at American's maintenance bases as a result of the
maturing of its fleet. Other operating expenses increased by $74
million, or 6.1 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 66.4 percent, or $79 million,
primarily due to a $34 million increase in capitalized interest on
aircraft purchase deposits and a decrease of $27 million in related
party interest - net due primarily to a decline in the balance of
American's intercompany balance with 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 August 14, 1998, the
Company had commitments to acquire the following aircraft: 100 Boeing
737-800s, 34 Boeing 777-200IGWs, 11 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 $600 million during the remainder of 1998,
$2.2 billion in 1999, $1.8 billion in 2000 and an aggregate of
approximately $1.9 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 its 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, 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 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 $90 million was incurred as of June
30, 1998. The Company expects to incur most of the remaining expenses
during the remainder 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.
-6-
<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. This settlement was codified by
Congress and became known as the Wright Amendment. 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 all
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 it has
an obligation to do so. American has joined in this litigation.
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. As a result of the foregoing,
the future of interstate flight operations at Love Field and
American's DFW hub is uncertain. To the extent that operations at
Love Field to new interstate destinations increase, American may be
compelled for competitive reasons to divert resources from DFW to Love
Field. A substantial diversion of resources could adversely impact
American's business.
Recently, American announced its intent to initiate limited
intrastate service to Austin from Love Field and has commenced
implementation of a business plan to start such service on August 31,
1998.
OTHER INFORMATION
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 competition at major hub airports, and in
April 1998, the Department of Transportation (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
guidelines 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.
-7-
<PAGE> 10
NEW ACCOUNTING PRONOUNCEMENTS
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 Companys 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.
The following factors, in addition to other possible factors not
listed, could cause the Company's actual results to differ materially
from those expressed in forward-looking statements: risks related to
the Company's Year 2000 and Euro currency compliance programs and
government regulations, including restrictions on competitive
practices (e.g., new regulations which would curtail an airlines
ability to respond to a competitor). 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.
-8-
<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 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 was served with a subpoena 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 subpoena and intends to cooperate fully
with the government's investigation.
-9-
<PAGE> 12
PART II
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
27 Financial Data Schedule
On April 15, 1998, American filed a report on Form 8-K relative to a
press release issued by the Company to announce that Robert L.
Crandall, Chairman, President and CEO of AMR and Chairman and CEO of
American, will retire from his affiliations with AMR and American
after the AMR annual meeting on May 20, 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: August 14, 1998 BY: /s/ Gerard J. Arpey
Gerard J. Arpey
Senior Vice President - Finance and
Chief Financial Officer
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 88
<SECURITIES> 1,714
<RECEIVABLES> 1,340
<ALLOWANCES> 11
<INVENTORY> 568
<CURRENT-ASSETS> 4,255
<PP&E> 17,822
<DEPRECIATION> 6,125
<TOTAL-ASSETS> 18,341
<CURRENT-LIABILITIES> 5,292
<BONDS> 2,199
0
0
<COMMON> 0
<OTHER-SE> 5,901
<TOTAL-LIABILITY-AND-EQUITY> 18,341
<SALES> 0
<TOTAL-REVENUES> 4,193
<CGS> 0
<TOTAL-COSTS> 3,643
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54
<INCOME-PRETAX> 542
<INCOME-TAX> 211
<INCOME-CONTINUING> 331
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 331
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
