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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, 2000.
[ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Transition Period From to .
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Commission file number 1-2691.
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AMERICAN AIRLINES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-1502798
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 963-1234
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Not Applicable
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(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 .
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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 July 25, 2000
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.
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INDEX
AMERICAN AIRLINES, INC.
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -- Three and six months ended
June 30, 2000 and 1999
Condensed Consolidated Balance Sheets -- June 30, 2000 and
December 31, 1999
Condensed Consolidated Statements of Cash Flows -- Six months ended
June 30, 2000 and 1999
Notes to Condensed Consolidated Financial Statements -- June 30, 2000
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Part II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In millions, except per share amounts)
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<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
Passenger $ 4,186 $ 3,751 $ 7,956 $ 7,071
Cargo 177 162 343 305
Other 247 264 513 510
---------- ---------- ---------- ----------
Total operating revenues 4,610 4,177 8,812 7,886
EXPENSES
Wages, salaries and benefits 1,570 1,466 3,084 2,849
Aircraft fuel 539 395 1,066 731
Depreciation and amortization 261 240 517 466
Commissions to agents 256 279 498 551
Other rentals and landing fees 237 222 453 433
Maintenance, materials and repairs 224 180 446 398
Food service 197 183 379 348
Aircraft rentals 140 148 280 298
Other operating expenses 715 700 1,432 1,421
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Total operating expenses 4,139 3,813 8,155 7,495
---------- ---------- ---------- ----------
OPERATING INCOME 471 364 657 391
OTHER INCOME (EXPENSE)
Interest income 34 11 64 29
Interest expense (69) (52) (139) (103)
Interest capitalized 33 27 69 58
Related party interest - net 1 14 6 25
Miscellaneous - net 54 (7) 48 24
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53 (7) 48 33
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EARNINGS BEFORE INCOME TAXES 524 357 705 424
Income tax provision 200 141 276 173
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NET EARNINGS $ 324 $ 216 $ 429 $ 251
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In millions)
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<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 127 $ 72
Short-term investments 2,205 1,645
Receivables, net 1,420 1,124
Receivable from affiliates, net 355 651
Inventories, net 609 616
Deferred income taxes 597 597
Other current assets 206 176
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Total current assets 5,519 4,881
EQUIPMENT AND PROPERTY
Flight equipment, net 11,081 9,916
Other equipment and property, net 1,470 1,383
Purchase deposits for flight equipment 1,382 1,495
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13,933 12,794
EQUIPMENT AND PROPERTY UNDER CAPITAL LEASES
Flight equipment, net 1,573 1,623
Other equipment and property, net 98 98
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1,671 1,721
Route acquisition costs, net 872 887
Other assets, net 1,432 1,436
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$ 23,427 $ 21,719
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,206 $ 991
Accrued liabilities 1,959 1,790
Air traffic liability 2,977 2,255
Current maturities of long-term debt 113 61
Current obligations under capital leases 222 210
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Total current liabilities 6,477 5,307
Long-term debt, less current maturities 2,252 2,231
Obligations under capital leases, less current obligations 1,292 1,414
Deferred income taxes 1,715 1,581
Other liabilities, deferred gains, deferred
credits and postretirement benefits 4,110 4,036
STOCKHOLDERS' EQUITY
Common stock -- --
Additional paid-in capital 1,836 1,840
Accumulated other comprehensive income (2) (2)
Retained earnings 5,747 5,312
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7,581 7,150
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$ 23,427 $ 21,719
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</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)
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<TABLE>
<CAPTION>
Six Months Ended June 30,
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2000 1999
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<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,829 $ 604
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures, including net change in purchase deposits for flight
equipment (1,686) (1,786)
Net decrease (increase) in short-term investments (560) 271
Acquisitions and other investments (15) (44)
Proceeds from sale of equipment and property 132 40
Proceeds from sale of other investments 94 31
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Net cash used for investing activities (2,035) (1,488)
CASH FLOW FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations (137) (98)
Proceeds from issuance of long-term debt 102 612
Sale-leaseback transactions -- 54
Funds transferred from affiliates, net 296 275
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Net cash provided by financing activities 261 843
Net increase (decrease) in cash 55 (41)
Cash at beginning of period 72 85
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Cash at end of period $ 127 $ 44
============ ============
ACTIVITIES NOT AFFECTING CASH:
Capital lease obligations incurred $ -- $ 54
</TABLE>
The accompanying notes are an integral part of these financial statements.
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AMERICAN AIRLINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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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, 1999 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, 1999. Certain amounts from 1999 have been reclassified to
conform with the 2000 presentation.
2. Accumulated depreciation of owned equipment and property at June 30, 2000
and December 31, 1999, was $7.3 billion and $7.0 billion, respectively.
Accumulated amortization of equipment and property under capital leases at
June 30, 2000 and December 31, 1999, was $1.2 billion and $1.1 billion,
respectively.
3. As discussed in the notes to the consolidated financial statements included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1999, 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. In addition, the Company is subject to environmental issues at
various other airport and non-airport locations. Management believes, after
considering a number of factors, that the ultimate disposition of these
environmental issues is not expected to materially affect the Company's
consolidated financial position, results of operations, or cash flows.
Amounts recorded for environmental issues are based on the Company's
current assessments of the ultimate outcome and, accordingly, could
increase or decrease as these assessments change.
4. As of June 30, 2000, the Company had commitments to acquire the following
aircraft: 69 Boeing 737-800s, 20 Boeing 757-200s and 15 Boeing 777-200IGWs.
Deliveries of these aircraft will extend through 2004. Payments for these
aircraft will approximate $850 million during the remainder of 2000, $1.6
billion in 2001, $500 million in 2002 and an aggregate of approximately
$300 million in 2003 and 2004.
5. During 1999, the Company entered into an agreement with priceline.com
Incorporated (priceline) whereby ticket inventory provided by the Company
may be sold through priceline's e-commerce system. In conjunction with this
agreement, the Company received warrants to purchase approximately 5.5
million shares of priceline common stock. In the second quarter of 2000,
the Company sold these warrants for proceeds of approximately $94 million,
and recorded a pre-tax gain of $57 million ($36 million after-tax), which
is included in Miscellaneous - net on the consolidated statements of
operations.
6. In connection with a secondary offering by Equant N.V. in February 1999,
the Company sold approximately 433,000 depository certificates for proceeds
of $31 million. The Company recorded a pre-tax gain of $31 million ($19
million after-tax) as a result of this transaction which is included in
Miscellaneous - net on the consolidated statements of operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
American recorded NET EARNINGS for the six months ended June 30, 2000 of $429
million. This compares to net earnings of $251 million for the six months ended
June 30, 1999. American's OPERATING INCOME of $657 million increased $266
million compared to the same period in 1999. The Company's 2000 results include
an after-tax gain of approximately $36 million related to the sale of the
Company's warrants to purchase 5.5 million shares of priceline.com Incorporated
(priceline) common stock. The Company's 1999 results include a labor
disagreement that disrupted the Company's operations and negatively impacted the
Company's 1999 net earnings by an estimated $140 million. This was partially
offset by the after-tax gain related to the sale of a portion of American's
holdings in Equant, N.V. (Equant) of approximately $19 million.
American's PASSENGER REVENUES increased by 12.5 percent, or $885 million.
American's YIELD of 13.84 cents increased by 6.1 percent compared to the same
period in 1999. Domestic yields increased 5.8 percent from the first six months
of 1999. International yields increased 7.1 percent, reflecting an increase of
16.9 percent, 8.6 percent and 4.8 percent in Pacific, Europe and Latin American
yields, respectively. The increase in revenues was due primarily to a strong
U.S. economy, which led to strong demand for air travel both domestically and
internationally, and a favorable pricing climate. In addition, the first quarter
of 1999 includes a schedule disruption which impacted the Company's operations.
American's traffic or REVENUE PASSENGER MILES (RPMs) increased 6.0 percent to
57.4 billion miles for the six months ended June 30, 2000. American's capacity
or AVAILABLE SEAT MILES (ASMs) increased 2.6 percent to 80.1 billion miles in
the first six months of 2000. American's domestic traffic increased 4.8 percent
on capacity growth of 1.1 percent and international traffic increased 8.9
percent on capacity increases of 6.0 percent. The increase in domestic capacity
was due primarily to the addition of new aircraft, mostly offset by the
Company's "More Room Throughout Coach" initiative. The increase in international
traffic was driven by a 16.2 percent increase in traffic to the Pacific on
capacity growth of 5.2 percent, an 11.0 percent increase in traffic to Europe on
a capacity increase of 9.9 percent and a 5.6 percent increase in traffic to
Latin America on capacity growth of 3.2 percent.
Cargo REVENUES increased $38 million, or 12.5 percent, due primarily to a fuel
surcharge implemented in February 2000 and the Company's increase in cargo
capacity from the addition of new aircraft in late 1999 and 2000.
The Company's OPERATING EXPENSES increased 8.8 percent, or $660 million.
American's cost per ASM increased by 6.8 percent to 10.10 cents. WAGES, SALARIES
AND BENEFITS increased $235 million, or 8.2 percent, 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. AIRCRAFT FUEL expense increased
45.8 percent, or $335 million, due to a 40.4 percent increase in American's
average price per gallon and a 4.0 percent increase in American's fuel
consumption. The increase in fuel expense is net of gains of approximately $220
million recognized during the six months ended June 30, 2000 relating to the
Company's fuel hedging program. DEPRECIATION AND AMORTIZATION expense increased
$51 million, or 10.9 percent, due primarily to the addition of new aircraft.
COMMISSIONS TO AGENTS decreased 9.6 percent, or $53 million, despite an increase
of approximately 12.5 percent in passenger revenues, due primarily to the
benefit from the international base commission structure change implemented in
October 1999 and a decrease in commissionable transactions. MAINTENANCE,
MATERIALS AND REPAIRS expense increased 12.1 percent, or $48 million, due
primarily to an increase in airframe and engine maintenance volumes at
American's maintenance bases and an approximate $17 million one-time credit the
Company received in the second quarter of 1999.
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RESULTS OF OPERATIONS (CONTINUED)
INTEREST INCOME increased approximately $35 million due primarily to higher
investment balances. INTEREST EXPENSE increased approximately $36 million, or
35.0 percent, due to an increase in long-term debt. INTEREST CAPITALIZED
increased 19.0 percent, or $11 million, due to an increase in purchase deposits
for flight equipment. RELATED PARTY INTEREST - NET decreased approximately $19
million due primarily to lower affiliate intercompany balances with American.
MISCELLANEOUS - NET increased approximately $24 million due primarily to the
gain on sale of the Company's warrants to purchase 5.5 million shares of
priceline common stock in the second quarter of 2000, which resulted in a $57
million gain. In the second quarter of 1999, the Company recorded an approximate
$31 million gain on the sale of a portion of the Company's interest in Equant.
OTHER INFORMATION
AIRCRAFT COMMITMENTS
As of June 30, 2000, the Company had commitments to acquire the following
aircraft: 69 Boeing 737-800s, 20 Boeing 757-200s and 15 Boeing 777-200IGWs.
Deliveries of these aircraft will extend through 2004. Payments for these
aircraft will approximate $850 million during the remainder of 2000, $1.6
billion in 2001, $500 million in 2002 and an aggregate of approximately $300
million in 2003 and 2004. The Company expects to fund its remaining 2000 capital
expenditures from the Company's existing cash and short-term investments,
internally generated cash, and new financing depending upon capital market
conditions and the Company's evolving view of its long-term needs.
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 contended 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 joined in this litigation. On October 15, 1998,
the state district court granted summary judgment in favor of American and Fort
Worth. On May 25, 2000, the Fort Worth Court of Appeals overturned the district
court order and concluded that the Bond Ordinance was preempted by federal law.
American and Fort Worth filed motions asking the Fort Worth Court of Appeals to
reconsider its decision. In the same lawsuit, DFW filed claims alleging that
irrespective of whether the Bond Ordinance was enforceable, the DFW Use
Agreement prohibited American and other DFW signatory airlines from moving any
interstate operations to Love Field.
Dallas filed a separate declaratory judgment action in the United States
District Court for the Northern District of Texas, Dallas Division, seeking to
have the court declare that, as a matter of law, the 1997 Amendment precludes
the City of Dallas from exercising any restrictions on operations at Love Field.
Further, in May 1998, Continental Airlines and Continental Express filed a
lawsuit in Dallas 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. These two federal court lawsuits were
consolidated and stayed.
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In December 1998, the Department of Transportation (DOT) issued an order on
the 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, and concluded that the Bond Ordinance was preempted by
federal law and was therefore not enforceable. The DOT also found that the DFW
Use Agreement did not preclude American from conducting interstate operations at
Love Field. Fort Worth, American and DFW appealed the DOT's order to the Fifth
Circuit Court of Appeals, and on February 1, 2000, the Fifth Circuit affirmed
the DOT's order in all respects. American, Fort Worth and DFW each filed
petitions for writ of certiorari with the United States Supreme Court, which
were denied on June 29, 2000. Shortly thereafter, American, Fort Worth and DFW
dismissed all remaining motions and claims in the Texas state court litigation.
Consequently, litigation over the right to provide scheduled passenger
operations at Love Field on aircraft with fewer than 57 seats to destinations
beyond the Wright Amendment perimeter has ended.
In January 2000, the Department of Justice, at the behest of the DOT, filed
a lawsuit in the United States District Court for the Northern District of
Texas, Dallas Division, against Fort Worth and American seeking to enforce the
DOT's order and to prevent any party from interfering with any carrier operating
under that order.
On May 1, 2000, American commenced service from Love Field to Chicago and
Los Angeles using terminal space leased from Continental Express on a short-term
basis. American has further announced that it will offer service from Love Field
to New York's LaGuardia airport commencing August 31, 2000. American is seeking
long-term facilities at Love Field from the City of Dallas for its Love Field
operations. As a result of the foregoing, an increase in operations at Love
Field and/or the inability of American to obtain adequate facilities to compete
effectively at Love Field could adversely impact American's business.
INDUSTRY CONSOLIDATION
Two competitors of the Company, UAL Corporation and US Airways Group, Inc.,
recently announced that they have entered into a definitive merger agreement. If
that merger were to be consummated or other significant consolidation were to
occur in the airline industry, conditions and competition in the industry could
be significantly altered. If the Company were involved in a business combination
with a competitor, the financial condition and prospects of the resulting
corporation could be materially different from those of the Company.
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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, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk from the information provided
in Item 7A. Quantitative and Qualitative Disclosures About Market Risk of the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In connection with its frequent flyer program, American was sued in several
purported class action cases currently pending in the Circuit Court of Cook
County, Illinois. In Wolens et al. v. American Airlines, Inc. and Tucker v.
American Airlines, Inc. (hereafter, "Wolens"), plaintiffs seek money damages and
attorneys' fees claiming that a change made to American's AAdvantage program in
May 1988, which limited the number of seats available to participants travelling
on certain awards, breached American's agreement with its AAdvantage members.
(Although the Wolens complaint originally asserted several state law claims,
only the plaintiffs' breach of contract claim remains after the U.S. Supreme
Court ruled that the Airline Deregulation Act preempted the other claims). In
Gutterman et al. v. American Airlines, Inc. (hereafter, "Gutterman"), plaintiffs
also seek money damages and attorneys' fees claiming that the February 1995
increase in the award mileage required to claim a certain AAdvantage travel
award breached the agreement between American and its AAdvantage members. On
June 23, 1998, the court certified the Gutterman case as a class action.
In February 2000, American and the Wolens and Gutterman plaintiffs reached
a settlement of both lawsuits. Pursuant to the agreement, American and the
plaintiffs agreed to ask the court to consolidate the Wolens and Gutterman
lawsuits for purposes of settlement. Further, American and the Wolens plaintiffs
agreed to ask the court to certify a Wolens class of AAdvantage members who had
at least 35,000 unredeemed AAdvantage miles as of December 31, 1988. In
addition, American and the Gutterman plaintiffs agreed to ask the court to
decertify the existing Gutterman class and to certify a new Gutterman class of
AAdvantage members who as of December 31, 1993 (a) had redeemed 25,000 or 50,000
AAdvantage miles for certain AAdvantage awards and/or (b) had between 4,700 and
24,999 unredeemed miles in his or her account that were earned in 1992 or 1993.
Depending upon certain factors, Wolens and Gutterman class members will be
entitled to receive certificates entitling them to mileage off certain
AAdvantage awards or dollars off certain American fares.
As part of the settlement, American agreed to pay the Wolens and Gutterman
plaintiffs' attorneys and the cost of administering the settlement, which
amounts were accrued as of December 31, 1999. In consideration for the relief
provided in the settlement agreement, Wolens and Gutterman class members will
release American from all claims arising from any changes that American has made
to the AAdvantage program and reaffirming American's right to make changes to
the AAdvantage program in the future. On May 2, 2000, the court preliminarily
approved the settlement and authorized sending notice of the settlement to class
members. Before the settlement can become effective, the court must give final
approval of the settlement agreement after providing any objectors an
opportunity to be heard.
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 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. On February 2, 1999, prior to any
discovery being taken and a class being certified, the court granted the
defendants' motion for summary judgment holding that plaintiff's claims are
preempted by the Airline Deregulation Act. Plaintiff has filed an appeal of the
dismissal of the lawsuit. On March 30, 2000, the Texas Court of Appeals in
Austin affirmed the granting of defendants' motion for summary judgment. The
plaintiff is seeking review by the Supreme Court of Texas. American is
vigorously defending all claims against it.
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PART II
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
On May 20, 1999, several class action lawsuits filed against the Allied
Pilots Association (APA) seeking compensation for passengers and cargo shippers
adversely affected by a labor disagreement that disrupted operations in February
1999 were consolidated in the United States District Court for the Northern
District of Texas, Dallas Division (In re Allied Pilots Association Class Action
Litigation). Plaintiffs are not seeking to hold American independently liable.
Instead, Plaintiffs named American as a defendant because American has a $45.5
million judgment against the APA. APA filed cross claims against American in one
of the cases now consolidated in the Northern District of Texas alleging that
American must indemnify pilots who put themselves on the sick list. APA also
filed a motion to dismiss all claims against it. A United States District Court
Magistrate recommended that the court dismiss all the claims in the lawsuit,
concluding that certain claims are preempted by federal law and that certain
other claims should be brought in state court, rather than federal court. The
Magistrate's recommendations are pending before the court. On July 24, 2000,
American announced that it had reached a tentative agreement with the APA that
would modify the existing labor contract between American and the APA which, if
approved by the APA membership, will resolve among other issues American's $45.5
million judgment against the APA. If this agreement is approved, it may impact
claims against American in this litigation. In the meanwhile, American is
vigorously defending all claims against it.
On July 26, 1999, a class action lawsuit was filed, and in November 1999 an
amended complaint was filed, against AMR Corporation, American Airlines, Inc.,
AMR Eagle Holding Corporation, Airlines Reporting Corporation, and the Sabre
Group Holdings, Inc. in the United States District Court for the Central
District of California, Western Division (Westways World Travel, Inc. v. AMR
Corp., et al.). The lawsuit alleges that requiring travel agencies to pay debit
memos to American for violations of American's fare rules (by customers of the
agencies) (1) breaches the Agent Reporting Agreement between American and
American Eagle and plaintiffs, (2) constitutes unjust enrichment, and (3)
violates the Racketeer Influenced and Corrupt Organizations Act of 1970 (RICO).
The as yet uncertified class includes all travel agencies who have been or will
be required to pay monies to American for debit memos for fare rules violations
from July 26, 1995 to the present. Plaintiffs seek to enjoin American from
enforcing the pricing rules in question and to recover the amounts paid for
debit memos, plus treble damages, attorneys' fees, and costs. Defendants' motion
to dismiss all claims is pending. American intends to vigorously defend the
lawsuit.
On May 13, 1999, the United States (through the Antitrust Division of the
Department of Justice) sued AMR Corporation, American Airlines, Inc., and AMR
Eagle Holding Corporation in federal court in Wichita, Kansas. The lawsuit
alleges that American unlawfully monopolized or attempted to monopolize airline
passenger service to and from Dallas/Fort Worth International Airport (DFW) by
increasing service when new competitors began flying to DFW, and by matching
these new competitors' fares. The Department of Justice seeks to enjoin American
from engaging in the alleged improper conduct and to impose restraints on
American to remedy the alleged effects of its past conduct. American intends to
defend the lawsuit vigorously.
Between May 14, 1999 and June 7, 1999, seven class action lawsuits were
filed against AMR Corporation, American Airlines, Inc., and AMR Eagle Holding
Corporation in the United States District Court in Wichita, Kansas seeking
treble damages under federal and state antitrust laws, as well as injunctive
relief and attorneys' fees. (King v. AMR Corp., et al.; Smith v. AMR Corp., et
al.; Team Electric v. AMR Corp., et al.; Warren v. AMR Corp., et al.; Whittier
v. AMR Corp., et al.; Wright v. AMR Corp., et al.; and Youngdahl v. AMR Corp.,
et al.). Collectively, these lawsuits allege that American unlawfully
monopolized or attempted to monopolize airline passenger service to and from DFW
by increasing service when new competitors began flying to DFW, and by matching
these new competitors' fares. Two of the suits (Smith and Wright) also allege
that American unlawfully monopolized or attempted to monopolize airline
passenger service to and from DFW by offering discounted fares to corporate
purchasers, by offering a frequent flyer program, by imposing certain conditions
on the use and availability of certain fares, and by offering override
commissions to travel agents. The suits propose to certify several classes of
consumers, the broadest of which is all persons who purchased tickets for air
travel on American into or out of DFW since 1995 to the present. On November 10,
1999, the District Court stayed all of these actions pending developments in the
case brought by the Department of Justice. As a result, to date no class has
been certified. American intends to defend these lawsuits vigorously.
-10-
<PAGE> 13
PART II
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
On March 1, 2000, American was served with a federal grand jury subpoena
calling for American to produce documents relating to de-icing operations at DFW
since 1992. American is not able at this time to determine either the full scope
of the grand jury's investigation or American's role in the investigation.
American intends to fully cooperate with the government's investigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
12 Computation of ratio of earnings to fixed charges for the three and six
months ended June 30, 2000 and 1999.
27 Financial Data Schedule
-11-
<PAGE> 14
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: July 28, 2000 BY: /s/ Thomas W. Horton
---------------------
Thomas W. Horton
Senior Vice President -
Finance and Chief Financial Officer
-12-
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
12 Computation of ratio of earnings to fixed charges for the three and
six months ended June 30, 2000 and 1999.
27 Financial Data Schedule
</TABLE>
