<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For fiscal year ended December 31, 1995.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
Commission file number 1-8400.
AMR CORPORATION
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-1825172
- - ----------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
- - --------------------------------------- ------------------------------------
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code (817) 963-1234
-----------------------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of exchange on which registered
- - ----------------------------------------------- ------------------------------------
<S> <C>
Common stock, $1 par value per share New York Stock Exchange
5-1/4% Subordinated Debentures due 1998 New York Stock Exchange
6-1/8% Convertible Subordinated New York Stock Exchange
Quarterly Income Capital Securities due 2024
6-1/4% Subordinated Debentures due 1996 New York Stock Exchange
8.10% Notes due 1998 New York Stock Exchange
9.00% Debentures due 2016 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
- - --------------------------------------------------------------------------------
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 18, 1996, was approximately $6,985,304,690. As of
March 18, 1996, 76,761,590 shares of the registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates by reference certain information from
the Proxy Statement for the Annual Meeting of Stockholders to be held May 15,
1996.
================================================================================
<PAGE> 2
PART I
- - --------------------------------------------------------------------------------
ITEM 1. BUSINESS
AMR Corporation (AMR or the Company) was incorporated in October 1982. AMR's
principal subsidiary, American Airlines, Inc. (American), was founded in 1934.
For financial reporting purposes, AMR's operations fall within three major
lines of business: the Airline Group, The SABRE Group and the Management
Services Group.
AIRLINE GROUP
The Airline Group consists primarily of American's Passenger and Cargo
divisions, as well as AMR Eagle, Inc. and AMR Leasing Corporation, which are
subsidiaries of AMR.
AMERICAN'S PASSENGER DIVISION is one of the largest scheduled passenger
airlines in the world. At the end of 1995, American provided scheduled jet
service to more than 160 destinations, primarily throughout North America, the
Caribbean, Latin America, Europe and the Pacific.
AMERICAN'S CARGO DIVISION is one of the largest scheduled air freight carriers
in the world. The Cargo Division provides a full range of freight and mail
services to shippers throughout the airline's system. In addition, through
cooperative agreements with other carriers, it has the ability to transport
shipments to virtually any country in the world.
AMR EAGLE, INC. owns the four regional airlines which operate as "American
Eagle" -- Flagship Airlines, Inc., Simmons Airlines, Inc., Executive Airlines,
Inc. and Wings West Airlines, Inc. The American Eagle carriers provide
connecting turboprop service from seven of American's high-traffic cities to
smaller markets throughout the United States, Canada, the Bahamas and the
Caribbean.
AMR LEASING CORPORATION is a financing subsidiary which leases regional
aircraft to subsidiaries of AMR Eagle.
THE SABRE GROUP
AMR formed The SABRE Group in 1993 to capitalize on the synergies of combining
its information technology businesses under common management. The SABRE Group
consists primarily of four business units -- SABRE Travel Information Network
(STIN), SABRE Computer Services (SCS), SABRE Decision Technologies (SDT) and
SABRE Interactive.
STIN markets SABRE -- one of the largest privately owned, real-time computer
systems in the world -- which provides travel distribution and information
services to nearly 30,000 travel agencies in 74 countries on six continents.
SCS manages and maintains AMR's technology infrastructure. This includes the
planning, installation and operation of AMR's data centers, as well as
technology and architectural planning for AMR units and for external customers.
SCS also provides voice and data communication services to AMR, but is
currently in negotiations with a third party to outsource this function.
SDT provides decision support systems, application software packages, systems
development and consulting services to other AMR units and to external
companies in the transportation, travel and other industries worldwide.
SABRE INTERACTIVE is a distribution strategy division formed by The SABRE Group
in 1995 to develop opportunities for consumer-direct travel distribution via
personal computer, CD-ROM, interactive television, cable television and other
media.
1
<PAGE> 3
MANAGEMENT SERVICES GROUP
The Management Services Group consists of four AMR subsidiaries -- AMR Services
Corporation, Americas Ground Services, Inc. (AGS), AMR Investment Services,
Inc. and Airline Management Services, Inc. (AMS).
AMR SERVICES CORPORATION has six operating divisions: Airline Services, AMR
Combs, AMR Distribution Systems, TeleService Resources (TSR), Data Management
Services (DMS) and AMR Training Group. The Airline Services division's main
lines of business include airline passenger, ramp and cargo handling, cabin
service and an array of other air transportation-related services for carriers
around the world. AMR Combs is a premier corporate aviation services network
of 13 facilities in major business centers in the United States and Mexico. It
also is involved in a number of other related businesses, including parts and
aircraft sales and operation of one of the world's largest executive charter
services. AMR Distribution Systems serves the logistics marketplace and
specializes in contract warehousing, trucking and multi-modal freight
forwarding services. TSR provides comprehensive telemarketing and reservation
services for a wide range of clients. DMS provides data capture and document
management services to American and to companies in the insurance, financial
services and transportation industries. AMR Training Group provides a wide
variety of training services and operates the American Airlines Training &
Conference Center, which hosts a multitude of AMR training activities, and
markets its capabilities to other companies.
AGS provides airline ground and cabin service handling at 11 locations in eight
countries in the Caribbean and Central and South America.
AMR INVESTMENT SERVICES, INC. serves as an investment advisor to AMR and other
institutional investors. It also manages the American AAdvantage Funds, which
have both institutional shareholders, including pension funds and bank and
trust companies, and individual shareholders. As of December 31, 1995, AMR
Investment Services was responsible for management of approximately $13.7
billion in assets, including direct management of approximately $4.5 billion in
short-term investments.
AMS was formed in 1994 to manage the Company's service contracts with other
airlines such as the agreement to provide a variety of management, technical
and administrative services to Canadian Airlines International, Ltd. which the
Company signed in 1994.
Additional information regarding business segments is included in Management's
Discussion and Analysis on pages 15 through 27 and in Note 14 to the
consolidated financial statements.
2
<PAGE> 4
ROUTES AND COMPETITION
AIR TRANSPORTATION Most major air carriers have developed hub-and-spoke
systems and schedule patterns in an effort to maximize the revenue potential of
their service. American operates four hubs: Dallas/Fort Worth, Chicago
O'Hare, Miami, and San Juan, Puerto Rico. In 1995, American implemented
schedule reductions which ended the airline's hub operations at Raleigh/Durham
and Nashville. Delta Air Lines and United Airlines have hub operations at
American's Dallas/Fort Worth and Chicago O'Hare hubs, respectively.
The American Eagle carriers increase the number of markets the Airline
Group serves by providing connections to American at its hubs and certain other
major airports. The American Eagle carriers -- Simmons Airlines, Inc.,
Flagship Airlines, Inc., Wings West Airlines, Inc. and Executive Airlines, Inc.
- - -- serve smaller markets through Dallas/Fort Worth, Chicago, Miami, Nashville,
San Juan, Los Angeles and New York John F. Kennedy International Airport.
American's competitors also own or have marketing agreements with regional
carriers which provide service at their major hubs.
In addition to its extensive domestic service, American provides
service to and from cities in various other countries, across the Atlantic and
Pacific, and between the U.S. and the Caribbean, and Central and South America.
American's operating revenues from foreign operations were approximately $4.7
billion in 1995, $4.3 billion in 1994 and $3.9 billion in 1993. Additional
information about the Company's foreign operations is included in Note 13 to
the consolidated financial statements.
Service over almost all of the Airline Group's routes is highly
competitive. Currently, any carrier deemed fit by the U.S. Department of
Transportation (DOT) is free to operate scheduled passenger service between any
two points within the U.S. and its possessions. On most of its non-stop
routes, the Airline Group competes with at least one, and usually more than
one, major domestic airline including: America West Airlines, Continental
Airlines, Delta Air Lines, Northwest Airlines, Southwest Airlines, Trans World
Airlines, United Airlines, and USAir. Competition is even greater between
cities that require a connection, for example, Portland, Oregon to Tampa,
Florida, where eight airlines compete via the respective hubs of each carrier.
The Airline Group also competes with national, regional, all-cargo, and charter
carriers and, particularly on shorter segments, ground transportation.
On all of its routes, pricing decisions are affected by competition from
other airlines, some of which have cost structures significantly lower than
American's and can therefore operate profitably at lower fare levels.
Approximately 40 percent of American's bookings are impacted by competition
from lower-cost carriers. American and its principal competitors use inventory
management systems that permit them to vary the number of discount seats
offered on each flight in an effort to maximize revenues, yet still be price
competitive with lower-cost carriers.
Competition in many international markets is subject to extensive
government regulation. In these markets, American competes with
foreign-investor owned carriers, state-owned airlines and U.S. carriers that
have been granted authority to provide scheduled passenger and cargo service
between the U.S. and various overseas locations. American's operating
authority in these markets is subject to aviation agreements between the U.S.
and the respective countries, and in some cases, fares and schedules require
the approval of the DOT and the relevant foreign governments. Because
international air transportation is governed by bilateral or other agreements
between the U.S. and the foreign country or countries involved, changes in U.S.
or foreign government aviation policy could result in the alteration or
termination of such agreements, diminish the value of such route authorities,
or otherwise affect American's international operations. Bilateral agreements
between the U.S. and various foreign countries served by American are subject
to frequent renegotiation.
The major domestic carriers have some advantage over foreign competitors
in their ability to generate traffic from their extensive domestic route
systems. In many cases, however, U.S. carriers are limited in their rights to
carry passengers beyond designated gateway cities in foreign countries. Some
of American's foreign competitors are owned and subsidized by foreign
governments. To improve their access to each others' markets, various U.S. and
foreign carriers - - including American -- have made substantial equity
investments in, or established marketing relationships with, other carriers.
American has well-developed code sharing programs with Canadian Airlines
International, Qantas Airways, Singapore Airlines, South African Airways, Gulf
Air, and British Midland. In the coming years, the Company expects to develop
these programs further and to evaluate new alliances with other international
carriers.
3
<PAGE> 5
The Airline Group believes that it has several advantages relative to its
competition. Its fleet is young, efficient and quiet. It has a comprehensive
domestic and international route structure, anchored by efficient hubs, which
permit it to take full advantage of whatever traffic growth occurs. The
Company believes American's AAdvantage frequent flyer program, which is the
largest program in the industry, and its superior service also give it a
competitive advantage.
COMPUTER RESERVATION SYSTEMS The complexity of the various schedules and
fares offered by air carriers has fostered the development of electronic
distribution systems. Travel agents and other subscribers access travel
information and book airline, hotel and car rental reservations and issue
airline tickets using these systems. American developed the SABRE computer
reservation system (CRS), which is one of the largest CRSs in the world.
Competition among the CRS vendors is strong. Services similar to those offered
through SABRE are offered by several air carriers and other companies in the
United States and abroad.
The SABRE CRS has several advantages relative to its competition. SABRE
ranks first in market share among travel agents in the U.S. The SABRE CRS is
furthering its expansion into international markets and continues to be in the
forefront of technological innovation in the CRS industry.
REGULATION
GENERAL The Airline Deregulation Act of 1978 (Act) and various other statutes
amending the Act eliminated most domestic economic regulation of passenger and
freight transportation. However, the DOT and the Federal Aviation
Administration (FAA) still exercise certain regulatory authority over air
carriers under the Federal Aviation Act of 1958, as amended. The DOT maintains
jurisdiction over international route authorities and certain consumer
protection matters, such as advertising, denied boarding compensation, baggage
liability, and computer reservations systems. The DOT issued certain rules
governing the CRS industry which became effective on December 7, 1992, and
expire on December 31, 1997.
The FAA regulates flying operations generally, including establishing
personnel, aircraft and security standards. In addition, the FAA has
implemented a number of requirements that the Airline Group is incorporating
into its maintenance program. These matters relate to, among other things,
inspection and maintenance of aging aircraft, corrosion control, collision
avoidance and windshear detection. Based on its current implementation
schedule, the Airline Group expects to be in compliance with the applicable
requirements within the required time periods.
The U.S. Department of Justice has jurisdiction over airline antitrust
matters. The U.S. Postal Service has jurisdiction over certain aspects of the
transportation of mail and related services. Labor relations in the air
transportation industry are regulated under the Railway Labor Act, which vests
in the National Mediation Board certain regulatory powers with respect to
disputes between airlines and labor unions arising under collective bargaining
agreements.
FARES Airlines are permitted to establish their own domestic fares without
governmental regulation, and the industry is characterized by substantial price
competition. The DOT maintains authority over international fares, rates and
charges. International fares and rates are also subject to the jurisdiction of
the governments of the foreign countries which American serves. While air
carriers are required to file and adhere to international fare and rate
tariffs, many international markets are characterized by substantial
commissions, overrides, and discounts to travel agents, brokers and
wholesalers.
Fare discounting by competitors has historically had a negative effect on
the Airline Group's financial results because the Airline Group is generally
required to match competitors' fares to maintain passenger traffic. During
recent years, a number of new low-cost airlines have entered the domestic
market and several major airlines have begun to implement efforts to lower
their cost structures. Further fare reductions, domestic and international,
may occur in the future. If fare reductions are not offset by increases in
passenger traffic or changes in the mix of traffic that improves yields, the
Airline Group's operating results will be negatively impacted.
4
<PAGE> 6
AIRPORT ACCESS In 1968, the FAA issued a rule designating New York John F.
Kennedy, New York LaGuardia, Washington National, Chicago O'Hare and Newark
airports as high density traffic airports. Newark was subsequently removed
from the high density airport classification. The rule adopted hourly take-off
and landing slot allocations for each of these airports. Currently, the FAA
permits the purchasing, selling, leasing and trading of these slots by airlines
and others, subject to certain restrictions. Certain foreign airports,
including London Heathrow, a major European destination for American, also have
slot allocations.
The Airline Group currently has sufficient slot authorizations to operate
its existing flights and has generally been able to obtain slots to expand its
operations and change its schedules. There is no assurance, however, that the
Airline Group will be able to obtain slots for these purposes in the future,
because, among other factors, slot allocations are subject to changes in
government policies.
ENVIRONMENTAL MATTERS The Company is subject to various laws and government
regulations concerning environmental matters and employee safety and health in
the U.S. and other countries. U.S. federal laws that have a particular impact
on the Company include the Airport Noise and Capacity Act of 1990 (ANCA), the
Clean Air Act, the Resource Conservation and Recovery Act, the Clean Water Act,
the Safe Drinking Water Act, and the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA or the Superfund Act). The Company is
also subject to the oversight of the Occupational Safety and Health
Administration (OSHA) concerning employee safety and health matters. The U.S.
Environmental Protection Agency (EPA), OSHA, and other federal agencies have
been authorized to promulgate regulations that have an impact on the Company's
operations. In addition to these federal activities, various states have been
delegated certain authorities under the aforementioned federal statutes. Many
state and local governments have adopted environmental and employee safety and
health laws and regulations, some of which are similar to federal requirements.
As a part of its continuing safety, health and environmental program, the
Company has maintained compliance with such requirements without any material
adverse effect on its business.
For purposes of noise standards, jet aircraft are rated by categories or
"stages." The ANCA requires the phase- out by December 31, 1999, of Stage II
aircraft operations, subject to certain exceptions. Under final regulations
issued by the FAA in 1991, air carriers are required to reduce, by modification
or retirement, the number of Stage II aircraft in their fleets 25 percent by
December 31, 1994; 50 percent by December 31, 1996; 75 percent by December 31,
1998, and 100 percent by December 31, 1999. Alternatively, a carrier may
satisfy the regulations by operating a fleet that is at least 55 percent, 65
percent, 75 percent, and 100 percent Stage III by the dates set forth in the
preceding sentence, respectively. At December 31, 1995, approximately 89
percent of American's active fleet was Stage III, the quietest and most fuel
efficient rating category.
The ANCA recognizes the rights of airport operators with noise problems
to implement local noise abatement programs so long as they do not interfere
unreasonably with interstate or foreign commerce or the national air
transportation system. Authorities in several cities have promulgated aircraft
noise reduction programs, including the imposition of night-time curfews. The
ANCA generally requires FAA approval of local noise restrictions on Stage III
aircraft first effective after October 1990, and establishes a regulatory
notice and review process for local restrictions on Stage II aircraft first
proposed after October 1990. While American has had sufficient scheduling
flexibility to accommodate local noise restrictions imposed to date, American's
operations could be adversely affected if locally-imposed regulations become
more restrictive or widespread.
American has been identified by the EPA as a potentially responsible
party (PRP) with respect to the following Superfund Sites: Operating
Industries, Inc., California; Cannons, New Hampshire; Byron Barrel and Drum,
New York; Palmer PSC, Massachusetts; Frontier Chemical, New York and Duffy
Brothers, Massachusetts. American has settled the Cannons, Byron Barrel and
Drum, Palmer PSC and Frontier Chemical matters, and all that remains to
complete these matters are administrative tasks. American has signed a partial
consent decree with respect to Operating Industries, Inc. With respect to the
Operating Industries, Inc., Palmer PSC, Frontier Chemical and Duffy Brothers
sites, American is one of several PRPs named at each site. American's alleged
waste disposal volumes are minor compared to the other PRPs.
American, along with most other tenants at Boston Logan International
Airport, has been notified under the Massachusetts State Superfund statute of a
claim for contribution by the Massachusetts Port Authority
5
<PAGE> 7
(Massport). Massport has claimed that American is responsible for past and
future remediation costs at the airport. American is vigorously defending
against Massport's claim.
American, along with most other tenants at the San Francisco
International Airport, has been ordered by the California Regional Water
Quality Control Board to engage in various studies of potential environmental
contamination at the airport and to undertake remedial measures, if necessary.
The Miami International Airport Authority is currently remediating
various environmental conditions at the Miami International Airport (Airport)
and funding the remediation costs through landing fee revenues. Some of the
costs of the remediation effort may be borne by carriers currently operating at
the Airport, including American, through increased landing fees since certain of
the potentially responsible parties are no longer in business. The future
increase in landing fees may be material but cannot be reasonably estimated due
to various factors, including the unknown extent of the remedial actions that
may be required, the proportion of the cost that will ultimately be recovered
from the responsible parties, and uncertainties regarding the environmental
agencies that will ultimately supervise the remedial activities and the nature
of that supervision.
AMR Combs Memphis, an AMR Services subsidiary, has been named a PRP at an
EPA Superfund Site in West Memphis, Arkansas. AMR Combs Memphis' alleged
involvement in the site is minor relative to the other PRPs.
Flagship Airlines, Inc., an AMR Eagle subsidiary, has been notified of
its potential liability under New York law at an inactive hazardous waste site
in Poughkeepsie, New York.
AMR does not expect these matters, individually or collectively, to have
a significant impact on its financial position or liquidity.
LABOR
The airline business is labor intensive. Approximately 81 percent of AMR's
employees work in the Airline Group. Wages, salaries and benefits represented
approximately 36 percent of AMR's consolidated operating expenses for the year
ended December 31, 1995. To improve its competitive position, American has
undertaken various steps to reduce its unit labor costs, including workforce
reductions.
The majority of American's employees are represented by labor unions and
covered by collective bargaining agreements. American's relations with such
labor organizations are governed by the Railway Labor Act. Under this act, the
collective bargaining agreements among American and these organizations do not
expire but instead become amendable as of a stated date. If either party
wishes to modify the terms of any such agreement, it must notify the other
party before the contract becomes amendable. After receipt of such notice, the
parties must meet for direct negotiations, and if no agreement is reached,
either party may request the National Mediation Board (NMB) to appoint a
federal mediator. If no agreement is reached in mediation, the NMB may
determine, at any time, that an impasse exists, and if an impasse is declared,
the NMB proffers binding arbitration to the parties. Either party may decline
to submit to arbitration. If arbitration is rejected, a 30-day "cooling-off"
period commences, following which the labor organization may strike and the
airline may resort to "self-help," including the imposition of its proposed
amendments and the hiring of replacement workers.
In October 1995, a panel of arbitrators issued a binding arbitration
award that resolved the remaining open issues in the labor contract between
American and the Association of Professional Flight Attendants (APFA). The
arbitration award included a one-time early retirement program, for which AMR
recorded a charge in the fourth quarter. American's collective bargaining
agreement with the APFA becomes amendable on November 1, 1998.
In 1995, American reached agreements with the members of the Transport
Workers Union (TWU) on their labor contracts. The new contracts include a
one-time early retirement program, for which AMR recorded a charge in the
fourth quarter. American's collective bargaining agreement with the TWU
becomes amendable on March 1, 2001.
American's collective bargaining agreement with the Allied Pilots
Association (APA) became amendable on August 31, 1994. In January 1996, the
APA filed a petition with the NMB to appoint a federal mediator. A
6
<PAGE> 8
mediator has been appointed, and initial meetings have been held between the
APA and the NMB mediator and between American and the NMB mediator. Joint
meetings began in March 1996.
A majority of the workforces at the four AMR Eagle carriers is
represented by labor unions and covered by a number of different collective
bargaining agreements. Certain of these agreements are currently in
negotiation. A 1995 decision by the NMB provides that the four AMR Eagle
carriers are to be treated as a single carrier for the limited purpose of labor
relations, which will result in all employees within each specific job class or
craft being represented by a single union for collective bargaining purposes.
This decision does not affect the current collective bargaining agreements or
the corporate status of the four carriers -- each continues to be a separate
company with its own government operating certificates.
FUEL
The Airline Group's operations are significantly affected by the availability
and price of jet fuel. American's fuel costs and consumption for the years
1991 through 1995 were:
<TABLE>
<CAPTION>
Percent of
Gallons Average Price AMR's
Consumed Total Cost Per Gallon Operating
Year (in millions) (in millions) (in cents) Expenses
------------ ------------- --------------- ------------- ------------
<S> <C> <C> <C> <C>
1991 2,527 $ 1,780 70.5 13.8
1992 2,862 1,862 65.1 12.9
1993 2,939 1,818 61.8 12.0
1994 2,741 1,556 56.7 10.3
1995 2,749 1,565 56.9 9.8
</TABLE>
Based upon American's 1995 fuel consumption, a one-cent rise in the
average annual price-per-gallon of jet fuel would increase American's monthly
fuel costs by approximately $2.3 million, not considering the offsetting effect
of American's fuel cost hedging program.
The impact of fuel price changes on the Company's competitors is
dependent upon various factors, including their hedging strategies. However,
lower fuel prices may be offset by increased price competition and lower
revenues for all air carriers. Conversely, there can be no assurance that
American will be able to pass fuel cost increases on to its customers by
increasing fares in the future.
Most of American's fuel is purchased pursuant to contracts which, by
their terms, may be terminated upon short notice. While American does not
anticipate a significant reduction in fuel availability, dependency on foreign
imports of crude oil and the possibility of changes in government policy on jet
fuel production, transportation and marketing make it impossible to predict the
future availability of jet fuel. If there were major reductions in the
availability of jet fuel, American's business would be adversely affected.
FREQUENT FLYER PROGRAM
American established the AAdvantage frequent flyer program (AAdvantage) to
develop passenger loyalty by offering awards to travelers for their continued
patronage. AAdvantage members earn mileage credits for flights on American,
American Eagle and certain other participating airlines, or by utilizing
services of other program participants, including hotels, car rental companies
and bank credit card issuers. American sells mileage credits to the other
companies participating in the program. American reserves the right to change
the AAdvantage program rules, regulations, travel awards and special offers at
any time without notice. American may initiate changes impacting, for example,
participant affiliations, rules for earning mileage credit, mileage levels and
awards, blackout dates and limited seating for travel awards, and the features
of special offers. American reserves the right to end the AAdvantage program
with six months notice.
Mileage credits can be redeemed for free, discounted or upgraded travel
on American, American Eagle or participating airlines, or for other travel
industry awards. Once a member accrues sufficient mileage for an award, the
member may request an award certificate from American. Award certificates may
be redeemed up to one
7
<PAGE> 9
year after issuance. Most travel awards are subject to blackout dates and
capacity controlled seating. All miles earned after July 1989 must be redeemed
within three years or they expire.
American accounts for its frequent flyer obligation on an accrual basis
using the incremental cost method. American's frequent flyer liability is
accrued each time a member accumulates sufficient mileage in his or her account
to claim the lowest level of free travel award (25,000 miles) and such award is
expected to be used for free travel. American includes fuel, food, and
reservations/ticketing costs, but not a contribution to overhead or profit, in
the calculation of incremental cost. The cost for fuel is estimated based on
total fuel consumption tracked by various categories of markets, with an amount
allocated to each passenger. Food costs are tracked by market category, with
an amount allocated to each passenger. Reservation/ticketing costs are based
on the total number of passengers, including those traveling on free awards,
divided into American's total expense for these costs. American defers a
portion of revenues from the sale of mileage credits to companies participating
in the AAdvantage program and recognizes such revenues over a period
approximating the period during which the mileage credits are used.
At December 31, 1995 and 1994, American estimated that approximately 4.7
million and 4.5 million free travel awards, respectively, were eligible for
redemption. At December 31, 1995 and 1994, American estimated that
approximately 4.0 million and 3.6 million free travel awards, respectively,
were expected to be redeemed for free travel. In making this estimate,
American has excluded mileage in inactive accounts, mileage related to accounts
that have not yet reached the lowest level of free travel award, and mileage in
active accounts that have reached the lowest level of free travel award but
which is not expected to ever be redeemed for free travel. The liability for
the program mileage that has reached the lowest level of free travel award and
is expected to be redeemed for free travel and deferred revenues for mileage
sold to others participating in the program was $370 million and $329 million,
representing 7.9 percent and 6.9 percent of AMR's total current liabilities, at
December 31, 1995 and 1994, respectively.
The number of free travel awards used for travel on American during the
years ended December 31, 1995, 1994 and 1993, was approximately 2,204,000,
2,198,000, and 2,163,000, respectively, representing 8.4 percent, 8.5 percent
and 9.5 percent of total revenue passenger miles for each period, respectively.
American believes displacement of revenue passengers is insignificant given
American's load factors, its ability to manage frequent flyer seat inventory,
and the relatively low ratio of free award usage to revenue passenger miles.
OTHER MATTERS
SEASONALITY AND OTHER FACTORS The Airline Group's results of operations for
any interim period are not necessarily indicative of those for the entire year,
since the air transportation business is subject to seasonal fluctuations.
Higher demand for air travel has traditionally resulted in more favorable
operating results for the second and third quarters of the year than for the
first and fourth quarters.
The results of operations in the air transportation business have also
significantly fluctuated in the past in response to general economic
conditions. In addition, fare initiatives, fluctuations in fuel prices, labor
actions and other factors could impact this seasonal pattern. Unaudited
quarterly financial data for the two-year period ended December 31, 1995, is
included in Note 16 to the consolidated financial statements.
No material part of the business of AMR and its subsidiaries is dependent
upon a single customer or very few customers. Consequently, the loss of the
Company's largest few customers would not have a materially adverse effect upon
AMR.
INSURANCE American carries insurance for public liability, passenger
liability, property damage and all-risk coverage for damage to its aircraft, in
amounts which, in the opinion of management, are adequate.
OTHER GOVERNMENT MATTERS In time of war or during an unlimited national
emergency or civil defense emergency, American and other major air carriers may
be required to provide airlift services to the Military Airlift Command under
the Civil Reserve Air Fleet program.
8
<PAGE> 10
ITEM 2. PROPERTIES
FLIGHT EQUIPMENT
Owned and leased aircraft operated by AMR's subsidiaries at December 31, 1995,
included:
<TABLE>
<CAPTION>
Weighted
Current Average
Equipment Type Seating Capital Operating Age
Capacity Owned Leased Leased Total (Years)
- - ------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
JET AIRCRAFT
Airbus A300-600R 266/267 10 - 25 35 6
Boeing 727-200 150 53 14 - 67 19
Boeing 757-200 188 46 9 31 86 4
Boeing 767-200 172 8 - - 8 13
Boeing 767-200 Extended Range 172 9 13 - 22 10
Boeing 767-300 Extended Range 215 16 3 22 41 5
Fokker 100 97 66 5 4 75 3
McDonnell Douglas DC-10-10 237/290 13 4 - 17 19
McDonnell Douglas DC-10-30 273 4 1 - 5 21
McDonnell Douglas MD-11 251/271 19 - - 19 4
McDonnell Douglas MD-80 139 119 25 116 260 8
---------- ---------- ---------- ---------- ----------
Total 363 74 198 635 8
========== ========== ========== ========== ==========
REGIONAL AIRCRAFT
ATR 42 46 28 2 16 46 6
Super ATR 64 28 - 5 33 2
Jetstream 32 19 - - 44 44 4
Saab 340A 34 - - 10 10 8
Saab 340B 34 29 61 10 100 3
Saab 340B Plus 34 - - 7 7 1
Shorts 360 33/36 4 - 17 21 10
---------- ---------- ---------- ---------- ----------
Total 89 63 109 261 4
========== ========== ========== ========== ==========
</TABLE>
For information concerning the estimated useful lives and residual values
for owned aircraft, lease terms and amortization relating to aircraft under
capital leases, and acquisitions of aircraft, see Notes 1, 3 and 4 to the
consolidated financial statements. See Management's Discussion and Analysis
for discussion of the retirement of certain aircraft from the fleet.
In April 1995, American announced an agreement to sell 12 of its
McDonnell Douglas MD-11 aircraft to Federal Express Corporation (FedEx), with
delivery of the aircraft between 1996 and 1999. In addition, American has the
option to sell its remaining seven MD-11 aircraft to FedEx with deliveries
between 2000 and 2002.
9
<PAGE> 11
Lease expirations for leased aircraft operated by AMR's subsidiaries and
included in the preceding table as of December 31, 1995, were:
<TABLE>
<CAPTION>
2001
and
Equipment Type 1996 1997 1998 1999 2000 Thereafter
- - ------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
JET AIRCRAFT
Airbus A300-600R - - - - - 25
Boeing 727-200 - - - 2 4 8
Boeing 757-200 - - - - 2 38
Boeing 767-200 Extended Range - - - - - 13
Boeing 767-300 Extended Range - - - - - 10
Fokker 100 - - - - - 9
McDonnell Douglas DC-10-10 3 1 - - - -
McDonnell Douglas DC-10-30 - - 1 - - -
McDonnell Douglas MD-80 - - - - 3 138
---------- ---------- ---------- ---------- ---------- ----------
3 1 1 2 9 241
========== ========== ========== ========== ========== ==========
REGIONAL AIRCRAFT
ATR 42 - - - 6 1 3
Super ATR - 2 - - - -
Jetstream 32 21 23 - - - -
Saab 340B - - - - - 61
Shorts 360 - - - - - 17
---------- ---------- ---------- ---------- ---------- ----------
21 25 - 6 1 81
========== ========== ========== ========== ========== ==========
</TABLE>
The table excludes leases for 15 Boeing 767-300 Extended Range aircraft
which can be canceled with 30 days' notice during the initial 10-year lease
term. At the end of that term in 1998, the leases can be renewed for periods
ranging from 10 to 12 years. The table also excludes leases for 10 Saab 340A
aircraft, 10 Saab 340B aircraft, seven Saab 340B Plus aircraft, eight ATR 42
aircraft, and three Super ATR aircraft which can be canceled with six months or
less notice within certain restrictions.
Substantially all of the Airline Group's aircraft leases include an
option to purchase the aircraft or to extend the lease term, or both, with the
purchase price or renewal rental to be based essentially on the market value of
the aircraft at the end of the term of the lease or at a predetermined fixed
rate.
GROUND PROPERTIES
American leases, or has built as leasehold improvements on leased property,
most of its airport and terminal facilities; certain corporate office,
maintenance and training facilities in Fort Worth, Texas; its principal
overhaul and maintenance base and computer facility at Tulsa International
Airport, Tulsa, Oklahoma; its regional reservation offices; and local ticket
and administration offices throughout the system. American has entered into
agreements with the Tulsa Municipal Airport Trust; the Alliance Airport
Authority, Fort Worth, Texas; and the Dallas/Fort Worth, Chicago O'Hare,
Raleigh/Durham, Nashville, San Juan, New York, and Los Angeles airport
authorities to provide funds for constructing, improving and modifying
facilities and acquiring equipment which are or will be leased to American.
American also utilizes public airports for its flight operations under lease or
use arrangements with the municipalities or governmental agencies owning or
controlling them and leases certain other ground equipment for use at its
facilities.
For information concerning the estimated lives and residual values for
owned ground properties, lease terms and amortization relating to ground
properties under capital leases, and acquisitions of ground properties, see
Notes 1, 3 and 4 to the consolidated financial statements.
10
<PAGE> 12
ITEM 3. 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 plaintiffs allege that the 10 percent federal
excise transportation tax should be excluded from the "fare" upon which the 25
percent penalty is assessed. The case has not been certified as a class
action. Summary judgment has been granted for American and the matter is
currently on appeal. American believes the matter is without merit and is
vigorously defending the lawsuit.
American has been sued in two class action cases that have been
consolidated in the Circuit Court of Cook County, Illinois, in connection with
certain changes made to American's AAdvantage frequent flyer program in May,
1988. (Wolens, et al v. American Airlines, Inc., No. 88 CH 7554, and Tucker v.
American Airlines, Inc., No. 89 CH 199.) In both cases, the plaintiffs seek to
represent all persons who joined the AAdvantage program before May 1988.
Currently, the plaintiffs allege that, on that date, American implemented
changes that 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 and that these changes breached
American's contracts with AAdvantage members. Plaintiffs seek money damages
for such alleged breach and attorneys' fees. Previously the plaintiffs also
alleged violation of the Illinois Consumer Fraud and Deceptive Business
Practice Act (Consumer Fraud Act) and sought punitive damages, attorneys' fees
and injunctive relief preventing American from making changes to the AAdvantage
program. American originally moved to dismiss all of the claims asserting that
they were preempted by the Federal Aviation Act and barred by the Commerce
Clause of the U.S. Constitution.
Initially, the trial court denied American's preemption motions, but
certified its decision for interlocutory appeal. In December 1990, the
Illinois Appellate Court held that plaintiffs' claims for an injunction are
preempted by the Federal Aviation Act, but that plaintiffs' claims for money
damages could proceed. On March 12, 1992, the Illinois Supreme Court affirmed
the decision of the Appellate Court. American sought a writ of certiorari from
the U.S. Supreme Court; and on October 5, 1992, the Court vacated the decision
of the Illinois Supreme Court and remanded the cases for reconsideration in
light of the U.S. Supreme Court's decision in Morales v. TWA, et al, which
interpreted the preemption provisions of the Federal Aviation Act very broadly.
On December 16, 1993, the Illinois Supreme Court rendered its decision on
remand, holding that plaintiffs' claims seeking an injunction are preempted,
but that identical claims for compensatory and punitive damages are not
preempted. On February 8, 1994, American filed a petition for a writ of
certiorari in the U.S. Supreme Court. The Illinois Supreme Court granted
American's motion to stay the state court proceeding pending disposition of
American's petition in the U.S. Supreme Court. The matter was argued before
the U.S. Supreme Court on November 1, 1994, and on January 18, 1995, the U.S.
Supreme Court issued its opinion ending a portion of the suit against American.
The U.S. Supreme Court held that a) plaintiffs' claim for violation of the
Illinois Consumer Fraud Act is preempted by federal law -- entirely ending that
part of the case and eliminating plaintiffs' claim for punitive damages; and b)
certain breach of contract claims are not preempted by federal law.
The Court did not determine, however, whether the contract claims
asserted by the plaintiffs are preempted, and therefore, remanded the case to
the state court for further proceedings. Subsequently, plaintiffs filed an
amended complaint seeking damages solely for a breach of contract claim. In
the event that the plaintiffs' breach of contract claim is eventually permitted
to proceed in the state court, American intends to vigorously defend the case.
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. On February 1,
1995 a class action lawsuit entitled Gutterman vs. American Airlines, Inc. was
filed in the Circuit Court of Cook County, Illinois. The Gutterman plaintiffs
claim that this increase in mileage level violated the terms and conditions of
the agreement between American and AAdvantage members. On February 9, 1995, a
virtually identical class action lawsuit entitled Benway vs. American Airlines,
Inc. was filed in District Court, Dallas County, Texas. After limited
discovery and prior to class certification, a summary judgment dismissing the
Benway case was entered by the Dallas County Court in July 1995. On March 11,
1996, American's motion to dismiss the Gutterman lawsuit was denied, although
American's motion for summary judgment is still pending.
11
<PAGE> 13
No class has been certified in the Gutterman lawsuit and to date no discovery
has been undertaken. American believes the Gutterman complaint is without
merit and is vigorously defending the lawsuit.
On February 10, 1995, American capped travel agency commissions for
one-way and round trip domestic tickets at $25 and $50, respectively.
Immediately thereafter, numerous travel agencies, and two travel agency trade
association groups, filed class action lawsuits against American and other
major air carriers (Continental, Delta, Northwest, United, USAir and TWA) that
had independently imposed similar limits on travel agency commissions. The
suits were transferred to the United States District Court for the District of
Minnesota, and consolidated as a multi-district litigation captioned In Re:
Airline Travel Agency Commission Antitrust Litigation. The plaintiffs assert
that the airline defendants conspired to reduce travel agency commissions and
to monopolize air travel in violation of sections 1 and 2 of the Sherman Act.
The case has been certified as a class action on behalf of approximately 40,000
domestic travel agencies and two travel agency trade associations. In June
1995 after extensive, expedited discovery, the travel agents moved for a
preliminary injunction to enjoin the commission caps, and the defendants
simultaneously moved for summary judgment. On August 31, 1995, the District
Court denied both motions. Pre-trial activities against the defendants,
including American, are continuing. American is vigorously defending the
lawsuit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the last quarter of its fiscal year ended December 31, 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of AMR as of December 31, 1995, were:
Robert L. Crandall Mr. Crandall was elected Chairman and Chief
Executive Officer of AMR and American in March
1985. He has been President of AMR since its
formation in 1982 and served as President of
American from 1980 to March 1995. Age 60.
Donald J. Carty Mr. Carty was elected President of American in
March 1995 and Executive Vice President of AMR in
October 1989. Except for two years service as
President of Canadian Pacific Air between March
1985 and March 1987, he has been with the
Company in various finance and planning positions
since 1978. Age 49.
Gerard J. Arpey Mr. Arpey was elected Chief Financial Officer in
March 1995 and Senior Vice President in April
1992. Prior to that, he served as Vice
President of American since October 1989. Age
37.
Anne H. McNamara Mrs. McNamara was elected Senior Vice President and
General Counsel in June 1988. She had served as
Vice President - Personnel Resources of American
from January 1988 through May 1988. She was
elected Corporate Secretary of AMR in 1982 and
American in 1979 and held those positions through
1987. Age 48.
Charles D. MarLett Mr. MarLett was elected Corporate Secretary in
January 1988. He joined American as an attorney
in June 1984. Age 41.
There are no family relationships among the executive officers of the
Company named above.
There have been no events under any bankruptcy act, no criminal
proceedings, and no judgments or injunctions material to the evaluation of the
ability and integrity of any director or executive officer during the past five
years.
12
<PAGE> 14
PART II
- - --------------------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the New York Stock Exchange (symbol
AMR).
The approximate number of record holders of the Company's common stock at March
18, 1996, was 15,935.
The range of closing market prices for AMR's common stock on the New York
Stock Exchange was:
<TABLE>
<CAPTION>
1995 1994
--------------------------------- --------------------------------
High Low High Low
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
QUARTER ENDED
March 31 $ 65 3/4 $ 54 7/8 $ 71 3/4 $ 56 1/2
June 30 76 1/4 64 60 3/4 52 1/4
September 30 79 3/4 68 1/8 62 7/8 50 3/4
December 31 78 64 3/8 55 1/4 48 1/8
</TABLE>
No cash dividends on common stock were declared for any period during
1995 or 1994. Payment of dividends is subject to the restrictions described in
Note 5 to the consolidated financial statements.
13
<PAGE> 15
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(in millions, except per share amounts)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total operating revenues $16,910 $16,137 $15,816 $14,396 $12,887
Operating income (loss)(1) 1,015 1,006 690 (25) 5
Earnings (loss) before
extraordinary loss and
cumulative effect of
accounting changes 196 228 (96) (475) (240)
Earnings (loss) before
cumulative effect of
accounting changes 167 228 (110) (475) (240)
Net earnings (loss) 167 228 (110) (935) (240)
Primary and fully diluted
earnings (loss) per common
share before extraordinary
loss, cumulative effect of
accounting changes, and effect
of preferred stock exchange(2) 2.48 2.26 (2.05) (6.35) (3.54)
Primary and fully diluted
net earnings (loss) per common
share 2.11 4.51 (2.23) (12.49) (3.54)
Total assets 19,556 19,486 19,326 18,706 16,208
Long-term debt 4,983 5,603 5,431 5,643 3,951
Obligations under capital
leases, less current
obligations 2,069 2,275 2,123 2,195 1,928
Obligation for postretirement
benefits 1,439 1,254 1,090 1,006 -
</TABLE>
(1) Operating income (loss) for 1995 and 1994 includes restructuring costs
of $533 million and $278 million, respectively.
(2) Information on the adjustment to the earnings per share computation
for the twelve months ended December 31, 1994, for the effect of the
preferred stock exchange is included in Note 5 to the consolidated
financial statements.
No dividends were declared on common shares during any of the periods above.
Effective January 1, 1992, AMR adopted Statements of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," and No. 109, "Accounting for Income Taxes."
Information on the comparability of results is included in Management's
Discussion and Analysis and the notes to the consolidated financial statements.
14
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AMR was incorporated in October 1982. AMR's principal subsidiary, American
Airlines, Inc., was founded in 1934. For financial reporting purposes, AMR's
operations fall within three major lines of business: the Airline Group, The
SABRE Group and the Management Services Group.
AIRLINE GROUP
The Airline Group consists primarily of American's Passenger and Cargo
divisions, as well as AMR Eagle, Inc. and AMR Leasing Corporation, which are
subsidiaries of AMR.
AMERICAN'S PASSENGER DIVISION is one of the largest scheduled passenger
airlines in the world. At the end of 1995, American provided scheduled jet
service to more than 160 destinations, primarily throughout North America, the
Caribbean, Latin America, Europe and the Pacific.
AMERICAN'S CARGO DIVISION is one of the largest scheduled air freight carriers
in the world. The Cargo Division provides a full range of freight and mail
services to shippers throughout the airline's system. In addition, through
cooperative agreements with other carriers, it has the ability to transport
shipments to virtually any country in the world.
AMR EAGLE, INC. owns the four regional airlines which operate as "American
Eagle" -- Flagship Airlines, Inc., Simmons Airlines, Inc., Executive Airlines,
Inc. and Wings West Airlines, Inc. The American Eagle carriers provide
connecting turboprop service from seven of American's high-traffic cities to
smaller markets throughout the United States, Canada, the Bahamas and the
Caribbean.
AMR LEASING CORPORATION is a financing subsidiary which leases regional
aircraft to subsidiaries of AMR Eagle.
THE SABRE GROUP
AMR formed The SABRE Group in 1993 to capitalize on the synergies of combining
its information technology businesses under common management. The SABRE Group
consists primarily of four business units -- SABRE Travel Information Network
(STIN), SABRE Computer Services (SCS), SABRE Decision Technologies (SDT) and
SABRE Interactive.
STIN markets SABRE -- one of the largest privately owned, real-time computer
systems in the world -- which provides travel distribution and information
services to nearly 30,000 travel agencies in 74 countries on six continents.
SCS manages and maintains AMR's technology infrastructure. This includes the
planning, installation and operation of AMR's data centers, as well as
technology and architectural planning for AMR units and for external customers.
SCS also provides voice and data communication services to AMR, but is
currently in negotiations with a third party to outsource this function.
SDT provides decision support systems, application software packages, systems
development and consulting services to other AMR units and to external
companies in the transportation, travel and other industries worldwide.
SABRE INTERACTIVE is a distribution strategy division formed by The SABRE Group
in 1995 to develop opportunities for consumer-direct travel distribution via
personal computer, CD-ROM, interactive television, cable television and other
media.
MANAGEMENT SERVICES GROUP
The Management Services Group consists of four AMR subsidiaries -- AMR Services
Corporation, Americas Ground Services, Inc. (AGS), AMR Investment Services,
Inc. and Airline Management Services, Inc. (AMS).
15
<PAGE> 17
AMR SERVICES CORPORATION has six operating divisions: Airline Services, AMR
Combs, AMR Distribution Systems, TeleService Resources (TSR), Data Management
Services (DMS) and AMR Training Group. The Airline Services division's main
lines of business include airline passenger, ramp and cargo handling, cabin
service and an array of other air transportation-related services for carriers
around the world. AMR Combs is a premier corporate aviation services network
of 13 facilities in major business centers in the United States and Mexico. It
also is involved in a number of other related businesses, including parts and
aircraft sales and operation of one of the world's largest executive charter
services. AMR Distribution Systems serves the logistics marketplace and
specializes in contract warehousing, trucking and multi-modal freight
forwarding services. TSR provides comprehensive telemarketing and reservation
services for a wide range of clients. DMS provides data capture and document
management services to American and to companies in the insurance, financial
services and transportation industries. AMR Training Group provides a wide
variety of training services and operates the American Airlines Training &
Conference Center, which hosts a multitude of AMR training activities, and
markets its capabilities to other companies.
AGS provides airline ground and cabin service handling at 11 locations in eight
countries in the Caribbean and Central and South America.
AMR INVESTMENT SERVICES, INC. serves as an investment advisor to AMR and other
institutional investors. It also manages the American AAdvantage Funds, which
have both institutional shareholders, including pension funds and bank and
trust companies, and individual shareholders. As of December 31, 1995, AMR
Investment Services was responsible for management of approximately $13.7
billion in assets, including direct management of approximately $4.5 billion in
short-term investments.
AMS was formed in 1994 to manage the Company's service contracts with other
airlines such as the agreement to provide a variety of management, technical
and administrative services to Canadian Airlines International, Ltd. which the
Company signed in 1994.
RESULTS OF OPERATIONS
SUMMARY AMR's net income in 1995 was $167 million ($2.11 per common share,
primary and fully diluted, after preferred dividends). During the fourth
quarter of 1995, AMR recorded a charge of $533 million ($334 million after tax)
related to the cost of future pension and other postretirement benefits for
voluntary early retirement programs offered in conjunction with recently
renegotiated labor contracts covering members of the Transport Workers Union
(TWU) and the Association of Professional Flight Attendants (APFA), as well as
provisions for the writedown of certain McDonnell Douglas DC-10 aircraft and
the planned retirement of certain turboprop aircraft, and other restructuring
activities. Before the special charge, net earnings were $501 million. In
addition to the restructuring charge, the Company's 1995 earnings include a
charge of $41 million ($26 million after tax) related to the loss of an
aircraft operated by American. The expiration of the airline industry's fuel
tax exemption increased the Company's costs by approximately $22 million before
tax. The Company's results were adversely affected by the disruption of
American Eagle operations at the Chicago and Raleigh/Durham hubs in the first
half of 1995 in response to the FAA's temporary restrictions on the operation
of ATR aircraft in known or forecast icing conditions. In addition, in April
1995, a hailstorm at American's Dallas/Fort Worth hub temporarily disabled
approximately 10 percent of American's fleet and approximately nine percent of
AMR Eagle's fleet, forcing the carriers to temporarily reduce scheduled
service. The combined impact of the Eagle fleet disruption and the hailstorm
on 1995 net income was approximately $40 million after tax.
AMR's net income in 1994 was $228 million ($2.26 per common share,
primary and fully diluted, after preferred dividends but before an adjustment
to additional paid-in capital for an exchange of debentures for preferred
stock). During the fourth quarter of 1994, AMR recorded a charge of $278
million ($174 million after tax) related to the cost of future pension and
other postretirement benefits for agent and management/support staff voluntary
early retirement programs, severance and other restructuring activities.
Before the special charge, net earnings were $402 million. In addition to the
restructuring charge, the Company's 1994 earnings include a charge of $25
million ($16 million after tax) related to the loss of two regional aircraft
operated by subsidiaries of AMR Eagle. The Company's results were also
adversely affected by the disruption of American Eagle operations at the
Chicago and Raleigh/Durham hubs referenced above.
16
<PAGE> 18
In response to the increasing competitive emphasis on lower costs and
lower fares, in 1993 the Company began implementing a new strategic framework,
known as the Transition Plan. The Plan has three parts, each intended to
improve the Company's results. First, make the core airline business bigger
and stronger where economically justified. Second, and conversely, shrink the
airline where it cannot compete profitably. Third, encourage and support the
growth of the profitable information and management services businesses.
The Company's improved results reflect progress on each of these three
tenets, as well as strong economies in most of the markets it serves,
relatively low jet fuel prices, and a healthier pricing environment which is
attributable in part to more modest industry capacity growth.
American continued its effort to find the most productive use for each of
its aircraft. During 1995, the Company made major changes to both its jet and
turboprop schedules. American reallocated resources to longer flights and
reduced its short-haul flying, thus improving plane miles per jet aircraft by
more than four percent. To improve the mix of traffic, American increased
frequency in major markets while simultaneously ending hub operations at
Raleigh/Durham and Nashville and reducing or eliminating jet service in 72 city
pairs. On the international front, American increased the scope of its service
to Latin America and the United Kingdom, and took advantage of the new U.S. -
Canadian bilateral agreement to open service on several new Canadian routes and
expand its code-sharing program with Canadian Airlines International (CAI).
To reduce interest expense, the Company repurchased and retired prior to
maturity $378 million in face value of long-term debt, net of sinking fund
balances. In addition, $616 million in outstanding principal of certain debt
and lease obligations was refinanced during 1995. These transactions resulted
in an extraordinary loss of $45 million ($29 million after tax) in 1995.
The Company's non-airline businesses continued their strong performances.
The SABRE Group posted pre-tax earnings of $371 million, a 15.6 percent
increase from 1994. As a result of its increased domestic booking share and
the steady pace of international growth, The SABRE Group's revenues were up
11.0 percent from 1994, and its operating margin was approximately 23.5
percent.
The Management Services Group's pre-tax earnings were $68 million, a 30.8
percent increase from 1994, due primarily to increased revenues for Airline
Management Services, which was formed in 1994 to manage the Company's service
contracts with other airlines, including CAI.
17
<PAGE> 19
BUSINESS SEGMENTS The following sections provide a discussion of AMR's
results by reporting segment. Additional segment information is included in
Note 14 to the consolidated financial statements.
AIRLINE GROUP
FINANCIAL HIGHLIGHTS
(dollars in millions)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Passenger - American Airlines, Inc. $13,335 $12,826 $12,900
- AMR Eagle, Inc. 775 790 711
Cargo 677 666 643
Other 714 613 531
---------- ---------- ---------
15,501 14,895 14,785
EXPENSES
Wages, salaries and benefits 5,082 4,923 4,837
Aircraft fuel 1,623 1,614 1,875
Commissions to agents 1,293 1,335 1,448
Depreciation and amortization 1,070 1,057 1,035
Other operating expenses 5,336 5,080 5,189
Restructuring costs 533 272 -
---------- ---------- ---------
Total operating expenses 14,937 14,281 14,384
---------- ---------- ---------
OPERATING INCOME 564 614 401
OTHER INCOME (EXPENSE) (645) (617) (715)
---------- ---------- ---------
LOSS BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS $(81) $(3) $(314)
---------- ---------- ---------
Average number of equivalent employees 89,400 90,300 94,200
OPERATING STATISTICS
AMERICAN AIRLINES, INC.
Passenger Division
Revenue passenger miles (millions) 102,918 98,896 97,160
Available seat miles (millions) 155,337 152,668 160,890
Passenger revenue yield per passenger mile (cents) 12.96 12.97 13.28
Passenger revenue per available seat mile (cents) 8.58 8.40 8.02
Operating expenses excluding restructuring costs
per available seat mile (cents) 8.43 8.34 8.25
Passenger load factor 66.3% 64.8% 60.4%
Breakeven load factor excluding restructuring costs 61.5% 61.5% 60.5%
Operating aircraft at year-end 635 647 667
Cargo Division
Cargo ton miles (millions) 2,046 1,983 1,826
Revenue yield per ton mile (cents) 32.64 33.11 34.86
AMR EAGLE, INC.
Revenue passenger miles (millions) 2,492 2,486 2,125
Available seat miles (millions) 4,488 4,379 3,821
Passenger load factor 55.5% 56.8% 55.6%
Operating aircraft at year-end 261 270 275
</TABLE>
18
<PAGE> 20
REVENUES
1995 COMPARED TO 1994 Airline Group revenues of $15.5 billion in 1995 were up
$606 million, 4.1 percent, versus 1994. American's passenger revenues
increased 4.0 percent, $509 million. The increase in passenger revenues
resulted primarily from a 4.1 percent increase in passenger traffic, partially
offset by a 0.1 percent decrease in passenger yield (the average amount one
passenger pays to fly one mile) from 12.97 to 12.96 cents. American's average
stage length increased approximately 8.2 percent from 1994 to 1995, which
contributed to the decrease in passenger yield since per mile fares for longer
trips tend to be lower than for shorter trips. For the year, domestic yield
decreased 0.9 percent and Latin American yields decreased 4.2 percent; yield
increased 8.1 percent in Europe and 8.2 percent in the Pacific. In 1995,
American derived 69.4 percent of its passenger revenues from domestic
operations and 30.6 percent from international operations.
American's domestic traffic increased 1.7 percent, to 71.2 billion
revenue passenger miles (RPMs), while domestic capacity, as measured by
available seat miles (ASMs), decreased 1.3 percent. International traffic grew
9.8 percent, to 31.7 billion RPMs on capacity growth of 9.6 percent. The
increase in international traffic was led by a 13.4 percent increase in Latin
America on capacity growth of 12.4 percent, and a 7.4 percent increase in
Europe on capacity growth of 7.9 percent.
The AMR Eagle carriers' passenger revenues decreased by 1.9 percent or
$15 million. Traffic on the AMR Eagle carriers increased 0.2 percent, to 2.5
billion RPMs, while capacity grew 2.5 percent. Passenger yield decreased 2.1
percent, in part due to the carriers' increased stage length as they entered
longer-haul markets. In the first quarter of 1995, AMR Eagle redeployed its
fleet of ATR aircraft in response to the FAA's temporary restrictions on the
operation of ATR aircraft in known or forecast icing conditions. The fleet
disruption adversely impacted AMR Eagle's results in the first and second
quarters of 1995. As of June 30, 1995, the Eagle aircraft had returned to
their original locations.
Other revenues, consisting of contract maintenance and ground handling
services, fees for passenger services such as certain ticketing charges, and
miscellaneous other revenues, increased 16.5 percent, $101 million, primarily
as a result of an increase in contract maintenance and airport ground services
performed by American for other airlines. The remaining portion of the
increase is attributable to the growth in passenger traffic.
1994 COMPARED TO 1993 Airline Group revenues of $14.9 billion in 1994 were up
$110 million, 0.7 percent, versus 1993. American's passenger revenues
decreased 0.6 percent, $74 million. The decline in passenger revenues resulted
primarily from a 2.3 percent decrease in passenger yield from 13.28 to 12.97
cents, partially offset by a 1.8 percent increase in passenger traffic. Yields
were driven lower by competitive fare discounting and the greater presence of
low-fare competitors in certain domestic markets. In addition, from 1993 to
1994, American's average stage length increased approximately 6.4 percent,
contributing to the decline in passenger yields. For the year, domestic yield
decreased 4.0 percent, while yield increased 2.6 percent in Latin America and
4.5 percent in Europe. In 1994, American derived 71.5 percent of its passenger
revenues from domestic operations and 28.5 percent from international
operations.
American's domestic traffic increased 0.4 percent, to 70.0 billion RPMs,
while domestic capacity decreased 6.0 percent. International traffic grew 5.2
percent, to 28.9 billion RPMs, on a capacity reduction of 2.7 percent. The
increase in international traffic was led by a 9.7 percent increase in Latin
America on capacity growth of 1.1 percent, and a 1.6 percent increase in Europe
on a capacity reduction of 6.9 percent. Traffic suffered in 1993 from
American's inability to carry passengers during the flight attendants' strike
in November 1993 and the adverse effect of the strike on passenger demand in
the following month. Traffic in 1994 reflects the negative impact of the FAA's
ban on flying ATR aircraft in known or forecast icing conditions which was in
effect from December 9, 1994 through January 11, 1995. The restrictions
resulted in the temporary suspension of American Eagle ATR service at Chicago
and the Company's decision to end American Eagle service at Raleigh/Durham.
Despite the effect of the ATR restrictions, the AMR Eagle carriers'
passenger revenues increased 11.1 percent, $79 million. Traffic on the AMR
Eagle carriers increased 17.0 percent, to 2.5 billion RPMs, while capacity grew
14.6 percent. Passenger yield decreased 5.0 percent, in part due to the
carriers' increased stage length as they entered longer-haul markets.
19
<PAGE> 21
Other revenues, consisting of fees for excess baggage and other passenger
services, tour marketing, contract maintenance and miscellaneous other
revenues, increased 15.4 percent, $82 million, primarily as a result of
increased passenger traffic, additional contract maintenance work and leasing
of excess aircraft.
EXPENSES
1995 COMPARED TO 1994 Airline Group operating expenses in 1995 included
restructuring charges of $533 million, related to the cost of future pension
and other postretirement benefits for voluntary early retirement programs
offered in conjunction with recently renegotiated labor contracts covering
members of the TWU and the APFA, as well as provisions for the writedown of
certain DC-10 aircraft and the planned retirement of certain turboprop
aircraft, and other restructuring activities. Airline Group operating expenses
in 1994 included restructuring charges of $272 million, primarily resulting
from the cost of future pension and other postretirement benefits related to
agent and management voluntary early retirement programs. Excluding the
restructuring costs, the Airline Group's operating expenses increased 2.8
percent, $395 million. American's capacity increased 1.7 percent, to 155.3
billion ASMs. American's Passenger Division cost per ASM, excluding
restructuring costs, increased 1.1 percent to 8.43 cents.
Despite a 1.0 percent decrease in the average number of equivalent
employees, wages, salaries and benefits expense rose 3.2 percent, $159 million.
The increase was due primarily to contractual wage rate and seniority increases
that are built into the Company's labor contracts and an increase in the
provision for profit sharing.
Fuel expense increased 0.6 percent, $9 million, due to the October 1995
expiration of the fuel tax exemption for the airline industry. The expiration
of the exemption resulted in additional fuel expense of $22 million for 1995.
Absent the fuel tax, fuel expense would have decreased $13 million due
primarily to lower jet fuel prices.
Commissions to agents decreased 3.1 percent, $42 million, due principally
to a reduction in average rates paid to agents attributable primarily to the
change in commission structure implemented in February 1995, partially offset
by commissions on increased passenger revenues.
Other operating expenses, consisting of aircraft rentals, other rentals
and landing fees, food service costs, maintenance expenses and miscellaneous
operating expenses, increased 5.0 percent, $256 million. Maintenance materials
and repairs expense increased 11.7 percent, $66 million, primarily due to
reduced expense in 1994 as a result of warranty recoveries as well as certain
engine and airframe service checks that became due for the first time in 1995.
Miscellaneous operating expenses (including data processing services, booking
fees, crew travel expenses, credit card fees, advertising and communications
costs) increased by 7.4 percent or $176 million, primarily due to costs
associated with increased contract maintenance work that American performed for
other airlines. In addition, the Airline Group recognized approximately $19
million in foreign currency exchange losses attributable to unfavorable
exchange rates, primarily in Latin America.
1994 COMPARED TO 1993 Airline Group operating expenses in 1994 included
restructuring charges of $272 million, primarily resulting from the cost of
future pension and other postretirement benefits related to agent and
management voluntary early retirement programs. Excluding the restructuring
costs, the Airline Group's operating expenses decreased 2.8 percent, $402
million. American's capacity decreased 5.1 percent, due primarily to the
retirement of 41 older aircraft, partially offset by the addition of 22 new
aircraft. Because capacity decreased more rapidly than expenses, American's
Passenger Division cost per ASM, excluding restructuring costs, increased 1.1
percent, to 8.34 cents.
Despite a 4.1 percent decrease in the average number of equivalent
employees, wages, salaries and benefits expense rose 1.8 percent, $86 million.
The increase was due primarily to contractual and other wage and salary
adjustments for existing employees, variable compensation under the Company's
various profit sharing plans, and rising pension and other postretirement
benefits costs.
Aircraft fuel expense decreased 13.9 percent, $261 million, due to an 8.4
percent decrease in American's average price per gallon and a 6.8 percent
decrease in gallons consumed by American. American's average price per gallon
decreased from $0.62 per gallon in 1993 to $0.57 per gallon in 1994. American
consumed an
20
<PAGE> 22
average of 228 million gallons of jet fuel each month. A one-cent increase in
fuel prices costs approximately $2.3 million per month, not considering the
offsetting effect of the Company's fuel price hedging program.
Commissions to agents decreased 7.8 percent, $113 million, due to a lower
percentage of passenger revenues subject to commissions and a change in
classification of certain international commissions.
Other operating expenses, consisting of aircraft rentals, other rentals
and landing fees, food service costs, maintenance expenses and miscellaneous
operating expenses, decreased 2.1 percent, $109 million. Aircraft rentals
decreased 6.5 percent, $48 million, primarily due to the expiration of
operating leases during 1994 on 19 Boeing 727, 19 Jetstream 32 and five Shorts
360 aircraft. Other rentals and landing fees decreased 1.5 percent, $12
million, due primarily to reduced landing fees expense resulting from
American's capacity reductions, partially offset by higher fee rates charged by
airports. Food service costs decreased 4.2 percent, $29 million, due to a 1.8
percent decline in passengers boarded and aggressive cost reduction strategies,
including changes in meal scheduling policies, renegotiation of contracts and
increased use of vendor-prepared products. Maintenance materials and repairs
expense decreased 13.7 percent, $90 million. American's maintenance costs were
lower as a result of retiring older aircraft from the fleet, increased warranty
recoveries, and operational efficiencies gained by reducing the number of
maintenance locations and other initiatives. Offsetting the decrease for
American, growth of the American Eagle operations generated an increase in its
maintenance materials and repairs costs. Miscellaneous operating expenses
(including data processing services, booking fees, crew travel expenses, credit
card fees, advertising and communications costs) increased 3.0 percent, $70
million, primarily due to increased booking fees.
OTHER INCOME (EXPENSE)
Other Income (Expense) consists of interest income and expense, interest
capitalized and miscellaneous - net.
1995 COMPARED TO 1994 Interest expense, net of amounts capitalized, increased
11.9 percent, $72 million, due primarily to the issuance of $1.02 billion of
convertible debentures in exchange for 2.04 million preferred shares in late
1994, and the effect of rising short-term interest rates on floating rate debt
and interest rate swap agreements, partially offset by reductions due to the
repurchase and retirement of debt. Interest income increased $22 million due
primarily to higher average rates and also higher investment balances.
Miscellaneous - net for 1995 includes a $41 million charge related to the
loss of an aircraft operated by American. Miscellaneous - net for 1994
includes a $25 million charge related to the loss of two regional aircraft
operated by subsidiaries of AMR Eagle.
1994 COMPARED TO 1993 Interest expense, net of interest income, increased 1.6
percent, $9 million. Interest expense was higher due to the effect of rising
interest rates on floating rate obligations, partially offset by the
repurchases and retirement of long-term debt, and savings generated by interest
rate swap transactions. Interest capitalized decreased 56.0 percent, $28
million, primarily as a result of the decrease in the average balance during
the year of purchase deposits for flight equipment.
Miscellaneous - net for 1994 includes a $25 million charge related to the
loss of two regional aircraft operated by subsidiaries of AMR Eagle.
Miscellaneous - net for 1993 includes a $125 million charge related to the
retirement of certain DC-10 aircraft.
21
<PAGE> 23
THE SABRE GROUP
FINANCIAL HIGHLIGHTS
(dollars in millions)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES $1,624 $1,463 $1,302
EXPENSES
Wages, salaries and benefits 450 396 375
Depreciation and amortization 172 175 171
Rentals 56 56 49
Other operating expenses 564 482 455
Restructuring costs - 6 -
---------- ---------- ----------
Total operating expenses 1,242 1,115 1,050
---------- ---------- ----------
OPERATING INCOME 382 348 252
OTHER INCOME (EXPENSE) (11) (27) (84)
---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES $371 $321 $168
========== ========== ==========
Average number of equivalent employees 7,500 7,200 6,700
</TABLE>
REVENUES
1995 COMPARED TO 1994 Revenues for The SABRE Group increased 11.0 percent,
$161 million, primarily due to increased booking volumes as a result of
international expansion in Europe, Latin America and Asia, booking fee price
increases and revenue generated from AMR's services agreement with Canadian
Airlines International (CAI).
1994 COMPARED TO 1993 Revenues for The SABRE Group increased 12.4 percent,
$161 million. Booking fee revenues increased due to growth in booking volumes,
increased average fees per booking collected from participating vendors and the
introduction of premium-priced products. Revenues of the AMR Training &
Consulting Group, which began operations in the first quarter of 1993,
increased $29 million. Other revenues rose as a result of increased license
fee revenues and systems development sales.
EXPENSES
1995 COMPARED TO 1994 Wages, salaries and benefits increased 13.6 percent,
$54 million, due primarily to a 4.2 percent increase in the average number of
equivalent employees, annual salary increases and an increase in the provisions
for incentive compensation. Other operating expenses increased 17.0 percent,
$82 million, due to increases in various employee-related costs of $29 million,
primarily contract programmers, and increases in communications costs,
subscriber incentives and other services purchased.
1994 COMPARED TO 1993 Wages, salaries and benefits increased 5.6 percent, $21
million, due primarily to a 7.5 percent increase in the average number of
equivalent employees and increased provisions for incentive compensation.
Rentals increased 14.3 percent, $7 million, due to additional leased data
processing equipment and facilities costs. Other operating expenses increased
5.9 percent, $27 million, primarily due to expansion in international markets
including Europe and Mexico. The SABRE Group's 1994 operating expenses also
include $6 million in costs associated with restructuring activities.
OTHER INCOME (EXPENSE)
Other Income (Expense) for 1993 includes a provision of $71 million for losses
associated with a reservation system project and resolution of related
litigation.
22
<PAGE> 24
MANAGEMENT SERVICES GROUP
FINANCIAL HIGHLIGHTS
(dollars in millions)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES $534 $518 $421
EXPENSES
Wages, salaries and benefits 247 231 169
Depreciation and amortization 17 18 17
Other operating expenses 201 225 198
---------- ---------- ----------
Total operating expenses 465 474 384
---------- ---------- ----------
OPERATING INCOME 69 44 37
OTHER INCOME (EXPENSE) (1) 8 (4)
---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES $68 $52 $33
========== ========== ==========
Average number of equivalent employees 13,100 12,300 10,200
</TABLE>
REVENUES
1995 COMPARED TO 1994 Revenues for the Management Services Group increased
3.1 percent, $16 million. Revenues for Airline Management Services, which was
formed in 1994 to manage the Company's service contracts with other airlines
including CAI, increased $25 million. This increase was partially offset by a
decrease in AMR Services' revenues of 2.1 percent, $10 million, primarily due
to the impact of the sale of AMR Combs' Learjet Service Centers in the first
quarter of 1995, more than offsetting substantial revenue growth within AMR
Services' other lines of business.
1994 COMPARED TO 1993 Revenues for the Management Services Group increased
23.0 percent, $97 million. AMR Services' revenues increased 15.1 percent, $62
million, primarily as a result of strong domestic fuel and deicing service
sales, the acquisition of an additional domestic fixed-base operator in
November 1993 and the expansion of international operations. Revenues of
Americas Ground Services, which began operations in the second quarter of 1993,
increased $17 million.
EXPENSES
1995 COMPARED TO 1994 Wages, salaries and benefits increased 6.9 percent, $16
million, due primarily to a 6.5 percent increase in the average number of
equivalent employees. Other operating expenses decreased 10.7 percent, $24
million, due primarily to the effect of the sale of AMR Combs' Learjet Service
Centers, offset by increased expenses due to the business growth of AMR
Services' other lines of business.
1994 COMPARED TO 1993 Wages, salaries and benefits increased 36.7 percent,
$62 million, due primarily to an increase in the average number of equivalent
employees and wage and salary adjustments for existing employees. Other
operating expenses increased 13.6 percent, $27 million, due primarily to the
expansion of AMR Services and Americas Ground Services.
23
<PAGE> 25
INFLATION
Adjustment of historical cost data to reflect the impact of general inflation
and specific price changes would worsen AMR's operating results, principally
because of the increased depreciation and amortization resulting from the
replacement, at current cost, of equipment and property with assets that have
the same service potential. However, because AMR's monetary liabilities exceed
monetary assets, the worsened operating results would be partially offset by a
decrease in the real value of the net amounts owed.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided net cash of $2.2 billion in 1995, $1.6 billion in
1994 and $1.4 billion in 1993. The $576 million increase from 1994 to 1995
resulted from an increase in net income before non-cash restructuring charges
and provisions for losses of approximately $210 million combined with the
timing of cash payments near year-end. Capital expenditures in 1995 totaled
$928 million, compared to $1.1 billion in 1994 and $2.1 billion in 1993, and
included the acquisition of six Boeing 757-200s and four Boeing 767-300
Extended Range aircraft by American and the acquisition of five Super ATR
turboprop aircraft by AMR Leasing. In addition to the purchase of new aircraft
by American, sixteen Boeing 727 aircraft, eight formerly recorded as capital
leased assets, and eight formerly under operating leases, were purchased upon
the expiration of their lease terms. These capital expenditures, as well as
the expansion of certain airport facilities, were funded primarily with
internally generated cash.
CAPITAL COMMITMENTS
FIRM DELIVERIES At December 31, 1995, AMR had firm orders and payments
remaining of approximately $100 million for four Boeing 757-200 aircraft, all
of which are to be delivered in 1996.
OTHER The Company also has authorized capital expenditures in 1996 of
approximately $350 million for aircraft modifications, computer equipment,
renovations of, and additions to, airport and office facilities and various
other equipment and assets.
AMR intends to finance its capital asset acquisitions through the use of
internally generated funds. At March 1, 1996, no borrowings were outstanding
under American's credit facility and approximately $1.0 billion was available
under the facility.
AMR continually reviews its need for additional aircraft and ground
properties and makes investments based on return-on-investment analyses and
both short-term and long-term profitability forecasts.
AIRCRAFT OPTIONS In addition to aircraft on firm order at December 31, 1995,
American has 80 jet aircraft available on option - five McDonnell Douglas
MD-11s and 75 Fokker 100s. The Company also has 62 turboprop aircraft
available on option - 42 Super ATRs, 10 Saab 2000s and 10 ATR 42s.
OTHER INFORMATION
WORKING CAPITAL AMR (principally American Airlines) historically operates
with a working capital deficit as do most other airline companies. The
existence of such a deficit has not in the past impaired the Company's ability
to meet its obligations as they become due and is not expected to do so in the
future.
DEFERRED TAX ASSETS As of December 31, 1995, the Company had deferred tax
assets aggregating approximately $2.7 billion, including approximately $443
million of alternative minimum tax credit carryforwards. The Company believes
substantially all the deferred tax assets will be realized through reversal of
existing taxable temporary differences.
ENVIRONMENTAL MATTERS Subsidiaries of AMR have been notified of potential
liability with regard to several environmental cleanup sites. At sites where
remedial litigation has commenced, potential liability is joint and several.
AMR's alleged volumetric contributions at the sites are minimal. AMR does not
expect these matters, individually or collectively, to have a significant
impact on its financial position or liquidity. Additional information is
included in Note 3 to the consolidated financial statements.
24
<PAGE> 26
DISCOUNT RATE Due to the decrease in interest rates during 1995, the discount
rate used to determine the Company's pension obligations as of December 31,
1995 and the related expense for 1996 has been decreased. The Company expects
the increase in 1996 pension expense as a result of the change in the discount
rate to be more than offset by the impact of appreciation in the market value
of pension plan assets experienced during 1995.
OUTLOOK FOR 1996
AMR's improved financial performance in 1995 reflects the positive effects of
the Transition Plan the Company began implementing in the early 1990s. The
core tenets of the plan are to strengthen the airline wherever possible, to
withdraw from markets in which the airline cannot compete effectively, and to
grow AMR's profitable non-airline businesses.
AIRLINE GROUP For the Airline Group, improved performance was driven in part
by the strong economy, low jet fuel prices and a more stable pricing
environment attributable to the modest level of industry capacity growth.
AMR continued its effort to find the most productive use for each of its
aircraft. During 1995, the Company made major changes to both its jet and
turboprop schedules. Resources were reallocated to longer flights and
short-haul flying was reduced. The result was an increase in plane miles per
jet aircraft of more than four percent.
Another 1995 initiative was to increase the number of flights between
major business centers such as New York, Chicago, Los Angeles and Dallas/Fort
Worth. In many business markets, American now offers a dozen or more flights
per day. Conversely, the airline reduced its operations in Raleigh/Durham and
Nashville, where, despite its best efforts, American had been unable to earn a
satisfactory return. Jet service was also eliminated from 29 other city pairs.
In many cases, jet service was replaced with turboprop service from American
Eagle, American's regional airline affiliate.
On the international front, American increased the scope of its service
to Latin America and the United Kingdom, and took advantage of the new U.S. -
Canadian bilateral agreement to open service on several new Canadian routes.
Alliances with foreign carriers have become an increasingly prominent
part of American's international endeavors. The new aviation accord with
Canada cleared the way for a wide-ranging code-sharing agreement with Canadian
Airlines. Implemented in phases, this arrangement is one of the industry's
largest, and has already generated a great deal of revenue for both airlines.
Sustaining American's strong revenue performance is critically important
to AMR because the airline's costs remain uncompetitively high. Fortunately,
American did make some progress on the cost front in 1995. The airline
substantially reduced distribution expenses by capping travel agency
commissions at $50 per round-trip for domestic travel, developed new ways to
lower food costs, and cut costs in many other areas as it sought to trim
expenses without sacrificing quality.
Cost initiatives in 1995 also included initial work on a ticketless
travel product which, when combined with devices to speed aircraft boarding,
will streamline and facilitate customers' airport experience. The Company
expects this program, which American will begin implementing in mid-1996, to
allow airport employees to spend less time making computer entries and more
time serving customers.
Despite these efforts, American will not have the fully-competitive cost
structure it needs until it solves its labor cost problem. In this area, as
well, the airline made some progress in 1995. First, the Company negotiated a
new six-year agreement with the Transport Workers Union, which is expected to
save approximately $65 million in 1996, with additional savings in the years
beyond.
Second, further progress was made on the restructuring of American's
airport staffing which began in 1994. American has now outsourced all
passenger handling functions at nearly 30 of its smaller stations and many of
its
25
<PAGE> 27
less specialized customer service functions at most other cities. These
efforts are expected to ultimately save approximately $80 million annually when
steady state is achieved.
Third, the Company completed its "Reinventing Headquarters" program.
This effort is expected to reduce annual headquarters costs by $75 million in
total, about $40 million of which was realized in 1995.
Finally, the long-running arbitration with American's flight attendant
union -- the Association of Professional Flight Attendants -- reached its
conclusion in October. Although the arbitrators' decision provided pay
increases for flight attendants, it also gave the Company the right to
implement the most significant productivity improvements it was seeking.
These labor developments saved the airline some money in 1995, and will
help more in 1996 and in the years beyond. However, until it makes further
progress, particularly with the union that represents American's pilots -- the
Allied Pilots Association (APA) -- the airline will be unable to reduce its
costs to a fully competitive level. Despite American's deteriorating cost
position versus many of its major competitors, the airline has been unable to
make substantive progress to date with the APA on this issue.
As long as the airline's cost structure prevents it from earning a
satisfactory return on new aircraft investments, it will not make sense for
American to purchase additional aircraft.
With no immediate plans to grow its fleet, American has developed an
alternative plan to cover the capacity of the 12 McDonnell Douglas MD-11s it
agreed to sell to Federal Express in 1995. Delivery of the MD-11s began in
early 1996 and will continue through 1999. As the MD-11s are delivered to
Federal Express, American will replace them by reconfiguring some of the Airbus
A300s now flying in the Caribbean for use on its shorter trans-Atlantic routes.
The A300s, in turn, will be replaced by Boeing 727s the airline had
previously planned to retire in 1995. This approach will allow American to
simultaneously complete the Federal Express transaction and sustain both its
European and Caribbean route structures without acquiring new aircraft.
Overall, the 1996 outlook for the Airline Group is favorable. On the
revenue side, many of 1995's favorable trends are expected to continue.
Overall industry capacity is expected to grow only modestly and, assuming the
U.S. economy remains reasonably healthy, demand should keep pace.
However, the pressure to reduce costs will continue. The Airline Group
should see some progress in 1996, due in part to the fact that both the
American and American Eagle schedules should be much more stable in 1996 than
they were in 1995. Also, American's introduction of its version of electronic
ticketing, coupled with an aggressive program of airport automation will, in
the latter part of 1996 and in the years beyond, enable the airline to further
increase the productivity of its agent workforce while simultaneously saving
money in its internal operations.
The Airline Group will also have the benefit in 1996 of the full-year
effect of the numerous changes made in 1995, which will favorably affect food
and beverage costs, distribution expenses and a host of individually smaller
items.
Taken together, the 1995 initiatives and those identified for 1996 are
expected to generate non-labor expense savings, and by improving the
productivity of most work groups, will impact, to some degree, labor costs as
well.
Given the inherent volatility of fuel prices, anticipating the impact of
fuel expense in 1996 is very difficult. Compounding this is the 4.3 cents per
gallon fuel tax on commercial aviation jet fuel for use in domestic operations,
which the airline was exempt from until October 1, 1995. On this date, the
exemption expired and the resulting tax is scheduled to continue, although fuel
tax exemption legislation is pending. American estimates the resulting annual
increase in fuel taxes will be approximately $80 million.
Finally, during 1996, management will continue its efforts to persuade
the leadership of the APA that change is a prerequisite to a successful future
for American Airlines.
26
<PAGE> 28
THE SABRE GROUP The third objective of the Transition Plan is to grow the
Company's profitable non-airline businesses, and AMR was able to do so in 1995.
The SABRE Group, the largest of AMR's non-airline enterprises, continued to
compete successfully in the travel distribution and information technology
industries and recorded both improved earnings and strong margins in 1995.
One of the primary goals of The SABRE Group is to ensure that SABRE
remains the premier global provider of travel distribution information
services. Throughout the year, SABRE made important progress in a number of
international markets, continuing its expansion in Canada, Europe, Mexico,
Latin America and India and forming joint ventures with Japan Airlines' AXESS
Information Network as well as the Civil Aviation Administration of China.
While SABRE's international growth is impressive, the travel distribution
industry is changing at an accelerating rate -- and The SABRE Group is changing
with it. During 1995, the group came under increasing competitive pressure, as
new distribution channels and innovative technology began to divert attention
and resources away from more traditional travel distribution channels. The
SABRE Group is moving quickly to preserve its industry-leading position.
During 1995, the group announced a number of product enhancements and new
products designed to sustain its position as a leading distributor of travel
and travel-related products. Additionally, SABRE Interactive, a new business
unit within The SABRE Group, was formed to help meet the challenges and
opportunities posed by the rapid development of, and growing public interest
in, consumer-direct travel distribution.
Sustaining The SABRE Group's leadership position in the years to come
will require, in the short term, a significant amount of investment spending,
which will be reflected in the group's 1996 results. Nonetheless, The SABRE
Group's record of profitable growth should continue.
AMR plans to more fully develop and market its distinct information
technology expertise through The SABRE Group and continues to investigate
opportunities for further enhancing the value of its information technology
businesses. In furtherance of these opportunities, AMR is taking preliminary
steps, such as obtaining certain consents, that will allow it to proceed
expeditiously should it decide that a reorganization of The SABRE Group into
one or more subsidiaries of AMR is desirable. This reorganization, if
concluded, may involve the transfer to AMR, by means of a dividend, of
American's STIN, SCS, SDS and SABRE Interactive divisions. A final decision to
proceed with a reorganization has not been made, however, and AMR could
determine that conducting the business activities of The SABRE Group within the
current corporate structure continues to be in the best interests of AMR's
shareholders.
MANAGEMENT SERVICES GROUP The Management Services Group, whose activities are
various and diverse, is expected to have continued success in 1996. Similar to
the Airline Group, the Management Services Group is expected to benefit from a
year of relative stability.
BALANCE SHEET OUTLOOK In addition to making progress in each of its business
segments, AMR also made some significant strides towards a stronger balance
sheet in 1995. Since airline earnings, while improved, remain insufficient to
justify the purchase of new aircraft, AMR has opted to use much of its cash
flow to reduce the Company's outstanding debt. Scheduled and early debt
retirement reduced AMR's debt and capital lease obligations by more than $1
billion in 1995, creating a healthier balance sheet and reducing future
interest expense.
American has no immediate plans to acquire either growth or replacement
aircraft, and thus AMR's capital spending in 1996 is expected to total only
about $900 million. The Company expects to generate surplus cash again in
1996. The Company continues to evaluate uses for its surplus cash, which will
likely include the retirement or refinancing of debt and other fixed
obligations, as well as the repurchase, in the open market or otherwise, of a
significant amount of debt in excess of scheduled 1996 repayments. The total
amount and type of debt retired, refinanced and repurchased will depend on
market conditions, American's cash position and other considerations during the
year.
27
<PAGE> 29
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----------
<S> <C>
Report of Independent Auditors 29
Consolidated Statement of Operations 30
Consolidated Balance Sheet 32
Consolidated Statement of Cash Flows 34
Consolidated Statement of Stockholders' Equity 35
Notes to Consolidated Financial Statements 36
</TABLE>
28
<PAGE> 30
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AMR Corporation
We have audited the accompanying consolidated balance sheets of AMR
Corporation as of December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. Our audits also included
the financial statement schedules listed in the index at Item 14(a). These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of AMR
Corporation at December 31, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As discussed in Note 11 to the consolidated financial statements,
effective January 1, 1995, the Company changed its method of accounting for the
impairment of long-lived assets to conform with Statement of Financial
Accounting Standards No. 121.
ERNST & YOUNG LLP
2121 San Jacinto
Dallas, Texas 75201
January 15, 1996
29
<PAGE> 31
AMR CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share amounts)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Airline Group:
Passenger - American Airlines, Inc. $ 13,335 $ 12,826 $ 12,900
- AMR Eagle, Inc. 775 790 711
Cargo 677 666 643
Other 714 613 531
----------- ---------- ----------
15,501 14,895 14,785
The SABRE Group 1,624 1,463 1,302
Management Services Group 534 518 421
Less: Intergroup revenues (749) (739) (692)
----------- ---------- ----------
Total operating revenues 16,910 16,137 15,816
----------- ---------- ----------
EXPENSES
Wages, salaries and benefits 5,779 5,550 5,381
Aircraft fuel 1,623 1,614 1,875
Commissions to agents 1,293 1,335 1,448
Depreciation and amortization 1,259 1,250 1,223
Other rentals and landing fees 878 852 851
Aircraft rentals 671 695 743
Food service 682 670 700
Maintenance materials and repairs 641 577 664
Other operating expenses 2,536 2,310 2,241
Restructuring costs 533 278 -
----------- ---------- ----------
Total operating expenses 15,895 15,131 15,126
----------- ---------- ----------
OPERATING INCOME 1,015 1,006 690
OTHER INCOME (EXPENSE)
Interest income 63 46 60
Interest expense (684) (637) (668)
Interest capitalized 14 22 51
Miscellaneous - net (50) (67) (246)
----------- ---------- ----------
(657) (636) (803)
----------- ---------- ----------
EARNINGS (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY LOSS 358 370 (113)
Income tax provision (benefit) 162 142 (17)
----------- ---------- ----------
EARNINGS (LOSS) BEFORE EXTRAORDINARY LOSS 196 228 (96)
EXTRAORDINARY LOSS, NET OF TAX BENEFIT (29) - (14)
----------- ---------- ----------
NET EARNINGS (LOSS) $ 167 $ 228 $ (110)
=========== ========== ==========
</TABLE>
- - --------------------------------------------------------------------------------
Continued on next page.
30
<PAGE> 32
AMR CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
(in millions, except per share amounts)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
NET EARNINGS (LOSS) $ 167 $ 228 $ (110)
Preferred stock dividends (5) (56) (60)
------- ------- --------
162 172 (170)
Increase in additional paid-in capital from preferred
stock exchange - 171 -
------- ------- --------
EARNINGS (LOSS) APPLICABLE TO COMMON SHARES $ 162 $ 343 $ (170)
======= ======= ========
EARNINGS (LOSS) PER COMMON SHARE (PRIMARY AND
FULLY DILUTED):
Before effect of preferred stock exchange and
extraordinary loss $ 2.48 $ 2.26 $ (2.05)
Effect of preferred stock exchange - 2.25 -
Extraordinary loss (0.37) - (0.18)
------- ------- --------
Net earnings (loss) $ 2.11 $ 4.51 $ (2.23)
======= ======= ========
</TABLE>
- - ----------------------------------------
The accompanying notes are an integral part of these financial statements.
31
<PAGE> 33
AMR CORPORATION
CONSOLIDATED BALANCE SHEET
(in millions)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
---------------------------------
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 82 $ 23
Short-term investments 819 754
Receivables, less allowance for uncollectible
accounts (1995 - $18; 1994 - $26) 1,153 1,044
Inventories, less allowance for obsolescence
(1995 - $250; 1994 - $179) 589 678
Deferred income taxes 357 325
Other current assets 137 132
------------ ------------
Total current assets 3,137 2,956
EQUIPMENT AND PROPERTY
Flight equipment, at cost 13,396 13,439
Less accumulated depreciation 3,544 3,435
------------ ------------
9,852 10,004
Other equipment and property, at cost 4,204 4,046
Less accumulated depreciation 2,240 2,030
------------ ------------
1,964 2,016
------------ ------------
11,816 12,020
EQUIPMENT AND PROPERTY UNDER CAPITAL LEASES
Flight equipment 2,368 2,508
Other equipment and property 256 268
------------ ------------
2,624 2,776
Less accumulated amortization 875 898
------------ ------------
1,749 1,878
OTHER ASSETS
Route acquisition costs, less accumulated amortization
(1995 - $153; 1994 - $124) 1,003 1,032
Airport operating and gate lease rights,
less accumulated amortization (1995 - $104; 1994 - $86) 364 382
Prepaid pension cost 268 99
Other 1,219 1,119
------------ ------------
2,854 2,632
------------ ------------
TOTAL ASSETS $ 19,556 $ 19,486
============ ============
</TABLE>
- - --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
32
<PAGE> 34
AMR CORPORATION
CONSOLIDATED BALANCE SHEET
(in millions, except shares and par value)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
---------------------------------
1995 1994
------------ -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 817 $ 920
Accrued salaries and wages 729 619
Accrued liabilities 1,331 1,004
Air traffic liability 1,466 1,473
Current maturities of long-term debt 228 590
Current obligations under capital leases 122 128
------------ -----------
Total current liabilities 4,693 4,734
LONG-TERM DEBT, LESS CURRENT MATURITIES 4,983 5,603
OBLIGATIONS UNDER CAPITAL LEASES,
LESS CURRENT OBLIGATIONS 2,069 2,275
OTHER LIABILITIES AND CREDITS
Deferred income taxes 446 279
Deferred gains 696 733
Postretirement benefits 1,439 1,254
Other liabilities and deferred credits 1,510 1,228
------------ -----------
4,091 3,494
COMMITMENTS, LEASES AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Convertible preferred stock:
20,000,000 shares authorized,
159,000 shares issued and outstanding 78 78
Common stock - $1 par value; shares authorized:
150,000,000; shares issued and outstanding:
1995 - 76,400,000; 1994 - 75,900,000 76 76
Additional paid-in capital 2,239 2,212
Other (91) (242)
Retained earnings 1,418 1,256
------------ -----------
3,720 3,380
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,556 $ 19,486
============ ===========
</TABLE>
- - --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
33
<PAGE> 35
AMR CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 167 $ 228 $ (110)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation and amortization 1,259 1,250 1,223
Deferred income taxes 50 145 (30)
Provision for restructuring costs 533 278 -
Provisions for losses 41 25 196
Change in assets and liabilities:
Decrease (increase) in receivables (109) (135) 37
Increase in inventories (11) (19) (27)
Increase (decrease) in accounts payable
and accrued liabilities 441 (216) 34
Increase (decrease) in air traffic liability (7) 13 (64)
Other, net (179) 40 118
---------- ---------- ----------
Net cash provided by operating activities 2,185 1,609 1,377
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (928) (1,114) (2,080)
Net decrease (increase) in short-term investments (65) (239) 290
Investment in Canadian Airlines International, Ltd. - (177) -
Other, net 68 67 36
---------- ---------- ----------
Net cash used for investing activities (925) (1,463) (1,754)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from:
Issuance of long-term debt 184 146 730
Sale-leaseback transactions - 280 -
Issuance of convertible preferred stock - - 1,081
Net short-term borrowings (repayments)
with maturities of 90 days or less - - (351)
Other short-term borrowings - 200 -
Payments on other short-term borrowings - (200) (29)
Payments on long-term debt and capital lease obligations (1,401) (549) (1,069)
Payment of preferred stock dividends (5) (66) (49)
Other, net 21 3 82
---------- ---------- ----------
Net cash provided by (used for) financing activities (1,201) (186) 395
---------- ---------- ----------
Net increase (decrease) in cash 59 (40) 18
Cash at beginning of year 23 63 45
---------- ---------- ----------
Cash at end of year $ 82 $ 23 $ 63
========== ========== ==========
</TABLE>
- - --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
34
<PAGE> 36
AMR CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in millions, except shares and per share amounts)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-in Retained
Stock Stock Capital Other Earnings Total
--------- ------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 $ - $ 75 $ 2,018 $ - $ 1,256 $ 3,349
Net loss - - - - (110) (110)
Sale of 2,200,000 shares 1,081 - - - - 1,081
Preferred stock dividends
($27.27 per share) - - - - (60) (60)
Issuance of 339,506 shares
pursuant to stock option,
deferred stock and restricted
stock incentive plans - 1 17 - - 18
Other - - - - (2) (2)
------- ----- -------- -------- ------- -------
Balance at December 31, 1993 1,081 76 2,035 1,084 4,276
Net earnings - - - - 228 228
Exchange of convertible
debentures for 2,041,000
preferred shares (1,003) - 171 - - (832)
Preferred stock dividends
($30.00 per share) - - - - (56) (56)
Issuance of 127,694 shares
pursuant to stock option,
deferred stock and restricted
stock incentive plans - - 6 - - 6
Adjustment for minimum pension
liability, net of tax benefit
of $120 - - - (199) - (199)
Unrealized loss on investments,
net of tax benefit of $18 - - - (43) - (43)
------- ----- -------- -------- ------- -------
Balance at December 31, 1994 78 76 2,212 (242) 1,256 3,380
Net earnings - - - - 167 167
Preferred stock dividends
($30.00 per share) - - - - (5) (5)
Issuance of 507,826 shares
pursuant to stock option,
deferred stock and restricted
stock incentive plans - - 27 - - 27
Adjustment for minimum pension
liability, net of tax benefit
of $120 - - - 198 - 198
Unrealized loss on investments,
net of tax benefit of $28 - - - (47) - (47)
------- ----- -------- -------- ------- -------
Balance at December 31, 1995 $ 78 $ 76 $ 2,239 $ (91) $ 1,418 $ 3,720
======= ===== ======== ======== ======= =======
</TABLE>
- - --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
35
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
BASIS OF CONSOLIDATION The consolidated financial statements include the
accounts of AMR Corporation (AMR or the Company), its principal subsidiary,
American Airlines, Inc. (American), and its other wholly-owned subsidiaries.
All significant intercompany transactions have been eliminated. Certain
amounts from prior years have been reclassified to conform with the 1995
presentation.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
INVENTORIES Spare parts, materials and supplies relating to flight equipment
are carried at average cost and are expensed when used in operations.
Allowances for obsolescence are provided, over the estimated useful life of the
related aircraft and engines, for spare parts expected to be on hand at the
date aircraft are retired from service. These allowances are based on
management estimates, which are subject to change.
EQUIPMENT AND PROPERTY The provision for depreciation of operating equipment
and property is computed on the straight-line method applied to each unit of
property, except that spare assemblies are depreciated on a group basis. The
depreciable lives and residual values used for the principal depreciable asset
classifications are:
<TABLE>
<CAPTION>
Residual
Depreciable Life Value
--------------------------------- ---------
<S> <C> <C>
Boeing 727-200 21 years(1) 5%
DC-10-10 December 31, 1998(2) 0%
DC-10-30 December 31, 1999(2) 5%
Other jet aircraft 20 years 5%
Regional aircraft and engines 15-17 years 10%
Major rotable parts, avionics and assemblies Life of equipment to which 10%
applicable
Improvements to leased flight equipment Term of lease None
Buildings and improvements (principally on 10-30 years or term of lease None
leased land)
Other equipment 3-20 years None
</TABLE>
(1) In 1991, American changed the estimated useful lives of its Boeing
727-200 aircraft and engines from a common retirement date of December
31, 1994, to projected retirement dates by aircraft, which results in
an average depreciable life of approximately 21 years.
(2) Approximate common retirement date.
Equipment and property under capital leases are amortized over the term
of the leases and such amortization is included in depreciation and
amortization. Lease terms vary but are generally 10 to 25 years for aircraft
and 7 to 40 years for other leased equipment and property.
MAINTENANCE AND REPAIR COSTS Maintenance and repair costs for owned and
leased flight equipment are charged to operating expense as incurred, except
engine overhaul costs incurred by AMR's regional carriers, which are accrued on
the basis of hours flown.
36
<PAGE> 38
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS The Company continually evaluates intangible assets to
determine whether current events and circumstances warrant adjustment of the
carrying values or amortization periods.
Route acquisition costs and airport operating and gate lease rights
represent the purchase price attributable to route authorities, airport
take-off and landing slots and airport gate leasehold rights acquired, and are
being amortized on a straight-line basis over 10 to 40 years.
PASSENGER REVENUES Passenger ticket sales are initially recorded as a
component of air traffic liability. Revenue derived from ticket sales is
recognized at the time transportation is provided. However, due to various
factors, including the complex pricing structure and interline agreements
throughout the industry, certain amounts are recognized in revenue using
estimates regarding both the timing of the revenue recognition and the amount
of revenue to be recognized. Actual results could differ from those estimates.
ADVERTISING COSTS The Company expenses the costs of advertising as incurred.
Advertising expense was $192 million, $201 million and $202 million for the
years ended December 31, 1995, 1994 and 1993, respectively.
FREQUENT FLYER PROGRAM The estimated incremental cost of providing free
travel awards is accrued when such award levels are reached. American sells
mileage credits to companies participating in its frequent flyer program. A
portion of the revenue from the sale of mileage credits is deferred and
recognized over a period approximating the period during which the mileage
credits are used.
INCOME TAXES AMR and its eligible subsidiaries file a consolidated federal
income tax return. Deferred income taxes reflect the net tax effects of
temporary differences between the financial reporting carrying amounts of
assets and liabilities and the income tax amounts.
DEFERRED GAINS Gains on the sale and leaseback of equipment and property are
deferred and amortized over the terms of the related leases as a reduction of
rent expense.
STATEMENT OF CASH FLOWS Short-term investments, without regard to remaining
maturity at acquisition, are not considered as cash equivalents for purposes of
the statement of cash flows.
EARNINGS (LOSS) PER COMMON SHARE Earnings (loss) per share computations are
based upon the earnings (loss) applicable to common shares and the average
number of shares of common stock outstanding and dilutive common stock
equivalents (stock options, warrants and deferred stock) outstanding. The
convertible subordinated debentures and the convertible preferred stock are not
common stock equivalents. The number of shares used in the computations of
primary and fully diluted earnings (loss) per common share for the years ended
December 31, 1995, 1994 and 1993, was 76.8 million, 76.2 million and 76.0
million, respectively.
Information on the adjustment to the earnings per share computation for
the year ended December 31, 1994, for the effect of the preferred stock
exchange is included in Note 5.
STOCK OPTIONS The Company accounts for officer and key employee stock option
grants in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations. Under APB 25, no compensation expense is recognized for stock
option grants if the exercise price of the Company's stock option grants is at
or above the fair market value of the underlying stock on the date of grant.
37
<PAGE> 39
2. INVESTMENTS
Short-term investments consisted of (in millions):
<TABLE>
<CAPTION>
December 31,
---------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Overnight investments and time deposits $ 136 $ 324
Corporate notes 457 246
Other debt securities 226 184
------------ ------------
$ 819 $ 754
============ ============
</TABLE>
Short-term investments at December 31, 1995, by contractual maturity
included (in millions):
<TABLE>
<S> <C>
Due in one year or less $ 461
Due after one year through three years 278
Due after three years 80
------------
$ 819
============
</TABLE>
In addition, the Company has an investment in the cumulative mandatorily
redeemable convertible preferred stock of Canadian Airlines International.
This investment is recorded at its estimated fair value of $55 million and $137
million at December 31, 1995 and 1994, respectively. The unrealized loss on
this investment was $137 million and $53 million at December 31, 1995 and 1994,
respectively.
All investments were classified as available-for-sale and stated at fair
value. Net unrealized gains and losses, net of deferred taxes, are reflected
as an adjustment to stockholders' equity.
3. COMMITMENTS AND CONTINGENCIES
The Company has on order four Boeing 757-200 jet aircraft scheduled for
delivery in 1996. Remaining payments for these aircraft and related equipment
will be approximately $100 million in 1996. In addition to these commitments
for aircraft, the Company has authorized expenditures of approximately $850
million for aircraft modifications, renovations of, and additions to, airport
and office facilities and various other equipment and assets. AMR expects to
spend approximately $350 million of this amount in 1996.
In April 1995, American announced an agreement to sell 12 of its
McDonnell Douglas MD-11 aircraft to Federal Express Corporation (FedEx), with
delivery of the aircraft between 1996 and 1999. In addition, American has the
option to sell its remaining seven MD-11 aircraft to FedEx with deliveries
between 2000 and 2002. The carrying value of the 12 aircraft American has
committed to sell was approximately $837 million as of December 31, 1995.
Included in depreciation expense are charges related to these aircraft which
totaled approximately $23 million for the year ended December 31, 1995.
AMR and American have included an event risk covenant in approximately
$330 million of debentures and approximately $2.9 billion of lease agreements.
The covenant permits the holders of such instruments to receive a higher rate
of return (between 50 and 700 basis points above the stated rate) if a
designated event, as defined, should occur and the credit rating of the
debentures or the debt obligations underlying the lease agreements is
downgraded below certain levels.
38
<PAGE> 40
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Special facility revenue bonds have been issued by certain
municipalities, primarily to purchase equipment and improve airport facilities
which are leased by American. In certain cases, the bond issue proceeds were
loaned to American and are included in long-term debt. Certain bonds have
rates that are periodically reset and are remarketed by various agents. In
certain circumstances, American may be required to purchase up to $437 million
of the special facility revenue bonds prior to maturity, in which case American
has the right to resell the bonds or to use the bonds to offset its lease or
debt obligations. American may borrow the purchase price of these bonds under
standby letter-of- credit agreements. At American's option, these letters of
credit are secured by funds held by bond trustees and by approximately $429
million of short-term investments.
The Miami International Airport Authority is currently remediating
various environmental conditions at the Miami International Airport (Airport)
and funding the remediation costs through landing fee revenues. Some of the
costs of the remdiation effort may be borne by carriers currently operating at
the Airport, including American, through increased landing fees since certain
of the potentially responsible parties are no longer in business. The future
increase in landing fees may be material but cannot be reasonably estimated
due to various factors, including the unknown extent of the remedial actions
that may be required, the proportion of the cost that will ultimately be
recovered from the responsible parties, and uncertainties regarding the
environmental agencies that will ultimately supervise the remedial activities
and the nature of that supervision. The ultimate resolution is not, however,
expected to have a significant impact on the financial position or the
liquidity of AMR.
American's collective bargaining agreement with the Allied Pilots
Association (APA) became amendable on August 31, 1994. In January 1996, the
APA filed a petition with the National Mediation Board (NMB) to appoint a
federal mediator. A mediator has been appointed, and initial meetings have
been held between the APA and the NMB mediator and between American and the NMB
mediator. Joint meetings began in March 1996. The outcome of these
negotiations and the impact on the Company cannot be determined at this time.
4. LEASES
AMR's subsidiaries lease various types of equipment and property,
including aircraft, passenger terminals, equipment and various other
facilities. The future minimum lease payments required under capital leases,
together with the present value of net minimum lease payments, and future
minimum lease payments required under operating leases that have initial or
remaining non-cancelable lease terms in excess of one year as of December 31,
1995, were (in millions):
<TABLE>
<CAPTION>
Capital Operating
Year Ending December 31, Leases Leases
----------- ------------
<S> <C> <C>
1996 $ 248 $ 879
1997 273 919
1998 268 926
1999 263 918
2000 328 874
2001 and subsequent 1,954 14,402
----------- ------------
3,334 (1) $ 18,918 (2)
============
Less amount representing interest 1,143
-----------
Present value of net minimum lease payments $ 2,191
===========
</TABLE>
(1) Future minimum payments required under capital leases include $205
million and $203 million guaranteed by AMR and American, respectively,
relating to special facility revenue bonds issued by municipalities.
(2) Future minimum payments required under operating leases include $6.2
billion guaranteed by AMR relating to special facility revenue bonds
issued by municipalities.
At December 31, 1995, the Company had 198 jet aircraft and 109 turboprop
aircraft under operating leases, and 74 jet aircraft and 63 turboprop aircraft
under capital leases.
39
<PAGE> 41
4. LEASES (CONTINUED)
The aircraft leases can generally be renewed at rates based on fair
market value at the end of the lease term for one to five years. Most aircraft
leases have purchase options at or near the end of the lease term at fair
market value, but generally not to exceed a stated percentage of the defined
lessor's cost of the aircraft. Of the aircraft American has under operating
leases, 15 Boeing 767-300 Extended Range aircraft are cancelable upon 30 days'
notice during the initial 10-year lease term. At the end of that term in 1998,
the leases can be renewed for periods ranging from 10 to 12 years.
Rent expense, excluding landing fees, was $1.3 billion for 1995, 1994 and
1993.
5. INDEBTEDNESS
Long-term debt (excluding amounts maturing within one year) consisted of
(in millions):
<TABLE>
<CAPTION>
December 31,
---------------------------------
1995 1994
----------- ------------
<S> <C> <C>
6.075% - 10.70% notes due through 2025 $ 2,368 $ 2,531
8.625% - 10.20% debentures due through 2021
(net of unamortized discount of $8) 972 1,188
6.125% convertible subordinated debentures due 2024
(net of unamortized discount of $187 at December 31, 1995) 834 832
Variable rate indebtedness due through 2024
(3.833% - 7.188% at December 31, 1995) 475 681
6.0% - 9.25% bonds due through 2031 275 280
Other 59 91
----------- ------------
Long-term debt, less current maturities $ 4,983 $ 5,603
=========== ============
</TABLE>
Maturities of long-term debt (including sinking fund requirements) for
the next five years are: 1996 - $228 million; 1997 - $388 million; 1998 - $432
million; 1999 - $63 million; 2000 - $57 million.
Certain debt is secured by aircraft, engines, equipment and other assets
having a net book value of approximately $1.3 billion.
In November 1994, AMR issued $1.02 billion in par value of convertible
subordinated debentures in exchange for 2.04 million shares of its outstanding
convertible preferred stock with a carrying value of $1.0 billion. Each $1,000
debenture is convertible into common stock of AMR at a conversion price of $79
per share, equivalent to 12.658 shares per $1,000 debenture. As a result of
the exchange, the Company recorded a $171 million non-cash increase in
additional paid-in capital, representing the difference in the fair value of
the new debentures and the carrying value of the preferred shares exchanged.
While this amount did not impact net earnings for the year ended December 31,
1994, it is included in the computation of earnings per share.
During 1995, AMR repurchased and retired prior to maturity $378 million
in face value of long-term debt, net of sinking fund balances. Cash from
operations provided the funding for the repurchases and retirements. In
addition, $616 million in outstanding principal of certain debt and lease
obligations was refinanced during 1995. These transactions resulted in an
extraordinary loss of $45 million ($29 million after tax) for the year ended
December 31, 1995.
During 1993, AMR repurchased and retired prior to maturity its zero
coupon subordinated convertible notes due 2006 and certain other long-term debt
with a total carrying value of $802 million. The repurchases and retirements
resulted in an extraordinary loss of $21 million ($14 million after tax) for
the year ended December 31, 1993. Additional borrowings and cash from
operations provided the funding for the repurchases and retirements.
40
<PAGE> 42
5. INDEBTEDNESS (CONTINUED)
American has a $1.0 billion credit facility agreement which expires in
1999. Interest on the agreement is calculated at floating rates based upon the
London Interbank Offered Rate (LIBOR). At January 15, 1996, no borrowings were
outstanding and $1.0 billion was available under this facility.
Certain of AMR's debt agreements contain restrictive covenants, including
a limitation on the declaration of dividends on shares of capital stock. At
December 31, 1995, under the terms of such agreements, all of AMR's retained
earnings were available for payment of dividends. Certain of American's debt
and credit facility agreements also contain certain restrictive covenants,
including a cash flow coverage test, a minimum net worth requirement and
limitations on indebtedness and limitations on the declaration of dividends.
Certain of these restrictions could affect AMR's ability to pay dividends. At
December 31, 1995, under the most restrictive provisions of those agreements,
approximately $857 million of American's retained earnings were available for
payment of dividends to AMR.
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
As part of the Company's risk management program, AMR uses a variety of
financial instruments, including interest rate swaps, fuel swaps and currency
exchange agreements. The Company does not hold or issue derivative financial
instruments for trading purposes.
NOTIONAL AMOUNTS AND CREDIT EXPOSURES OF DERIVATIVES
The notional amounts of derivative financial instruments summarized in
the tables which follow do not represent amounts exchanged between the parties
and, therefore, are not a measure of the Company's exposure resulting from its
use of derivatives. The amounts exchanged are calculated based on the notional
amounts and other terms of the instruments, which relate to interest rates,
exchange rates or other indices.
The Company is exposed to credit losses in the event of non-performance
by counterparties to these financial instruments, but it does not expect any of
the counterparties to fail to meet its obligations. The credit exposure
related to these financial instruments is represented by the fair value of
contracts with a positive fair value at the reporting date, reduced by the
effects of master netting agreements. To manage credit risks, the Company
selects counterparties based on credit ratings, limits its exposure to a single
counterparty under defined guidelines, and monitors the market position of the
program and its relative market position with each counterparty. The Company
also maintains industry-standard security agreements with the majority of its
counterparties which may require the Company or the counterparty to post
collateral if the value of these instruments falls below certain mark-to-market
thresholds. As of December 31, 1995, no collateral was required under these
agreements, and the Company does not expect to post collateral in the near
future.
INTEREST RATE RISK MANAGEMENT
American enters into interest rate swap contracts to effectively convert
a portion of its fixed-rate obligations to floating-rate obligations. These
agreements involve the exchange of amounts based on a floating interest rate
for amounts based on fixed interest rates over the life of the agreement
without an exchange of the notional amount upon which the payments are based.
The differential to be paid or received as interest rates change is accrued and
recognized as an adjustment of interest expense related to the obligation. The
related amount payable to or receivable from counterparties is included in
current liabilities or assets. The fair values of the swap agreements are not
recognized in the financial statements. Gains and losses on terminations of
interest rate swap agreements are deferred as an adjustment to the carrying
amount of the outstanding obligation and amortized as an adjustment to interest
expense related to the obligation over the remaining term of the original
contract life of the terminated swap agreement. In the event of the early
extinguishment of a designated obligation, any realized or unrealized gain or
loss from the swap would be recognized in income coincident with the
extinguishment. Because American's operating results tend to be better in
economic cycles with relatively high interest rates and its capital investments
tend to be financed with long- term fixed-rate instruments, interest rate swaps
in which American pays the floating rate and receives the fixed rate are used
to reduce the impact of economic cycles on American's net income.
41
<PAGE> 43
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
The following table indicates the notional amounts and fair values of the
Company's interest rate swap agreements (in millions):
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1995 1994
------------------------------ ------------------------------
Notional Notional
Amount Fair Value Amount Fair Value
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Interest rate swap agreements $ 1,980 $ 12 $ 1,980 $ (174)
</TABLE>
The fair values represent the amount the Company would receive or pay to
terminate the agreements at December 31, 1995 and 1994, respectively.
At December 31, 1995, the weighted average remaining life of the interest
rate swap agreements in effect was 3.1 years. The weighted average floating
rates and fixed rates on the contracts outstanding were:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1994
---------- ----------
<S> <C> <C>
Average floating rate 5.786% 5.720%
Average fixed rate 5.304% 5.207%
</TABLE>
Floating rates are based primarily on LIBOR and may change significantly,
affecting future cash flows. The net impact of the interest rate swap program
on interest expense was an increase of $18 million in 1995 and a decrease of
$14 million in 1994. The impact on the Company's weighted-average borrowing
rate for the periods presented is immaterial.
FUEL PRICE RISK MANAGEMENT
American enters into fuel swap contracts to protect against increases in
jet fuel prices. Under the agreements, American receives or makes payments
based on the difference between a fixed price and a variable price for certain
fuel commodities. Gains and losses on fuel swap agreements are recognized as a
component of fuel expense when the underlying fuel being hedged is used. At
December 31, 1995, American had agreements with broker-dealers to exchange
payments on approximately 295 million gallons of fuel products, which
represents approximately 11 percent of its expected 1996 fuel needs. The
Company does not expect the fuel price hedging program to have a material
effect on liquidity. The fair value of the Company's fuel swap agreements at
December 31, 1995, representing the amount the Company would receive to
terminate the agreements, was immaterial.
42
<PAGE> 44
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
FOREIGN EXCHANGE RISK MANAGEMENT
To hedge against the risk of future currency exchange rate fluctuations
on certain debt and lease obligations and related interest payable in foreign
currencies, the Company has entered into various foreign currency exchange
agreements. Changes in the value of the agreements due to exchange rate
fluctuations are offset by changes in the value of the foreign currency
denominated debt and lease obligations translated at the current exchange rate.
Discounts or premiums are accreted or amortized as an adjustment to interest
expense over the lives of the underlying debt or lease obligations. The
related amounts due to or from counterparties are included in other liabilities
or other assets. The net fair values of the Company's currency exchange
agreements, representing the amount AMR would receive to terminate the
agreements, were:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------
1995 1994
-------------------------------- --------------------------------
Notional Fair Value Notional Fair Value
Amount (in millions) Amount (in millions)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Swiss Francs 195 million $ 80 195 million $ 54
Japanese Yen 25.0 billion 28 25.6 billion 41
</TABLE>
The Swiss Franc agreement carries an exchange rate of 1.63 Francs per
U.S. dollar. The exchange rates on the Japanese Yen agreements range from
66.50 to 137.26 Yen per U.S. dollar.
To hedge against the risk of future exchange rate fluctuations on a
portion of American's foreign cash flows, the Company entered into various
currency put option agreements during 1995 on a number of foreign currencies.
The option contracts are denominated in the same foreign currency in which the
projected foreign cash flows are expected to be denominated. These contracts
are designated and effective as hedges of probable quarterly foreign cash flows
for various periods through September 30, 1998, which otherwise would expose
the Company to foreign currency risk. Realized gains on the currency put
option agreements are recognized as a component of passenger revenue. At
December 31, 1995, the notional amount related to these options totaled
approximately $743 million and the fair value, representing the amount AMR
would receive to terminate the agreements, totaled approximately $16.5 million.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of the Company's long-term debt were estimated using
quoted market prices, where available. For long-term debt not actively traded,
fair values were estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of borrowing
arrangements. The carrying amounts and fair values of the Company's long-term
debt, including current maturities, were (in millions):
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
1995 1994
------------------------------ -------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
6.075% - 10.70% notes $ 2,454 $ 2,750 $ 2,778 $ 2,692
8.625% - 10.20% debentures 973 1,135 1,188 1,117
6.125% convertible subordinated
debentures 834 1,036 832 826
Variable rate indebtedness 601 601 1,005 1,005
6.0% - 9.25% bonds 275 341 280 342
Other 74 80 110 95
----------- ----------- ----------- ------------
$ 5,211 $ 5,943 $ 6,193 $ 6,077
=========== =========== =========== ============
</TABLE>
43
<PAGE> 45
7. INCOME TAXES
The significant components of the income tax provision (benefit) were (in
millions):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Current $ 112 $ (3) $ 13
Deferred 50 217 268
Benefit of operating loss carryforwards - (72) (298)
------------ ------------ ------------
$ 162 $ 142 $ (17)
============ ============ ============
</TABLE>
The income tax provision (benefit) includes a federal income tax
provision of $133 million and $108 million for the years ended December 31,
1995 and 1994, respectively, and a federal income tax benefit of $30 million
for the year ended December 31, 1993.
The income tax provision (benefit) differed from amounts computed at the
statutory federal income tax rate as follows (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Statutory income tax provision (benefit) $ 125 $ 130 $ (40)
Meal expense 22 21 9
State income tax provision (benefit), net 11 15 4
Amortization 3 7 4
Rate difference on net operating loss carryback - (16) -
Other, net 1 (15) 6
------------ ------------ ------------
Income tax provision (benefit) $ 162 $ 142 $ (17)
============ ============ ============
</TABLE>
44
<PAGE> 46
7. INCOME TAXES (CONTINUED)
The components of AMR's deferred tax assets and liabilities were (in
millions):
<TABLE>
<CAPTION>
December 31,
---------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Deferred tax assets:
Postretirement benefits other than pensions $ 504 $ 439
Gains from lease transactions 253 269
Alternative minimum tax credit carryforwards 443 348
Operating loss carryforwards 718 719
Other 780 687
Valuation allowance (12) (18)
------------ ------------
Total deferred tax assets 2,686 2,444
------------ ------------
Deferred tax liabilities:
Accelerated depreciation and amortization (2,443) (2,191)
Pensions (65) (5)
Other (267) (202)
------------ ------------
Total deferred tax liabilities (2,775) (2,398)
------------ ------------
Net deferred tax asset (liability) $ (89) $ 46
============ ============
</TABLE>
At December 31, 1995, AMR had available for federal income tax purposes
approximately $443 million of alternative minimum tax credit carryforwards
available for an indefinite period, and approximately $2.1 billion of net
operating loss carryforwards for regular tax purposes which expire as follows:
2007 - $851 million; 2008 - $838 million; and 2009 - $363 million.
8. PREFERRED STOCK
In 1993, AMR issued 2.2 million shares of 6% Series A cumulative
convertible preferred stock, resulting in net proceeds of approximately $1.1
billion. At the holder's option, each preferred share is convertible into
6.3492 shares of common stock at any time. At the Company's option after
February 1, 1996, the preferred shares are redeemable at specified redemption
prices. In 1994, AMR exchanged $1.02 billion in face value of newly issued
6.125% convertible subordinated debentures due 2024 for 2.04 million of the
preferred shares. See Note 5 for a more detailed description of the
debentures.
45
<PAGE> 47
9. STOCK AWARDS AND OPTIONS
Under the 1988 Long Term Incentive Plan (1988 Plan), as amended in 1994,
officers and key employees of AMR and its subsidiaries may be granted stock
options, stock appreciation rights, restricted stock, deferred stock, stock
purchase rights and/or other stock-based awards. The total number of common
shares authorized for distribution under the 1988 Plan is 7,200,000 shares. In
the event that additional shares of the Company's common stock are issued, 7.65
percent of such newly issued shares will be allocated to the 1988 Plan,
provided that the maximum number of shares which may be allocated to the 1988
Plan may not exceed the total number of authorized shares as of December 31,
1987. The 1988 Plan will terminate no later than May 18, 1998. Options granted
are exercisable at the market value of the stock upon grant, generally becoming
exercisable in equal annual installments over one to five years following the
date of grant and expiring 10 years from the date of grant. Stock appreciation
rights may be granted in tandem with options awarded. As of January 1, 1996,
all outstanding stock appreciation rights were canceled, while the underlying
stock options remain in effect.
Stock option activity was:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Outstanding at January 1 2,404,010 2,107,950 1,991,100
Granted 440,600 409,400 448,500
Exercised(1) (390,510) (41,600) (208,910)
Canceled(2) (131,320) (71,740) (122,740)
--------- --------- ---------
Outstanding at December 31 2,322,780 2,404,010 2,107,950
========= ========= =========
</TABLE>
(1) At prices ranging from $39.6875 to $66.75 in 1995; $39.6875 to
$64.1875 in 1994; and $39.6875 to $65.75 in 1993.
(2) Includes 20,500 and 21,000 options canceled upon exercise of stock
appreciation rights for 1995 and 1993, respectively.
The aggregate purchase price of outstanding options, number of
exercisable options outstanding and stock awards available for grant were:
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Aggregate purchase price (in millions) $ 146 $ 144 $ 127
Exercisable options outstanding 1,195,580 1,282,790 963,450
Stock awards available for grant 2,549,116 3,239,948 1,229,781
</TABLE>
46
<PAGE> 48
9. STOCK AWARDS AND OPTIONS (CONTINUED)
Shares of deferred stock are awarded at no cost to officers and key
employees under the 1988 Plan's Career Equity Program and will be issued upon
the individual's retirement from AMR or, in certain circumstances, will vest on
a pro rata basis. Deferred stock activity was:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Outstanding at January 1 1,496,803 1,510,860 1,526,053
Granted 120,300 88,800 144,300
Issued (116,016) (56,625) (84,321)
Canceled (77,029) (46,232) (75,172)
--------- --------- ---------
Outstanding at December 31 1,424,058 1,496,803 1,510,860
========= ========= =========
</TABLE>
AMR has a restricted stock incentive plan, under which officers and key
employees were awarded shares of its common stock at no cost. At December 31,
1993, all 250,000 shares authorized for issuance in connection with the plan
had been granted. Vesting of the shares occurs generally over a five-year
period.
A performance share plan was implemented in 1993 under the terms of which
shares of deferred stock are awarded at no cost to officers and key employees
under the 1988 Plan. The shares vest over a three-year performance period
based upon AMR's ratio of operating cash flow to adjusted total assets.
Performance share activity was:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Outstanding at January 1 508,330 246,650 -
Granted 340,991 271,800 246,650
Issued - - -
Canceled (24,910) (10,120) -
--------- --------- ---------
Outstanding at December 31 824,411 508,330 246,650
========= ========= =========
</TABLE>
There were 21.0 million shares of AMR's common stock at December 31, 1995
reserved for the issuance of stock upon the conversion of convertible preferred
stock and convertible subordinated debentures, the exercise of options and the
issuance of restricted stock and deferred stock.
47
<PAGE> 49
10. RETIREMENT BENEFITS
Substantially all employees of American and employees of certain other
subsidiaries are eligible to participate in pension plans. The defined benefit
plans provide benefits for participating employees based on years of service
and average compensation for a specified period of time before retirement.
Airline pilots and flight engineers also participate in defined contribution
plans for which Company contributions are determined as a percentage of
participant compensation.
Total costs for all pension plans were (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Defined benefit plans:
Service cost - benefits earned during the period $ 165 $ 204 $ 167
Interest cost on projected benefit obligation 323 292 285
Loss (return) on assets (1,288) 232 (638)
Net amortization and deferral 1,008 (541) 356
------------ ------------ ------------
Net periodic pension cost for defined
benefit plans 208 187 170
Defined contribution plans 124 119 118
Early retirement programs(1) 220 154 -
------------ ------------ ------------
Total $ 552 $ 460 $ 288
============ ============ ============
</TABLE>
(1) In late 1995 and 1994, AMR offered early retirement programs to select
groups of employees as part of its restructuring efforts. In
accordance with Statement of Financial Accounting Standards No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits", AMR recognized
additional pension expense of $220 million and $154 million associated
with these programs in 1995 and 1994, respectively. Of these amounts,
$118 million and $120 million were for special termination benefits
and $102 million and $34 million were for the actuarial losses
resulting from the early retirements for 1995 and 1994, respectively.
48
<PAGE> 50
10. RETIREMENT BENEFITS (CONTINUED)
The funded status and actuarial present value of benefit obligations of
the defined benefit plans were (in millions):
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------
1995 1994
---------------------------------- ----------------------------------
Plans with Plans with Plans with Plans with
Assets in Accumulated Assets in Accumulated
Excess of Benefit Excess of Benefit
Accumulated Obligation in Accumulated Obligation in
Benefit Excess of Benefit Excess of
Obligation Assets Obligation Assets
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Vested benefit obligation $ 4,145 $ 42 $ 1,063 $ 2,118
============== ============== ============== ==============
Accumulated benefit
obligation $ 4,279 $ 46 $ 1,113 $ 2,175
Effect of projected future
salary increases 728 20 251 308
-------------- -------------- -------------- --------------
Projected benefit obligation 5,007 66 1,364 2,483
-------------- -------------- -------------- --------------
Plan assets at fair value 4,545 6 1,161 2,144
Plan assets less than
projected benefit obligation (462) (60) (203) (339)
Unrecognized net loss 703 19 223 719
Unrecognized prior service
cost (benefit) 14 9 47 (46)
Unrecognized transition asset (45) (1) (14) (44)
Adjustment to record minimum
pension liability - (12) - (329)
-------------- -------------- -------------- --------------
Prepaid (accrued) pension
cost(1) $ 210 $ (45) $ 53 $ (39)
============== ============== ============== ==============
</TABLE>
(1) AMR's funding policy is to make contributions equal to, or in excess
of, the minimum funding requirements of the Employee Retirement Income
Security Act of 1974.
Plan assets consist primarily of domestic and foreign government and
corporate debt securities, marketable equity securities, and money market and
mutual fund shares, of which approximately $119 million and $141 million of
plan assets at December 31, 1995 and 1994, respectively, were invested in
shares of mutual funds managed by a subsidiary of AMR.
The projected benefit obligation was calculated using weighted average
discount rates of 7.25% and 8.75% at December 31, 1995 and 1994, respectively;
rates of increase for compensation of 4.20% and 4.40% at December 31, 1995 and
1994, respectively; and the 1983 Group Annuity Mortality Table. The weighted
average expected long-term rate of return on assets was 9.50% in 1995 and 1994,
and 10.50% in 1993. The vested benefit obligation and plan assets at fair
value at December 31, 1995, for plans whose benefits are guaranteed by the
Pension Benefit Guaranty Corporation were $4.1 billion and $4.5 billion,
respectively.
49
<PAGE> 51
10. RETIREMENT BENEFITS (CONTINUED)
In addition to pension benefits, other postretirement benefits, including
certain health care and life insurance benefits, are also provided to retired
employees. The amount of health care benefits is limited to lifetime maximums
as outlined in the plan. Substantially all employees of American and employees
of certain other subsidiaries may become eligible for these benefits if they
satisfy eligibility requirements during their working lives.
Certain employee groups make contributions toward funding a portion of
their retiree health care benefits during their working lives. AMR funds
benefits as incurred and began, effective January 1993, to match employee
prefunding.
Net other postretirement benefit cost was (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 48 $ 62 $ 47
Interest cost on accumulated other postretirement
benefit obligation 101 87 87
Return on assets (2) (1) -
Net amortization and deferral (6) (4) (4)
------------ ------------ ------------
Net other postretirement benefit cost $ 141 $ 144 $ 130
============ ============ ============
</TABLE>
In addition to net other postretirement benefit cost, in late 1995 and
1994, AMR offered early retirement programs to select groups of employees as
part of its restructuring efforts. In accordance with Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions," AMR recognized additional other postretirement
benefit expense of $93 million and $71 million associated with these programs
in 1995 and 1994, respectively. Of these amounts, $26 million and $43 million
were for special termination benefits and $67 million and $28 million were for
the net actuarial losses resulting from the early retirements for 1995 and
1994, respectively.
The funded status of the plan, reconciled to the accrued other
postretirement benefit cost recognized in AMR's balance sheet, was (in
millions):
<TABLE>
<CAPTION>
December 31,
---------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Retirees $ 705 $ 542
Fully eligible active plan participants 176 207
Other active plan participants 554 429
------------ ------------
Accumulated other postretirement benefit obligation 1,435 1,178
Plan assets at fair value 28 14
------------ ------------
Accumulated other postretirement benefit obligation
in excess of plan assets 1,407 1,164
Unrecognized net loss (29) -
Unrecognized prior service benefit 61 90
------------ ------------
Accrued other postretirement benefit cost $ 1,439 $ 1,254
============ ============
</TABLE>
50
<PAGE> 52
10. RETIREMENT BENEFITS (CONTINUED)
Plan assets consist primarily of shares of a mutual fund managed by a
subsidiary of AMR.
For 1995 and 1994, future benefit costs were estimated assuming per
capita cost of covered medical benefits would increase at an eight and nine
percent annual rate, respectively, decreasing gradually to a four percent
annual growth rate in 2000 and thereafter. A one percent increase in this
annual trend rate would have increased the accumulated other postretirement
benefit obligation at December 31, 1995, by approximately $128 million and 1995
other postretirement benefit cost by approximately $18 million. The weighted
average discount rate used in estimating the accumulated other postretirement
benefit obligation was 7.25% and 8.75% at December 31, 1995 and 1994,
respectively.
11. RESTRUCTURING COSTS
In 1995 and 1994, the Company recorded $533 million and $278 million,
respectively, for restructuring costs which included (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Special termination benefits:
Pension $ 118 $ 120
Other postretirement benefits 26 43
Other termination benefits 19 -
Actuarial losses:
Pension 102 34
Other postretirement benefits 67 28
------------ ------------
Total cost of early retirement programs 332 225
Provisions for aircraft impairment and retirement 193 -
Severance - 28
Other 8 25
------------ ------------
$ 533 $ 278
============ ============
</TABLE>
In 1995, approximately 2,100 mechanics and fleet service clerks and 300
flight attendants elected early retirement under programs offered in
conjunction with renegotiated union labor contracts, and the majority of these
employees will leave the Company's workforce during 1996. The Company recorded
restructuring costs of $332 million in 1995 related to these early retirement
programs. A large portion of the funding for the programs was done in 1995.
The remaining cash payments associated with these programs will be expended as
required for funding the appropriate pension and other postretirement benefit
plans in future years.
51
<PAGE> 53
11. RESTRUCTURING COSTS (CONTINUED)
The aircraft portion of the 1995 restructuring costs includes a $145
million provision related to the writedown of certain McDonnell Douglas DC-10
aircraft. Effective January 1, 1995, AMR adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment
losses to be recorded on long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. In 1995,
the Company evaluated its fleet operating plan with respect to the DC-10-10
fleet and, as a result, believes that the estimated future cash flows expected
to be generated by these aircraft will not be sufficient to recover their net
book value. Management estimated the undiscounted future cash flows utilizing
models used by the Company in making fleet and scheduling decisions. As a
result of this analysis, the Company determined that a writedown of the
DC-10-10 aircraft to the net present value of their estimated discounted future
cash flows was warranted, which resulted in a $112 million charge. In
addition, the Company recorded a $33 million charge to reflect a diminution in
the estimated market value of certain DC-10 aircraft previously grounded by the
Company. No cash costs have been incurred or are expected as a result of these
DC-10 writedowns. The writedowns are expected to reduce 1996 depreciation
expense by approximately $19 million.
Also included in the aircraft restructuring costs is a $48 million charge
related to the planned early retirement in 1996 of certain turboprop aircraft
operated by AMR's regional carriers. The charge relates primarily to future
lease commitments on these aircraft past the dates they will be removed from
service and writedown of related inventory to its estimated fair value. Cash
payments on the leases will occur over the remaining lease terms.
In 1994, approximately 1,700 agents and 600 management employees elected
early retirement under programs offered to select groups of employees and left
the Company's workforce during 1995. The Company recorded restructuring costs
of $225 million in 1994 related to these early retirement programs. A large
portion of the funding for these programs was done in 1994. The remaining cash
payments associated with these programs will be expended as required for
funding the appropriate pension and other postretirement benefit plans in
future years.
The $28 million severance provision recorded in 1994 was for additional
workforce reductions affecting approximately 2,300 agent and management
personnel as a result of scheduled service reductions and improved
administrative efficiencies. Cash outlays for severance payments in 1995
totaled approximately $22 million, with the remaining $6 million expected to
occur during 1996.
The remaining $25 million included in the 1994 restructuring costs
represents provisions for excess leased facilities and other restructuring
activities. Cash outlays are estimated to be approximately $18 million, of
which approximately $3 million occurred in 1995.
12. REVENUE AND OTHER EXPENSE ITEMS
During 1994, the Company changed its estimate of the usage patterns of
miles awarded by participating companies in American's AAdvantage frequent
flyer program. The positive impact of the change in estimate on passenger
revenues for 1994 was $59 million. Passenger revenues for 1993 include a $115
million positive adjustment resulting from a change in estimate relating to
certain earned passenger revenues.
Miscellaneous - net in 1995 includes a $41 million charge related to the
loss of an aircraft operated by American. Miscellaneous - net in 1994 includes
a $25 million charge related to the loss of two regional aircraft operated by
subsidiaries of AMR Eagle, Inc. Miscellaneous - net in 1993 includes a
provision of $71 million for losses associated with a reservation system
project and resolution of related litigation. Also included in 1993 is a $125
million charge related to the retirement of certain McDonnell Douglas DC-10
aircraft.
52
<PAGE> 54
13. FOREIGN OPERATIONS
American conducts operations in various foreign countries. American's
operating revenues from foreign operations were (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Latin America $ 2,316 $ 2,134 $ 1,888
Europe 2,059 1,839 1,659
Pacific 373 347 362
------------ ------------ ------------
Foreign operating revenues $ 4,748 $ 4,320 $ 3,909
============ ============ ============
</TABLE>
14. SEGMENT INFORMATION
AMR's operations fall within three industry segments: the Airline Group,
The SABRE Group, and the Management Services Group. For a description of each
of these groups, refer to Management's Discussion and Analysis on pages 15 and
16.
The following table presents selected financial data by industry segment
(in millions):
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Airline Group:
Total revenues $15,501 $14,895 $14,785
Intergroup revenues - - -
Operating income 564 614 401
Depreciation and amortization expense 1,070 1,057 1,035
Restructuring costs 533 272 -
Capital expenditures, including route
acquisition costs 747 934 1,892
Identifiable assets 18,299 18,162 18,130
The SABRE Group:
Total revenues 1,624 1,463 1,302
Intergroup revenues 625 631 592
Operating income 382 348 252
Depreciation and amortization expense 172 175 171
Restructuring costs - 6 -
Capital expenditures 170 172 179
Identifiable assets 587 578 549
Management Services Group:
Total revenues 534 518 421
Intergroup revenues 124 108 100
Operating income 69 44 37
Depreciation and amortization expense 17 18 17
Capital expenditures 11 8 9
Identifiable assets 313 374 211
</TABLE>
Identifiable assets are gross assets used by a business segment,
including an allocated portion of assets used jointly by more than one business
segment. General corporate and other assets not allocated to business segments
were $357 million, $372 million and $436 million at December 31, 1995, 1994 and
1993, respectively, and consist primarily of income tax assets.
53
<PAGE> 55
15. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information and non-cash activities
(in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash payments (refunds) for:
Interest (net of interest capitalized) $ 685 $ 609 $ 584
Income taxes (36) (21) (32)
Financing activities not affecting cash:
Exchange of convertible debentures for
preferred stock $ - $ 1,003 $ -
Capital lease obligations incurred - 280 21
</TABLE>
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summarized financial data by quarter for 1995 and 1994 (in
millions, except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
1995
Operating revenues $ 3,970 $ 4,307 $ 4,445 $ 4,188
Operating income (loss) 252 482 521 (240)
Earnings (loss) before
extraordinary loss 38 192 235 (269)
Net earnings (loss) 38 179 231 (281)
Earnings (loss) per common
share:
Primary
Before extraordinary loss 0.48 2.48 3.01 (3.54)
Net earnings (loss) 0.48 2.31 2.96 (3.69)
Fully diluted
Before extraordinary loss 0.48 2.23 2.68 (3.54)
Net earnings (loss) 0.48 2.08 2.64 (3.69)
1994
Operating revenues $ 3,808 $ 4,101 $ 4,233 $ 3,995
Operating income (loss) 159 401 489 (43)
Net earnings (loss) (7) 153 205 (123)
Earnings (loss) per common
share(1):
Primary
Before effect of preferred
stock exchange (0.30) 1.77 2.47 (1.70)
Net earnings (loss) (0.30) 1.77 2.47 0.55
Fully diluted
Before effect of preferred
stock exchange (0.30) 1.68 2.27 (1.70)
Net earnings (loss) (0.30) 1.68 2.27 0.55
</TABLE>
(1) Information on the adjustment to the earnings per share computation
for the three months ended December 31, 1994, for the effect of the
preferred stock exchange is included in Note 5.
54
<PAGE> 56
16. QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
Results for the fourth quarter of 1995 include $533 million in
restructuring costs, primarily representing the cost of early retirement
programs for Airline Group employees and provisions for the writedown of
certain DC-10 aircraft and the planned retirement of certain turboprop
aircraft. Results for the fourth quarter of 1995 also include a $41 million
charge related to the loss of an aircraft operated by American.
Results for the fourth quarter of 1994 include $278 million in
restructuring costs, primarily representing the cost of early retirement
programs and severance for Airline Group employees. Results for the fourth
quarter of 1994 also include a $25 million charge related to the loss of two
regional aircraft operated by subsidiaries of AMR Eagle, Inc. During the
second quarter of 1994, the Company changed its estimate of the usage patterns
of miles awarded by participating companies in American's AAdvantage frequent
flyer program. The positive impact of the change in estimate on revenues for
the second, third and fourth quarters of 1994 was $35 million, $14 million, and
$10 million, respectively, as compared to the same quarters in 1993.
55
<PAGE> 57
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
- - --------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 15, 1996. Information concerning
the executive officers is included in Part I of this report on page 12.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 15, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 15, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 15, 1996.
PART IV
- - --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The financial statements listed in the accompanying index to
financial statements and schedules are filed as part of this
report.
(2) The schedules listed in the accompanying index to financial
statements and schedules are filed as part of this report.
(3) Exhibits required to be filed by Item 601 of Regulation S-K.
(Where the amount of securities authorized to be issued under
any of AMR's long-term debt agreements does not exceed 10
percent of AMR's assets, pursuant to paragraph (b)(4) of Item
601 of Regulation S-K, in lieu of filing such as an exhibit,
AMR hereby agrees to furnish to the Commission upon request a
copy of any agreement with respect to such long-term debt.)
EXHIBIT
3(a) Composite of the Certificate of Incorporation of AMR,
incorporated by reference to Exhibit 3(a) to AMR's
report on Form 10-K for the year ended December 31,
1982, file number 1-8400.
3(b) Amended Bylaws of AMR, incorporated by reference to
Exhibit 3(b) to AMR's report on Form 10-K for the
year ended December 31, 1990, file number 1-8400.
56
<PAGE> 58
10(a) Purchase Agreement, dated as of February 12, 1979,
between American and the Boeing Company, relating to
the purchase of Boeing Model 767-323 aircraft,
incorporated by reference to Exhibit 10(b)(3) to
American's Registration Statement No. 2-76709.
10(b) Description of American's Split Dollar Insurance
Program, dated December 28, 1977, incorporated by
reference to Exhibit 10(c)(1) to American's
Registration Statement No. 2-76709.
10(c) American's 1992 Incentive Compensation Plan
incorporated by reference to Exhibit 10(c) to AMR's
report on Form 10-K for the year ended December 31,
1991, file marker 1-8400.
10(d) 1979 American Airlines (AMR) Stock Option Plan, as
amended, incorporated by reference to Exhibit 10(d)
to American's report on Form 10-K for the year ended
December 31, 1982, file number 1-8400.
10(e) 1979 American Airlines (AMR) Stock Option Plan, as
amended, incorporated by reference to Exhibit 10(e)
to American's report on Form 10-K for the year ended
December 31, 1982, file number 1-8400.
10(f) Form of Stock Option Agreement for Corporate Officers
under the 1979 American Airlines (AMR) Stock Option
Plan, incorporated by reference to Exhibit 10(c)(5)
to American's Registration Statement No. 2-76709.
10(g) Form of Stock Option Agreement under the 1974 and
1979 American Airlines (AMR) Stock Option Plans,
incorporated by reference to Exhibit 10(c)(6) to
American's Registration Statement No. 2-76709.
10(h) Deferred Compensation Agreement, dated April 14,
1973, as amended March 1, 1975, between American and
Robert L. Crandall, incorporated by reference to
Exhibit 10(c)(7) to American's Registration Statement
No. 2-76709.
10(i) Deferred Compensation Agreement, dated October 18,
1972, as amended March 1, 1975, between American and
Gene E. Overbeck, incorporated by reference to
Exhibit 10(c)(9) to American's Registration Statement
No. 2-76709.
10(j) Deferred Compensation Agreement, dated June 3, 1970,
between American and Francis H. Burr, incorporated by
reference to Exhibit 11(d) to American's Registration
Statement No. 2-39380.
10(k) Description of informal arrangement relating to
deferral of payment of directors' fees, incorporated
by reference to Exhibit 10(c)(11) to American's
Registration Statement No. 2- 76709.
10(l) Purchase Agreement, dated as of February 29, 1984,
between American and the McDonnell Douglas
Corporation, relative to the purchase of McDonnell
Douglas Super 80 aircraft, incorporated by reference
to Exhibit 10(l) to AMR's report on Form 10-K for the
year ended December 31, 1983, file number 1-8400.
10(m) Purchase Agreement, dated as of June 27, 1983,
between American and the McDonnell Douglas
Corporation, relative to the purchase of McDonnell
Douglas Super 80 aircraft, incorporated by reference
to Exhibit 4(a)(8) to American's Registration
Statement No. 2-84905.
57
<PAGE> 59
10(n) AMR Corporation Restricted Stock Incentive Plan,
adopted May 15, 1985, incorporated by reference to
Exhibit 10(n) to AMR's report on Form 10-K for the
year ended December 31, 1985, file number 1-8400.
10(o) AMR Corporation Preferred Stock Purchase Rights
Agreement, adopted February 13, 1986, incorporated by
reference to Exhibit 10(o) to AMR's report on Form
10-K for the year ended December 31, 1985, file
number 1-8400.
10(p) Form of Executive's Termination Benefits Agreement
incorporated by reference to Exhibit 10(p) to AMR's
report on Form 10-K for the year ended December 31,
1985, file number 1-8400.
10(q) Amendment, dated June 4, 1986, to Purchase Agreement
in Exhibit 10(l) above, incorporated by reference to
Exhibit 10(q) to AMR's report on Form 10-K for the
year ended December 31, 1986, file number 1-8400.
10(r) Acquisition Agreement, dated as of March 1, 1987,
between American and Airbus Industrie relative to the
lease of Airbus A300-600R aircraft, incorporated by
reference to Exhibit 10(r) to AMR's report on Form
10-K for the year ended December 31, 1986, file
number 1-8400.
10(s) Acquisition Agreement, dated as of March 1, 1987,
between American and the Boeing Company relative to
the lease of Boeing 767-323ER aircraft, incorporated
by reference to Exhibit 10(s) to AMR's report on Form
10-K for the year ended December 31, 1986, file
number 1-8400.
10(t) AMR Corporation 1988 Long-Term Incentive Plan,
incorporated by reference to Exhibit 10(t) to AMR's
report on Form 10-K for the year ended December 31,
1988, file number 1-8400.
10(u) Acquisition Agreement, dated as of July 21, 1988,
between American and the Boeing Company relative to
the purchase of Boeing Model 757-223 aircraft,
incorporated by reference to Exhibit 10(u) to AMR's
report on Form 10-K for the year ended December 31,
1988, file number 1-8400.
10(v) Acquisition Agreement, dated as of February 4, 1989,
among American and Delta Airlines, Inc. and others
relative to operation of a computerized reservations
system incorporated by reference to Exhibit 10(v) to
AMR's report on Form 10-K for the year ended December
31, 1988, file number 1-8400.
10(w) Purchase Agreement, dated as of May 5, 1989, between
American and the Boeing Company relative to the
purchase of Boeing 757-223 aircraft, incorporated by
reference to Exhibit 10(w) to AMR's report on Form
10-K for the year ended December 31, 1989, file
number 1-8400.
10(x) Purchase Agreement, dated as of June 9, 1989, between
American and Fokker Aircraft U. S. A., Inc. relative
to the purchase of Fokker 100 aircraft, incorporated
by reference to Exhibit 10(x) to AMR's report on Form
10-K for the year ended December 31, 1989, file
number 1-8400.
58
<PAGE> 60
10(y) Agreement for Sale and Purchase, dated as of June 12,
1989, between AMR Leasing Corporation and SAAB
Aircraft of America, Inc. relative to the purchase of
Saab 340B aircraft, incorporated by reference to
Exhibit 10(y) to AMR's report on Form 10-K for the
year ended December 31, 1989, file number 1-8400.
10(z) Purchase Agreement, dated as of June 23, 1989,
between American and the Boeing Company relative to
the purchase of Boeing 767-323ER aircraft,
incorporated by reference to Exhibit 10(z) to AMR's
report on Form 10-K for the year ended December 31,
1989, file number 1-8400.
10(aa) Lease Agreement, dated as of June 29, 1989, between
AMR Leasing Corporation and British Aerospace, Inc.
relative to the lease of Jetstream Model 3201
aircraft, incorporated by reference to Exhibit 10(aa)
to AMR's report on Form 10-K for the year ended
December 31, 1989, file number 1-8400.
10(bb) Purchase Agreement, dated as of August 3, 1989,
between American and the McDonnell Douglas
Corporation relative to the purchase of MD-11
aircraft, incorporated by reference to Exhibit 10(bb)
to AMR's report on Form 10-K for the year ended
December 31, 1989, file number 1-8400.
10(cc) Amendment, dated as of August 3, 1989, to the
Purchase Agreement in Exhibit 10(l) above,
incorporated by reference to Exhibit 10(cc) to AMR's
report on Form 10-K for the year ended December 31,
1989, file number 1-8400.
10(dd) Amendment, dated as of August 11, 1989, to AMR's
Preferred Stock Purchase Rights Agreement in Exhibit
10(o) above, incorporated by reference to Exhibit
10(dd) to AMR's report on Form 10-K for the year
ended December 31, 1989, file number 1-8400.
10(ee) Purchase Agreement, dated as of October 25, 1989,
between American and AVSA, S. A. R. L. relative to
the purchase of Airbus A300-600R aircraft,
incorporated by reference to Exhibit 10(ee) to AMR's
report on Form 10-K for the year ended December 31,
1989, file number 1-8400.
10(ff) Amendment, dated as of November 16, 1989, to
Employment Agreement among AMR, American Airlines and
Robert L. Crandall, incorporated by reference to
Exhibit 10(ff) to AMR's report on Form 10- K for the
year ended December 31, 1989, file number 1-8400.
10(gg) Directors Stock Equivalent Purchase Plan,
incorporated by reference to Exhibit 10(gg) to AMR's
report on Form 10-K for the year ended December 31,
1989, file number 1-8400.
10(hh) Deferred Compensation Agreement, dated as of January
31, 1990, between AMR and Edward A. Brennan,
incorporated by reference to Exhibit 10(hh) to AMR's
report on Form 10-K for the year ended December 31,
1989, file number 1-8400.
10(ii) Deferred Compensation Agreement, dated as of January
31, 1990, between AMR and Thomas S. Carroll,
incorporated by reference to Exhibit 10(ii) to AMR's
report on Form 10-K for the year ended December 31,
1989, file number 1-8400.
59
<PAGE> 61
10(jj) Deferred Compensation Agreement, dated as of January
31, 1990, between AMR and Antonio Luis Ferre,
incorporated by reference to Exhibit 10(jj) to AMR's
report on Form 10-K for the year ended December 31,
1989, file number 1-8400.
10(kk) Deferred Compensation Agreement, dated as of January
31, 1990, between AMR and John D. Leitch,
incorporated by reference to Exhibit 10(kk) to AMR's
report on Form 10-K for the year ended December 31,
1989, file number 1-8400.
10(ll) Deferred Compensation Agreement, dated as of January
31, 1990, between AMR and Charles H. Pistor, Jr.,
incorporated by reference to Exhibit 10(ll) to AMR's
report on Form 10-K for the year ended December 31,
1989, file number 1-8400.
10(mm) Deferred Compensation Agreement, dated as of January
31, 1990, between AMR and Edward O. Vetter,
incorporated by reference to Exhibit 10(mm) to AMR's
report on Form 10-K for the year ended December 31,
1989, file number 1-8400.
10(nn) Amendment, dated as of February 1, 1990, to the
Deferred Compensation Agreement, dated December 19,
1984, between AMR and Charles H. Pistor, Jr.,
incorporated by reference to Exhibit 10(nn) to AMR's
report on Form 10-K for the year ended December 31,
1989, file number 1-8400.
10(oo) Management Severance Allowance, dated as of February
23, 1990, for levels 1-4 employees of American
Airlines, Inc., incorporated by reference to Exhibit
10(oo) to AMR's report on Form 10-K for the year
ended December 31, 1989, file number 1-8400.
10(pp) Management Severance Allowance, dated as of February
23, 1990, for level 5 and above employees of American
Airlines, Inc., incorporated by reference to Exhibit
10(pp) to AMR's report on Form 10-K for the year
ended December 31, 1989, file number 1-8400.
10(qq) Purchase Agreement, dated as of October 25, 1990,
between AMR Leasing Corporation and Avions de
Transport Regional relative to the purchase of ATR 42
and Super ATR aircraft, incorporated by reference to
Exhibit 10(qq) to AMR's report on Form 10-K for the
year ended December 31, 1990, file number 1-8400.
10(rr) Form of Stock Option Agreement for Corporate Officers
under the AMR 1988 Long-Term Incentive Plan,
incorporated by reference to Exhibit 10(rr) to AMR's
report on Form 10-K for the year ended December 31,
1990, file number 1-8400.
10(ss) Form of Career Equity Program Deferred Stock Award
Agreement under the AMR 1988 Long-Term Incentive
Plan, incorporated by reference to Exhibit 10(ss) to
AMR's report on Form 10-K for the year ended December
31, 1990, file number 1-8400.
10(tt) Amendment, dated as of December 3, 1990, to
Employment Agreement among AMR, American Airlines and
Robert L. Crandall incorporated by reference to
Exhibit 10(tt) to AMR's report on Form 10-K for the
year ended December 31, 1990, file number 1-8400.
10(uu) Amendment, dated as of May 1, 1992, to Employment
Agreement among AMR, American Airlines and Robert L.
Crandall incorporated by reference to Exhibit 10(uu)
to AMR's report on Form 10-Q for the period ended
June 30, 1992, file number 1-8400.
10(vv) Irrevocable Executive Trust Agreement, dated as of
May 1, 1992, between AMR and Wachovia Bank of North
Carolina N.A.
60
<PAGE> 62
10(ww) Deferred Compensation Agreement, dated as of December
23, 1992, between AMR and Howard P. Allen.
10(xx) Deferred Compensation Agreement, dated as of February
5, 1993, between AMR and Charles T. Fisher, III.
10(yy) Deferred Compensation Agreement, dated as of February
10, 1993, between AMR and Edward O. Vetter.
10(zz) Deferred Compensation Agreement, dated as of March 8,
1993, between AMR and John D. Leitch.
10(aaa) Amendment No. 2 to the Rights Agreement, dated as of
February 13, 1986, between AMR Corporation and First
Chicago Trust Company of New York.
10(bbb) Form of Guaranty to Career Equity Program under the
AMR 1988 Long-Term Incentive Plan.
10(ccc) Amendment, dated as of July 26, 1993, to Career
Equity Program Deferred Stock Award Agreements.
10(ddd) Second Amendment, dated as of July 26, 1993, to
Career Equity Program Deferred Stock Award
Agreements.
10(eee) Deferred Compensation Agreement, dated as of February
10, 1994, between AMR and Charles T. Fisher, III.
10(fff) Deferred Compensation Agreement, dated as of February
11, 1994, between AMR and Howard P. Allen.
10(ggg) American Airlines, Inc. 1995 Incentive Compensation
Plan for Officers and Key Employees.
10(hhh) American Airlines , Inc. 1995 Employee Profit Sharing
Plan.
10(iii) Amendment to AMR's 1988 Long-term Incentive Plan
dated May 18, 1994, incorporated by reference to
Exhibit A to AMR's definitive proxy statement with
respect to the annual meeting of stockholders held on
May 18, 1994.
10(jjj) Directors Stock Incentive Plan dated May 18, 1994,
incorporated by reference to Exhibit B to AMR's
definitive proxy statement with respect to the annual
meeting of stockholders held on May 18, 1994.
10(kkk) Performance Share Program for the years 1993 to 1995
under the 1988 Long-term Incentive Program.
10(lll) Performance Share Program for the years 1994 to 1996
under the 1988 Long-term Incentive Program.
61
<PAGE> 63
10(mmm) American Airlines, Inc. Supplemental Executive
Retirement Program dated November 16, 1994.
10(nnn) Current form of Career Equity Program Agreement.
10(ooo) Performance Share Program for the years 1995 to 1997
under the 1988 Long-term Incentive Program.
10(ppp) SABRE Group Performance Share Program for the years
1995 to 1997 under the 1988 Long-term Incentive
Program.
10(qqq) American Airlines, Inc. 1996 Incentive Compensation
Plan for Officers and Key Employees.
10(rrr) Aircraft Sales Agreement by and between American
Airlines, Inc. and Federal Express Corporation, dated
April 7, 1995.
10(sss) Deferred Compensation Agreement, dated as of December
27, 1995, between AMR and Howard P. Allen.
10(ttt) Deferred Compensation Agreement, dated as of February
7, 1996, between AMR and Armando M. Codina.
10(uuu) Deferred Compensation Agreement, dated as of February
9, 1996, between AMR and Charles T. Fisher, III.
10(vvv) Deferred Compensation Agreement, dated as of February
23, 1996, between AMR and Charles H. Pistor, Jr.
11(a) Computation of primary loss per share for the years
ended December 31, 1995, 1994 and 1993.
11(b) Computation of loss per share assuming full dilution
for the years ended December 31, 1995, 1994 and 1993.
19 The 1974 and 1979 American Airlines (AMR) Stock
Option plans as amended March 16, 1983, incorporated
by reference to Exhibit 19 to AMR's report on Form
10-K for the year ended December 31, 1983, file
number 1-8400. Refer to Exhibits 10(d) and 10(e).
22 Significant subsidiaries of the registrant.
23 Consent of Independent Auditors appears on page 64
hereof.
(b) Reports on Form 8-K:
None.
62
<PAGE> 64
AMR CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
COVERED BY REPORT OF INDEPENDENT AUDITORS
[ITEM 14(A)]
<TABLE>
<CAPTION>
Page
----------
<S> <C>
FINANCIAL STATEMENTS
Report of Independent Auditors 29
Consolidated Statement of Operations for the Years Ended
December 31, 1995, 1994 and 1993 30-31
Consolidated Balance Sheet at December 31, 1995 and 1994 32-33
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 34
Consolidated Statement of Stockholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993 35
Notes to Consolidated Financial Statements 36-55
CONSOLIDATED SCHEDULES FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993
Schedule II Valuation and Qualifying Accounts and Reserves 65-67
</TABLE>
All other schedules are omitted since the required information is included in
the financial statements or notes thereto, or since the required information is
either not present or not present in sufficient amounts.
63
<PAGE> 65
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements (Form
S-8 No. 2-68366), (Form S-8 No. 33-60725), (Form S-8 No. 33-60727), (Form S-3
No. 33-42027), (Form S-3 No. 33-46325), (Form S-3 No. 33-52121), and (Form S-4
No. 33-55191) of AMR Corporation, and in the related Prospectuses, of our
report dated January 15, 1996, with respect to the consolidated financial
statements and schedules of AMR Corporation included in this Annual Report
(Form 10-K) for the year ended December 31, 1995.
ERNST & YOUNG LLP
Dallas, Texas
March 20, 1996
64
<PAGE> 66
AMR CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(DEDUCTED FROM ASSET TO WHICH APPLICABLE)
YEAR ENDED DECEMBER 31, 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
CHARGED TO
----------
BALANCE
BALANCE AT OTHER DEPREC. NET SALES, AT
BEGINNING OPERATING AND RESTRUCT WRITE- RETIREMENTS END OF
OF YEAR EXPENSES AMORT. COSTS OFF AND TRANSFERS YEAR
---------- ---------- -------- -------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for
uncollectible accounts $ 26 $17 $ - $ - $(25) $ - $ 18
Allowance for
obsolescence of inventories 179 - 38 18 - 15 250
</TABLE>
65
<PAGE> 67
AMR CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(DEDUCTED FROM ASSET TO WHICH APPLICABLE)
YEAR ENDED DECEMBER 31, 1994
(IN MILLIONS)
<TABLE>
<CAPTION>
CHARGED TO
----------
BALANCE
BALANCE AT OTHER DEPREC. NET SALES, AT
BEGINNING OPERATING AND MISC.- WRITE- RETIREMENTS END OF
OF YEAR EXPENSES AMORT. NET OFF AND TRANSFERS YEAR
---------- ---------- --------- ------- -------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for
uncollectible accounts $ 33 $ 20 $ - $ - $ (27) $ - $ 26
Allowance for
obsolescence of inventories 168 - 29 - - (18) 179
Reserve for anticipated loss
on fleet retirement 57 - - 4 (32) - 29
Reserve for anticipated loss
on reservation project 158 - - - (153) - 5
</TABLE>
66
<PAGE> 68
AMR CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(DEDUCTED FROM ASSET TO WHICH APPLICABLE)
YEAR ENDED DECEMBER 31, 1993
(IN MILLIONS)
<TABLE>
<CAPTION>
CHARGED TO
----------
BALANCE
BALANCE AT OTHER DEPREC. NET SALES, AT
BEGINNING OPERATING AND MISC.- WRITE- RETIREMENTS END OF
OF YEAR EXPENSES AMORT. NET OFF AND TRANSFERS YEAR
---------- ---------- --------- ------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for
uncollectible accounts $ 32 $ 22 $ - $ - $ (21) $ - $ 33
Allowance for
obsolescence of inventories 133 - 11 - - 24 168
Reserve for anticipated loss
on fleet retirement 26 - - 125 (82) (12)(a) 57
Reserve for anticipated loss
on reservation project 132 - - 71 (45) - 158
</TABLE>
(a) Transfer to Allowance for obsolescence of inventories.
67
<PAGE> 69
PART I - EXHIBIT 11 (A) AMR CORPORATION
COMPUTATION OF PRIMARY EARNINGS (LOSS) PER SHARE
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
NET EARNINGS (LOSS) $167 $228 $(110)
Preferred stock dividends (5) (56) (60)
---------- ---------- ----------
162 172 (170)
Increase in additional paid-in capital from preferred
stock exchange - 171 -
---------- ---------- ----------
EARNINGS (LOSS) APPLICABLE TO COMMON SHARES $162 $343 $(170)
========== ========== ==========
SHARES, AS ADJUSTED:
Average number of shares outstanding 76 76 76
Add shares issued upon assumed exercise of dilutive
options, stock appreciation rights and warrants and
shares assumed issued for deferred stock granted 3 - 1
Less assumed treasury shares repurchased (2) - (1)
---------- ---------- ----------
SHARES, AS ADJUSTED 77 76 76
========== ========== ==========
Primary earnings (loss) per share $2.11 $4.51 $(2.23)
========== ========== ==========
</TABLE>
68
<PAGE> 70
PART I - EXHIBIT 11
(B) AMR CORPORATION
COMPUTATION OF EARNINGS (LOSS) PER SHARE
ASSUMING FULL DILUTION
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
NET EARNINGS (LOSS) $ 167 $ 228 $ (110)
Preferred stock dividends (5) (56) (60)
--------- ---------- ----------
162 172 (170)
Increase in additional paid-in capital from preferred
stock exchange - 171 -
--------- ---------- ----------
EARNINGS (LOSS) APPLICABLE TO COMMON SHARES $ 162 $ 343 $ (170)
========= ========== ==========
SHARES, AS ADJUSTED:
Average number of shares outstanding 76 76 76
Add shares issued upon assumed exercise of dilutive
options, stock appreciation rights and warrants and
shares assumed issued for deferred stock granted 3 - 1
Less assumed treasury shares repurchased (2) - (1)
--------- ---------- ----------
SHARES, AS ADJUSTED 77 76 76
========= ========== ==========
Earnings (loss) per share assuming full dilution $ 2.11 $ 4.51 $ (2.23)
========= ========== ==========
</TABLE>
69
<PAGE> 71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
AMR CORPORATION
/s/ Robert L. Crandall
- - --------------------------------------------------
Robert L. Crandall
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Gerard J. Arpey
- - --------------------------------------------------
Gerard J. Arpey
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: March 20, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates noted:
<TABLE>
<S> <C>
Directors:
/s/ Howard P. Allen /s/ Dee J. Kelly
- - ----------------------------------- -----------------------------------
Howard P. Allen Dee J. Kelly
/s/ David L. Boren /s/ Ann D. McLaughlin
- - ----------------------------------- -----------------------------------
David L. BorenEdward A. Brennan Ann D. McLaughlin
/s/ Edward A. Brennan /s/ Charles H. Pistor, Jr.
- - ----------------------------------- -----------------------------------
Edward A. Brennan Charles H. Pistor, Jr.
/s/ Armando M. Codina /s/ Joe M. Rodgers
- - ----------------------------------- -----------------------------------
Armando M. Codina Joe M. Rodgers
/s/ Christopher F. Edley /s/ Maurice Segall
- - ----------------------------------- -----------------------------------
Christopher F. Edley Maurice Segall
/s/ Charles T. Fisher, III /s/ Eugene F. Williams, Jr.
- - ----------------------------------- -----------------------------------
Charles T. Fisher, III Eugene F. Williams, Jr.
/s/ Earl G. Graves
- - -----------------------------------
Earl G. Graves
</TABLE>
Date: March 20, 1996
70
<PAGE> 72
INDEX TO EXHIBIT
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
10(ooo) Performance Share Program for the years 1995 to 1997 under
the 1988 Long-term Incentive Program.
10(ppp) SABRE Group Performance Share Program for the years 1995 to
1997 under the 1988 Long-term Incentive Program.
10(qqq) American Airlines, Inc. 1996 Incentive Compensation Plan
for Officers and Key Employees.
10(rrr) Aircraft Sales Agreement by and between American Airlines,
Inc. and Federal Express Corporation, dated April 7, 1995.
10(sss) Deferred Compensation Agreement, dated as of December 27,
1995, between AMR and Howard P. Allen.
10(ttt) Deferred Compensation Agreement, dated as of February 7,
1996, between AMR and Armando M. Codina.
10(uuu) Deferred Compensation Agreement, dated as of February 9,
1996, between AMR and Charles T. Fisher, III.
10(vvv) Deferred Compensation Agreement, dated as of February 23,
1996, between AMR and Charles H. Pistor, Jr.
23 Consent of Independent Auditors appears on Page 64 hereof.
<PAGE> 1
EXHIBIT 10(ooo)
PERFORMANCE SHARE PROGRAM
DEFERRED STOCK AWARD AGREEMENT
This AGREEMENT made as of October 4, 1995, by and between AMR
Corporation, a Delaware corporation (the "Corporation"), and ((FI)). ((MI)).
((NAME)) (the "Employee"), employee number ((EMP)).
WHEREAS, the stockholders of the Corporation approved the 1988 Long
Term Incentive Plan (the "1988 Plan") at the Corporation's annual meeting held
on May 18, 1988; and
WHEREAS, pursuant to the Performance Share Program (the "Program")
adopted by the Board of Directors of the Corporation (the "Board"), the Board
has determined to make a Program grant to the Employee of Deferred Stock
(subject to the terms of the l988 Plan and this Agreement), as an inducement
for the Employee to remain an employee of the Corporation (or a Subsidiary or
Affiliate thereof), and to retain and motivate such Employee during such
employment.
NOW, THEREFORE, the Corporation and the Employee hereby agree as
follows:
l. Grant of Award. The Employee is hereby granted as of October 4,
1995, (the "Grant Date") a Deferred Stock Award (the "Award"), subject to the
terms and conditions hereinafter set forth, with respect to ((SHARES)) shares
of Common Stock, $l.00 par value, of the Corporation ("Stock"). The shares of
Stock covered by the Award shall vest in accordance with Section 2.
2. Vesting. (a) The Award will vest, if at all, in accordance
with Schedule A, attached hereto and made a part of this Agreement.
(b) In the event of the termination of Employee's
employment with the Corporation (or a Subsidiary or Affiliate thereof) prior to
the end of three year measurement period set forth in Schedule A (the
"Measurement Period") due to the Employee's death, Disability, Retirement or
termination not for Cause (each an "Early Termination") the Award will vest, if
at all, on a prorata basis and will be paid to the Employee (or, in the event
of the Employee's death, the Employee's designated beneficiary for purposes of
the Award, or in the absence of an effective beneficiary designation, the
Employee's estate) within 90 days following the end of the Measurement Period.
The prorata share will be a percentage where the denominator is 36 and the
numerator is the number of months from January 1, 1995 through the month of the
Early Termination, inclusive.
-1-
<PAGE> 2
(c) In the event of the termination of Employee's
employment with the Corporation (or any Subsidiary or Affiliate thereof) for
Cause, or if the Employee terminates his employment with the Corporation (or
any Subsidiary or Affiliate thereof) the Award shall be forfeited in its
entirety.
(d) In the event of a Change in Control or Potential
Change in Control of the Corporation, the Award shall vest in accordance with
the l988 Plan.
3. Elective Deferrals. At any time at least 12 months prior to the
end of the Measurement Period, the Employee may elect in writing, subject to
Board approval, to voluntarily defer the receipt of the Stock for a specified
additional period beyond the end of the Measurement Period (the "Elective
Deferral Period"). Any Stock deferred pursuant to this Section 3 shall be
issued to the Employee within 60 days after the end of the Elective Deferral
Period. In the event of the death of the Employee during the Elective Deferral
Period, the Stock so deferred shall be issued to the Employee's designated
Beneficiary (or to the Employee's estate, in the absence of an effective
beneficiary designation) within 60 days after the Corporation receives written
notification of death.
4. Transfer Restrictions. This Award is non-transferable otherwise
than by will or by the laws of descent and distribution, and may not otherwise
be assigned, pledged or hypothecated and shall not be subject to execution,
attachment or similar process. Upon any attempt by the Employee (or the
Employee's successor in interest after the Employee's death) to effect any such
disposition, or upon the levy of any such process, the Award may immediately
become null and void, at the discretion of the Board.
5. Miscellaneous. This Agreement (a) shall be binding upon and inure
to the benefit of any successor of the Corporation, (b) shall be governed by
the laws of the State of Texas and any applicable laws of the United States,
and (c) may not be amended without the written consent of both the Corporation
and the Employee. No contract or right of employment shall be implied by this
Agreement. If this Award is assumed or a new award is substituted therefore in
any corporate reorganization, employment by such assuming or substituting
corporation or by a parent corporation or subsidiary or affiliate thereof shall
be considered for all purposes of this Award to be employment by the
Corporation.
-2-
<PAGE> 3
6. Securities Law Requirements. The Corporation shall not be
required to issue Stock pursuant to this Award unless and until (a) such shares
have been duly listed upon each stock exchange on which the Corporation's Stock
is then registered; and (b) a registration statement under the Securities Act
of 1933 with respect to such shares is then effective.
The Board may require the Employee to furnish to the Corporation,
prior to the issuance of the Stock in connection with this Award, an agreement,
in such form as the Board may from time to time deem appropriate, in which the
Employee represents that the shares acquired by him under the Award are being
acquired for investment and not with a view to the sale or distribution
thereof.
7. Incorporation of l988 Plan Provisions. This Agreement is made
pursuant to the l988 Plan and is subject to all of the terms and provisions of
the l988 Plan as if the same were fully set forth herein. Capitalized terms
not otherwise defined herein shall have the meanings set forth for such terms
in the l988 Plan.
IN WITNESS HEREOF, the Employee and the Corporation have executed this
Performance Share Grant as of the day and year first above written.
EMPLOYEE AMR CORPORATION
- - ------------------------------ By:
------------------------------
Charles D. MarLett
Corporate Secretary
-3-
<PAGE> 4
Schedule A
The Award hereunder is granted contingent upon the Corporation's
attainment of predetermined cash flow objectives (the "Objectives") over a
three year period beginning January 1, 1995 and ending December 31, 1997 (the
"Measurement Period"). The Objectives will be determined by the Corporation's
cumulative operating cash flow to net assets over the Measurement Period, as
determined by the General Auditor of American Airlines, Inc. and as verified by
the Corporation's independent public accountants. The amount, if any, of the
Award to be paid following the Measurement Period will be dependent upon the
actual Objective for the Measurement Period and the Corporation's standing with
respect to the Objective relative to four competitors (United, Delta, Southwest
and USAir, or such substitute as may be designated by the Board or any
committee thereof).
<TABLE>
<CAPTION>
AMR Relative Standing
Comparative Airlines Percent of Award Earned
- - --------------------- -----------------------
<S> <C> <C> <C> <C> <C>
1st 75% 100% 125% 150% 175%
2nd 50% 75% 100% 125% 150%
3rd 25% 50% 75% 100% 125%
4th 0% 25% 50% 75% 100%
5th 0% 0% 0% 0% 0%
Objective Attained Less Than 5.25% 5.25%- 6.75%- 8.25% Equal to or Greater Than 9.25%
- - ------------------ -------------------------
6.749% 8.249% 9.249%
</TABLE>
-4-
<PAGE> 1
EXHIBIT 10(ppp)
SABRE GROUP
PERFORMANCE SHARE PROGRAM
DEFERRED STOCK AWARD AGREEMENT
This AGREEMENT made as of ((DATE)) by and between AMR
Corporation, a Delaware corporation (the "Corporation"), and ((NAME)) (the
"Employee"), employee number ((EN)).
WHEREAS, the stockholders of the Corporation approved the 1988
Long Term Incentive Plan (the "1988 Plan") at the Corporation's annual meeting
held on May 18, 1988; and
WHEREAS, pursuant to the SABRE Group Long-Term Incentive Plan
(the "Program") approved by the Board of Directors of the Corporation (the
"Board"), the Board has determined to make a Program grant to the Employee of
Deferred Stock (subject to the terms of the l988 Plan and this Agreement), as
an inducement for the Employee to remain an employee of the Corporation (or a
Subsidiary or Affiliate thereof), and to retain and motivate such Employee
during such employment.
NOW, THEREFORE, the Corporation and the Employee hereby agree
as follows:
l. Grant of Award. The Employee is hereby granted as of
((Date)), (the "Grant Date") a Deferred Stock Award (the "Award"), subject to
the terms and conditions hereinafter set forth, with respect to ((PS)) shares
of Common Stock, $l.00 par value, of the Corporation ("Stock"). The shares of
Stock covered by the Award shall vest in accordance with Section 2.
2. Vesting. (a) The Award will vest, if at all, in
accordance with Schedule A, attached hereto and made a part of this Agreement.
(b) In the event of the termination of Employee's employment
with the Corporation (or a Subsidiary or Affiliate thereof) prior to the end of
three year measurement period set forth in Schedule A (the "Measurement
Period") due to the Employee's death, Disability, Retirement or termination not
for Cause (each an "Early Termination") the Award will vest, if at all, on a
prorata basis and will be paid to the Employee (or, in the event of the
Employee's death, the Employee's designated beneficiary for purposes of the
Award, or in the absence of an effective beneficiary designation, the
Employee's estate) within 90 days following the end of the Measurement Period.
The prorata share will be a percentage where the denominator is 36 and the
numerator is the number of months from January 1, 1995 through the month of the
Early Termination, inclusive.
-1-
<PAGE> 2
(c) In the event of the termination of Employee's employment
with the Corporation (or any Subsidiary or Affiliate thereof) for Cause, or if
the Employee terminates his employment with the Corporation (or any Subsidiary
or Affiliate thereof) the Award shall be forfeited in its entirety.
(d) In the event of a Change in Control or Potential Change
in Control of the Corporation, the Award shall vest in accordance with the l988
Plan. In the event The SABRE Group is the subject of a restructuring event
(where "restructuring event" will include, but not be limited to, a spin-off,
sale (in whole or in part), reorganization, or public offering), this agreement
and the benefits conferred hereunder are subject to termination or
modification, either on a retroactive or prospective basis, at the sole
discretion of the AMR Incentive Compensation Committee.
3. Elective Deferrals. At any time at least 12 months prior
to the end of the Measurement Period, the Employee may elect in writing,
subject to Board approval, to voluntarily defer the receipt of the Stock for a
specified additional period beyond the end of the Measurement Period (the
"Elective Deferral Period"). Any Stock deferred pursuant to this Section 3
shall be issued to the Employee within 60 days after the end of the Elective
Deferral Period. In the event of the death of the Employee during the Elective
Deferral Period, the Stock so deferred shall be issued to the Employee's
designated Beneficiary (or to the Employee's estate, in the absence of an
effective beneficiary designation) within 60 days after the Corporation
receives written notification of death.
4. Transfer Restrictions. This Award is non-transferable
otherwise than by will or by the laws of descent and distribution, and may not
otherwise be assigned, pledged or hypothecated and shall not be subject to
execution, attachment or similar process. Upon any attempt by the Employee (or
the Employee's successor in interest after the Employee's death) to effect any
such disposition, or upon the levy of any such process, the Award may
immediately become null and void, at the discretion of the Board.
5. Miscellaneous. This Agreement (a) shall be binding upon
and inure to the benefit of any successor of the Corporation, (b) shall be
governed by the laws of the State of Texas and any applicable laws of the
United States, and (c) may not be amended without the written consent of both
the Corporation and the Employee. No contract or right of employment shall be
implied by this Agreement. If this Award is assumed or a new award is
substituted therefore in any corporate reorganization, employment by such
assuming or substituting corporation or by a parent corporation or subsidiary
or affiliate thereof shall be considered for all purposes of this Award to be
employment by the Corporation.
-2-
<PAGE> 3
6. Securities Law Requirements. The Corporation shall not be
required to issue Stock pursuant to this Award unless and until (a) such shares
have been duly listed upon each stock exchange on which the Corporation's Stock
is then registered; and (b) a registration statement under the Securities Act
of 1933 with respect to such shares is then effective.
The Board may require the Employee to furnish to the
Corporation, prior to the issuance of the Stock in connection with this Award,
an agreement, in such form as the Board may from time to time deem appropriate,
in which the Employee represents that the shares acquired by him under the
Award are being acquired for investment and not with a view to the sale or
distribution thereof.
7. Incorporation of l988 Plan Provisions. This Agreement is
made pursuant to the l988 Plan and is subject to all of the terms and
provisions of the l988 Plan as if the same were fully set forth herein.
Capitalized terms not otherwise defined herein shall have the meanings set
forth for such terms in the l988 Plan.
EMPLOYEE AMR CORPORATION
- - ------------------------------ By:
------------------------------
Charles D. MarLett
Corporate Secretary
-3-
<PAGE> 4
Schedule A
The Award hereunder is granted contingent upon The SABRE Group's
attainment of predetermined Total Shareholder Return (TSR) objectives (the
"Objectives") over a three year period beginning January 1, 1995 and ending
December 31, 1997 (the "Measurement Period"). The Objectives will be verified
by the Corporation's General Auditor. The amount, if any, of the Award to be
paid following the Measurement Period will be dependent upon the actual
Objective for the Measurement Period.
<TABLE>
<CAPTION>
Objective
(SABRE Group Percentage of Award Earned Percentage
-
Three-Year TSR) Formula of Award Earned
---------------- ------- ---------------
<S> <C> <C>
Less Than 6.3% 0% 0%
6.3% 50% 50%
6.3 - 16.0% (0.175 + (5.155*TSR1)) * 100 51-100%
16.1 - 22.0% (-0.333 + (8.333*TSR1)) * 100 101-150%
22.1 - 46.5% (0.159 + (6.098*TSR1)) * 100 151-299%
Greater than or Equal to 46.6% 300% 300%
</TABLE>
__________________________________
TSR expressed as a decimal
-4-
<PAGE> 1
EXHIBIT 10(qqq)
AMERICAN AIRLINES, INC.
1996 INCENTIVE COMPENSATION PLAN
FOR OFFICERS AND KEY EMPLOYEES
Purpose
The purpose of the 1996 American Airlines Incentive Compensation Plan ("Plan")
for Officers and Key Employees is to provide greater incentive to officers and
key employees of American Airlines, Inc. ("American"), to achieve the highest
level of individual performance, and to meet or exceed specified goals which
will contribute to the success of American.
Definitions
"AMR" is defined as AMR Corporation.
"Committee" is defined as the Compensation/Nominating Committee of the AMR
Board of Directors.
"Fund" is defined as the incentive compensation fund, if any, accumulated in
accordance with this Plan.
"Cash Flow Return on Gross Assets" or "CFROGA" is defined as Net Cash Flow
divided by Gross Assets, stated as a percentage.
"Net Cash Flow" is defined as the sum of AMR's net income available to common,
non cash items, net interest expense net of tax and preferred dividends, less
the sum of net income available to common, non cash items, net interest expense
net of tax and preferred dividends attributable to AMR subsidiaries other than
American and to those divisions or subsidiaries of American included in the
reporting segment "The SABRE Group." For purposes of such calculation, the
Committee may include or exclude from Net Cash Flow special or non-recurring
gains or losses at its discretion.
"Gross Assets" is defined as AMR's total gross assets less cash and short-term
investments, plus the Capitalized Value of Operating Leases, less total gross
assets less cash and short-term investments, plus the Capitalized Value of
Operating Leases attributable to AMR subsidiaries other than American and to
those divisions or subsidiaries of American included in the reporting segment
"The SABRE Group."
"Capitalized Value of Operating Leases" is defined as the present value, at
inception, of aircraft operating lease rental payments.
<PAGE> 2
"Affiliate" is defined as a subsidiary of AMR or any entity that is designated
by the Board as a participating employer under the Plan, provided that AMR
directly or indirectly owns at least 20% of the combined voting power of all
classes of stock of such entity.
"Set Aside CFROGA" is defined as 6.7%.
"Set Aside" is defined as gross assets multiplied by the Set Aside CFROGA.
"Target Award" is defined as the award (stated as a percentage of salary) for
an eligible participant when Target CFROGA is achieved; subject, however, to
adjustment by the Committee or senior management, as the case may be, based
upon the participant's individual performance.
Eligibility for Participation
In order to be eligible to participate in the Plan, an individual must be an
officer or key employee (as designated by American's Chairman and CEO) of
American. Additionally, the individual must have been employed by American or
an Affiliate as an officer or key employee for at least three consecutive
months during the Plan year. The three months service requirement may be
waived in cases of mandatory retirement prior to completing three months of
service.
During a Plan year, individuals with less than twelve months eligibility in the
Plan may be eligible to participate in the Plan on a pro rata basis, at the
discretion of the Committee. In addition, the Committee, in its discretion,
may permit participation by officers and key employees of Affiliates who have
been so employed by the Affiliate for at least three consecutive months during
the Plan year.
Notwithstanding the foregoing, however, an officer or key employee will not be
eligible to participate in the Plan if such officer or key employee is, at the
same time, eligible to participate in a commission, incentive, profit sharing
or other bonus compensation program sponsored by American or an Affiliate,
unless the Committee otherwise decides.
In order to receive an award under the Plan, an individual must satisfy the
aforementioned eligibility requirements and must be an employee of American or
an Affiliate at the time an award under the Plan is paid. If at the time
awards are paid under the Plan, an individual has retired from American or an
Affiliate, is disabled, or has died, the award which the individual otherwise
would have received under the Plan but for such retirement, disability, or
death may be paid to the individual, or his/her estate in the event of death,
at the discretion of the Committee.
<PAGE> 3
The Incentive Compensation Fund
(a) As CFROGA exceeds the Set Aside CFROGA, the Fund will begin to
accumulate.
(b) Target CFROGA will vary from 7.4% - 7.8% depending upon CFROGA
rank among the Comparison Airlines. At target CFROGA, the
Fund will accumulate to a size that will allow Target Awards
for all eligible participants.
(c) Maximum Payout CFROGA will vary from 9.0% to 10.2% depending
on CFROGA rank among the comparison airlines. At Maximum
Payout CFROGA, the Fund will accumulate to a size that will
allow 210% of Target Awards for all eligible participants.
(d) Once Set Aside CFROGA has been attained, the Fund will
accumulate on a linear basis such that at Target CFROGA, the
Fund size equals 100% of Target Awards. Following the
attainment of Target CFROGA, the Fund will accumulate on a
linear basis such that maximum Awards are funded at Maximum
Payout CFROGA.
<TABLE>
<CAPTION>
American's -- CFROGA --
------------
Competitive Max Comparison
Rank Set Aside Target Payout Airlines
---- --------- ------ ------ --------
<S> <C> <C> <C> <C>
1 6.7% 7.4% 9.0% Delta
2 6.7% 7.5% 9.3% United
3 6.7% 7.6% 9.6% USAir
4 6.7% 7.7% 9.9% Southwest
5 6.7% 7.8% 10.2%
</TABLE>
Allocation of Individual Awards
Individual awards for officers of American under the Plan will be determined by
the Committee based upon each participant's performance. Individual awards for
key employees of American will be determined by the senior management of
American based upon each participant's performance. Unless the Committee or
senior management, as the case may be, decides otherwise, an award made under
the Plan, in combination with any other award made under an incentive,
commission, profit sharing or other bonus compensation program sponsored by
American or an Affiliate may not, in the aggregate, exceed 100% of the
participant's base salary. At the discretion of the Committee the Fund may not
be fully distributed. In addition, the aggregate of all awards paid hereunder
will
<PAGE> 4
not exceed the lesser of 2.1 times the target fund or 50% of total base
salaries of all participants.
<PAGE> 5
Administration
The Committee shall have authority to administer and interpret the Plan,
establish administrative rules, approve eligible participants, and take any
other action necessary for the proper operation of the Plan. In computing the
Cash Flow Return on Gross Assets of the Comparison Airlines, the Committee may
include or exclude special or non-recurring items. Notwithstanding anything to
the contrary contained herein, no awards will be made under the Plan unless
awards are also made under the 1996 American Airlines General Profit Sharing
Plan, the 1996 Pilot Variable Compensation Plan for members of the Allied
Pilots Association, and the 1996 TWU Profit Sharing Plan for members of the
Transport Workers Union. The amount, if any, of the Fund shall be computed by
the General Auditor of American based on a certification of CFROGA by
American's independent auditors. A summary of awards under the Plan shall be
provided to the Board of Directors at the first regular meeting following
determination of the awards.
Method of Payment
The Committee will determine the method of payment of awards. Awards shall be
paid as soon as practicable after audited financial statements for the year
1996 are available. Individuals, except retirees, may elect to defer their
awards into a 401(k) plan established by American or AMR or into a deferred
compensation program, if any, administered by American or AMR.
General
Neither this Plan nor any action taken hereunder shall be construed as giving
any employee or participant the right to be retained in the employ of American
or an Affiliate.
Nothing in the Plan shall be deemed to give any employee any right,
contractually or otherwise, to participate in the Plan or in any benefits
hereunder, other than the right to receive payment of such incentive
compensation as may have been expressly awarded by the Committee.
In consideration of the employee's privilege to participate in the Plan, the
employee agrees (i) not to disclose any trade secrets of, or other
confidential/restricted information of, American to any unauthorized party and,
(ii) not to make any unauthorized use of such trade secrets or confidential or
restricted information during his or her employment with American or after such
employment is terminated, and (iii) not to solicit any current employees of
American or any subsidiaries of AMR Corporation to join the employee at his or
her new place of employment after his or her employment with American is
terminated.
The Board of Directors may amend, suspend, or terminate the plan at any time.
<PAGE> 1
EXHIBIT 10(rrr)
================================================================================
AIRCRAFT SALES AGREEMENT
BY AND BETWEEN
AMERICAN AIRLINES, INC.
AND
FEDERAL EXPRESS CORPORATION
DATED APRIL 7, 1995
================================================================================
SALE OF TWELVE MCDONNELL DOUGLAS MODEL MD-11 AIRCRAFT
GRANT OF OPTIONS ON SEVEN MCDONNELL DOUGLAS MODEL MD-11 AIRCRAFT
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE/SECTION PAGE
- - --------------- ----
<S> <C>
ARTICLE 1 DEFINITIONS; CONSTRUCTION
Section 1.01 Primary Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 2 PURCHASE OF AIRCRAFT
Section 2.01 Firm Aircraft, Purchase Prices and Delivery Dates . . . . . . . . . . . . . . . . 9
Section 2.02 Put Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.03 Purchase Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.04 Designation and Substitution of Airframes and Engines . . . . . . . . . . . . . . 12
Section 2.05 Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.06 Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 3 AIRCRAFT DELIVERY, TITLE, RISK OF LOSS
Section 3.01 Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.02 Inspection, Flight Checks and Discrepancies . . . . . . . . . . . . . . . . . . . 14
Section 3.03 [ * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ]
Section 3.04 Delivery Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.05 Delayed Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.06 Delivery Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.07 Adjustments to Purchase Price for Delivery Condition . . . . . . . . . . . . . . . 23
Section 3.08 Aircraft Delivery Certificate; Engine Delivery Certificate . . . . . . . . . . . . 23
Section 3.09 Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.10 Title and Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 4 SPARE PARTS
Section 4.01 MD-11 Spare Parts List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.02 MD-11 Spare Parts Purchase Obligation. . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
____________________
*Blank space contained confidential information which has been filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 4.03 Spare Engine, Spare APU and Spare Thrust Reverser Purchase Obligation . . . . . . 26
Section 4.04 Effect of Expiration of Put Options on Certain Spare Parts Purchase Obligations . 28
Section 4.05 Designation of MD-11 Spare Parts to be Acquired and Delivery . . . . . . . . . . . 28
Section 4.06 MD-11 Spare Parts Documentation . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 5 REPRESENTATIONS AND WARRANTIES
Section 5.01 American's Representations and Warranties . . . . . . . . . . . . . . . . . . . . 29
Section 5.02 No Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.03 FedEx's Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE 6 DOCUMENTATION
Section 6.01 Availability of Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.02 Technical Data and Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 7 ASSIGNMENT OF WARRANTIES, SERVICE LIFE POLICIES AND PATENT INDEMNITIES
Section 7.01 Assignment of Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 8 PAYMENT OF TAXES
Section 8.01 Payment of Taxes by FedEx . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 8.02 Tax Consequences of Certain Deliveries . . . . . . . . . . . . . . . . . . . . . . 36
Section 8.03 After-Tax Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 9 EXCUSABLE DELAY
Section 9.01 Excusable Delay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 9.02 Time Limits on Excusable Delays . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 10 INDEMNIFICATION
Section 10.01 FedEx's Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 10.02 American's Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 11 INSURANCE
Section 11.01 Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.02 Hull Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.03 Insurance Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 12 DEFAULT AND REMEDIES
Section 12.01 American Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 12.02 FedEx Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 12.03 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 12.04 Limitation of Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 13 DISPUTE RESOLUTION
Section 13.01 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 13.02 Notice of Dispute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 13.03 Dispute Resolution Through Negotiation . . . . . . . . . . . . . . . . . . . . . . 41
Section 13.04 Dispute Resolution Through Mediation . . . . . . . . . . . . . . . . . . . . . . . 42
Section 13.05 Dispute Resolution Through Arbitration . . . . . . . . . . . . . . . . . . . . . . 42
Section 13.06 Forbearance During Resolution Process . . . . . . . . . . . . . . . . . . . . . . 43
Section 13.07 Limitation of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 13.08 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 14 CONDITIONS
Section 14.01 Conditions to FedEx's Obligations . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 14.02 Conditions to American's Obligations . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE 15 CONFIDENTIALITY
Section 15.01 Confidentiality Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE 16 FURTHER ASSURANCES
Section 16.01 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE 17 MISCELLANEOUS
Section 17.01 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 17.02 Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 17.03 Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 17.04 No Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 17.05 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 17.06 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 17.07 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 17.08 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 17.09 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 17.10 Brokers' Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 17.11 No Remedy Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 17.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 17.13 Survival of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
iv
<PAGE> 6
EXHIBITS
<TABLE>
<S> <C>
Exhibit A Aircraft Subject to Aircraft Purchase Agreement
Exhibit B Aircraft Delivery Certificate
Exhibit C Warranty Bills of Sale
Exhibit D Data Relating to the Aircraft and Engines
Exhibit E Designation of an Airframe for Delivery on Scheduled Delivery Date
Exhibit F Designation of a Substitute Airframe for Delivery on Scheduled Delivery Date
Exhibit G Form of Assignment of Assignable Manufacturer's Warranties
Exhibit H Designation of Engines for Conveyance on Scheduled Delivery Date
Exhibit I Put Option Exercise
Exhibit J Purchase Option Notice
Exhibit K Purchase Option Exercise
Exhibit L Purchase Price Adjustment Formula-Airframe
Exhibit M Purchase Price Adjustment Formula-Engines
Exhibit N Purchase Price Adjustment Formula-Gear
Exhibit O Purchase Price Adjustment Formula-APU
Exhibit P Engine Delivery Certificate
Exhibit Q Spare Parts Purchase Schedule and Prices
Exhibit R Procedure for Engine Borescope Inspections
Exhibit S Form of [ * ]Agreement
Exhibit T Spares Purchase Price Adjustment Formula-Spare Engines
Exhibit U High-Hour and High-Cycle Airframe Certificate
</TABLE>
____________________
*Blank space contained confidential information which has been filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
v
<PAGE> 7
AIRCRAFT SALES AGREEMENT
This AIRCRAFT SALES AGREEMENT (the "Agreement") is made on April 7,
1995 by and between AMERICAN AIRLINES, INC., a Delaware corporation
("American") and FEDERAL EXPRESS CORPORATION, a Delaware corporation ("FedEx").
RECITALS
1. American owns twelve (12) McDonnell Douglas Model MD-11
aircraft that American desires to sell. American has agreed to sell to FedEx
and FedEx has agreed to buy from American twelve (12) of its McDonnell Douglas
Model MD-11 aircraft. In addition, FedEx has agreed to grant to American put
options to sell to FedEx up to seven (7) additional McDonnell Douglas Model
MD-11 aircraft.
2. American and FedEx desire to document the terms and conditions
for the sale and purchase of the Firm Aircraft, the Put Options with respect to
the Put Option Aircraft and the Purchase Options with respect to the Put Option
Aircraft, each as defined below.
FOR AND IN CONSIDERATION of the mutual covenants contained in this
Agreement and other good and valuable consideration, the receipt of which is
hereby acknowledged FedEx and American (each a "Party" and together the
"Parties") agree as follows:
ARTICLE 1
DEFINITIONS; CONSTRUCTION
Section 1.01. Primary Definitions. In addition to words and terms
elsewhere defined in this Agreement, the following words and terms shall have
the meanings set forth below:
"Affiliate" shall mean any person, directly or indirectly, through one
or more intermediaries, controlling, controlled by or under common control with
American or FedEx, as the case may be.
"Aircraft" shall mean any or all of the nineteen (19) McDonnell
Douglas Model MD-11 aircraft, the U.S. Registration Numbers and Manufacturer's
Serial Numbers of which are listed on Exhibit A, each such aircraft consisting
of an Airframe, three Engines and the Gear, the APU and any and all Parts
installed therein or thereon at Delivery.
-1-
<PAGE> 8
"Aircraft Delivery Certificate" shall mean a tender and acceptance
certificate, in the form of Exhibit B, executed by FedEx and American
concurrently with the Delivery of each Aircraft.
"Aircraft Records" shall mean that portion of the Data listed under
the caption "RECORDS" in Exhibit D.
"Airframe" or "Airframes" shall mean one or more, as the case may be,
of the McDonnell Douglas Model MD-11 airframes bearing one of the
Manufacturer's Serial Numbers set forth in Exhibit A.
"Airworthiness Directive" or "Airworthiness Directives" shall mean one
or more of the airworthiness directives prescribed in Part 39 of the FAR or any
successor regulation thereto to the extent such airworthiness directives apply
to the Aircraft other than the Passenger Parts.
"Airworthy" shall mean the condition of an Aircraft (1) which includes
the existence of a validly issued, current individual aircraft FAA Certificate
of Airworthiness with respect to the Aircraft and which satisfies all
requirements for the effectiveness of such FAA Certificate of Airworthiness,
(2) which complies with: (A) the MD-11 Type Design Data Certificate, including
all applicable supplemental type certificates which have been incorporated on
the Aircraft; (B) subject to the nondiscrimination covenant of American in
Section 3.06(a)(ii), all applicable FAA Airworthiness Directives which are
required to be complied with by the Scheduled Delivery Date of such Aircraft
and the requirements for maintaining data substantiating the status and method
of compliance for each such Airworthiness Directive; and (C) the Aircraft
records requirements of FAR Section 121.380; and (3) in which such Aircraft's
structure, systems and components are functioning in accordance with their
intended use as set forth in FAA-approved documentation, including, but not
limited to, any applicable original manufacturer's manuals, technical standard
orders, parts manufacturing approval certificates or American engineering
specification orders, provided, however, that clauses (1), (2) and (3) above
are subject in all respects to any discrepancies or deviations of such Aircraft
from, or failures of such Aircraft to comply with, the foregoing standards
which are solely the result of the removal of the Passenger Parts from the
Aircraft as contemplated by Sections 3.02 and 3.06(a)(x).
"American ESM" shall mean the American Airlines MD-11 Engineering
Specification Maintenance (ESM) Program as in effect on the Delivery Date of
the Aircraft to which the standards in such program are being applied.
"American Program" shall mean American's FAA-approved Maintenance
Program for the Airframes and the Engines as in effect from time to time,
including, without limitation, the American ESM. When used in Section 3.06 and
Exhibits L, M, N and O (whether expressly used therein or whether used in
the definition of
-2-
<PAGE> 9
any other defined term appearing therein), references to the American Program
shall be to the American Program as in effect on the Delivery Date of the
Aircraft to which the standards in such Section 3.06 and such exhibits are
being applied.
"American Serviceable Tag" shall mean a document containing
appropriate entries detailing conformity to type design of the Spare Parts,
and, if applicable, the maintenance certification of repair, which is properly
executed in accordance with the American's General Maintenance Policy and
Procedures Program. The American Serviceable Tags will be acceptable to FedEx
when signed by an FAA-certified individual or accompanied by a certificate of
repair or a certificate signifying conformity to type design and specifying
that the Spare Parts are serviceable. The affixing of an American Serviceable
Tag to a Spare Part shall signify that the Spare Part is in a serviceable
condition for operation on American's fleet of McDonnell Douglas MD-11 aircraft
and complies with applicable manufacturer's service bulletins, Airworthiness
Directives, and the aircraft records requirements of FAR Section 121.380.
"AMR Rate" shall mean [ * ].
"APU" shall mean [ * ].
"Average Unit Price" shall mean American's average unit price for any
Spare Parts as shown on the books of American as of January 20, 1995.
"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which banking institutions in Ft. Worth, Texas, New York, New York
or Memphis, Tennessee are authorized or required by law to be closed.
"C Check" shall mean any C check of a McDonnell Douglas Model MD-11
airframe as prescribed by the American Program.
"Change Designation" shall mean a notice in the form set forth in
Exhibit F exercising the right to substitute Airframes set forth in Section
2.04.
"Citibank Prime" shall mean the rate of interest announced by
Citibank, N.A. from time to time as its prime lending rate to its most credit
worthy commercial customers, which rate shall not necessarily be its lowest
lending rate.
"Data" shall mean all of the manuals, documents, drawings, charts, records
*Blank space contained confidential information which has been filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
-3-
<PAGE> 10
and other written materials described in Exhibit D, on whatever medium, and
any successor, supplemental, modifying, amending or replacement manuals,
documents, drawings, charts, records and other written materials, on whatever
medium, all of which shall be current with the latest revisions available with
respect thereto at the time such Data is delivered to FedEx.
"Delayed Delivery Engine" or "Delayed Delivery Engines" shall mean one
or more, as the case may be, of the Engine or Engines which (i) are conveyed
with an Aircraft, but which are not installed on the Aircraft at Delivery, (ii)
which American will deliver within ninety (90) days after the Delivery of such
Aircraft and (iii) which, at the time of the Delivery of the Aircraft, American
expects to be and which, upon its delivery by American to FedEx, must be in the
condition required by Section 3.06 for Engines upon delivery to FedEx.
"Delivery" shall mean, with respect to any Aircraft, the occurrence of
all the following events, which events are to be performed in accordance with
this Agreement: (a) tender of the Aircraft by American to FedEx as evidenced by
American's execution and delivery to FedEx of an Aircraft Delivery Certificate
with respect to such Aircraft, (b) acceptance by FedEx of the Aircraft, as
evidenced by FedEx's execution and re-delivery of such Aircraft Delivery
Certificate to American, (c) sale by transfer of title of the Aircraft by
American to FedEx as evidenced by delivery to FedEx of the executed FAA Bill of
Sale and the executed Warranty Bill of Sale, and (d) payment by FedEx to
American of the Purchase Price for the Aircraft.
"Delivery Condition" shall mean the condition that an Aircraft must be
in at the time it is tendered by American to FedEx for Delivery as prescribed
by Section 3.06.
"Delivery Date" shall mean any date on which the Delivery of an
Aircraft is complete.
"Deposits" shall mean the cash deposits made by FedEx with American
pursuant to Section 2.06.
"Designation" shall mean a written notice in the form set forth in
Exhibit E designating a particular Airframe for delivery on a Scheduled
Delivery Date, either in connection with the sale of the Firm Aircraft, the
exercise of a Put Option, or the exercise of a Purchase Option.
"Direct Maintenance Costs" shall mean, with respect to a particular
maintenance bill of work, all direct labor costs, the aggregate Average Unit
Price of all materials and the cost of all outside services, less any warranty
payments and reimbursements.
-4-
<PAGE> 11
"Engine" or "Engines" shall mean one or more, as the case may be,
General Electric CF6-80C2D1F aircraft engines to be conveyed to FedEx under
this Agreement as a part of an Aircraft, including Replacement Engines and
Delayed Delivery Engines, but excluding Non-Conforming Engines.
"Engine Designation" shall mean a written notice in the form set forth
in Exhibit H designating the Engines to be conveyed by American to FedEx as a
part of a Firm Aircraft, a Put Option Aircraft or a Purchase Option Aircraft.
"Engine Heavy Maintenance" or "EHM" shall mean that engine maintenance
build level in which there is complete refurbishment of all modules in a
General Electric CF6-80C2D1F aircraft engine in accordance with the "Detailed
Program Requirements" listed in American's Engineering Specification 6-3/DH/JP
contained in American's GE-CF6-80C2 Engine Manual or in any successor
engineering specification.
"Engine Maintenance" shall mean a HSC, HSM or EHM.
"Engine Records" shall mean that portion of the Data relating to the
Engines and the Spare Engines, including that portion of the Data set forth
under the caption "ENGINE RECORDS" in Exhibit D.
"Engine Lease Agreement" shall mean an engine lease agreement
substantially in the form attached hereto as Exhibit S.
"Event of Default" shall mean, as to American, any of the events of
default set forth in Section 12.01 and, as to FedEx, any of the events of
default set forth in Section 12.02.
"Excusable Delay" shall mean, subject to the time limitations set
forth in Section 9.02, any delay in the timely discharge and performance by a
Party of its obligations and duties under this Agreement to the extent such
delay shall be the result of (i) the occurrence of a Force Majeure Event with
respect to the Party whose performance is delayed, (ii) the fault of the other
Party, whether such fault arises from the failure of the other Party to
discharge and perform its obligations and duties hereunder or otherwise, (iii)
any other event that excuses as a matter of applicable law a Party's timely
performance of its contractual obligations and duties or (iv) with respect to
American only, any damage to, partial destruction of, total loss of, or
substantially complete or complete destruction of an Aircraft.
"FAA" shall mean the United States Federal Aviation Administration or
any successor agency thereto.
-5-
<PAGE> 12
"FAR" shall mean the United States Federal Aviation Regulations, 14
C.F.R Section 1 et seq., as promulgated pursuant to Title 49 Section 40101 et
seq. of the United States Code, and any successor statute thereto, as such
regulations are in effect from time to time.
"FAA Bill of Sale" shall mean a Federal Aviation Administration Bill
of Sale (AC Form 8050-2 or any successor form thereto) conveying title to the
Aircraft to FedEx.
"Firm Aircraft" shall mean any or all of the Aircraft to be sold by
American to FedEx pursuant to Section 2.01.
"First Interval Items" shall mean those maintenance significant items
set forth in pages 52-1 through 52-2 (as revised on April 21, 1993), pages 53-1
through 53-44 (as revised on February 8, 1995), pages 54-1 through 54-6 (as
revised through December 21, 1994), pages 55-1 through 55-12 (as revised on
February 2, 1994) and pages 57-1 through 57- 21 (as revised on February 8,
1995) of the American ESM which are required to be accomplished for the first
time sixty (60) months after the delivery of an Airframe to American by the
Manufacturer.
"Force Majeure Event" shall mean any act of God, action or regulation
of any governmental authority, fire, weather, flood, earthquake, accident,
mechanical or electrical failure other than with respect to an Aircraft being
delivered, act of the public enemy, war, civil disturbance, rebellion,
insurrection, work stoppage, work slow down, other labor or work action, labor
dispute, restraint of government or other cause or event beyond the control of
the Party claiming the benefit of the occurrence of any such force majeure.
"Gear" shall mean one or more, as the case may be, of the nose,
center, left and right landing gears on any Airframe.
"Hot Section/Compressor Maintenance" or "HSC" shall mean the engine
maintenance build level in which there is refurbishment of the HPT Rotor, HPT
1st Stage Nozzle Assembly, the 2nd Stage Nozzle Assembly and the HPC Rotor as
described in the American Program.
"Hot Section Maintenance" or "HSM" shall mean the engine maintenance
build level in which there is refurbishment of the HPT Rotor, HPT 1st Stage
Nozzle Assembly, and the 2nd Stage Nozzle Assembly as described in the American
Program.
"Lien" shall mean any mortgage, pledge, security interest, lien,
claim, encumbrance or other charge or rights of others of any kind on property.
-6-
<PAGE> 13
"Life Limited Part" or "Life Limited Parts" shall mean one or more, as
the case may be, Parts which must be removed from an Engine, a Spare Engine, an
APU or a Spare APU upon having been in such Engine, Spare Engine, APU or Spare
APU for the maximum permissible calendar time, flight cycles or flight hours
specified for such Part by its manufacturer.
"Manufacturer" shall mean McDonnell Douglas Corporation as to the
Airframes and General Electric Corporation as to the Engines.
"MD-11 Spare Part" or "MD-11 Spare Parts" shall mean any or all Parts
listed on the Spares List.
"More Restrictive" shall mean that measure of the interval between
maintenance events for an Airframe, Engine, Gear or APU or of the useful life
or the interval between maintenance events of a Part which yields the lowest
percentage of such interval remaining until the next such required maintenance
event or the lowest percentage of such useful life, as applicable.
"Non-Conforming Engine" or "Non-Conforming Engines" shall mean one or
more, as the case may be, General Electric C6F-80C2D1F engines installed on an
Aircraft which do not meet the delivery conditions for Engines set forth in
Section 3.06, but which are otherwise in a condition suitable for the purpose
of permitting ferry flights of the Aircraft on which such engines are installed
to the facilities of one or more third party vendors for conversion of such
Aircraft to a cargo configuration or for transition maintenance for such
Aircraft.
"Part" or "Parts" shall mean any item or items of avionics,
appliances, parts, furnishings, instruments, accessories and equipment suitable
for installation and use on an Aircraft.
"Passenger Parts" shall mean any Parts installed in the passenger
cabin of an Aircraft that relate to the passenger configuration of such
Aircraft, but excluding any Part in the passenger cabin of an Aircraft which is
necessary for the Aircraft to be modified into FedEx's freighter configuration,
including, without limitation, the forward starboard lavatory, the slide rafts
on the R1, R4, L1 and L4 doors and the forward starboard galley installed on
such Aircraft.
"Power Assurance Run Test" shall mean a power assurance run test on an
Engine conducted in accordance with the procedures in Test No. 6 in Chapter
71-00-00-5-1 of the McDonnell Douglas Aircraft Maintenance Manual pertaining to
McDonnell Douglas Model MD-11 aircraft.
"Purchase Option" and "Purchase Options" shall have the meanings set
forth in Section 2.03.
-7-
<PAGE> 14
"Purchase Option Aircraft" shall mean any Put Option Aircraft as to
which FedEx has delivered a Purchase Option Exercise.
"Purchase Option Exercise" shall mean a written notice given by FedEx
to American exercising a Purchase Option as to any Put Option Aircraft, which
notice shall be in the form attached hereto as Exhibit K.
"Purchase Option Notice" shall mean a written notice, in the form
attached hereto as Exhibit J, given by American to FedEx notifying FedEx of
American's intent to offer for sale, or to otherwise permanently transfer
possession of, any of the Put Option Aircraft other than pursuant to the Put
Options or any agreements entered into by American pursuant to which American
has granted a security interest in the Aircraft in connection with the
financing of the Aircraft.
"Purchase Price" shall mean, as applicable, the purchase price of a
Firm Aircraft on a Scheduled Delivery Date as set forth in Section 2.01, of a
Put Option Aircraft on a Scheduled Delivery Date as set forth in Section 2.02
and of a Purchase Option Aircraft applicable for the month of the Delivery of
the Purchase Option Aircraft as set forth in Section 2.03, as adjusted in
accordance with Section 3.07.
"Put Option" and "Put Options" shall have the meanings set forth in
Section 2.02.
"Put Option Aircraft" shall mean any or all of the Aircraft as to
which FedEx has granted to American options to sell such Aircraft to FedEx
pursuant to Section 2.02.
"Put Option Exercise" shall mean a written notice given by American to
FedEx exercising a Put Option as to any Put Option Aircraft, which notice shall
be in the form attached hereto as Exhibit I.
"Replacement Engine" or "Replacement Engines" shall mean one or more,
as the case may be, General Electric C6F- 80C2D1F engines to be conveyed by
American to FedEx in the stead of a Delayed Delivery Engine pursuant to Section
3.03, each of which engines meets the delivery condition requirements of
Section 3.06 with respect to Engines.
"Scheduled Delivery Date" shall mean a date on which an Aircraft is to
be delivered as set forth in Section 2.01 as to the Firm Aircraft, and Section
2.02 as to the Put Option Aircraft and Section 2.03 as to any Purchase Option
Aircraft or, as to any of the Aircraft, such other date as the Parties may
agree in writing.
"Second Interval Items" shall mean those maintenance significant items
set forth in pages 52-1 through 52-2 (as revised on April 21, 1993), pages 53-1
through 53-44 (as revised on February 8, 1995), pages 54-1 through 54-6 (as
revised through
-8-
<PAGE> 15
December 21, 1994), pages 55-1 through 55-12 (as revised on February 2, 1994)
and pages 57-1 through 57-21 (as revised on February 8, 1995) of the American
ESM which are required to be accomplished for the first time ninety (90) months
after the delivery of an Airframe to American by the Manufacturer.
"Shop Findings Report" shall mean a report stating the root cause of
the failure of a Part and the materials used in returning such Part to a
serviceable condition which is executed by an authorized repairman, all in
accordance with the American Program.
"Spare APU" and "Spare APU's" shall mean one or more, as the case may
be, of the five (5) APU's owned by American which are not installed on an
Aircraft, which APU's shall include a shipping stand.
"Spare Engine" and "Spare Engines" shall mean one or more, as the case
may be, of the ten (10) General Electric CF6-80C2D1F engines owned by American
that are not installed on the Aircraft. Each such engine shall be in a wing or
tail quick engine change configuration and shall include an engine shipping
stand suitable for such engines.
"Spares List" shall mean the list of Parts dated as of January 20,
1995 which American is delivering to FedEx pursuant to Section 4.01.
"Spare Part" and "Spare Parts" shall mean any or all of the MD-11
Spare Parts and the Spare APU's, the Spare Engines and the Spare Thrust
Reversers.
"Spares Purchase Price" shall mean the purchase price paid or to be
paid for Spare Parts or portions thereof pursuant to Article 4.
"Spare Thrust Reversers" shall mean one or more, as the case may be,
of the three (3) pairs of thrust reverser assemblies usable on the Engines of
the Aircraft which are not installed on an Aircraft.
"Warranty Bill of Sale" shall mean a warranty bill of sale conveying
title to an Aircraft to FedEx, which warranty bill of sale shall be in the form
attached hereto as Exhibit C.
Any defined term used in this Agreement and not expressly defined
herein shall have the meaning ascribed to it in the FAR if such term is
expressly defined in the FAR or, if not expressly defined in the FAR, such term
shall have the meaning customarily ascribed to it in the aircraft industry.
Section 1.02. Rules of Construction. The words "hereof," "herein,"
"hereunder," "hereto" and other words of similar import refer to this Agreement
in its entirety.
-9-
<PAGE> 16
The terms "agree" and "agreements" contained herein are intended to
include and mean "covenant" and "covenants".
All references in this Agreement to articles, sections, subsections
and other subdivisions refer to corresponding articles, sections, subsections
and other subdivisions of this Agreement unless otherwise expressly provided.
All references in this Agreement to exhibits shall refer to the exhibits to
this Agreement unless otherwise provided.
The article and section headings in this Agreement have been inserted
solely for convenience and shall not be considered in construing this
Agreement.
ARTICLE 2
PURCHASE OF AIRCRAFT
Section 2.01. Firm Aircraft, Purchase Prices and Delivery Dates.
On the terms and subject to the conditions set forth herein, American agrees to
sell to FedEx, and FedEx agrees to purchase from American, the Firm Aircraft,
with one Firm Aircraft to be so sold and purchased on each Scheduled Delivery
Date as set forth below. The Purchase Price of each Firm Aircraft to be
delivered on each Scheduled Delivery Date and the latest date by which a
Designation as to a Scheduled Delivery Date may be given are as set forth in
the following table:
<TABLE>
<CAPTION>
LATEST SCHEDULED
DELIVERY DESIGNATION DELIVERY PURCHASE
NUMBER DATE DATE PRICE
-------------- ---------------- -----------------
<S> <C> <C> <C> <C>
1 7-May-95 17-Jan-96 $
2 12-June-95 12-June-96 $
3 16-Oct-95 16-Oct-96 $
4 12-Feb-96 12-Feb-97 $
5 11-June-96 11-June-97 $
6 15-Oct-96 15-Oct-97 $ *
7 14-Jan-97 14-Jan-98 $
8 17-June-97 17-June-98 $
9 14-Oct-97 14-Oct-98 $
10 17-Feb-98 17-Feb-99 $
11 16-June-98 16-June-99 $
12 13-Oct-98 13-Oct-99 $
</TABLE>
Subject to Section 3.05(d), if due to the loss or, in American's sole
discretion,
substantially complete destruction of one or more Aircraft, American tenders to
*Blank space contained confidential information which has been filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
-10-
<PAGE> 17
FedEx for Delivery pursuant to this Agreement fewer than twelve (12) Firm
Aircraft, then on or before October 13, 1999 or such later date as the Parties
agree will be the Scheduled Delivery Date for the twelfth (12th) Firm Aircraft,
American will pay to FedEx $[* ] for each Firm Aircraft fewer than twelve
(12) that American delivers to FedEx. American will make such payment by a
wire transfer of immediately available funds.
Section 2.02. Put Options. (a) FedEx hereby grants to American
seven (7) options (the "Put Options" and each a "Put Option"), each of which
shall give American the right to sell one Aircraft to FedEx on each of the
Scheduled Delivery Dates set forth in the table in Section 2.02(c). Upon
American's exercise of each Put Option, FedEx shall purchase one Aircraft on
the terms and subject to the conditions set forth herein.
(b) A Put Option will be exercisable as to an Aircraft by American
giving to FedEx a Put Option Exercise on any date not later than the "Latest
Exercise Date" as set forth in Section 2.02(c).
(c) The latest date by which a Put Option may be exercised (each a
"Latest Exercise Date"), the latest date by which a Designation for a Scheduled
Delivery Date may be given, the Scheduled Delivery Dates for the Put Option
Aircraft and the Purchase Price of each Put Option Aircraft are as set forth in
the following table:
<TABLE>
<CAPTION>
LATEST LATEST SCHEDULED
DELIVERY EXERCISE DESIGNATION DELIVERY PURCHASE
NUMBER DATE DATE DATE PRICE
------ ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
13 15-Feb-00 $
14 14-June-00 $
15 11-Oct-00 $
16 * * 14-Feb-01 $ *
17 12-June-01 $
18 16-Oct-01 $
19 12-Feb-02 $
</TABLE>
(d) American and FedEx intend the exercise of the Put Options to be
sequential and consistent with the schedule set forth above. If American fails
to give FedEx a Put Option Exercise exercising a particular Put Option on or
before the Latest Exercise Date for such Put Option, that Put Option will
expire. If a Put Option expires, the remaining Put Options may be cancelled by
FedEx giving to
____________________
*Blank space contained confidential information which has been filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
-11-
<PAGE> 18
American written notice of such cancellation on or before the earlier of (i)
the next following Latest Exercise Date set forth in Section 2.02(c) and (ii)
the seventh (7th) day next following the day on which FedEx receives a written
notice from American that FedEx has the right to cancel the remaining Put
Options. If FedEx fails to give American timely written notice of the
cancellation of the remaining, unexercised Put Options, the remaining,
unexercised Put Options will remain in full force and effect. The failure of
American to give to FedEx any notice that FedEx may cancel the remaining,
unexercised Put Options shall not be a breach, default or Event of Default
under the terms of this Agreement.
Section 2.03. Purchase Options. (a) If American intends to offer
any Put Option Aircraft not designated as a Firm Aircraft for sale to a third
party, FedEx shall have the right, but not the obligation, to purchase such Put
Option Aircraft from American on the terms and subject to the conditions set
forth in this Section 2.03 (the "Purchase Options" and each, a "Purchase
Option"). American shall give FedEx a Purchase Option Notice before American
makes an offer to sell any or all of the Put Option Aircraft to any third
party. FedEx may exercise the Purchase Options as to any or all of the Put
Option Aircraft stated in a Purchase Option Notice by giving American a
Purchase Option Exercise within fourteen (14) days after its receipt of the
Purchase Option Notice. The failure of FedEx to give American a Purchase
Option Exercise within [ * ] of its receipt of the Purchase
Option Notice will entitle American to sell the Put Option Aircraft to any
person or persons free of the Purchase Options, but such failure shall not be a
breach by FedEx of, or a default or an Event of Default under, the terms of
this Agreement. If FedEx does not exercise a Purchase Option as to a
particular Put Option Aircraft, (i) American may offer for sale and may sell
such Put Option Aircraft in such manner, at such time or times, for such price
or prices and on such other terms and subject to such conditions as American,
in its sole discretion, deems acceptable and (ii) American may nevertheless
exercise the remaining, unexpired Put Options in accordance with the terms and
subject to the conditions set forth in Section 2.02 without regard to any prior
Purchase Option Notice. American will provide a Designation with respect to
any Purchase Option Aircraft on or before the later to occur of (i) one year
prior to the Scheduled Delivery Date and (ii) the thirtieth (30th) day after
its receipt of a Purchase Option Exercise.
(b) The Purchase Price for any Purchase Option Aircraft which is
tendered by American for Delivery and which FedEx is obligated to purchase in
or before January, 1996, shall be $[ * ]. The Purchase Price for
any Purchase Option Aircraft which is tendered by American for Delivery and
which FedEx is obligated
____________________
*Blank space contained confidential information which has been filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
-12-
<PAGE> 19
to purchase in any month thereafter shall be decreased by the amount of $[ *
] for each month after [ * ] to, but excluding, the month in which such
tender for Delivery occurs.
(c) The Scheduled Delivery Date of the Purchase Option Aircraft to
be sold to FedEx by American pursuant to FedEx's exercise of a Purchase Option
shall be the date or dates specified by American in the Purchase Option Notice
as the Scheduled Delivery Date or Scheduled Delivery Dates of the Purchase
Option Aircraft; provided, however, that no such Scheduled Delivery Date shall
be less than [ * ] after the date of the Purchase Option Notice
specifying such Scheduled Delivery Date.
(d) If American sells one or more Purchase Option Aircraft to
FedEx pursuant to FedEx's exercise of one or more Purchase Options or sells any
Put Option Aircraft as to which FedEx does not exercise a Purchase Option after
a Purchase Option Notice is given, the number of Put Options that American can
exercise shall be reduced by a number equal to the number of Purchase Option
Aircraft and/or Put Option Aircraft so sold. Any Put Options terminated by any
such reduction shall be terminated in the reverse order of the Scheduled
Delivery Dates to which the Put Options relate. The remaining Put Options
shall remain in full force and effect.
(e) If one or more Put Options expire or are terminated for any
reason, American may dispose of an equivalent number of Aircraft free of the
Purchase Options at any time thereafter and an equivalent number of Purchase
Options will terminate simultaneously and automatically. Upon such expiration
or termination, the terminated Purchase Options shall be without further force
and effect, provided, however, that any such termination of Purchase Options
shall not affect any prior exercise of any Purchase Option with respect to any
Aircraft. American shall have the right to sell or otherwise dispose of such
number of the Put Option Aircraft as to which Purchase Options are reduced free
of the Purchase Options and the provisions of this Agreement and may determine
which Put Option Aircraft are so free of the Purchase Options in its sole
discretion.
Section 2.04. Designation and Substitution of Airframes and
Engines. (a) American will designate an Airframe from among all the
Airframes as a Firm Aircraft, a Put Option Aircraft, or a Purchase Option
Aircraft for Delivery on a Scheduled Delivery Date in accordance with Section
2.01, Section 2.02 and Section 2.03, respectively, by giving FedEx a
Designation on or before the latest date for giving such Designation specified
in the applicable such section. Each Airframe to *Blank space contained
confidential information which has been filed separately with the Securities
and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934.
-13-
<PAGE> 20
be designated by American to be part of a Firm Aircraft, a Put Option Aircraft
or a Purchase Option Aircraft to be delivered on any Scheduled Delivery Date as
to which a Designation is given will be chosen by American in its sole
discretion. American shall have the right as a result of operational
considerations to substitute a different Airframe for a previously designated
Airframe for delivery on a Scheduled Delivery Date by delivering a Change
Designation (i) on any date before the [ *
] prior to such Scheduled Delivery Date or (ii) if
such designation of a different Airframe for delivery on such Scheduled
Delivery Date would not cause a material delay in the conversion of such
different Airframe from a passenger configuration to a cargo
configuration, on any date before the [ * ] prior
to the original Scheduled Delivery Date, provided in either instance that,
within [ * ] after its receipt of FedEx's invoice setting
forth in detail the nature and amount of such costs, American reimburses FedEx
for any incremental engineering costs, incremental transition maintenance costs
and incremental modification costs incurred by FedEx solely as the result of
the substitution of the Airframe.
(b) No later than [ * ] prior to the Scheduled
Delivery Date for an Aircraft, American shall designate to FedEx the three
Engines to be conveyed to FedEx as part of such Aircraft to be delivered on
such Scheduled Delivery Date by giving FedEx a completed Engine Designation.
After designating such Engines, American will use its commercially reasonable
efforts to avoid substituting other Engines for such designated Engines, but
may do so upon written notice to FedEx, which notice shall be given by American
as soon as practicable after it determines to substitute Engines. Each Engine
to be designated by American to be a part of a Firm Aircraft, a Put Option
Aircraft or a Purchase Option Aircraft to be delivered on the various Scheduled
Delivery Dates as to which Designations are given will be chosen by American in
its sole discretion.
Section 2.05. Payment of Purchase Price. Each Purchase Price and
each Spares Purchase Price payable to American by FedEx shall be net of any
and all taxes, recording expenses, assessments, duties and similar governmental
charges and fees charged on or with respect to the sale of the Aircraft, any
and all of which amounts shall be paid by FedEx, subject, however, to the
provisions of Section 3.01. The Purchase Price for each Aircraft shall be paid
on the Delivery Date for such Aircraft, net of any applicable Deposit and the
interest calculated at the AMR Rate. The Spares Purchase Price for any Spare
Parts purchased pursuant to Article 4 shall be paid on the date the Spare Parts
being sold to FedEx are delivered by American to FedEx. The Purchase Prices,
the Spares Purchase Prices and any Deposits shall be paid by FedEx in United
States Dollars by wire transfer of *Blank space contained confidential
information which has been filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.
-14-
<PAGE> 21
immediately available funds to American's account at Chase Manhattan Bank in
New York, New York, ABA No. 021000021 Account 910-1-019884, Reference, as
applicable, Aircraft N[Insert Relevant FAA Registration Number] or MD-11 Spare
Parts.
Section 2.06. Deposits. FedEx will pay to American on the Business
Day next following the date of execution of this Agreement a cash deposit in
the amount of $[ * ] for each Firm Aircraft. FedEx will pay to American
within the ten-day period next following the date on which each Put Option is
exercised, a cash deposit of $[* ] in respect of the Put Option Aircraft
as to which such Put Option is exercised. FedEx will pay to American upon the
Business Day next following the exercise of any Purchase Option, a cash deposit
of $[ * ] in respect of each Purchase Option Aircraft. [ *
]. If American shall fail to perform its obligation to deliver an Aircraft in
accordance with this Agreement, American will return to FedEx, upon FedEx's
written request, any Deposits made with respect to such Aircraft, with interest
thereon calculated at a rate equal to the AMR Rate. The Deposit applicable to
a particular Aircraft, with an amount of interest thereon calculated at the AMR
Rate, will be applied to the payment of the Purchase Price of such Aircraft on
the Delivery Date. Neither the retention of any Deposit by American in
connection with the failure of FedEx to perform its obligations under this
Agreement nor the return of any Deposit by American in connection with the
failure of American to perform its obligations under this Agreement shall be
the exclusive remedy of the non-defaulting Party in connection with any such
default. Except as set forth above, American shall be entitled to retain any
interest earned on the Deposits.
ARTICLE 3
AIRCRAFT DELIVERY, TITLE, RISK OF LOSS
Section 3.01. Delivery. American shall deliver each Firm Aircraft and
any Put Option Aircraft as to which a Put Option is exercised and each Purchase
Option Aircraft to FedEx on the Scheduled Delivery Date for each such Aircraft
pursuant to the procedures set forth in this Article 3. American shall tender
each Aircraft required to be delivered to FedEx under this Agreement by
delivering an Aircraft Delivery Certificate (completed as to the tender related
portion thereof) to FedEx with respect to such Aircraft. Delivery of each
Aircraft shall be made at (i) *Blank space contained confidential information
which has been filed separately with the Securities and Exchange Commission
pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.
-15-
<PAGE> 22
Dallas/Fort Worth International Airport ("DFW"), (ii) at the option of
American, at an airport in the State of Nevada if American so advises FedEx at
least seven (7) days prior to the Scheduled Delivery Date for such Aircraft or
(iii) at such other location on FedEx's route system as American designates in
writing to FedEx at least ninety (90) days prior to the Scheduled Delivery Date
and to which FedEx consents, such consents not to be unreasonably withheld. If
any Scheduled Delivery Date is not a Business Day, the Aircraft to be delivered
shall be delivered and accepted on the Business Day next preceding the
Scheduled Delivery Date.
Section 3.02. Inspection, Flight Checks and Discrepancies. (a) FedEx
shall have access to each Aircraft no later than [ * ] prior to
the Scheduled Delivery Date for such Aircraft at American's maintenance
facility at the Tulsa International Airport in Tulsa, Oklahoma ("TUL"). At
such time, FedEx shall have the right to: (i) conduct all ground inspections
reasonably necessary to determine whether the Aircraft is in Delivery
Condition, including, but not limited to, engine borescopes conducted in
accordance with Exhibit R, (ii) functionally ground and flight check such
Aircraft in accordance with the requirements and procedures contained in the
McDonnell Douglas Model MD-11 Production Flight Procedure Manual (the "MDAC
PFPM") applicable to aircraft that are completing a C Check and (iii) conduct
on each Engine being delivered (other than a Non-Conforming Engine) a Power
Assurance Run Test to ensure that the exhaust gas temperature margin for such
Engine conforms to the requirements of Section 3.06(i)(B)(4). Subject to
Section 3.02(b), any such checks or test flights shall be of a reasonable
duration. In determining if an Aircraft is in Delivery Condition, if there are
differences in the tolerances stated in the MDAC PFPM and the American Program,
the more lenient tolerances will apply.
(b) The initial flight test of an Aircraft shall not be more than [ *
] in duration. American will permit at least [ *
] of FedEx to observe any functional flight check of an Aircraft
made in conjunction with the Delivery of such Aircraft. During the functional
flight check, American shall provide a pilot who shall function as
pilot-in-command and who shall maintain operational control and responsibility
for the Aircraft. FedEx shall provide a pilot who shall occupy a pilot's seat
(left or right, at the discretion of the pilot- in-command). FedEx's pilot
shall physically exercise the flight controls in such phases of flight as
necessary to verify the functional operation of the Aircraft. Insurance for
all functional flight checks shall be provided by American, at its sole expense
under its existing insurance policies, provided, however, that any FedEx
personnel who are to be present on such Aircraft during any such flight shall
execute and *Blank space contained confidential information which has been
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 under the Securities Exchange Act of 1934.
-16-
<PAGE> 23
deliver to American prior to such flight a release and waiver of liability
containing terms and conditions reasonably satisfactory to American. American
shall provide the fuel necessary for such flight check.
(c) Upon completion of functional ground and flight check of an
Aircraft, American shall, at American's expense and in accordance with the
applicable criteria set forth in the American Program: (i) correct and/or
clear any items noted in the Aircraft's log book by American and which remain
un-cleared or un-corrected at the Scheduled Delivery Date and (ii) correct
and/or clear any discrepancies of the Aircraft from the Delivery Condition
otherwise noted during the functional ground and flight checks of such
Aircraft. If an additional flight check is required to demonstrate that a
discrepancy from the Delivery Condition for such Aircraft has been corrected,
such additional flight check shall be conducted in the manner set forth in
Section 3.02(a) and (b). Any additional flight check made to inspect the
correction of any discrepancy of such Aircraft from the required Delivery
Condition previously noted shall be limited to the time necessary to inspect
such discrepancy. If additional discrepancies from the Delivery Condition are
noted during a subsequent flight check (or the original discrepancy is not
satisfactorily corrected), American shall correct the discrepancy from the
Delivery Condition noted during the subsequent flight check. Notwithstanding
the foregoing, American shall not be required to correct or clear any items or
discrepancies of the Aircraft from Delivery Condition that are (x) cosmetic in
nature, (y) related solely to any Passenger Parts or (z) which the Parties
agree in writing in the Aircraft Delivery Certificate to correct and/or clear
after the Delivery of the Aircraft.
(d) Upon completion of the items in Sections 3.02(a) through 3.02(c)
on an Aircraft, FedEx shall execute and deliver to American the Aircraft
Delivery Certificate for such Aircraft pursuant to which FedEx shall certify
that it has accepted the Aircraft and that the Aircraft is in the Delivery
Condition, except to the extent that (i) any remaining discrepancies of the
Aircraft from the Delivery Condition are noted by the Parties in such Aircraft
Delivery Certificate or (ii) the failure of the Aircraft to meet Delivery
Condition requires an Adjustment (as defined below). Thereafter, American
shall not change or alter the configuration or operate such Aircraft for any
reason prior to Delivery (except as necessary to ferry such Aircraft to any
other location at which Delivery will occur) without the prior written consent
of FedEx.
Section 3.03. [ *
____________________
*Blank space contained confidential information which has been filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
-17-
<PAGE> 24
]
[ *
]
[ *
]
[ *
____________________
*Blank space contained confidential information which has been filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
-18-
<PAGE> 25
*
____________________
*Blank space contained confidential information which has been filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
-19-
<PAGE> 26
*
____________________
*Blank space contained confidential information which has been filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
-20-
<PAGE> 27
*
____________________
*Blank space contained confidential information which has been filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
-21-
<PAGE> 28
Section 3.04. Delivery Procedure. At the time of Delivery of each
Aircraft:
(i) FedEx shall execute and deliver to American the Aircraft
Delivery Certificate as provided in Section 3.02(d);
(ii) American shall execute and deliver to FedEx the FAA Bill of
Sale and the Warranty Bill of Sale;
(iii) FedEx shall pay American the Purchase Price in accordance with
Section 2.05, net of the Deposit applicable to the Aircraft being delivered and
the interest accrued on such Deposit at the AMR Rate;
(iv) Subject to the provisions of Section 6.01, American shall
deliver to FedEx the Data with respect to such Aircraft;
(v) American shall execute and deliver to FedEx an assignment of
any warranties with respect to the Aircraft that are assignable by American by
their terms and without the payment by American to the grantor of the warranty
of more than a nominal amount;
(vi) Concurrently with the delivery of the Warranty Bill of Sale
described in clause (ii) above, American shall cause the FAA Bill of Sale
executed by American to be filed and recorded with the FAA Aircraft Registry in
Oklahoma City, Oklahoma and FedEx shall cause an Application for Registration
of the Aircraft to be filed with the FAA Aircraft Registry. FedEx shall be
responsible for all costs of filing or recording of the FAA Bill of Sale, the
Application for Registration of the Aircraft and any such other acceptance
certificates, delivery receipts and any other documents as shall be agreed to
by the Parties as appropriate for the sale, purchase and Delivery of such
Aircraft;
(vii) At the time and upon completion of Delivery of each Aircraft,
Messrs. Daugherty, Fowler & Peregrin, special FAA counsel to FedEx, shall
confirm to FedEx that such counsel will furnish FedEx its opinion, addressed to
FedEx, to the effect that: (A) the FAA Bill of Sale with respect to the
Aircraft being delivered by American to FedEx and the FAA Application for
Registration relating thereto have been duly filed with the FAA; (B) legal
title to such Aircraft is vested in FedEx or its designee, and (C) such
Aircraft, including the Engines conveyed to FedEx in connection with such
Aircraft, is free and clear of all Liens, other than Liens arising by, through
or under FedEx or its designee, if any, that has taken title to the Aircraft.
Such opinion may be subject to the type of assumptions and qualifications
regularly included by experienced FAA counsel in similar opinions; and
(viii) If a Non-Conforming Engine which is not conveyed to FedEx
pursuant to Section 3.03(d) is installed on the Aircraft at the Delivery Date,
each of American
-22-
<PAGE> 29
and FedEx shall execute and deliver the Engine Lease Agreements with respect to
such Non-Conforming Engine and applicable Delayed Delivery Engine.
Section 3.05. Delayed Delivery. (a) If FedEx is obligated to accept
delivery of and purchase an Aircraft tendered by American for delivery on a
Scheduled Delivery Date, which Aircraft is in Delivery Condition and FedEx
fails to accept such Aircraft for delivery in accordance with this Agreement,
unless such failure is an Excusable Delay, FedEx will [*
]
If American is unable to deliver an Aircraft on a Scheduled Delivery Date,
unless such delay is an Excusable Delay (other than one arising as a result of
a Force Majeure Event involving any work stoppage, work slow down, other labor
or work action or labor dispute, if and to the extent such Excusable Delay
exceeds four (4) weeks in duration), [ *
] The payment of any such amounts shall not be
the exclusive remedy of American if FedEx fails to accept delivery of an
Aircraft on a Scheduled Delivery Date other than in circumstances constituting
an Excusable Delay nor the exclusive remedy of FedEx if American fails to
deliver an Aircraft on a Scheduled Delivery Date other than in circumstances
constituting an Excusable Delay.
(b) Notwithstanding the foregoing, with respect to non-excusable
delays resulting from American's actions or omissions, American shall not be
required to pay interest on the Purchase Price of any Aircraft as set forth
above if (i) delivery of such Aircraft is delayed for [ * ] or
less and (ii) the aggregate number of days for which deliveries of all the
Aircraft have been delayed [ * ]
If, as to non- excusable delays resulting from American's actions or omissions,
the number of days by which any delivery of an Aircraft is delayed exceeds [ *
] or the number of days by which all deliveries of Aircraft are delayed exceeds
[ *
] in the aggregate, interest (computed as provided above) on
the Purchase Price of the Aircraft as to which a delay in excess of [ *
] occurs (less the amount of applicable Deposit) or the aggregate Purchase
Prices of the Aircraft as to which aggregate delays in excess of [ *
] occur (less the amount of applicable Deposit) shall be paid by American to
FedEx as provided above for each day for which deliveries of the Aircraft by
American are delayed. Notwithstanding the foregoing, with respect to
non-excusable delays resulting from FedEx's actions or omissions, FedEx shall
not be required to pay interest on the Purchase Price of any Aircraft as set
forth above if (i) its acceptance
_____________________
* Blank space contained confidential information which has been filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
-23-
<PAGE> 30
of an Aircraft is delayed for [ * ] or less and (ii) the aggregate
number of days for which FedEx's acceptances of all the Aircraft are delayed
does not exceed [ * ] If, as to non-excusable delays resulting
from FedEx's actions or omissions, the number of days by which any delivery of
an Aircraft is delayed exceeds [ * ] or the number of days by which
all deliveries of Aircraft are delayed exceeds [ * ] in the
aggregate, interest (computed as provided above) on the Purchase Price of the
Aircraft as to which the delay in excess of [ *
] occurs or the aggregate Purchase Prices of the Aircraft as to which
aggregate delays in excess of [ * ] occur shall be paid by FedEx to
American as provided for above for each day for which the acceptances of
the
Aircraft by FedEx are delayed.
(c) If an Aircraft which has been designated for delivery to FedEx on
a particular Scheduled Delivery Date sustains any damage or is partially
destroyed and such damage or partial destruction can be repaired or restored
and such Aircraft can be tendered for Delivery on the date (the "Partial
Casualty Delivery Date") that is the later to occur of (i) the Scheduled
Delivery Date with respect to such Aircraft or (ii) the date which is [ *
] after the occurrence of such damage or partial destruction, as promptly as
practicable after the occurrence of the damage or destruction of such Aircraft,
American shall notify FedEx in writing of such occurrence and whether American
elects (i) at American's sole cost and expense, to repair or restore the
damaged or partially destroyed Aircraft so that it will be in Delivery
Condition or (ii) to substitute another Aircraft, if any, for the damaged
Aircraft. Any repair required by damage to or partial destruction of the
Aircraft shall not (i) impose any restrictions on the FAA-certified
limitations, performance or operation as set forth in the Manufacturer's
FAA-approved Airplane Flight Manual for the Aircraft or (ii) materially impair
the fuel mileage performance of the Aircraft or (iii) increase the empty weight
of the Aircraft by more than [ * ]pounds.
(d) If, before the Delivery Date of any Committed Delivery (as
defined below), one or more Aircraft (each a "Casualty Aircraft") are lost or,
in American's sole judgment, substantially completely destroyed, or if American
determines, in its sole judgment, that repairing any substantial damage to any
Aircraft would be uneconomical, then American shall designate or re-designate
other Aircraft, if any, pursuant to Section 2.04 (without regard to the times
for taking actions set forth in such Section 2.04, but subject to Section 9.02)
in order to deliver an Aircraft to FedEx for each Committed Delivery (as
defined below) by the later to occur of (i) the Scheduled Delivery Date for
each Committed Delivery or (ii) the date which is [ * ] after the
occurrence of the loss or substantially complete destruction of
__________________
* Blank space contained confidential information which has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934.
-24-
<PAGE> 31
such Aircraft (the "Casualty Delivery Date"); provided, however, that
notwithstanding any such designation, one Committed Delivery per each such
Casualty Aircraft shall automatically terminate in reverse chronological order
of Scheduled Delivery Dates. If a Committed Delivery is terminated under this
Section 3.05(d), American and FedEx shall have no further obligation to sell or
purchase any Aircraft with respect to such Committed Delivery or sell or
purchase any Spare Parts associated with such cancelled Committed Delivery.
For purposes of this Section 3.05(d), the term "Committed Delivery" shall mean
a commitment to sell and deliver any Firm Aircraft or any Aircraft as to which
a Put Option has been properly exercised, whether or not a particular Aircraft
had been designated for such delivery.
Section 3.06. Delivery Condition. (a) At the time of the tender
of an Aircraft by American to FedEx in connection with its Delivery, the
Aircraft shall be in the following condition:
(i) The Aircraft shall meet the following standards:
(A) the Airframe of such Aircraft shall have:
(1) [ * ] of the number of flight hours or
calendar time, whichever is More Restrictive, between
C Checks as prescribed by the American ESM remaining
until its next C Check is required to be performed;
(2) [ * ] of the interval in days prescribed
by the American ESM as the time between
accomplishment of the First Interval Items remaining
until the date on which such items are required to be
next performed; and
(3) [ * ] of the interval in days prescribed
by the American ESM as the time between
accomplishment of the Second Interval Items remaining
until the date on which such items are required to be
next performed.
(B) Each Engine conveyed with the Airframe shall have:
(1) not more than [ * ] flight cycles since
the latest to occur of a HSM, HSC or EHM as
prescribed by the American Program;
____________________
*Blank space contained confidential information which has been filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
-25-
<PAGE> 32
(2) not more than [ * ] flight cycles since the
last high pressure compressor refurbishment as
prescribed by the American Program;
(3) on its Life-Limited Parts, as specified by the
Manufacturer's Engine Overhaul Manual, not more than
the total flight cycles on the highest flight cycle
Airframe (whether or not previously delivered to
FedEx); and
(4) an exhaust gas temperature ("EGT") margin of not
less than [ * ] degrees Celsius as
determined by a Power Assurance Run Test conducted as
described in Section 3.02(a) in connection with the
acceptance of the Aircraft by FedEx and an EGT margin
of not less than [ * ] degrees Celsius
at its last test cell run immediately following the
latest Engine Maintenance to be accomplished.
(C) each Gear installed on such Aircraft shall have [ * ]
of the calendar time or flight cycles, whichever is More
Restrictive, between major overhauls as prescribed by the
American Program for such Gear remaining until the next
scheduled overhaul for such Gear ("Gear Half Time"); and
(D) the APU installed on such Aircraft shall have remaining
at Delivery, [ * ] of the total flight cycles or hours,
whichever is More Restrictive, in the service life of the
parts in such APU which are life limited, as specified by the
manufacturer of such APU ("APU Time Limit").
[ *
]
(ii) The Airframe, each Engine conveyed to FedEx along with the
Aircraft, each Gear, the APU installed on such Aircraft and all other
life-limited parts comprising part of the Aircraft shall have been
maintained by American on a non-discriminatory basis with all other
McDonnell Douglas Model MD-11 aircraft then in operation
by American.
- - ---------------------
*Blank space contained confidential information which has been filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
-26-
<PAGE> 33
(iii) No Engine being transferred with the Aircraft shall be subject
to any reduced inspection intervals or reduced calendar time, flight
hours or flight cycles restrictions that require the removal of the
Engine from an aircraft upon reaching such calendar time, flight hour,
or flight cycle thresholds. The results of any engine borescope
inspection conducted on an Engine pursuant to Section 3.02(a) shall
indicate that such Engine is within the serviceable limits prescribed
by the McDonnell Douglas Aircraft Maintenance Manual Chapter 72-00-
07.
(iv) The Aircraft, each Engine conveyed to FedEx at the time of the
Delivery of the Aircraft, each Gear and the APU shall be in compliance
with American's Part 121 Maintenance Program, the Aircraft shall be
Airworthy and the Aircraft Records relating to such Aircraft, Engines,
Gear and APU shall be in compliance with American's Part 121
Maintenance Program and the applicable Federal Aviation Regulations
requiring the maintenance of such Aircraft Records. At the Scheduled
Delivery Date, no deferred or carryover maintenance items shall exist
with respect to the Aircraft, and all temporary repairs to the
Aircraft shall have been made permanent.
(v) The delivery of any Engine or other General Electric CF6-80C2D1F
engine installed on an Aircraft upon its Delivery shall be subject in
all respects to Section 3.03.
(vi) The Aircraft shall be registered on the United States Federal
Aviation Administration aircraft registry.
(vii) The Aircraft shall be in a configuration which complies with
American's operating specifications for McDonnell Douglas Model MD-11
aircraft at such time, except to the extent that any discrepancies or
deviations from such operating specifications shall result from the
removal of Passenger Parts from the Aircraft.
(viii) The Aircraft (including the Engines to which title is conveyed
therewith) shall be free of all Liens.
(ix) Prior to the delivery of the Aircraft, American shall have
painted over or stripped from the Aircraft any insignia, trademark or
tradename on the Aircraft identifying the Aircraft as an American
aircraft.
(x) American may, at its sole option and expense, deliver an Aircraft
after removing from such Aircraft any Passenger Parts. Any Passenger
Parts removed from an Aircraft by American in accordance with the
foregoing provisions shall be "AS IS" and may be retained by American,
along with the
-27-
<PAGE> 34
Aircraft Records and other Data relating thereto, as its property,
free of any Lien of FedEx.
(b) EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, THE
AIRCRAFT SHALL BE DELIVERED BY AMERICAN AND ACCEPTED BY FEDEX "WHERE IS", "AS
IS" AND "WITH ALL FAULTS".
(c) American shall not be responsible for compliance with any
Airworthiness Directive outstanding with respect to any Aircraft on the
Scheduled Delivery Date for such Aircraft if the final date for compliance with
such Airworthiness Directive is after such date, provided that American shall
not discriminate against any of the Firm Aircraft or Put Option Aircraft in
connection with its compliance with Airworthiness Directives applicable to the
McDonnell Douglas Model MD-11 aircraft in its fleet. American will require any
lessee of an Aircraft that may be delivered to FedEx to comply with any
Airworthiness Directive applicable to such leased Aircraft in the same manner
as American complies with such Airworthiness Directive with respect to the
Aircraft in its fleet. With respect to any Aircraft delivered by American to
FedEx, American shall not have complied with or terminated any Airworthiness
Directive applicable to McDonnell Douglas Model MD-11 airframes and the
accessories thereto or General Electric CF6-80C2D1F engines by the use of
FAA-approved alternative means of compliance, unless FedEx expressly approves
compliance with or termination of such Airworthiness Directive by such
alternative means or FedEx's then current FAA-approved maintenance program
permits compliance with or termination of such Airworthiness Directive by such
alternative means of compliance.
Section 3.07. Adjustments to Purchase Price for Delivery Condition. [ *
]
_____________________
*Blank space contained confidential information which has been filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
-28-
<PAGE> 35
Section 3.08. Aircraft Delivery Certificate; Engine Delivery
Certificate. Subject to any discrepancies from the Delivery Condition expressly
noted by the Parties in the applicable Aircraft Delivery Certificate, FedEx's
execution and delivery of an Aircraft Delivery Certificate with respect to an
Aircraft as to which a Delivery occurs shall be a binding acknowledgment and
agreement by FedEx that the Aircraft delivered was in the Delivery Condition
upon its Delivery to FedEx. Subject to any discrepancies from the delivery
conditions set forth in Section 3.06 that are applicable solely to Engines that
are expressly noted by the Parties in the applicable Engine Delivery
Certificate, FedEx's execution and delivery of an Engine Delivery Certificate
with respect to an Engine or Spare Engine which is delivered to FedEx by
American shall be a binding acknowledgment and agreement by FedEx that such
Engine or Spare Engine, as the case may be, was in the condition required by
Section 3.06 upon its delivery to FedEx by American.
Section 3.09. Liability. FEDEX HEREBY RELEASES AMERICAN FROM AND
AMERICAN SHALL NOT BE LIABLE FOR ANY DEFECT, KNOWN OR UNKNOWN, LATENT OR
PATENT, IN SUCH AIRCRAFT, THE ENGINES, ANY PART OR COMPONENT OF SUCH AIRCRAFT
AND ANY SPARE PART DELIVERED TO IT ON SUCH DELIVERY DATE OR ANY OTHER DATE OR,
EXCEPT AS EXPRESSLY SET FORTH HEREIN WITH RESPECT TO THE AIRCRAFT RECORDS
AND/OR THE DATA, THE DATA, AND, EXCEPT AS EXPRESSLY AGREED BY THE PARTIES, ANY
DELAYED DELIVERY OF ANY AIRCRAFT, ANY DELAYED DELIVERY ENGINE OR ANY SPARE
PART, AND FOR ANY ACTUAL, INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL,
PUNITIVE OR EXEMPLARY DAMAGES SUSTAINED BY FEDEX AS A RESULT OF ANY SUCH DEFECT
OR DELAYED DELIVERY, INCLUDING, WITHOUT LIMITATION, LOSS OF REVENUE, LOSS OF
USE OF THE AIRCRAFT, THE ENGINES, THE SPARE PART, OR THE DATA OR ANY
INTERRUPTION IN FEDEX'S BUSINESS RESULTING FROM OR OCCASIONED BY FEDEX'S
INABILITY TO USE THE AIRCRAFT, THE ENGINES OR, EXCEPT AS EXPRESSLY SET FORTH
HEREIN, WITH RESPECT TO THE AIRCRAFT RECORDS, ENGINE RECORDS AND/OR THE DATA,
THE DATA.
Section 3.10. Title and Risk of Loss. (a) Concurrently with each
Delivery of an Aircraft but not prior thereto, title to, and risk of loss of,
damage to or destruction of such Aircraft (other than to or for any Non-
Conforming Engine installed on such Aircraft, title to which American is not
conveying to FedEx) shall pass from American to FedEx. FedEx shall not, by
virtue of this Agreement
-29-
<PAGE> 36
(including, without limitation, as a result of the payment of any Deposit, the
previous Delivery of another Aircraft or the delivery of any Spare Part by
American to FedEx pursuant to this Agreement, or the designation or
identification by American of any particular Aircraft as a Firm Aircraft, a Put
Option Aircraft or the Aircraft to be delivered by American to FedEx on a
particular Scheduled Delivery Date) acquire any insurable or other ownership
interest in an Aircraft prior to the Delivery of such Aircraft by American to
FedEx in accordance with the terms of this Agreement.
(b) Title to, and risk of loss of, damage to and destruction of each
Delayed Delivery Engine and each Replacement Engine delivered to FedEx by
American shall pass to FedEx upon the delivery of such Delayed Delivery Engine
or Replacement Engine to FedEx by American. Notwithstanding the foregoing, the
risk of loss of, damage to or destruction of (i) any Non-Conforming Engine to
which FedEx holds title shall be as set forth in Section 3.03(d) and (ii) any
other Non-Conforming Engine and any Delayed Delivery Engine shall be governed
by any applicable Engine Lease Agreement. Upon Delivery of an Aircraft, FedEx
shall take title to any fuel on board of the Aircraft at no additional cost to
FedEx.
ARTICLE 4
SPARE PARTS
Section 4.01. MD-11 Spare Parts List. (a) On the date of
execution of this Agreement, American will provide FedEx with the Spares List
which will be a list of rotable spare parts that American held in its inventory
as of January 20, 1995 and that are unique to McDonnell Douglas Model MD-11
aircraft or that can be used on the McDonnell Douglas Model MD-11 and Model
DC-10 aircraft but no other aircraft within American's fleet. The Spares List
will set forth for each type of MD-11 Spare Part, American's and the
manufacturer's part numbers for each type of MD-11 Spare Part, the quantity of
each type of MD-11 Spare Part held by American at the date on which the Spares
List is delivered and the Average Unit Price for each type of MD-11 Spare Part.
The Spares List will be provided via electronic storage media mutually
acceptable to American and FedEx. American will also provide FedEx with a hard
copy of the Spares List.
Section 4.02. MD-11 Spare Parts Purchase Obligation. (a)
On each date on which FedEx is obligated to accept delivery of a Firm Aircraft
pursuant to this Agreement, American will sell to FedEx, and FedEx will
purchase from American, MD-11 Spare Parts having an average, aggregate Average
Unit Price of $[ * ] for each Firm Aircraft as to which Delivery occurs
or which FedEx is obligated to *Blank space contained confidential information
which has been filed separately with the Securities and Exchange Commission
pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.
-30-
<PAGE> 37
purchase; provided, however, that so long as the Delivery of three Aircraft
occurs in each of the years from 1996 through 1999 (i) the aggregate Average
Unit Prices of MD-11 Spare Parts that shall be sold by American to FedEx, and
purchased by FedEx from American, in each year from 1996 through 1999 shall be
$[ * ]. On each date on which FedEx is obligated to accept
delivery of a Put Option Aircraft pursuant to the exercise of a Put Option or a
Purchase Option Aircraft, American will sell to FedEx, and FedEx will purchase
from American, MD-11 Spare Parts having an aggregate Average Unit Price of $[ *
] for each of the first eighteen (18) Aircraft and $[ * ] for
the nineteenth (19th) Aircraft as to which Delivery occurs or which FedEx is
obligated to purchase.
(b) If the MD-11 Spare Parts are being purchased in
conjunction with the purchase by FedEx of a Firm Aircraft or an Aircraft as to
which American has exercised a Put Option, the Spares Purchase Price for such
MD-11 Spare Parts shall be as set forth in Section 1 of Exhibit Q. If the
MD-11 Spare Parts are being purchased in conjunction with the purchase by FedEx
of any Purchase Option Aircraft, the Spares Purchase Price for such MD-11 Spare
Parts shall be determined by reference to Section 2 of Exhibit Q. FedEx will
pay to American the Spares Purchase Price for the portion of the MD-11 Spare
Parts being purchased on the date such MD-11 Spare Parts are delivered to FedEx
by American.
(c) The MD-11 Spare Parts that American will sell to FedEx
and FedEx will purchase from American in any lot of MD-11 Spare Parts pursuant
to the first sentence of Section 4.02(a) will be a pro rata portion of each
type of MD-11 Spare Part, based on a total of nineteen Aircraft. If the number
of a particular type of MD-11 Spare Parts held by American on any Delivery Date
does not permit the mix of MD-11 Spare Parts sold to FedEx in each such lot to
be a perfectly pro rata portion of all of the various types of MD-11 Spare
Parts, American and FedEx shall cooperate to set the mix of MD-11 Spare Parts
so that the inventories of MD-11 Spare Parts of American and FedEx shall be as
nearly pro rata as possible at all times. If for operational reasons American
or FedEx shall desire to change the mix of MD-11 Spare Parts that American
would deliver on any date, American and FedEx shall attempt in good faith, but
shall not be obligated, to effect such change in the mix of MD-11 Spare Parts
in order to accommodate each other's operational requirements. If American and
FedEx shall change such a mix of MD-11 Spare Parts in any lot of MD-11 Spare
Parts delivered to FedEx by American, the mix of MD-11 Spare Parts delivered to
FedEx in the next lot shall contain such MD-11 Spare Parts as are necessary to
cause compliance with requirements of the first two sentences of this Section
4.02(c) once such MD-11 Spare Parts are purchased by and delivered to FedEx.
*Blank space contained confidential information which has been filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
-31-
<PAGE> 38
Section 4.03. Spare Engine, Spare APU and Spare Thrust
Reverser Purchase Obligation. (a) (i) American will sell to FedEx, and FedEx
will purchase from American, on the dates and for the Spares Purchase Prices
set forth in or determined as set forth in Exhibit Q, the Spare Engines set
forth in Exhibit Q. If FedEx desires to change the quick engine change
configuration of any Spare Engine delivered by American to FedEx, American
shall provide to FedEx in exchange for conveyance by FedEx to American of the
Parts removed from the Spare Engine in question, the Parts necessary to change
the quick engine change configuration of such Spare Engine to a tail
configuration or a wing configuration, as the case may be, if American has the
necessary parts in its inventory of spare Parts and such spare Parts are
determined by American, in good faith, to be surplus to its needs. If American
delivers any such spare Parts to FedEx, FedEx shall deliver to American any of
the Parts removed from such Spare Engine in connection with the change in the
configuration of such Spare Engine. Upon its delivery by American to FedEx,
each of the first five (5) Spare Engines delivered by American to FedEx will be
in the condition an Engine is required by Section 3.06(a)(i)(B), 3.06(a)(iii)
and 3.06(a)(iv) to be in upon its delivery by American to FedEx, and FedEx
shall have the right to conduct an engine borescope on each such Spare Engine
delivered in accordance with Exhibit R. The Spares Purchase Price for each of
the first five (5) Spare Engines shall be adjusted in accordance with Exhibit
M.
(ii) American will, at its sole option, either (A) deliver each Spare
Engine to be sold to and purchased by FedEx on one of the last five (5) Spare
Engine delivery dates set forth in Exhibit Q (each a "Last Group Engine" and
collectively, the "Last Group Engines") without such Last Group Engine having
been operated on wing since its last EHM, in which case the Spares Purchase
Price for such Last Group Engine shall be adjusted in accordance with Exhibit
M, or (B) if any such Last Group Engine does not comply with the standard in
clause (A) of this sentence, adjust the Spares Purchase Price of such Last
Group Engine in accordance with the adjustment formula set forth in Exhibit T;
provided, however, that the obligation set forth in clause (A) of this sentence
shall be reduced as to and no longer apply to one (1) such Last Group Engine
for each Spare Engine among the first five (5) Spare Engines delivered by
American to FedEx that is delivered without having been operated on wing since
its last EHM. Upon delivery of any Last Group Engine to which the obligation
set forth in clause (A) of the first sentence of this Section 4.03(a)(ii) no
longer applies, the Spares Purchase Price of such Last Group Engine shall be
adjusted in accordance with Exhibit M (instead of Exhibit T). Each Last Group
Engine delivered will be in the condition required by Section 3.06(a)(iii) and
Section 3.06(a)(iv), and FedEx shall have the right to conduct an engine
borescope on each such Last Group Engine delivered in accordance with Exhibit
R. At the time of delivery of any Last Group Engine whose Spares Purchase
Price is adjusted in accordance with clause (B) of the foregoing
sentence, American will issue to
-32-
<PAGE> 39
FedEx a credit memorandum for [ * ] of the cost of an EHM
(the "EHM Credit") on a General Electric CF6-80C2D1F engine operated by FedEx
which was acquired from American (a "Purchased Engine"). The EHM Credit will
be redeemable by FedEx at any time during the [ * ] period
commencing on the date it is issued to pay a portion of the cost of the EHM
performed on a Purchased Engine. Subject to the foregoing sentence, if any
Last Group Engine does not comply with the standard in clause (A) of the first
sentence of this Subsection 4.03(a)(ii), FedEx must use an EHM Credit, if one
is available to it, to pay a portion of the cost of an EHM on such Last Group
Engine to be accomplished by American when such Last Group Engine next requires
an EHM. FedEx may apply two EHM Credits previously issued to it to the payment
of the cost of the EHM on such engine. The cost of an EHM on an engine against
which an EHM Credit may be applied shall be the cost of an EHM as set forth in
Table A to Exhibit M for the year in which the EHM on such engine is
accomplished. The costs set forth in Table A to Exhibit M do not include the
cost of any Life Limited Parts replaced during an EHM. To use an EHM Credit,
FedEx must deliver its engine to American at TUL or such other location to
which American and FedEx mutually agree. Upon delivery of the engine to
American's maintenance facility, American will perform the EHM work on the
engine and provide the materials required in performing the EHM, other than
Life Limited Parts. American will invoice FedEx for the balance of the cost of
an EHM not covered by the application of the EHM Credit, including, without
limitation, the cost of the Life Limited Parts replaced, within 30 days of the
completion of the EHM. FedEx will pay the amount of American's invoice
promptly after receipt of such invoice. FedEx will be responsible for the
costs of packing and shipping the engines to and from American's maintenance
facility for such an EHM.
(b) American will sell to FedEx, and FedEx will purchase from
American, on the dates and for the Spares Purchase Prices set forth in or
determined as set forth in Exhibit Q, the Spare APU's set forth in Exhibit Q.
Upon its delivery by American to FedEx, such Spare APU's will (i) be in
serviceable condition with an American Serviceable Tag attached to it and (ii)
will not have been installed on an aircraft subsequent to the Spare APU's last
accomplished APU C&R (as defined below) or APU EHM (as defined below), which
APU C&R or APU EHM shall have been accomplished through an American repair shop
or a FAA-approved third party repair facility. "APU C&R" shall mean a check
and repair of a Spare APU involving disassembly only to the extent required to
correct malfunctions and/or obvious visual damage. "APU EHM" shall mean the
complete disassembly and refurbishment of the LP Compressor and LP Turbine
sections, HP Compressor and HP Turbine sections of a Spare APU and the check &
repair of the gearbox and all components of the Spare APU. *Blank space
contained confidential information which has been filed separately with the
Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934.
-33-
<PAGE> 40
(c) American will sell to FedEx, and FedEx will purchase from
American, on the date and for the Spares Purchase Prices set forth in or
determined as set forth in Exhibit Q, the Spare Thrust Reversers as set forth
in Exhibit Q. Upon its delivery by American to FedEx, each Spare Thrust
Reverser will (i) be in serviceable condition with an American Serviceable Tag
attached to it and (ii) will not have been installed on an aircraft subsequent
to the Spare Thrust Reversers' last accomplished Reverser C&R (as defined
below) or RHM (as defined below), which Reverser C&R or RHM shall have been
accomplished through an American repair shop or a FAA-approved third party
repair facility. "Reverser C&R" shall mean a check and repair of the Spare
Thrust Reverser involving a complete tap check of the translating cowl and core
cowl for delamination, an overall check of the unit for external damage,
excessive wear or binding, a check of the flexdrive shaft cores and casings for
condition, a check of the condition of the ballscrew actuators, rig of
actuator/translating cowl system, and check of all latches and forward latch
ring. "RHM" shall mean the maintenance build level involving the disassembly
to the extent necessary to accomplish all the required checks and
reconditioning of a Spare Thrust Reverser as specified in the American Program
in which all components will be checked and repaired and sent to their
appropriate repair sources for repair processing.
Section 4.04. Effect of Expiration of Put Options on Certain
Spare Parts Purchase Obligations. If (i) any Put Option expires as to a Put
Option Aircraft or (ii) FedEx does not exercise a Purchase Option as to a Put
Option Aircraft which has a Scheduled Delivery Date on which a Spare Engine,
Spare APU or Spare Thrust Reversers is to be sold to FedEx, American will have
no obligation to sell, and FedEx will have no obligation to purchase, such
Spare Parts otherwise to be sold and purchased by the Parties on such Scheduled
Delivery Date. If any remaining Put Options are not cancelled by FedEx in
accordance with Section 2.02(d) after American fails to exercise a Put Option,
the Scheduled Delivery Date on which each of the remaining, unpurchased Spare
Engines, Spare APU's or Spare Thrust Reversers are to be sold by American to
FedEx, and purchased by FedEx from American as set forth in Exhibit Q (an
"Original Sale Date") shall be changed to be the Scheduled Delivery Date for a
Put Option Aircraft as set forth in Exhibit Q next scheduled to occur after the
Original Sale Date of each such Spare Engine, Spare APU or Spare Thrust
Reversers (a "Modified Sale Date") and the obligation of American to sell and
of FedEx to purchase the Spare Engines, Spare APU's and/or Spare Thrust
Reversers on the last remaining, uncancelled Scheduled Delivery Date for a Put
Option Aircraft as set forth in Exhibit Q shall be terminated and without
further force or effect. If American shall sell, and FedEx shall be obligated
to purchase, a Put Option Aircraft on the Modified Sale Date for any Spare
Engine, Spare APU or Spare Thrust Reversers, American shall sell such Spare
Part or Spare Parts scheduled to be sold and purchased by the Parties on such
Modified Sale Date for the Spares Purchase Price or Spares Purchase Prices, as
the case may
-34-
<PAGE> 41
be, on the Modified Sale Date as set forth in or determined in accordance with
Exhibit Q.
Section 4.05. Designation of MD-11 Spare Parts to be Acquired and
Delivery. At least [ * ] days prior to the proposed date for
the delivery of a lot of MD-11 Spares to be purchased by FedEx from American,
FedEx shall notify American in writing of the date on which it will take
delivery of such MD-11 Spare Parts, any particular mix of MD-11 Spare Parts
that it desires to have in such lot of MD-11 Spare Parts and the destination
within the forty- eight (48) contiguous United States to which the MD-11 Spare
Parts are to be shipped. As to any other Spare Parts, [ *
] days prior to the proposed date of delivery FedEx shall give American
written notice of the destination within the United States to which such Spare
Parts are to be shipped. American shall ship all of the Spare Parts to
Memphis, Tennessee, unless it is mutually agreed in writing that any or all of
the Spare Parts will be shipped to another destination within the forty-eight
(48) contiguous United States.
Section 4.06. MD-11 Spare Parts Documentation. At the time of
delivery of the MD-11 Spare Parts sold by American to FedEx, the MD-11 Spare
Parts delivered will, to the best of American's then current knowledge, be free
and clear of all Liens and will be serviceable condition. Such MD-11 Spare
Parts will be packaged in accordance with ATA 300 specifications and be
accompanied by an American Serviceable Tag. Any Spare Parts delivered to FedEx
may be in a form modified by American in order to comply with applicable FAR's,
Airworthiness Directives, manufacturer's service bulletins and recommendations
for modification by the respective manufacturers of such Spare Parts. In
addition, any Spare Parts delivered to FedEx by American shall be in compliance
with any outstanding Airworthiness Directives and service bulletins required to
be complied with or terminated on or before the delivery date of such Spare
Parts. Upon FedEx's request at the time of the delivery of a particular MD-11
Spare Part, American will also provide FedEx with the last Shop Findings Report
which American has in its records with respect to that MD-11 Spare Part if
American regularly creates and retains Shop Findings Reports for such type of
MD-11 Spare Part pursuant to the American Program. FedEx will not be required
to accept any Spare Part tendered by American for sale to FedEx that does not
meet the applicable requirements of FAR Section 43.9. American will make no
representations or warranties with respect to the Spare Parts sold to FedEx
pursuant to this provision other than that such Spare Parts are free and clear
of all Liens and are serviceable. Subject to Section 7.01, American will
assign any manufacturer's warranties that it owns and that are assignable by
American without the consent or approval of the manufacturer (with the payment
of no more than nominal consideration) in connection with the Spare *Blank
space contained confidential information which has been filed separately with
the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
-35-
<PAGE> 42
Parts at the time the Spare Parts are sold to FedEx. EXCEPT AS OTHERWISE
EXPRESSLY SET FORTH IN THIS AGREEMENT, THE SPARE PARTS SHALL BE DELIVERED BY
AMERICAN AND ACCEPTED BY FEDEX "WHERE IS", "AS IS" AND "WITH ALL FAULTS".
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
Section 5.01. American's Representations and Warranties.
(a) American hereby represents and warrants to FedEx as follows:
(i) Organization and Existence. American is a corporation
validly existing, duly organized and in good standing under the laws
of the State of Delaware and is qualified to do business as a foreign
corporation and is in good standing as such in the State of Texas.
(ii) Due Authorization. American has all requisite corporate
power and authority to execute and enter into this Agreement and to
perform its obligations under this Agreement. The execution and
delivery of this Agreement by American and the performance by American
of its obligations hereunder have been duly authorized by all
necessary corporate action, do not contravene any law, statute, rule,
regulation, ordinance, writ, decree, judgment or injunction applicable
to American, or result in the violation of, the breach of, or a
default or event of default under any indenture, agreement, mortgage,
contract, agreement, other instrument or document, or any contractual
restriction to which American is a party, which is binding on it,
which affects American or by which its assets are bound or affected to
the extent that the contravention, violation or breach thereof or the
occurrence of a default or event of default thereunder would have a
material adverse effect on the ability of American to satisfy its
obligations hereunder, and do not result in or require the creation of
any lien, security interest or other charge or encumbrance upon or
with respect to any of its assets.
(iii) Approvals. Except for the necessary approvals under
the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended,
all authorizations, consents, approvals, waivers and other actions
required by, and all notices to and filings required to be made with,
all governmental authorities and regulatory bodies for the due
execution, delivery and performance by American of this Agreement or
the consummation of the transactions contemplated by this Agreement
have been obtained.
(iv) Enforceability. This Agreement constitutes the
legally valid and binding obligation of American, enforceable against
American in accordance
-36-
<PAGE> 43
with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or other laws affecting creditors' rights
generally or general equitable principles, whether applied in a court
of law or in a proceeding at equity.
(b) With respect to any Aircraft being delivered, American hereby
represents and warrants to FedEx that upon Delivery of such Aircraft:
(i) Except as expressly agreed to in writing by FedEx or as expressly
permitted in this Agreement, the Aircraft shall be in the Delivery
Condition;
(ii) American shall have full power and lawful authority to convey
its ownership interest in the Aircraft to FedEx; and
(iii) upon execution, filing and recordation with the FAA of the FAA
Bill of Sale and delivery of the Warranty Bill of Sale to FedEx, FedEx
shall have received good legal and beneficial title to the Aircraft,
including the Engines conveyed to FedEx in connection with such
Aircraft, free and clear of all Liens, other than Liens arising by,
through or under FedEx or any designee of FedEx that has taken title
to the Aircraft.
Section 5.02. No Warranties. EXCEPT FOR WARRANTIES OF TITLE AND
ANY ASSIGNED MANUFACTURERS' WARRANTIES AND EXCEPT AS OTHERWISE EXPRESSLY SET
FORTH HEREIN WITH RESPECT TO THE AIRCRAFT RECORDS, THE AIRCRAFT, THE ENGINES,
THE SPARE PARTS AND THE DATA SHALL BE PURCHASED "WHERE IS", "AS IS" AND "WITH
ALL FAULTS" AND WITHOUT WARRANTIES OR REPRESENTATIONS OF ANY KIND, EXPRESS OR
IMPLIED, AS TO ANY MATTER WHATSOEVER WITH RESPECT TO ANY AIRCRAFT, THE ENGINES,
THE SPARE PARTS OR DATA INCLUDING, BUT NOT LIMITED TO: ANY OBLIGATION OR
LIABILITY IN NEGLIGENCE, STRICT LIABILITY OR TORT; AIRWORTHINESS; THE
CONDITION, DESIGN, QUALITY OR CAPACITY OF THE AIRCRAFT OR THE DATA OR THEIR
FITNESS FOR ANY PARTICULAR PURPOSE; COMPLIANCE OF THE AIRCRAFT, THE ENGINES,
THE SPARE PARTS OR THE DATA WITH THE REQUIREMENTS OF ANY LAW, ORDER, RULE,
REGULATION, SPECIFICATION OR CONTRACT PERTAINING THERETO; PATENT INFRINGEMENT;
OR ABSENCE FROM KNOWN, PATENT OR LATENT DEFECTS. EXCEPT FOR WARRANTIES OF
TITLE, AMERICAN SHALL NOT BE DEEMED TO MAKE OR HAVE MADE AND DISCLAIMS, AND
FEDEX SHALL ACKNOWLEDGE AND CONFIRM THAT AMERICAN HAS NOT MADE ANY
REPRESENTATIONS, WARRANTIES OR GUARANTIES OF ANY KIND WHATSOEVER, EXPRESS OR
IMPLIED, CONCERNING THE AIRCRAFT, THE DATA, ANY ENGINE, ANY PART OR ANY
COMPONENT, OR ANY SPARE PART INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTY
OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.
-37-
<PAGE> 44
AMERICAN IS NOT A MANUFACTURER OR A DEALER IN AIRCRAFT AND FEDEX HEREBY
ACKNOWLEDGES AND CONFIRMS TO AMERICAN THAT EACH AIRCRAFT IS OF A MAKE, SIZE,
DESIGN AND CAPACITY DESIRED BY FEDEX AND IS A USED AIRCRAFT.
EXCEPT FOR THE EXPRESS WARRANTIES OF TITLE GIVEN BY AMERICAN OR
MANUFACTURER'S WARRANTIES, FEDEX IRREVOCABLY AND UNCONDITIONALLY WAIVES THE
BENEFIT OF ANY WARRANTY OR REPRESENTATION AMERICAN MAY BE DEEMED TO MAKE OR
HAVE MADE AND ALL RIGHTS AND REMEDIES IT MAY HAVE AGAINST AMERICAN RELATING TO
ANY OTHER REPRESENTATIONS AND WARRANTIES MADE BY AMERICAN, IF ANY, WHETHER THE
REMEDIES ARISE BY LAW OR OTHERWISE, OR ARISE IN CONNECTION WITH ANY DAMAGES
SUSTAINED BY FEDEX, INCLUDING, WITHOUT LIMITATION, ANY ACTUAL, INDIRECT,
SPECIAL, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES, INCLUDING
WITHOUT LIMITATION, AS A RESULT OF ANY LOSS OF USE OF THE AIRCRAFT, THE
ENGINES, ANY SPARE PART OR THE DATA OR ANY INTERRUPTION IN FEDEX'S BUSINESS
RESULTING FROM OR OCCASIONED BY FEDEX'S INABILITY TO USE THE AIRCRAFT, THE
ENGINES, ANY SPARE PART OR THE DATA.
Section 5.03. FedEx's Representations. FedEx hereby represents and
warrants to American as follows:
(i) Organization and Existence. FedEx is a corporation
validly existing, duly organized and in good standing under the laws
of the State of Delaware and is qualified to do business as a foreign
corporation and is in good standing as such in the State of Texas.
(ii) Due Authorization. FedEx has all requisite corporate
power and authority to execute and enter into this Agreement and to
perform its obligations under this Agreement. The execution and
delivery of this Agreement by FedEx and the performance by FedEx of
its obligations hereunder have been duly authorized by all necessary
corporate action, do not contravene any law, statute, rule,
regulation, ordinance, writ, decree, judgment or injunction applicable
to FedEx, or result in the violation of, the breach of or a default or
event of default under any indenture, agreement, mortgage, contract,
agreement, other instrument or document, or any contractual
restriction to which FedEx is a party, which is binding on it, which
affects FedEx or by which its assets are bound or affected to the
extent that the contravention, violation or breach thereof or the
occurrence of a default or event of default thereunder would have a
material adverse effect on the ability of FedEx to satisfy its
obligations hereunder, and do not result in or require the creation of
any lien, security interest or other charge or encumbrance upon or
with respect to any of its assets.
-38-
<PAGE> 45
(iii) Approvals. Except for the necessary approvals under
the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended,
all authorizations, consents, approvals, waivers and other actions
required by, and all notices to and filings required to be made with,
all governmental authorities and regulatory bodies for the due
execution, delivery and performance by FedEx of this Agreement or the
consummation of the transactions contemplated by this Agreement have
been obtained.
(iv) Enforceability. This Agreement constitutes the legally
valid and binding obligation of FedEx, enforceable against FedEx in
accordance with its respective terms, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization, insolvency,
fraudulent conveyance or transfer, moratorium or other laws affecting
creditors' rights generally or general equitable principles whether
applied in a court of law or in a proceeding at equity.
(v) Use of Aircraft Acquired pursuant to Purchase Option.
Any Purchase Option Aircraft acquired by FedEx pursuant to an exercise
of a Purchase Option will be converted into a cargo configuration.
FedEx intends to operate any such Purchase Option Aircraft in its air
freight business.
ARTICLE 6
DOCUMENTATION
Section 6.01. Availability of Documentation. FedEx may, upon
giving American [ * ] review Aircraft and Engine specific
historical engineering, operational and maintenance records, manuals and
documentation forming a part of the Data and specific to the next Aircraft to
be delivered. Such review will occur during the [ * ] period
prior to the Scheduled Delivery Date for such Aircraft at American's Tulsa,
Oklahoma Maintenance and Engineering Center. Such review shall be done during
normal working hours and shall not unreasonably interfere with the business
operations of American at such site.
Section 6.02. Technical Data and Documents. (a) American shall
provide to FedEx all Data applicable to each Aircraft, Engine and Spare Engine
on or before the Delivery Date with respect to such Aircraft, provided,
however, that any Aircraft Records or Engine Records generated within the [ *
]
____________________
*Blank space contained confidential information which has been filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
-39-
<PAGE> 46
immediately prior to the Delivery Date may be delivered to FedEx within the
[ * ] next following the Delivery Date of the relevant Aircraft
to FedEx. If FedEx shall need any other information pertaining to the Aircraft
cor an Engine thereon after the delivery of the Aircraft Records or Engine
Records, as the case may be, during the [ *
] period immediately after the delivery
of the Aircraft Records, upon FedEx's written request, American will search its
records for such information. If such information is found, American shall
deliver such information to FedEx at American's expense. American shall not be
required to create any records regarding the Aircraft, any Engine or any Part
that American is not required to retain in its records by the FAA under the
American Program. If American is normally required by the FAA under the
American Program to retain a particular Aircraft Record or Engine Record
respecting an Aircraft or any Part thereof, but during the [ *
] period immediately after delivery of the Aircraft Records or
Engine Records, as the case may be, such Aircraft Record or Engine Record or a
part of such Aircraft Record or Engine Record is found to be missing,
incomplete or in error with respect to any Aircraft delivered to FedEx,
American will, at its sole option, either create an accurate and complete
reconstruction of such Aircraft Record or Engine Record, replace the Part or
Parts on the Aircraft as to which the missing, incomplete or erroneous Aircraft
Record or Engine Record relates or take such other corrective action as shall
permit FedEx to operate the Aircraft in accordance with its then current
operations specifications, as approved by the FAA primary maintenance inspector
assigned to FedEx.
(b) At the Delivery Date of any Aircraft, the Aircraft Records and/or
Engine Records relating to the Aircraft and Engines delivered to FedEx by
American as provided above shall be, to the best of American's knowledge,
accurate and complete in accordance with the aircraft records requirements of
FAR 121.380 at the time of the delivery of such Aircraft Records and/or Engine
Records to FedEx. To the extent any such Aircraft Record or Engine Record is
not accurate or complete, FedEx's sole remedy shall be to cause American, at
its sole option and expense, to research and correct such inaccurate or
incomplete Aircraft Record or Engine Record, replace the Part or Parts on the
Aircraft as to which the missing, incomplete or erroneous Aircraft Record or
Engine Record relates, or take such other corrective action as shall permit
FedEx to operate the Aircraft in accordance with its then current operations
specifications, as approved by the FAA primary maintenance inspector assigned
to FedEx.
(c) If the FAA changes the regulations or issues national policy
guidance related to existing regulations pertaining to any documentation
required to *Blank space contained confidential information which has been
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 under the Securities Exchange Act of 1934.
-40-
<PAGE> 47
substantiate Airworthiness Directive compliance, American shall provide to
FedEx, to the extent it is available, all such required documentation not
previously delivered for any previously delivered Aircraft, Engine, Gear or
APU.
(d) Except as noted in Exhibit D, American shall provide to FedEx (i)
one legible, reproducible copy of each item of Data that is not related to any
particular Aircraft (which shall be delivered on the Delivery Date for the
first Firm Aircraft) and the subsequent revisions thereto occurring prior to
the last Delivery Date (each of which revisions shall be delivered on the
Delivery Date next following the date on which the revision is issued), (ii)
one legible, reproducible copy of any item of Data (other than the Aircraft
Records) related to each Aircraft that is delivered to FedEx by American and
(iii) originals (or if an original copy is not available, one legible
reproducible copy) of the Aircraft Records with respect to each Aircraft that
is delivered to FedEx by American. All items of Data delivered shall be in
hard copy except as noted in Exhibit D. If American does not have hard copy,
the Data shall be provided on microfilm or by other agreed medium. At FedEx's
request, all manufacturer's manual revision services for the Aircraft, if any,
shall be transferred to FedEx.
(e) When Data are forwarded to FedEx, American shall include a list
of those items using the reference numbers in Exhibit D.
All Data not delivered with an Aircraft shall be forwarded to:
Federal Express Corporation
Tchulahoma Administration Building
3101 Tchulahoma Road
Memphis, Tennessee 38118
Attn: Manager, Fleet Development
ARTICLE 7
ASSIGNMENT OF WARRANTIES, SERVICE LIFE POLICIES
AND PATENT INDEMNITIES
Section 7.01. Assignment of Warranties. At Delivery of each
Aircraft, an Assignment of Assignable Manufacturer's Warranties in the form of
Exhibit G shall be executed by American and delivered to FedEx pursuant to
which American will assign to FedEx, effective upon Delivery of such Aircraft,
all of American's interests in any and all existing and assignable warranties,
service life policies and patent indemnities of manufacturers and maintenance
and overhaul providers relating to such Aircraft. Further, upon FedEx's
request, American shall (i) give written notice to any such manufacturers and
maintenance and overhaul providers of the assignment of such warranties,
service life polices and patent indemnities to FedEx,
-41-
<PAGE> 48
and (ii) at FedEx's expense, take all such actions as may be reasonably
requested by FedEx in assisting FedEx in the enforcement of its rights pursuant
to this Article 7. Notwithstanding the foregoing, to the extent American may
assign any warranty, service life policy and patent indemnity only with the
consent of the provider of such, American will use its commercially reasonable
efforts to obtain any required consent to such an assignment, provided,
however, that American shall not be required to make any payment, give up any
rights or make any other concession to any provider in order to obtain any such
consent. In connection with the assignment of the Aircraft Support Services
provisions of Exhibit C to the Purchase Agreement by and between the
Manufacturer of the Airframes and American, dated August 3, 1989, as amended
and supplemented (the "MD-11 Purchase Agreement"), FedEx agrees to be bound by
the terms and provisions of Article 13 of, and Exhibit C to, the MD-11 Purchase
Agreement, copies of which have been provided to FedEx.
ARTICLE 8
PAYMENT OF TAXES
Section 8.01. Payment of Taxes by FedEx. (a) The Purchase Price
of an Aircraft and the Spares Purchase Prices do not include the amount of any
sales, use, withholding, transfer or excise taxes whatsoever. Except as
provided in Section 8.01(b) and Section 8.02 hereof, any and all taxes,
excises, duties and assessments whatsoever (including any related penalty,
interest or other additions to tax) arising out of the sale, transfer or
delivery of the Aircraft or the Spare Parts under this Agreement, or the
ownership, possession, condition, maintenance, use, operation or disposition of
the Aircraft after Delivery or any Spare Parts after their delivery to FedEx,
in any manner levied, assessed or imposed by any government or subdivision or
agency thereof having jurisdiction, shall be the sole responsibility and
liability of FedEx and FedEx shall indemnify and hold American harmless from
any and all such taxes, excises, duties and assessments whatsoever. American
and FedEx will cooperate in good faith and take such reasonable actions as are
practicable to minimize or, if possible, eliminate any such taxes, excises,
duties or assessments.
(b) The indemnity provided for in Section 8.01(a) shall not extend to
any of the following:
(i) taxes based upon, measured by or with respect to the net income,
gross receipts in the nature of an income tax not in the nature of a transfer
tax, items of tax preference or minimum tax or excess profits, capital,
franchise, net worth or conduct of business or other similarly-based taxes of
American;
(ii) any penalty, interest or other additions to taxes related to
taxes imposed on American that would not have been imposed, but for the willful
misconduct or gross negligence of American; or
-42-
<PAGE> 49
(iii) taxes, excises, duties or assessments imposed by the State of
[.* ]
(c) With respect to any tax which FedEx has assumed responsibility
for under this Article 8, FedEx shall either (i) pay (x) at the Delivery Date
for an Aircraft, (y) at the delivery date of any Engine sold to FedEx and not
conveyed by American to FedEx at the Delivery Date for an Aircraft, or (z) at
the delivery date for any Spare Parts sold by American to FedEx, all sales or
other similar taxes payable with respect to the sale and/or purchase of such
Aircraft, Engines or Spare Parts, respectively, or (ii) provide to American an
exemption certificate, resale certificate, or other evidence reasonably
acceptable to American that the sale and purchase of any Aircraft, Engine or
Spare Part is exempt from any such tax. Other evidence includes, but is not
limited to, a letter specifying the applicable taxing authority's statute,
regulation, rule or case law authority providing for such exemption; provided,
however, that acceptance of such certificates or other evidence by American
shall not constitute willful misconduct or gross negligence by American for
failure to collect taxes determined to be due.
(d) If any tax, excise, duty or assessment described in this Section
8.01 for which FedEx has assumed the responsibility for payment pursuant to
this Article 8 is levied, assessed or imposed upon American, American shall
promptly give FedEx notice of such levy, assessment or imposition, whereupon
FedEx shall promptly pay and discharge the same or, if permitted by law, may
contest or protest such liability before payment. If American fails to notify
FedEx, FedEx will be relieved of its indemnity obligations under this Section
8.01 with respect to that tax to the extent such failure materially adversely
impacts FedEx. Upon the written request and at the sole expense of FedEx,
American shall reasonably cooperate with FedEx in contesting or protesting the
validity or application of any such tax (including, but limited to, permitting
FedEx to proceed in American's name if required or permitted by law, provided,
in each case, that such contest does not involve, or can be separated from, the
contest of any tax or other issues unrelated to the transactions described in
this Agreement). If proceeding in American's name, FedEx must first receive a
power of attorney from American which American may not unreasonably withhold,
and, further, any retention of outside counsel to assist FedEx must be mutually
agreed upon by FedEx and American. In lieu of permitting FedEx to proceed
using American's name, American may, if permitted by law, assign its claim to
FedEx as the real party in interest with respect to such claim. FedEx also
shall have the right to participate in any contest conducted by American with
respect to a tax or other charge indemnifiable under this Article 8, including,
without limitation, the right to attend conferences with the taxing authority
and the right to review submissions to the taxing authority or any court to the
extent,
- - ----------------------
*Blank space contained confidential information which has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934.
-43-
<PAGE> 50
but only to the extent, such contest does not involve, or can be separated
from, the contest of any tax or issues unrelated to the transactions
contemplated in this Agreement. In the event American shall receive a refund
of all or any part of such tax, excise, duty or assessment (including a refund
of interest and penalties, if any, in connection therewith) which FedEx has
paid and discharged, the amount of such refund shall promptly be remitted to
FedEx by American, less any expenses of American associated with contesting
and/or protesting the validity or application thereof which have not been
previously reimbursed by FedEx.
Section 8.02. Tax Consequences of Certain Deliveries. (a) If the
delivery of the Aircraft at any destination other than one in [ * ] or [ *
] would result in an increased state, federal or local sales, transfer or
similar tax being payable by FedEx in connection with the delivery of the
Aircraft, FedEx may, in its sole discretion, withhold its consent to take the
Delivery of such Aircraft in that state unless American agrees to indemnify
FedEx for any such increased tax.
(b) If the delivery of the Aircraft to FedEx in [ * ] results in
any sales, transfer or similar tax being imposed on FedEx with respect to such
Aircraft as a result of the tender of the Aircraft in [ * ], American will
agree to indemnify FedEx or provide FedEx with a written statement from
the taxing authority in [ * ] that such sale is exempt from tax in [ *
] and that, if the exemption is lost, American will indemnify FedEx for any tax
due unless the loss was due to the negligence or willful misconduct of FedEx.
(c) If any Spare Parts are delivered to FedEx at a location other
than Tennessee, American shall indemnify FedEx for any (or an increased)
federal, state or local sales, transfer or similar tax imposed on FedEx with
respect to such Spare Parts unless such other delivery location was mutually
agreed upon or was chosen at the request of FedEx in which case FedEx shall
indemnify American if the delivery of any of the Spare Parts to FedEx would
result in any or any increased federal, state or local sales, transfer or
similar tax to American. If the delivery of any Spares Parts to FedEx would
result in any (or an increased) federal, state or local sale, transfer or
similar tax to American or FedEx, as the case may be, American and FedEx will
choose a jurisdiction on FedEx's route system within the contiguous forty-
eight (48) United States in which to make such delivery or re-delivery to
minimize such tax or eliminate such tax, if possible.
(d) If the delivery of a Delayed Delivery Engine or Replacement
Engine by American to FedEx or the re-delivery of a Non-Conforming Engine to
American by FedEx at the location of the Aircraft on which the Delayed Delivery
Engine or Replacement Engine will be installed results in any (or an
increased) federal,
- - --------------------
*Blank space contained confidential information which has been filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
-44-
<PAGE> 51
foreign, state or local sales, transfer or similar tax being imposed on FedEx,
American will indemnify FedEx for the tax or the increased amount of the tax to
the extent, but only to the extent, that FedEx would not have been responsible
for the payment of an equivalent amount of tax if the Delayed Delivery Engine
or Replacement Engine had been installed on the Aircraft at the time of the
Delivery of such Aircraft.
Section 8.03. After-Tax Basis. Any payment of an indemnity pursuant
to this Article 8 shall be made on a basis such that any payment received or
deemed to have been received by an indemnified party shall be supplemented by a
further payment to such party so that the sum of the two payments, after
deduction of all taxes resulting from the receipt or accrual of such payments,
shall be equal to the payment received or deemed to have been received.
ARTICLE 9
EXCUSABLE DELAY
Section 9.01. Excusable Delay. (a) Subject to Section 3.05,
neither Party shall be responsible to the other Party for any Excusable Delay
in the discharge and performance of its respective obligations and duties under
this Agreement or for any delay or failure in the discharge and performance of
its respective obligations and duties under this Agreement as a result of the
action or omission of the other Party.
Section 9.02. Time Limits on Excusable Delays. Notwithstanding the
provisions of Section 3.05, if an Excusable Delay shall have caused the delay
of the Delivery of an Aircraft on a Scheduled Delivery Date (i) until a date
after the Partial Casualty Delivery Date as to any Aircraft described in
Section 3.05(c), (ii) until a date after the Casualty Delivery Date, as to any
substitute Aircraft as described in Section 3.05(d) or (iii) for a period of
more than twenty-eight (28) consecutive days after the Scheduled Delivery Date
in every other instance, the Party not claiming the right to delay performance
of its obligations shall have the right (x) to terminate its obligations with
respect to the Delivery of such Aircraft at any time prior to the Delivery of
such Aircraft or a substitute Aircraft therefor or (y) to permit the other
Party to complete its performance in connection with the Delivery of such
Aircraft. If a Party chooses to terminate its obligations with respect to the
Delivery of an Aircraft or a substitute Aircraft therefor, the Party claiming
the Excusable Delay shall have no further obligation with respect to the
Delivery of the Aircraft as to which the Excusable Delay occurred. To the
extent an Excusable Delay relates to the performance of any obligation other
than one respecting the Delivery of an Aircraft, such delay shall be an
Excusable Delay for a period not to exceed twenty- eight (28) consecutive days
from the date that performance was due.
ARTICLE 10
INDEMNIFICATION
-45-
<PAGE> 52
Section 10.01. FedEx's Indemnification. After the Delivery of an
Aircraft, Engines or Spare Parts to FedEx, FedEx shall defend, indemnify and
hold harmless American, its Affiliates and each of their respective directors,
officers, employees, independent contractors who are individuals, and permitted
assignees (collectively the "American Indemnitees") from and against all
claims, demands, suits, causes of action, obligations, liabilities, damages,
losses and judgments, costs and expenses, WHETHER OR NOT ARISING FROM THE
NEGLIGENCE OF SUCH INDEMNIFIED PARTIES, asserted against any of them by reason
of injury or death of any person, or by reason of loss of or damage to
property, including such Aircraft, Engines and Spare Parts, arising out of or
in any manner connected with any of the Aircraft, Engines and Spare Parts,
including, without limitation, the purchase, sale, ownership, possession, use,
operation, flight testing (if the event giving rise to the American
Indemnitees' right to indemnity involves the Aircraft and occurs while a pilot
who is an employee or an agent of FedEx is in control of the Aircraft being
flight tested), storage, maintenance, financing, sale, lease or sublease of any
Aircraft, Engine or Spare Part.
Section 10.02. American's Indemnification. American agrees to
defend, indemnify and hold harmless FedEx, its Affiliates, and each of their
respective directors, officers, employees, independent contractors who are
individuals and permitted assignees from and against all claims, demands,
suits, causes of action, obligations, liabilities, damages, losses and
judgments, costs and expenses, asserted against any of them by reason of any
claim adverse to FedEx's title to the Aircraft by any party claiming by or
through American.
ARTICLE 11
INSURANCE
Section 11.01. Liability Insurance. Commencing with the delivery of
the first Aircraft to FedEx, FedEx shall maintain until the [ * ]
anniversary of the Delivery Date of each Aircraft, with insurance carriers
reasonably acceptable to American, comprehensive airline liability insurance in
an amount not less than USD $[ * ] which shall: include aircraft
liability, cargo liability, and comprehensive general liability insurance;
insure, inter alia, FedEx's indemnification obligations to the American
Indemnitees; and name the American Indemnitees as additional insureds. The
insurers shall waive any right of subrogation, set-off or counterclaim against
the American Indemnitees as to the coverage of the American Indemnitees,
breaches of representations and warranties
- - -----------------------
*Blank space contained confidential information which has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934.
-46-
<PAGE> 53
by FedEx. In the event of cancellation of or material change in the policy,
such insurance shall continue in force for the benefit of the American
Indemnitees for at least thirty (30) days after written notice to American.
Section 11.02. Hull Insurance. If FedEx, or any successor to
FedEx's interest in the Aircraft, maintains hull insurance on the Aircraft,
FedEx shall require its, or its successor's, hull insurers to waive any and all
rights of subrogation, set-off, counterclaim and deduction, whether by
attachment or otherwise, which they may have against the American Indemnitees,
for any loss, damage or destruction of the Aircraft.
Section 11.03. Insurance Certificates. Upon Delivery, FedEx shall
furnish American with insurance certificates from certifying (a) that the
policies of insurance required by this Article 11 are in full force and effect
(together with required waivers of subrogation) and (b) that American shall be
given thirty (30) days' prior written notice by the insurers in the event of
either cancellation or material change in coverage or cancellation of the
waivers of subrogation, except in the event of war risk coverage, in which case
the notice period shall be seven (7) days or such other period as shall be
customary in the insurance market.
ARTICLE 12
DEFAULT AND REMEDIES
Section 12.01. American Events of Default. The following events
shall constitute Events of Default as to American:
(a) American shall fail to deliver the Aircraft in accordance with
the terms and conditions of this Agreement;
(b) American shall fail to perform any other covenant of American
contained in this Agreement, and such failure is not cured within [ *
] after written notice of such default is given by FedEx to
American or, if such failure cannot be cured within [ *
] is not cured within [ *
] after receipt of such notice if American promptly commences taking
and diligently pursues all necessary actions to cure such failure;
(c) If any representation or warranty made by American herein or made
in any statement or certificate furnished or required hereunder or in
connection with the execution and delivery of this Agreement, proves untrue in
any material adverse respect;
- - ----------------------
*Blank space contained confidential information which has been filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
-47-
<PAGE> 54
(d) If American shall file a voluntary petition in bankruptcy, shall
be adjudicated as bankrupt or insolvent, shall file any petition or answer
seeking any reorganization, composition, readjustment, liquidation or similar
relief for itself under any present or future statute, law or regulation, shall
seek or consent to or acquiesce in the appointment of any trustee, shall make
any general assignment for the benefit of creditors, or shall admit in writing
its inability to pay its debts generally as they become due; or
(e) If a petition shall be filed against American seeking any
reorganization, composition, readjustment, liquidation or similar relief under
any present or future statutes, law or regulation, and shall remain undismissed
or unstayed for an aggregate of [ * ] (whether or not
consecutive), or if any trustee, receiver or liquidator of either Party is
appointed, which appointment shall remain unvacated or unstayed for an
aggregate of [ *
] (whether or not consecutive).
Section 12.02. FedEx Events of Default. The following events shall
constitute Events of Default as to FedEx:
(a) FedEx shall fail to accept delivery and pay the Purchase Price
for any Aircraft tendered by American for delivery to FedEx in accordance with
this Agreement;
(b) FedEx shall fail to perform any other covenant of FedEx contained
in this Agreement and such failure is not cured within [ *
] after written notice of such default is given by American to FedEx or,
if such failure cannot be cured within [ * ] is
not cured within [ * ] after receipt of such notice if FedEx promptly commences
taking and diligently pursues all necessary actions to cure such failure;
(c) If any representation or warranty made by FedEx herein or made in
any statement or certificate furnished or required hereunder or in connection
with the execution and delivery of this Agreement proves untrue in any material
adverse respect;
(d) If FedEx shall file a voluntary petition in bankruptcy, shall be
adjudicated as bankrupt or insolvent, shall file any petition or answer seeking
any reorganization, composition, readjustment, liquidation or similar relief
for itself under any present or future statute, law or regulation, shall seek
or consent to or acquiesce in the appointment of any trustee, shall make any
general assignment for
- - ----------------------
*Blank space contained confidential information which has been filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
-48-
<PAGE> 55
the benefit of creditors, or shall admit in writing its inability to pay its
debts generally as they become due; or
(e) If a petition shall be filed against FedEx seeking any
reorganization, composition, readjustment, liquidation or similar relief under
any present or future statutes, law or regulation, and shall remain undismissed
or unstayed for an aggregate of [ * ] (whether or not
consecutive), or if any trustee, receiver or liquidator of either party is
appointed, which appointment shall remain unvacated or unstayed for an
aggregate of [ *
] (whether or not consecutive).
Section 12.03. Remedies. (a) Subject in all respects to
Article 13, upon the occurrence of an Event of Default by American, FedEx (i)
shall, at its option, be relieved from its obligation to accept delivery of and
pay the Purchase Price for the Aircraft or to purchase any Spare Parts from
American, (ii) may, at its option, terminate this Agreement and have the
Deposits returned to it to the extent they have not been previously applied to
the Purchase Price of an Aircraft, together with any interest thereon
calculated at the AMR Rate, and (iii) shall have all other rights and remedies
available to it at law and in equity, including, but not limited to, the
equitable remedy of specific performance.
(b) Subject in all respects to Article 13, upon the occurrence of an
Event of Default by FedEx, American (i) shall retain the Deposits and the
interest thereon relating to the Aircraft, (ii) may, at its option, be relieved
from its obligation to deliver any Aircraft or sell any Spare Parts to FedEx,
(iii) may, at its option, terminate this Agreement and (iv) shall have all
other rights and remedies available to it at law and in equity, including, but
not limited to, the equitable remedy of specific performance.
Section 12.04. Limitation of Damages. NEITHER PARTY SHALL HAVE ANY
LIABILITY FOR ANY INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR
EXEMPLARY DAMAGES SUSTAINED BY THE OTHER PARTY ARISING OUT OF THE FIRST PARTY'S
DEFAULT UNDER THE TERMS OF THIS AGREEMENT. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY REMEDIES IT MAY HAVE AS A RESULT OF ITS INCURRENCE OF ANY INDIRECT,
SPECIAL, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES ARISING OUT
OF A DEFAULT BY THE OTHER PARTY UNDER THIS AGREEMENT.
- - ----------------------
*Blank space contained confidential information which has been filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
ARTICLE 13
DISPUTE RESOLUTION
-49-
<PAGE> 56
Section 13.01. Dispute Resolution. American and FedEx desire to
resolve any dispute or alleged dispute that may arise in connection with the
interpretation of any provision in this Agreement or the performance by either
of them of their obligations under this Agreement (a "Dispute") without resort
to the courts. If any Dispute shall arise, American and FedEx agree to follow
the procedure set forth in this Article 13 (the "ADR Procedure") to resolve
such Dispute.
Section 13.02. Notice of Dispute. The Party believing a Dispute to
exist shall give the other Party written notice that the Dispute exists. Such
notice shall set forth in reasonable detail the facts alleged to give rise to
such Dispute, the provision or provisions of this Agreement giving rise to the
obligations implicated in the Dispute, the nature of any default claimed to
exist with respect to this Agreement and a statement of the manner in which
such Party believes the Dispute should be resolved. Within five (5) Business
Days after such notice is given the Party receiving such notice shall respond
in writing to the Party giving the notice. Such response (the "Response")
shall state whether the responding Party believes such Dispute exists, set
forth its view of the facts alleged to give rise to the Dispute and, if the
responding Party agrees that a Dispute exists, indicate what action the
responding Party believes should be taken with respect to the claim that a
Dispute exists.
Section 13.03. Dispute Resolution Through Negotiation. If the
Parties do not agree as to the action to be taken in resolution of the Dispute,
American and FedEx shall have a meeting no later than the fifth (5th) Business
Day following the date on which the Response is given. Such meeting shall be
held in the offices of the Party receiving the original notice of the Dispute
unless the Parties agree to meet elsewhere. Each of the Parties shall have in
attendance at such meeting an executive who shall have the authority to make
decisions and bind the Party he or she represents to any agreement that may be
made by the Parties at such meeting (a "Company Representative"), as well as
such other persons as the Parties may desire. At the meeting, the Parties
shall negotiate in good faith in an attempt to agree if a Dispute exists, upon
the exact nature of any Dispute agreed to exist, the manner in which any such
Dispute should be resolved and the date by which the resolution of any such
Dispute should be effected. If a resolution of such Dispute is not reached at
the initial meeting, before adjourning the meeting, the Parties shall determine
if an additional meeting or meetings should be held to negotiate further a
resolution of the Dispute. If American and FedEx determine an additional
meeting should be held, they shall agree to the time and place of such meeting.
Any agreement as to the resolution of such Dispute reached during such
negotiations shall be evidenced by a written agreement setting forth in
reasonable detail the actions that the Parties agree will be taken to resolve
or remedy the Dispute.
Section 13.04. Dispute Resolution Through Mediation. If American
and FedEx cannot resolve the Dispute pursuant to the procedure set forth in
Section 13.03 above (the "Negotiation Procedure") within ten (10) Business Days
after the first
-50-
<PAGE> 57
meeting held by the Parties pursuant to the Negotiation Procedure, American and
FedEx shall mediate the Dispute through a panel of three mediators (the
"Mediation Panel"). The Mediation Panel shall be appointed within ten (10)
Business Days after the date on which the Parties determine that they cannot
resolve the Dispute (the "Determination Date"). The Mediation Panel shall
consist of a professional mediator appointed by American, a professional
mediator appointed by FedEx and a professional mediator appointed by the two
mediators appointed by American and FedEx. When possible, each mediator shall
be familiar with the aircraft industry. The mediation shall take place on the
fifteenth (15th) Business Day after the Determination Date or such earlier
date as the Parties and the Mediation Panel may agree. Each Party shall
prepare and submit to the Mediation Panel at least two (2) Business Days before
the mediation occurs, written submissions setting forth their respective
positions with respect to the Dispute. Each Party shall send a Company
Representative and such other persons, including professional advisors, as they
desire to such mediation. The Parties agree to work in good faith to reach an
agreement settling the Dispute at the mediation. Any agreement as to the
resolution of such Dispute reached during such mediation shall be evidenced by
a written agreement setting forth in reasonable detail the actions that the
Parties agree will be taken to resolve the Dispute. The mediation shall be
deemed unsuccessful if so declared by the Mediation Panel.
Section 13.05. Dispute Resolution Through Arbitration. American and
FedEx agree that if they cannot resolve the Dispute pursuant to the Negotiation
Procedure or mediation as described in Section 13.04 above (the "Mediation")
within ten (10) Business Days after the commencement of the first meeting of
the Parties with the Mediation Panel, they will submit the Dispute to binding
arbitration (the "Arbitration") pursuant to the New York Arbitration Statute
and the American Arbitration Association's (the "AAA") Commercial Arbitration
Rules as in effect at the time of the submission of the Dispute to the AAA (the
"CAR"). American and FedEx shall submit the Dispute to the AAA for binding
arbitration within five (5) Business Days after the unsuccessful conclusion of
the Mediation Process. The arbitration shall take place (i) in Dallas, Texas
or such other place as American, FedEx and the arbitrators assigned to the case
shall agree and (ii) on such date and at such time as the arbitrators shall
establish. The Dispute shall be arbitrated by a panel of three arbitrators
(the "Panel") who shall, if possible, each be experienced in the aircraft
industry and who shall be chosen in accordance with the CAR. The Panel shall
issue a reasoned decision and award of damages, specific performance or
injunction. American and FedEx agree to abide by and perform any award
rendered by the Panel. American and FedEx intend that the Dispute will be
resolved by application of the laws of the State of New York and that the
Panel's authority to make any award in the arbitration of the Dispute shall be
based on and limited by the laws of the State of New York, the terms and
conditions of this Agreement and the CAR. The Panel's determination of facts
shall be final and binding on American and FedEx if there is substantial
evidence in the record of such arbitration to support such determination, it
being the intention of the Parties
-51-
<PAGE> 58
that the standard for any judicial review of the findings or award of the Panel
be the same standard as applies in the case of appeals to actions of
administrative agencies in the State of New York. Judgment on the award in the
arbitration may be entered by any court having jurisdiction of the Dispute.
Subject to the CAR, the Parties will endeavor in good faith to conclude the
arbitration by no later than thirty (30) Business Days after it commences.
Section 13.06. Forbearance During Resolution Process. American and
FedEx agree to forbear from pursuing any remedy under this Agreement or
otherwise available under law, including the institution of any lawsuit, while
the ADR Procedure is in operation with respect to any Dispute.
Section 13.07. Limitation of Remedies. American and FedEx agree
that, notwithstanding anything to the contrary herein, in the laws of the State
of New York, Tennessee or Texas or the CAR, the result of any agreement reached
by them in the Mediation or any award made by the Arbitration Panel in the
Arbitration shall be consistent with the terms and conditions of this Agreement
and that any award shall be only a remedy that would available to a Party to
this Agreement as a result of a breach of this Agreement had the ADR Procedure
not been in effect. IN NO EVENT SHALL THE PANEL AWARD ANY INDIRECT,
INCIDENTAL, CONSEQUENTIAL, PUNITIVE, SPECIAL, EXEMPLARY OR OTHER THAN DIRECT
DAMAGES.
Section 13.08. Expenses. Each of American and FedEx shall pay its
own out-of-pocket expenses in connection with the conduct of the ADR Procedure
as to any Dispute. The costs and expenses of any Mediation, other than
American's and FedEx's out-of-pocket expenses in connection therewith, shall be
borne equally by American and FedEx. The costs and expenses of any
Arbitration, other than American's and FedEx's out-of-pocket expenses in
connection therewith, shall be payable in accordance with the CAR.
ARTICLE 14
CONDITIONS
Section 14.01. Conditions to FedEx's Obligations. The obligation of
FedEx to accept any Aircraft and purchase any Spare Parts from American shall
be subject to the following conditions precedent:
(a) compliance by American with all applicable laws and regulations of
all jurisdictions which are applicable to the transactions contemplated hereby,
including, without limitation, the Hart-Scott-Rodino Anti-Trust Improvements
Act of 1974, as amended;
-52-
<PAGE> 59
(b) receipt by FedEx of all necessary licenses, permits, approvals,
consents, waivers and authorities which are applicable to the transactions
contemplated hereby;
(c) receipt by FedEx of a satisfactory opinion of counsel to American,
which opinion may be rendered by in- house counsel, regarding due
authorization, no conflicts with organization documents, agreements and
instruments to which American is a party or its assets are bound or any court
order, and enforceability of this Agreement and any ancillary agreements, and
such other matters as may be reasonably requested. In such opinion, such
counsel may assume that the documents, agreements and instruments are governed
by Texas law and render their opinions based solely on the federal laws of the
United States, the corporate laws of the State of Delaware and the laws of the
State of Texas. Such opinion may be subject to the type of assumptions and
qualifications regularly included by experienced corporate counsel in similar
opinions;
(d) the execution of this Agreement and consummation of the
transactions contemplated by it shall not breach, or result in a default under,
any document, agreement, statute, treaty, regulation or other regulatory
directive, foreign or domestic, binding upon American or any of its respective
Affiliates;
(e) FedEx shall not be unable to perform its obligations with respect
to one or more of the Aircraft as the result of the occurrence of a Force
Majeure Event or other Excusable Delay (other than a Force Majeure Event or
other Excusable Delay which is a result of the fault, act or omission of
American);
(f) the Aircraft shall be in Delivery Condition; and
(g) the approval of this Agreement and the performance of the
transactions contemplated by this Agreement by FedEx's board of directors.
Section 14.02. Conditions to American's Obligations. The obligation
of American to deliver any Aircraft and sell any Spare Parts to FedEx shall be
subject to the following conditions precedent:
(a) compliance by FedEx with all applicable laws and regulations of
all jurisdictions which are applicable to the transactions contemplated hereby,
including, without limitation, the Hart-Scott-Rodino Anti-Trust Improvements
Act of 1974, as amended;
(b) receipt by American of all necessary licenses, permits, approvals,
consents, waivers, and authorities which are applicable to the transactions
contemplated hereby;
-53-
<PAGE> 60
(c) receipt by American of a satisfactory opinion of counsel to FedEx,
which opinion may be rendered by in- house counsel, regarding due
authorization, no conflicts with organizational documents, agreements and
instruments to which FedEx is a party or its assets are bound or any court
order, and enforceability of this Agreement and any ancillary agreements, and
such other matters as may be reasonably requested. In such opinion, such
counsel may assume that the documents, agreements and instruments are governed
by Tennessee law and render their opinions based solely on the federal laws of
the United States, the corporate laws of the State of Delaware and the laws of
the State of Tennessee. Such opinion may be subject to the type of assumptions
and qualifications regularly included by experienced corporate counsel in
similar opinions;
(d) the execution of this Agreement and consummation of the
transactions contemplated by it shall not breach, or result in a default under,
any document, agreement, statute, treaty, regulation or other regulatory
directive, foreign or domestic, binding upon FedEx or any of its Affiliates;
(e) American shall not be unable to perform its obligations with
respect to one or more of the Aircraft as the result of the occurrence of a
Force Majeure Event, other Excusable Delay or the fault of FedEx; and
(f) the approval of this Agreement and the performance of the
transactions contemplated hereby by American's Chairman of the Board, Chief
Executive Officer and President.
ARTICLE 15
CONFIDENTIALITY
Section 15.01. Confidentiality Obligations. (a) Each of American
and FedEx agrees to keep the economic terms of this Agreement confidential and
not to disclose, transfer, use or otherwise make available such information to
any third party without the prior written consent of the other Party. Each of
American and FedEx agrees to exercise care that is at least equal to the care
it uses to protect the confidentiality of its own confidential and proprietary
information of similar importance to prevent the disclosure to outside parties
or unauthorized use of such information. Notwithstanding the above, American
and FedEx may disclose confidential information to their respective officers,
directors, employees and/or tax, legal and other professional advisors who are
informed of the confidential nature of the information and of the restrictions
on disclosure and use of the information as set forth herein and may disclose
confidential information as required by law (including, but not limited to,
pursuant to a request by the Internal Revenue
-54-
<PAGE> 61
Service or a state taxing authority for information). In the event of a breach
of or a default under the terms of this Section 15.01, the non-breaching Party
shall be entitled to pursue and seek all legal and equitable remedies available
to it, including the equitable remedies of specific performance and injunction,
which remedies shall not be deemed exclusive, but shall be cumulative. If
either of the Parties desire to make a press release, information release or
otherwise provide information to any third party for release to the news media
with respect to the transactions contemplated by this Agreement, subject to its
obligations under applicable securities laws, the Party desiring to make the
release or provide the information shall provide the text of such release or
information to the other Party for its review at least three (3) Business Days
in advance of the proposed distribution of the release or information. Subject
to legal requirements and other legally compelled disclosures, each Party shall
obtain the prior written consent of the other Party to release of any such news
or press release or information and the text of any written or oral statement
or any release of information to be provided to the news media and the timing
of the distribution of such information.
(b) FedEx understands that certain of the information that may be
provided to FedEx by American concerning the Airframes is the subject of a
confidentiality agreement between American and the Manufacturer of the
Airframes (the "Manufacturer Confidentiality Agreement"). FedEx agrees for the
benefit of American and the Manufacturer of the Airframes (i) to be bound by
the terms and conditions of the Manufacturer Confidentiality Agreement, (ii)
that FedEx's use, possession and dissemination of such information to any
person shall be subject to and governed by the Manufacturer Confidentiality
Agreement and (iii) that the Manufacturer of the Airframes shall be a third
party beneficiary of this Section 15.01(b) and entitled to enforce its
respective rights under the Manufacturer Confidentiality Agreement against
FedEx as if it were a party to this Agreement.
ARTICLE 16
FURTHER ASSURANCES
Section 16.01. Further Assurances. (a) American recognizes that in
the course of (i) the conversion of the Aircraft from a passenger configuration
to a cargo configuration and (ii) the transition of the Aircraft from the
American Program to FedEx's FAA-approved maintenance program, issues will arise
in which American may possess information and expertise regarding the Aircraft
that FedEx would find useful, Aircraft Records or Engine Records that may be
necessary to the transition of the Aircraft to FedEx's maintenance program, and
other knowledge that will be useful to FedEx in connection with such
activities. Subject to any restrictions on the disclosure of confidential
information and consistent with the protection of its confidential information
and proprietary information, including, without limitation, any trade secrets,
American agrees to cooperate with FedEx and to assist FedEx by providing such
confidential, proprietary and trade secret
-55-
<PAGE> 62
information pursuant to a mutually acceptable non-disclosure agreement and any
non-confidential information regarding the Aircraft that American may possess
which would be helpful to FedEx in achieving its goals. American also agrees
to meet with representatives of FedEx and the FAA at mutually agreeable times
and locations to discuss the Aircraft and American's maintenance of the
Aircraft. In no event shall the assistance to be provided by American to FedEx
require the incurrence by American of more than nominal expense.
(b) American will provide to FedEx a supplemental type certificate (a
"STC") and the substantiating data covering any modification of an Aircraft
that is delivered to FedEx by American pursuant to this Agreement if that
modification is designed by American. FedEx may use such STC to make the same
modification covered by the STC to any other McDonnell Douglas Model MD-11
aircraft owned and operated by FedEx. American will not charge FedEx for the
use of such a STC by FedEx on any of FedEx's McDonnell Douglas Model MD-11
aircraft. AMERICAN SHALL NOT BE DEEMED TO MAKE OR HAVE MADE AND DISCLAIMS, AND
FEDEX SHALL ACKNOWLEDGE AND CONFIRM THAT AMERICAN HAS NOT MADE, ANY
REPRESENTATIONS, WARRANTIES OR GUARANTIES OF ANY KIND WHATSOEVER, EXPRESS OR
IMPLIED, OR THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT OR OTHER RIGHT OF ANY
THIRD PARTY CONCERNING ANY STC OR ANY MODIFICATION COVERED BY ANY STC.
ARTICLE 17
MISCELLANEOUS
Section 17.01. Notices. Unless otherwise specified in writing by
the affected Party, all notices, approvals, requests, consents and other
communications given pursuant to this Agreement shall be in writing and shall
be deemed effective when received if hand-delivered, sent by facsimile (which
facsimile shall be confirmed by the executed counterpart thereof being sent by
another means for giving notice specified herein), Federal Express priority
service (except for notices sent relating to defaults or Events of Default
under this Agreement or with respect to the Put Options or the Purchase
Options, which may be sent by any courier that provides a written confirmation
of delivery), or sent by United States certified or registered mail, addressed
as follows:
If to American: American Airlines, Inc.
4333 Amon Carter Boulevard, MD 5566
Fort Worth, Texas 76155
Attention: Vice President Corporate and Fleet Planning
Telephone No. (817) 967-1227
Facsimile No. (817) 967-2199
-56-
<PAGE> 63
If to FedEx: Federal Express Corporation
2005 Corporate Avenue
Memphis, Tennessee 38132
Attention: Vice President, Fleet
Development and Acquisitions
Telephone No. (901) 395-3830
Facsimile No. (901) 395-3828
Section 17.02. Exhibits. All exhibits described in this Agreement
shall be deemed to be incorporated and made a part of this Agreement, except
that if there is any inconsistency between this Agreement and the provisions of
any Exhibit, the provisions of this Agreement shall control.
Section 17.03. Assignments. This Agreement, and American's rights
and obligations hereunder, shall not be assignable or delegable by American
without the prior written consent of FedEx, which consent may be withheld in
FedEx's sole discretion; provided, however, that American may assign its rights
and delegate its obligations under this Agreement to another Affiliate of AMR
Corporation without FedEx's consent so long as American shall remain primarily
liable for the obligations under this Agreement, with such continuing
obligations to be evidenced by such agreements and instruments as FedEx may
reasonably request. American acknowledges and agrees that FedEx, one of
FedEx's subsidiaries or a financial institution or other entity may be
designated by FedEx as the contracting party with American hereunder and that
this Agreement may be assigned by FedEx to any of such said entities without
restriction and upon written notice to American so long as FedEx shall remain
primarily liable for its obligations under this Agreement, with such continuing
obligations to be evidenced by such agreements and instruments as American may
reasonably request.
Section 17.04. No Offset. The amounts payable by either Party to
the other Party under this Agreement shall be absolute and unconditional and
shall not be subject to any abatement, reduction, set off, defense,
counterclaim or recoupment of or by the Party obligated to make such payment as
a result of any claim, cause of action or other rights that such Party may have
against the other Party.
Section 17.05. Binding Effect. This Agreement and the rights and
obligations of the Parties hereunder, shall be binding upon and inure to the
benefit of each of the Parties, their respective permitted successors, assigns
and legal representatives.
Section 17.06. Applicable Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York,
without regard to the laws of conflict of laws of the State of New York.
-57-
<PAGE> 64
Section 17.07. Entire Agreement. This Agreement shall constitute
the entire agreement between the Parties with respect to the transactions
contemplated herein and shall not in any manner be supplemented, amended or
modified except by a written instrument executed on behalf of each of the
Parties by their duly authorized representatives.
Section 17.08. Expenses. Each of the Parties hereto shall be
responsible for its own costs and expenses incurred in connection with the
negotiation, preparation and execution of this Agreement.
Section 17.09. Counterparts. This Agreement may be executed in
separate counterparts, each of which when so executed shall be deemed to be an
original and which, taken together, shall constitute one and the same
instrument.
Section 17.10. Brokers' Commissions. Each of FedEx and American
represent to the other Party that each has negotiated this Agreement directly
with the other and that no brokers are entitled to a commission as a result of
their actions. FedEx and American agree to indemnify and hold one another
harmless from and against all claims, demands, liabilities, damages, losses or
judgments which may be suffered by the other and which arise out of the actions
of or employment by the other with any agent or broker.
Section 17.11. No Remedy Exclusive. Except as expressly set forth
herein, no remedy herein conferred upon or reserved to a Party herein is
intended to be exclusive of any other available remedy or remedies, but each
and every such remedy shall be cumulative and in addition to every other remedy
given under this Agreement or now or hereafter existing at law, in equity or by
statute. Except as expressly set forth herein, no delay or omission to
exercise any right or power accruing upon any default shall impair any such
right or power or be construed to be a waiver thereof, but any such right and
power may be exercised from time to time and as often as may be deemed
expedient. In order to entitle a Party to exercise any remedy reserved to it
in this Agreement, it shall not be necessary to give any notice other than such
notice as may be herein expressly required.
Section 17.12. Severability. If any provision of this Agreement or
any application of any provision of this Agreement to any person or
circumstances shall be invalid or unenforceable to any extent, the remainder of
this Agreement and the application of that provision to other persons or
circumstances shall not be affected by the invalidity or unenforceability of
the provision generally or as to any person or circumstance. The other
provisions of this Agreement shall be enforced to the greatest extent permitted
by applicable law and in a manner to give effect to the intent of the Parties
to the greatest extent possible.
Section 17.13. Survival of Provisions. The rights, benefits and
obligations of the Parties under Section 3.09, Section 3.10, Article 5, Article
8, Article 10, Article
-58-
<PAGE> 65
11, Article 12 and Article 13 shall survive the completion of performance of
this Agreement and its termination or expiration and continue in full force and
effect thereafter in accordance with their respective terms.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
-59-
<PAGE> 66
IN WITNESS WHEREOF, American and FedEx do hereby execute this
Agreement on the day and year first above written.
FEDERAL EXPRESS CORPORATION
By: /S/ James R. Parker
Name: James R. Parker
Title: Vice President-Fleet Development &
Acquisitions
AMERICAN AIRLINES, INC.
By: /S/ Jeffery M. Jackson
Name: Jeffery M. Jackson
Title: VicePresident-Corporate & Fleet Planning
<PAGE> 67
EXHIBIT A
TO THE AIRCRAFT SALES AGREEMENT BETWEEN
FEDERAL EXPRESS CORPORATION ("FEDEX") AND
AMERICAN AIRLINES, INC. ("AMERICAN")
DATED APRIL 7, 1995 (THE "AGREEMENT")
AIRCRAFT SUBJECT TO AIRCRAFT PURCHASE AGREEMENT
The McDonnell Douglas Model MD-11 aircraft bearing the U.S.
Registration Numbers, Manufacturer's Serial Numbers, American Nose Numbers and
American Fuselage or Line Numbers set forth below are the Aircraft subject to
the Agreement.
<TABLE>
<CAPTION>
REGISTRATION MANUFACTURER'S NOSE FUSELAGE OR
NUMBER SERIAL NUMBER NUMBER LINE NUMBER
---------------- ----------------- ------ --------------
<S> <C> <C> <C>
N1750B 48419 1AA 450
N1751A 48420 1AB 451
N1752K 48421 1AC 452
N1753 48487 1AD 469
N1754 48489 1AE 492
N1755 48490 1AF 499
N1756 48491 1AG 503
N1757A 48505 1AH 462
N1758B 48527 1AJ 504
N1759 48481 1AK 482
N1760A 48550 1AM 526
N1761R 48551 1AN 527
N1762B 48552 1AP 530
N1763 48553 1AR 531
N1764B 48554 1AS 535
N1765B 48596 1AT 537
N1766A 48597 1AU 540
N1767A 48598 1AV 550
N1768D 48436 1AL 483
</TABLE>
A-1
<PAGE> 68
EXHIBIT B
TO THE AIRCRAFT SALES AGREEMENT BETWEEN
FEDERAL EXPRESS CORPORATION ("FEDEX")
AND
AMERICAN AIRLINES, INC. ("AMERICAN")
DATED APRIL 7, 1995 (THE "AGREEMENT")
AIRCRAFT
DELIVERY CERTIFICATE
This Aircraft Delivery Certificate is given by American Airlines, Inc.
("American") and Federal Express Corporation ("FedEx") pursuant to the
Agreement. Any capitalized term used herein and not expressly defined herein
shall have the meaning ascribed to it in the Agreement.
TENDER OF THE AIRCRAFT BY AMERICAN.
American hereby tenders to FedEx for Delivery pursuant to the terms
and subject to the conditions of the Agreement, the McDonnell Douglas Model
MD-11 Aircraft described below:
Registration Number: N__________________
Manufacturer's Serial Number: ________________
American Fuselage or Line Number: ______________________
American Nose Number: _______________________,
along with three (3) General Electric Company CF6-80C2D1F engines, bearing
Manufacturer's Serial Numbers:
Position (1) ________________
Position (2) ________________
Position (3) ________________,
(the "Delivered Aircraft") with the operating times and cycles as accumulated
on the Aircraft up to the time of Delivery and the EGT margins as of the last
test cell run accomplished immediately following the latest Engine Maintenance
accomplished on each such Engine as described on
B-1
<PAGE> 69
Attachment 1 hereto and made a part hereof, together with the Aircraft Records,
listed on Attachment 2 hereto and made a part hereof. American hereby restates
and confirms each of its representations and warranties set forth in Section
5.01 of the Agreement.
As of the date of this Certificate, (i) the high-time and high-cycle
highest flight cycle Airframe not yet delivered by American to FedEx is the
Airframe bearing U.S. Registration No. __________________, and Manufacturer's
Serial No. _________________ and Nose No. ____________________, and (ii) such
Airframe ____________________ flight hours and had _______________ flight
cycles since it was new.
Tender of the Aircraft is made by American at
__________________________, at _______/a.m./p.m. ____________ time, on this
____ day of _____________________, _____.
AMERICAN AIRLINES, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
ACCEPTANCE OF THE AIRCRAFT BY FEDEX.
FEDERAL EXPRESS CORPORATION ("FedEx") hereby accepts and acknowledges
receipt of the Delivered Aircraft from American, in accordance with the terms
and conditions of the Agreement, at ______________________, at
_________/a.m./p.m. ____________ time, on ________________, __________,
together with the Aircraft Records listed in Attachment 2 hereto and made a
part hereof.
By its execution and delivery of this Certificate, FedEx hereby (i)
restates and confirms each of its representations and warranties set forth in
Section 5.03 of the Agreement and (ii) acknowledges and agrees that upon
delivery by American to FedEx, except as to those
B-2
<PAGE> 70
discrepancies expressly set forth in Attachment 1 and Attachment 3 to this
certificate, the Delivered Aircraft was in Delivery Condition.
FEDERAL EXPRESS CORPORATION
By:__________________________________
Name:________________________________
Title:_______________________________
DISCREPANCIES FROM DELIVERY CONDITION.
American and FedEx hereby agree that the remaining discrepancy or
discrepancies of the Delivered Aircraft from the Delivery Condition, if any,
and the manner of, and deadline for, the correction of any such discrepancy or
discrepancies are as set forth in Attachment 3 hereto.
Dated: ______________________, __________.
AMERICAN AIRLINES, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
FEDERAL EXPRESS CORPORATION
By:_______________________________
Name:_____________________________
Title:____________________________
B-3
<PAGE> 71
ATTACHMENT 1 TO AIRCRAFT DELIVERY CERTIFICATE
AIRCRAFT HOURS AND CYCLES
AS OF_________________,________
MCDONNELL DOUGLAS MODEL MD-11 AIRCRAFT
REGISTRATION NUMBER: N_______; FUSELAGE OR LINE NUMBER ____;
MANUFACTURER'S SERIAL NUMBER ____________ AND NOSE NUMBER ___.
A. AIRFRAME:
<TABLE>
<CAPTION>
TO FIRST
TOTAL SINCE TO NEXT INTERVAL TO SECOND INTERVAL
NEWDELIVERY C CHECK ITEMS ITEMS
<S> <C> <C> <C> <C>
FLIGHT HOURS __________ __________ _____________ ______________
FLIGHT CYCLES __________ __________ _____________ ______________
CALENDAR TIME __________ __________ _____________ ______________
</TABLE>
B. GENERAL ELECTRIC COMPANY CF6-80C2D1F ENGINES:
<TABLE>
<CAPTION>
TOTAL FLIGHT TOTAL CYCLES TOTAL CYCLES TOTAL CYCLES
ENGINE MANUFACTURER'S TOTAL FLIGHT HOURS SINCE SINCE LAST SINCE LAST SINCE LAST
POSITION SERIAL NUMBER CYCLES SINCE NEW NEW HSM HSC EHM
<S> <C> <C> <C> <C> <C> <C>
1 ____________ __________ __________ ___________ __________ ___________
2 ____________ __________ __________ ___________ __________ ___________
3 ____________ __________ __________ ___________ __________ ___________
</TABLE>
The EGT margin of each of the Engines after (i) its last test cell run
accomplished immediately following the latest Engine Maintenance accomplished
on such Engine and (ii) the Power Assurance Run Test conducted pursuant to
Section 3.02(a) of the Agreement was as follows:
B-4
<PAGE> 72
<TABLE>
<CAPTION>
EGT MARGIN FOLLOWING EGT MARGIN FOLLOWING
ENGINE POSITION LAST TEST CELL RUN POWER ASSURANCE RUN TEST
- - --------------- ------------------ ------------------------
<S> <C> <C>
No. 1 _______ degrees Celsius _______ degrees Celsius
No. 2 _______ degrees Celsius _______ degrees Celsius
No. 3 _______ degrees Celsius _______ degrees Celsius
</TABLE>
The flight cycles or flight hours remaining to the limitation on each
life limited part in each Engine are as set forth in Annex 1 to this Attachment
1 to the Aircraft Delivery Certificate.
C. LANDING GEAR
<TABLE>
<CAPTION>
TOTAL
MANUFACTURER'S FLIGHT CYCLES TOTAL DAYS TOTAL CYCLES TO TOTAL DAYS TO
POSITION SERIAL NUMBER SINCE NEW SINCE NEW NEXT OVERHAUL NEXT OVERHAUL
-------- ------------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Nose _______________ __________ ___________ ____________ _________
Left Main _______________ __________ ___________ ____________ _________
Center Main _______________ __________ ___________ ____________ _________
Right Main _______________ __________ ___________ ____________ _________
</TABLE>
D. AUXILIARY POWER UNIT
APU INSTALLED IN THE DELIVERED AIRCRAFT:
MANUFACTURER'S SERIAL NUMBER _____________________
NUMBER OF FLIGHT CYCLES SINCE NEW _____________________
NUMBER OF FLIGHT HOURS SINCE NEW _____________________
B-5
<PAGE> 73
LIFE LIMITED PARTS CONTAINED IN SUCH APU:
<TABLE>
<CAPTION>
MANUFACTURER'S TOTAL FLIGHT TOTAL FLIGHT NUMBER OF CYCLES OR
SERIAL CYCLES SINCE HOURS SINCE HOURS TO FIRST LIFE
PART DESCRIPTION NUMBER NEW NEW LIMITED PART LIMITATION
- - ---------------------------------------- -------------- ----------- ------------ -----------------------
<S> <C> <C> <C> <C>
First Stage Low Pressure Compressor ______________ ___________ ____________ _______________________
Second Stage Low Pressure Compressor ______________ ___________ ____________ _______________________
Third Stage Low Pressure Compressor ______________ ___________ ____________ _______________________
High Pressure Turbine ______________ ___________ ____________ _______________________
First Stage Low Pressure Turbine ______________ ___________ ____________ _______________________
Second Stage Low Pressure Turbine ______________ ___________ ____________ _______________________
</TABLE>
Dated:__________________________, _________.
AMERICAN AIRLINES, INC.
By: ________________________________
Name: ______________________________
Title: _____________________________
B-6
<PAGE> 74
ANNEX 1 TO ATTACHMENT 1 TO AIRCRAFT
DELIVERY CERTIFICATE
FLIGHT CYCLES AND FLIGHT HOURS
REMAINING ON LIFE LIMITED PARTS ON
ENGINES
<TABLE>
<CAPTION>
ENGINE NO. 1 ENGINE NO. 2 ENGINE NO. 3
FLIGHT HOURS FLIGHT HOURS FLIGHT HOURS
PART DESCRIPTION OR CYCLES OR CYCLES OR CYCLES
<S> <C> <C> <C>
FAN ROTOR PARTS
- - ---------------
Disk, Fan Rotor Stage 1 ___________ ____________ ___________
Spool, Fan Rotor Stages 2-5 ___________ ___________ ___________
Fan, Forward Shaft ___________ ___________ ___________
Fan, Mid-Shaft ___________ ___________ ___________
HIGH PRESSURE
COMPRESSOR ROTOR PARTS
- - ----------------------
Disk, Stage 1 ___________ ___________ ____________
Disk, Stage 2 ___________ ___________ ____________
Disk, Stage 3-9 ___________ ___________ ____________
Disk, Stage 10 ___________ ___________ ____________
Spool/Shaft ___________ ___________ ____________
CDP Seal Disk ___________ ___________ ____________
HIGH PRESSURE
TURBINE ROTOR PARTS
- - -------------------
Disk, Stage 1 ___________ ___________ ____________
Disk, Stage 2 ___________ ___________ ____________
Spacer/Impeller ___________ ___________ ____________
Vane, -Ring Diffuser ___________ ___________ ____________
LOW PRESSURE
TURBINE ROTOR PARTS
- - -------------------
Disk, Stage 1 ___________ ___________ ____________
Disk, Stage 2 ___________ ___________ ____________
Disk, Stage 3 ___________ ___________ ____________
Disk, Stage 4 ___________ ___________ ____________
Disk, Stage 5 ___________ ___________ ____________
Shaft, LPTR ___________ ___________ ____________
</TABLE>
B-7
<PAGE> 75
ATTACHMENT 2 TO AIRCRAFT DELIVERY CERTIFICATE
AIRCRAFT RECORDS AND ENGINE RECORDS
DELIVERED WITH DELIVERED
AIRCRAFT
The following Aircraft Records (as defined in the Agreement) were
delivered with the Delivered Aircraft:
DRAWINGS/CHARTS:
1. Fuel Distribution Chart, Compass Correction Card, Major Avionic List,
Drawings: FDM1062 or FDM1058, DDM1079 or DDM1080, FDM1063 or FDM1072
RECORDS:
1. Aircraft Flight Log (includes Aircraft, Engines, Components) with
required certification
2. Heavy Maintenance Checks - History Log
3. Deferred Items List (Damage Log and FMR)
4. Last Bill-of-Work Prior to Delivery
5. Report 182Y (with required certification):
- Time-Control Components with 3500 Hrs. or less to go and
calendar
6. Report 188Y (with required certification):
- Time Control Components by Cycles to go
7. Report 190Y (with required certification):
- Airframe Time Control Components by Aircraft and Position
- Engine Item Time Control Components by Aircraft and Position
- Airframe Calendar Control Components by Aircraft and
Position
8. Report ET026 (with required certification):
- Component Time Control Status by S/N of Parts
9. Report ET049 (with required certification):
- Component Time - Special Item by RSPAM
10. AD Summary Report with certification per attached Appendix 1,
including accomplishment documents for the last
action taken and stating specific method of compliance and any
alternate means of compliance, if any, including
FAA approval
11. Report EC014:
- Modification History by AD/FAR Number
12. Report EC014:
- Modification History by AA Job Number and cross reference
13. Report EC015:
- Modification History by Service Bulletin Number - Limited to
AD/FAR
14. Report EC015:
- Modification History by Service Bulletin Number
15. Report D065:
- Engine Life Limited Parts/Life Limited Parts
16. Report D066 (with required certification):
- Engine Time Monitored Parts (including tags and tear-down
reports)
17. Report CML011:
- Engine Condition Monitoring - Last Run Before Delivery
18. Weight and Balance Report
19. Landing Gear Records
B-8
<PAGE> 76
20. Component Shop Records (including tags and tear-down reports)
21. APU Records
22. Engine Records
23. Aircraft Airframe Records
24. Accident Report or Accident-Free Certification Letter
ENGINE RECORDS:
1. Aircraft Flight Log (includes Aircraft, Engines, Components) with
certification per attached Appendix 1
2. Report 190Y (with required certification):
- Engine Item Time Control Components by Aircraft and Position
3. Report D065 (with required certification):
- Engine Life Limited Parts/Life Limited Parts
4. Airworthiness Directive Summary Report (with required certification)
B-9
<PAGE> 77
ATTACHMENT 3 TO AIRCRAFT DELIVERY CERTIFICATE
DISCREPANCIES OF DELIVERED AIRCRAFT FROM DELIVERY CONDITION
Any capitalized term used herein and not expressly defined herein
shall have the meaning ascribed to it in the Agreement.
The following remaining discrepancy or discrepancies from Delivery
Condition exist with respect to the Delivered Aircraft (as defined in the
Aircraft Delivery Certificate of which this Attachment 3 is a part):
B-10
<PAGE> 78
American and FedEx have agreed that the foregoing discrepancy or
discrepancies will be corrected in the following manner and by the following
date or dates:
Dated: __________________________, _______.
AMERICAN AIRLINES, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
FEDERAL EXPRESS CORPORATION
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE> 79
EXHIBIT C
TO THE AIRCRAFT SALES AGREEMENT BETWEEN
FEDERAL EXPRESS CORPORATION ("FEDEX") AND
AMERICAN AIRLINES, INC. ("AMERICAN")
DATED APRIL 7, 1995 (THE "AGREEMENT")
WARRANTY BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS:
THAT the undersigned, [INSERT TRANSFEROR'S CORPORATE NAME], a Delaware
Corporation ("Transferor"), has the power and right to convey the legal and
beneficial title to that:
[NOTE: INSERT THE FOLLOWING LANGUAGE IF THE WARRANTY BILL OF SALE RELATES TO
AN AIRCRAFT:] [certain McDonnell Douglas MD-11 aircraft bearing Federal
Aviation Administration Registration Number N_________ and Manufacturer's
Serial Number _______________, together with three (3) General Electric Company
CF6-80C2D1F turbofan jet engines [installed thereon], bearing Manufacturer's
Serial Numbers ____________________, _____________________, and
__________________________, together with all fixed equipment, parts,
components and accessories installed on said aircraft and engines.]
[NOTE: INSERT THE FOLLOWING LANGUAGE IF THE WARRANTY BILL OF SALE RELATES TO A
SPARE ENGINE, [* ], A REPLACEMENT ENGINE OR A DELAYED DELIVERY
ENGINE:] [certain General Electric Company CF6-80C2D1F turbofan jet engine,
bearing Manufacturer's Serial Number ____________________, together with all
fixed equipment, parts, components and accessories installed on said engine.]
THAT for and in consideration of the sum of Ten Dollars ($10) and
other valuable consideration, Transferee does, this ____ day of
________________, _________, grant, convey, transfer, bargain, sell, deliver
and set over all of its rights, title and interests to and in the above
described [aircraft, engines], [NOTE: INSERT THE FOREGOING WORD IF THE WARRANTY
BILL OF SALE RELATES TO AN AIRCRAFT] [engine] [NOTE: INSERT THE FOREGOING IF
THE WARRANTY BILL OF SALE RELATES TO AN ENGINE ALONE.], fixed equipment, parts,
components and accessories unto [INSERT TRANSFEREE'S CORPORATE NAME], a
Delaware corporation ("Transferee").
Transferor hereby warrants to Transferee, its successors and assigns,
that there is hereby conveyed to Transferee title to the aforesaid [aircraft,
engines]] [NOTE: INSERT THE FOREGOING WORD IF THE WARRANTY BILL OF SALE RELATES
TO AN AIRCRAFT], [engine,] [NOTE: INSERT THE FOREGOING IF THE WARRANTY BILL OF
SALE RELATES TO AN ENGINE ALONE.] fixed equipment, parts, components and
accessories free and clear of all liens, encumbrances and rights of others
arising by, through or under Transferor and that it shall warrant and defend
such title forever against all claims and demands whatsoever; and that this
bill of sale is made and delivered pursuant to the provisions of the Aircraft
Sales Agreement between Transferor and Transferee, dated April 7, 1995.
_______________________
*Blank space contained information which has been filed separately with the
Securities and Exchange Commission pursuant to rule 24b-2 under the Securities
Exchange Act of 1934.
C-1
<PAGE> 80
IN WITNESS WHEREOF, Transferor has executed this Warranty Bill of Sale
on the _____ day of __________________________, __________.
[INSERT TRANSFEROR'S CORPORATE NAME]
By: ___________________________
Name: _________________________
Title: ________________________
C-2
<PAGE> 81
EXHIBIT D
TO THE AIRCRAFT SALES AGREEMENT BETWEEN
FEDERAL EXPRESS CORPORATION ("FEDEX")
AND
AMERICAN AIRLINES, INC. ("AMERICAN")
DATED APRIL 7, 1995 (THE "AGREEMENT")
DATA RELATING TO THE AIRCRAFT AND
ENGINES TO BE DELIVERED BY AMERICAN
TO FEDEX PURSUANT TO ARTICLE 6 OF THE
AGREEMENT
Originals or copies of the following items of Data will be supplied in
accordance with Section 6.02(d) on the specified medium or on microfiche,
microfilm, paper, disk or any then current medium or a combination of these
media, with revision updates revised as of the applicable Delivery Dates. The
required certifications for Aircraft time and cycles, life-limited parts,
Airworthiness Directives and hard-time components for Airframes and Engines
shall be signed by a manager or higher management personnel in the
Airworthiness, Quality Assurance, Quality Control or Aircraft/Powerplant
Records department of American. Any required certification of any item of Data
shall be in the form attached as Appendix 1 to this Exhibit D.
MANUALS:
1. FAA Approved Aircraft Flight Manual
2. Aircraft Maintenance Manual (Microfilm)
3. Aircraft Overhaul Manual (Microfilm)
4. Aircraft Wiring Manual (Microfilm)
5. Aircraft Structure Repair Manual (Microfilm)
6. Aircraft Illustrated Parts Catalog (Microfilm)
7. Aircraft Weight and Balance Manual, Loading Manual, Basic & Supplement
8. McDonnell Douglas Procedure for Actual Weighing/Balancing of MD-11
Series Aircraft
9. Aircraft Minimum Equipment List & Configuration
10. McDonnell Douglas Aircraft Readiness Log
11. McDonnell Douglas Aircraft Detail Specification
12. CF6 Maintenance Manual (Microfilm-See Aircraft MM)
13. CF6 Overhaul Manual (Microfilm)
14. CF6 Illustrated Parts Catalog (Microfilm)
15. CF6 Service Bulletin (Microfilm)
16. Maintenance Check Manual (Microfilm)
17. Engineering Specification Maintenance Manual
18. AA Part Number versus Mfgr's Part Number (Fiche)
D-1
<PAGE> 82
DOCUMENTS:
1. Certificate of Airworthiness (on Aircraft)
2. Certificate of Registration (on Aircraft)
3. Sanitary Certificate (on Aircraft)
4. [Radio Station License (on Aircraft)]
DRAWINGS/CHARTS:
1. Fuel Distribution Chart, Compass Correction Card, Major Avionic List,
Drawings: FDM1062 or FDM1058, DDM1079 or DDM1080, FDM1063 or FDM1072
RECORDS:
1. Aircraft Flight Log (includes Aircraft, Engines, Components) with
certification per attached Appendix 1
2. Heavy Maintenance Checks - History Log
3. Deferred Items List (Damage Log and FMR)
4. Last Bill-of-Work Prior to Delivery
5. Report 182Y (with certification per attached Appendix 1):
- Time-Control Components with 3500 Hrs. or less to go and
calendar
6. Report 188Y (with certification per attached Appendix 1):
- Time Control Components by Cycles to go
7. Report 190Y (with certification per attached Appendix 1):
- Airframe Time Control Components by Aircraft and Position
- Engine Item Time Control Components by Aircraft and Position
- Airframe Calendar Control Components by Aircraft and
Position
8. Report ET026 (with certification per attached Appendix 1):
- Component Time Control Status by S/N of Parts
9. Report ET049 (with certification per attached Appendix 1):
- Component Time - Special Item by RSPAM
10. AD Summary Report with certification per attached Appendix 1,
including accomplishment documents for the last action taken and
stating specific method of compliance and any alternate means of
compliance, if any, including FAA approval
11. Report EC014:
- Modification History by AD/FAR Number
12. Report EC014:
- Modification History by AA Job Number and cross reference
13. Report EC015:
- Modification History by Service Bulletin Number - Limited to
AD/FAR
14. Report EC015:
- Modification History by Service Bulletin Number
15. Report D065:
- Engine Life Limited Parts/Life Limited Parts
16. Report D066 (with certification per attached Appendix 1):
- Engine Time Monitored Parts (including tags and tear-down
reports)
17. Report CML011:
- Engine Condition Monitoring - Last Run Before Delivery
18. Weight and Balance Report
19. Landing Gear Records
20. Component Shop Records (including tags and tear-down reports)
D-2
<PAGE> 83
21. APU Records
22. Engine Records
23. Aircraft Airframe Records
24. Accident Report or Accident-Free Certification Letter
ENGINE RECORDS:
1. Aircraft Flight Log (includes Aircraft, Engines, Components) with
certification per attached Appendix 1
2. Report 190Y (with certification per attached Appendix 1):
- Engine Item Time Control Components by Aircraft and Position
3. Report D065 (with certification per attached Appendix 1):
- Engine Life Limited Parts/Life Limited Parts
4. Airworthiness Directive Summary Report (with the certification per
attached Appendix 1)
D-3
<PAGE> 84
APPENDIX 1 TO EXHIBIT D
AIRCRAFT REGISTRATION NO. ____________
MANUFACTURER'S SERIAL NO. __________
DATE:__________________, ________
[TITLE]
I HEREBY CERTIFY THAT THIS IS A TRUE AND ACCURATE RECORD TO THE BEST OF MY
KNOWLEDGE.
_________________________________ ___________________________________
SIGNATURE DATE
_________________________________ ___________________________________
PRINTED NAME TITLE
AIR CARRIER
_________________________________ ___________________________________
COMPANY NAME COMPANY CERTIFICATE TYPE
AA4A025A
_________________________________
COMPANY CERTIFICATE NUMBER
D-4
<PAGE> 85
EXHIBIT E
TO THE AIRCRAFT SALES AGREEMENT BETWEEN
FEDERAL EXPRESS CORPORATION ("FEDEX")
AND
AMERICAN AIRLINES, INC. ("AMERICAN")
DATED APRIL 7, 1995 (THE "AGREEMENT")
DESIGNATION OF AN AIRFRAME FOR DELIVERY
ON SCHEDULED DELIVERY DATE
Any capitalized term used herein shall have the meaning ascribed to it
in the Agreement.
1. The Scheduled Delivery Date for which the Designated Airframe
(as defined below) is being designated is ________________________________.
2. The following are the identification numbers of the Airframe
designated for delivery on the Scheduled Delivery Date set forth in Paragraph
1. above (the "Designated Airframe"):
FAA Registration Number: N_____________________
Manufacturer's Serial Number: _________________________________
Nose Number: _______________________
Fuselage or Line Number: ______________________________
3. The total flight hours and flight cycles on the Designated
Airframe since delivery of the Designated Airframe by the Manufacturer to
American and the number of flight hours and flight cycles remaining on the
Designated Airframe to certain C Checks as of the date and time of this
Designation are as follows:
<TABLE>
<CAPTION>
TOTAL SINCE TO NEXT TO FIRST INTERVAL TO SECOND INTERVAL
NEW C CHECK ITEMS ITEMS
<S> <C> <C> <C> <C>
FLIGHT HOURS ___________ ___________ ___________ ___________
FLIGHT CYCLES ___________ ___________ ___________ ___________
CALENDAR TIME ___________ ___________ ___________ ___________
</TABLE>
4. The total flight hours and flight cycles remaining to the next
major overhaul of each of the Gears that are installed on the Designated
Airframe at the date and time of this Designation are as follows:
E-1
<PAGE> 86
<TABLE>
<CAPTION>
TOTAL
MANUFACTURER'S FLIGHT CYCLES TOTAL DAYS TOTAL CYCLES TO TOTAL DAYS TO
POSITION SERIAL NUMBER SINCE NEW SINCE NEW NEXT OVERHAUL NEXT OVERHAUL
-------- ------------- --------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Nose ____________ __________ ___________ ____________ ___________
Left Main ____________ __________ ___________ ____________ ___________
Center Main _____________ __________ ___________ ____________ ___________
Right Main _____________ __________ ___________ ____________ ___________
</TABLE>
5. The total flight hours or flight cycles since new for (x) the
APU installed on the Designated Airframe and (y) the Life Limited Parts
contained in such APU and the flight cycles or flight hours remaining to the
first limit of the Life Limited Parts contained in the APU installed on the
Designated Airframe at the date and time of this Designation are as follows:
APU INSTALLED ON THE DESIGNATED AIRFRAME:
MANUFACTURER'S SERIAL NUMBER _____________________
NUMBER OF FLIGHT CYCLES SINCE NEW _____________________
NUMBER OF FLIGHT HOURS SINCE NEW _____________________
LIFE LIMITED PARTS CONTAINED IN SUCH APU:
<TABLE>
<CAPTION>
MANUFACTURER'S TOTAL FLIGHT TOTAL FLIGHT NUMBER OF CYCLES OR
SERIAL CYCLES SINCE HOURS SINCE HOURS TO FIRST LIFE
PART DESCRIPTION NUMBER NEW NEW LIMITED PART LIMITATION
- - ---------------------------------- -------------- ------------ ----------- -----------------------
<S> <C> <C> <C> <C>
First Stage Low Pressure Compressor ______________ ____________ ___________ _______________________
Second Stage Low Pressure Compressor ______________ ____________ ___________ _______________________
Third Stage Low Pressure Compressor ______________ ____________ ___________ _______________________
High Pressure Turbine ______________ ____________ ___________ _______________________
First Stage Low Pressure Turbine ______________ ____________ ___________ _______________________
Second Stage Low Pressure Turbine ______________ ____________ ___________ _______________________
</TABLE>
6. The estimated usage of the Aircraft from the date of this
Designation until the Scheduled Delivery Date is __________________ flight
cycles and _____________ flight hours.
This Designation is made by American on the ____ day of _____________,
_____ at _________, [a.m.] [p.m.], _______________________ time.
E-2
<PAGE> 87
AMERICAN AIRLINES, INC.
By: ________________________
Name: ______________________
Title: _____________________
E-3
<PAGE> 88
EXHIBIT F
TO THE AIRCRAFT SALES AGREEMENT BETWEEN
FEDERAL EXPRESS CORPORATION ("FEDEX")
AND
AMERICAN AIRLINES, INC. ("AMERICAN")
DATED APRIL 7, 1995 (THE "AGREEMENT")
DESIGNATION OF A SUBSTITUTE AIRFRAME FOR
DELIVERY ON SCHEDULED DELIVERY
DATE
1. This Designation of a Substitute Airframe for delivery on a
Scheduled Delivery Date (this "Change Designation") is being provided by
American to FedEx in order to designate an Airframe for delivery on the
Scheduled Delivery Date indicated below in substitution for an Airframe
previously designated by American for delivery to FedEx on such Scheduled
Delivery Date (the "Previously Designated Airframe"). Any capitalized term
used herein and not expressly defined herein shall have the meaning ascribed to
it in the Agreement.
2. The Scheduled Delivery Date for which the Previously
Designated Airframe was to be delivered and for which the Substitute Airframe
(as defined below) is now being designated for delivery and sale to FedEx is
________________________________.
3. The following are the identification numbers of the Previously
Designated Airframe:
FAA Registration Number: N_________________________
Manufacturer's Serial Number: _______________________________
Nose Number: __________________________
Fuselage or Line Number: ___________________________
4. The following are the identification numbers of the Airframe
being substituted for the Previously Designated Airframe which is hereby
designated for delivery on the Scheduled Delivery Date set forth in Paragraph
2. above in the stead of the Previously Designated Airframe (the "Substitute
Airframe"):
F-1
<PAGE> 89
FAA Registration Number: N__________________________
Manufacturer's Serial Number: _________________________________
Nose Number: ________________________
Fuselage or Line Number: _________________________
5. The total flight hours and flight cycles on the Substitute
Airframe since delivery of the Substitute Airframe by the Manufacturer to
American and the number of flight hours and flight cycles remaining on the
Substitute Airframe to the certain C Checks as of the date and time of this
Change Designation are as follows:
<TABLE>
<CAPTION>
TOTAL SINCE TO NEXT TO FIRST INTERVAL TO SECOND INSPECTION
NEW C CHECK ITEMS ITEMS
<S> <C> <C> <C> <C>
FLIGHT HOURS ___________ ___________ ___________ ___________
FLIGHT CYCLES ___________ ___________ ___________ ___________
CALENDAR TIME ___________ ___________ ___________ ___________
</TABLE>
6. The total flight hours and flight cycles remaining to the next
major overhaul of each of the Gears that are installed on the Substitute
Airframe at the date and time of this Designation are as follows:
<TABLE>
<CAPTION>
TOTAL
MANUFACTURER'S FLIGHT CYCLES TOTAL DAYS TOTAL CYCLES TO TOTAL DAYS TO
POSITION SERIAL NUMBER SINCE NEW SINCE NEW NEXT OVERHAUL NEXT OVERHAUL
-------- ------------- --------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Nose ______________ _________ ___________ ___________ _________
Left Main ______________ _________ ___________ ___________ _________
Center Main ______________ _________ ___________ ___________ _________
Right Main ______________ _________ ___________ ___________ _________
</TABLE>
7. The total flight hours or flight cycles since new for (x) the
APU installed on the Substitute Airframe and (y) the Life Limited Parts
contained in such APU and the flight cycles or flight hours remaining to the
first limit of the Life Limited Parts contained in the APU installed on the
Substitute Airframe at the date and time of this Change Designation are as
follows:
F-2
<PAGE> 90
APU INSTALLED ON THE SUBSTITUTE AIRFRAME:
MANUFACTURER'S SERIAL NUMBER _____________________
NUMBER OF FLIGHT CYCLES SINCE NEW _____________________
NUMBER OF FLIGHT HOURS SINCE NEW _____________________
LIFE LIMITED PARTS CONTAINED IN SUCH APU:
<TABLE>
<CAPTION>
MANUFACTURER'S TOTAL FLIGHT TOTAL FLIGHT NUMBER OF CYCLES OR
SERIAL CYCLES SINCE HOURS SINCE HOURS TO FIRST LIFE
PART DESCRIPTION NUMBER NEW NEW LIMITED PART LIMITATION
- - ---------------------------------- -------------- ------------ ----------- -----------------------
<S> <C> <C> <C> <C>
First Stage Low Pressure Compressor ______________ ____________ ___________ _______________________
Second Stage Low Pressure Compressor ______________ ____________ ___________ _______________________
Third Stage Low Pressure Compressor ______________ ____________ ___________ _______________________
High Pressure Turbine ______________ ____________ ___________ _______________________
First Stage Low Pressure Turbine ______________ ____________ ___________ _______________________
Second Stage Low Pressure Turbine ______________ ____________ ___________ _______________________
</TABLE>
This Change Designation is made by American on the ____ day of
_____________, _____ at _________, [a.m.] [p.m.], _______________________ time.
AMERICAN AIRLINES, INC.
By: ________________________
Name: ______________________
Title: _____________________
F-3
<PAGE> 91
EXHIBIT G
TO THE AIRCRAFT SALES AGREEMENT BETWEEN
FEDERAL EXPRESS CORPORATION ("FEDEX")
AND
AMERICAN AIRLINES, INC. ("AMERICAN")
DATED APRIL 7, 1995 (THE "AGREEMENT")
FORM OF
ASSIGNMENT OF ASSIGNABLE MANUFACTURER'S WARRANTIES
In connection with delivery of the Aircraft described in Annex A
hereto, including the Engines conveyed therewith (the "Aircraft") by American
Airlines, Inc. ("American") to Federal Express Corporation ("FedEx"), American
hereby assigns and conveys to FedEx, its successors, assigns and legal
representatives, all of American's right, title and interest in and to any and
all of the manufacturer's, vendor's and other warranties relating to the
Aircraft, including the Engines conveyed therewith (but not with respect to any
Non-Conforming Engine) to the extent, but only to the extent, that such
warranties are assignable without consent of the grantor of any such warranty
or the payment of consideration to the grantor of any such warranty (the
"Warranties") and all rights to enforce, exercise any rights with respect to or
retain any recovery or benefit with respect to the Warranties, except to the
extent that such rights and recoveries relate to work completed or to be
completed by American or any of its affiliates in connection with its
performance of its obligations under the Aircraft Sales Agreement between FedEx
and American dated April 7, 1995 (the "Agreement") prior to or in connection
with the Delivery (as defined in the Agreement) of the Aircraft.
Notwithstanding the foregoing, American does not assign or convey to FedEx any
outstanding claims or rights, whether liquidated or contingent, or know or
unknown, that it may have against the grantor of any of the Warranties arising
prior to the tender of the Aircraft by American for Delivery pursuant to the
Agreement.
Dated : ______________, _________.
AMERICAN AIRLINES, INC.
By: ___________________________
Name:__________________________
Title:_________________________
G-1
<PAGE> 92
ANNEX A TO ASSIGNMENT OF ASSIGNABLE
MANUFACTURER'S WARRANTIES
One McDonnell Douglas Model MD-11 Aircraft described below:
Registration Number: N__________________________
Manufacturer's Serial Number: __________________________
American Fuselage or Line Number: ______________________________
American Nose Number: ___________________________________,
along with three (3) General Electric Company CF6-80C2D1F engines, bearing
Manufacturer's Serial Numbers:
Position (1) ____________________
Position (2) ____________________
Position (3) ____________________
G-2
<PAGE> 93
EXHIBIT H
TO THE AIRCRAFT SALES AGREEMENT BETWEEN
FEDERAL EXPRESS CORPORATION ("FEDEX")
AND
AMERICAN AIRLINES, INC. ("AMERICAN")
DATED APRIL 7, 1995 (THE "AGREEMENT")
DESIGNATION OF ENGINES FOR CONVEYANCE ON SCHEDULED DELIVERY DATE
Any capitalized term used in this Designation of Engines for
conveyance on a Scheduled Delivery Date shall have the meaning ascribed to it
in the Agreement unless expressly defined herein.
1. The Scheduled Delivery Date for which the Designated Airframe
(as defined below) is being designated is ________________________________.
2. The following are the identification numbers of the Airframe
designated for delivery on the Scheduled Delivery Date set forth in Paragraph
1. above (the "Designated Airframe"):
FAA Registration Number: N________ Nose Number: _____
Manufacturer's Serial No.: ________________ Fuselage or Line Number: ________
3. The following are the Engines to be conveyed with the Designated
Airframe on the Scheduled Delivery Date set forth in Paragraph 1. above (the
"Designated Engines"):
GENERAL ELECTRIC COMPANY CF6-80C2D1F ENGINES:
<TABLE>
<CAPTION>
TOTAL FLIGHT TOTAL FLIGHT TOTAL CYCLES TOTAL CYCLES TOTAL CYCLES
ENGINE MANUFACTURER'S CYCLES HOURS SINCE SINCE LAST SINCE LAST SINCE LAST
POSITION SERIAL NUMBER SINCE NEW NEW HSM HSC EHM
<S> <C> <C> <C> <C> <C> <C>
1 ____________ __________ ___________ __________ ___________ ___________
2 ____________ __________ ___________ __________ ___________ ___________
3 ____________ __________ ___________ __________ ___________ ___________
</TABLE>
H-1
<PAGE> 94
4. The flight cycles or flight hours remaining to the limitation
on each life limited part in each Engine are as set forth in Annex 1 to this
Designation of Engines for Delivery on Scheduled Delivery Date.
5. The EGT margin of each of the Designated Engines after (i) its
last test cell run accomplished immediately following the latest Engine
Maintenance accomplished on each such Designated Engine and (ii) the Power
Assurance Run Test conducted pursuant to Section 3.02(a) of the Agreement was
as follows:
<TABLE>
<CAPTION>
EGT MARGIN FOLLOWING EGT MARGIN FOLLOWING
ENGINE POSITION LAST TEST CELL RUN POWER ASSURANCE RUN TEST
- - --------------- --------------------------- ------------------------
<S> <C> <C>
No. 1 _______ degrees Celsius _______ degrees Celsius
No. 2 _______ degrees Celsius _______ degrees Celsius
No. 3 _______ degrees Celsius _______ degrees Celsius
</TABLE>
6. As of the date of this Engine Designation, (i) the highest
flight cycle Airframe not yet delivered by American to FedEx is the Airframe
bearing U.S. Registration No. __________________ and Manufacturer's Serial No.
_________________ and (ii) such Airframe had ________________ flight cycles
since it was new.
This Engine Designation is made by American on the ____ day of
_____________, _____ at _________, [a.m.] [p.m.], _______________________ time.
AMERICAN AIRLINES, INC.
By: _____________________________
Name: ___________________________
Title: __________________________
H-2
<PAGE> 95
ANNEX 1 TO
DESIGNATION OF ENGINES FOR DELIVERY ON SCHEDULED DELIVERY DATE
REMAINING FLIGHT CYCLES AND FLIGHT
HOURS REMAINING ON LIFE LIMITED PARTS
ON ENGINES
<TABLE>
<CAPTION>
ENGINE NO. 1 ENGINE NO. 2 ENGINE NO. 3
FLIGHT HOURS FLIGHT HOURS FLIGHT HOURS
PART DESCRIPTION OR CYCLES OR CYCLES OR CYCLES
<S> <C> <C> <C>
FAN ROTOR PARTS
- - ---------------
Disk, Fan Rotor Stage 1 ___________ ____________ ___________
Spool, Fan Rotor Stages 2-5 ___________ ___________ ___________
Fan, Forward Shaft ___________ ___________ ___________
Fan, Mid-Shaft ___________ ___________ ___________
HIGH PRESSURE
COMPRESSOR ROTOR PARTS
- - ----------------------
Disk, Stage 1 ___________ ___________ ____________
Disk, Stage 2 ___________ ___________ ____________
Disk, Stage 3-9 ___________ ___________ ____________
Disk, Stage 10 ___________ ___________ ____________
Spool/Shaft ___________ ___________ ____________
CDP Seal Disk ___________ ___________ ____________
HIGH PRESSURE
TURBINE ROTOR PARTS
- - -------------------
Disk, Stage 1 ___________ ___________ ____________
Disk, Stage 2 ___________ ___________ ____________
Spacer/Impeller ___________ ___________ ____________
Vane, -Ring Diffuser ___________ ___________ ____________
LOW PRESSURE
TURBINE ROTOR PARTS
- - -------------------
Disk, Stage 1 ___________ ___________ ____________
Disk, Stage 2 ___________ ___________ ____________
Disk, Stage 3 ___________ ___________ ____________
Disk, Stage 4 ___________ ___________ ____________
Disk, Stage 5 ___________ ___________ ____________
Shaft, LPTR ___________ ___________ ____________
</TABLE>
H-3
<PAGE> 96
EXHIBIT I
TO THE AIRCRAFT SALES AGREEMENT BETWEEN
FEDERAL EXPRESS CORPORATION ("FEDEX")
AND
AMERICAN AIRLINES, INC. ("AMERICAN")
DATED APRIL 7, 1995 (THE "AGREEMENT")
PUT OPTION EXERCISE
1. This Put Option Exercise is provided by American to FedEx
pursuant to Section 2.02(b) of the Agreement. Any capitalized term used in
this Put Option Exercise shall have the meaning ascribed to it in the
Agreement.
2. American hereby exercises a Put Option granted by FedEx as set
forth in Section 2.02 of the Agreement for the sale of a Put Option Aircraft to
FedEx with respect to the following Scheduled Delivery Date:
_______________________________, ______. A Designation and an Engine
Designation will be provided by American to FedEx in accordance with Section
2.04 of the Agreement designating the Airframe and the Engines that will be
tendered by American to FedEx on such Scheduled Delivery Date.
This Put Option Exercise is made by American on the ____ day of
_____________, _____.
AMERICAN AIRLINES, INC.
By: ____________________________
Name: __________________________
Title: _________________________
I-1
<PAGE> 97
EXHIBIT J
TO THE AIRCRAFT SALES AGREEMENT BETWEEN
FEDERAL EXPRESS CORPORATION ("FEDEX")
AND
AMERICAN AIRLINES, INC. ("AMERICAN")
DATED APRIL 7, 1995 (THE "AGREEMENT")
PURCHASE OPTION NOTICE
1. Pursuant to Section 2.03(a) of the Agreement, American hereby
notifies FedEx that American intends to offer for sale _________________
[specify number of Put Option Aircraft] of the Put Option Aircraft. Any
capitalized term used in this Purchase Option Notice shall have the meaning
ascribed to it in the Agreement.
2. The Scheduled Delivery Dates for the Put Option Aircraft that
American will be marketing are as follows:
1. _____________________________________, ________
2. _____________________________________, ________
3. _____________________________________, ________
4. _____________________________________, ________
5. _____________________________________, ________
6. _____________________________________, ________
7. _____________________________________, ________
Please be advised that pursuant to Section 2.03(a) of the Agreement,
FedEx has a period of fourteen (14) days after its receipt of this Purchase
Option Notice in which to exercise its Purchase Option under the terms of the
Agreement.
This Purchase Option Notice is given by American on the ____ day of
_____________, _____.
AMERICAN AIRLINES, INC.
By: _________________________
Name: _______________________
Title: ______________________
J-1
<PAGE> 98
EXHIBIT K
TO THAT CERTAIN
AIRCRAFT SALES AGREEMENT BETWEEN
FEDERAL EXPRESS CORPORATION ("FEDEX")
AND AMERICAN AIRLINES, INC.
("AMERICAN")
DATED APRIL 7, 1995 (THE "AGREEMENT")
PURCHASE OPTION EXERCISE
1. This Purchase Option Exercise is provided by FedEx to American
pursuant to Section 2.03(a) of the Agreement. Any capitalized term used in this
Purchase Option Exercise shall have the meaning ascribed to it in the
Agreement.
2. FedEx hereby exercises the Purchase Options granted by
American as set forth in Section 2.03 of the Agreement for the purchase of
_______________[specify number] Put Option Aircraft from American on the
following Scheduled Delivery Date(s) as specified in American's Purchase Option
Notice, dated _________________________, __________:
1. _____________________________________, ________
2. _____________________________________, ________
3. _____________________________________, ________
4. _____________________________________, ________
5. _____________________________________, ________
6. _____________________________________, ________
7. _____________________________________, ________
3. A Deposit of [* ] as required by Section 2.06 of the
Agreement is hereby tendered with this Purchase Option Exercise with respect to
each Purchase Option Aircraft.
4. FedEx hereby restates and confirms its representation and
warranty to American in Section 5.03(v) of the Agreement.
_______________________
*Blank space contained information which has been filed separately with the
Securities and Exchange Commission pursuant to rule 24b-2 under the Securities
Exchange Act of 1934.
K-1
<PAGE> 99
This Purchase Option Exercise is given by FedEx on the ____ day of
_____________, _____.
FEDERAL EXPRESS CORPORATION
By: ______________________________
Name: ____________________________
Title: ___________________________
K-2
<PAGE> 100
EXHIBIT L
TO THAT CERTAIN
AIRCRAFT SALES AGREEMENT BETWEEN
FEDERAL EXPRESS CORPORATION ("FEDEX")
AND AMERICAN AIRLINES, INC.
("AMERICAN")
DATED APRIL 7, 1995 (THE "AGREEMENT")
PURCHASE PRICE ADJUSTMENT FORMULA -- AIRFRAME
Any capitalized term used herein and not expressly defined herein
shall have the meaning ascribed to it in the Agreement.
[* ]
*
_______________________
*Blank space contained information which has been filed separately with the
Securities and Exchange Commission pursuant to rule 24b-2 under the Securities
Exchange Act of 1934.
L-1
<PAGE> 101
*
[*
]
_______________________
*Blank space contained information which has been filed separately with the
Securities and Exchange Commission pursuant to rule 24b-2 under the Securities
Exchange Act of 1934.
L-2
<PAGE> 102
TABLE A TO EXHIBIT L
AMERICAN AIRLINES, INC.
AIRFRAME MAINTENANCE
The following table sets forth the estimated maintenance cost for
accomplishment of a C Check, First Interval Items and Second Interval Items in
twelve-month periods noted below.
<TABLE>
<CAPTION>
TWELVE-MONTH
PERIOD ENDED C CHECK FIRST INTERVAL SECOND INTERVAL
MAY 31 COST ITEMS COST ITEMS COST
<S> <C> <C> <C>
* * * *
</TABLE>
_______________________
*Blank space contained information which has been filed separately with the
Securities and Exchange Commission pursuant to rule 24b-2 under the Securities
Exchange Act of 1934.
L-3
<PAGE> 103
EXHIBIT M
TO THAT CERTAIN
AIRCRAFT SALES AGREEMENT BETWEEN
FEDERAL EXPRESS CORPORATION ("FEDEX")
AND AMERICAN AIRLINES, INC.
("AMERICAN")
DATED APRIL 7, 1995 (THE "AGREEMENT")
PURCHASE PRICE ADJUSTMENT FORMULA -- ENGINES
Any capitalized term used herein and not expressly defined herein
shall have the meaning ascribed to it in the Agreement.
[*
]
*
_______________________
*Blank space contained information which has been filed separately with the
Securities and Exchange Commission pursuant to rule 24b-2 under the Securities
Exchange Act of 1934.
M-1
<PAGE> 104
*
[*
]
_______________________
*Blank space contained information which has been filed separately with the
Securities and Exchange Commission pursuant to rule 24b-2 under the Securities
Exchange Act of 1934.
M-2
<PAGE> 105
TABLE A TO EXHIBIT M
AMERICAN AIRLINES, INC.
ENGINE HEAVY MAINTENANCE
The following table sets forth the estimated maintenance cost for an
HSM, HSC and EHM in the calendar years noted below.
<TABLE>
<CAPTION>
CALENDAR
YEAR EHM HSC HSM
<S> <C> <C> <C>
* * * *
</TABLE>
_______________________
*Blank space contained information which has been filed separately with the
Securities and Exchange Commission pursuant to rule 24b-2 under the Securities
Exchange Act of 1934.
M-3
<PAGE> 106
EXHIBIT N
TO THAT CERTAIN
AIRCRAFT SALES AGREEMENT BETWEEN
FEDERAL EXPRESS CORPORATION ("FEDEX")
AND AMERICAN AIRLINES, INC.
("AMERICAN")
DATED APRIL 7, 1995 (THE "AGREEMENT")
PURCHASE PRICE ADJUSTMENT FORMULA -- GEAR
Any capitalized term used herein and not expressly defined herein
shall have the meaning ascribed to it in the Agreement.
[*
]
_______________________
*Blank space contained information which has been filed separately with the
Securities and Exchange Commission pursuant to rule 24b-2 under the Securities
Exchange Act of 1934.
N-1
<PAGE> 107
*
[*
]
_______________________
*Blank space contained information which has been filed separately with the
Securities and Exchange Commission pursuant to rule 24b-2 under the Securities
Exchange Act of 1934.
N-2
<PAGE> 108
EXHIBIT O
TO THAT CERTAIN
AIRCRAFT SALES AGREEMENT BETWEEN
FEDERAL EXPRESS CORPORATION ("FEDEX")
AND AMERICAN AIRLINES, INC.
("AMERICAN")
DATED APRIL 7, 1995 (THE "AGREEMENT")
PURCHASE PRICE ADJUSTMENT FORMULA -- APU
Any capitalized term used herein and not expressly defined herein
shall have the meaning ascribed to it in the Agreement.
[*
]
*
[*
]
_______________________
*Blank space contained information which has been filed separately with the
Securities and Exchange Commission pursuant to rule 24b-2 under the Securities
Exchange Act of 1934.
O-1
<PAGE> 109
EXHIBIT P
to that certain
Aircraft Sales Agreement between
Federal Express Corporation ("FedEx") and
American Airlines, Inc. ("American")
Dated April 7, 1995 (the "Agreement")
ENGINE
DELIVERY CERTIFICATE
This Engine Delivery Certificate is given by American Airlines, Inc.
("American") and Federal Express Corporation ("FedEx") pursuant to the
Agreement. Any capitalized term used herein and not expressly defined herein
shall have the meaning ascribed to it in the Agreement.
TENDER OF EACH ENGINE.
____________________ ("Tenderor") hereby tenders to ______________
("Recipient") for delivery pursuant to the terms and subject to the conditions
of the Agreement, ______ [specify number of engines] General Electric Company
CF6-80C2D1F engines, bearing Manufacturer's Serial Number(s):
________________________
________________________
________________________
(each a "Delivered Engine" and collectively, if applicable, the "Delivered
Engines") with (i) if American is the Tenderor, the operating times and cycles
as accumulated on each Engine up to the time of Delivery as described on
Attachment 1A hereto and made a part hereof or (ii) if FedEx is the Tenderor,
the operating times and cycles as accumulated on each Engine from the time
FedEx took delivery of the Delivered Engine or Delivered Engines, as the case
may be, from American up to the time of delivery of such Delivered Engine or
Delivered Engines, as the case may be, pursuant to this Engine Delivery
Certificate described on Attachment 1B hereto and made a part hereof, at
_______/a.m./p.m. ____________ time, on ____________________, _________,
together with any Data, listed on Attachment 2 hereto and made a part hereof.
Tenderor hereby restates and confirms each of its representations and
warranties set forth in Article 5 of the Agreement.
P-1
<PAGE> 110
Tender of each Engine is made by _________________ this ____ day of
_____________________, _____.
[AMERICAN AIRLINES, INC.]
[FEDERAL EXPRESS CORPORATION]
By:____________________________________
Title:_________________________________
ACCEPTANCE OF EACH ENGINE.
Recipient hereby accepts and acknowledges receipt of each Delivered
Engine from Tenderor in accordance with the terms and conditions of the
Agreement, which Delivered Engine or Delivered Engines has or have, as the case
may be, the operating times and flight cycles as accumulated on the Aircraft up
to the time of delivery as described on Attachment 1 hereto and made a part
hereof, at ___________________, at _________/a.m./p.m. ____________ time, on
___________________, __________, together with the Data listed in Attachment 2
hereto and made a part hereof. Recipient hereby restates and confirms each of
its representations set forth in Article 5 of the Agreement.
If it is FedEx which is executing the Acceptance portion of this
Engine Delivery Certificate and accepting a Delayed Delivery Engine or
Replacement Engine, by its execution and delivery of this Certificate, FedEx
hereby acknowledges and agrees that upon delivery by American to FedEx, except
as to those discrepancies expressly set forth in Attachment 1 to this
certificate, the Delivered Engine met the requirements for the condition of the
Engines upon delivery as set forth in the Agreement.
Acceptance of each Delivered Engine is made by _____________________
this _____ day of ______________________, ______.
[FEDERAL EXPRESS CORPORATION]
[AMERICAN AIRLINES, INC.]
By:____________________________________
Name:__________________________________
Title:_________________________________
HIGHEST FLIGHT CYCLE AIRFRAME CERTIFICATION.
As of the date of this Certificate, (i) the highest flight cycle
Airframe not yet delivered by American to FedEx is the Airframe bearing U.S.
Registration No. __________________ and Manufacturer's Serial No.
_________________ and (ii) such Airframe has _______________ flight cycles
since it was new.
AMERICAN AIRLINES, INC.
By:____________________________________
Name:__________________________________
Title: ________________________________
P-2
<PAGE> 111
ATTACHMENT 1A TO ENGINE DELIVERY CERTIFICATE
ENGINE INFORMATION
AS OF ___________________, ______
GENERAL ELECTRIC COMPANY CF6-80C2D1F ENGINES:
<TABLE>
<CAPTION>
TOTAL FLIGHT TOTAL FLIGHT TOTAL CYCLES TOTAL CYCLES TOTAL CYCLES
ENGINE MANUFACTURER'S CYCLES HOURS SINCE SINCE LAST SINCE LAST SINCE LAST
POSITION SERIAL NUMBER SINCE NEW NEW HSM HSC EHM
<S> <C> <C> <C> <C> <C> <C>
1 ____________ __________ ___________ __________ ___________ ___________
2 ____________ __________ ___________ __________ ___________ ___________
3 ____________ __________ ___________ __________ ___________ ___________
</TABLE>
The EGT margin of each of the Delivered Engines after (i) its last
test cell run accomplished immediately following the latest Engine Maintenance
accomplished with respect to each such Delivered Engine and (ii) the Power
Assurance Run Test conducted pursuant to Section 3.02(a) of the Agreement was
as follows:
<TABLE>
<CAPTION>
EGT MARGIN FOLLOWING EGT MARGIN FOLLOWING
ENGINE POSITION LAST TEST CELL RUN POWER ASSURANCE RUN TEST
- - --------------- -------------------------- ------------------------
<S> <C> <C>
No. 1 _______ degrees Celsius _______ degrees Celsius
No. 2 _______ degrees Celsius _______ degrees Celsius
No. 3 _______ degrees Celsius _______ degrees Celsius
</TABLE>
The flight cycles or flight hours remaining to the limitation on each
life limited part in each Engine are as set forth in Annex 1 to this Attachment
1 to the Engine Aircraft Delivery Certificate.
P-3
<PAGE> 112
Dated:__________________________, _________.
AMERICAN AIRLINES, INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
P-4
<PAGE> 113
ANNEX 1 TO ATTACHMENT 1A TO
ENGINE DELIVERY CERTIFICATE
REMAINING FLIGHT CYCLES AND FLIGHT
HOURS REMAINING ON LIFE LIMITED PARTS ON ENGINES
<TABLE>
<CAPTION>
ENGINE NO. 1 ENGINE NO. 2 ENGINE NO. 3
FLIGHT HOURS FLIGHT HOURS FLIGHT HOURS
PART DESCRIPTION OR CYCLES OR CYCLES OR CYCLES
<S> <C> <C> <C>
FAN ROTOR PARTS
- - ---------------
Disk, Fan Rotor Stage 1 ___________ ____________ ___________
Spool, Fan Rotor Stages 2-5 ___________ ___________ ___________
Fan, Forward Shaft ___________ ___________ ___________
Fan, Mid-Shaft ___________ ___________ ___________
HIGH PRESSURE
COMPRESSOR ROTOR PARTS
- - ----------------------
Disk, Stage 1 ___________ ___________ ____________
Disk, Stage 2 ___________ ___________ ____________
Disk, Stage 3-9 ___________ ___________ ____________
Disk, Stage 10 ___________ ___________ ____________
Spool/Shaft ___________ ___________ ____________
CDP Seal Disk ___________ ___________ ____________
HIGH PRESSURE
TURBINE ROTOR PARTS
- - -------------------
Disk, Stage 1 ___________ ___________ ____________
Disk, Stage 2 ___________ ___________ ____________
Spacer/Impeller ___________ ___________ ____________
Vane, -Ring Diffuser ___________ ___________ ____________
LOW PRESSURE
TURBINE ROTOR PARTS
- - -------------------
Disk, Stage 1 ___________ ___________ ____________
Disk, Stage 2 ___________ ___________ ____________
Disk, Stage 3 ___________ ___________ ____________
Disk, Stage 4 ___________ ___________ ____________
Disk, Stage 5 ___________ ___________ ____________
Shaft, LPTR ___________ ___________ ____________
</TABLE>
P-5
<PAGE> 114
ATTACHMENT 1B TO ENGINE DELIVERY CERTIFICATE
ENGINE FLIGHT CYCLES AND FLIGHT HOURS
AS OF ___________________, ______
GENERAL ELECTRIC COMPANY CF6-80C2D1F ENGINES:
<TABLE>
<CAPTION>
TOTAL FLIGHT CYCLES TOTAL FLIGHT HOURS
ENGINE MANUFACTURER' ACCUMULATED WHILE IN FEDEX'S ACCUMULATED WHILE IN FEDEX'S
POSITION SERIAL NUMBER CONTROL CONTROL
<S> <C> <C> <C>
1 __________________ ________________ _______________
2 __________________ ________________ _______________
3 __________________ ________________ _______________
</TABLE>
Dated:__________________________, _________.
FEDERAL EXPRESS CORPORATION
By: ________________________________
Name: ______________________________
Title: _____________________________
P-6
<PAGE> 115
ATTACHMENT 2 TO ENGINE DELIVERY CERTIFICATE
ENGINE RECORDS DELIVERED
WITH DELIVERED ENGINE
1. Aircraft Flight Log (includes Aircraft, Engines, Components) with
required certification
2. Report 190Y (with required certification ):
- Engine Item Time Control Components by Aircraft and Position
3. Report D065 (with required certification):
- Engine Life Limited Parts/Life Limited Parts
4. Airworthiness Directive Summary Report (with required certification)
P-7
<PAGE> 116
EXHIBIT Q TO AIRCRAFT SALES AGREEMENT BETWEEN
AMERICAN AIRLINES, INC. ("AMERICAN:) AND
FEDERAL EXPRESS CORPORATION ("FEDEX")
DATED APRIL 7, 1995 (THE "AGREEMENT")
SECTION 1--MD -11 SPARE PARTS PURCHASE DATES,
PURCHASE OBLIGATIONS, AND DELIVERY OBLIGATIONS TO BE
PURCHASED IN CONJUNCTION WITH DELIVERIES
OF FIRM AIRCRAFT AND PUT OPTION AIRCRAFT SOLD PURSUANT TO THE PUT OPTIONS
<TABLE>
<CAPTION>
SPARES
PURCHASE
SPARES PRICE OF
SPARES PURCHASE A PAIR OF
PURCHASE PRICE OF SPARE
SCHEDULED AVERAGE PRICE TO BE NUMBER OF A SPARE SPARE THRUST
DATE OR UNIT PRICE PAID FOR SPARE APU THRUST REVERSERS
YEAR FOR THE MD-11 OF MD-11 MD-11 APU'S PURCHASED REVERSERS PURCHASED
PURCHASE OF SPARE SPARE PARTS SPARE SCHEDULED ON SCHEDULE ON THE
THE MD-11 PARTS TO BE PARTS TO BE TO BE THE DATE TO BE DATE
SPARE PARTS PERCENTAGE PURCHASED PURCHASED PURCHASED SHOWN* PURCHASED SHOWN*
----------- ---------- --------- --------- --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
* * * * * * * *
[*
]
[*
]
</TABLE>
_______________________
*Blank space contained information which has been filed separately with the
Securities and Exchange Commission pursuant to rule 24b-2 under the Securities
Exchange Act of 1934.
Q-1
<PAGE> 117
EXHIBIT Q TO AIRCRAFT SALES AGREEMENT BETWEEN
AMERICAN AIRLINES, INC. ("AMERICAN:) AND
FEDERAL EXPRESS CORPORATION ("FEDEX")
DATED APRIL 7, 1995 (THE "AGREEMENT")
SECTION 2--MD -11 SPARE PARTS PURCHASE DATES, PURCHASE OBLIGATIONS, AND
DELIVERY OBLIGATIONS TO BE PURCHASED IN CONJUNCTION WITH DELIVERIES OF
PURCHASE OPTION AIRCRAFT SOLD PURSUANT TO THE PURCHASE OPTIONS
Any capitalized term used herein shall have the meaning ascribed to it
in the Agreement unless expressly defined herein.
[*
]
<TABLE>
<CAPTION>
MD-11 MD-11
SPARE SPARE MD-11
MONTH PARTS MONTH PARTS MONTH SPARE PARTS
AND YEAR PERCENTAGE AND YEAR PERCENTAGE AND YEAR PERCENTAGE
- - -------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
* * * * * *
</TABLE>
_______________________
*Blank space contained information which has been filed separately with the
Securities and Exchange Commission pursuant to rule 24b-2 under the Securities
Exchange Act of 1934.
Q-2
<PAGE> 118
EXHIBIT Q TO AIRCRAFT SALES AGREEMENT BETWEEN
AMERICAN AIRLINES, INC. ("AMERICAN:) AND
FEDERAL EXPRESS CORPORATION ("FEDEX")
DATED APRIL 7, 1995 (THE "AGREEMENT")
SECTION 3-- SPARE ENGINE PURCHASE DATES AND PURCHASE PRICES
Any capitalized term used herein shall have the meaning ascribed to it
in the Agreement unless expressly defined herein.
The dates on which FedEx shall purchase from American and American
shall sell the Spare Engines to FedEx in conjunction with the sale of the Firm
Aircraft and the Spares Purchase Price for each such Spare Engine are as
follows:
SPARE PURCHASE PRICE
SPARE ENGINE PURCHASE DATE FOR SPARE ENGINE
-------------------------- --------------------
* *
In the event that all the Put Option Aircraft are purchased pursuant
to an exercise of the Put Options by American or the Purchase Options by FedEx,
FedEx will purchase from American and American will sell to FedEx on the
following Spare Engines on the following dates:
SPARE PURCHASE PRICE
ORIGINAL SALE DATE FOR SPARE ENGINE
-------------------------- --------------------
* *
[*
]
_______________________
*Blank space contained information which has been filed separately with the
Securities and Exchange Commission pursuant to rule 24b-2 under the Securities
Exchange Act of 1934.
Q-3
<PAGE> 119
EXHIBIT R
TO THAT CERTAIN
AIRCRAFT SALES AGREEMENT BETWEEN
FEDERAL EXPRESS CORPORATION ("FEDEX") AND
AMERICAN AIRLINES, INC. ("AMERICAN")
DATED APRIL 7, 1995 (THE "AGREEMENT")
PROCEDURES FOR ENGINE BORESCOPE INSPECTIONS CONDUCTED PURSUANT TO
SECTION 3.02(A) OF THE AGREEMENT
The borescope inspections of Engines to be conducted by FedEx pursuant
to Section 3.02(a) of the Agreement shall be conducted in accordance with the
procedures set forth in the following Maintenance Work Cards that are set forth
in Section 7 (Maintenance Visits, Power Plant Inspect) of the American MD-11
Maintenance Check Manual, copies of which have been previously provided to
FedEx by American (the "Work Cards"). Any capitalized term used herein and not
expressly defined herein shall have the meaning ascribed to it in the
Agreement.
<TABLE>
<CAPTION>
CARD NO 4419 CARD NO. 4429 CARD NO. 4439
ENGINE #1 ENGINE #2 ENGINE #3
- - ---------------------------------------------------------------------------------------------------------------
CARD CARD PAGE CARD
PAGE NO. REVISION DATE NO. REVISION DATE. PAGE NO. REVISION DATE.
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 February 8, 1995 1 February 8, 1995 1 February 8, 1995
- - ---------------------------------------------------------------------------------------------------------------
2 April 21, 1993 2 April 21, 1993 2 April 21, 1993
- - ---------------------------------------------------------------------------------------------------------------
3 May 4, 1994 3 May 4, 1994 3 May 4, 1994
- - ---------------------------------------------------------------------------------------------------------------
4 January 19, 1994 4 April 21, 1993 4 April 21. 1993
- - ---------------------------------------------------------------------------------------------------------------
5 January 19, 1994 5 January 19, 1994 5 January 19, 1994
- - ---------------------------------------------------------------------------------------------------------------
6 August 19, 1992 6 Sept. 30, 1992 6 Sept. 30, 1992
- - ---------------------------------------------------------------------------------------------------------------
7 January 19, 1994 7 January 19, 1994 7 January 19, 1994
- - ---------------------------------------------------------------------------------------------------------------
8 August 19, 1992 8 August 19, 1992 8 August 19, 1992
- - ---------------------------------------------------------------------------------------------------------------
9 October 6, 1993 9 August 19, 1992 9 Sept. 1, 1994
- - ---------------------------------------------------------------------------------------------------------------
10 January 19, 1994 10 August 19, 1992 10 August 19, 1992
- - ---------------------------------------------------------------------------------------------------------------
11 April 10, 1991 11 January 19, 1994 11 January 19, 1994
- - ---------------------------------------------------------------------------------------------------------------
12 April 10, 1991 12 April 10, 1991 12 April 10, 1991
- - ---------------------------------------------------------------------------------------------------------------
13 January 19, 1994 13 April 10, 1991 13 April 10, 1991
- - ---------------------------------------------------------------------------------------------------------------
14 March 25, 1992 14 January 19, 1994 14 January 19, 1994
- - ---------------------------------------------------------------------------------------------------------------
15 January 19, 1994 15 March 25, 1992 15 March 25, 1992
- - ---------------------------------------------------------------------------------------------------------------
16 April 10, 1991 16 January 19, 1994 16 January 19, 1994
- - ---------------------------------------------------------------------------------------------------------------
17 April 10, 1991 17 April 10, 1994
- - ---------------------------------------------------------------------------------------------------------------
</TABLE>
The procedures set forth in the Work Cards shall not be revised for
purposes of determining the procedures to be followed by FedEx in conducting
borescope inspections pursuant to Section 3.02(a) of the Agreement with respect
to any Engine even if the Work Cards are subsequently revised by American.
R-1
<PAGE> 120
EXHIBIT S
TO THAT CERTAIN
AIRCRAFT SALES AGREEMENT BETWEEN
FEDERAL EXPRESS CORPORATION ("FEDEX") AND
AMERICAN AIRLINES, INC. ("AMERICAN")
DATED APRIL 7, 1995 (THE "AGREEMENT")
FORM OF [* ] AGREEMENT
_______________________
*Blank space contained information which has been filed separately with the
Securities and Exchange Commission pursuant to rule 24b-2 under the Securities
Exchange Act of 1934.
S-1
<PAGE> 121
*
_______________________
*Blank space contained information which has been filed separately with the
Securities and Exchange Commission pursuant to rule 24b-2 under the Securities
Exchange Act of 1934.
S-2
<PAGE> 122
*
_______________________
*Blank space contained information which has been filed separately with the
Securities and Exchange Commission pursuant to rule 24b-2 under the Securities
Exchange Act of 1934.
S-3
<PAGE> 123
*
_______________________
*Blank space contained information which has been filed separately with the
Securities and Exchange Commission pursuant to rule 24b-2 under the Securities
Exchange Act of 1934.
S-4
<PAGE> 124
*
_______________________
*Blank space contained information which has been filed separately with the
Securities and Exchange Commission pursuant to rule 24b-2 under the Securities
Exchange Act of 1934.
S-5
<PAGE> 125
EXHIBIT T
TO THAT CERTAIN
AIRCRAFT SALES AGREEMENT BETWEEN
FEDERAL EXPRESS CORPORATION ("FEDEX") AND
AMERICAN AIRLINES, INC. ("AMERICAN")
DATED APRIL 7, 1995 (THE "AGREEMENT")
Any capitalized term used herein and not expressly defined herein
shall have the meaning ascribed to it in the Agreement.
[* ]
*
_______________________
*Blank space contained information which has been filed separately with the
Securities and Exchange Commission pursuant to rule 24b-2 under the Securities
Exchange Act of 1934.
T-1
<PAGE> 126
*
[*
]
_______________________
*Blank space contained information which has been filed separately with the
Securities and Exchange Commission pursuant to rule 24b-2 under the Securities
Exchange Act of 1934.
T-2
<PAGE> 127
TABLE A TO EXHIBIT T
AMERICAN AIRLINES, INC.
ENGINE HEAVY MAINTENANCE
The following table sets forth the estimated maintenance cost for an
HSM, HSC and EHM in the years noted below.
<TABLE>
<CAPTION>
YEAR EHM HSC HSM
---- --- --- ---
<S> <C> <C> <C>
* * * *
</TABLE>
_______________________
*Blank space contained information which has been filed separately with the
Securities and Exchange Commission pursuant to rule 24b-2 under the Securities
Exchange Act of 1934.
T-3
<PAGE> 128
EXHIBIT U
TO THAT CERTAIN
AIRCRAFT SALES AGREEMENT BETWEEN
FEDERAL EXPRESS CORPORATION ("FEDEX") AND
AMERICAN AIRLINES, INC. ("AMERICAN")
DATED APRIL 7, 1995 (THE "AGREEMENT")
CERTIFICATE OF HIGH-HOUR AND HIGH-CYCLE AIRFRAME
This Certificate of High-Hour and High-Cycle Airframe is given by
Federal Express Corporation ("FedEx") pursuant to the Agreement. Any
capitalized term used herein and not expressly defined herein shall have the
meaning ascribed to it in the Agreement.
FedEx hereby certifies that as of the date of this Certificate, (i)
the highest flight cycle Airframe delivered to FedEx by American and accepted
by FedEx pursuant to the Agreement was the Airframe bearing U.S. Registration
No. ________________ and Manufacturer's Serial No. ______________ and (ii)
such Airframe had _______________ flight cycles since it was new. In making
the determination and certification of the number of flight hours and flight
cycles on such Airframe, FedEx is relying, without investigation, on the
information concerning the number of flight hours and flight cycles on the
Airframe on its Delivery Date contained in the Aircraft Delivery Certificate
that American delivered to FedEx in connection with the Delivery of the
Aircraft of which the Airframe identified above is a part.
Dated: _______________________________________
FEDERAL EXPRESS CORPORATION
By: _________________________________
Name: ________________________________
Title: _______________________________
U-1
<PAGE> 1
EXHIBIT 10(sss)
December 27, 1995
Mr. Howard P. Allen
Southern California Edison Company
2244 Walnut Grove Avenue
Room 428
Rosemead, CA 91770
Dear Howard:
I'm in receipt of your election to defer the 1996 retainer and meeting
fees.
I assume that you want the deferral to be in accordance with the
October 6, 1995 letter between AMR and you. That letter governs the payout of
the amounts you have deferred to date (see attached -- generally, it's a ten
year payout, beginning on December 31, 1996). If I'm correct, please sign
below and return the original of this letter to me.
If there are questions, please call.
Very truly yours,
Charles D. MarLett
Corporate Secretary
Attachment
Agreed:
Howard P. Allen
Date
<PAGE> 1
EXHIBIT 10(ttt)
February 7, 1996
Mr. Armando M. Codina
Chairman
Codina Group, Inc.
Two Alhambra Plaza, PH2
Coral Gables, FL 33134
Dear Armando:
This will confirm the following agreement relating to the
deferral of, and payment of, your directors' fees:
1. All directors' fees and retainers payable to you in
connection with your service on the boards of directors (including committees
of such boards) of AMR Corporation ("AMR") and American Airlines, Inc. for the
period beginning on January 1, 1996, and ending on December 31, 1996, shall be
paid to you on a deferred basis as set forth below.
2. Interest shall be accrued on the amounts to be paid
on a deferred basis pursuant to paragraph 1 above, from the date such fees
would otherwise have been paid to the date actually paid, at the prime rate
which The Chase Manhattan Bank (National Association) from time to time charges
in New York for 90-day loans to responsible commercial borrowers, such interest
to be compounded monthly.
3. The total amount to be paid inclusive of the
aggregate amount of interest accrued shall be paid to you in one lump sum on
the first business day of January 2006.
4. AMR's obligation to make payments pursuant to
paragraph 3 hereof shall not be released or modified by reason of your death:
In the event of your death prior to the first business day of January 2006, the
amount deferred and all interest accrued thereon shall be made to Margarita M.
Codina.
<PAGE> 1
EXHIBIT 10(uuu)
February 9, 1996
Mr. Charles T. Fisher, III
Renaissance Center
Tower 100
Suite 2412
Detroit, Michigan 48243
Dear Chick:
This will confirm the following agreement relating to the
deferral of, and payment of, your directors' fees:
1. All directors' fees and retainers payable to you in
connection with your service on the boards of directors (including committees
of such boards) of AMR Corporation ("AMR") and American Airlines, Inc. for the
period beginning on and after January 1, 1996, and ending upon December 31,
1996, shall be paid to you on a deferred basis as set forth below.
2. Interest shall be accrued on the amounts to be paid
on a deferred basis pursuant to paragraph 1 above, from the date such fees
would otherwise have been paid to the date actually paid, at the prime rate
which The Chase Manhattan Bank (National Association) from time to time charges
in New York for 90-day loans to responsible commercial borrowers, such interest
to be compounded monthly.
3. The total amount to be paid on a deferred basis plus
the aggregate amount of interest accrued thereon and to accrue on the portion
unpaid from time to time shall be paid to you in four installments as follows:
a) on January 1, 2001, 25% of the deferred fees
and 25% of the interest accrued through December 31 of the immediately
preceding year;
b) on January 1, 2002, 25% of the deferred fees
and 25% of the interest accrued through December 31 of the immediately
preceding year;
<PAGE> 1
EXHIBIT 10(vvv)
February 23, 1996
Mr. Charles H. Pistor, Jr.
Intersolve Group, Inc.
3811 Turtle Creek Boulevard
Suite 300
Dallas, Texas 75219
Dear Charlie:
This will confirm the following agreement relating to the
deferral of, and payment of, your directors' fees:
1. All directors' fees and retainers payable to you in
connection with your service on the boards of directors (including committees
of such boards) of AMR Corporation ("AMR") and American Airlines, Inc. for the
period beginning on and after January 1, 1996, and ending upon December 31,
1996, shall be paid to you on a deferred basis as set forth below.
2. Interest shall be accrued on the amounts to be paid
on a deferred basis pursuant to paragraph 1 above, from the date such fees
would otherwise have been paid to the date actually paid, at the prime rate
which The Chase Manhattan Bank (National Association) from time to time charges
in New York for 90-day loans to responsible commercial borrowers, such interest
to be compounded monthly.
3. The total amount to be paid on a deferred basis plus
the aggregate amount of interest accrued thereon and to accrue on the portion
unpaid from time to time shall be paid to you in four installments as follows:
a) on January 1, 2000, 25% of the deferred fees
and 25% of the interest accrued through December 31 of the immediately
preceding year;
b) on January 1, 2001, 25% of the deferred fees
and 25% of the interest accrued through December 31 of the immediately
preceding year;
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 82
<SECURITIES> 819
<RECEIVABLES> 1,171
<ALLOWANCES> 18
<INVENTORY> 589
<CURRENT-ASSETS> 3,137
<PP&E> 20,224
<DEPRECIATION> 6,659
<TOTAL-ASSETS> 19,556
<CURRENT-LIABILITIES> 4,693
<BONDS> 0
<COMMON> 2,315
78
0
<OTHER-SE> 1,327
<TOTAL-LIABILITY-AND-EQUITY> 19,556
<SALES> 0
<TOTAL-REVENUES> 16,910
<CGS> 0
<TOTAL-COSTS> 15,362
<OTHER-EXPENSES> 533
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 684
<INCOME-PRETAX> 358
<INCOME-TAX> 162
<INCOME-CONTINUING> 196
<DISCONTINUED> 0
<EXTRAORDINARY> (29)
<CHANGES> 0
<NET-INCOME> 167
<EPS-PRIMARY> 2.11
<EPS-DILUTED> 2.11
</TABLE>
