AMR Corporation 2011 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2011, with unaudited fourth-quarter data. The filing is for AMR Corporation, the predecessor company of American Airlines Group, not the later American Airlines Group legal entity.
Business Context
AMR operated American Airlines and AMR Eagle, serving more than 250 cities in approximately 50 countries with about 3,400 daily flights and an approximately 900-aircraft combined fleet. International flights represented approximately 40% of operating revenue. The company filed voluntary Chapter 11 petitions on November 29, 2011 and operated as a debtor-in-possession.
Key Financial Metrics
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Operating revenue | $23.979 billion | $22.170 billion | +8.2% |
| Operating expenses | $25.033 billion | $21.862 billion | +14.5% |
| Operating income (loss) | $(1.054) billion | $308 million | Declined $1.362 billion |
| Net income (loss) | $(1.979) billion | $(471) million | Loss increased $1.508 billion |
| Basic and diluted loss per share | $(5.91) | $(1.41) | Worsened |
| Operating cash flow | $680 million | $1.241 billion | Down $561 million |
| Capital expenditures | $1.610 billion | $1.962 billion | Down $352 million |
| Fuel expense | $8.304 billion | $6.400 billion | +29.7% |
Mainline passenger revenue increased 7.1%, while capacity increased 0.7%. Passenger yield rose 6.2% to 14.19 cents per passenger mile, passenger revenue per available seat mile increased 6.3% to 11.63 cents, and the mainline passenger load factor increased to 82.0% from 81.9%.
Fuel consumption was approximately 2.756 billion gallons, at an average cost of $3.013 per gallon versus $2.316 in 2010. Fuel hedging reduced 2011 fuel expense by approximately $335 million.
At December 31, 2011, unrestricted cash and short-term investments totaled approximately $4.0 billion, compared with $4.5 billion in 2010. Restricted cash and short-term investments totaled $738 million. Total assets were $23.848 billion, long-term debt less current maturities was $6.702 billion, pension and postretirement obligations were $9.204 billion, and liabilities subject to compromise were $4.843 billion. Stockholders’ deficit increased to $(7.111) billion from $(3.945) billion.
Total contractual obligations were reported at $48.704 billion, including $10.613 billion of operating lease payments, $10.760 billion of firm aircraft commitments, $15.013 billion of long-term debt obligations including debt subject to compromise, and $10.001 billion of other long-term liabilities.
Fourth-Quarter Results
| Metric | Q4 2011 | Q4 2010 |
|---|---|---|
| Operating revenue | $5.956 billion | $5.586 billion |
| Operating income (loss) | $(783) million | $68 million |
| Net income (loss) | $(1.095) billion | $(97) million |
| Loss per share | $(3.27) | $(0.29) |
The fourth quarter included $118 million of reorganization items and approximately $768 million of restructuring and special items, including a $725 million impairment of aircraft and gates and a $43 million reduction in revenue from a change in the AAdvantage mileage breakage assumption. Capacity was reduced approximately 3%, adversely affecting the quarter by approximately $55 million.
Material Changes Versus the Prior Comparable Period
- Revenue grew, but expenses grew substantially faster, primarily because fuel prices increased and the company recorded significant impairment charges.
- Fuel expense increased by $1.904 billion year over year, despite a $335 million benefit from fuel hedging.
- The company shifted from positive operating income in 2010 to a $1.054 billion operating loss in 2011.
- Operating cash flow fell by $561 million, while debt and capital lease payments increased to $2.545 billion.
- Liabilities subject to compromise of $4.843 billion were recognized following the Chapter 11 filing.
- Pension and postretirement obligations increased by $1.327 billion, and accumulated other comprehensive loss increased materially.
- The planned AMR Eagle divestiture was placed on hold because of the Chapter 11 proceedings.
Guidance, Outlook, Risks and Unusual Items
Management’s February 1, 2012 business plan targeted approximately $2 billion of annual cost savings and $1 billion of annual revenue enhancement. The plan contemplated reducing headcount by approximately 13,000, outsourcing certain maintenance and airport work, closing the Fort Worth Alliance maintenance base, terminating defined-benefit pension plans, discontinuing subsidized retiree medical coverage for current employees, restructuring debt and leases, and investing several hundred million dollars annually in fleet and customer-service improvements. Implementation depended on labor negotiations, creditor support and Bankruptcy Court approval.
Management stated that the Chapter 11 filing created substantial doubt about the company’s ability to continue as a going concern. No plan of reorganization had been filed as of the filing date, and the ultimate treatment of creditors, debt, leases, pensions, equity and aircraft commitments remained uncertain.
- Existing common stock was highly speculative and was expected probably to be cancelled with little or no recovery. The stock was suspended from the NYSE on January 5, 2012, delisted on January 30, 2012, and began trading on the OTCQB under AAMRQ.
- The Chapter 11 filing triggered defaults on substantially all debt obligations, although creditor actions were generally stayed by the Bankruptcy Code.
- Aircraft lessors and secured lenders could seek repossession if the company did not assume agreements, cure defaults or reach extensions under Section 1110. The company had rejected 24 aircraft leases as of December 31, 2011 and additional leases and mortgages thereafter.
- American began the Section 1113 process to modify or reject collective bargaining agreements. The outcome of labor negotiations could materially affect costs, operations and the reorganization.
- Fuel-price exposure remained substantial. A hypothetical 10% increase in fuel prices was estimated to increase 2012 fuel expense by approximately $743 million, after considering hedges.
- The company faced material litigation and regulatory risks involving global distribution systems, online travel agencies, cargo antitrust matters, passenger distribution and patent claims.
- Future regulatory costs could increase from pilot-rest rules effective in 2014, environmental requirements including the European Union emissions trading system, airport constraints, security fees and taxes.
- The company recorded a $713 million non-cash impairment charge for Boeing 757 aircraft and related assets after revising its fleet-renewal plans.
Most Important Facts to Verify
- Confirm the legal entity and period: this filing is AMR Corporation’s 2011 Form 10-K, not a filing by the later American Airlines Group entity.
- Review the Chapter 11 docket and confirmed plan of reorganization for the final treatment of equity, unsecured debt, leases, aircraft financing and pension obligations.
- Reconcile unrestricted liquidity with restricted cash, credit-card processor reserve requirements, aircraft collateral requirements and any debtor-in-possession financing.
- Assess whether the proposed $2 billion cost savings and $1 billion revenue enhancements were achieved and whether labor contracts and benefit plans were modified or rejected.
- Validate the final status and economics of aircraft purchase commitments, leases, Section 1110 agreements and aircraft repossessions.
- Review subsequent filings for changes to liabilities subject to compromise, allowed claims, pension obligations, tax attributes and going-concern disclosures.
- Evaluate the resolution and financial impact of GDS litigation and other material antitrust, regulatory and environmental matters.