AMR Reports Fourth Quarter Loss

FORT WORTH, Texas - Consistent with expectations, AMR Corporation, the parent company of American Airlines, Inc., today reported a fourth quarter net loss of $529 million, or $3.39 per share. This compares with last year’s fourth quarter net loss of $734 million before special items, and $798 million—$5.17 per share—after special items.


For full year 2002, AMR reported a net loss of $2.0 billion before special items, and $3.5 billion—$22.57 per share—after special items. For 2001, the Company reported a net loss of $1.4 billion before special items, and $1.8 billion—or $11.43 per share—after special items.


“Clearly, results such as the ones we reported today are unsustainable,” said Don Carty, AMR’s chairman and chief executive officer. “While there are many factors that impacted our results during 2002, including a sluggish economy, high fuel prices, lingering concerns over terrorism and the possibility of a war in the Middle East, the core issue for our Company remains a cost structure that is out of step with the revenue environment facing domestic airlines. As we’ve been discussing with our employees, we believe that a permanent shift has occurred in the airline revenue environment which will require us to reduce our annual costs by at least four billion dollars.”


Carty continued, “The people of American have made tremendous strides to reduce our operating costs by de-peaking our Chicago and Dallas/Ft. Worth hubs, simplifying our fleet, automating customer ticketing and check-in functions, as well as a host of other programs designed to reduce our long-term structural costs. These incredibly significant efforts have resulted in a permanent annual savings of two billion dollars. Nonetheless, we still have a very big challenge in front of us to achieve our four billion cost-reduction target.”


While American continues to modify its operations to be more competitive with low-fare carriers, Carty acknowledged that the future of the Company cannot be assured until ways are found to lower significantly its labor and other costs.

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Carty noted that American started talks with all of its labor unions in October and that those discussions continue with both the unions and their respective financial advisors. Carty stressed that, to put the Company on a sustainable footing and for its continued survival, American must move quickly to reduce its labor costs significantly in conjunction with its broader cost-reduction program.


Citing the tremendous challenges that the people of American have overcome during its 75-year history, Carty remains optimistic that solutions can be found to the problems confronting American. However, he acknowledges that, “It remains a treacherous time for our Company.”


As the Company faces its challenges, Carty said, it draws strength from its operational performance and the quality of its customer service. He noted that American’s on-time dependability and the percentage of flights completed each day are at or near the top of the industry. At the same time, customer satisfaction ratings are among the best in years as employees on the ground and in the air continue to focus on the needs of passengers and shippers. “Our people remain our greatest asset,” Carty said.


Lastly, the Company will record a significant minimum pension liability at year end, driving an approximate $1.1 billion charge to equity. This minimum pension liability will reflect the amount that the Company’s pension plans’ accumulated benefit obligation at Dec. 31, 2002 exceeded the plans’ assets at that date.


Looking forward, the Company said it had specific loan covenants related to more than $800 million of its debt that it would seek to renegotiate in order to remain in compliance with the terms of the borrowing beyond June 30, 2003. American cannot be certain, but it believes it will be successful in obtaining a modification or waiver of these covenants on acceptable terms.


AMR will host a conference call with the financial community from 2 p.m. to 3 p.m. EST today. During this call, AMR will review details of its fourth quarter and full-year 2002 results, revenue and cost performance, balance sheet and liquidity positions, capital market financings and related contingencies, tax status, labor update (including the status of labor discussion), impacts from industry restructurings and provide an outlook for the first quarter and full-year 2003.


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