FORT WORTH, Texas - AMR Corporation continues making progress in its march to profitability, including reporting improved financial results.

For the quarter, AMR reported a net loss of $75 million, or $.47 per share. Included in this amount are a handful of special items, including a $358 million cash payment from the Transportation Security Administration (TSA) under the 2003 Emergency Wartime Supplemental Appropriation Act. Excluding special items, AMR reported a net loss of $357 million, or $2.26 per share. While still a loss, these results represent a sizeable improvement over the second quarter of last year and are dramatically better than the $1.04 billion net loss AMR recorded in this year’s first quarter.

AMR made significant progress over the course of the second quarter. April was a difficult month for the company, with lackluster demand due to the war in Iraq and the outbreak of SARS. In May, however, AMR reported positive operating cash flow driven by year-over-year improvements in unit revenue and the implementation of its new labor agreements. These trends continued in June, and AMR achieved a modest profit for the month.

“Clearly, the tremendous strides we’ve been able to achieve have been the result of the unprecedented labor and nonlabor agreements we reached in May,” said Gerard Arpey, AMR’s president and CEO. “The sacrifice of our employee groups is evident in the dramatically improved performance we’ve seen over the past months. But, while we’re encouraged, we must keep in mind that we’re operating in peak summer season right now, and the winter months will be more challenging. We have a lot of work to do before we’re able to achieve sustained profitability at acceptable levels.”

The company’s cash position also improved during the quarter, with a total cash and short-term investments balance on June 30 of $2.4 billion (including $550 million in restricted cash and short-term investments), an increase of $555 million compared to the comparable balance at the end of the first quarter. Since June 30, AMR has completed a $250 million aircraft financing, bringing the total balance to $2.7 billion as of today.

As noted earlier, the company’s second-quarter financial results included several special items—both gains and losses—resulting mostly from the company’s restructuring efforts. In addition, in keeping with the provisions of SFAS 109, AMR’s second quarter 2003 results do not reflect a benefit for federal and state income taxes. Conversely, AMR’s second quarter 2002 results did reflect a tax benefit. To provide better comparability, after adjusting for these items, the company recorded a loss of $357 million this quarter, or $2.26 per share, versus a loss of $720 million, or $4.64 per share, in the second quarter of last year.

Other tenets of AMR’s Turnaround Plan are also gaining momentum.

“We have set a firm course with our Turnaround Plan, and are taking additional steps today to make American an even more vibrant competitor,” Arpey said. “When we launched the Turnaround Plan in May, we said we were going to measure all of our future decisions by its four primary objectives. We are doing just that. And while some of these decisions are painful, they are also absolutely critical to our future.”

As previously announced, American’s fleet, which already has 57 fewer airplanes in revenue service than a year ago, will shrink another 57 airplanes by summer 2004. At that point, the airline’s fleet will be roughly the same size it was in mid-2000.

This projected fleet size prompted, in part, a review of American’s network and operational efficiency. After weeks of careful study, American has decided to reduce the size of its St. Louis hub.

“We are going to make it a smaller hub that will primarily cater to the people who live, work, or do business there,” Arpey said. “Our other options were far less palatable, including the extreme of simply making St. Louis a spoke city with service only to our other hubs. Our current plan allows us to provide key services for the local community while strengthening our hubs at Chicago and Dallas/Fort Worth.”

Arpey also acknowledged the support for the airline and genuine concern for the community shown by government officials and local business leaders during American’s decision-making process, particularly St. Louis Mayor Francis Slay, County Executive Buzz Westfall and Missouri Governor Bob Holden.

Between American, American Eagle and the AmericanConnection carriers, St. Louis will offer 207 flights a day to 68 cities after the change, which is effective Nov. 1. American will maintain its pilot and flight attendant bases there. More information on American’s new hub schedule in St. Louis can be found in the attached fact sheet.

The efficiency review also concluded that the airline had too much domestic Reservations capacity, even though it had closed two Reservations facilities earlier this year. Accordingly, the airline will close its St. Louis Reservations office effective Sept. 15.

Arpey said the decisions affecting St. Louis were “extremely difficult but vital to American’s future.” And he said he “truly regretted” the impact this would have on former TWA employees. FOR FULL DETAILS see www.amrcorp.com

——-