AMR Corp. (AAMRQ) Says Value of Boeing (BA) 757s Used in Domestic Markets 'Not Recoverable,' Will Take Charge
On November 29, 2011, AMR Corporation (OTCBB: AAMRQ) and certain of its subsidiaries, including American Airlines, Inc. ("American") and AMR Eagle Holding Corporation, filed voluntary petitions for reorganization under Chapter 11 (the "Chapter 11 Cases") of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of New York (the "Court").
As previously announced, American entered into agreements with Airbus and Boeing (NYSE: BA) in the second quarter of 2011 under which it plans to acquire 460 narrowbody aircraft from the Boeing 737 and Airbus A320 families during the period 2013-2022. The Bankruptcy Court has not yet approved American’s assumption of those contracts under the Bankruptcy Code, but has approved American’s continuing to accept delivery of Boeing 737 aircraft for the remainder of 2012, subject to certain limitations. In connection with these Boeing and Airbus aircraft agreements and the Company’s anticipated acceleration of its fleet renewal and replacement plan, the Company evaluated the useful lives of certain fleets including McDonnell Douglas MD-80, Boeing 757 and Boeing 767 aircraft. Upon finalization of the fleet plan in the fourth quarter of 2011 (prior to the filing of the Chapter 11 Cases), the Company concluded that a triggering event had occurred, requiring that certain assets be tested for impairment. As a result of this test, the Company concluded the carrying value of Boeing 757 aircraft used in its domestic markets was no longer recoverable. Consequently, the 2011 results will include an impairment charge of $713 million to write these and certain related long-lived assets down to their estimated fair values. The impairment charge is non-cash.
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As previously announced, American entered into agreements with Airbus and Boeing (NYSE: BA) in the second quarter of 2011 under which it plans to acquire 460 narrowbody aircraft from the Boeing 737 and Airbus A320 families during the period 2013-2022. The Bankruptcy Court has not yet approved American’s assumption of those contracts under the Bankruptcy Code, but has approved American’s continuing to accept delivery of Boeing 737 aircraft for the remainder of 2012, subject to certain limitations. In connection with these Boeing and Airbus aircraft agreements and the Company’s anticipated acceleration of its fleet renewal and replacement plan, the Company evaluated the useful lives of certain fleets including McDonnell Douglas MD-80, Boeing 757 and Boeing 767 aircraft. Upon finalization of the fleet plan in the fourth quarter of 2011 (prior to the filing of the Chapter 11 Cases), the Company concluded that a triggering event had occurred, requiring that certain assets be tested for impairment. As a result of this test, the Company concluded the carrying value of Boeing 757 aircraft used in its domestic markets was no longer recoverable. Consequently, the 2011 results will include an impairment charge of $713 million to write these and certain related long-lived assets down to their estimated fair values. The impairment charge is non-cash.
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