American Airlines Parent to Write Down Aircraft Value

DALLAS _ AMR Corp. will record a second-quarter charge of $1.1 billion to $1.2 billion as it writes down the value of its smallest regional jets and its aging fleet of McDonnell Douglas MD-80 aircraft.

In addition to those noncash charges, AMR said it will incur $70 million in severance-related expenses as it cuts its workforce of 85,500 full-time equivalent employees by about 8 percent, or more than 6,500 jobs.

“The company expects to record other accounting charges relating to these capacity reductions, such as other disposal costs and other associated costs,” AMR said in a filing with the Securities and Exchange Commission.

It added that it “cannot at this time reasonably estimate the amount and timing of these charges or the portion, if any, of these charges that would result in future cash expenditures.”

AMR announced May 21 that it would reduce the flying capacity of American Airlines Inc. on domestic routes by 11 to 12 percent by the fourth quarter compared to 2007, and that of regional carrier American Eagle by 10 to 11 percent.

Overall, system capacity for American and American Eagle combined will decline 8 percent.

Including the one-time, non-cash charges, AMR may report a second-quarter loss of more than $1.5 billion, approaching its all-time record loss of $1.56 billion in first quarter 2002.

Its worst second quarter ever came in second quarter 2001 when AMR posted a net loss of $507 million.

The consensus of airline analysts is that AMR will lose $1.32 a share, or about $329 million, excluding one-time items.

American plans to park 40 to 45 jets later this year, the majority from its fleet of 300 MD-80s. The average age of those airplanes are over 18 years, and they are far less fuel efficient than the comparable Boeing 737-800s.

The small regional jets, the Embraer ERJ-135s, were designed to reach small markets while meeting customer preference for jets over turboprop aircraft. However, the small jets carry high costs per seat mile and are being cut out as fuel prices climb.

American Eagle operates 39 of the 37-seat Embraers, with an average age of eight years.

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