THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IS
NOT COMPLETE AND MAY BE CHANGED. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS ARE NOT AN OFFER TO SELL THESE SECURITIES AND ARE NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-84292
SUBJECT TO COMPLETION, DATED JUNE 30, 2003
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MARCH 21, 2002)
$254,863,000
(AMERICAN AIRLINES LOGO)
2003-1 PASS THROUGH TRUSTS
PASS THROUGH CERTIFICATES, SERIES 2003-1
------------------
American Airlines, Inc. is issuing, through three separate trusts, Class G,
Class C, and Class D Pass Through Certificates, Series 2003-1. Only the Class G
Certificates are being offered pursuant to this Prospectus Supplement. The Class
C and Class D Certificates will be purchased by affiliates of American
concurrently with the issuance of the Class G Certificates. The Class C and
Class D Certificates are not being offered pursuant to this Prospectus
Supplement.
The proceeds from the sale of Certificates will be used by the trusts to
acquire equipment notes to be issued by American on a full recourse basis.
Payments on the equipment notes held in each trust will be passed through to the
holders of Certificates of such trust. The Certificates represent interests in
the assets of the trusts and do not represent interests in or obligations of
American or any of its affiliates. The Certificates will not be listed on any
national securities exchange.
The equipment notes will be issued for each of seven Boeing aircraft
delivered to American from January 1995 to March 2002. The equipment notes
issued for each aircraft will be secured by a security interest in such
aircraft. Interest on the equipment notes will be payable semiannually on each
January 9 and July 9, beginning January 9, 2004. Principal payments on the
equipment notes held for the Certificates will be scheduled for payment on
January 9 and July 9 in certain years, beginning on January 9, 2004.
The Class G Certificates will rank senior in right to distributions to the
other Certificates. The Class C Certificates will rank junior in right to
distributions to the Class G Certificates and will rank senior in right to
distributions to the Class D Certificates. The Class D Certificates will rank
junior in right to distributions to the other Certificates.
There will be a liquidity facility for the Class G Certificates in an amount
sufficient to make three semiannual interest distributions on the Class G
Certificates. Initially, there will be no liquidity facility for the Class C and
Class D Certificates.
Ambac Assurance Corporation will issue a certificate guaranty insurance
policy to support the distribution of interest on the Class G Certificates when
scheduled and the distribution of the outstanding pool balance on the Class G
Certificates on the Final Legal Distribution Date for such Certificates and
under certain other circumstances as described herein.
(AMBAC LOGO)
INVESTING IN THE CERTIFICATES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE S-18.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
------------------
PASS THROUGH FACE INTEREST FINAL EXPECTED PRICE TO
CERTIFICATES AMOUNT RATE DISTRIBUTION DATE PUBLIC(1)
------------ ------------ -------- ----------------- ---------
Class G $254,863,000 % July 9, 2010 100%
---------------
(1) Plus accrued interest, if any, from the date of issuance.
The underwriters will purchase all of the Class G Certificates if any are
purchased. The aggregate proceeds from the sale of the Class G Certificates will
be $254,863,000. American will pay the underwriters a commission of $ .
Delivery of the Class G Certificates in book-entry form will be made on or about
July , 2003 against payment in immediately available funds.
SOLE BOOK-RUNNER
CITIGROUP JPMORGAN
------------------
MERRILL LYNCH & CO.
MORGAN STANLEY
, 2003
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
PRESENTATION OF INFORMATION ................................S-1
PROSPECTUS SUPPLEMENT SUMMARY ..............................S-2
Summary of Terms of Certificates .........................S-2
Equipment Notes and the Aircraft .........................S-3
Loan to Aircraft Value Ratios ............................S-4
Cash Flow Structure ......................................S-5
The Offering .............................................S-6
Summary Historical Consolidated Financial and
Operating Data .........................................S-15
RECENT DEVELOPMENTS ........................................S-17
RISK FACTORS ...............................................S-18
Risk Factors Relating To American ........................S-18
Risk Factors Relating to the Certificates and the
Offering ...............................................S-21
Risk Factors Relating to the Policy Provider .............S-24
THE COMPANY ................................................S-25
DESCRIPTION OF THE POLICY PROVIDER .........................S-25
General ..................................................S-25
USE OF PROCEEDS ............................................S-26
DESCRIPTION OF THE CERTIFICATES ............................S-26
General ..................................................S-27
Distributions of Payments on Equipment Notes .............S-28
Subordination ............................................S-30
Pool Factors .............................................S-30
Reports to Certificateholders ............................S-31
Indenture Events of Default and Certain Rights
upon an Indenture Event of Default .....................S-32
Purchase Rights of Certificateholders ....................S-33
PTC Event of Default .....................................S-34
Merger, Consolidation, and Transfer of Assets ............S-34
Modification of the Pass Through Trust
Agreements and Certain Other Agreements ................S-35
Possible Issuance of Series E Equipment Notes ............S-38
Possible Refunding of Series C Equipment
Notes and Series D Equipment Notes .....................S-39
Termination of the Trusts ................................S-40
The Trustees .............................................S-40
Book-Entry Registration; Delivery and Form ...............S-40
DESCRIPTION OF THE LIQUIDITY FACILITY ......................S-41
DESCRIPTION OF THE POLICY AND THE
POLICY PROVIDER AGREEMENT ................................S-46
The Policy ...............................................S-46
General ..................................................S-49
Definitions ..............................................S-49
The Policy Provider Agreement ............................S-50
DESCRIPTION OF THE INTERCREDITOR
AGREEMENT ................................................S-50
Intercreditor Rights .....................................S-50
Priority of Distributions ................................S-52
Addition of Trustee for Class E Certificates .............S-57
Addition of Trustees Upon Refunding ......................S-58
The Subordination Agent ..................................S-58
DESCRIPTION OF THE AIRCRAFT AND THE
APPRAISALS ...............................................S-58
The Aircraft .............................................S-58
The Appraisals ...........................................S-58
DESCRIPTION OF THE EQUIPMENT NOTES .........................S-60
General ..................................................S-60
Subordination ............................................S-60
Principal and Interest Payments ..........................S-60
Redemption ...............................................S-61
Security .................................................S-63
Loan to Value Ratios of Equipment Notes ..................S-63
Limitation of Liability ..................................S-64
Indenture Events of Default, Notice and Waiver ...........S-64
Remedies .................................................S-65
Modification of Indentures ...............................S-66
Indemnification ..........................................S-67
Certain Provisions of the Indentures .....................S-67
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES .............................................S-71
Tax Status of the Trusts .................................S-72
Taxation of Certificate Owners Generally .................S-72
Sales of Certificates ....................................S-72
Bond Premium .............................................S-72
Trusts Classified as Partnerships ........................S-73
Certain Federal Income Tax Consequences to
Foreign Certificateholders .............................S-73
Backup Withholding .......................................S-74
CERTAIN CONNECTICUT AND DELAWARE
TAXES ....................................................S-74
CERTAIN ERISA CONSIDERATIONS ...............................S-75
General ..................................................S-75
Plan Assets Issues .......................................S-75
Prohibited Transaction Exemptions ........................S-76
Special Considerations Applicable to Insurance
Company General Accounts ...............................S-76
UNDERWRITING ...............................................S-77
LEGAL OPINIONS .............................................S-78
EXPERTS ....................................................S-78
INDEX OF TERMS .............................................Appendix I
APPRAISAL LETTERS ..........................................Appendix II
EQUIPMENT NOTE PRINCIPAL
PAYMENTS .................................................Appendix III
LOAN TO VALUE RATIOS OF
EQUIPMENT NOTES ..........................................Appendix IV
i
PROSPECTUS
PAGE
ABOUT THIS PROSPECTUS .......................................2
TABLE OF CONTENTS ...........................................2
FORWARD-LOOKING INFORMATION .................................2
WHERE YOU CAN FIND MORE INFORMATION .........................3
THE COMPANY .................................................4
RATIO OF EARNINGS TO FIXED CHARGES ..........................4
FORMATION OF THE TRUSTS .....................................5
USE OF PROCEEDS .............................................5
DESCRIPTION OF THE PASS THROUGH
CERTIFICATES ..............................................6
General ...................................................6
Book-Entry Registration ...................................9
Payments and Distributions ...............................12
Pool Factors .............................................13
Reports to Certificateholders ............................13
Voting of Equipment Notes ................................14
Events of Default and Certain Rights upon an
Event of Default .......................................14
Modifications of the Basic Agreement .....................16
Modification of Indenture and Related
Agreements .............................................18
Termination of the Trusts ................................18
Delayed Purchase of Equipment Notes ......................19
Merger, Consolidation and Transfer of Assets .............19
The Trustee ..............................................19
DESCRIPTION OF THE EQUIPMENT NOTES .........................20
General ..................................................20
Principal and Interest Payments ..........................21
Redemption ...............................................22
Security .................................................22
Additional Notes .........................................23
Payments and Limitation of Liability .....................23
Defeasance of the Indentures and the Equipment
Notes in Certain Circumstances .........................24
Assumption of Obligations by American ....................25
Owner Participant; Revisions to Agreements ...............25
CREDIT ENHANCEMENTS ........................................25
Ranking; Cross-Subordination .............................25
Liquidity Facility .......................................26
Guarantee of AMR Corporation .............................26
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES .............................................26
Tax Status of the Trusts .................................27
Taxation of Certificate Holders Generally ................27
Sales of Pass Through Certificates .......................27
Bond Premium .............................................27
Original Issue Discount ..................................27
Backup Withholding .......................................28
CERTAIN CONNECTICUT TAXES ..................................28
ERISA CONSIDERATIONS .......................................28
PLAN OF DISTRIBUTION .......................................29
Agents ...................................................29
Underwriters .............................................29
Direct Sales .............................................29
Other Means of Distribution ..............................29
General Information ......................................29
LEGAL OPINIONS .............................................30
EXPERTS ....................................................30
ii
PRESENTATION OF INFORMATION
These offering materials consist of two documents: (a) this prospectus
supplement (the "Prospectus Supplement"), which describes the terms of the
Certificates that we are currently offering, and (b) the accompanying prospectus
(the "Prospectus"), which provides general information about us and our pass
through certificates, some of which may not apply to the Certificates that we
are currently offering. The information in this Prospectus Supplement replaces
any inconsistent information included in the accompanying Prospectus. See "About
this Prospectus" in the accompanying Prospectus.
We have given certain capitalized terms specific meanings for purposes
of this Prospectus Supplement. The "Index of Terms" attached as Appendix I to
this Prospectus Supplement lists the page in this Prospectus Supplement on which
we have defined each such term.
At varying places in this Prospectus Supplement, we refer you to other
sections for additional information by indicating the caption heading of such
other sections. The page on which each principal caption included in this
Prospectus Supplement can be found is listed in the Table of Contents above.
This Prospectus Supplement and the documents incorporated by reference
contain various "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "Securities Act"), and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
which represent our expectations or beliefs concerning future events. When used
in this Prospectus Supplement and in documents incorporated herein by reference,
the words "believes," "expects," "plans," "anticipates," and similar expressions
are intended to identify forward-looking statements. Forward -looking statements
include, without limitation, our expectations concerning operations and
financial conditions, including changes in capacity, revenues, and costs,
expectations as to future financing needs, overall economic conditions and plans
and objectives for future operations, the impact on us of the events of
September 11, 2001 and of our results of operations for the past two years and
the sufficiency of our financial resources to absorb that impact. Other
forward-looking statements include statements which do not relate solely to
historical facts, such as, without limitation, statements which discuss the
possible future effects of current known trends or uncertainties, or which
indicate that the future effects of known trends or uncertainties cannot be
predicted, guaranteed, or assured. All forward-looking statements in this
Prospectus Supplement and the documents incorporated by reference are based upon
information available to us on the date of this Prospectus Supplement or such
document. We undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future
events, or otherwise. Forward-looking statements are subject to a number of
factors that could cause actual results to differ materially from our
expectations. The following factors, in addition to other possible factors not
listed, could cause our actual results to differ materially from those expressed
in forward-looking statements: the uncertain financial and business environment
we face, the struggling economy, high fuel prices and the availability of fuel,
the effects of the war in Iraq, conflicts in the Middle East, the SARS outbreak,
historically low fare levels, the competitive environment, uncertainties with
respect to our international operations, changes in our business strategy,
actions by U.S. or foreign government agencies, the possible occurrence of
additional terrorist attacks, and the availability of future financing.
Additional information concerning these and other factors is contained in our
Securities and Exchange Commission filings, including but not limited to our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 and our
Annual Report on Form 10-K for the year ended December 31, 2002.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND THE DOCUMENTS INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS OR TO WHICH WE HAVE
REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT
IS DIFFERENT. IF ANYONE PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION,
YOU SHOULD NOT RELY ON IT. THIS DOCUMENT MAY BE USED ONLY WHERE IT IS LEGAL TO
SELL THESE SECURITIES. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IS ACCURATE AS OF ANY DATE
OTHER THAN THE DATE OF THIS PROSPECTUS SUPPLEMENT. ALSO, YOU SHOULD NOT ASSUME
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF AMERICAN, THE LIQUIDITY
PROVIDER, OR THE POLICY PROVIDER SINCE THE DATE OF THIS PROSPECTUS SUPPLEMENT.
S-1
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights selected information from this Prospectus
Supplement and may not contain all of the information that is important to you.
For more complete information about the Certificates and American Airlines,
Inc., you should read this entire Prospectus Supplement and the accompanying
Prospectus, as well as the materials filed with the Securities and Exchange
Commission (the "Commission") that are considered to be a part of this
Prospectus Supplement and the accompanying Prospectus. See "Where You Can Find
More Information" in the Prospectus. Unless otherwise indicated, "we," "us,"
"our," and similar terms, as well as references to "American" or the "Company,"
refer to American Airlines, Inc. The term "you" refers to prospective investors
in the Class G Certificates.
SUMMARY OF TERMS OF CERTIFICATES
CLASS G CLASS C CLASS D
CERTIFICATES CERTIFICATES(1) CERTIFICATES(1)
------------ --------------- ---------------
Aggregate face amount $254,863,000 $95,573,000 $31,858,000
Ratings:
Moody's Aaa NA NA
Standard & Poor's AAA NA NA
Initial loan to Aircraft value
(cumulative)(2) 47.4% 65.1% 71.1%
Expected maximum loan to
Aircraft value (cumulative) .. 47.4% 65.1% 71.1%
Expected principal
distribution window (in
years) 0.5-7.0 0.5-7.0 0.5-7.0
Initial average life (in years) 5.1 5.1 5.1
Regular Distribution Dates January 9 and July 9 January 9 and July 9 January 9 and July 9
Final expected Regular
Distribution Date July 9, 2010 July 9, 2010 July 9, 2010
Final Legal Distribution Date.. January 9, 2012 July 9, 2010 July 9, 2010
Minimum denomination $1,000 $100,000 $100,000
Section 1110 protection Yes Yes Yes
Liquidity Facility coverage 3 semiannual interest
payments None(3) None
Policy Coverage(4) Yes None None
----------
(1) The Class C and Class D Certificates will be purchased by affiliates of
American concurrently with the issuance of the Class G Certificates. We
are not offering the Class C or Class D Certificates pursuant to this
Prospectus Supplement. The Series C and Series D Equipment Notes may be
refunded and new class C and class D pass through certificates issued
with terms differing from those of the Class C Certificates and Class D
Certificates on the Issuance Date, subject to limitations described in
"Description of the Certificates -- Possible Refunding of Series C
Equipment Notes and Series D Equipment Notes."
(2) The initial aggregate Assumed Aircraft Value of the Aircraft is
$538,023,333. See "Loan To Aircraft Value Ratios" in this Prospectus
Supplement Summary for the method we used in calculating the aggregate
Assumed Aircraft Value and the initial loan to Aircraft value ratios.
(3) New class C pass through certificates issued pursuant to a refunding of
the Series C Equipment Notes may have the benefit of a liquidity
facility.
(4) The Policy will support the distribution of interest on the Class G
Certificates when scheduled (after taking into account the prior use of
any available funds under the Liquidity Facility and the Cash
Collateral Account) and the distribution of the outstanding balance of
the Class G Certificates on its Final Legal Distribution Date and in
certain other circumstances described herein.
S-2
EQUIPMENT NOTES AND THE AIRCRAFT
The Trusts will hold Equipment Notes issued for each of three Boeing
737-823 aircraft, one Boeing 767-300ER aircraft, and three Boeing 777-223ER
aircraft. All of the Aircraft have been delivered and are being operated by
American. See "Description of the Aircraft and the Appraisals" for a description
of the Aircraft. Set forth below is information about the Equipment Notes to be
held in the Trusts and the Aircraft.
PRINCIPAL
AMOUNT OF
REGISTRATION MONTH EQUIPMENT APPRAISED
AIRCRAFT TYPE NUMBER DELIVERED NOTES BASE VALUE(1)
------------- ------------ --------- --------- -------------
Boeing 737-823 N961AN April 2001 $30,396,891 $ 41,503,333
Boeing 737-823 N963AN May 2001 30,396,891 41,503,333
Boeing 737-823 N967AN July 2001 31,019,440 41,503,333
Boeing 767-300ER N388AA January 1995 30,574,285 56,893,333
Boeing 777-223ER N784AN March 2000 75,957,305 110,500,000
Boeing 777-223ER N760AN January 2002 91,974,595 123,060,000
Boeing 777-223ER N761AJ March 2002 91,974,595 123,060,000
----------
(1) The appraised base value of each Aircraft set forth above is the lesser
of the average and median appraised base values of such Aircraft, as
appraised by three independent appraisal and consulting firms. Such
appraisals are based upon varying assumptions (which may not reflect
current market conditions) and methodologies. An appraisal is only an
estimate of value and should not be relied upon as a measure of
realizable value. American believes that the current market values of
the Aircraft at this time are lower than the base values reflected in
the appraisals. See "Risk Factors -- Risk Factors Relating to the
Certificates and the Offering -- Appraisals and Realizable Value of
Aircraft."
S-3
LOAN TO AIRCRAFT VALUE RATIOS
The following table sets forth loan to Aircraft value ratios ("LTVs")
for each Class of Certificates as of the date of original issuance of the Class
G Certificates (the "Issuance Date") and each Regular Distribution Date
thereafter. The table should not be considered a forecast or prediction of
expected or likely LTVs but simply a mathematical calculation based upon one set
of assumptions. See "Risk Factors -- Risk Factors Relating to the Certificates
and the Offering -- Appraisals and Realizable Value of Aircraft."
The following table was compiled on an aggregate basis. However, the
Equipment Notes issued under an Indenture are entitled only to certain specified
cross-collateralization provisions as described under "Description of the
Equipment Notes -- Security." The relevant LTVs in a default situation for the
Equipment Notes issued under a particular Indenture would depend on various
factors, including the extent to which the debtor or trustee in bankruptcy
agrees to perform American's obligations under the Indentures. Therefore, the
following aggregate LTVs are presented for illustrative purposes only and should
not be interpreted as indicating the degree of cross-collateralization available
to the holders of the Certificates.
Aggregate Outstanding Pool Balance(2) LTV(3)
Assumed
Aircraft Class G Class C Class D Class G Class C Class D
Date Value(1) Certificates Certificates Certificates Certificates Certificates Certificates
---- --------- ------------ ------------ ------------ ------------ ------------ ------------
Issuance Date $ 538,023,333 $ 254,863,000 $ 95,573,000 $ 31,858,000 47.4% 65.1% 71.1%
January 9, 2004 529,286,169 248,988,918 93,370,234 31,123,737 47.0 64.7 70.6
July 9, 2004 520,549,005 234,609,853 87,978,120 29,326,347 45.1 62.0 67.6
January 9, 2005 511,811,840 227,888,182 85,457,509 28,486,135 44.5 61.2 66.8
July 9, 2005 503,074,676 207,330,524 77,748,438 25,916,417 41.2 56.7 61.8
January 9, 2006 494,337,511 201,945,214 75,728,960 25,243,251 40.9 56.2 61.3
July 9, 2006 485,600,347 187,342,092 70,252,825 23,417,853 38.6 53.0 57.9
January 9, 2007 476,863,183 181,201,749 67,950,212 22,650,307 38.0 52.2 57.0
July 9, 2007 468,126,018 163,114,209 61,167,429 20,389,356 34.8 47.9 52.3
January 9, 2008 459,388,854 157,758,237 59,158,952 19,719,857 34.3 47.2 51.5
July 9, 2008 450,651,689 143,127,180 53,672,341 17,890,968 31.8 43.7 47.6
January 9, 2009 441,914,525 138,018,215 51,756,492 17,252,345 31.2 42.9 46.8
July 9, 2009 433,177,361 123,990,425 46,496,105 15,498,864 28.6 39.4 42.9
January 9, 2010 424,440,196 119,128,467 44,672,883 14,891,117 28.1 38.6 42.1
July 9, 2010 415,703,032 -- -- -- NA NA NA
(1) In calculating the aggregate Assumed Aircraft Value, we have assumed
that the initial appraised base value of each Aircraft, determined as
described under "-- Equipment Notes and the Aircraft," declines
annually on the Regular Distribution Date closest to the anniversary of
its delivery by the manufacturer by approximately 3% of the appraised
base value at delivery. The appraised base value at delivery of an
Aircraft is the theoretical value that when depreciated at 3% per year
from the initial delivery of such Aircraft by the manufacturer, results
in the initial appraised base value of such Aircraft specified under
"-- Equipment Notes and the Aircraft." Other rates or methods of
depreciation would result in materially different LTVs. We cannot
assure you that the depreciation rate and method assumed for purposes
of the table are the ones most likely to occur or predict the actual
future value of any Aircraft. See "Risk Factors -- Risk Factors
Relating to the Certificates and the Offering -- Appraisals and
Realizable Value of Aircraft."
(2) The Pool Balance for each Class of Certificates indicates, as of any
date, the portion of the original face amount of such Class of
Certificates that has not been distributed to Certificateholders.
(3) We obtained the LTVs for each Class of Certificates for each Regular
Distribution Date by dividing (i) the expected outstanding pool balance
of such Class together with the expected outstanding pool balance of
all other Classes ranking equal or senior in right to distributions to
such Class after giving effect to the distributions expected to be made
on such date, by (ii) the assumed value of all of the Aircraft on such
date based on the assumptions described above.
S-4
CASH FLOW STRUCTURE
This diagram illustrates the structure for the offering of the Certificates and
certain cash flows.
(FLOW CHART)
----------
(1) American will issue Series G, Series C, and Series D Equipment Notes in
respect of each Aircraft. Each Aircraft will be subject to a separate
Indenture. The only cross-default provision in the Indentures is an
event of default under each Indenture which occurs if all amounts owing
under any Equipment Note are not paid in full on the Final Payment
Date.
(2) A Liquidity Facility will be available with respect to the Class G
Certificates for up to three semiannual interest distributions on the
Class G Certificates. Initially, there will be no liquidity facility
available with respect to the Class C and Class D Certificates.
(3) The Policy covers distribution of interest on the Class G Certificates
when scheduled and the distribution of the outstanding Pool Balance of
the Class G Certificates on the Final Legal Distribution Date for such
Certificates and under certain other circumstances described herein.
See "Description of the Policy and the Policy Provider Agreement." The
Policy does not cover any amounts payable in respect of the Class C or
Class D Certificates.
(4) We are not offering the Class C or Class D Certificates pursuant to
this Prospectus Supplement.
S-5
THE OFFERING
Trusts ................................. The Class G Trust, the Class C Trust, and the Class D Trust each will be
formed pursuant to a separate trust supplement to a basic pass through trust
agreement between American and U.S. Bank Trust National Association (as
successor to State Street Bank and Trust Company of Connecticut, National
Association), as trustee under each trust.
Certificates Offered ................... Class G Certificates
Class C and Class D Certificates ....... We are not offering the Class C or Class D Certificates pursuant to this
Prospectus Supplement. The Class C and Class D Certificates will be
purchased by newly formed Delaware statutory trusts concurrently with the
issuance of the Class G Certificates. The Delaware statutory trusts will be
wholly owned by one or more affiliates of American.
Each Class of Certificates will represent fractional undivided interests in
the related Trust.
Use of Proceeds ........................ The proceeds from the sale of the Certificates of each Trust will be used to
acquire the Equipment Notes to be held by such Trust. The Equipment
Notes will be full recourse obligations of American. American will issue the
Equipment Notes under seven separate Indentures, each relating to a separate
Aircraft. The proceeds from issuance of the Equipment Notes under each
Indenture will be used by American for general corporate purposes.
Subordination Agent, Trustee and
Loan Trustee ........................... U.S. Bank Trust National Association.
Policy Provider for the Class G
Certificates ........................... Ambac Assurance Corporation. There will be no Policy available with
respect to the Class C and Class D Certificates.
Initial Liquidity Provider for the
Class G Certificates ................... Initially, Citibank, N.A., although American and Citibank, N.A. intend to
replace Citibank, N.A. as the Liquidity Provider as soon as feasible.
Initially, there will be no liquidity facility available with respect to the
Class C and Class D Certificates.
Trust Property ......................... The property of each Trust will include:
o Equipment Notes acquired by such Trust.
o For the Class G Trust, all monies receivable under the Policy.
o All rights of such Trust under the Intercreditor Agreement described
below (including all monies receivable pursuant to such rights).
o For the Class G Trust, all monies receivable under the Liquidity
Facility.
o Funds from time to time deposited with the Trustee in accounts
relating to such Trust.
S-6
Regular Distribution Dates ............. January 9 and July 9, commencing on January 9, 2004.
Record Dates ........................... The fifteenth day preceding the related Distribution Date.
Distributions .......................... The Trustee will distribute all payments of principal, Make-Whole Amount (if
any), and interest received on the Equipment Notes held in each Trust to the
holders of the Certificates of such Trust, subject to the subordination
provisions applicable to the Certificates.
Subject to the subordination provisions applicable to the Certificates,
scheduled payments of principal and interest made on the Equipment Notes
will be distributed on the applicable Regular Distribution Dates. Payments
of principal, Make-Whole Amount (if any), and interest made on the Equipment
Notes resulting from any early redemption of such Equipment Notes will be
distributed on a Special Distribution Date after not less than 15 days
notice to Certificateholders.
Intercreditor Agreement ................ The Trusts, the Liquidity Provider, the Policy Provider, and the
Subordination Agent will enter into the Intercreditor Agreement. The
Intercreditor Agreement states how payments made on the Equipment Notes, the
Liquidity Facility, and the Policy will be distributed among the Trusts, the
Liquidity Provider, and the Policy Provider. The Intercreditor Agreement
also sets forth agreements among the Trusts, the Liquidity Provider, and the
Policy Provider relating to who will control the exercise of remedies under
the Equipment Notes and the Indentures.
Subordination .......................... Under the Intercreditor Agreement, distributions on the Certificates
generally will be made in the following order:
o First, to the holders of the Class G Certificates.
o Second, to the holders of the Class C Certificates.
o Third, to the holders of the Class D Certificates.
Certain payments to the Liquidity Provider and to the Policy Provider will
be made prior to distributions on the Certificates as discussed under
"Description of the Intercreditor Agreement -- Priority of Distributions."
If American is in bankruptcy or other specified defaults have occurred but
American is continuing to meet certain of its payment obligations, the
subordination provisions applicable to the Certificates permit distributions
to be made in certain situations on junior Certificates prior to making
distributions in full on the more senior Certificates.
Control of Loan Trustee ................ Subject to certain conditions, the Controlling Party will direct the Loan
Trustee under each Indenture in taking action under such Indenture
(including in exercising remedies, such as accelerating such Equipment Notes
or foreclosing the lien on the Aircraft securing such Equipment Notes).
Subject to the following two paragraphs, if Final Distributions have not
been fully paid to the holders of the Class G Certificates or if any
obligations payable to the Policy Provider under the Intercreditor Agreement
remain outstanding, so long as no Policy Provider Default has occurred and
is continuing, the Policy Provider will be the Controlling Party. At any
other time the Controlling Party will be:
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o if Final Distributions have not been fully paid to the holders of the
Class G Certificates, the Class G Trustee;
o if Final Distributions have been fully paid to the holders of Class
G Certificates, but not to the holders of the Class C Certificates,
the Class C Trustee; and
o if Final Distributions have been fully paid to the holders of Class
G and Class C Certificates, the Class D Trustee.
Under certain circumstances, and notwithstanding the foregoing, the
Liquidity Provider will be the Controlling Party, unless the Policy Provider
pays to the Liquidity Provider all outstanding drawings and interest thereon
owing the Liquidity Provider under the Liquidity Facility, in which case,
the Policy Provider will be the Controlling Party (so long as no Policy
Provider Default has occurred and is continuing).
In exercising remedies during the nine months after the earlier of (a) the
acceleration of the Equipment Notes issued pursuant to any Indenture or (b)
the bankruptcy of American, the Controlling Party may not, without the
consent of each Trustee (other than the Trustee of any Trust all of the
Certificates of which are held or beneficially owned by American or any of
its affiliates), direct the sale of such Equipment Notes or the Aircraft
subject to the lien of such Indenture for less than certain specified
minimums.
Right to Buy Other Classes of
Certificates ........................... If American is in bankruptcy or certain other specified events have
occurred, Certificateholders and the Policy Provider will have the right to
buy certain other Classes of Certificates on the following basis:
o Subject to the third bullet of this paragraph, the Class C
Certificateholders (other than an American Entity) will have the right
to purchase all, but not less than all, of the Class G Certificates.
o Subject to the third bullet of this paragraph, the Class D
Certificateholders (other than an American Entity) will have the right
to purchase all, but not less than all, of the Class G Certificates and
the Class C Certificates.
o Whether or not any Class of Certificateholders has purchased or elected
to purchase the Class G Certificates, the Policy Provider (unless a
Policy Provider Default has occurred) will have the right to purchase
all, but not less than all, of the Class G Certificates. Once the Policy
Provider has purchased the Class G Certificates, the Class C
Certificateholders and the Class D Certificateholders will no longer
have the right to purchase the Class G Certificates on the terms
described herein.
The purchase price in each case described above will be the outstanding
balance of the applicable Class of Certificates plus accrued and
undistributed interest, but without any Make-Whole Amount.
Liquidity Facility ..................... Under the Liquidity Facility, the Liquidity Provider will, if necessary, make
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advances in an aggregate amount sufficient to pay interest distributions on
the Class G Certificates on up to three successive Regular Distribution
Dates at the applicable interest rate for such Certificates. The Liquidity
Facility cannot be used to pay any other amount in respect of the
Certificates.
Notwithstanding the subordination provisions applicable to the Certificates,
the holders of the Class G Certificates will be entitled to receive and
retain the proceeds of drawings under the Liquidity Facility.
Upon each drawing under the Liquidity Facility to pay interest distributions
on the Class G Certificates, the Subordination Agent will be obligated to
reimburse the Liquidity Provider for the amount of such drawing, together
with interest on such drawing. Such reimbursement obligation and all
interest, fees, and other amounts owing to the Liquidity Provider will rank
senior to all of the Certificates in right of payment.
Initially, there will be no liquidity facility available with respect to the
Class C and Class D Certificates. If a liquidity facility is provided for
new class C certificates in connection with a Refunding, the issuer of such
liquidity facility will have the same priority distribution rights as the
Liquidity Provider in respect of the Class G Certificates.
Policy Coverage for the Class G
Certificates ........................... Under the Policy, the Policy Provider will unconditionally and irrevocably
honor drawings to cover:
o any shortfall (after application of drawings under the Liquidity
Facility and withdrawals from the Cash Collateral Account
(collectively, "Prior Funds")) on any Regular Distribution Date in
interest distributed on the Class G Certificates; and
o any shortfall (after giving effect to the application of Prior Funds)
on the Final Legal Distribution Date in the Final Distributions (other
than any unpaid Make-Whole Amount) on the Class G Certificates.
Further, upon a default in the payment of principal on a Series G Equipment
Note or if a Series G Equipment Note is accelerated (each, a "Defaulted
Series G Equipment Note") then,
o on the first Business Day that is 24 months after the last Regular
Distribution Date on which full payment was made on that Defaulted
Series G Equipment Note prior to such default or acceleration, the
Policy Provider will pay the outstanding principal amount of that
Defaulted Series G Equipment Note and accrued and unpaid interest
thereon at the Stated Interest Rate for the Class G Certificates from
the immediately preceding Regular Distribution Date; or
o if a Defaulted Series G Equipment Note or any underlying collateral
is disposed of in connection with the exercise of remedies (a
"Disposition"), the Policy Provider will pay, after giving effect to
the application of Disposition proceeds and, if such Disposition
occurs prior to an election by the Policy Provider with respect to
such Defaulted Series G Equipment Note as described in the following
paragraph, any Prior Funds, the amount, if any, required to reduce
the Pool Balance of the Class G Certificates by an amount equal to
the outstanding principal amount of such Defaulted Series G Equipment
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Note (less the amount of any Policy Drawings previously paid by the
Policy Provider in respect of principal on such Defaulted Series G
Equipment Note) plus accrued and unpaid interest on the amount of
such reduction at the Stated Interest Rate for the Class G
Certificates from the immediately preceding Regular Distribution
Date.
If there is no Disposition, instead of paying the full amount of principal
and accrued and unpaid interest on a Defaulted Series G Equipment Note at
the end of the 24-month period referred to above, the Policy Provider may
elect, after giving five days prior written notice to the Subordination
Agent, instead to pay:
o an amount equal to the scheduled principal and interest payable but
not paid on the Defaulted Series G Equipment Note (without regard to
the acceleration thereof) during the 24-month period (after giving
effect to the application of Prior Funds received with respect to
such interest); and
o thereafter, on each Regular Distribution Date, an amount equal to the
scheduled principal and interest otherwise payable on the Defaulted
Series G Equipment Note (without regard to any acceleration thereof
and without regard to any Prior Funds) until paid in full.
Notwithstanding an election by the Policy Provider to pay scheduled payments
instead of accelerated payments as discussed above, the Policy Provider may,
on any Business Day (which shall be a Special Distribution Date) elected by
the Policy Provider upon 20 days notice, cause the Subordination Agent to
make a drawing under the Policy for an amount equal to the then outstanding
principal balance of the Defaulted Series G Equipment Note and accrued and
unpaid interest thereon from the immediately preceding Regular Distribution
Date, less any policy drawings previously paid by the Policy Provider in
respect of principal on such Defaulted Series G Equipment Note. Further,
notwithstanding an election by the Policy Provider to pay scheduled payments
instead of accelerated payments as discussed above, upon the occurrence of a
Policy Provider Default, the Subordination Agent shall, on any Business Day
elected by the Subordination Agent upon 20 days notice to the Policy
Provider, make a drawing under the Policy for an amount equal to the then
outstanding principal balance of the Defaulted Series G Equipment Note and
accrued and unpaid interest thereon from the immediately preceding Regular
Distribution Date, less any Policy drawings previously paid by the Policy
Provider in respect of principal on such Defaulted Series G Equipment Note.
At the end of the 24-month period referred to above, the Policy will honor
drawings by the Liquidity Provider of interest accruing on all outstanding
drawings under the Liquidity Facility from and after the end of such
24-month period as and when such interest becomes due in accordance with the
Liquidity Facility. Accrued and unpaid interest payable by the Policy
Provider on account of the Defaulted Series G Equipment Notes will be
calculated at the Stated Interest Rate for the Class G Certificates. The
Policy will cover only the Class G Certificates, and the proceeds of any
Policy Drawing will be applied only to the outstanding balance of, and
interest distributions on, the Class G Certificates. The Policy Provider
will be entitled to be reimbursed for Policy Drawings as described in
"Description of the Intercreditor Agreement -- Priority of Distributions."
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Equipment Notes
(a) Issuer .................. Under each Indenture, American will issue Series G, Series C, and Series D
Equipment Notes, which will be acquired, respectively, by the Class G, Class
C, and Class D Trusts.
(b) Interest ................ The Equipment Notes held in the Class G Trust will accrue interest at the
rate per annum for the Class G Certificates set forth on the cover page of
this Prospectus Supplement. The Equipment Notes held in the Class C and
Class D Trusts will accrue interest at the rate per annum of % and %,
respectively; provided that the interest rates with respect to the new
series C and new series D equipment notes issued as described in
"Description of the Certificates-- Possible Refunding of Series C Equipment
Notes and Series D Equipment Notes" may differ. Interest on the Equipment
Notes will be payable on January 9 and July 9 of each year, commencing on
January 9, 2004. Interest on the Equipment Notes will be calculated on the
basis of a 360-day year consisting of twelve 30-day months.
(c) Principal ............... Principal payments on the Equipment Notes are scheduled to be received in
specified amounts on January 9 and July 9 in certain years. See "Description
of the Certificates-- Pool Factors." The principal amounts and maturity
dates of the new series C and new series D equipment notes issued as
described in "Description of the Certificates-- Possible Refunding of Series
C Equipment Notes and Series D Equipment Notes" may differ.
(d) Rankings ................ The Indentures provide for the following subordination provisions applicable
to the Equipment Notes:
o Series G Equipment Notes issued in respect of an Aircraft will rank
senior in right of payment to the Series C and Series D Equipment
Notes issued in respect of such Aircraft;
o Series C Equipment Notes issued in respect of an Aircraft will rank
junior in right of payment to the Series G Equipment Notes issued in
respect of such Aircraft and will rank senior in right of payment to
the Series D Equipment Notes issued in respect of such Aircraft; and
o Series D Equipment Notes issued in respect of an Aircraft will rank
junior in right of payment to the Series G and Series C Equipment
Notes issued in respect of such Aircraft.
By virtue of the Intercreditor Agreement, all of the Equipment Notes will be
effectively cross-subordinated. This means that payments received on a
junior series of Equipment Notes issued in respect of one Aircraft may be
applied in accordance with the priority of payment provisions set forth in
the Intercreditor Agreement to make distributions on a more senior Class of
Certificates.
(e) Redemption .............. Aircraft Event of Loss. If an Event of Loss occurs with respect to an
Aircraft, all of the Equipment Notes issued with respect to such Aircraft
will be redeemed, unless such Aircraft, at American's election, is replaced
by American under the related Indenture. The redemption price in such case
will be the unpaid principal amount of such Equipment Notes, together with
accrued interest, but without Make-Whole Amount. See "Description of the
Equipment Notes-- Redemption."
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Sale of Aircraft. American will redeem all of the Equipment Notes issued
with respect to an Aircraft at any time prior to maturity in connection with
a sale of the Aircraft. The redemption price in such case will be the unpaid
principal amount of such Equipment Notes, together with accrued interest and
Make-Whole Amount (if any). See "Description of the Equipment Notes --
Redemption."
In connection with an Event of Loss of an Aircraft that is not replaced or
the sale of an Aircraft, unless the Policy Provider otherwise agrees,
American is required to use the proceeds received by it as owner of the
Aircraft and as holder of the Class C and Class D Certificates either:
o to redeem with a Make-Whole Amount (unless an Indenture Event of
Default shall have occurred and be continuing) additional Series G
Equipment Notes issued in respect of other Aircraft or
o to deposit such amounts with the Indenture Trustees as additional
security.
Optional Redemption. American may elect to redeem at any time all of the
Equipment Notes of any Series issued with respect to an Aircraft prior to
maturity; provided that, except in connection with a refunding of the Series
C or Series D Equipment Notes, American may not redeem the Series C
Equipment Notes unless it has redeemed the Series G Equipment Notes, and may
not redeem the Series D Equipment Notes unless it has redeemed the Series G
and Series C Equipment Notes. The redemption price in such case will be the
unpaid principal amount of such Equipment Notes, together with accrued
interest and Make-Whole Amount (if any). See "Description of the Equipment
Notes -- Redemption." In addition, American may elect to redeem all of the
Series C and Series D Equipment Notes without a Make-Whole Amount in
connection with a refunding as described in "Description of the Certificates
-- Possible Refunding of Series C Equipment Notes and Series D Equipment
Notes."
If, at any time before the Final Payment Date, the Equipment Notes issued
under an Indenture are repaid in full (other than as a result of an Event of
Loss or a sale of the related Aircraft), the lien under such Indenture will
not be released and will thereafter continue to secure the other Equipment
Notes, unless the Policy Provider consents to the release of such lien. If
the Policy Provider consents to such release at any time before the Final
Payment Date and the Equipment Notes under such Indenture have been paid in
full, the lien under such Indenture will not thereafter secure any other
Equipment Notes.
Indenture Event of Default. Upon the occurrence of an Indenture Event of
Default under an Indenture, any excess proceeds realized from the sale of
the Aircraft or the exercise of other remedies under such Indenture will be
paid over to the Loan Trustees under the other Indentures in accordance with
the second paragraph under "-- Security" and will be applied to redeem
Equipment Notes, together with accrued interest and (unless an Indenture
Event of Default shall have occurred and be continuing under the other
Indentures) Make-Whole Amount (if any).
(f) Security ................ The Equipment Notes issued with respect to each Aircraft will be secured by
a security interest in such Aircraft. In addition, the Indenture with respect to
each Aircraft will be cross-collateralized, as summarized below.
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Distribution of Excess Proceeds. The proceeds realized from the sale of an
Aircraft or the exercise of other remedies by the Loan Trustee under an
Indenture will be allocated, after paying certain administrative expenses
and other related amounts, in the following order of priority:
o to pay all amounts due and payable on all of the Equipment Notes
issued under such Indenture in accordance with the priorities set
forth therein;
o to pay to the Loan Trustees under the other Indentures an amount up
to the outstanding principal of, and unpaid interest accrued on, the
Series G Equipment Notes issued thereunder on a pro rata basis;
o to pay to the Loan Trustees under the other Indentures an amount up
to the outstanding principal of, and unpaid interest accrued on, the
Series C Equipment Notes issued thereunder on a pro rata basis; and
o to pay to the Loan Trustees under the other Indentures an amount up
to the outstanding principal of, and unpaid interest accrued on, the
Series D Equipment Notes issued thereunder on a pro rata basis.
Cross-Default at Final Payment Date. In addition, if all amounts owing under
any Equipment Note are not paid in full on the Final Payment Date, the Loan
Trustees will be able to exercise remedies under all remaining Indentures,
including the sale of all Aircraft, to satisfy the remaining amounts due
under any Equipment Note. Such payment default at the Final Payment Date is
the only cross-default provision under the Indentures. Therefore, until the
Final Payment Date, if the Equipment Notes issued under one or more
Indentures are in default and the Equipment Notes issued under the remaining
Indentures are not in default, no remedies will be exercisable under such
remaining Indentures. Each Indenture, however, requires either the pro rata
deposit as collateral or pro rata redemption of Series G Equipment Notes
under such Indenture out of the excess proceeds relating to an Event of Loss
or the sale of an Aircraft subject to another Indenture. Failure to make
such a deposit or redemption could result in an Indenture Event of Default
under such Indenture.
(g) Section 1110 Protection ........ American's General Counsel will provide an opinion to the Trustees that the
benefits of Section 1110 of the Bankruptcy Code will be available with
respect to each of the Aircraft.
Certain Federal Income Tax
Consequences ............................ The Trusts themselves will not be subject to federal income tax. Each
Certificate Owner of Class G Certificates should report on its federal
income tax return its pro rata share of the income from the Equipment Notes
and other property held by the Class G Trust. See "Certain Federal Income
Tax Consequences."
Certain ERISA Considerations ............ Each person who acquires a Class G Certificate will be deemed to have
represented that either:
o no assets of an employee benefit plan, or governmental or church plan
or an individual retirement account or of any trust established under
such a plan or account have been used to purchase such Certificate;
or
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o the purchase and holding of such Certificate by such person are
exempt from the prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974, as amended, and the Internal
Revenue Code of 1986, as amended, or any provision of similar law
affecting any governmental or church plan, as applicable, pursuant to
one or more prohibited transaction statutory or administrative
exemptions.
See "Certain ERISA Considerations."
Ratings of the Class G
Certificates It is a condition to the issuance of the Class G Certificates that they be
rated Aaa by Moody's and AAA by Standard & Poor's.
A rating is not a recommendation to purchase, hold, or sell Certificates;
and such rating does not address market price or suitability for a
particular investor. There can be no assurance that such ratings will not be
lowered or withdrawn by a Rating Agency. See "Risk Factors -- Risk Factors
Relating to the Certificates and the Offering -- Ratings of the
Certificates."
Threshold Rating Requirements for
the Liquidity Provider Moody's Standard & Poor's
P-1 A-1
For any entity that does not have a short-term rating from either or both of
such rating agencies, then in lieu of such short-term rating, a long-term
unsecured debt rating of A1 in the case of Moody's and a long-term issuer
credit rating of A+ in the case of Standard & Poor's.
Liquidity Provider Rating The initial Liquidity Provider meets the Threshold Rating requirement.
Policy Provider Rating The Policy Provider is currently rated Aaa by Moody's and AAA by Standard &
Poor's.
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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents summary historical consolidated financial
data and certain operating data of American. We derived the annual historical
financial data from American's audited consolidated financial statements and the
notes thereto. These audited consolidated financial statements are incorporated
by reference in the Prospectus accompanying this Prospectus Supplement and
should be read in conjunction therewith. We derived the consolidated financial
data for the interim periods ended March 31, 2003 and 2002 from American's
unaudited condensed consolidated financial statements. These unaudited condensed
consolidated financial statements are also incorporated by reference in the
Prospectus accompanying this Prospectus Supplement and should be read in
conjunction therewith. The data for such interim periods may not be indicative
of results for the year as a whole. On April 9, 2001, American purchased
substantially all of the assets of TWA. This acquisition was accounted for under
the purchase method of accounting and, accordingly, the operating results of TWA
since the date of the acquisition have been included in the summary consolidated
financial statements. The operating statistics of TWA LLC, the entity holding
the assets acquired from TWA, since the date of acquisition are included in
Operating Statistics for the interim periods ended March 31, 2003 and 2002 and
the years ended December 31, 2002 and 2001, but are not included in Operating
Statistics for the year ended December 31, 2000. See "Where You Can Find More
Information" in the Prospectus accompanying this Prospectus Supplement.
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------- -----------------------------------------
2003 2002 2002 2001 2000
--------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA (IN MILLIONS):
Revenues:
Passenger ........................................... $ 3,394 $ 3,484 $ 14,439 $ 15,780 $ 16,394
Regional Affiliates (1) ............................. 326 22 -- -- --
Cargo ............................................... 134 133 557 656 714
Other ............................................... 254 196 875 1,048 1,009
Operating expense (2) ................................. 5,011 4,557 19,184 19,758 16,873
Operating income (loss) (2) ........................... (903) (722) (3,313) (2,274) 1,244
Other income (expense), net ........................... (129) (92) (356) (175) 38
Earnings (loss) before income taxes and cumulative
effect of accounting change (2) ....................... (1,032) (814) (3,669) (2,449) 1,282
Net earnings (loss) (2)(3) ............................ $ (1,032) $ (1,431) $ (3,495) $ (1,562) $ 778
OTHER DATA:
Ratio of earnings to fixed charges (4) ................ -- -- -- -- 2.07
OPERATING STATISTICS (5)
Scheduled Service:
Available seat miles (millions) (6) ................. 40,274 40,089 172,200 174,688 161,030
Revenue passenger miles (millions) (7) .............. 27,838 27,817 121,747 120,606 116,594
Passenger load factor (%) (8) ....................... 69.1% 69.4% 70.7% 69.0% 72.4%
Passenger revenue yield per passenger mile
(cents) (9) ......................................... 12.19 12.52 11.86 13.08 14.06
Passenger revenue per available seat mile (cents).... 8.43 8.69 8.39 9.04 10.18
Operating expenses per available
seat mile (cents) (10) .............................. 12.44 11.37 11.14 11.31 10.48
Cargo ton miles (millions) (11) ..................... 490 463 2,007 2,130 2,280
Cargo revenue yield per ton mile (cents) ............ 27.38 28.74 27.73 30.80 31.31
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AT AT
MARCH 31, DECEMBER
2003 31, 2002
--------- --------
(IN MILLIONS)
BALANCE SHEET DATA:
Cash and short-term investments ............................... $ 1,260 $ 1,934
Restricted cash and short-term investments .................... 550 783
Total assets .................................................. 26,511 27,650
Current liabilities ........................................... 6,759 6,957
Long-term debt, less current maturities ....................... 8,798 8,729
Obligations under capital leases, less current obligations .... 1,255 1,322
Stockholder's equity .......................................... (34) 947
----------
(1) The Company's Regional Affiliates include two wholly owned subsidiaries
of AMR, American Eagle Airlines, Inc. (American Eagle) and Executive
Airlines, Inc. (Executive), and two independent carriers, Trans States
Airlines, Inc. (Trans States) and Chautauqua Airlines, Inc.
(Chautauqua). In 2002, American had a fixed fee per block hour
agreement with Chautauqua. In 2003, American had fixed fee per block
hour agreements with American Eagle, Executive, Trans States and
Chautauqua.
(2) Operating expenses, operating income (loss), earnings (loss) before
income taxes and cumulative effect of accounting change, and net
earnings (loss) for the years ended December 31, 2002 and 2001 included
an asset impairment charge of approximately $244 million and $911
million, respectively, relating to the write-down of the carrying value
of Fokker 100 aircraft and related rotables to their estimated fair
market value. In addition, such amounts for the years ended December
31, 2002 and 2001 include $10 million and $827 million, respectively,
in compensation under the Air Transportation Safety and Stabilization
Act and for the years ended December 31, 2002 and 2001, approximately
$381 million and $337 million, respectively, in other special charges
related to aircraft groundings, facility exit costs, and employee
charges.
(3) Net earnings (loss) for the year ended December 31, 2002 includes a
one-time, non-cash charge, effective January 1, 2002, of $889 million
(net of a tax benefit of $363 million) to write off all of American's
goodwill.
(4) As of March 31, 2003, American guaranteed approximately $636 million of
unsecured debt of its parent, AMR Corporation and approximately $521
million of secured debt of American Eagle Airlines, Inc. The impact of
these unconditional guarantees is not included in the above
computation. Earnings were inadequate to cover fixed charges by $3,749
million and $2,584 million for the years ended December 31, 2002 and
2001, respectively, and by $1,050 million and $834 million for the
three months ended March 31, 2003 and 2002, respectively.
(5) The operating statistics of TWA Airlines LLC, the entity holding the
assets acquired from TWA, are included in Operating Statistics since
the date of acquisition for the three months ended March 31, 2003 and
2002 and the years ended December 31, 2002 and 2001, but are not
included in Operating Statistics for the year ended December 31, 2000.
(6) "Available seat miles" represents the number of seats available for
passengers multiplied by the number of scheduled miles the seats are
flown.
(7) "Revenue passenger miles" represents the number of miles flown by
revenue passengers in scheduled service.
(8) "Passenger load factor" is calculated by dividing revenue passenger
miles by available seat miles, and represents the percentage of
aircraft seating capacity utilized.
(9) "Passenger revenue yield per passenger mile" represents the average
revenue received from each mile a passenger is flown in scheduled
service.
(10) Calculated using mainline jet operations available seat miles.
Operating expenses for the three months ended March 31, 2003 and 2002
include $423 million and $27 million, respectively, of expenses
incurred related to Regional Affiliates. Operating expenses per
available seat mile, excluding expenses incurred related to Regional
Affiliates and thereby excluding Regional Affiliates from both the
numerator and the denominator, were 11.39 cents and 11.30 cents for the
three months ended March 31, 2003 and 2002, respectively.
(11) "Cargo ton miles" represents the tonnage of freight and mail carried
multiplied by the number of miles flown.
S-16
RECENT DEVELOPMENTS
We incurred operating losses of approximately $903 million in the first
quarter of 2003, $3.3 billion in 2002 and $2.3 billion in 2001. Our recent
losses reflect a substantial decrease in our revenues that began in early 2001
and, to a lesser extent, the impact of higher fuel and insurance costs. This
revenue decrease was driven by a number of factors, some of which may persist
indefinitely. They include:
o a steep fall-off in the demand for air travel, particularly
business travel, primarily caused by the continuing weakness
of the U.S. economy and the growing use of travel substitutes;
o reduced pricing power resulting from greater cost sensitivity
on the part of travelers, particularly business travelers, and
increasing competition from low-cost carriers; and
o the lingering effects of the terrorist attacks of September
11, 2001, the effects of the war in Iraq and, to a lesser
extent, concerns about SARS.
In light of these losses, which we believed were not sustainable, we
took and are continuing to take a number of actions designed to improve our
financial results. They include:
o more than $2 billion in annual operating cost reductions,
mainly through operating efficiencies, fleet simplification
and other operational improvements, which were initiated in
2002 and are expected to be phased in by the end of 2005;
o a combination of changes, introduced May 1, 2003 and expected
to be phased in by the end of 2003, in wages, benefits and
work rules, which we estimate should produce approximately
$1.8 billion in annual labor savings (a 23% reduction from our
2002 wages and benefits expense); and
o concessions, effective beginning May 1, 2003, from certain of
our aircraft lessors, lenders and other suppliers, which we
estimate should result in annual cost savings of nearly $200
million.
Our liquidity has been bolstered by our reduced costs, in combination
with recently improved unit revenues (as measured by revenue per available seat
mile), and by our portion of the security cost reimbursements referred to below.
April 2003 unit revenues (which were impacted by the war in Iraq and concerns
over SARS) were slightly lower than a year ago, and May 2003 unit revenues were
up 4% from their year-ago level. We are also experiencing improved unit revenue
trends for June relative to last year. Our reduced costs and improved unit
revenues enabled us to generate positive cash flows from operations in May 2003
(excluding the benefit of our portion of the $358 million in security cost
reimbursements our parent AMR Corporation received under the Emergency Wartime
Supplemental Appropriations Act in May 2003). If the improved unit revenue
environment continues, we would expect to show similar positive operating cash
flow results in June 2003.
Even with our cost-reduction and capital raising efforts, however, our
financial condition remains weak. While improving in recent months, our revenues
are still depressed relative to historical levels. Our recent losses, coupled
with our capital expenditures, have significantly reduced our liquidity. This
comes at a time when the savings from our cost reduction efforts are still
phasing in. To maintain sufficient liquidity as we seek to return to
profitability, we need some combination of continuing improved revenues and
additional funding in the future, most likely from borrowings or asset sales.
Our success will depend on a number of factors, many of which are largely beyond
our control. See "Risk Factors."
S-17
RISK FACTORS
In addition to the matters set forth in the documents incorporated by
reference, you should carefully consider the following risk factors as well as
other information contained in this Prospectus Supplement and the accompanying
Prospectus.
RISK FACTORS RELATING TO AMERICAN
WE HAVE INCURRED SIGNIFICANT OPERATING LOSSES
We incurred operating losses of approximately $903 million in the first
quarter of 2003, $3.3 billion in 2002 and $2.3 billion in 2001. See our report
on Form 10-Q for the quarter ended March 31, 2003 and our report on Form 10-K
for the year ended December 31, 2002 incorporated by reference into this
document. In addition to the residual effects of September 11, the war in Iraq
and concerns about SARS, our revenues continue to be negatively impacted by the
economic slowdown (seen largely in decreased business travel), reduced fares and
increased competition. The fragility of our financial condition at March 31,
2003 is illustrated by the opinion expressing substantial doubt about our
ability to continue as a going concern issued by our independent auditors in
their report, dated March 31, 2003, with respect to their audit of our financial
statements for the year ended December 31, 2002. Without an improvement in
revenues, our cost reduction efforts are not likely to be sufficient to return
us to profitability.
WE NEED TO RAISE ADDITIONAL FUNDS TO MAINTAIN SUFFICIENT LIQUIDITY
Even with the cost reduction program we are implementing, our financial
condition remains weak. Our recent losses, coupled with capital expenditures,
have significantly reduced our liquidity. This reduced liquidity comes at a time
when the savings from our cost reduction program are phasing in, our revenues
are depressed relative to historical levels and our access to the capital
markets is more limited than in the past. Moreover, we have significant debt
obligations maturing in the next several years, including $517 million in 2003,
$425 million in 2004, $1.2 billion in 2005 (including $834 million drawn under
our bank credit facility) and $932 million in 2006, as well as substantial, and
increasing, pension funding obligations, which will require additional
liquidity.
To maintain sufficient liquidity as we seek to return to profitability,
we will need some combination of continuing improved revenues and additional
funding in the future, most likely through a combination of financings and asset
sales. We cannot be sure that our recent unit revenue improvements will continue
or that we will be able to raise such financing or effect such sales on
acceptable terms. To the extent that our revenues do not sufficiently increase
or that we are unable to access the capital markets or sell assets, we will be
unable to fund our obligations and sustain our operations, which may require us
to initiate a filing under Chapter 11 of the U. S. Bankruptcy Code. In addition,
a covenant in our $834 million bank credit facility (which is fully drawn)
requires us to maintain at all times at least $1 billion of available cash.
While at March 31, 2003, we had $1.3 billion of available cash, we cannot be
sure that we will continue to satisfy this liquidity covenant until the amounts
outstanding under the bank credit facility are repaid. Failure to do so would
result in a default under our bank credit facility and a significant amount of
our other debt.
LINGERING EFFECTS OF TERRORIST ATTACKS, WAR IN IRAQ, WEAK U.S. ECONOMY
AND SARS CONCERNS HAVE DEPRESSED DEMAND FOR AIR TRAVEL, PARTICULARLY BUSINESS
TRAVEL
A combination of factors has depressed the demand for air travel and,
in particular, business travel.
Because we have in recent years tailored our network, product, schedule and
pricing strategies to the business travel market, reduced demand for business
travel has affected us more than most other carriers. These factors include the
lingering effects of the September 11, 2001 terrorist attacks and the war in
Iraq, the weak U.S. economy and, to a lesser extent, concerns about SARS. The
terrorist attacks of September 11, 2001 accelerated and exacerbated an existing
trend of decreased demand and reduced industry revenues. Additional terrorists
attacks, even if not directed at the airline industry, the fear of such attacks
(which could escalate at times of international crises or U.S. military
involvement in overseas hostilities), or a continuing weakness in the U.S. and
global economy or other events that affect travel, particularly business travel,
could have a material adverse impact on our business, financial condition and
results of operations, and on the airline industry in general.
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OUR REDUCED PRICING POWER ADVERSELY AFFECTS OUR ABILITY TO ACHIEVE
ADEQUATE PRICING, ESPECIALLY WITH RESPECT TO BUSINESS TRAVEL
We have reduced pricing power, resulting mainly from greater cost
sensitivity on the part of travelers, especially business travelers, and
increasing competition from low cost carriers ("LCCs"). The percentage of our
routes on which we compete with carriers having substantially lower operating
costs has grown significantly over the past decade. We now compete with LCCs on
85% of our domestic network. At the same time, the continuous increase in
pricing transparency resulting from the use of the Internet has enabled cost
conscious customers to more easily obtain the lowest fare on any given route.
WE COMPETE WITH CARRIERS NOW OR RECENTLY IN BANKRUPTCY, WHICH MAY BE A
COMPETITIVE DISADVANTAGE
We must now compete with carriers that have recently reorganized or are
reorganizing under the protection of Chapter 11 of the Bankruptcy Code,
including United Airlines, the second largest air carrier. It is possible that
our other competitors may seek to reorganize in or out of Chapter 11. Successful
completion of such reorganizations could present us with competitors with
operating costs derived from renegotiated labor, supply, and financing contracts
that may be below our reduced cost structure. In addition, in the past, air
carriers involved in reorganizations have often undertaken substantial fare
discounting to maintain cash flows and to enhance customer loyalty. Fare sales
(including fare sales initiated by carriers in reorganization) have been
significant and widespread and have further lowered yields for all carriers,
including us. These competitive pressures may limit our ability to adequately
price our services and could have a material adverse impact on our business,
financial condition and results of operations.
OUR CREDIT RATINGS ARE BELOW INVESTMENT GRADE AND OUR ACCESS TO THE
CAPITAL MARKETS IS MORE LIMITED AND ON LESS FAVORABLE TERMS THAN IN THE PAST
Since the September 11, 2001 terrorist attacks, our senior unsecured
rating has been lowered by Moody's from Baa3 to Caa2 and our long-term corporate
credit rating has been lowered by Standard & Poor's from BBB- to B- (recently
increased from CCC). The ratings on most of our debt have also been lowered. In
addition, both Moody's and Standard & Poor's have given us a negative ratings
outlook. These reductions have increased our borrowing costs and limited the
borrowing options available to us. Additional significant reductions in AMR's or
our credit ratings would further increase our borrowing or other costs and
further restrict the availability of future financing.
Our ability to obtain future financing or to sell assets may also be
adversely affected because we have fewer unencumbered assets available to us
than in years past. In recent years, we have encumbered a large portion of our
aircraft assets (including, after giving effect to this offering, virtually all
of our Section 1110-eligible aircraft). While we have other unencumbered assets
that could be encumbered or sold, our ability to borrow on or sell those assets
on acceptable terms is uncertain, and in any event those assets may not maintain
their current market value.
WE ARE BEING ADVERSELY AFFECTED BY INCREASES IN FUEL PRICES
Our operations are significantly affected by the availability and price
of jet fuel. To reduce the impact of potential fuel price increases in 2003, as
of December 31, 2002, we had hedged approximately 32 percent of our estimated
2003 fuel requirements. Nevertheless, our average cost per gallon of fuel has
risen from 66.5 cents in February 2002 to 91.0 cents in February 2003. During
the first quarter of 2003, our aircraft fuel expense increased 37.2 percent, or
$185 million, compared to the first quarter of 2002, due primarily to a 39.9
percent increase in our average price per gallon of fuel. Due to the competitive
nature of the airline industry, our ability to pass on increased fuel prices to
our customers by increasing fares is uncertain. Likewise, any potential benefit
of lower fuel prices may be offset by increased fare competition and lower
revenues for all air carriers.
While we do not currently anticipate a significant reduction in fuel
availability, dependency on foreign imports of crude oil and the possibility of
changes in government policy on jet fuel production, transportation and
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marketing make it impossible to predict the future availability of jet fuel. If
there are new outbreaks of hostilities or other conflicts in oil producing areas
or elsewhere, there could be reductions in the production and/or importation of
crude oil and/or significant increases in the cost of fuel. If there were major
reductions in the availability of jet fuel or significant increases in its cost,
our business, as well as that of the entire industry, would be adversely
affected.
OUR INSURANCE COSTS HAVE INCREASED SUBSTANTIALLY AND FURTHER INCREASES
IN INSURANCE COSTS OR REDUCTIONS IN COVERAGE COULD HAVE A MATERIAL ADVERSE
IMPACT ON US
We carry insurance for public liability, passenger liability, property
damage and all-risk coverage for damage to our aircraft. As a result of the
September 11, 2001 terrorist attacks, aviation insurers have significantly
reduced the amount of insurance coverage available to commercial air carriers
for liability to persons other than employees or passengers for claims resulting
from acts of terrorism, war or similar events (war-risk coverage). At the same
time, they significantly increased the premiums for such coverage as well as for
aviation insurance in general. The U.S. government has provided commercial
war-risk insurance for U.S. based airlines until August 13, 2003 covering losses
to crew members, passengers, third parties and aircraft. While the Emergency
Wartime Supplemental Appropriations Act, 2003 authorizes this insurance to be
extended until August 31, 2004 (and possibly further until December 31, 2004),
there is no assurance that it will be. In the event the U.S. government
sponsored insurance is not so extended or the commercial insurance carriers
further reduce the amount of insurance coverage available to us or significantly
increase the cost of aviation insurance, our business, financial condition and
results of operations would be materially adversely affected.
OUR INDEBTEDNESS AND OTHER OBLIGATIONS ARE SUBSTANTIAL AND COULD AFFECT
OUR BUSINESS
We have now and will continue to have a significant amount of
indebtedness. As of March 31, 2003, we had approximately $10.7 billion of
long-term debt (including current maturities) and obligations under capital
leases (including current obligations), or $ billion on a pro forma basis,
after giving effect to this offering. Our substantial indebtedness could have
important consequences. For example, it could:
o limit our ability to obtain additional financing for working
capital, capital expenditures, acquisitions and general
corporate purposes;
o require us to dedicate a substantial portion of our cash flow
from operations to payments on our indebtedness, thereby
reducing the funds available to us for other purposes;
o make us more vulnerable to economic downturns, limit our
ability to withstand competitive pressures and reduce our
flexibility in responding to changing business and economic
conditions; and
o limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate.
Any of the foregoing could adversely affect our business and our
ability to service our debt, including the Equipment Notes.
THE AIRLINE INDUSTRY IS FIERCELY COMPETITIVE
On most of our domestic non-stop routes, we face competing service from
at least one, and sometimes more than one, domestic airline, including: AirTran,
Alaska Airlines, America West Airlines, Continental Airlines, Delta, Jet Blue,
Northwest Airlines, Southwest Airlines, United and US Airways, and their
affiliated regional carriers. We face even greater competition between cities
that require a connection, where all major airlines may compete via their
respective hubs. We also compete with national, regional, all-cargo and charter
carriers and, particularly on shorter routes, ground transportation, as well as
with foreign airlines and numerous U.S. carriers on our international routes. On
all of our routes, pricing decisions are affected, in large part, by competition
from other airlines. On over 85 percent of our domestic network, we compete with
airlines that have cost structures significantly lower than ours and can
therefore operate profitably at lower fare levels.
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We also encounter substantial price competition. Historically, fare
discounting by competitors has affected our financial results negatively because
we are generally required to match competitors' fares to maintain passenger
traffic. During recent years, a number of new LCCs have entered the domestic
market and several major airlines have implemented efforts to lower their cost
structures.
OUR BUSINESS IS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION
Airlines are subject to extensive regulatory requirements that result
in significant costs. For example, the Federal Aviation Administration from time
to time issues directives and other regulations relating to the maintenance and
operation of aircraft, and compliance with those requirements drives significant
expenditures. These requirements cover, among other things, modifications to
improve cockpit security, enhanced ground proximity warning systems, McDonnell
Douglas MD-80 metal-mylar insulation replacement, McDonnell Douglas MD-80 main
landing gear piston improvements, Boeing 757 and Boeing 767 pylon improvements,
Boeing 737 elevator and rudder improvements, inspections to monitor Airbus A300
vertical stabilizers and Airbus A300 structural improvements. We expect to
continue incurring expenses to comply with these requirements and other FAA
regulations.
Additional laws, regulations, taxes and airport rates and charges have
been proposed from time to time that could significantly increase the cost of
airline operations or reduce revenues. For example, the Aviation and
Transportation Security Act, which became law in November 2001, mandates the
federalization of certain airport security procedures and imposes additional
security requirements on airlines. In addition, the ability of U.S. carriers to
operate international routes is subject to change because the applicable
arrangements between the United States and foreign governments may be amended
from time to time, or because appropriate slots or facilities are not made
available. We cannot provide assurance that laws or regulations enacted in the
future will not adversely affect us.
RISK FACTORS RELATING TO THE CERTIFICATES AND THE OFFERING
APPRAISALS AND REALIZABLE VALUE OF AIRCRAFT
Three independent appraisal and consulting firms have prepared
appraisals of the Aircraft. The appraisal letters provided by these firms are
annexed to this Prospectus Supplement as Appendix II and reflect valuations as
of the dates of such letters. These valuations will likely be reduced in the
third quarter of this year. Such appraisals, which are based on the base value
of the Aircraft, rely on varying assumptions and methodologies (which may differ
among the appraisers), and may not reflect current market conditions that could
affect the current market value of the Aircraft. Base value is the theoretical
value for an aircraft that assumes a balanced market, while current market value
is the value for an aircraft in the actual market. The appraisals were prepared
without a physical inspection of the Aircraft. Appraisals that are based on
other assumptions and methodologies may result in valuations that are materially
different from those contained in such appraisals.
The values of the Aircraft have been negatively affected, at least
temporarily, by the effects of the events of September 11, 2001 and other
factors referred to under "-- Risk Factors Relating to American -- Lingering
Effects of Terrorist Attacks, War in Iraq, Weak U.S. Economy and SARS Concerns
Have Depressed Demand for Air Travel, Particularly Business Travel." The
appraisals contain disclaimers as to the effect of the events of September 11,
2001 on the market for, and prices of, commercial aircraft. In addition, the
value of aircraft, including the Aircraft, would likely continue to be
negatively affected if air carriers, including air carriers seeking to
reorganize under the protection of Chapter 11 of the Bankruptcy Code, such as
United Airlines, persist in reducing capacity by removing large numbers of
aircraft from their fleets. For these reasons, American believes the current
market values of the Aircraft at this time are lower than the base values
reflected in the appraisals. See "Description of the Aircraft and the Appraisals
-- The Appraisals."
An appraisal is only an estimate of value. It does not necessarily
indicate the price at which an aircraft may be purchased from the aircraft
manufacturer. Nor should an appraisal be relied upon as a measure of realizable
value. The proceeds realized upon a sale of any Aircraft may be less than its
appraised value. The value of an Aircraft if remedies are exercised under the
applicable Indenture will depend on various factors, including:
S-21
o market and economic conditions;
o the supply of similar aircraft;
o the availability of buyers;
o the condition of the Aircraft; and
o whether the Aircraft are sold separately or as a block.
Accordingly, we cannot assure you that the proceeds realized upon any
such exercise of remedies would be sufficient to satisfy in full payments due on
the Equipment Notes relating to such Aircraft or the full amount of
distributions expected on the Certificates.
REPOSSESSION
There will be no general geographic restrictions on our ability to
operate the Aircraft. Although we do not currently intend to do so, we will be
permitted to register the Aircraft in certain foreign jurisdictions and to lease
the Aircraft to unrelated parties. It may be difficult, time-consuming and
expensive for the Loan Trustee to exercise its repossession rights if an
Aircraft is located outside the United States, is registered in a foreign
jurisdiction or is leased to a foreign or domestic operator. Additional
difficulties may exist when a lessee is the subject of a bankruptcy, insolvency,
or similar event.
In addition, certain jurisdictions may allow for certain other liens or
other third party rights to have priority over the related Loan Trustee's
security interest in an Aircraft. As a result, the benefits of the related Loan
Trustee's security interest in an Aircraft may be less than they would be if
such Aircraft were located or registered in the United States.
PRIORITY OF DISTRIBUTIONS; SUBORDINATION
Under the Intercreditor Agreement, the Liquidity Provider will receive
payment of all amounts owed to it before the holders of any Class of
Certificates receive any funds and the Policy Provider will receive payments of
Policy Provider Obligations, Policy Expenses, Policy Provider Interest Drawing
Amounts and (in certain circumstances) Policy Provider Interest Amounts owed to
it before the holders of Class C and Class D Certificates receive any funds. In
addition, in certain default situations the Subordination Agent and the Trustees
will receive certain payments before the holders of any Class of Certificates
receive distributions. See "Description of the Intercreditor Agreement --
Priority of Distributions."
If American is in bankruptcy or other specified defaults have occurred
but American is continuing to meet certain of its payment obligations and the
applicable loan to Aircraft value tests are met, the subordination provisions
applicable to the Certificates permit distributions to be made in certain
situations to junior Certificates prior to making distributions in full on more
senior Certificates.
CONTROL OVER COLLATERAL; SALE OF COLLATERAL
Subject to certain conditions, the Loan Trustee under each Indenture
will be directed by the Subordination Agent (at the direction of the Controlling
Party) in exercising remedies under such Indenture, including accelerating the
applicable Equipment Notes or foreclosing the lien on the Aircraft securing such
Equipment Notes. See "Description of the Certificates -- Indenture Events of
Default and Certain Rights upon an Indenture Event of Default."
Subject to the following two paragraphs, if Final Distributions have
not been fully paid to the holders of the Class G Certificates or if obligations
payable to the Policy Provider under the Intercreditor Agreement remain
outstanding, so long as no Policy Provider Default has occurred and is
continuing, the Policy Provider will be the Controlling Party. At any other
time, the Controlling Party will be:
S-22
o if Final Distributions have not been fully paid to the holders
of the Class G Certificates, the Class G Trustee;
o if Final Distributions have been fully paid to the holders of
Class G Certificates, but not to the holders of the Class C
Certificates, the Class C Trustee; and
o if Final Distributions have been fully paid to the holders of
Class C Certificates, the Class D Trustee.
Under certain circumstances, and notwithstanding the foregoing, the
Liquidity Provider will be the Controlling Party. However, if the Policy
Provider pays the Liquidity Provider all outstanding drawings and interest
thereon owing to the Liquidity Provider under the Liquidity Facility, then, so
long as no Policy Provider Default has occurred and is continuing and the Policy
Provider thereafter reimburses the Liquidity Provider for all subsequent
Drawings together with accrued interest thereon, the Policy Provider will have
the right to become (or remain) the Controlling Party.
During the continuation of any Indenture Event of Default, the
Controlling Party may accelerate the Equipment Notes issued under the related
Indenture and sell such Equipment Notes or the related Aircraft, subject to
certain limitations. See "Description of the Intercreditor Agreement --
Intercreditor Rights -- Sale of Equipment Notes or Aircraft." The market for
Equipment Notes or Aircraft during any Indenture Event of Default may be very
limited, and we cannot assure you as to whether they could be sold or the price
at which they could be sold. If the Controlling Party sells any Equipment Notes
for less than their outstanding principal amount, certain Certificateholders
will receive a smaller amount of principal distributions than anticipated and
will not have any claim for the shortfall against us, any Trustee, the Liquidity
Provider, or the Policy Provider (except, with respect to holders of the Class G
Certificates, as described in "Description of the Policy and the Policy Provider
Agreement -- The Policy").
RATINGS OF THE CERTIFICATES
It is a condition to the issuance of the Class G Certificates that the
Class G Certificates be rated not lower than Aaa by Moody's Investors Service,
Inc. ("Moody's") and AAA by Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc. ("Standard & Poor's," and together with Moody's,
the "Rating Agencies"). A rating is not a recommendation to purchase, hold, or
sell Certificates; and such rating does not address market price or suitability
for a particular investor. A rating may not remain for any given period of time
and may be lowered or withdrawn entirely by a Rating Agency if in its judgment
circumstances in the future (including the downgrading of American, the Policy
Provider or the Liquidity Provider) so warrant.
The ratings of the Class G Certificates are based primarily on the
default risk of the Policy Provider. The ratings of the Class G Certificates
address the likelihood of timely distribution of interest when due on the Class
G Certificates and the ultimate distribution of principal on the Class G
Certificates by their Final Legal Distribution Date. Such ratings do not address
the possibility of certain defaults, voluntary redemptions, or other
circumstances (such as a loss event to an Aircraft) which could result in the
distribution of the outstanding principal amount of the Class G Certificates
prior to their Final Legal Distribution Date. See "Description of the
Certificates."
The reduction, suspension, or withdrawal of the ratings of the
Certificates will not, by itself, constitute an event of default.
NO PROTECTION AGAINST HIGHLY LEVERAGED OR EXTRAORDINARY TRANSACTIONS
The Certificates, the Equipment Notes, and the related underlying
agreements will not contain any financial or other covenants or "event risk"
provisions protecting the Certificateholders in the event of a highly leveraged
or other extraordinary transaction affecting American or its affiliates.
S-23
LIMITED ABILITY TO RESELL THE CERTIFICATES
Prior to this offering, there has been no public market for the Class G
Certificates. Neither American nor any Trust intends to apply for listing of
such Certificates on any securities exchange or otherwise. The Underwriters may
assist in resales of such Certificates, but they are not required to do so. A
secondary market for the Class G Certificates may not develop. If a secondary
market does develop, it might not continue or it might not be sufficiently
liquid to allow you to resell any of your Class G Certificates. If an active
public market does not develop, the market price and liquidity of the Class G
Certificates may be adversely affected.
RISK FACTORS RELATING TO THE POLICY PROVIDER
THE IMPACT OF ANY DECLINE IN THE FINANCIAL CONDITION OF THE POLICY
PROVIDER
The "AAA" rating by Standard & Poor's and the "Aaa" rating by Moody's
of the Class G Certificates are based, primarily, on the existence of the Policy
insuring the complete and timely distribution when scheduled of interest with
respect to the Class G Certificates on each Regular Distribution Date and the
distribution of principal on or (under certain circumstances) before the Final
Legal Distribution Date. Any decline in the financial condition of the Policy
Provider or the insolvency of the Policy Provider may result in the downgrade of
the foregoing ratings of the Class G Certificates and may impair the ability of
the Policy Provider to make payments to the holders of the Class G Certificates
pursuant to the Policy. In addition, in the event of the insolvency of the
Policy Provider, under insurance insolvency proceedings it is possible that the
Subordination Agent would be unable to recover the full amount scheduled under
the Class G Certificates on its unsecured claim against the Policy Provider. For
information on the financial information generally available with respect to the
Policy Provider, see "Description of the Policy Provider" and "Description of
the Policy and the Policy Provider Agreement -- The Policy."
THE LIMITED NATURE OF THE POLICY
The Policy's support of interest distributions and principal
distributions will be limited to the Class G Certificates and, as a result, the
Policy will only run to the benefit of the holders of the Class G Certificates.
Although drawings under the Policy for interest distributions may be made when
interest is scheduled for distribution, drawings for principal distributions may
not, except in certain circumstances, be made until the Final Legal Distribution
Date for the Class G Certificates. The Policy provides no coverage for the Class
C or Class D Certificates.
RIGHT OF POLICY PROVIDER TO PURCHASE CLASS G CERTIFICATES
If American is in bankruptcy or certain other specified defaults have
occurred, the Policy Provider will have the right to purchase the Class G
Certificates at a price equal to the outstanding balance of the Class G
Certificates plus accrued interest but without any Make-Whole Amount.
THE POLICY PROVIDER AS A CONTROLLING PARTY
Unless a Policy Provider Default has occurred, the Policy Provider will
operate as the Controlling Party at any time prior to the time that Final
Distributions have been distributed to the holders of the Class G Certificates
and at any time when any obligations payable to the Policy Provider under the
Intercreditor Agreement remain outstanding (unless the Liquidity Provider has
the right to become the Controlling Party). As the Controlling Party, the Policy
Provider will have the ability, subject to certain limitations, to direct the
Subordination Agent in the exercise of all remedies, including the ability to
direct the Subordination Agent to sell any or all of the Equipment Notes or to
instruct the Loan Trustee under the applicable Indenture to accelerate the
Equipment Notes issued under such Indenture and to foreclose upon the lien
created thereunder. As the Controlling Party, the Policy Provider will be in a
position to take actions that are beneficial to the Policy Provider but which
may be detrimental to the holders of the Certificates.
S-24
THE COMPANY
American, the principal subsidiary of AMR Corporation, was founded in
1934. On April 9, 2001, American purchased substantially all of the assets and
assumed certain liabilities of TWA, the eighth largest United States air
carrier. American (including TWA) is the largest scheduled passenger airline in
the world. American provides scheduled jet service to numerous destinations
throughout North America, the Caribbean, Latin America, Europe, and the Pacific.
American is also one of the largest scheduled air freight carriers in the world,
providing a full range of freight and mail services to shippers throughout its
system. The postal address for American's principal executive offices is P.O.
Box 619616, Dallas/Fort Worth Airport, Texas 75261-9616 (Telephone:
817-963-1234).
DESCRIPTION OF THE POLICY PROVIDER
GENERAL
The information set forth in this section, including any financial
statements incorporated by reference herein, has been provided by Ambac
Assurance Corporation ("Ambac" or the "Policy Provider") for inclusion in this
Prospectus Supplement, and such information has not been independently verified
by American, the Underwriters, the Trustees or the Liquidity Provider.
Accordingly, notwithstanding anything to the contrary herein, none of American,
the Underwriters, the Trustees or the Liquidity Provider assumes any
responsibility for the accuracy, completeness, or applicability of such
information.
Ambac is a Wisconsin-domiciled stock insurance corporation regulated by
the Office of the Commissioner of Insurance of the State of Wisconsin and
licensed to do business in 50 states, the District of Columbia, the Commonwealth
of Puerto Rico, and the Territory of Guam. Ambac primarily insures newly-issued
municipal and structured finance obligations. Ambac is a wholly-owned subsidiary
of Ambac Financial Group, Inc. (formerly AMBAC Inc.), a 100% publicly-held
company. Standard & Poor's and Fitch Ratings have each assigned a "AAA"
financial strength rating to Ambac and Moody's has assigned a "Aaa" financial
strength rating to Ambac.
The following are hereby incorporated by reference into this Prospectus
Supplement and shall be deemed to be a part hereof: (i) the consolidated
financial statements of the Policy Provider and its subsidiaries as of December
31, 2002 and December 31, 2001, and for each of the years in the three-year
period ended December 31, 2002, prepared in accordance with accounting
principles generally accepted in the United States of America, included in the
Annual Report on Form 10-K of Ambac Financial Group, Inc. (which was filed with
the Commission on March 28, 2003, SEC File Number 1-10777); (ii) the unaudited
consolidated financial statements of Ambac and its subsidiaries as of March 31,
2003 and for the periods ending March 31, 2003 and March 31, 2002 included in
the Quarterly Report on Form 10-Q of Ambac Financial Group, Inc. for the period
ended March 31, 2003 (which was filed with the Commission on May 15, 2003); and
(iii) the Current Reports on Form 8-K filed with the Commission on January 24,
2003, February 28, 2003, March 4, 2003, March 20, 2003, March 26, 2003, March
31, 2003 and April 21, 2003, as such reports related to Ambac. Any statement
contained in a document incorporated hereby by reference shall be modified or
superseded for the purposes of this Prospectus Supplement to the extent that a
statement contained in this Prospectus Supplement or in any other document
subsequently filed with the Commission that is also incorporated in this
Prospectus Supplement modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus Supplement.
All documents filed by Ambac Financial Group, Inc. with the Commission
pursuant to Section 13(a), 13(c), 14, or 15(d) of the Exchange Act, including
any financial statements contained therein, subsequent to the date of this
Prospectus Supplement and prior to the termination of the offering of the Class
G Certificates, shall be deemed to be incorporated by reference into this
Prospectus Supplement and to be a part hereof from the respective dates of this
filing of those documents.
The following tables set forth the capitalization of Ambac as of
December 31, 2001, December 31, 2002, and March 31, 2003, in conformity with
accounting principles generally accepted in the United States.
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AMBAC FINANCIAL INFORMATION
AMBAC ASSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CAPITALIZATION
TABLE
($ MILLION)
DECEMBER 31, DECEMBER 31, MARCH 31,
2001 2002 2003
------------ ------------ -----------
(UNAUDITED)
Unearned premiums $1,790 $2,137 $2,174
Other liabilities 972 1,976 2,101
------ ------ ------
Total liabilities 2,762 4,113 4,275
------ ------ ------
Stockholders equity:
Common Stock 82 82 82
Additional paid-in capital 928 920 995
Accumulated other comprehensive income 81 231 237
Retained earnings 2,386 2,849 2,974
------ ------ ------
Total stockholder's equity 3,477 4,082 4,288
------ ------ ------
Total liabilities and stockholder's equity $6,239 $8,195 $8,563
====== ====== ======
For additional financial information concerning Ambac and its
subsidiaries, see the audited financial statements of Ambac and its subsidiaries
incorporated by reference herein. Copies of the filings with the Commission
relating to Ambac incorporated in this Prospectus Supplement as described above,
including the financial statements contained therein, and copies of Ambac's
annual statement for the year ended December 31, 2002 prepared on the basis of
accounting practices prescribed or permitted by the State of Wisconsin Office of
the Commissioner of Insurance are available, without charge, from Ambac. The
address of Ambac's administrative offices and its telephone number are One State
Street Plaza, 19th Floor, New York, New York 10004 and (212) 668-0340.
Ambac makes no representation regarding the Class G Certificates or the
advisability of investing in the Class G Certificates and makes no
representations regarding, nor has it participated in the preparation of, this
Prospectus Supplement other than the information supplied by Ambac and presented
under the heading "Description of the Policy Provider" and in the financial
statements of Ambac and the other filings by Ambac with the Commission
incorporated herein by reference.
IN THE EVENT THAT AMBAC WERE TO BECOME INSOLVENT, ANY CLAIMS ARISING
UNDER THE POLICY WOULD BE EXCLUDED FROM COVERAGE BY THE CONNECTICUT GUARANTY
ASSOCIATION.
USE OF PROCEEDS
The proceeds from the sale of the Certificates of each Trust will be
used to purchase the Equipment Notes to be held by such Trust. American will use
the proceeds from the sale of the Equipment Notes for general corporate
purposes.
DESCRIPTION OF THE CERTIFICATES
The following summary of particular material terms of the Certificates
supplements (and, to the extent inconsistent therewith, replaces) the
description of the general terms and provisions of the Certificates set forth in
the Prospectus accompanying this Prospectus Supplement. The summary does not
purport to be complete and is qualified in its entirety by reference to all of
the provisions of the Basic Agreement, the Certificates, the Trust Supplements,
the Liquidity Facility, the Intercreditor Agreement, and the Policy, each of
which will be filed as an exhibit to a Current Report on Form 8-K to be filed by
American with the Commission.
Except as otherwise indicated, the following summary relates to each of
the Trusts and the Certificates issued by each Trust. The terms and conditions
governing each of the Trusts will be substantially the same, except as described
under "-- Subordination" below and elsewhere in this Prospectus Supplement and
except that the
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principal amount and scheduled principal repayments of the Equipment Notes held
by each Trust and the interest rate and maturity date of the Equipment Notes
held by each Trust will differ. The references to Sections in parentheses in the
following summary are to the relevant Sections of the Basic Agreement unless
otherwise indicated.
GENERAL
Each Pass Through Certificate (collectively, the "Certificates") will
represent a fractional undivided interest in one of the three American Airlines
2003-1 Pass Through Trusts: the "Class G Trust," the "Class C Trust," and the
"Class D Trust," and, collectively, the "Trusts." The Trusts will be formed
pursuant to a pass through trust agreement dated as of March 21, 2002 between
American and U.S. Bank Trust National Association (as successor trustee to State
Street Bank and Trust Company of Connecticut, National Association), as trustee
(the "Basic Agreement"), and three separate supplements thereto (each, a "Trust
Supplement" and, together with the Basic Agreement, collectively, the "Pass
Through Trust Agreements"). The trustee under the Class G Trust, the Class C
Trust, and the Class D Trust is referred to herein respectively as the "Class G
Trustee," the "Class C Trustee," and the "Class D Trustee," and collectively as
the "Trustees." The Certificates to be issued by the Class G Trust, the Class C
Trust, and the Class D Trust are referred to herein respectively as the "Class G
Certificates," the "Class C Certificates," and the "Class D Certificates." The
Class G Trust will purchase Series G Equipment Notes, the Class C Trust will
purchase Series C Equipment Notes, and the Class D Trust will purchase Series D
Equipment Notes. The holders of the Class G Certificates, the Class C
Certificates, and the Class D Certificates are referred to herein respectively
as the "Class G Certificateholders," the "Class C Certificateholders," and the
"Class D Certificateholders," and collectively as the "Certificateholders." The
initial principal balance of the Equipment Notes held by each Trust will equal
the original aggregate face amount of the Certificates of such Trust.
Each Certificate will represent a fractional undivided interest in the
Trust created by the Basic Agreement and the applicable Trust Supplement
pursuant to which such Certificate is issued. (Section 2.01) The property of
each Trust (the "Trust Property") will consist of:
o subject to the Intercreditor Agreement, the Equipment Notes
acquired by such Trust, all monies at any time paid thereon
and all monies due and to become due thereunder;
o for the Class G Trust, monies receivable under the Policy;
o the rights of such Trust under the Intercreditor Agreement
(including all rights to receive monies and other property
payable thereunder);
o for the Class G Trust, monies receivable under the Liquidity
Facility; and
o funds from time to time deposited with the Trustee in accounts
relating to such Trust.
The Certificates represent interests in the respective Trusts only, and
all payments and distributions thereon will be made only from the Trust Property
of the related Trust. (Section 3.09) The Certificates do not represent
indebtedness of the Trusts, and references in this Prospectus Supplement to
interest accruing on the Certificates are included for purposes of computation
only. The Certificates do not represent an interest in or obligation of
American, the Trustees, the Subordination Agent, any of the Loan Trustees, or
any affiliate of any thereof. Each Certificateholder by its acceptance of a
Certificate agrees to look solely to the income and proceeds from the Trust
Property of the related Trust for payments and distributions on such
Certificates.
The Certificates of each Trust will be issued in fully registered form
only. The Class G Certificates will be subject to the provisions described below
under "-- Book-Entry Registration; Delivery and Form." The Class G Certificates
will be issued only in minimum denominations of $1,000 and integral multiples in
excess thereof, except that one Class G Certificate may be issued in a different
denomination. (Section 3.01)
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DISTRIBUTIONS OF PAYMENTS ON EQUIPMENT NOTES
The following description of distributions on the Certificates should
be read in conjunction with the description of the Intercreditor Agreement
because the Intercreditor Agreement may alter the following provisions in a
default situation. See "-- Subordination" and "Description of the Intercreditor
Agreement."
Payments of principal, Make -Whole Amount (if any), and interest on the
Equipment Notes or with respect to other Trust Property held in each Trust will
be distributed by the Trustee to Certificateholders of such Trust on the date
receipt of such payment is confirmed, except in the case of certain types of
Special Payments.
The Equipment Notes held in the Class G Trust will accrue interest at
the applicable rate per annum for the Class G Certificates set forth on the
cover page of this Prospectus Supplement. The Equipment Notes held in the Class
C Trust will initially accrue interest at the rate per annum of % and the
Equipment Notes held in the Class D Trust will initially accrue interest at the
rate per annum of %; provided that the interest rates with respect to the new
series C equipment notes and new series D equipment notes issued as described in
"-- Possible Refunding of Series C Equipment Notes and Series D Equipment Notes"
may differ. Interest on the Equipment Notes will be payable semiannually on
January 9 and July 9 of each year, commencing on January 9, 2004. Such interest
payments will be distributed to Certificateholders of the related Trust on each
such date until the final Distribution Date for such Trust, subject to the
Intercreditor Agreement. Interest on the Equipment Notes will be calculated on
the basis of a 360-day year consisting of twelve 30-day months.
Distributions of interest applicable to the Class G Certificates will
be supported by the Liquidity Facility in an aggregate amount sufficient to
distribute interest on the Pool Balance thereof at the Stated Interest Rate on
up to three successive Regular Distribution Dates (without regard to any future
distributions of principal on such Certificates). The Liquidity Facility does
not provide for drawings thereunder to pay for principal or Make-Whole Amount
with respect to the Class G Certificates, any interest with respect to the Class
G Certificates in excess of the Stated Interest Rate, or principal, interest or
Make -Whole Amount with respect to the Certificates of any other Class.
Therefore, only the holders of the Class G Certificates will be entitled to
receive and retain the proceeds of drawings under the Liquidity Facility. See
"Description of the Liquidity Facility."
After use of all available funds under the Liquidity Facility or in the
Cash Collateral Account, the distribution of interest on the Class G
Certificates will be supported by the Policy. See "Description of the Policy and
the Policy Provider Agreement -- The Policy."
Payments of principal on the Equipment Notes are scheduled to be
received by the Trustee in installments on January 9 and July 9 in certain
years, commencing on January 9, 2004 and ending on July 9, 2010.
Scheduled payments of interest on the Equipment Notes are referred to
herein as "Scheduled Payments," and January 9 and July 9 of each year are
referred to herein as "Regular Distribution Dates" (each Regular Distribution
Date and Special Distribution Date, a "Distribution Date"). See "Description of
the Equipment Notes -- Principal and Interest Payments." The "Final Legal
Distribution Date" for the Class G Certificates is January 9, 2012, and for the
Class C and Class D Certificates is July 9, 2010.
Payment of principal with respect to the Class G Certificates on the
Final Legal Distribution Date and, in certain limited circumstances, earlier,
will be supported by the Policy. See "Description of the Policy and the Policy
Provider Agreement -- The Policy."
The Trustee of each Trust will distribute, subject to the Intercreditor
Agreement, on each Regular Distribution Date to the Certificateholders of such
Trust all Scheduled Payments received in respect of Equipment Notes held on
behalf of such Trust, the receipt of which is confirmed by the Trustee on such
Regular Distribution Date. Each Certificateholder of each Trust will be entitled
to receive its proportionate share, based upon its fractional interest in such
Trust, subject to the Intercreditor Agreement, of any distribution in respect of
Scheduled Payments of principal or interest on Equipment Notes held on behalf of
such Trust. Each such distribution of Scheduled Payments will be made by the
applicable Trustee to the Certificateholders of record of the relevant Trust on
the record date applicable to such Scheduled Payment (generally, 15 days prior
to each Regular Distribution
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Date) subject to certain exceptions. (Section 4.02(a)) If a Scheduled Payment is
not received by the applicable Trustee on a Regular Distribution Date but is
received within five days thereafter, it will be distributed on the date
received to such holders of record. If it is received after such five-day
period, it will be treated as a Special Payment and distributed as described
below.
Any payment in respect of, or any proceeds of, any Equipment Note or
the Collateral under (and as defined in) any Indenture other than a Scheduled
Payment (each, a "Special Payment") will be distributed on, in the case of an
early redemption of any Equipment Note, the date of such early redemption (which
shall be a Business Day), and otherwise on the Business Day specified for
distribution of such Special Payment pursuant to a notice delivered by each
Trustee as soon as practicable after the Trustee has received funds for such
Special Payment (each a "Special Distribution Date"). Any such distribution will
be subject to the Intercreditor Agreement.
Each Trustee will mail a notice to the Certificateholders of the
applicable Trust stating the scheduled Special Distribution Date, the related
record date, the amount of the Special Payment and the reason for the Special
Payment. In the case of a redemption of the Series G Equipment Notes held in the
related Trust, such notice will be mailed not less than 15 days prior to the
date such Special Payment is scheduled to be distributed, and in the case of any
other Special Payment, such notice will be mailed as soon as practicable after
the Trustee has confirmed that it has received funds for such Special Payment.
(Section 4.02(c)) Each distribution of a Special Payment, other than Final
Distributions, on a Special Distribution Date for any Trust will be made by the
Trustee to the Certificateholders of record of such Trust on the record date
applicable to such Special Payment. (Section 4.02(b)) See "-- Indenture Events
of Default and Certain Rights upon an Indenture Event of Default" and
"Description of the Equipment Notes -- Redemption."
In the case of the distribution of proceeds from any "No Proceeds
Drawing" or "Avoidance Drawing" as described in "Description of the Policy and
the Policy Provider Agreement -- The Policy," the Class G Trustee will mail a
notice to the Class G Certificateholders stating the scheduled Special
Distribution Date, the related record date, the amount of such distribution and
the reason for such distribution. Such notice will be mailed not less than 15
days prior to the date such proceeds are scheduled to be distributed. Each such
distribution shall be made by the Class G Trustee to the Class G
Certificateholders of record on the record date applicable to such distribution.
(Section 4.02(c))
Each Pass Through Trust Agreement requires that the Trustee establish
and maintain, for the related Trust and for the benefit of the
Certificateholders of such Trust, one or more non-interest bearing accounts (the
"Certificate Account") for the deposit of payments representing Scheduled
Payments received by such Trustee. Each Pass Through Trust Agreement requires
that the Trustee establish and maintain, for the related Trust and for the
benefit of the Certificateholders of such Trust, one or more accounts (the
"Special Payments Account") for the deposit of payments representing Special
Payments received by such Trustee, which will be non-interest bearing except in
certain circumstances where the Trustee may invest amounts in such account in
certain Permitted Investments. Pursuant to the terms of each Pass Through Trust
Agreement, the Trustee is required to deposit any Scheduled Payments relating to
the applicable Trust received by it in the Certificate Account of such Trust and
to deposit any Special Payments so received by it in the Special Payments
Account of such Trust. (Section 4.01) All amounts so deposited will be
distributed by the Trustee on a Regular Distribution Date or a Special
Distribution Date, as appropriate. (Section 4.02)
Payment of Final Distributions for each Trust will be made only upon
presentation and surrender of the Certificates for such Trust at the office or
agency of the Trustee specified in the notice given by the Trustee of such Final
Distributions. See "-- Termination of the Trusts" below. Distributions in
respect of Certificates issued in global form will be made as described in "--
Book-Entry Registration; Delivery and Form" below.
If any Distribution Date is a Saturday, a Sunday, or other day (i) on
which commercial banks are authorized or required by law to close in New York,
New York, Dallas, Texas, or the city and state in which the Trustee or any Loan
Trustee is located, (ii) solely with respect to draws under a Policy, on which
the Policy Provider, at its office specified in the Policy, the Policy
Provider's fiscal agent, at its office specified in the Policy or insurance
companies in New York, New York are authorized or required by law to close or
(iii) solely with respect to draw under the Liquidity Facility, which is not a
"Business Day" as defined in the Liquidity Facility (any other day being a
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"Business Day"), distributions scheduled to be made on such Distribution Date
may be made on the next succeeding Business Day without additional interest.
SUBORDINATION
The Certificates are subject to subordination terms set forth in the
Intercreditor Agreement which vary depending upon whether a Triggering Event has
occurred. See "Description of the Intercreditor Agreement -- Priority of
Distributions."
POOL FACTORS
The "Pool Balance" of the Certificates issued by any Trust indicates,
as of any date, the original aggregate face amount of the Certificates of such
Trust less the aggregate amount of all distributions made in respect of the
Certificates of such Trust, other than distributions made in respect of interest
or Make-Whole Amount thereon, or reimbursement of any costs and expenses
incurred in connection therewith. The Pool Balance of the Certificates issued by
any Trust as of any Distribution Date will be computed after giving effect to
any payment of principal on the Equipment Notes or other Trust Property held in
such Trust and the distribution thereof to be made on that date and, with
respect to the Class G Certificates, payments under the Policy made for the
benefit of the Class G Certificateholders (other than payments in respect of the
Liquidity Facility and interest on the Class G Certificates). (Section 1.01)
The "Pool Factor" for each Trust as of any date is the quotient
(rounded to the seventh decimal place) computed by dividing (i) the Pool Balance
as of such date by (ii) the original aggregate face amount of the Certificates
of such Trust. The Pool Factor for each Trust as of any Distribution Date will
be computed after giving effect to any payment of principal on the Equipment
Notes or other Trust Property held in such Trust and, in the case of the Class G
Trust, payment under the Policy (other than in respect of the Liquidity Facility
and interest on the Certificates of such Trust), and the distribution thereof to
be made on that date. (Section 1.01) The Pool Factor for each Trust will be
1.0000000 on the date of issuance of the Certificates; thereafter, the Pool
Factor for each Trust will decline as described herein to reflect reductions in
the Pool Balance of such Trust. The amount of a Certificateholder's pro rata
share of the Pool Balance of a Trust can be determined by multiplying the
original denomination of the Certificateholder's Certificate of such Trust by
the Pool Factor for such Trust as of the applicable Distribution Date. Notice of
the Pool Factor and the Pool Balance for each Trust will be mailed to
Certificateholders of such Trust on each Distribution Date. (Section 4.03)
The following table sets forth the aggregate principal amortization
schedule for the Equipment Notes held in each Trust and resulting Pool Factors
with respect to such Trust. The actual aggregate principal amortization schedule
applicable to a Trust and the resulting Pool Factors with respect to such Trust
may differ from those set forth below because the scheduled distribution of
principal payments for any Trust would be affected if any Equipment Notes held
in such Trust are redeemed or if a default in payment of the principal of such
Equipment Notes occurred.
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CLASS G TRUST CLASS C TRUST CLASS D TRUST
SCHEDULED EXPECTED SCHEDULED EXPECTED SCHEDULED EXPECTED
PRINCIPAL POOL POOL POOL PRINCIPAL POOL
DATE PAYMENTS FACTOR PAYMENTS FACTOR PAYMENTS FACTOR
---- ----------- --------- ------------ --------- ------------- ---------
Issuance Date $ 0 1.0000000 $ 0 1.0000000 $ 0 1.0000000
January 9, 2004 5,874,082 0.9769520 2,202,766 0.9769520 734,263 0.9769520
July 9, 2004 14,379,065 0.9205332 5,392,114 0.9205332 1,797,390 0.9205332
January 9, 2005 6,721,671 0.8941595 2,520,610 0.8941595 840,212 0.8941595
July 9, 2005 20,557,658 0.8134979 7,709,071 0.8134979 2,569,717 0.8134979
January 9, 2006 5,385,310 0.7923677 2,019,478 0.7923677 673,166 0.7923677
July 9, 2006 14,603,121 0.7350698 5,476,135 0.7350698 1,825,397 0.7350698
January 9, 2007 6,140,343 0.7109771 2,302,614 0.7109771 767,546 0.7109771
July 9, 2007 18,087,540 0.6400074 6,782,783 0.6400074 2,260,951 0.6400074
January 9, 2008 5,355,973 0.6189923 2,008,477 0.6189923 669,499 0.6189923
July 9, 2008 14,631,057 0.5615848 5,486,610 0.5615848 1,828,889 0.5615848
January 9, 2009 5,108,965 0.5415388 1,915,849 0.5415388 638,623 0.5415388
July 9, 2009 14,027,790 0.4864983 5,260,387 0.4864983 1,753,481 0.4864983
January 9, 2010 4,861,958 0.4674216 1,823,222 0.4674216 607,747 0.4674216
July 9, 2010 119,128,467 0.0000000 44,672,883 0.0000000 14,891,117 0.0000000
The Pool Factor and Pool Balance of each Trust will be recomputed if
there has been an early redemption or default in the payment of principal or
interest in respect of one or more of the Equipment Notes held in a Trust, as
described in "-- Indenture Events of Default and Certain Rights upon an
Indenture Event of Default," "-- Possible Refunding of Series C Equipment Notes
and Series D Equipment Notes," and "Description of the Equipment Notes --
Redemption." Notice of the Pool Factors and Pool Balances of each Trust as so
recomputed after giving effect to any Special Payment to Certificateholders
resulting from such an early redemption or default in respect of one or more
Equipment Notes will be mailed to Certificateholders of Certificates of the
related Trust with such Special Payment, as described in "-- Reports to
Certificateholders."
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the applicable Trustee will include with
each distribution by it of a Scheduled Payment or Special Payment to
Certificateholders of the related Trust a statement, giving effect to such
distribution to be made on such Distribution Date, setting forth the following
information (per $1,000 aggregate principal amount of Certificate as to items
(1) and (2) below):
(1) the amount of such distribution allocable to principal
(indicating any portion thereof paid by the Policy Provider in
the case of the Class G Certificates) and the amount allocable
to Make-Whole Amount, if any;
(2) the amount of such distribution allocable to interest,
indicating any portion thereof paid by the Liquidity Provider
and/or Policy Provider in the case of the Class G
Certificates; and
(3) the Pool Balance and the Pool Factor for such Trust. (Trust
Supplements, Section 5.01)
As long as the Class G Certificates are registered in the name of Cede,
as nominee for DTC, on the record date prior to each Distribution Date, the
applicable Trustee will request from DTC a securities position listing setting
forth the names of all DTC Participants reflected on DTC's books as holding
interests in the Certificates on such record date. On each Distribution Date,
the applicable Trustee will mail to each such DTC Participant the statement
described above and will make available additional copies as requested by such
DTC Participant for forwarding to Certificate Owners. (Section 4.03(a))
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In addition, after the end of each calendar year, the applicable
Trustee will prepare for each Certificateholder of each Trust at any time during
the preceding calendar year a report containing the sum of the amounts
determined pursuant to clauses (1) and (2) above with respect to the Trust for
such calendar year or, if such person was a Certificateholder during only a
portion of such calendar year, for the applicable portion of such calendar year,
and such other items as are readily available to such Trustee and which a
Certificateholder reasonably requests as necessary for the purpose of such
Certificateholder's preparation of its U.S. federal income tax returns. Such
report and such other items will be prepared with respect to the Class G
Certificates on the basis of information supplied to the applicable Trustee by
the DTC Participants and will be delivered by such Trustee to such DTC
Participants to be available for forwarding by such DTC Participants to
Certificate Owners. (Trust Supplements, Section 5.01(b))
At such time, if any, as the Class G Certificates are issued in the
form of definitive certificates, the applicable Trustee will prepare and deliver
the information described above to each Certificateholder of record of each
Trust with respect to such Certificates as the name and period of record
ownership of such Certificateholder appears on the records of the registrar of
such Certificates.
INDENTURE EVENTS OF DEFAULT AND CERTAIN RIGHTS UPON AN INDENTURE EVENT OF
DEFAULT
Because the Equipment Notes issued under an Indenture will be held in
more than one Trust, a continuing Indenture Event of Default under such
Indenture would affect the Equipment Notes held by each such Trust. For a
description of the Indenture Events of Default under each Indenture, see
"Description of the Equipment Notes -- Indenture Events of Default, Notice and
Waiver." There are no cross-acceleration provisions in the Indentures and the
only cross-default provision in the Indentures is an event of default under each
Indenture which occurs if all amounts owing under any Equipment Note are not
paid in full on the Final Payment Date. Consequently, until the Final Payment
Date, events resulting in an Indenture Event of Default under any particular
Indenture may or may not result in an Indenture Event of Default under any other
Indenture. If an Indenture Event of Default occurs in fewer than all of the
Indentures related to a Trust, notwithstanding the treatment of Equipment Notes
issued under those Indentures under which an Indenture Event of Default has
occurred, payments of principal and interest on those Equipment Notes issued
pursuant to Indentures with respect to which an Indenture Event of Default has
not occurred will continue to be made as originally scheduled and distributed to
the holders of the Certificates, subject to the Intercreditor Agreement. See
"Description of the Intercreditor Agreement -- Priority of Distributions."
If the same institution acts as Trustee of multiple Trusts, in the
absence of instructions from the Certificateholders of any such Trust, such
Trustee could be faced with a potential conflict of interest upon an Indenture
Event of Default. In such event, each Trustee has indicated that it would resign
as Trustee of some or all such Trusts, and a successor trustee would be
appointed in accordance with the terms of the applicable Pass Through Trust
Agreement. U.S. Bank Trust National Association will be the initial Trustee
under each Trust.
Upon the occurrence and continuation of an Indenture Event of Default
under any Indenture, the Controlling Party will direct the Loan Trustee under
such Indenture in the exercise of remedies and may accelerate the Equipment
Notes issued under such Indenture and sell all (but not less than all) of such
Equipment Notes or the related Aircraft to any person, subject to certain
limitations. See "Description of the Intercreditor Agreement -- Intercreditor
Rights -- Sale of Equipment Notes or Aircraft." The proceeds of such sale will
be distributed pursuant to the provisions of the Intercreditor Agreement. Any
proceeds so distributed to any Trustee upon any such sale will be deposited in
the applicable Special Payments Account and will be distributed to the
Certificateholders of the applicable Trust on a Special Distribution Date.
(Sections 4.01 and 4.02) The market for Equipment Notes at the time of the
existence of an Indenture Event of Default may be very limited, and there can be
no assurance whether they could be sold or as to the price at which they could
be sold.
Any amount, other than Scheduled Payments received on a Regula r
Distribution Date or within five days thereafter, distributed to the Trustee of
any Trust by the Subordination Agent on account of the Equipment Notes or other
Trust Property held in such Trust following an Indenture Event of Default under
any Indenture will be deposited in the Special Payments Account for such Trust
and will be distributed to the Certificateholders of such Trust on a Special
Distribution Date. (Sections 4.01 and 4.02)
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Any funds representing payments received with respect to any defaulted
Equipment Notes held in a Trust, or the proceeds from the sale of any Equipment
Notes, held by the Trustee in the Special Payments Account for such Trust will,
to the extent practicable, be invested and reinvested by such Trustee in certain
Permitted Investments pending the distribution of such funds on a Special
Distribution Date. (Section 4.04) "Permitted Investments" are defined as
obligations of the United States or agencies or instrumentalities thereof the
payment of which is backed by the full faith and credit of the United States and
which mature in not more than 60 days or such lesser time as is required for the
distribution of any such funds on a Special Distribution Date. (Section 1.01)
Each Pass Through Trust Agreement provides that the Trustee of the
related Trust will, within 90 days after the occurrence of a default (as defined
below) known to it, give to the Certificateholders of such Trust notice,
transmitted by mail, of such default, unless such default shall have been cured
or waived; provided that, (i) in the case of defaults not relating to the
payment of money, the Trustee shall not give such notice until the earlier of
the time at which such default becomes an "event of default" and the expiration
of 60 days from the occurrence of such default and (ii) except in the case of
default in a payment of principal, Make -Whole Amount (if any), or interest on
any of the Equipment Notes held in such Trust, the applicable Trustee will be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interests of such Certificateholders.
(Section 7.02) The term "default" with respect to a Trust, for the purpose of
the provision described in this paragraph only, means an event that is, or after
notice or lapse of time or both would become, an event of default or a
Triggering Event with respect to such Trust. The term "event of default" with
respect to a Trust means an Indenture Event of Default under any Indenture
pursuant to which Equipment Notes held by such Trust were issued.
Subject to certain qualifications set forth in each Pass Through Trust
Agreement and to the Intercreditor Agreement, the Certificateholders of each
Trust holding Certificates evidencing fractional undivided interests aggregating
not less than a majority in interest in such Trust will have the right to direct
the time, method, and place of conducting any proceeding for any remedy
available to the Trustee with respect to such Trust or pursuant to the terms of
the Intercreditor Agreement, or exercising any trust or power conferred on such
Trustee under such Pass Through Trust Agreement or the Intercreditor Agreement,
including any right of such Trustee as Controlling Party under the Intercreditor
Agreement or as holder of the Equipment Notes (the "Note Holder"). (Section
6.04)
Subject to the Intercreditor Agreement, the holders of the Certificates
of a Trust evidencing fractional undivided interests aggregating not less than a
majority in interest of such Trust may on behalf of the holders of all the
Certificates of such Trust waive any past "default" or "event of default" under
the related Pass Through Trust Agreement and its consequences or, if the Trustee
of such Trust is the Controlling Party, may direct the Trustee to instruct the
applicable Loan Trustee to waive any past Indenture Event of Default and its
consequences; provided, however, the consent of each holder of a Certificate of
a Trust is required to waive (i) a default in the deposit of any Scheduled
Payment or Special Payment or in the distribution thereof, (ii) a default in
payment of the principal, Make-Whole Amount (if any), or interest with respect
to any of the Equipment Notes held in such Trust, and (iii) a default in respect
of any covenant or provision of the related Pass Through Trust Agreement that
cannot be modified or amended without the consent of each Certificateholder of
such Trust affected thereby. (Section 6.05) Each Indenture will provide that,
with certain exceptions, the holders of the majority in aggregate unpaid
principal amount of the Equipment Notes issued thereunder may on behalf of all
such Note Holders waive any past default or Indenture Event of Default
thereunder. Notwithstanding the foregoing provisions of this paragraph, however,
pursuant to the Intercreditor Agreement only the Controlling Party will be
entitled to waive any such past default or Indenture Event of Default.
PURCHASE RIGHTS OF CERTIFICATEHOLDERS
After the occurrence and during the continuation of a Triggering Event,
with ten days' prior written notice to the Trustee and each Certificateholder of
the same Class:
o subject to the last bullet of this paragraph, the Class C
Certificateholders (other than AMR Corporation, American or
any affiliate of American controlled by AMR Corporation (each,
an "American Entity")) will have the right to purchase all,
but not less than all, of the Class G Certificates;
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o subject to the last bullet of this paragraph, the Class D
Certificateholders (other than any American Entity) will have
the right to purchase all, but not less than all, of the Class
G Certificates and the Class C Certificates;
o subject to the last bullet of this paragraph, if the Class E
Certificates are issued as described under "-- Possible
Issuance of Series E Equipment Notes," the Class E
Certificateholders (other than any American Entity) will have
the right to purchase all, but not less than all, of the Class
G Certificates, Class C Certificates, and Class D
Certificates; and
o whether or not the Certificateholders of any Class have
purchased or elected to purchase the Class G Certificates, the
Policy Provider (unless a Policy Provider Default has
occurred) shall have the right to purchase all, but not less
than all, of the Class G Certificates. Once the Policy
Provider has purchased the Class G Certificates, the Class C
Certificateholders, Class D Certificateholders and Class E
Certificateholders, if any, will no longer have the right to
purchase the Class G Certificates on the terms described
herein.
In each case the purchase price for a Class of Certificates will be
equal to the Pool Balance of such Class plus accrued and undistributed interest
thereon to the date of purchase, without any Make-Whole Amount but including
any other amounts then due and payable to the Certificateholders of such Class.
Such purchase right may be exercised by any Certificateholder of the Class or
Classes entitled to such right. In each case, if prior to the end of the ten-day
notice period, any other Certificateholder of the same Class notifies the
purchasing Certificateholder that the other Certificateholder wants to
participate in such purchase, then such other Certificateholder may join with
the purchasing Certificateholder to purchase the Certificates pro rata based on
the interest in the Trust held by each Certificateholder. (Trust Supplements,
Section 4.01)
PTC EVENT OF DEFAULT
A " PTC Event of Default" with respect to any Class of Certificates
means the failure to distribute within ten Business Days after the applicable
Distribution Date either:
o the outstanding Pool Balance of such Class of Certificates on
the Final Legal Distribution Date for such Class (unless, in
the case of the Class G Certificates, the Subordination Agent
shall have made a drawing under the Policy in an amount
sufficient to pay such outstanding Pool Balance and shall have
distributed such amount to the Class G Trustee); or
o interest scheduled for distribution on such Class of
Certificates on any Distribution Date (unless, in the case of
the Class G Certificates, the Subordination Agent has made an
Interest Drawing, a withdrawal from the Cash Collateral
Account or a drawing under the Policy in an amount sufficient
to pay such interest and has distributed such amount to the
Trustee entitled thereto).
Any failure to make expected principal distributions with respect to
any Class of Certificates on any Regular Distribution Date (other than the Final
Legal Distribution Date) will not constitute a PTC Event of Default with respect
to such Certificates.
A PTC Event of Default with respect to the most senior outstanding
Class of Certificates resulting from an Indenture Event of Default under all
Indentures will constitute a Triggering Event. For a discussion of the
consequences of the occurrence of a Triggering Event, see "Description of the
Intercreditor Agreement -- Priority of Distributions."
MERGER, CONSOLIDATION, AND TRANSFER OF ASSETS
American will be prohibited from consolidating with or merging into any
other entity or transferring substantially all of its assets as an entirety to
any other entity unless:
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o the surviving successor or transferee entity shall, if and to
the extent required under Section 1110 of the United States
Bankruptcy Code (the "Bankruptcy Code") in order that the Loan
Trustee shall continue to be entitled to any benefits of
Section 1110 with respect to an Aircraft, hold an air carrier
operating certificate issued by the Secretary of
Transportation pursuant to Chapter 447 of Title 49 of the
United States Code relating to aviation (the "Transportation
Code");
o the surviving successor or transferee entity expressly assumes
all of the obligations of American contained in the operative
documents to which American is a party; and
o American has delivered a certificate and an opinion or
opinions of counsel indicating that such transaction, in
effect, complies with such conditions.
In addition, after giving effect to such transaction, no Indenture
Event of Default shall have occurred and be continuing. (Section 5.02;
Participation Agreements, Section 6.02)
MODIFICATION OF THE PASS THROUGH TRUST AGREEMENTS AND CERTAIN OTHER AGREEMENTS
Each Pass Through Trust Agreement contains provisions permitting
American and the Trustee to enter into a supplement to such Pass Through Trust
Agreement or, at the request of American, permitting the execution of amendments
or supplements to the Intercreditor Agreement, the Participation Agreements, the
Liquidity Facility, the Policy, or the Policy Provider Agreement, without the
consent of the holders of any of the Certificates of such Trust (but, in the
case of certain of the following relating to the Class G Trust, subject to the
prior written consent of the Policy Provider) to, among other things:
o provide for the formation of a Trust and the issuance of a
series of Certificates or to add, or to change or eliminate,
any provision affecting a series of Certificates not yet
issued;
o evidence the succession of another corporation or entity to
American and the assumption by such corporation or entity of
American's obligations under such Pass Through Trust
Agreement, Participation Agreements, Liquidity Facility, or
Policy Provider Agreement;
o add to the covenants of American for the benefit of holders of
such Certificates or surrender any right or power conferred
upon American in such Pass Through Trust Agreement,
Intercreditor Agreement, Participation Agreements, Liquidity
Facility, Policy, or Policy Provider Agreement;
o cure any ambiguity or correct any mistake or inconsistency
contained in the Certificates of any Class, such Pass Through
Trust Agreement, Intercreditor Agreement, Participation
Agreements, Liquidity Facility, Policy, or Policy Provider
Agreement;
o make or modify any other provision with respect to matters or
questions arising under the Certificates of any Class, such
Pass Through Trust Agreement, Intercreditor Agreement,
Participation Agreements, Liquidity Facility, Policy, or
Policy Provider Agreement as American may deem necessary or
desirable and that will not materially adversely affect the
interests of the holders of such Certificates;
o comply with any requirement of the Commission, any applicable
law, rules, or regulations of any exchange or quotation system
on which the Certificates are listed (or to facilitate any
listing of any Certificates on any exchange or quotation
system) or of any regulatory body;
o modify, eliminate, or add to the provisions of such Pass
Through Trust Agreement, Intercreditor Agreement,
Participation Agreements, Liquidity Facility, Policy, or
Policy Provider Agreement to the extent necessary in
connection with, or to continue, the qualification, to the
extent necessary, of such Pass Through Trust Agreement
(including any supplemental agreement), Intercreditor
Agreement, Participation Agreements, Liquidity Facility,
Policy, Policy Provider Agreement or any other agreement or
instrument related to the Certificates of any Class under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act") or under any similar Federal statute and add to such
Pass
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Through Trust Agreement, Intercreditor Agreement,
Participation Agreements, Liquidity Facility, Policy, or
Policy Provider Agreement such other provisions as may be
expressly permitted by the Trust Indenture Act;
o provide for a successor Trustee under such Pass Through Trust
Agreement and add to or change any of the provisions of such
Pass Through Trust Agreement, Intercreditor Agreement,
Participation Agreements, Liquidity Facility, Policy, or
Policy Provider Agreement as necessary to facilitate the
administration of the Trusts under such Pass Through Trust
Agreement by more than one Trustee or, as provided in the
Intercreditor Agreement, to provide for one or more liquidity
facilities for such Trust;
o provide certain information to the Trustee as required in such
Pass Through Trust Agreement;
o add to or change the Certificates of any Class, the Basic
Agreement and any Trust Supplement to facilitate the issuance
of any Certificates in bearer form or to facilitate or provide
for the issuance of any Certificates in global form in
addition to or in place of Certificates in certificated form;
o modify, eliminate, or add to the provisions of such Pass
Through Trust Agreement, Intercreditor Agreement,
Participation Agreements, Liquidity Facility, Policy, or
Policy Provider Agreement to the extent necessary to provide
for the issuance of new class C and/or new class D
certificates as described in "-- Possible Refunding of Series
C Equipment Notes and Series D Equipment Notes";
o provide for the delivery of Certificates or any supplement to
such Pass Through Trust Agreement in or by means of any
computerized, electronic, or other medium, including computer
diskette;
o provide for the guarantee by AMR Corporation or another entity
of one or more Indentures, one or more Series of Equipment
Notes or of Series E Equipment Notes (other than in connection
with the issuance of new series C or new series D equipment
notes, or Series E Equipment Notes, subject to obtaining
written confirmation from each Rating Agency that the
provision of such guarantee will not result in a withdrawal or
downgrading of the rating of any Certificates (without regard
to the Policy in the case of the Class G Certificates));
o correct or supplement the description of any property of any
Trust;
o modify, eliminate, or add to the provisions of such Pass
Through Trust Agreement or Participation Agreements to reflect
the substitution of a substitute aircraft for any Aircraft;
and
o make any other modifications or amendments to the Basic
Agreement; provided that such amendments or modifications
shall only apply to pass through certificates of one or more
series to be issued thereafter;
provided, however, that, unless there shall have been obtained from each Rating
Agency written confirmation that such supplement would not result in a reduction
of the then current rating for Certificates of the relevant Trust or a
withdrawal or suspension of the rating of any Class of Certificates, American
shall provide the Trustee of the relevant Trust with an opinion of counsel to
the effect that such supplement will not cause such Trust to be treated as other
than a grantor trust for U.S. federal income tax purposes, unless a PTC Event of
Default shall have occurred and be continuing, in which case such opinion shall
be to the effect that such supplement will not cause such Trust to become an
association taxable as a corporation for U.S. federal income tax purposes.
(Section 9.01)
Each Pass Through Trust Agreement also contains provisions permitting
the execution, with the consent of the holders of the Certificates of the
related Trust evidencing fractional undivided interests aggregating not less
than a majority in interest of such Trust, of supplemental agreements adding any
provisions to or changing or eliminating any of the provisions of such Pass
Through Trust Agreement, the Intercreditor Agreement, the Participation
Agreements, the Liquidity Facility, the Policy, or the Policy Provider Agreement
to the extent applicable to such Certificateholders or modifying the rights of
the Certificateholders of such Trust, except that no such supplemental agreement
may, without the consent of the holder of each Certificate affected thereby:
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o reduce in any manner the amount of, or delay the timing of,
any receipt by the Trustee of payments on the Equipment Notes
held in such Trust, or distributions in respect of any
Certificate of such Trust, or change the date or place of any
payment or change the coin or currency in which such
Certificate is payable, or impair the right of any
Certificateholder of such Trust to institute suit for the
enforcement of any such payment when due;
o permit the disposition of any Equipment Note held in such
Trust or otherwise deprive such Certificateholders of the
benefit of ownership of Equipment Notes in such Trust, except
as provided in such Pass Through Trust Agreement, the
Intercreditor Agreement, or the Liquidity Facility;
o alter the priority of distributions specified in the
Intercreditor Agreement in a manner materially adverse to such
Certificateholders;
o reduce the percentage of the aggregate fractional undivided
interests of the Trust provided for in such Pass Through Trust
Agreement, the consent of the holders of which is required for
any such supplemental agreement or for any waiver or
modification provided for in such Pass Through Trust
Agreement;
o cause such Trust to become an association taxable as a
corporation for U.S. federal income tax purposes; or
o terminate or modify the Policy.
If a Trustee, as holder (or beneficial owner through the Subordination
Agent) of any Equipment Note in trust for the benefit of the Certificateholders
of the relevant Trust or as Controlling Party under the Intercreditor Agreement,
receives (directly or indirectly through the Subordination Agent) a request for
a consent to any amendment, modification, waiver, or supplement under any
Indenture, any Participation Agreement, any Equipment Note, or any other related
document, the Trustee will forthwith send a notice of such proposed amendment,
modification, waiver, or supplement to each Certificateholder of the relevant
Trust registered on the register of such Trust as of the date of such notice and
to the Policy Provider. The Trustee will request from the Certificateholders or
the Policy Provider, as the case may be, a direction as to:
o whether or not to take or refrain from taking (or direct the
Subordination Agent to take or refrain from taking) any action
that a Note Holder or the Controlling Party has the option to
take or direct;
o whether or not to give or execute (or direct the Subordination
Agent to give or execute) any waivers, consents, amendments,
modifications, or supplements as a Note Holder or as
Controlling Party; and
o how to vote (or direct the Subordination Agent to vote) any
Equipment Note if a vote has been called for with respect
thereto.
(Section 10.01; Intercreditor Agreement, Section 8.01(b))
If the Certificateholders are entitled to direct the respective Trustee
and such a request for Certificateholder direction has been made, in directing
any action or casting any vote or giving any consent as the holder of any
Equipment Note (or in directing the Subordination Agent in any of the
foregoing):
o other than as the Controlling Party, the Trustee will vote for
or give consent to any such action with respect to such
Equipment Note in the same proportion as that of (x) the
aggregate face amount of all Certificates actually voted in
favor of or for giving consent to such action by such
direction of Certificateholders to (y) the aggregate face
amount of all outstanding Certificates of the relevant Trust;
and
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o as the Controlling Party, the Trustee will vote as directed in
such Certificateholder direction by the Certificateholders
evidencing fractional undivided interests aggregating not less
than a majority in interest in the relevant Trust. (Section
10.01)
For purposes of the preceding paragraph, a Certificate is deemed
"actually voted" if the Certificateholder has delivered to the Trustee an
instrument evidencing such Certificateholder's consent to such direction prior
to one Business Day before the Trustee directs such action or casts such vote or
gives such consent. Notwithstanding the foregoing, but subject to certain rights
of the Certificateholders under the relevant Pass Through Trust Agreement and
subject to the Intercreditor Agreement, the Trustee may, in its own discretion
and at its own direction, consent and notify the relevant Loan Trustee of such
consent (or direct the Subordination Agent to consent and notify the relevant
Loan Trustee of such consent) to any amendment, modification, waiver, or
supplement under the relevant Indenture, Participation Agreement, Equipment
Note, or any other related document, if an Indenture Event of Default under any
Indenture has occurred and is continuing, or if such amendment, modification,
waiver, or supplement will not materially adversely affect the interests of the
Certificateholders. (Section 10.01)
Pursuant to the Intercreditor Agreement, with respect to any Indenture
at any given time, the Loan Trustee under such Indenture will be directed in
taking, or refraining from taking, any action thereunder or with respect to the
Equipment Notes issued under such Indenture by the Subordination Agent (as
directed by the Controlling Party). (Intercreditor Agreement, Section 2.06 and
8.01(b)) Any Trustee acting as Controlling Party will direct the Subordination
Agent as such Trustee is directed by Certificateholders evidencing fractional
undivided interests aggregating not less than a majority in interest in the
relevant Trust. (Basic Agreement Section 10.01) Notwithstanding the foregoing,
no amendment, modification, consent or waiver of any Indenture, Equipment Note,
Participation Agreement or other related document will, without the consent of
the Liquidity Provider, the Policy Provider and the Trustee of each Trust (other
than any Trust all of the Certificates of which are held or beneficially owned
by American Entities) whose Certificateholders would be affected thereby, (i)
reduce the amount of principal or interest payable by American under any
Equipment Note issued under any Indenture or delay the timing of any such
payment, (ii) create any lien with respect to any collateral prior to or pari
passu with the lien of the related Indenture or deprive any holder of an
Equipment Note issued under such Indenture of the benefit of the lien of such
Indenture upon the related collateral, or (iii) reduce the percentage in
principal amount of the outstanding Equipment Notes issued under any Indenture
required to take or approve any action under such Indenture. (Intercreditor
Agreement, Section 8.01(b)) See "-- Indenture Events of Default and Certain
Rights upon an Indenture Event of Default" for a description of the rights of
the Certificateholders of each Trust to direct the respective Trustees.
POSSIBLE ISSUANCE OF SERIES E EQUIPMENT NOTES
American may elect to issue Series E Equipment Notes in connection with
some or all of the Aircraft, which would be funded from sources other than this
offering. American may elect to fund the sale of the Series E Equipment Notes
through the sale of Pass Through Certificates (the "Class E Certificates")
issued by a Class E American Airlines 2003-1 Pass Through Trust (the "Class E
Trust"). American will not issue any Series E Equipment Notes at any time prior
to the consummation of this offering. The ability to issue any Series E
Equipment Notes is contingent upon obtaining written confirmation from each
Rating Agency that the issuance of such Series E Equipment Notes would not
result in a withdrawal or downgrading of the rating of any rated Class of
Certificates (without regard, in the case of Class G Certificates, to the
Policy). If the Class E Certificates are issued, the Class E Trust will become a
party to the Intercreditor Agreement, and the Class E Certificates would be
subordinated in right of distribution to the Class G, Class C, and Class D
Certificates. See "Description of the Intercreditor Agreement." In addition,
after the occurrence and during the continuance of a Triggering Event, the
holders of the Class E Certificates (the "Class E Certificateholders") would
have certain rights to purchase the Class G, Class C, and Class D Certificates.
See "-- Purchase Rights of Certificateholders." If Series E Equipment Notes are
issued to any person or entity other than the Class E Trust, such Series E
Equipment Notes will nevertheless be subject to the provisions of the
Intercreditor Agreement that allow the Controlling Party, during the continuance
of an Indenture Event of Default, to direct the Loan Trustee in taking action
under the applicable Indenture. (Intercreditor Agreement, Section 8.01(c))
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POSSIBLE REFUNDING OF SERIES C EQUIPMENT NOTES AND SERIES D EQUIPMENT NOTES
Under certain conditions, including those set forth below, American may
elect to prepay all outstanding Series C Equipment Notes and all outstanding
Series D Equipment Notes. The conditions to such a prepayment (a "Refunding ")
include:
o A written confirmation from each Rating Agency that the
Refunding will not result in a withdrawal or downgrading (a
"Ratings Confirmation") of the rating then in effect for the
Class G Certificates (without regard to the Policy).
o Issuance by American of new series C and series D equipment
notes, issuance and sale of corresponding new certificates
from corresponding new pass through trusts and execution of
new documentation substantially in the form of the respective
agreements and instruments relating to the Series C and Series
D Equipment Notes being prepaid and the trusts being
terminated. In each case the new arrangements may be effected
with changes, amendments, modifications, and supplements to
relevant agreements and instruments that may be necessary or
advisable to implement changes to the economic terms of the
new series C and series D equipment notes (as described below)
and conforming and clarifying changes to reflect the Refunding
transactions.
o Sale of at least one class of new pass through certificates to
persons unaffiliated with American.
The proceeds from the issuance and sale of such new certificates by
such new pass through trusts will be used to acquire from American the new
equipment notes to be held by such pass through trusts.
The economic terms of any new series of equipment notes may differ from
the economic terms of the corresponding series of prepaid Series C or Series D
Equipment Notes insofar as:
o the interest rate of all new equipment notes of either or both
series may be changed (provided that the interest rate of all
equipment notes of a series shall be the same), and either or
both series may provide for specified increases and decreases
in the stated interest rate under stated circumstances
(provided the interest rate on the new series C equipment
notes may not exceed 20% per annum) or, solely in the case of
the new series D equipment notes, may provide for floating
rate interest;
o the principal amount of the new equipment notes may be
increased or decreased; provided that the principal amount of
equipment notes of a new series for a given Aircraft may not
increase or decrease by more than 20% of the principal amount
of the corresponding prepaid Series C or Series D Equipment
Notes;
o the maturity date of all new equipment notes of a series may
be made earlier or later by not more than one year before or
after the original maturity date of the corresponding prepaid
Series C and Series D Equipment Notes; and
o the amount of premium on prepayment of either or both series
of new equipment notes may be changed.
Following a Refunding, if a series of new equipment notes has been
purchased by a new pass through trust with proceeds of new certificates of such
pass through trust that were sold to persons unaffiliated with American, such
new series of equipment notes may be prepaid only under the circumstances
described under "Description of the Equipment Notes -- Redemption." American may
arrange for a liquidity facility for a new class C pass through trust, such
liquidity facility to have substantially the same terms as the Liquidity
Facility for the Class G Trust and the liquidity provider of such liquidity
facility to have the same priority distribution rights as the Liquidity Provider
for the Class G Trust to amounts distributable under the Intercreditor
Agreement. American may not arrange for a liquidity facility for a new class D
pass through trust.
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If Series D Equipment Notes are prepaid in connection with a Refunding
of Series C and Series D Equipment Notes and new series D equipment notes are
purchased by a new pass through trust with proceeds of new certificates that
were sold to persons affiliated with American, such new series D equipment notes
may be prepaid as part of a subsequent Refunding in which additional new class D
certificates are sold to persons unaffiliated with American. In lieu of
prepaying both the Series C and Series D Equipment Notes, American will have the
right to prepay only the Series C Equipment Notes, in which case the conditions
relating to Series D Equipment Notes shall not be applicable. American may
thereafter prepay the Series D Equipment Notes, in which case the conditions
described above will be applicable to the Series D Equipment Notes and the
Ratings Confirmation in respect of the related Refunding shall also apply to the
Class C Certificates. Each party to the Intercreditor Agreement will agree to
cooperate with American at American's reasonable request to carry out the
purpose of the foregoing provisions on the terms and conditions set forth above.
Appropriate amendments to reflect the Refunding transactions described above may
be made to the Pass Through Trust Agreements, the Intercreditor Agreement, the
Participation Agreements, the Indentures and the Liquidity Facility, in each
case, without the consent of any Certificateholder. (Intercreditor Agreement,
Exhibit A)
TERMINATION OF THE TRUSTS
The obligations of American and the applicable Trustee with respect to
a Trust will terminate upon the distribution to Certificateholders of such Trust
of all amounts required to be distributed to them pursuant to the applicable
Pass Through Trust Agreement and the disposition of all property held in such
Trust. The applicable Trustee will mail to each Certificateholder of record of
such Trust notice of the termination of such Trust, the amount of the proposed
final payment and the proposed date for the distribution of such final payment
for such Trust. Payment of Final Distributions to any Certificateholder of such
Trust will be made only upon surrender of such Certificateholder's Certificates
at the office or agency of the applicable Trustee specified in such notice of
termination. (Section 11.01)
THE TRUSTEES
The Trustee for each Trust initially will be U.S. Bank Trust National
Association. The Trustee's address is U.S. Bank Trust National Association, 225
Asylum Street, Goodwin Square, Hartford, Connecticut 06103, Attention: Corporate
Trust Division.
With certain exceptions, the Trustee makes no representations as to the
validity or sufficiency of the Basic Agreement, the Trust Supplements, the
Certificates, the Equipment Notes, the Indentures, the Intercreditor Agreement,
the Participation Agreements, the Liquidity Facility, the Policy, or other
related documents. (Sections 7.04 and 7.15) The Trustee of any Trust will not be
liable to the Certificateholders of such Trust for any action taken or omitted
to be taken by it in good faith in accordance with the direction of the holders
of a majority in face amount of outstanding Certificates of such Trust. Subject
to certain provisions, the Trustee will be under no obligation to exercise any
of its rights or powers under any Pass Through Trust Agreement at the request of
any holders of Certificates issued thereunder unless there has been offered to
the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by such Trustee in exercising such rights or
powers. (Section 7.03(e)) Each Pass Through Trust Agreement provides that the
applicable Trustee in its individual or any other capacity may acquire and hold
Certificates issued thereunder and, subject to certain conditions, may otherwise
deal with American with the same rights it would have if it were not the
Trustee. (Section 7.05)
BOOK-ENTRY REGISTRATION; DELIVERY AND FORM
Upon issuance, each of the Class G Certificates will be represented by
one or more fully registered global certificates. Each global certificate will
be deposited with, or on behalf of, The Depository Trust Company (" DTC") and
registered in the name of Cede & Co. ("Cede"), the nominee of DTC. DTC has
informed American as follows: DTC is a limited-purpose trust company organized
under the New York Banking Law, a "banking organization" within the meaning of
the New York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC holds securities that its participants ("DTC Participants")
deposit with DTC. DTC also facilitates the settlement among DTC Participants of
securities
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transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in DTC Participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
DTC Participants include securities brokers and dealers, banks, trust companies
and clearing corporations, and certain other organizations. DTC is owned by a
number of DTC Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange LLC, and the National Association of Securities Dealers,
Inc. Access to the DTC system is also available to others such as securities
brokers and dealers, banks, and trust companies that clear through or maintain a
custodial relationship with a DTC Participant, either directly or indirectly
("Indirect Participants"). See "Description of the Pass Through Certificates --
Book-Entry Registration" in the Prospectus for a discussion of the book-entry
procedures applicable to the Class G Certificates and the limited circumstances
under which definitive certificates may be issued for the Class G Certificates.
So long as such book-entry procedures are applicable, no person
acquiring an interest in the Class G Certificates (a "Certificate Owner") will
be entitled to receive a certificate representing such person's interest in such
Certificates. Unless and until definitive certificates are issued under the
limited circumstances described in the Prospectus, all references in this
Prospectus Supplement to actions by Certificateholders of the Class G
Certificates shall refer to actions taken by DTC upon instructions from DTC
Participants, and all references to distributions, notices, reports, and
statements to such Certificateholders will refer, as the case may be, to
distributions, notices, reports, and statements to DTC or Cede, as the
registered holder of such Certificates, or to DTC Participants for distribution
to Certificate Owners in accordance with DTC procedures.
Neither American nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Class G Certificates held by Cede, as
nominee for DTC, or for maintaining, supervising, or reviewing any records
relating to such beneficial ownership interests or for the performance by DTC,
any DTC Participant, or any Indirect Participant of their respective obligations
under the rules, regulations, and procedures creating and affecting DTC and its
operations or any other statutory, regulatory, contractual, or customary
procedures governing their operations.
DESCRIPTION OF THE LIQUIDITY FACILITY
The following summary describes material terms of the Liquidity
Facility and certain provisions of the Intercreditor Agreement relating to the
Liquidity Facility. The summary supplements (and, to the extent inconsistent
therewith, replaces) the description of the general terms and provisions
relating to the Liquidity Facility and the Intercreditor Agreement and the
description of credit enhancements set forth in the Prospectus. The summary does
not purport to be complete and is qualified in its entirety by reference to all
of the provisions of the Liquidity Facility and the Intercreditor Agreement,
each of which will be filed as an exhibit to a Current Report on Form 8-K to be
filed by American with the Commission. Initially, there will be no liquidity
facility available with respect to the Class C and Class D Certificates. In
connection with a refunding of the Series C Equipment Notes, a liquidity
facility may be provided for the new class C pass through trust.
GENERAL
The liquidity provider for the Class G Trust (the "Liquidity Provider")
will enter into a revolving credit agreement (the "Liquidity Facility") with the
Subordination Agent with respect to such Trust. Under the Liquidity Facility,
the Liquidity Provider will, if necessary, make one or more advances ("Interest
Drawings") to the Subordination Agent in an aggregate amount sufficient to make
distributions of interest in respect of the Pool Balance of the Class G
Certificates on up to three consecutive Regular Distribution Dates at the
interest rate shown on the cover page of this Prospectus Supplement (the "Stated
Interest Rate"). If interest payment defaults occur that exceed the amount
covered by or available under the Liquidity Facility, the Certificateholders of
the Class G Trust will bear their allocable share of the deficiencies to the
extent that there are no other sources of funds. The initial Liquidity Provider
may be replaced by one or more other entities under certain circumstances.
DRAWINGS
The initial Maximum Available Commitment available under the Liquidity
Facility will be $ .
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Except as otherwise provided below, the Liquidity Facility will enable
the Subordination Agent to make Interest Drawings thereunder on any Regular
Distribution Date in order to make interest distributions then scheduled for the
Class G Certificates at the Stated Interest Rate to the extent that the amount,
if any, available to the Subordination Agent on such Regular Distribution Date
is not sufficient to pay such interest. The maximum amount available to be drawn
under the Liquidity Facility on any Regular Distribution Date to fund any
shortfall of interest on Class G Certificates will not exceed the then Maximum
Available Commitment.
The "Maximum Available Commitment" at any time under the Liquidity
Facility is an amount equal to the then Required Amount of the Liquidity
Facility less the aggregate amount of each Interest Drawing then outstanding
under the Liquidity Facility at such time, provided that following a Downgrade
Drawing, a Final Drawing, or a Non-Extension Drawing under a Liquidity Facility,
the Maximum Available Commitment under the Liquidity Facility shall be zero.
The "Required Amount" under the Liquidity Facility on any day is the
aggregate amount sufficient to pay interest on the Pool Balance of the Class G
Certificates at the Stated Interest Rate on the three successive Regular
Distribution Dates following such date or, if such day is a Regular Distribution
Date, on such day and the two succeeding Regular Distribution Dates, in either
case calculated without regard to expected future distributions of principal on
such Class of Certificates. The Pool Ba lance for purposes of the definition of
Required Amount, if any Policy Provider Election has been made, shall be deemed
to be reduced by the amount (if positive) by which (a) the outstanding principal
balance of each Series G Equipment Note in respect of which such Policy Provider
Election has been made shall exceed (b) the amount of any Policy Drawing
previously paid by the Policy Provider in respect of principal of such Series G
Equipment Note.
The Liquidity Facility does not provide for drawings thereunder to pay
principal or Make-Whole Amount with respect to the Class G Certificates, or to
pay principal, interest or Make -Whole Amount with respect to the Certificates
of any other Class. The Liquidity Facility does not provide for drawings
thereunder to pay interest with respect to the Class G Certificates in excess of
an amount equal to three full semiannual installments of interest on the Class G
Certificates calculated at the Stated Interest Rate. (Liquidity Facility,
Section 2.02; Intercreditor Agreement, Section 3.06)
Each payment by the Liquidity Provider will reduce by the same amount
the Maximum Available Commitment, subject to reinstatement as hereinafter
described. With respect to any Interest Drawing, upon reimbursement of the
Liquidity Provider in full or in part for the amount of such Interest Drawing
plus accrued interest thereon, the Maximum Available Commitment under the
Liquidity Facility will be reinstated by the amount reimbursed but not to exceed
the then Required Amount; provided, however, the Liquidity Facility will not be
so reinstated at any time if (a) both (i) a Liquidity Event of Default shall
have occurred and be continuing and (ii) less than 65% of the then aggregate
outstanding principal amount of all Equipment Notes are Performing Equipment
Notes or (b) a Final Drawing shall have occurred. Any amounts paid by the Policy
Provider to the Liquidity Provider as described in "Description of the
Intercreditor Agreement -- Intercreditor Rights -- Controlling Party" will not
reinstate the Liquidity Facility, but any reimbursement of such amounts received
by the Policy Provider under the distribution provisions of the Intercreditor
Agreement will reinstate the Liquidity Facility to the extent of such
reimbursement unless (a) both (i) a Liquidity Event of Default shall have
occurred and be continuing and (ii) less than 65% of the then aggregate
outstanding principal amount of all Equipment Notes are Performing Equipment
Notes or (b) a Final Drawing shall have occurred. (Liquidity Facility, Section
2.02(a); Intercreditor Agreement, Section 3.06(g)) With respect to any other
drawings under the Liquidity Facility, amounts available to be drawn thereunder
are not subject to reinstatement. Following each reduction of the Pool Balance
for the Class G Trust, the Required Amount of the Liquidity Facility will be
reduced automatically to an amount sufficient to pay interest on the Pool
Balance of the Class G Trust on the next three successive Regular Distribution
Dates (without regard to expected future distributions of principal of such
Certificates) at the Stated Interest Rate. (Liquidity Facility, Section 2.04)
"Performing Equipment Note" means an Equipment Note issued pursuant to
an Indenture with respect to which no payment default has occurred and is
continuing (without giving effect to any acceleration); provided that in the
event of a bankruptcy proceeding in which American is a debtor under the
Bankruptcy Code, (i) any payment default occurring before the date of the order
of relief in such proceeding will not be taken into consideration during the
60-day period under Section 1110(a)(2)(A) of the Bankruptcy Code (or such longer
period (not to exceed an
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additional 75 days) as may apply under Section 1110(b) of the Bankruptcy Code)
(the "Section 1110 Period"), (ii) any payment default occurring after the date
of the order of relief in such proceedings will not be taken into consideration
if (x) on or before the expiry of the Section 1110 Period American shall have
entered into an agreement of the kind described in Section 1110(a)(2)(A) of the
Bankruptcy Code with respect to such Equipment Note and (y) such payment default
is cured under Section 1110(a)(2)(B) of the Bankruptcy Code before the later of
30 days after the date of such default or the expiration of the Section 1110
Period, and (iii) any payment default occurring after the Section 1110 Period
will not be taken into consideration if (x) on or before the expiry of the
Section 1110 Period American shall have entered into an agreement of the kind
described in Section 1110(a)(2)(A) of the Bankruptcy Code with respect to such
Equipment Note and (y) such payment default is cured before the end of the grace
period, if any, set forth in the related Indenture. (Intercreditor Agreement,
Section 1.01)
REPLACEMENT OF LIQUIDITY FACILITY
If at any time (i) the short-term issuer credit rating (with respect to
Standard & Poor's) or the short-term unsecured debt rating (with respect to
Moody's) of the Liquidity Provider (or if the Liquidity Provider does not have
such a rating issued by a given Rating Agency, the long-term issuer credit
rating (with respect to Standard & Poor's) or the long-term unsecured debt
rating (with respect to Moody's) of the Liquidity Provider) or, if applicable,
the short-term issuer credit rating (with respect to Standard & Poor's) or the
short-term unsecured debt rating (with respect to Moody's) of any guarantor of
the obligations of the Liquidity Provider issued by either Rating Agency is
lower than the Threshold Rating or (ii) any guarantee of the Liquidity
Provider's obligations under the Liquidity Facility becomes invalid or
unenforceable, the Liquidity Facility may be replaced by a Replacement Facility
subject to receipt of the Rating Agencies' written confirmation of their
respective ratings (without regard to the Policy) then in effect of the Class G
Certificates (before downgrading of such ratings, if any, as a result of
downgrading of the Liquidity Provider or, if applicable, the downgrading of any
guarantor of the obligations of the Liquidity Provider or any such guarantee
becoming invalid or unenforceable). If the Liquidity Facility is not replaced
with a Replacement Facility within 10 days after the date of the downgrading or
such guarantee becoming invalid or unenforceable, the Subordination Agent will
draw the then Maximum Available Commitment under the Liquidity Facility (the
"Downgrade Drawing"). The Subordination Agent will deposit the proceeds of any
Downgrade Drawing into a cash collateral account (the "Cash Collateral Account")
for the Class G Certificates and will use these proceeds for the same purposes
and under the same circumstances and subject to the same conditions as cash
payments of Interest Drawings under the Liquidity Facility would be used.
(Liquidity Facility, Section 2.02(c); Intercreditor Agreement, Sections 3.06(c)
and 3.06(f))
A "Replacement Facility" for the Liquidity Facility will mean an
irrevocable revolving credit agreement (or agreements) in substantially the form
of the replaced Liquidity Facility, including reinstatement provisions, or in
such other form (which may include a letter of credit, surety bond, financial
insurance policy, or guaranty) as will permit the Rating Agencies to confirm in
writing their respective ratings then in effect for the Class G Certificates
(before downgrading of such ratings, if any, as a result of the downgrading of
the Liquidity Provider (without regard to the Policy) or, if applicable, the
downgrading of any guarantor of the obligations of the Liquidity Provider or any
such guarantee becoming invalid or unenforceable), in a face amount (or in an
aggregate face amount) equal to the amount sufficient to pay interest on the
Pool Balance of the Class G Certificates (at the Stated Interest Rate, and
without regard to expected future principal distributions) on the three Regular
Distribution Dates following the date of replacement of the Liquidity Facility,
or, if such date is a Regular Distribution Date, on such day and the two Regular
Distribution Dates following such day, and issued by a person (or persons)
having debt ratings (or whose guarantor, if applicable, has debt ratings) issued
by both Rating Agencies that are equal to or higher than the Threshold Rating.
(Intercreditor Agreement, Section 1.01) The provider of any Replacement Facility
will have the same rights (including, without limitation, priority distribution
rights and rights as Controlling Party) under the Intercreditor Agreement as the
replaced Liquidity Provider.
"Threshold Rating" means (i) a short-term unsecured debt rating of P-1
in the case of Moody's and a short-term issuer credit rating of A-1 in the case
of Standard & Poor's and (ii) in the case of any person who does not have a
short -term unsecured debt rating from Moody's or a short-term issuer credit
rating from Standard & Poor's, then in lieu of such rating from such Rating
Agency or Rating Agencies, a long-term unsecured debt rating of A1 in the case
of Moody's and a long-term issuer credit rating of A+ in the case of Standard &
Poor's.
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The Liquidity Facility provides that the Liquidity Provider's
obligations thereunder will expire on the earliest of:
o 364 days after the initial issuance date of the Class G
Certificates (counting from, and including, such issuance
date);
o the date on which the Subordination Agent delivers to the
Liquidity Provider a certification that (x) Final
Distributions on all of the Class G Certificates have been
paid in full or provision has been made for such payment, (y)
each of the Indentures has been terminated or (z) the Class G
Certificates are no longer entitled to the benefits of the
Liquidity Facility;
o the date on which the Subordination Agent delivers to the
Liquidity Provider a certification that a Replacement Facility
has been substituted for the Liquidity Facility;
o the fifth Business Day following receipt by the Subordination
Agent of a Termination Notice from the Liquidity Provider (see
"-- Liquidity Events of Default"); and
o the date on which no amount is or may (including by reason of
reinstatement) become available for drawing under the
Liquidity Facility.
The Liquidity Facility provides that it may be extended if the
Liquidity Provider advises the Subordination Agent to this effect in accordance
with the terms of the Liquidity Facility.
The Intercreditor Agreement will provide for the replacement of the
Liquidity Facility if the Liquidity Facility is scheduled to expire earlier than
15 days after the Final Legal Distribution Date for the Class G Certificates and
the Liquidity Facility is not extended at least 25 days prior to its then
scheduled expiration date. If the Liquidity Facility is not so extended or
replaced by the 25th day prior to its then scheduled expiration date, the
Subordination Agent shall request a drawing in full up to the then Maximum
Available Commitment under the Liquidity Facility (the "Non-Extension Drawing").
The Subordination Agent will hold the proceeds of the Non-Extension Drawing in
the Cash Collateral Account as cash collateral to be used for the same purposes
and under the same circumstances, and subject to the same conditions, as cash
payments of Interest Drawings under the Liquidity Facility would be used.
(Liquidity Facility, Section 2.02(b); Intercreditor Agreement, Sections 3.06(d)
and 3.06(f))
Subject to certain limitations, American may, at its option, arrange
for a Replacement Facility at any time to replace the Liquidity Facility
(including without limitation any Replacement Facility described in the
following sentence). In addition, if the Liquidity Provider determines not to
extend the Liquidity Facility, then the Liquidity Provider may, at its option,
arrange for a Replacement Facility acceptable to American to replace the
Liquidity Facility during the period no earlier than 40 days and no later than
25 days prior to the then scheduled expiration date of the Liquidity Facility.
If a Replacement Facility is provided at any time after a Downgrade Drawing or a
Non-Extension Drawing under the Liquidity Facility, the funds with respect to
the Liquidity Facility on deposit in the Cash Collateral Account will be
returned to the Liquidity Provider being replaced. (Intercreditor Agreement,
Section 3.06(e))
Upon receipt by the Subordination Agent of a Termination Notice (as
defined under "-- Liquidity Events of Default" below) with respect to the
Liquidity Facility fro m the Liquidity Provider, the Subordination Agent shall
request a final drawing (a "Final Drawing") under the Liquidity Facility in an
amount equal to the then Maximum Available Commitment thereunder. The
Subordination Agent will hold the proceeds of the Final Drawing in the Cash
Collateral Account as cash collateral to be used for the same purposes and under
the same circumstances, and subject to the same conditions, as cash payments of
Interest Drawings under the Liquidity Facility would be used. (Liquidity
Facility, Section 2.02(d); Intercreditor Agreement, Sections 3.06(f) and
3.06(i))
Drawings under the Liquidity Facility will be made by delivery by the
Subordination Agent of a notice in the form required by the Liquidity Facility.
Upon receipt of such notice, the Liquidity Provider is obligated to make payment
of the drawing requested thereby in immediately available funds. Upon payment by
the Liquidity Provider
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of the amount specified in any drawing under the Liquidity Facility, the
Liquidity Provider will be fully discharged of its obligations under the
Liquidity Facility with respect to such drawing and will not thereafter be
obligated to make any further payments under the Liquidity Facility in respect
of such drawing to the Subordination Agent or any other person.
REIMBURSEMENT OF DRAWINGS
The Subordination Agent must reimburse amounts drawn under the
Liquidity Facility by reason of an Interest Drawing, Final Drawing, Downgrade
Drawing, or Non-Extension Drawing and interest thereon, but only to the extent
that the Subordination Agent has funds available therefor.
INTEREST DRAWINGS AND FINAL DRAWINGS
Amounts drawn under the Liquidity Facility by reason of an Interest
Drawing or Final Drawing (each, a "Drawing") will be immediately due and payable
to the Liquidity Provider, together with interest on the amount of such drawing.
From the date of such Drawing to (but excluding) the third business day
following the Liquidity Provider's receipt of the notice of such Drawing,
interest will accrue at the Base Rate plus 2.50% per annum. Thereafter, interest
will accrue at Liquidity Facility LIBOR for the applicable interest period plus
2.50% per annum.
"Base Rate" means a fluctuating interest rate per annum in effect from
time to time, which rate per annum shall at all times be equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for each
day in the period for which the Base Rate is to be determined (or, if such day
is not a business day, for the next preceding business day) by the Federal
Reserve Bank of New York, or if such rate is not so published for any day that
is a business day, the average of the quotations for such day for such
transactions received by the Liquidity Provider from three Federal funds brokers
of recognized standing selected by it plus one quarter of one percent (0.25%)
per annum.
"Liquidity Facility LIBOR" means, with respect to any interest period,
the rate per annum appearing on display page 3750 (British Bankers Association
-- LIBOR) of the Dow Jones Markets Service (or any successor or substitute
therefor) at approximately 11:00 A.M. (London time) two London business days
before the first day of such interest period as the rate for dollar deposits
with a maturity comparable to such interest period, or if such rate is not
available, a rate per annum determined by certain alternative methods.
DOWNGRADE DRAWINGS AND NON-EXTENSION DRAWINGS
The amount drawn under the Liquidity Facility by reason of a Downgrade
Drawing or a Non-Extension Drawing and deposited in the Cash Collateral Account
will be treated as follows:
o such amount will be released on any Distribution Date to the
Liquidity Provider to pay any obligations to the Liquidity
Provider to the extent such amount exceeds the Required
Amount;
o any portion of such amount withdrawn from the Cash Collateral
Account to pay interest distributions on the Class G
Certificates will be treated in the same way as Interest
Drawings; and
o the balance of such amount will be invested in certain
specified eligible investments.
Any Downgrade Drawing or Non-Extension Drawing under the Liquidity
Facility, other than any portion thereof applied to the payment of interest
distributions on the Certificates, will bear interest (x) subject to clause (y)
below, at a rate equal to (i) from the date of such drawing to (but excluding)
the third Business Day following the Liquidity Provider's receipt of the notice
of such Downgrade Drawing or Non-Extension Drawing, at the Base Rate and (ii)
thereafter, at Liquidity Facility LIBOR for the applicable period plus, in each
case, a margin equal to the then effective commitment fee and (y) from and after
the date, if any, on which it is converted into a Final Drawing as described
below under "-- Liquidity Events of Default," at a rate equal to Liquidity
Facility LIBOR for the applicable interest period plus 2.50% per annum.
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LIQUIDITY EVENTS OF DEFAULT
Events of default under the Liquidity Facility (each, a "Liquidity
Event of Default") will consist of:
o the acceleration of all the Equipment Notes; or
o certain bankruptcy or similar events involving American.
(Liquidity Facility, Section 1.01)
If (i) the Liquidity Event of Default under the Liquidity Facility has
occurred and is continuing and (ii) less than 65% of the aggregate outstanding
principal amount of all Equipment Notes are Performing Equipment Notes, the
Liquidity Provider may, in its discretion, give a notice of termination of the
Liquidity Facility (a "Termination Notice"). The Termination Notice will have
the following consequences:
o the Liquidity Facility will expire on the fifth Business Day
after the date on which such Termination Notice is received by
the Subordination Agent;
o the Subordination Agent will request promptly, and the
Liquidity Provider will honor, a Final Drawing thereunder in
an amount equal to the then Maximum Available Commitment
thereunder;
o any Drawing remaining unreimbursed as of the date of
termination will be converted automatically into a Final
Drawing under the Liquidity Facility; and
o all amounts outstanding under the Liquidity Facility will
become immediately due and payable to the Liquidity Provider.
Notwithstanding the foregoing, the Subordination Agent will be
obligated to pay amounts owing to the Liquidity Provider only to the extent of
funds available therefor after giving effect to the payments in accordance with
the provisions set forth under "Description of the Intercreditor Agreement --
Priority of Distributions." (Liquidity Facility, Section 6.01; Intercreditor
Agreement, Section 2.01(b))
Upon the circumstances described under "Description of the
Intercreditor Agreement-- Intercreditor Rights," the Liquidity Provider may
become the Controlling Party with respect to the exercise of remedies under the
Indentures. (Intercreditor Agreement, Section 2.06(c))
LIQUIDITY PROVIDER
The initial Liquidity Provider will be Citibank, N.A., although
American and Citibank, N.A. intend to replace Citibank, N.A. as the Liquidity
Provider as soon as feasible.
DESCRIPTION OF THE POLICY AND THE POLICY PROVIDER AGREEMENT
The following summary describes certain terms of the Policy and certain
material provisions of the Policy Provider Agreement relating to the Policy. The
summary does not purport to be complete and is qualified in its entirety by
reference to all of the provisions of the Policy, which will be filed as an
exhibit to a Current Report on Form 8-K to be filed by American with the
Commission. Certain defined terms used in this summary are defined below under
"-- Definitions."
THE POLICY
The Policy Provider will issue a certificate guaranty insurance policy
(the "Policy") in favor of the Subordination Agent for the benefit of the
holders of the Class G Certificates and the Liquidity Provider, with respect to
certain interest payments. The Policy will not cover any amounts payable on any
other Class of Certificates. The Intercreditor Agreement directs the
Subordination Agent to make a drawing under the Policy for the Class G
Certificates under the following five circumstances:
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INTEREST DRAWINGS
If, on any Regular Distribution Date (other than the Final Legal
Distribution Date) for the Class G Certificates, after giving effect to
o the application of funds in accordance with the priorities set
forth under "Description of the Intercreditor Agreement --
Priority of Distributions,"
o any drawings paid under the Liquidity Facility in respect of
accrued interest on the Class G Certificates, and
o any withdrawal of funds from the Cash Collateral Account in
respect of such interest,
the Subordination Agent does not then have sufficient funds available for the
payment of all amounts of interest scheduled for distribution on the Class G
Certificates at the Stated Interest Rate, the Subordination Agent is to request
a Policy Drawing under the Policy in an amount sufficient to enable the
Subordination Agent to distribute such interest.
PROCEEDS DEFICIENCY DRAWING
If the Subordination Agent receives a Special Payment consisting of
proceeds of the Disposition of any Defaulted Series G Equipment Note or the
Collateral under (and as defined in) the related Indenture and (if such
Disposition occurs prior to a Policy Provider Election with respect to such
Defaulted Series G Equipment Note) after giving effect to the application of
Prior Funds, the Subordination Agent does not have sufficient funds available to
reduce the outstanding Pool Balance for the Class G Certificates by an amount
equal to the outstanding principal amount of such Defaulted Series G Equipment
Note (determined immediately prior to receipt of such Disposition proceeds) plus
accrued and unpaid interest on the amount of such reduction at the Stated
Interest Rate from the immediately preceding Regular Distribution Date, then on
any Special Distribution Date elected by the Subordination Agent upon 20 days
notice to the Policy Provider, the Policy Provider will pay to the Subordination
Agent an amount sufficient to enable the Subordination Agent, after giving
effect to the application of such Disposition proceeds and (if such Disposition
occurs prior to a Policy Provider Election with respect to such Defaulted Series
G Equipment Note) Prior Funds, the amount, if any, required to reduce the Pool
Balance of the Class G Certificates by an amount equal to the outstanding
principal amount of such Defaulted Series G Equipment Note (less the amount of
any Policy Drawings previously paid by the Policy Provider in respect of
principal on such Defaulted Series G Equipment Note) plus accrued and unpaid
interest on the amount of reduction at the Stated Interest Rate from the
immediately preceding Regular Distribution Date.
NO PROCEEDS DRAWING
On the first Business Day (which shall be a Special Distribution Date)
that is 24 months after the last date on which full payment was made on a Series
G Equipment Note as to which there has subsequently been a failure to pay
principal or that has been accelerated, if there has not previously been a
Proceeds Deficiency Drawing as described in the preceding paragraph with respect
to such Equipment Note, then on that Special Distribution Date the Subordination
Agent will request a drawing under the Policy in an amount equal to the then
outstanding principal amount of such Defaulted Series G Equipment Note plus
accrued and unpaid interest thereon at the Stated Interest Rate from the
immediately preceding Regular Distribution Date to such Special Distribution
Date. The Subordination Agent is to give prompt notice to each Trustee,
American, the Liquidity Provider, and the Policy Provider establishing the
Special Distribution Date, which notice is to be given not less than 25 days
prior to such Special Distribution Date. After the payment by the Policy
Provider in full of the requested drawing, the Subordination Agent will have no
right to make any further drawing under the Policy in respect of the Defaulted
Series G Equipment Note except for an Avoidance Drawing as described below.
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Notwithstanding the foregoing, at the end of any such 24-month period
the Policy Provider may, so long as no Policy Provider Default shall have
occurred and be continuing, by giving notice to the Subordination Agent at least
five days prior to the end of such 24-month period, elect (the "Policy Provider
Election") instead to pay:
o on such Special Distribution Date an amount equal to the
scheduled principal and interest payable but not paid on the
Defaulted Series G Equipment Note (without regard to the
acceleration thereof) during such 24-month period (after
giving effect to the application of funds received from the
Liquidity Facility and the Cash Collateral Account with
respect to such interest) and
o thereafter, on each Regular Distribution Date, an amount equal
to the scheduled principal and interest payable on the
Defaulted Series G Equipment Note on the related payment date
(without regard to any acceleration thereof or any funds
available under the Liquidity Facility or the Cash Collateral
Account) until the establishment of an Election Distribution
Date or of a Special Distribution Date as provided in the next
paragraph.
Following a Policy Provider Election, on any Business Day (which shall
be a Special Distribution Date) elected by the Policy Provider upon 20 days
notice to the Subordination Agent, the Policy Provider may (notwithstanding the
Policy Provider Election) request the Subordination Agent to, and the
Subordination Agent shall, make a Policy Drawing for an amount equal to the then
outstanding principal balance of the Defaulted Series G Equipment Note (less any
drawings previously paid by the Policy Provider in respect of principal on such
Defaulted Series G Equipment Note) and accrued and unpaid interest thereon at
the Stated Interest Rate from the immediately preceding Regular Distribution
Date to such Special Distribution Date.
Further, after a Policy Provider Election, following the occurrence and
continuation of a Policy Provider Default, the Subordination Agent shall be
required on a Special Distribution Date specified by the Subordination Agent
upon 20 days notice to the Policy Provider (such specified Special Distribution
Date, an "Election Distribution Date") to make a Policy Drawing under the Policy
for an amount equal to the then outstanding principal balance of the Defaulted
Series G Equipment Note (less any Policy Drawings previously paid by the Policy
Provider in respect of principal on such Defaulted Series G Equipment Note) and
accrued and unpaid interest thereon at the Stated Interest Rate from the
immediately preceding Regular Distribution Date to such Election Distribution
Date.
Regardless of whether or not the Policy Provider makes a Policy
Provider Election, the Policy Provider shall, at the end of the 24-month period,
honor drawings by the Liquidity Provider in respect of interest accruing on the
outstanding drawings of the Liquidity Facility from and after the end of such
24-month period as and when such interest becomes due in accordance with the
Liquidity Facility.
FINAL POLICY DRAWING
If on the Final Legal Distribution Date of the Class G Certificates,
after giving effect to the application of funds in accordance with the
priorities set forth under "Description of the Intercreditor Agreement --
Priority of Distributions," and the application of any Prior Funds, the
Subordination Agent does not then have sufficient funds available for the
payment in full of Final Distributions (calculated as at such date but excluding
any unpaid Make-Whole Amount) on the Class G Certificates, the Subordination
Agent shall request a Policy Drawing under the Policy in an amount sufficient to
enable the Subordination Agent to pay in full such Final Distributions
(calculated as at such date but excluding any unpaid Make-Whole Amount or
interest thereon) on the Class G Certificates.
AVOIDANCE DRAWING
If at any time the Subordination Agent has actual knowledge of the
issuance of any Order prior to the expiration of the Policy, the Subordination
Agent is to give prompt notice to each Trustee, American, the Liquidity
Provider, and the Policy Provider of such Order and establish as a Special
Distribution Date the date that is the earlier of the third Business Day that
immediately precedes the expiration of the Policy and the Business Day that
immediately follows the 25th day after the Subordination Agent's notice. With
respect to that Special Distribution
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Date, the Subordination Agent is to request a Policy Drawing for the relevant
Preference Amount and to deliver to the Policy Provider a copy of the
documentation required by such Policy with respect to such Order.
GENERAL
All requests by the Subordination Agent for a Policy Drawing under the
Policy are to be made by the Subordination Agent no later than 1:00 p.m. (New
York City time) on (or, in the case of any Preference Amount, at least three
Business Days prior to) the applicable Distribution Date in the form required by
the Policy and delivered to the Policy Provider in accordance with the Policy.
All proceeds of any Policy Drawing are to be deposited by the Subordination
Agent in the policy account established by the Subordination Agent pursuant to
the Intercreditor Agreement (the "Policy Account") and used by the Class G
Trustee for distribution to the holders of the Class G Certificates without
regard to the subordination provisions of the Intercreditor Agreement. In the
case of any Preference Amounts, however, all or part of the Policy Drawing will
be paid directly to the receiver, conservator, debtor-in-possession, or trustee
in bankruptcy to the extent such amounts have not been paid by the
Certificateholders. If any request for a Policy Drawing is rejected because it
does not satisfy the requirements of the relevant Policy, the Subordination
Agent will be required to resubmit the request so as to satisfy those
requirements.
The Policy provides that if such a request by the Subordination Agent
for a policy drawing is properly submitted or resubmitted it will pay to the
Subordination Agent for deposit in the Policy Account the applicable payment
under such Policy no later than 4:00 p.m. on the later of the relevant
Distribution Date and the date the request is received by the Policy Provider
(if the request is received by 1:00 p.m. on such date) or on the next Special
Distribution Date (if the request is received after that time).
The Policy Provider will be subrogated to all of the rights of the
holders of the Class G Certificates to payment on the Class G Certificates to
the extent of the payments made under the Policy. Once any payment made under
the Policy is received by the Subordination Agent, the Policy Provider will have
no further obligation in respect of those payments, regardless of whether or not
the funds are properly distributed by the Subordination Agent or the Class G
Trustee. The Policy Provider shall not be required to make any payment except at
the times and in the amounts expressly set forth in the Policy.
The Policy does not cover (i) shortfalls, if any, attributable to the
liability of the Class G Trust, the Class G Trustee, or the Subordination Agent
for withholding taxes, if any (including interest and penalties in respect of
that liability), (ii) any Make -Whole Amount that at any time may become due on
or with respect to the Class G Certificates, (iii) any premium, prepayment
penalty or other accelerated payment, which at any time becomes due on or with
respect to any Class G Certificate or (iv) any failure of the Subordination
Agent or the Trustee to make any payment due to the holders of the Class G
Certificates for the Class G Trust from funds received.
The Policy is noncancellable. The Policy expires and terminates without
any action on the part of the Policy Provider or any other person on the date
that is one year and one day following the date on which Final Distributions are
fully paid on the Class G Certificates, unless an Insolvency Proceeding exists,
in which case the Policy expires and terminates on the later of (i) the date of
the conclusion or dismissal of such Insolvency Proceeding without continuing
jurisdiction by the court in such Insolvency Proceeding and (ii) the date on
which the Policy Provider has made all payments required to be made under the
terms of such Policy in respect of a Preference Amount. No portion of the
premium under the Policy is refundable for any reason.
The Policy shall be construed under the laws of the State of New York.
DEFINITIONS
"Insolvency Proceeding" means the commencement of any bankruptcy,
insolvency, readjustment of debt, reorganization, marshalling of assets and
liabilities, or similar proceedings by or against American or the Liquidity
Provider and the commencement of any proceedings by American or the Liquidity
Provider for the winding up or liquidation of its affairs or the consent to the
appointment of a trustee, conservator, receiver, or liquidator in any
bankruptcy, insolvency, readjustment of debt, reorganization, marshalling of
assets and liabilities, or similar proceedings of or relating to American or the
Liquidity Provider.
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"Order"means a final, non-appealable order of a court of competent
jurisdiction exercising jurisdiction in an insolvency proceeding providing for
recovery of a Preference Amount.
"Preference Amount" means any payment of principal of, or interest at
the applicable Stated Interest Rate on, the Series G Equipment Notes made to the
Class G Trustee or the Subordination Agent or (without duplication) any payment
of the Pool Balance of, or interest at the applicable State Interest Rate on,
the Class G Certificates (or any payment of the proceeds of any drawing under
the Liquidity Facility in respect of the Class G Certificates) made to a holder
which has become recoverable or had been recovered from the Class G Trustee, the
Subordination Agent or the holders (as the case may be) as a result of such
payment being determined or deemed a preferential transfer pursuant to the
United States Bankruptcy Code or otherwise rescinded or required to be returned
in accordance with an Order, provided that Preference Amount shall not include
any amounts that were or are required to be deducted in respect of taxes from
the related preferential transfer.
THE POLICY PROVIDER AGREEMENT
The Subordination Agent, American, the Class G Trustee, and the Policy
Provider will enter into an insurance and indemnity agreement (the "Policy
Provider Agreement") to be dated as of the Issuance Date. Under the Policy
Provider Agreement, the Subordination Agent will agree to reimburse the Policy
Provider for Policy Drawings paid under the Policy. These rights to
reimbursement from the Subordination Agent are subject, pursuant to the terms of
the Policy Provider Agreement and the Intercreditor Agreement, to the priorities
set forth in the Intercreditor Agreement. Under certain circumstances, American
will directly reimburse the Policy Provider for drawings paid under the Policy
to the extent not reimbursed under the Intercreditor Agreement. Pursuant to a
policy fee letter (the "Policy Fee Letter"), American and the Subordination
Agent (but without duplication) will agree to pay the Policy Provider a premium
for the Policy and any other amounts due under the Policy Fee Letter.
DESCRIPTION OF THE INTERCREDITOR AGREEMENT
The following summary describes certain materia l provisions of the
Intercreditor Agreement (the "Intercreditor Agreement") among the Trustees, the
Liquidity Provider, the Policy Provider, and U.S. Bank Trust National
Association, as subordination agent (the "Subordination Agent"). The summary
supplements (and, to the extent inconsistent therewith, replaces) the
description of the general terms and provisions relating to the Intercreditor
Agreement and the description of credit enhancements set forth in the
Prospectus. The summary does not purport to be complete and is qualified in its
entirety by reference to all of the provisions of the Intercreditor Agreement,
which will be filed as an exhibit to a Current Report on Form 8-K to be filed by
American with the Commission.
INTERCREDITOR RIGHTS
GENERAL
The Equipment Notes relating to each Trust will be issued to and
registered in the name of the Subordination Agent as agent and trustee for the
Trustee of such Trust.
CONTROLLING PARTY
With respect to any Indenture at any given time, the Loan Trustee under
such Indenture will be directed in taking, or refraining from taking, any action
thereunder or with respect to the Equipment Notes issued under such Indenture by
the Subordination Agent acting at the direction of the Controlling Party. For so
long as the Subordination Agent is the registered holder of the Equipment Notes
and neither the Policy Provider nor the Liquidity Provider is the Controlling
Party, the Subordination Agent will act with respect to the preceding sentence
in accordance with the directions of the Trustee acting as Controlling Party.
(Intercreditor Agreement, Sections 2.06 and 8.01(b)) Any such Trustee acting as
Controlling Party will direct the Subordination Agent as directed by
Certificateholders evidencing fractional undivided interests aggregating not
less than a majority in interest in the relevant Trust. (Basic Agreement,
Section 10.01)
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Notwithstanding the foregoing, no amendment, modification, consent or
waiver will, without the consent of the Liquidity Provider, the Policy Provider
and the Trustee (other than the Trustee of any Trust all of the certificates of
which are held or beneficially owned by one or more American Entities) of each
Trust whose Certificateholders would be affected thereby, reduce the amount of
principal or interest payable by American under any Equipment Note issued under
any Indenture or delay the timing of such payment. (Intercreditor Agreement,
Section 8.01(b)) See "Description of the Certificates -- Indenture Events of
Default and Certain Rights upon an Indenture Event of Default" for a description
of the rights of the Certificateholders of each Trust to direct the respective
Trustees.
Subject to the following paragraph, if Final Distributions have not
been paid in full to the holders of the Class G Certificates or if any
obligations payable to the Policy Provider under the Intercreditor Agreement
remain outstanding, so long as no Policy Provider Default has occurred and is
continuing, the Policy Provider will be the "Controlling Party." At any other
time the "Controlling Party" will be:
o if Final Distributions have not been paid in full to the
holders of the Class G Certificates, the Class G Trustee;
o if Final Distributions have been paid in full to the holders
of Class G Certificates, but not to the holders of the Class C
Certificates, the Class C Trustee; and
o if Final Distributions have been paid in full to the holders
of Class G and Class C Certificates, the Class D Trustee.
At any time after 18 months from the earliest to occur of (x) the date
on which the entire available amount under the Liquidity Facility has been drawn
(for any reason other than a Downgrade Drawing or a Non-Extension Drawing) and
remains unreimbursed, (y) the date on which the entire amount of any Downgrade
Drawing or Non-Extension Drawing has been withdrawn from the Cash Collateral
Account to pay interest on the Class G Certificates or has been converted into a
Final Drawing and remains unreimbursed and (z) the date on which all Equipment
Notes have been accelerated (provided that in the event of a bankruptcy
proceeding under the U.S. Bankruptcy Code in which American is a debtor, any
amounts payable in respect of Equipment Notes which have become immediately due
and payable by declaration or otherwise will not be considered accelerated for
purposes of this clause (z) until the expiration of the 60-day period under
Section 1110(a)(2)(A) of the Bankruptcy Code or such longer period as may apply
under Section 1110(a)(2)(B) or Section 1110(b) of the Bankruptcy Code), the
Liquidity Provider (but not if it has defaulted in its obligation to make any
advance under the Liquidity Facility) will have the right to become the
Controlling Party with respect to any Indenture; provided that if the Policy
Provider pays to the Liquidity Provider all outstanding drawings and interest
thereon owing to the Liquidity Provider under the Liquidity Facility as of the
end of such 18 month period, the Policy Provider shall remain the Controlling
Party so long as no Policy Provider Default has occurred and is continuing and
the Policy Provider thereafter pays to the Liquidity Provider all subsequent
drawings, together with accrued interest thereon, under the Liquidity Facility
as and when such obligations become due (and if a Policy Provider Default has
occurred and is continuing, the Liquidity Provider, if it so elects, shall
become the Controlling Party). (Intercreditor Agreement, Section 2.06) In the
event there is more than one liquidity provider, the liquidity provider with the
greater amount of unreimbursed obligations owing to it under its liquidity
facility would have the right to become the Controlling Party, subject to the
payment right of the Policy Provider described in the proviso of the immediately
preceding sentence.
For purposes of giving effect to the rights of the Controlling Party,
the Trustees (other than the Controlling Party) shall irrevocably agree, and the
Certificateholders (other than the Certificateholders represented by the
Controlling Party) will be deemed to agree by virtue of their purchase of
Certificates, that the Subordination Agent, as record Note Holder, will exercise
its voting rights in respect of the Equipment Notes as directed by the
Controlling Party. (Intercreditor Agreement, Sections 2.06 and 8.01(b)) For a
description of certain limitations on the Controlling Party's rights to exercise
remedies, see "-- Sale of Equipment Notes or Aircraft" and "Description of the
Equipment Notes -- Remedies."
"Final Distributions" means, with respect to the Certificates of any
Trust on any Distribution Date, the sum of (x) the aggregate amount of all
accrued and unpaid interest in respect of such Certificates and (y) the Pool
Balance of such Certificates as of the immediately preceding Distribution Date.
For purposes of calculating Final
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Distributions with respect to the Certificates of any Trust, any Make-Whole
Amount paid on the Equipment Notes held in such Trust that has not been
distributed to the Certificateholders of such Trust (other than such Make-Whole
Amount, or a portion thereof applied to the distributions of interest on the
Certificates of such Trust or the reduction of the Pool Balance of such Trust)
shall be added to the amount of such Final Distributions. (Intercreditor
Agreement, Section 1.01)
"Policy Provider Default" shall mean the occurrence of any of the
following events: (a) the Policy Provider fails to make a payment required under
the Policy in accordance with its terms and such failure remains unremedied for
two Business Days following the delivery of written notice of such failure to
the Policy Provider, (b) the Policy Provider (i) files any petition or commences
any case or proceeding under any provisions of any federal or state law relating
to insolvency, bankruptcy, rehabilitation, liquidation, or reorganization, (ii)
makes a general assignment for the benefit of its creditors, or (iii) has an
order for relief entered against it under any federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation, or reorganization that is
final and nonappealable, or (c) a court of competent jurisdiction, the Wisconsin
Department of Insurance or another competent regulatory authority enters a final
and nonappealable order, judgment, or decree (i) appointing a custodian,
trustee, agent, or receiver for the Policy Provider or for all or any material
portion of its property or (ii) authorizing the taking of possession by a
custodian, trustee, agent, or receiver of the Policy Provider (or taking of
possession of all or any material portion of the Policy Provider's property).
SALE OF EQUIPMENT NOTES OR AIRCRAFT
Following the occurrence and during the continuation of any Indenture
Event of Default under any Indenture, the Controlling Party may direct the
Subordination Agent, which in turn will direct the Loan Trustee under the
Indenture, to accelerate the Equipment Notes issued under such Indenture and,
subject to the provisions of the immediately following sentence, sell all (but
not less than all) of such Equipment Notes or the related Aircraft to any
person. So long as any Certificates are outstanding, during the nine months
after the earlier of (x) the acceleration of the Equipment Notes issued under
any Indenture and (y) the bankruptcy or insolvency of American, no Aircraft
subject to the lien of such Indenture or such Equipment Notes may be sold,
without the consent of each Trustee (other than the Trustee of any Trust all of
the Certificates of which are held or beneficially owned by an American Entity),
if the net proceeds from such sale would be less than the Minimum Sale Price for
such Aircraft or such Equipment Notes.
"Minimum Sale Price" means, with respect to any Aircraft or the
Equipment Notes issued in respect of such Aircraft, at any time, the lesser of
(i) 75% of the Appraised Current Market Value of such Aircraft and (ii) the
aggregate outstanding principal amount of such Equipment Notes, plus accrued and
unpaid interest thereon.
PRIORITY OF DISTRIBUTIONS
The subordination terms applicable to the Certificates vary depending
upon whether a Triggering Event has occurred. "Triggering Event" means (i) the
occurrence of an Indenture Event of Default under all Indentures resulting in a
PTC Event of Default with respect to the most senior Class of Certificates then
outstanding, (ii) the acceleration of all of the outstanding Equipment Notes, or
(iii) certain bankruptcy or insolvency events involving American. If a liquidity
facility is provided for new class C certificates in connection with a
Refunding, the issuer of such liquidity facility will have the same priority
distribution rights as the Liquidity Provider in respect of the Class G
Certificates.
BEFORE A TRIGGERING EVENT
So long as no Triggering Event has occurred (whether or not
continuing), all payments made in respect of the Equipment Notes and certain
other payments received on any Distribution Date (other than payments
constituting proceeds from the exercise of remedies under an Indenture in
default) will be distributed promptly by the Subordination Agent on such
Distribution Date in the following order of priority:
o to the Liquidity Provider to the extent required to pay
Liquidity Expenses and to the Policy Provider to the extent
required to pay the Policy Expenses, pro rata;
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o to the Liquidity Provider to the extent required to pay
accrued and unpaid interest on the Liquidity Obligations and
to the Policy Provider to the extent required to pay accrued
and unpaid Policy Provider Interest Drawing Amounts and, if
the Policy Provider has paid to the Liquidity Provider all
outstanding drawings and interest thereon owing to the
Liquidity Provider under the Liquidity Facility, to reimburse
the Policy Provider for the amount of such payment made to the
Liquidity Provider attributable to interest accrued on such
drawings, pro rata;
o if applicable, to replenish ratably the Cash Collateral
Account up to the applicable Required Amount, and then to the
Liquidity Provider to the extent required to pay or reimburse
the Liquidity Provider for the Liquidity Obligations and, if
the Policy Provider has paid to the Liquidity Provider all
outstanding drawings and interest thereon owing to the
Liquidity Provider under the Liquidity Facility, to the Policy
Provider to the extent required to reimburse the Policy
Provider for any payment made to the Liquidity Provider in
respect of principal of drawings under the Liquidity Facility;
o if any amounts are distributed to replenish the Cash
Collateral Account as described in the preceding bullet point,
to the Liquidity Provider, an amount equal to the excess of
(x) the aggregate outstanding amount of unreimbursed Advances
under the Liquidity Facility (whether or not then due, and
after giving effect to any other payments made in
reimbursement of such Advances on such Distribution Date) over
(y) the Required Amount;
o to the Class G Trustee to the extent required to pay Expected
Distributions on the Class G Certificates;
o to the Policy Provider to the extent required to pay Policy
Provider Obligations;
o to the Policy Provider to the extent required to pay Excess
Reimbursement Obligations and Policy Provider Interest
Amounts;
o to the Class C Trustee to the extent required to pay Expected
Distributions on the Class C Certificates; provided that if
all of the Class C Certificates have been sold by the initial
holder thereof to one or more persons that are not American
Entities and the sale or sales of such Class C Certificates to
such person(s) occurred prior to the occurrence of an
Indenture Event of Default under any Indenture, Expected
Distributions on the Class C Certificates shall be paid prior
to payment of Excess Reimbursement Obligations and Policy
Provider Interest Amounts to the Policy Provider as described
in the preceding bullet point;
o to the Class D Trustee to the extent required to pay Expected
Distributions on the Class D Certificates;
o if the Class E Certificates have been issued, to the trustee
of the Class E Trust (the "Class E Trustee") to the extent
required to pay Expected Distributions on the Class E
Certificates; and
o to the Subordination Agent and each Trustee for the payment of
certain fees and expenses.
"Excess Reimbursement Obligations" means, (a) in the event of any
Policy Provider Election, interest on the Series G Equipment Note in respect of
which the Policy Provider Election has been made in excess of 24 months of
interest at the interest rate applicable to such Series G Equipment Note and (b)
any interest on the Liquidity Obligations in respect of the Liquidity Facility
for the Class G Trust paid by the Policy Provider to the Liquidity Provider from
and after the end of the 24-month period referred to in the last paragraph under
the caption "Description of the Policy and the Policy Provider Agreement -- The
Policy -- No Proceeds Drawing."
"Expected Distributions" means, with respect to the Certificates of any
Trust on any Distribution Date (the "Current Distribution Date"), the sum of (1)
accrued and unpaid interest in respect of such Certificates and (2) the
difference between:
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(A) the Pool Balance of such Certificates as of the immediately
preceding Distribution Date (or, if the Current Distribution
Date is the first Distribution Date, the original aggregate
face amount of the Certificates of such Trust); and
(B) the Pool Balance of such Certificates as of the Current
Distribution Date calculated on the basis that (i) the
principal of the Equipment Notes held in such Trust has been
paid when due (whether at stated maturity, upon redemption,
prepayment, purchase, acceleration, or otherwise) and such
payments have been distributed to the holders of such
Certificates and (ii) the principal of any Equipment Notes
formerly held in such Trust that have been sold pursuant to
the Intercreditor Agreement has been paid in full and such
payments have been distributed to the holders of such
Certificates. (Intercreditor Agreement, Section 1.01)
For purposes of calculating Expected Distributions with respect to the
Certificates of any Trust, any Make-Whole Amount paid on the Equipment Notes
held in such Trust that has not been distributed to the Certificateholders of
such Trust (other than such Make-Whole Amount or a portion thereof applied to
distributions of interest on the Certificates of such Trust or the reduction of
the Pool Balance of such Trust) will be added to the amount of Expected
Distributions.
For purposes of determining the priority of distributions on account of
the redemption or prepayment of Equipment Notes issued pursuant to an Indenture,
clause (1) of the definition of Expected Distributions set forth above shall be
deemed to read as follows: "(1) accrued, due and unpaid interest on such
Certificates, together with (without duplication) accrued and unpaid interest on
a portion of such Certificates equal to the outstanding principal amount of the
Equipment Notes being redeemed or prepaid (immediately prior to such redemption
or prepayment)."
"Liquidity Expenses" means the Liquidity Obligations other than (i) the
principal amount of any drawing under the Liquidity Facility and (ii) any
interest accrued on any Liquidity Obligations.
"Liquidity Obligations" means all principal, interest, fees, and other
amounts owing to the Liquidity Provider under the Liquidity Facility or certain
other agreements.
"Policy Drawing" means any payment of a claim under the Policy.
"Policy Expenses" means all amounts (including amounts in respect of
expenses) owing to the Policy Provider under the Policy Provider Agreement or
certain other agreements but excluding (i) any amounts due under the Policy Fee
Letter (including, without limitation, the Policy Premium), (ii) the amount of
any Policy Drawing and certain payments to the Liquidity Provider from the
Policy Provider, and any interest accrued thereon, (iii) reimbursement of any
interest on the Liquidity Obligations paid to the Liquidity Provider by the
Policy Provider, (iv) any indemnity payments owed to the Policy Provider, (v)
any amounts that the Policy Provider is entitled to receive by virtue of the
subrogation rights of the Policy Provider under the Intercreditor Agreement,
including fees and expenses incurred in connection with the enforcement of such
rights, and (vi) any Excess Reimbursement Obligations.
"Policy Provider Obligations" means (i) all reimbursement and other
amounts, including fees and indemnities, due to the Policy Provider under the
Policy Provider Agreement (including, without limitation, Policy Drawings) and
the Policy Fee Letter to the extent not included in Policy Expenses and (ii)
interest on all amounts due and unpaid to the Policy Provider under the Policy
Provider Agreement and Policy Fee Letter accruing at the rate equal to the
Stated Interest Rate applicable to the Class G Certificates plus 2.00%, but
shall not include (x) any Excess Reimbursement Obligations, (y) any Policy
Provider Interest Amounts or (z) any Policy Provider Interest Drawing Amounts.
"Policy Provider Interest Amount" means interest on unreimbursed Policy
Drawings and amounts paid by the Policy Provider to the Liquidity Provider as
described under "-- Intercreditor Rights -- Controlling Party" (other than
Policy Provider Interest Drawing Amounts) accruing at the rate equal to the
Stated Interest Rate applicable to the Class G Certificates plus 2.00% per
annum. For the avoidance of doubt, interest on unreimbursed Policy Drawings
shall be deemed to accrue from the date on which such Policy Drawing was made.
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"Policy Provider Interest Drawing Amount" means, in the event the
Liquidity Provider has failed to honor its obligation to make a payment on any
Interest Drawing in respect of the Class G Certificates, the aggregate amount of
interest accrued on the portion of any Policy Drawing made to cover the
shortfall attributable to such failure by such Liquidity Provider, the amount of
such interest to be equal to the amount of interest that would have accrued on
such Interest Drawing if such Interest Drawing had been made at the interest
rate applicable to such Interest Drawing under the Liquidity Facility until such
Policy Drawing has been repaid in full, up to a maximum of three such Policy
Drawings under the Policy.
AFTER A TRIGGERING EVENT
Subject to the terms of the Intercreditor Agreement, all funds received
by the Subordination Agent constituting proceeds from the exercise of remedies
under an Indenture in default and, upon the occurrence of a Triggering Event and
at all times thereafter, all funds received by the Subordination Agent in
respect of the Equipment Notes and certain other payments received by the
Subordination Agent will be distributed promptly by the Subordination Agent in
the following order of priority:
o to the Subordination Agent or any Trustee, to the extent
required to pay certain out-of-pocket costs and expenses
actually incurred by the Subordination Agent or such Trustee
in protection of, or realization of the value of, the
Equipment Notes or any Collateral under (and as defined in)
any Indenture, or to any Certificateholder, the Policy
Provider, or the Liquidity Provider for payments made to the
Subordination Agent or any Trustee in respect of such amounts,
in each case, pro rata;
o to the Liquidity Provider to the extent required to pay
Liquidity Expenses and to the Policy Provider to the extent
required to pay Policy Expenses, pro rata;
o to the Liquidity Provider to the extent required to pay
accrued and unpaid interest on the Liquidity Obligations and
to the Policy Provider to the extent required to pay accrued
and unpaid Policy Provider Interest Drawing Amounts and, if
the Policy Provider has paid to the Liquidity Provider all
outstanding drawings and interest thereon owing to the
Liquidity Provider under the Liquidity Facility, to reimburse
the Policy Provider for the amount of such payment made to the
Liquidity Provider, attributable to interest accrued on such
drawings, pro rata;
o (i) if applicable, to replenish ratably the Cash Collateral
Account up to the applicable Required Amount unless, in the
case of this clause (i), (x) less than 65% of the aggregate
outstanding principal amount of all Equipment Notes are
Performing Equipment Notes and a Liquidity Event of Default
has occurred and is continuing under the Liquidity Facility or
(y) a Final Drawing has occurred under the Liquidity Facility;
and then (ii) to the Liquidity Provider to the extent required
to pay the outstanding amount of all Liquidity Obligations
and, if the Policy Provider has paid to the Liquidity Provider
all outstanding drawings and interest thereon owing to the
Liquidity Provider under the Liquidity Facility, to the Policy
Provider to the extent required to reimburse the Policy
Provider for any payment made to the Liquidity Provider in
respect of principal of drawings under the Liquidity Facility;
o if any amounts are distributed to replenish the Cash
Collateral Account as described in the preceding bullet point,
to the Liquidity Provider, an amount equal to the excess of
(x) the aggregate outstanding amount of unreimbursed Advances
under the Liquidity Facility (whether or not then due, and
after giving effect to any other payments in reimbursement of
such Advances on such date) over (y) the Required Amount;
o to the Subordination Agent and any Trustee to the extent
required to pay certain fees, taxes, charges, and other
amounts payable or to any Certificateholder for payments made
to the Subordination Agent or any Trustee in respect of such
amounts;
o to the Class G Trustee to the extent required to pay Adjusted
Expected Distributions on the Class G Certificates, provided
that so long as all of the Class C Certificates are owned by
an American Entity, to the extent required to pay Final
Distributions on the Class G Certificates;
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o to the Policy Provider in payment of the Policy Provider
Obligations;
o to pay any Excess Reimbursement Obligations and Policy
Provider Interest Amounts to the Policy Provider;
o to the Class C Trustee to the extent required to pay Adjusted
Expected Distributions on the Class C Certificates, provided
that if all of the Class C Certificates have been sold by the
initial holder thereof to one or more persons that are not an
American Entity and the sale or sales of such Certificates to
such person(s) occurred prior to the occurrence of an
Indenture Event of Default under any Indenture, Adjusted
Expected Distributions on the Class C Certificates shall be
paid prior to payment of Excess Reimbursement Obligations and
Policy Provider Interest Amounts to the Policy Provider as
described in the preceding bullet point;
o to the Class D Trustee to the extent required to pay Adjusted
Expected Distributions on the Class D Certificates, provided
that so long as all of the Class D Certificates are owned by
an American Entity, to the extent required to pay Final
Distributions on the Class G Certificates before any payment
to the Class D Trustee under this bullet point;
o if the Class E Certificates have been issued, to the Class E
Trustee to the extent required to pay Adjusted Expected
Distributions on the Class E Certificates;
o to the Class G Trustee to the extent required to pay Final
Distributions on the Class G Certificates;
o to the Class C Trustee to the extent required to pay Final
Distributions on the Class C Certificates;
o to the Class D Trustee to the extent required to pay Final
Distributions on the Class D Certificates;
o if the Class E Certificates have been issued, to the Class E
Trustee to the extent required to pay Final Distributions on
the Class E Certificates; and
o to the Class G, Class C, Class D, and Class E Trustees, pro
rata based on the original aggregate principal amounts of the
Equipment Notes held by the related Trusts.
"Adjusted Expected Distributions" means, with respect to the
Certificates of any Trust on any Current Distribution Date, the sum of (1)
accrued and unpaid interest in respect of such Certificates and (2) the greater
of:
(A) the difference between (x) the Pool Balance of such
Certificates as of the immediately preceding Distribution Date
(or, if the Current Distribution Date is the first
Distribution Date, the original aggregate face amount of the
Certificates of such Trust) and (y) the Pool Balance of such
Certificates as of the Current Distribution Date calculated on
the basis that (i) the principal of the Equipment Notes other
than Performing Equipment Notes (the "Non-Performing Equipment
Notes") held in such Trust has been paid in full and such
payments have been distributed to the holders of such
Certificates, (ii) the principal of the Performing Equipment
Notes held in such Trust has been paid when due (but without
giving effect to any acceleration of Performing Equipment
Notes) and such payments have been distributed to the holders
of such Certificates, and (iii) the principal of any Equipment
Notes formerly held in such Trust that have been sold pursuant
to the Intercreditor Agreement has been paid in full and such
payments have been distributed to the holders of such
Certificates; and
(B) the amount of the excess, if any, of (i) the Pool Balance of
such Class of Certificates as of the immediately preceding
Distribution Date (or, if the Current Distribution Date is the
first Distribution Date, the original aggregate face amount of
the Certificates of such Trust) over (ii) the Aggregate LTV
Collateral Amount for such Class of Certificates for the
Current Distribution Date;
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provided that, until the date of the initial LTV Appraisals for all of the
Aircraft, clause (B) shall not apply.
For purposes of calculating Adjusted Expected Distributions with
respect to the Certificates of any Trust, any Make-Whole Amount paid on the
Equipment Notes held in such Trust that has not been distributed to the
Certificateholders of such Trust (other than such Make-Whole Amount or a portion
thereof applied to distributions of interest on the Certificates of such Trust
or the reduction of the Pool Balance of such Trust) will be added to the amount
of Adjusted Expected Distributions.
"Aggregate LTV Collateral Amount" for any Class of Certificates for any
Distribution Date means an amount, not less than zero, equal to (i) the sum of
the applicable LTV Collateral Amounts for such Class of Certificates for all
Aircraft minus (ii) the Pool Balance for each Class of Certificates, if any,
senior to such Class, taking into account any distribution of principal on such
Distribution Date with respect to such senior Class or Classes.
"Appraised Current Market Value" of any Aircraft means the lower of the
average and the median of the three most recent LTV Appraisals of such Aircraft.
"LTV Appraisal" means a current fair market value appraisal (which may
be a "desk-top" appraisal) performed by any Appraiser or any other nationally
recognized appraiser on the basis of an arm's-length transaction between an
informed and willing purchaser under no compulsion to buy and an informed and
willing seller under no compulsion to sell and both having knowledge of all
relevant facts.
After a Triggering Event occurs and any Equipment Note becomes a
Non-Performing Equipment Note, the Subordination Agent will obtain LTV
Appraisals of all of the Aircraft as soon as practicable and additional LTV
Appraisals on or prior to each anniversary of the date of such initial LTV
Appraisals; provided that if the Controlling Party reasonably objects to the
appraised value of the Aircraft shown in such LTV Appraisals, the Controlling
Party shall have the right to obtain or cause to be obtained substitute LTV
Appraisals (including LTV Appraisals based upon physical inspection of such
Aircraft).
"LTV Collateral Amount" of any Aircraft for any Class of Certificates
means, as of any Distribution Date, the lesser of (i) the LTV Ratio for such
Class of Certificates multiplied by the Appraised Current Market Value of such
Aircraft (or with respect to any such Aircraft that has suffered an Event of
Loss under and as defined in the relevant Indenture, the amount of the insurance
proceeds paid to the related Loan Trustee in respect thereof to the extent then
held by such Loan Trustee (and/or on deposit in the Special Payments Account) or
payable to such Loan Trustee in respect thereof, the amount of money and U.S.
Government Obligations deposited with the Loan Trustee pursuant thereto as of
such Distribution Date) and (ii) the outstanding principal amount of the
Equipment Notes secured by such Aircraft after giving effect to any principal
payments of such Equipment Notes on or before such Distribution Date.
"LTV Ratio" means for the Class G Certificates 47.4%, for the Class C
Certificates 65.1%, and for the Class D Certificates 71.1%.
Interest Drawings under the Liquidity Facility, withdrawals from the
Cash Collateral Account and Policy, Drawings will be distributed to the Class G
Trustee, notwithstanding the priority of distributions set forth in the
Intercreditor Agreement and otherwise described herein.
ADDITION OF TRUSTEE FOR CLASS E CERTIFICATES
If the Class E Certificates are issued, the Class E Trustee will become
a party to the Intercreditor Agreement and the Intercreditor Agreement will be
appropriately amended. (Intercreditor Agreement, Section 8.01(c)).
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ADDITION OF TRUSTEES UPON REFUNDING
Upon the occurrence of a Refunding as described in "Description of the
Certificates -- Possible Refunding of Series C Equipment Notes and Series D
Equipment Notes," the Trustee for the new class C certificates and the Trustee
for the new class D certificates will become a party to the Intercreditor
Agreement and the Intercreditor Agreement will be appropriately amended.
(Intercreditor Agreement, Exhibit A)
THE SUBORDINATION AGENT
U.S. Bank Trust National Association initially will be the
Subordination Agent under the Intercreditor Agreement. American and its
affiliates may from time to time enter into banking and trustee relationships
with the Subordination Agent and its affiliates. The Subordination Agent's
address is U.S. Bank Trust National Association, 225 Asylum Street, Goodwin
Square, Hartford, Connecticut 06103, Attention: Corporate Trust Division.
The Subordination Agent may resign at any time, in which event a
successor Subordination Agent will be appointed in consultation with American as
provided in the Intercreditor Agreement. The Controlling Party may at any time
remove the Subordination Agent as provided in the Intercreditor Agreement. In
such circumstances, a successor Subordination Agent will be appointed in
consultation with American as provided in the Intercreditor Agreement. Any
resignation or removal of the Subordination Agent and appointment of a successor
Subordination Agent does not become effective until acceptance of the
appointment by the successor Subordination Agent. (Intercreditor Agreement,
Section 7.01)
DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS
THE AIRCRAFT
The Aircraft consist of three Boeing 737-823 aircraft, one Boeing
767-300ER aircraft, and three Boeing 777-223ER aircraft (collectively, the
"Aircraft"). All of the Aircraft were delivered new to American from January
1995 to March 2002. The Aircraft have been designed to be in compliance with
Stage 3 noise level standards, which are the most restrictive regulatory
standards currently in effect in the United States for aircraft noise abatement.
The Boeing 737-823 is a narrowbody commercial jet aircraft. Seating
capacity in American's two-class configuration is 134 for the 737-823. The
737-823 is powered by two CFM56-7B26 or CFM56-7B27 model commercial jet engines
manufactured by CFM International, Inc.
The Boeing 767-300ER and 777-223ER are both widebody commercial jet
aircraft. Seating capacity in American's two-class configuration for the
767-300ER is 212. Seating capacity in American's two-class and three-class
configuration for the 777-223ER is 223 to 245. The 767-300ER is powered by two
CF6-80C2B6 model commercial jet engines manufactured by The General Electric
Company. The 777-223ER is powered by two TRENT-892-17 model commercial jet
engines manufactured by Rolls Royce Ltd.
THE APPRAISALS
The table below sets forth the appraised base values of the Aircraft as
determined by Aircraft Information Systems, Inc. ("AISI"), BK Associates, Inc.
("BKA"), and Morten Beyer & Agnew, Inc. ("MBA," and together with AISI and BKA,
the "Appraisers"), independent aircraft appraisal and consulting firms, and
certain additional information regarding the Aircraft.
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APPRAISERS' VALUATIONS
APPRAISED
AIRCRAFT REGISTRATION MONTH BASE
TYPE NUMBER DELIVERED AISI MBA BKA VALUE (1)
-------- ------------ --------- ------------ ------------ ------------- -------------
Boeing 737-823 N961AN April 2001 $ 41,610,000 $ 41,600,000 $ 41,300,000 $ 41,503,333
Boeing 737-823 N963AN May 2001 41,610,000 41,600,000 41,300,000 41,503,333
Boeing 737-823 N967AN July 2001 41,610,000 41,600,000 41,300,000 41,503,333
Boeing 767-300ER N388AA January 1995 57,980,000 52,100,000 60,600,000 56,893,333
Boeing 777-223ER N784AN March 2000 109,990,000 110,500,000 122,000,000 110,500,000
Boeing 777-223ER N760AN January 2002 123,060,000 122,300,000 130,000,000 123,060,000
Boeing 777-223ER N761AJ March 2002 123,060,000 122,300,000 130,000,000 123,060,000
----------
(1) The appraised base value of each Aircraft is the lesser of the average
and median base values of such Aircraft as set forth by the three
Appraisers.
According to the International Society of Transport Aircraft Trading,
"appraised base value" is defined as each Appraiser's opinion of the underlying
economic value of an Aircraft in an open, unrestricted, stable market
environment with a reasonable balance of supply and demand, and assumes full
consideration of its "highest and best use." An Aircraft's appraised base value
is founded in the historical trend of values and in the projection of value
trends and presumes an arm's length, cash transaction between willing, able, and
knowledgeable parties, acting prudently, with an absence of duress and with a
reasonable period of time available for marketing.
Each Appraiser was asked to provide its opinion as to the appraised
base value of each Aircraft. All three Appraisers performed "desk-top"
appraisals without any physical inspection of the Aircraft. The appraisals are
based on various assumptions and methodologies which vary among the appraisals
and may not reflect current market conditions. Appraisals that are based on
different assumptions and methodologies may result in valuations that are
materially different from those contained in the appraisals.
The values of the Aircraft have been negatively affected, at least
temporarily, by the effects of the events of September 11, 2001 and other
factors referred to under "Risk Factors -- Risk Factors Relating to American -
Lingering Effects of Terrorist Attacks, War in Iraq, Weak U.S. Economy and SARS
Concerns Have Depressed Demand for Air Travel, Particularly Business Travel."
The appraisals contain disclaimers as to the effect of the events of September
11, 2001 on the market for, and prices of, commercial aircraft. In addition, the
value of aircraft, including the Aircraft, would likely continue to be
negatively affected if air carriers, including air carriers seeking to
reorganize under the protection of Chapter 11 of the Bankruptcy Code, such as
United Airlines, persist in reducing capacity by removing large numbers of
aircraft from their fleets. For these reasons, American believes the current
market values of the Aircraft at this time are lower than the base values
reflected in the appraisals. The Appraisers have delivered letters setting forth
their respective appraisals as of the dates of such letters, copies of which are
annexed to this Prospectus Supplement as Appendix II. For a discussion of the
assumptions and methodologies used in each of the appraisals, you should read
such letters.
An appraisal is only an estimate of value. It does not necessarily
indicate the price at which an aircraft may be purchased from the manufacturer
or any other seller. Nor should it be relied upon as a measure of realizable
value. The proceeds realized upon a sale of any Aircraft may be less than its
appraised value. In addition, the value of the Aircraft in the event of the
exercise of remedies under the applicable Indenture will depend on market and
economic conditions at the time, the availability of buyers, the condition of
the Aircraft, whether the Aircraft are sold separately or in one or more groups
and other factors. See "Risk Factors -- Risk Factors Relating to the
Certificates and the Offering -- Appraisals and Realizable Value of Aircraft."
Accordingly, there can be no assurance that the proceeds realized upon any such
exercise of remedies with respect to the Aircraft pursuant to the applicable
Indenture would equal the appraised value of such Aircraft or be sufficient to
satisfy in full payments due on the Equipment Notes relating to such Aircraft or
the Certificates.
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DESCRIPTION OF THE EQUIPMENT NOTES
The following summary describes material terms of the Equipment Notes
and supplements (and, to the extent inconsistent therewith, replaces) the
description of the general terms and provisions relating to the Equipment Notes,
the Indentures, and the Participation Agreements set forth in the Prospectus.
The summaries do not purport to be complete and make use of terms defined in and
are qualified in their entirety by reference to all of the provisions of the
Equipment Notes, the Indentures, and the Participation Agreements, forms of each
of which will be filed as exhibits to a Current Report on Form 8-K to be filed
by American with the Commission. Except as otherwise indicated, the following
summaries relate to the Equipment Notes, the Indenture, and the Participation
Agreement applicable to each Aircraft.
GENERAL
Pursuant to the terms of a participation agreement among American, the
Trustees, the Subordination Agent, and the Loan Trustee with respect to each
Aircraft (each, a "Participation Agreement"), the Trusts will purchase from
American the Equipment Notes to be issued under the related Indenture. Equipment
Notes will be issued in three series (each, a "Series") with respect to each
Aircraft: the "Series G Equipment Notes," the "Series C Equipment Notes," and
the "Series D Equipment Notes" (collectively, the "Equipment Notes"). American
may elect to issue an additional series with respect to some or all of the
Aircraft (the "Series E Equipment Notes"), which would be funded from sources
other than this offering. See "Description of the Certificates -- Possible
Issuance of Class E Certificates." The Equipment Notes with respect to each
Aircraft will be issued under a separate indenture (each, an "Indenture")
between American and U.S. Bank Trust National Association, as loan trustee
thereunder (each, a "Loan Trustee"). The Equipment Notes will be direct, full
recourse obligations of American.
SUBORDINATION
The Indentures provide for the following subordination provisions
applicable to the Equipment Notes:
o Series G Equipment Notes issued in respect of an Aircraft will
rank senior in right of payment to other Equipment Notes
issued in respect of such Aircraft;
o Series C Equipment Notes issued in respect of an Aircraft will
rank junior in right of payment to the Series G Equipment
Notes issued in respect of such Aircraft and will rank senior
in right of payment to the Series D and, if issued, Series E
Equipment Notes in respect of such Aircraft;
o Series D Equipment Notes issued in respect of an Aircraft will
rank junior in right of payment to the Series G and Series C
Equipment Notes issued in respect of such Aircraft and, if
Series E Equipment Notes are issued with respect to such
Aircraft, will rank senior in right of payment to such Series
E Equipment Notes; and
o if Series E Equipment Notes are issued with respect to an
Aircraft, they will be subordinated in right of payment to the
Series G, Series C, and Series D Equipment Notes issued with
respect to such Aircraft.
(Indentures, Section 2.13)
By virtue of the Intercreditor Agreement, all of the Equipment Notes
will be effectively cross-subordinated. This means that payments received on a
junior series of Equipment Notes issued in respect of one Aircraft may be
applied in accordance with the priority of payment provisions set forth in the
Intercreditor Agreement to make distributions on a more senior Class of
Certificates.
PRINCIPAL AND INTEREST PAYMENTS
Subject to the provisions of the Intercreditor Agreement, scheduled
installments of interest paid on the Equipment Notes held in each Trust will be
passed through to the Certificateholders of such Trust on the dates and at the
rate per annum applicable to the Certificates issued by such Trust until the
final expected Regular Distribution
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Date for such Trust. Subject to the provisions of the Intercreditor Agreement,
principal paid on the Equipment Notes held in each Trust will be passed through
to the Certificateholders of such Trust in scheduled amounts on the dates set
forth herein until the final expected Regular Distribution Date for such Trust.
The Equipment Notes held in the Class G Trust will accrue interest at
the rate per annum for the Class G Certificates set forth on the cover page of
this Prospectus Supplement. The Equipment Notes held in the Class C Trust will
accrue interest initially at the rate per annum of % and the Equipment Notes
held in the Class D Trust will accrue interest initially at the rate per annum
of %; provided that the interest rates with respect to any new series C
equipment notes and new series D equipment notes that may be issued as described
in "Description of the Certificates -- Possible Refunding of Series C Equipment
Notes and Series D Equipment Notes" may differ. Interest on the Equipment Notes
will be payable semiannually on January 9 and July 9 of each year, commencing on
January 9, 2004. Such interest will be computed on the basis of a 360-day year
of twelve 30-day months. Overdue amounts of principal, Make-Whole Amount (if
any), and interest on each series of Equipment Notes will, to the extent
permitted by applicable law, bear interest at the interest rate applicable to
such series of Equipment Notes plus 1%.
Scheduled principal payments on the Equipment Notes will be made on
January 9 and July 9 in certain years, commencing on January 9, 2004 and ending
on July 9, 2010. See "Description of the Certificates -- Pool Factors" for a
discussion of the scheduled payments of principal of the Equipment Notes and
Appendix III for the schedule of payments of principal of each Equipment Note
issued or expected to be issued with respect to each Aircraft.
If any date scheduled for a payment of principal, Make -Whole Amount
(if any), or interest with respect to the Equipment Notes is not a Business Day,
such payment will be made on the next succeeding Business Day without any
additional interest.
REDEMPTION
If an Event of Loss occurs with respect to an Aircraft and such
Aircraft is not replaced by American under the related Indenture, the Equipment
Notes issued with respect to such Aircraft will be redeemed in whole. If
Equipment Notes are redeemed following an Event of Loss, the redemption price
will equal the aggregate unpaid principal amount thereof, together with accrued
and unpaid interest thereon to (but excluding) the date of redemption, without
any Make-Whole Amount. (Indentures, Section 2.10) Any amount paid by American in
connection with such redemption will be distributed to the Certificateholders on
a Special Distribution Date.
In connection with the sale of an Aircraft (other than in connection
with the exercise of remedies), American will redeem the Equipment Notes issued
with respect to such Aircraft in whole prior to maturity, at a price equal to
the aggregate unpaid principal amount thereof, together with accrued and unpaid
interest thereon to (but excluding) the date of redemption, plus Make-Whole
Amount (if any) for each applicable series of Equipment Notes. (Indentures,
Section 2.10) Any amount paid by American in connection with such redemption
will be distributed to the Certificateholders on a Special Distribution Date.
In connection with an Event of Loss of an Aircraft that is not replaced
or the sale of an Aircraft, unless the Policy Provider otherwise agrees,
American is required to use the proceeds received by it as owner of the Aircraft
and as holder of the Class C and Class D Certificates either:
o to redeem with a Make-Whole Amount (unless an Indenture Event
of Default shall have occurred and be continuing) additional
Series G Equipment Notes issued in respect of other Aircraft
or
o to deposit such amounts with the Indenture Trustees as
additional security.
Any Series of Equipment Notes issued with respect to an Aircraft may be
redeemed in whole prior to maturity at any time by American, at a price equal to
the aggregate unpaid principal amount thereof, together with accrued and unpaid
interest thereon to (but excluding) the date of redemption, plus Make-Whole
Amount (if any) for the applicable series of Equipment Notes; provided, however,
that, except in connection with a refunding of the Series C or Series D
Equipment Notes as referred to below, the Series C Equipment Notes issued with
respect to an
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Aircraft may not be redeemed unless all Series G Equipment Notes issued with
respect to such Aircraft have been redeemed, and the Series D Equipment Notes
issued with respect to an Aircraft may not be redeemed unless all Series G and
Series C Equipment Notes issued with respect to such Aircraft have been
redeemed. (Indentures, Section 2.11)
Notice of any such redemption will be given to each holder of Equipment
Notes not less than 15 or more than 60 days prior to the applicable redemption
date. A notice of redemption may be revoked at such times and under such
circumstances as are provided in the related Indenture. (Indentures, Sections
2.10 and 2.12)
"Make-Whole Amount" means, with respect to any Equipment Note, the
amount (as determined by an investment bank of national standing selected by
American), if any, by which (a) the present value of the remaining scheduled
payments of principal and interest from the redemption date to maturity of such
Equipment Note computed by discounting each such payment on a semiannual basis
from its respective payment date under the applicable Indenture (assuming a
360-day year of twelve 30-day months) using a discount rate equal to the
Treasury Yield exceeds (b) the outstanding principal amount of such Equipment
Note plus accrued but unpaid interest thereon to the redemption date.
(Indentures, Annex A)
For purposes of determining the Make-Whole Amount, "Treasury Yield"
means, at the date of determination with respect to any Equipment Note, the
interest rate (expressed as a semiannual equivalent and as a decimal and, in the
case of United States Treasury bills, converted to a bond equivalent yield)
determined to be the per annum rate equal to the semiannual yield to maturity
for United States Treasury securities maturing on the Average Life Date of such
Equipment Note and trading in the public securities markets either as determined
by interpolation between the most recent weekly average yield to maturity for
two series of United States Treasury securities trading in the public securities
markets, (A) one maturing as close as possible to, but earlier than, the Average
Life Date of such Equipment Note and (B) the other maturing as close as possible
to, but later than, the Average Life Date of such Equipment Note, in each case
as published in the most recent H.15(519) or, if a weekly average yield to
maturity for United States Treasury securities maturing on the Average Life Date
of such Equipment Note is reported in the most recent H.15(519), such weekly
average yield to maturity as published in such H.15(519). "H.15(519)" means the
weekly statistical release designated as such, or any successor publication,
published by the Board of Governors of the Federal Reserve System, and the "most
recent H.15(519)" means the H.15(519) published prior to the close of business
on the date of determination of a Make-Whole Amount. The "date of determination"
of a Make-Whole Amount will generally be the third Business Day prior to the
applicable redemption date but in certain cases may be up to 20 days prior to
the redemption date. (Indentures, Annex A)
"Average Life Date" means, for each Equipment Note to be redeemed, the
date that follows the redemption date by a period equal to the Remaining
Weighted Average Life at the redemption date of such Equipment Note. "Remaining
Weighted Average Life" of an Equipment Note at the redemption date of such
Equipment Note, means the number of days equal to the quotient obtained by
dividing (a) the sum of each of the products obtained by multiplying (i) the
amount of each then remaining installment of principal of such Equipment Note by
(ii) the number of days from and including the redemption date to but excluding
the scheduled payment date of such principal installment, by (b) the then unpaid
principal amount of such Equipment Note.
(Indentures, Annex A)
"Final Payment Date" means July 9, 2010 (or if such Day is not a
Business Day, the next succeeding Business Day).
Upon the occurrence of an Indenture Event of Default under an
Indenture, any excess proceeds realized from the sale of the Aircraft or the
exercise of other remedies under such Indenture will be applied to redeem the
Equipment Notes under other Indentures in accordance with the third paragraph
under " -- Security."
In addition, in connection with a Refunding as described in
"Description of the Certificates -- Possible Refunding of Series C Equipment
Notes and Series D Equipment Notes," the Series C and Series D Equipment Notes
together may be prepaid (or all of the Series C Equipment Notes may be prepaid
and thereafter all of the Series D Equipment Notes may be prepaid in a
subsequent Refunding or not at all), in each case, in whole prior to maturity by
American on two days' prior notice at a price equal to the aggregate unpaid
principal amount thereof, together with accrued and unpaid interest thereon to
(but excluding) the date of redemption, but without Make-Whole Amount.
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SECURITY
The Equipment Notes issued with respect to each Aircraft will be
secured by a security interest in such Aircraft and each of the other Aircraft,
certain limited rights under the aircraft purchase agreement between American
and Boeing, certain requisition and insurance proceeds with respect to such
Aircraft, and all proceeds of the foregoing. (Indentures, Granting Clause)
The Equipment Notes will be cross-collateralized to the extent provided
in the Indentures, as summarized below.
The proceeds realized from the sale of an Aircraft or the exercise of
other remedies by the Loan Trustee under an Indenture will be allocated, after
paying certain administrative expenses or other related amounts, in the
following order:
o to pay all amounts due and payable on all of the Equipment
Notes issued under such Indenture, in accordance with the
priorities set forth therein;
o to pay to the Loan Trustees under the other Indentures an
amount up to the outstanding principal of, and unpaid interest
accrued on, the Series G Equipment Notes issued thereunder on
a pro rata basis;
o to pay to the Loan Trustees under the other Indentures an
amount up to the outstanding principal of, and unpaid interest
accrued on, the Series C Equipment Notes issued thereunder on
a pro rata basis; and
o to pay to the Loan Trustees under the other Indentures an
amount up to the outstanding principal of, and unpaid interest
accrued on, the Series D Equipment Notes issued thereunder on
a pro rata basis. (Indentures, Section 3.04)
In addition, if all amounts owing under any Equipment Note are not paid
in full on the Final Payment Date, the Loan Trustees will be able to exercise
remedies under all remaining Indentures, including the sale of all Aircraft, to
satisfy the remaining amounts due under any Equipment Note. Such payment default
at the Final Payment Date is the only cross-default provision under the
Indenture. Therefore, until the Final Payment Date, if the Equipment Notes
issued under one or more Indentures are in default and the Equipment Notes
issued under the remaining Indentures are not in default, no remedies will be
exercisable under such remaining Indentures. Each Indenture, however, requires
either the pro rata deposit as collateral or pro rata redemption of Series G
Equipment Notes under such Indenture out of the excess proceeds relating to an
Event of Loss or the sale of an Aircraft subject to another Indenture. Failure
to make such a deposit or redemption could result in an Indenture Event of
Default under such Indenture.
If, at any time before the Final Payment Date, the Equipment Notes
issued under an Indenture are repaid in full (other than as a result of an Event
of Loss or a sale of the related Aircraft), the lien under such Indenture will
not be released and will thereafter continue to secure the other Equipment
Notes, unless the Policy Provider consents to the release of such lien. If the
Policy Provider consents to such release at any time before the Final Payment
Date and the Equipment Notes under such Indenture have been paid in full, the
lien under such Indenture will not thereafter secure any other Equipment Notes.
LOAN TO VALUE RATIOS OF EQUIPMENT NOTES
The tables in Appendix IV set forth aggregate loan to Aircraft value
ratios for the Equipment Notes issued in respect of each Aircraft as of the
Issuance Date and each Regular Distribution Date. The LTVs were obtained by
dividing (i) the outstanding principal amount (assuming no payment default or
early redemption) of such Equipment Notes determined immediately after giving
effect to the payments scheduled to be made on each such Regular Distribution
Date by (ii) the assumed value (the "Assumed Aircraft Value") of the Aircraft
securing such Equipment Notes.
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The tables in Appendix IV are based on the assumption that the initial
appraised base value of the Aircraft set forth opposite the initial Regular
Distribution Date included in each table depreciates annually on the Regular
Distribution Date closest to the anniversary of its delivery by the manufacturer
by approximately 3% of the appraised base value at delivery. The appraised base
value at delivery of an Aircraft is the theoretical value that, when depreciated
at 3% per year from the initial delivery of such Aircraft by the manufacturer,
results in the initial appraised base value of such Aircraft. Other rates or
methods of depreciation would result in materially different LTVs, and no
assurance can be given (i) that the depreciation rate and method assumed for the
purposes of the tables are the ones most likely to occur or (ii) as to the
actual future value of any Aircraft. Thus the tables should not be considered a
forecast or prediction of expected or likely LTVs, but simply a mathematical
calculation based on one set of assumptions. See "Risk Factors -- Risk Factors
Relating to the Certificates and the Offering -- Appraisals and Realizable Value
of Aircraft."
LIMITATION OF LIABILITY
Except as otherwise provided in the Indentures, each Loan Trustee, in
its individual capacity, will not be answerable or accountable under the
Indentures or the Equipment Notes under any circumstances except, among other
things, for its own willful misconduct or negligence.
INDENTURE EVENTS OF DEFAULT, NOTICE AND WAIVER
"Indenture Events of Default" under each Indenture will include:
o the failure by American to pay any interest, principal or
Make-Whole Amount, if any, within 15 days after the same has
become due on any Equipment Note issued thereunder;
o the failure by American to pay any amount (other than
interest, principal or Make-Whole Amount, if any) when due
under the Indenture, any Equipment Note issued thereunder, or
any other operative documents or certain other agreements for
more than 30 days after American receives written notice;
o the failure by American to carry and maintain insurance or
indemnity on or with respect to the Aircraft in accordance
with the provisions of the related Indenture; provided that no
such failure to carry and maintain insurance will constitute
an Indenture Event of Default until the earlier of (i) the
date such failure has continued unremedied for a period of 30
days after the Loan Trustee receives notice of the
cancellation or lapse of such insurance or (ii) the date such
insurance is not in effect as to the Loan Trustee;
o the failure by American to perform or observe any other
covenant or condition to be performed or observed by it under
any operative document or certain other agreements that
continues for a period of 60 days after American receives
written notice thereof; provided that, if such failure is
capable of being remedied, no such failure will constitute an
Indenture Event of Default for a period of one year after such
notice is received by American so long as American is
diligently proceeding to remedy such failure;
o any representation or warranty made by American in the related
operative documents proves to have been incorrect in any
material respect when made, and such incorrectness continues
to be material to the transactions contemplated by the
Indenture and remains unremedied for a period of 60 days after
American receives written notice thereof; provided that, if
such incorrectness is capable of being remedied, no such
incorrectness will constitute an Indenture Event of Default
for a period of one year after such notice is received by
American so long as American is diligently proceeding to
remedy such incorrectness;
o the occurrence of certain events of bankruptcy,
reorganization, or insolvency of American; and
o if (i) any amounts in respect of the Equipment Notes issued
under such Indenture or Equipment Notes issued under the other
Indentures, including any payment of interest, principal or
Make-Whole
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Amount (if any) on any such Equipment Note, (ii) any Policy
Provider Obligation then due and payable or (iii) any other
amounts payable by American under the Operative Documents for
any Aircraft or the Policy Provider Fee Letter, in each case
that are due and payable on or before the Final Payment Date
has not been paid in full on the Final Payment Date.
(Indentures, Section 4.01)
The only cross-default provision in the Indentures is an event of
default under each Indenture which occurs if all amounts then due and owing
under any Equipment Note, any Policy Provider Obligation then due and owing or
any other amount then due and owing under the Operative Documents for any
Aircraft or the Policy Provider Fee Letter are not paid in full on the Final
Payment Date. Consequently, until the Final Payment Date, events resulting in an
Indenture Event of Default under any particular Indenture may or may not result
in an Indenture Event of Default occurring under any other Indenture. Until the
Final Payment Date, if the Equipment Notes issued with respect to one or more
Aircraft are in default and the Equipment Notes issued with respect to the
remaining Aircraft are not in default, no remedies will be exercisable under the
Indentures with respect to such remaining Aircraft. Each Indenture, however,
requires either the pro rata deposit as collateral or pro rata redemption of
Series G Equipment Notes under such Indenture out of the excess proceeds
relating to an Event of Loss or the sale of an Aircraft subject to another
Indenture. Failure to make such a deposit or redemption could result in an
Indenture Event of Default under such Indenture.
Each Indenture provides that the holders of a majority in aggregate
unpaid principal amount of the Equipment Notes outstanding on a given date and
issued with respect to any Aircraft, by written instruction to the Loan Trustee,
may on behalf of all the Note Holders waive any existing default and its
consequences under the Indenture with respect to such Aircraft, except a default
in the payment of the principal of, Make -Whole Amount (if any), or interest due
under any such Equipment Notes or a default in respect of any covenant or
provision of such Indenture that cannot be modified or amended without the
consent of each affected Note Holder. (Indentures, Section 4.05) This provision
is subject to the terms of the Intercreditor Agreement.
REMEDIES
The exercise of remedies under the Indentures will be subject to the
terms of the Intercreditor Agreement, and the following description should be
read in conjunction with the description of the Intercreditor Agreement.
If an Indenture Event of Default occurs and is continuing under an
Indenture, the related Loan Trustee may, and upon receipt of written
instructions of the holders of a majority in principal amount of the Equipment
Notes then outstanding under such Indenture will, declare the principal of all
such Equipment Notes issued thereunder immediately due and payable, together
with all accrued but unpaid interest thereon. The holders of a majority in
principal amount of Equipment Notes outstanding under an Indenture may rescind
any declaration of acceleration of such Equipment Notes if (i) there has been
paid to the related Loan Trustee an amount sufficient to pay all overdue
installments of principal and interest on any such Equipment Notes, and all
other amounts owing under the operative documents, that have become due
otherwise than by such declaration of acceleration and (ii) all other Indenture
Events of Default, other than nonpayment of principal amount or interest on the
Equipment Notes that have become due solely because of such acceleration, have
been cured or waived. (Indentures, Section 4.02)
Each Indenture provides that if an Indenture Event of Default under
such Indenture has occurred and is continuing, the related Loan Trustee may
exercise certain rights or remedies available to it under such Indenture or
under applicable law. Such remedies include the right to take possession of the
Aircraft and to sell all or any part of the airframe or any engine comprising
the Aircraft subject to such Indenture.
Until the Final Payment Date, if the Equipment Notes issued in respect
of one Aircraft are in default, the Equipment Notes issued in respect of the
other Aircraft may not be in default, and, if not, no remedies will be
exercisable under the applicable Indentures with respect to such other Aircraft.
In the case of Chapter 11 bankruptcy proceedings in which an air
carrier is a debtor, Section 1110 of the Bankruptcy Code ("Section 1110")
provides special rights to holders of security interests with respect to
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"equipment" (as defined in Section 1110). Under Section 1110, the right of such
financing parties to take possession of such equipment in compliance with the
provisions of a security agreement is not affected by any other provision of the
Bankruptcy Code or any power of the bankruptcy court. Such right to take
possession may not be exercised for 60 days following the date of commencement
of the reorganization proceedings. Thereafter, such right to take possession may
be exercised during such proceedings unless, within the 60-day period or any
longer period consented to by the relevant parties, the debtor agrees to perform
its future obligations and cures all existing and future defaults on a timely
basis. Defaults resulting solely from the financial condition, bankruptcy,
insolvency, or reorganization of the debtor need not be cured.
"Equipment" is defined in Section 1110, in part, as an aircraft,
aircraft engine, appliance, or spare part (as defined in Section 40102 of Title
49 of the United States Code) that is subject to a security interest granted by
a debtor that, at the time such transaction is entered into, holds an air
carrier operating certificate issued by the Secretary of Transportation pursuant
to Chapter 447 of Title 49 of the United States Code for aircraft capable of
carrying ten or more individuals or 6,000 pounds or more of cargo.
It is a condition to the Trustee's obligation to purchase Equipment
Notes with respect to each Aircraft that American's General Counsel provide his
opinion to the Trustees that the Loan Trustee will be entitled to the benefits
of Section 1110 with respect to the airframe and engines comprising the Aircraft
originally subjected to the lien of the relevant Indenture. The opinion of
American's General Counsel will not address the possible replacement of an
Aircraft after an Event of Loss in the future, the consummation of which is
conditioned upon the contemporaneous delivery of an opinion of counsel to the
effect that the related Loan Trustee will be entitled to Section 1110 benefits
with respect to the replacement airframe unless there is a change in law or
court interpretation that results in Section 1110 not being available. See "--
Certain Provisions of the Indentures -- Events of Loss." The opinion of
American's General Counsel also will not address the availability of Section
1110 with respect to the bankruptcy proceedings of any possible lessee of an
Aircraft if it is leased by American.
In certain circumstances following the bankruptcy or insolvency of
American where the obligations of American under any Indenture exceed the value
of the Aircraft or other collateral under such Indenture, post-petition interest
will not accrue on the related Equipment Notes. In addition, to the extent that
distributions are made to any Certificateholders, whether under the
Intercreditor Agreement or from drawings on the Liquidity Facility or the
Policy, in respect of amounts that would have been funded by post-petition
interest payments on such Equipment Notes had such payments been made, there
would be a shortfall between the claim allowable against American on such
Equipment Notes after the disposition of the Aircraft and other collateral
securing such Equipment Notes and the remaining balance of the Certificates.
Such shortfall would first reduce some or all of the remaining claim against
American available to the Trustees for the most junior Classes.
If an Indenture Event of Default under any Indenture occurs and is
continuing, any sums held or received by the related Loan Trustee may be applied
to reimburse such Loan Trustee for any tax, expense, or other loss incurred by
it and to pay any other amounts due to such Loan Trustee prior to any payments
to holders of the Equipment Notes issued under such Indenture. (Indentures,
Section 3.03)
MODIFICATION OF INDENTURES
Without the consent of holders of a majority in principal amount of the
Equipment Notes outstanding under any Indenture, the provisions of such
Indenture and the related Participation Agreement may not be amended or
modified, except to the extent indicated below.
Any Indenture may be amended without the consent of the Note Holders
to, among other things: (i) cure any defect or inconsistency in such Indenture
or the Equipment Notes issued thereunder; (ii) make any other provisions or
amendments with respect to matters or questions arising under such Indenture or
such Equipment Notes, or to amend, modify, or supplement any provision thereof,
provided that such action does not adversely affect the interests of any Note
Holder; (iii) cure any ambiguity or correct any mistake; (iv) provide for
compliance with applicable law; (v) provide for the issuance of Series E
Equipment Notes as described in "Description of the Certificates -- Possible
Issuance of Series E Equipment Notes"; (vi) provide for the guarantee by AMR
Corporation or another entity of one or more Indentures, one or more Series of
Equipment Notes or of the Series E Equipment Notes; or (vii) provide for the
issuance of new series C and series D equipment notes as described in
"Description of
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the Certificates-- Possible Refunding of Series C Equipment Notes and Series D
Equipment Notes." (Indentures, Section 9.01)
Each Indenture provides that without the consent of the holder
of each Equipment Note outstanding under any Indenture affected thereby and the
Policy Provider, no amendment or modification of such Indenture may, among other
things, (i) reduce the principal amount of, or Make-Whole Amount (if any), or
interest payable on, any Equipment Notes issued under such Indenture or change
the date on which any principal, Make-Whole Amount (if any), or interest is due
and payable, (ii) create any lien with respect to the property subject to the
lien of the Indenture prior to or pari passu with the lien of such Indenture,
except as provided in such Indenture, or deprive any holder of an Equipment Note
issued under such Indenture of the benefit of the lien of such Indenture in the
property subject thereto, (iii) reduce the percentage in principal amount of
outstanding Equipment Notes issued under such Indenture required to take or
approve any action under such Indenture or (iv) amend provisions of the
Indenture relating to the waiver of past defaults or the circumstances under
which Noteholder consent is required. In addition, each Indenture provides that
without the consent of the Policy Provider or the Liquidity Provider, as the
case may be, no amendment or modification of the Operative Documents may reduce,
modify or amend any indemnities in favor of the Policy Provider or the Liquidity
Provider, and without the consent of the holder of each Equipment Note
outstanding under any other Indenture affected thereby ("Other Equipment Note"),
no amendment or modification of the Indenture may reduce the amount payable with
respect to such Other Equipment Note, or change the date on which any amount is
payable with respect to such Other Equipment Note, in the circumstances
described in "-- Redemption" or deprive the holder of any such Other Equipment
Note of the benefits of the lien of such Indenture, except as described in "--
Security." (Indentures, Section 9.02(a))
INDEMNIFICATION
American will be required to indemnify each Loan Trustee, the Liquidity
Provider, the Policy Provider, the Subordination Agent, and each Trustee, but
not the holders of Certificates, for certain losses, claims, and other matters.
(Participation Agreements, Section 4.02).
The Loan Trustee will not be required to take any action or refrain
from taking any action (other than notifying the Note Holders if it knows of an
Indenture Event of Default or of a default arising from American's failure to
pay overdue principal, interest, or Make-Whole Amount (if any), under any
Equipment Note), unless it has received indemnification satisfactory to it
against any risks incurred in connection therewith. (Indentures, Section 5.03).
CERTAIN PROVISIONS OF THE INDENTURES
MAINTENANCE AND OPERATION
Under the terms of each Indenture, American will be obligated, among
other things and at its expense, to keep each Aircraft duly registered, and to
maintain, service, repair, and overhaul the Aircraft so as to keep it in such
condition as necessary to maintain the airworthiness certificate for the
Aircraft in good standing at all times, other than during temporary periods of
storage or grounding by applicable governmental authorities. (Indentures,
Section 7.02(c) and (e))
American will agree not to maintain, use, service, repair, overhaul or
operate any Aircraft in violation of any law, rule, or regulation of any
government having jurisdiction over such Aircraft, or in violation of any
airworthiness certificate, license, or registration relating to such Aircraft,
except to the extent American (or any lessee) is contesting in good faith the
validity or application of any such law, rule, or regulation in any manner that
does not involve any material risk of sale, forfeiture, or loss of the Aircraft.
(Indentures, Section 7.02(b))
American must make or cause to be made all alterations, modifications,
and additions to each Airframe and Engine necessary to meet the applicable
requirements of the FAA or any other applicable governmental authority of
another jurisdiction in which the Aircraft may then be registered; provided,
however, that American (or any lessee) may in good faith contest the validity or
application of any such requirement in any manner that does not involve, among
other things, a material risk of sale, forfeiture, or loss of the Aircraft.
American (or any lessee) may add
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further parts and make other alterations, modifications, and additions to any
Airframe or any Engine as American (or any such lessee) may deem desirable in
the proper conduct of its business, including removal (without replacement) of
parts, so long as such alterations, modifications, additions, or removals do not
materially diminish the value or utility of such Airframe or Engine below its
value or utility immediately prior to such alteration, modification, addition,
or removal (assuming such Airframe or Engine was maintained in accordance with
the Indenture), except that the value (but not the utility) of any Airframe or
Engine may be reduced from time to time by the value of any such parts which
have been removed that American deems obsolete or no longer suitable or
appropriate for use on such Airframe or Engine. All parts (with certain
exceptions) incorporated or installed in or added to such Airframe or Engine as
a result of such alterations, modifications or additions will be subject to the
lien of the Indenture. American (or any lessee) is permitted to remove (without
replacement) parts that are in addition to, and not in replacement of or
substitution for, any part originally incorporated or installed in or attached
to an Airframe or Engine at the time of delivery thereof to American, as well as
any part that is not required to be incorporated or installed in or attached to
any Airframe or Engine pursuant to applicable requirements of the FAA or other
jurisdiction in which the Aircraft may then be registered, or any part that can
be removed without materially diminishing the requisite value or utility of the
Aircraft. (Indentures, Section 7.04(c))
Except as set forth above, American will be obligated to replace or
cause to be replaced all parts that are incorporated or installed in or attached
to any Airframe or any Engine and become worn out, lost, stolen, destroyed,
seized, confiscated, damaged beyond repair, or permanently rendered unfit for
use. Any such replacement parts will become subject to the lien of the related
Indenture in lieu of the part replaced. (Indentures, Section 7.04(a))
REGISTRATION, LEASING, AND POSSESSION
Although American has no current intention to do so, American will be
permitted to register an Aircraft in certain jurisdictions outside the United
States, subject to certain conditions specified in the related Indenture. These
conditions include a requirement that the laws of the new jurisdiction of
registration will give effect to the lien of and the security interest created
by the related Indenture in the applicable Aircraft. (Indentures, Section
7.02(e)) American also will be permitted, subject to certain limitations, to
lease any Aircraft to any United States certificated air carrier or to certain
foreign air carriers. In addition, subject to certain limitations, American will
be permitted to transfer possession of any Airframe or any Engine other than by
lease, including transfers of possession by American or any lessee in connection
with certain interchange and pooling arrangements, "wet leases," and transfers
in connection with maintenance or modifications and transfers to the government
of the United States, Canada, France, Germany, Japan, The Netherlands, Sweden,
Switzerland, and the United Kingdom or any instrumentality or agency thereof.
(Indentures, Section 7.02(a)) There will be no general geographical restrictions
on American's (or any lessee's) ability to operate the Aircraft. The extent to
which the relevant Loan Trustee's lien would be recognized in an Aircraft if
such Aircraft were located in certain countries is uncertain. In addition, any
exercise of the right to repossess an Aircraft may be difficult, expensive, and
time -consuming, particularly when such Aircraft is located outside the United
States or has been registered in a foreign jurisdiction or leased to a foreign
operator, and may be subject to the limitations and requirements of applicable
law, including the need to obtain consents or approvals for deregistration or
re-export of the Aircraft, which may be subject to delays and political risk.
When a defaulting lessee or other permitted transferee is the subject of a
bankruptcy, insolvency, or similar event such as protective administration,
additional limitations may apply. See "Risk Factors -- Risk Factors Relating to
the Certificates and the Offering -- Repossession."
In addition, at the time of foreclosing on the lien on the Aircraft
under the related Indenture, an Airframe subject to such Indenture might not be
equipped with Engines subject to the same Indenture. If American fails to
transfer title to engines not owned by American that are attached to repossessed
Aircraft, it could be difficult, expensive, and time -consuming to assemble an
Aircraft consisting of an Airframe and Engines subject to the Indenture.
LIENS
American is required to maintain each Aircraft free of any liens, other
than the rights of the relevant Loan Trustee, American, the lien of the
Indenture, any other rights existing pursuant to the other operative documents
and pass through documents related thereto, the rights of others in possession
of the Aircraft in accordance with the terms of the Indenture and liens
attributable to other parties to the operative documents and pass through
documents
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related thereto and certain other specified liens, including but not limited to
(i) liens for taxes either not yet due or being contested in good faith by
appropriate proceedings so long as such proceedings do not involve any material
risk of the sale, forfeiture, or loss of the Airframe or any Engine or the Loan
Trustee's interest therein; (ii) materialmen's, mechanics', and other similar
liens arising in the ordinary course of business and securing obligations that
either are not overdue for more than 60 days or are being contested in good
faith by appropriate proceedings so long as such proceedings do not involve any
material risk of the sale, forfeiture or loss of the Airframe or any Engine or
the Loan Trustee's interest therein; (iii) judgment liens so long as such
judgment is discharged or vacated within 60 days or the execution of such
judgment is stayed pending appeal or such judgment is discharged, vacated, or
reversed within 60 days after expiration of such stay and so long as during any
such 60 day period there is not, or any such judgment or award does not involve,
any material risk of the sale, forfeiture or loss of the Aircraft, the Airframe
or any Engine or the interest of the Loan Trustee therein; (iv) salvage or
similar rights of insurers under insurance policies maintained by American; (v)
any other lien as to which American has provided a bond or other security
adequate in the reasonable opinion of the Loan Trustee; and (vi) Liens approved
in writing by the Loan Trustee with the consent of a majority in interest of the
Note Holders. (Indentures, Section 7.01)
INSURANCE
Subject to certain exceptions, American is required to maintain, at its
expense (or at the expense of a lessee), all-risk ground and flight aircraft
hull insurance covering each Aircraft, at all times in an amount not less than
110% of the aggregate outstanding principal amount of the Equipment Notes
relating to such Aircraft. However, after giving effect to self-insurance
permitted as described below, the amount payable under such insurance may be
less than such amounts payable with respect to such Equipment Notes. If an
Aircraft suffers an Event of Loss (or if there is an Indenture Event of
Default), insurance proceeds will be paid to the applicable Loan Trustee. If an
Aircraft or Engine suffers loss or damage not constituting an Event of Loss but
involving insurance proceeds in excess of $8,000,000 (in the case of a Boeing
737-823), $15,000,000 (in the case of a Boeing 767-300ER), or $24,000,000 (in
the case of a Boeing 777-223ER), proceeds in excess of such specified amounts up
to the Loan Amount will be payable to the applicable Loan Trustee, and the
proceeds up to such specified amounts and proceeds in excess of the Loan Amount
will be payable directly to American so long as there is no Indenture Event of
Default. So long as the loss does not constitute an Event of Loss, insurance
proceeds will be applied to repair or replace the equipment. (Indentures,
Section 7.06(b))
In addition, American is obligated to maintain or cause to be
maintained aircraft liability insurance at its expense (or at the expense of a
lessee), including, without limitation, bodily injury, personal injury and
property damage liability insurance (exclusive of manufacturer's product
liability insurance), and contractual liability insurance with respect to each
Aircraft. Such liability insurance must be underwritten by insurers of
recognized responsibility. The amount of such liability insurance coverage may
not be less than the amount of aircraft liability insurance from time to time
applicable to similar aircraft in American's fleet on which American carries
insurance. (Indentures, Section 7.06(a))
American also is required to maintain or cause to be maintained
war-risk aircraft hull insurance with respect to each Aircraft if and to the
extent such insurance is maintained by American (or any lessee) with respect to
other aircraft owned or operated by American (or such lessee) on the same routes
on which the Aircraft is operated.
(Indentures, Section 7.06(b))
American may self-insure under a program applicable to all aircraft in
its fleet, but the amount of such self-insurance in the aggregate may not exceed
for any 12-month policy year 1% of the average aggregate insurable value (during
the preceding policy year) of all aircraft on which American carries insurance,
unless an insurance broker of national standing certifies that the standard
among all other major U.S. airlines is a higher level of self-insurance, in
which case American may self-insure the Aircraft to such higher level. In
addition, American may self-insure to the extent of (i) any applicable
deductible per occurrence that is not in excess of the amount customarily
allowed as a deductible in the industry or is required to facilitate claims
handling, or (ii) any applicable mandatory minimum per aircraft (or, if
applicable, per annum or other period) liability insurance or hull insurance
deductibles imposed by the aircraft liability or hull insurers. (Indentures,
Section 7.06(c))
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In respect of each Aircraft, American is required to name the relevant
Loan Trustee, each Trustee, the Subordination Agent, the Liquidity Provider, and
the Policy Provider as additional insured parties under the liability insurance
policy required with respect to such Aircraft. In addition, the hull and
liability insurance policies will be required to provide that, in respect of the
interests of such additional insured party, the insurance shall not be
invalidated or impaired by any action or inaction of American. (Indentures,
Sections 7.06(a) and 7.06(b))
EVENTS OF LOSS
If an Event of Loss occurs with respect to the Airframe or the Airframe
and one or more Engines of an Aircraft, American must elect within 90 days after
such occurrence either to make payment with respect to such Event of Loss or to
replace such Airframe and any such Engines. Depending upon American's election,
not later than the first Business Day after the 120th day following the date of
occurrence of such Event of Loss, American will either (i) redeem the Equipment
Notes under the applicable Indenture by paying to the Loan Trustee the
outstanding unpaid principal amount of such Equipment Notes, together with
accrued interest thereon, but without any Make-Whole Amount and, pursuant to the
other Indentures, either redeem a portion (as specified in the Indentures
relating to the other Aircraft) of the Series G Equipment Notes relating to such
other Aircraft or deposit cash collateral or (ii) substitute an airframe (or
airframe and one or more engines, as the case may be) for the Airframe, or
Airframe and Engine(s), that suffered such Event of Loss. (Indentures, Sections
2.10 and 7.05(a)) See "-- Redemption."
If American elects to replace an Airframe (or Airframe and one or more
Engines, as the case may be) that suffered such Event of Loss, it will do so
with, in the case of the Airframe, an airframe of a comparable or improved model
of the same manufacturer, and, in the case of an Engine, an engine of the same
or another manufacturer of a comparable or an improved model and suitable for
installation and use on the Airframe, with a value and utility at least equal to
the Airframe or Airframe and Engines to be replaced, assuming that such Airframe
and such Engines were in the condition and repair required by the related
Indenture. American is also required to provide to the relevant Loan Trustee
opinions of counsel (i) to the effect that such Loan Trustee will be entitled to
the benefits of Section 1110 with respect to the replacement airframe (unless,
as a result of a change in law or governmental or judicial interpretation, such
benefits were not available to it with respect to the Aircraft immediately prior
to such replacement), and (ii) as to the due registration of the replacement
aircraft and the due recordation of a supplement to the Indenture relating to
such replacement aircraft and the validity and perfection of the security
interest granted to the Loan Trustee in the replacement aircraft. (Indentures,
Section 7.05(a))
If American elects not to replace such Airframe, or Airframe and
Engine(s), then upon payment of the outstanding principal amount of the
Equipment Notes issued with respect to such Aircraft, together with accrued but
unpaid interest thereon but without any Make-Whole Amount, the lien of the
Indenture relating to such Aircraft will terminate with respect to such
Aircraft, and the obligation of American thereafter to make the scheduled
interest and principal payments with respect thereto will cease. The payments
made under the Indenture by American will be deposited with the applicable Loan
Trustee. Amounts in excess of the amounts due and owing under the Equipment
Notes issued with respect to such Aircraft will, unless the Policy Provider
agrees otherwise, be used to redeem Series G Equipment Notes issued under the
other Indentures or deposited as cash collateral under the other Indentures.
(Indentures, Sections 2.10, 3.02, 7.05(a), and 7.05(c))
If an Event of Loss occurs with respect to an Engine alone, American
will be required to replace such Engine within 120 days after the occurrence of
such Event of Loss with another engine, free and clear of all liens (other than
certain permitted liens). Such replacement engine will be the same model as the
Engine to be replaced, or a comparable or improved model of the same or another
manufacturer and suitable for installation and use on the Airframe, and will
have a value and utility at least equal to the Engine to be replaced, assuming
that such Engine was in the condition and repair required by the terms of the
relevant Indenture. (Indentures, Section 7.05(b))
An "Event of Loss" with respect to an Aircraft, Airframe, or any Engine
means any of the following events with respect to such property:
o the loss of such property, or of the use thereof due to
destruction, damage beyond repair, or rendition of such
property permanently unfit for normal use;
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o any damage to such property that results in an insurance
settlement with respect to such property on the basis of a
total loss or a compromised or constructive total loss;
o any theft, hijacking or disappearance of such property for a
period exceeding 180 days;
o the requisition for use of such property by any government
(other than the government of Canada, France, Germany, Japan,
The Netherlands, Sweden, Switzerland, the United Kingdom, or
the United States or the government of the country of registry
of the Aircraft) that results in the loss of possession of
such property for a period exceeding 12 consecutive months;
o the operation or location of the Aircraft, while under
requisition for use by any government, in an area excluded
from coverage by any insurance policy required by the terms of
the Indenture, unless American has obtained indemnity or
insurance in lieu thereof from such government;
o any requisition of title or other compulsory acquisition,
capture, seizure, deprivation, confiscation, or detention
(excluding requisition for use or hire not involving a
requisition of title) for any reason of the Aircraft by any
government that results in the loss of title or use of the
Aircraft for a period in excess of 180 days;
o as a result of any law, rule, regulation, order, or other
action by the FAA or other government of the country of
registry, the use of the Aircraft or Airframe in the normal
business of air transportation is prohibited by virtue of a
condition affecting all aircraft of the same type for a period
of 18 consecutive months, unless American is diligently
carrying forward all steps that are necessary or desirable to
permit the normal use of the Aircraft or, in any event, if
such use is prohibited for a period of three consecutive
years; and
o with respect to an Engine only, any divestiture of title to or
interest in such Engine or, in certain circumstances, the
installation of such Engine on an airframe that is subject to
a conditional sale or other security agreement.
An Event of Loss with respect to an Aircraft is deemed to have occurred
if an Event of Loss occurs with respect to the Airframe, unless American elects
to substitute a replacement Airframe pursuant to the Indenture. (Indentures,
Annex A)
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material federal income
tax consequences of the purchase, ownership, and disposition of Class G
Certificates to a Certificate Owner that purchases Class G Certificates in the
initial offering thereof at the offering price set forth herein and holds such
Class G Certificates as capital assets. The discussion below replaces the
discussion set forth under the heading "Certain Federal Income Tax Consequences"
in the accompanying Prospectus. The discussion is based on laws, regulations,
rulings, and decisions in effect as of the date hereof, all of which are subject
to change, possibly with retroactive effect, or different interpretation. The
discussion does not address all of the federal income tax consequences that may
be relevant to all Certificate Owners in light of their particular circumstances
(including, for example, any special rules applicable to tax-exempt
organizations, broker-dealers, and insurance companies). Except for the
discussion below under "-- Certain Federal Income Tax Consequences to Foreign
Certificateholders," this discussion is addressed only to beneficial owners of
Class G Certificates that are (i) individual citizens or residents of the United
States, (ii) corporations created or organized in or under the laws of the
United States, any state thereof or the District of Columbia, or (iii)
partnerships, trusts or estates treated, for federal income tax purposes, as
domestic partnerships, trusts, or estates ("U.S. Persons"). The statements of
law and legal conclusion set forth herein are based upon the opinion of
Debevoise & Plimpton, counsel to American. Persons considering an investment in
the Class G Certificates should consult their own tax advisors regarding the
federal, state, local, and any other tax consequences to them of the purchase,
ownership, and disposition of Class G Certificates in light of their own
particular circumstances. The Trusts, the Subordination Agent, and the Loan
Trustees are not indemnified for any federal income taxes or with
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certain exceptions other taxes that may be imposed upon them, and the imposition
of any such taxes could result in a reduction in the amounts available for
distribution to the Certificate Owners.
TAX STATUS OF THE TRUSTS
The Trusts will not be classified as associations (or publicly traded
partnerships) taxable as corporations for federal income tax purposes and will
not be subject to federal income tax. The Class G Trust will file federal income
tax returns and reports to investors on the basis that it is a grantor trust. If
the Class G Trust were treated as a partnership for federal income tax purposes
rather than a grantor trust, the consequences to Certificate Owners and, to the
extent described below, Non-U.S. Certificateholders, would not be materially
different. The discussion below assumes that the Trusts will be classified as
grantor trusts.
TAXATION OF CERTIFICATE OWNERS GENERALLY
Each Certificate Owner of a Class G Certificate will be treated as the
owner of a pro rata undivided interest in the Equipment Notes and any other
property held in the Class G Trust, and will be required to report on its
federal income tax return its pro rata share of the entire income from each of
the Series G Equipment Notes and any other property held in such Trust, in
accordance with such Certificate Owner's method of accounting. A Certificate
Owner of a Class G Certificate using the cash method of accounting must take
into account its pro rata share of income as and when received by the Class G
Trustee. A Certificate Owner of a Class G Certificate using an accrual method of
accounting must take into account its pro rata share of income as it accrues or
is received by the Class G Trustee, whichever is earlier.
A Certificate Owner will be entitled to deduct, consistent with its
method of accounting, its pro rata share of fees and expenses paid or incurred
by the Class G Trust to the extent provided in Section 162 or 212 of the Code.
Certain fees and expenses, including fees paid to the Class G Trustee and the
Liquidity Provider, will be borne by parties other than the Certificate Owners.
It is possible that such fees and expenses will be treated as constructively
received by the Class G Trust, in which event a Certificate Owner will be
required to include in income and will be entitled to deduct its pro rata share
of such fees and expenses to the extent provided in Section 162 or 212 of the
Code. If a Certificate Owner is an individual, estate, or trust, the deduction
for such Certificate Owner's share of such fees or expenses will generally be
allowed only to the extent that all of such Certificate Owner's miscellaneous
itemized deductions, including such Certificate Owner's share of such fees and
expenses, exceed 2% of such Certificate Owner's adjusted gross income. In
addition, in the case of a Certificate Owner who is an individual, certain
otherwise allowable itemized deductions will be subject to additional
limitations on itemized deductions under the applicable provisions of the Code.
SALES OF CERTIFICATES
A Certificate Owner that sells a Class G Certificate will recognize
capital gain or loss (in the aggregate) equal to the difference between the
amount realized on the sale (except to the extent attributable to accrued
interest, which will be taxable as interest income if not previously included in
income) and such Certificate Owner's adjusted tax basis in the Series G
Equipment Notes and any other property held by the Class G Trust. Any such gain
or loss generally will be long-term capital gain or loss if the Class G
Certificate was held for more than one year (except to the extent attributable
to any property held by the Class G Trust for one year or less). Any long-term
capital gains with respect to the Class G Certificates are taxable to corporate
taxpayers at the rates applicable to ordinary income and to individual taxpayers
at a reduced rate. Any capital losses will be deductible by corporate taxpayers
only to the extent of capital gains and by an individual taxpayer only to the
extent of capital gains plus a limited amount of other income.
BOND PREMIUM
A Certificate Owner of a Class G Certificate generally will be
considered to have acquired an interest in a Series G Equipment Note held in the
Class G Trust at a bond premium to the extent such Certificate Owner's tax basis
allocable to such Series G Equipment Note exceeds the remaining principal amount
of the Series G Equipment Note allocable to such Certificate Owner's
Certificate. In that event, such Certificate Owner may, in certain
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circumstances, be able to amortize that bond premium (generally on a constant
yield basis) as an offset to interest income with corresponding reductions in
such Certificate Owner's tax basis in such Series G Equipment Note. Special
rules apply to an Equipment Note that may be called at a redemption premium
prior to maturity. It is unclear how these rules apply to an Equipment Note when
there is more than one possible call date and the amount of any redemption
premium is uncertain. Certificate Owners should consult their own tax advisors
regarding the advisability and consequences of an election to amortize any bond
premium with respect to the Equipment Notes.
TRUSTS CLASSIFIED AS PARTNERSHIPS
If the Class G Trust is classified as a partnership (and not as a
publicly traded partnership taxable as a corporation) for federal income tax
purposes, income or loss with respect to the assets held by the Class G Trust
will be calculated at the Trust level but such Class G Trust itself will not be
subject to federal income tax. A Certificate Owner would be required to report
its share of the Class G Trust's items of income and deduction on its tax return
for its taxable year within which the Class G Trust's taxable year (which should
be a calendar year) ends. A Certificate Owner's basis in its interest in the
Class G Trust would be equal to the purchase price therefor, plus its share of
the Class G Trust's net income, minus its share of any net losses of the Class G
Trust, and minus the amount of any distributions from the Class G Trust. In the
case of an original purchaser of a Class G Certificate that is a calendar year
taxpayer, income and loss generally should be the same as it would be if the
Class G Trust were classified as a grantor trust, except that income or loss
would be reported on an accrual basis even if the Certificate Owner otherwise
uses the cash method of accounting. A subsequent purchaser, however, generally
would be subject to tax on the same basis as an original holder with respect to
its interest in the Class G Trust, and would not be subject to the bond premium
rules described above under "-- Bond Premium" or to certain rules relating to
market discount during the duration of the Trust. Non-U.S. Certificateholders
should not be subject to U.S. withholding tax to the extent provided under "--
Certain Federal Income Tax Consequences to Foreign Certificateholders" below and
should not be treated as engaged in a U.S. trade or business solely by reason of
the Class G Trust being classified as a partnership.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS
Subject to the discussion of backup withholding below, payments of
principal and interest on the Series G Equipment Notes to, or on behalf of, any
beneficial owner of a Class G Certificate that is not a U.S. Person (a "Non-U.S.
Certificateholder") will not be subject to U.S. federal withholding tax,
provided, in the case of interest, that:
o (i) such Non-U.S. Certificateholder does not actually or
constructively own 10% or more of the total combined voting
power of all classes of stock of American entitled to vote,
o (ii) such Non-U.S. Certificateholder is not a controlled
foreign corporation for U.S. tax purposes that is related to
American, and
o (iii) the Non-U.S. Certificateholder certifies, under
penalties of perjury, that it is not a U.S. Person and
provides its name and address and certain other information
(generally on IRS Form W-8 BEN or a suitable substitute form).
Treasury regulations that became effective January 1, 2001 provide
alternative methods for satisfying the requirement referred to in clause (iii)
above. These regulations also generally require, in the case of a Class G
Certificate held by a foreign partnership, that the requirement referred to in
clause (iii) above be satisfied by the partners rather than the foreign
partnership and the partnership provide certain information.
Any capital gain realized by a Non-U.S. Certificateholder upon the sale
of a Class G Certificate or with respect to an Equipment Note generally will not
be subject to U.S. federal income or withholding taxes if such gain is not
effectively connected with a U.S. trade or business of the Non-U.S.
Certificateholder and, in the case of an individual, such Non-U.S.
Certificateholder is not present in the United States for 183 days or more in
the taxable year of the sale or other disposition.
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Any such interest or capital gain that is effectively connected with
the conduct of a U.S. trade or business of the Non-U.S. Certificateholder will
be subject to regular federal income tax at graduated rates (and in certain
cases a branch profit tax), unless an applicable tax treaty provides an
exemption.
Prospective investors that are not U.S. Persons should consult their
own tax advisors regarding the income and other tax consequences to them of the
purchase, ownership, and disposition of the Class G Certificates under U.S.
federal, state, and local, and any other relevant, law in light of their own
particular circumstances. If any U.S. federal or other tax is required to be
withheld with respect to a Non-U.S. Certificateholder, neither American nor the
Trusts would be required to pay any additional amount to such Non-U.S.
Certificateholder.
BACKUP WITHHOLDING
In general, payments made on the Class G Certificates, and proceeds
from the sale of Class G Certificates to or through certain brokers, will be
subject to information reporting requirements. Such payments may also be subject
to a "backup" withholding tax at a rate of 28% in 2003 (or at the applicable
rate in subsequent years) unless the Certificate Owner complies with certain
reporting procedures or is exempt from such requirements. Any such withheld
amounts will be allowed as a credit against the Certificate Owner's federal
income tax and may entitle such Certificate Owner to a refund if the required
information is furnished to the Internal Revenue Service. Certain penalties may
be imposed by the Internal Revenue Service on a Certificate Owner who is
required to supply information but who does not do so in the proper manner.
A Non-U.S. Certificateholder may also be subject to information
reporting requirements and to backup withholding at the rate described above
unless such Non-U.S. Certificateholder complies with certain reporting
procedures or otherwise establishes an exemption. Additional information
reporting and backup withholding requirements with respect to the payment of the
proceeds from the disposition of a Class G Certificate by a Non-U.S.
Certificateholder are as follows:
o If the proceeds are paid to or through the U.S. office of a
broker, they generally will be subject to information
reporting and backup withholding unless the holder certifies
that it is not a U.S. Person under penalties of perjury or
otherwise establishes an exemption.
o If the proceeds are paid to or through a Non-U.S. office of a
broker that is not a U.S. Person and is not a foreign person
with certain specified U.S. connections (a "U.S. related
person"), they will not be subject to information reporting or
backup withholding.
o If the proceeds are paid to or through a non-U.S. office of a
broker that is a U.S. Person or a U.S. related person, they
generally will be subject to information reporting (but not
backup withholding) unless the holder certifies that it is not
a U.S. Person under penalty of perjury or otherwise
establishes an exemption.
In addition, the amount of interest paid on the Series G Equipment
Notes to or on behalf of a Non-U.S. Certificateholder and the amount of tax, if
any, withheld from such payments must be reported annually to such Non-U.S.
Certificateholder and the Internal Revenue Service. The Internal Revenue Service
may make such information available under the provisions of an applicable income
tax treaty to the tax authorities in the country in which a Non-U.S.
Certificateholder is a resident.
CERTAIN CONNECTICUT AND DELAWARE TAXES
The Trustee is a national banking association headquartered in Delaware
with a corporate trust office in Connecticut. Shipman & Goodwin LLP, special
Connecticut counsel to the Trustee, and Parkowski, Guerke & Swayze, P.A.,
special Delaware counsel to the Trustee, have advised American that, in their
respective opinions, under currently applicable law, assuming that each Trust
will not be taxable as a corporation for federal income tax purposes, but,
rather, will be classified for such purposes as a grantor trust or as a
partnership, (i) the Trusts will not be subject to any tax (including, without
limitation, net or gross income, tangible or intangible property, net worth,
capital, franchise, or doing business tax), fee or other governmental charge
under the laws of the State of
S-74
Connecticut or the State of Delaware or any political subdivision of either
state and (ii) Certificate Owners that are not residents of or otherwise subject
to tax in Connecticut or Delaware will not be subject to any tax (including,
without limitation, net or gross income, tangible or intangible property, net
worth, capital, franchise, or doing business tax), fee or other governmental
charge under the laws of the State of Connecticut or State of Delaware or any
political subdivision of either state as a result of purchasing, owning
(including receiving payments with respect to) or selling a Certificate. Neither
the Trusts nor the Certificate Owners will be indemnified for any state or local
taxes imposed on them, and the imposition of any such taxes on a Trust could
result in a reduction in the amounts available for distribution to the
Certificate Owners of such Trust. In general, should a Certificate Owner or a
Trust be subject to any state or local tax that would not be imposed if the
Trust were administered in a different jurisdiction in the United States or if
the Trustee were located in a different jurisdiction in the United States, the
Trustee will either relocate the administration of the Trust to such other
jurisdiction or resign and, in the event of such a resignation, a new Trustee in
such other jurisdiction will be appointed.
CERTAIN ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain requirements on employee benefit plans subject to
Title I of ERISA and on entities that are deemed to hold the assets of such
plans ("ERISA Plans"), and on those persons who are fiduciaries with respect to
ERISA Plans. Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including, but not limited to, the requirement of investment
prudence and diversification and the requirement that an ERISA Plan's
investments be made in accordance with the documents governing the Plan.
Section 406 of ERISA and Section 4975 of the Internal Revenue Code of
1986, as amended (the "Code"), prohibit certain transactions involving the
assets of an ERISA Plan (as well as those plans that are not subject to ERISA
but which are subject to Section 4975 of the Code, such as individual retirement
accounts (together with ERISA Plans, "Plans")) and certain persons (referred to
as "parties in interest" or "disqualified persons") having certain relationships
to such Plans, unless a statutory or administrative exemption is applicable to
the transaction. A party in interest or disqualified person who engages in a
prohibited transaction may be subject to excise taxes and other penalties and
liabilities under ERISA and the Code.
Any Plan fiduciary which proposes to cause a Plan to purchase
Certificates should consult with its counsel regarding the applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and
Section 4975 of the Code to such an investment, and to confirm that such
purchase and holding will not constitute or result in a non-exempt prohibited
transaction or any other violation of an applicable requirement of ERISA.
Governmental plans and certain church plans, while not subject to the
fiduciary responsibility provisions of ERISA or the prohibited transaction
provisions of ERISA and Section 4975 of the Code, may nevertheless be subject to
state or other federal laws or regulations that are substantially similar to the
foregoing provisions of ERISA and the Code ("Similar Law"). Fiduciaries of any
such plans should consult with their counsel before purchasing Certificates to
determine the need for, and the availability, if necessary, of any exemptive
relief under any such laws or regulations.
PLAN ASSETS ISSUES
The Department of Labor has promulgated a regulation, 29 CFR Section
2510.3-101 (the "Plan Asset Regulation"), describing what constitutes the assets
of a Plan with respect to the Plan's investment in an entity for purposes of
ERISA and Section 4975 of the Code. Under the Plan Asset Regulation, if a Plan
invests (directly or indirectly) in a Certificate, the Plan's assets will
include both the Certificate and an undivided interest in each of the underlying
assets of the corresponding Trust, including the Equipment Notes held by such
Trust, unless it is established that equity participation in the Trust by
benefit plan investors (including but not limited to Plans and entities whose
underlying assets include Plan assets by reason of an employee benefit plan's
investment in the entity) is not "significant" within the meaning of the Plan
Asset Regulation. In this regard, the extent to which there is equity
participation in a particular Trust by, or on behalf of, benefit plan investors
will not be monitored. If the assets of a Trust are deemed to constitute the
assets of a Plan, transactions involving the assets of such Trust could
S-75
be subject to the prohibited transaction provisions of ERISA and Section 4975 of
the Code unless a statutory or administrative exemption is applicable to the
transaction.
PROHIBITED TRANSACTION EXEMPTIONS
In addition, whether or not the assets of a Trust are deemed to be Plan
assets under the Plan Asset Regulation, the fiduciary of a Plan that proposes to
purchase and hold any Certificates should consider, among other things, whether
such purchase and holding may involve (i) the direct or indirect extension of
credit to a party in interest or a disqualified person, (ii) the sale or
exchange of any property between a Plan and a party in interest or a
disqualified person, or (iii) the transfer to, or use by or for the benefit of,
a party in interest or a disqualified person, of any Plan assets. Such parties
in interest or disqualified persons could include, without limitation, American
and its affiliates, the Underwriters, the Trustees, the Policy Provider, or the
Liquidity Provider. Moreover, if Certificates are purchased by a Plan and
Certificates of a subordinate Class are held by a party in interest or a
disqualified person with respect to such Plan, the exercise by the holder of the
subordinate Class of Certificates of its right to purchase the senior Classes of
Certificates upon the occurrence and during the continuation of a Triggering
Event could be considered to constitute a prohibited transaction unless a
statutory or administrative exemption were applicable. Depending on the
satisfaction of certain conditions which may include the identity of the Plan
fiduciary making the decision to acquire or hold Certificates on behalf of a
Plan, Prohibited Transaction Class Exemption ("PTCE") 91-38 (relating to
investments by bank collective investment funds), PTCE 84-14 (relating to
transactions effected by a "qualified professional asset manager"), PTCE 95-60
(relating to investments by an insurance company general account), PTCE 96-23
(relating to transactions directed by an in-house asset manager) or PTCE 90-1
(relating to investments by insurance company pooled separate accounts)
(collectively, the "Class Exemptions") could provide an exemption from the
prohibited transaction provisions of ERISA and Section 4975 of the Code.
However, there can be no assurance that any of these Class Exemptions or any
other exemption will be available with respect to any particular transaction
involving the Certificates.
Each person who acquires or accepts a Certificate or an interest
therein will be deemed by such acquisition or acceptance to have represented and
warranted that either: (i) no assets of a Plan or governmental or church plan,
or any trust established with respect to a Plan or governmental or church plan,
have been used to acquire such Certificate or an interest therein or (ii) the
purchase and holding of such Certificate or an interest therein by such person
are exempt from the prohibited transaction restrictions of ERISA and the Code or
any provisions of Similar Law, as applicable, pursuant to one or more prohibited
transaction statutory or administrative exemptions.
SPECIAL CONSIDERATIONS APPLICABLE TO INSURANCE COMPANY GENERAL ACCOUNTS
Any insurance company proposing to invest assets of its general account
in the Certificates should consider the implications of the United States
Supreme Court's decision in John Hancock Mutual Life Insurance Co. v. Harris
Trust and Savings Bank , 510 U.S. 86, 114 S. Ct. 517 (1993), which in certain
circumstances treats such general account assets as assets of a Plan that owns a
policy or other contract with such insurance company, as well as the effect of
Section 401(c) of ERISA as interpreted by regulations issued by the United
States Department of Labor in January, 2000.
EACH PLAN FIDUCIARY (AND EACH FIDUCIARY FOR A GOVERNMENTAL OR CHURCH
PLAN SUBJECT TO SIMILAR LAW) SHOULD CONSULT WITH ITS LEGAL ADVISOR CONCERNING
THE POTENTIAL CONSEQUENCES TO THE PLAN UNDER ERISA, THE CODE OR SUCH SIMILAR
LAWS OF AN INVESTMENT IN ANY OF THE CERTIFICATES.
S-76
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated , 2003 (the "Underwriting Agreement"), the Underwriters
named below (the "Underwriters") have agreed with American to purchase from the
Trustee the following respective principal amounts of the Class G Certificates:
Face Amount of
Underwriter Class G Certificates
----------- --------------------
Citigroup Global Markets Inc. $
J.P. Morgan Securities Inc
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
------------
Total $
============
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the Class G Certificates if
any are purchased. The Underwriting Agreement provides that if an Underwriter
defaults the purchase commitments of non-defaulting Underwriters may be
increased or the offering of Class G Certificates may be terminated. The
Underwriters have advised American that the Underwriters propose to offer all or
part of the Class G Certificates directly to the public at the public offering
price set forth on the cover page of this Prospectus Supplement and to certain
selling group members at such prices less concessions not in excess of the
amounts set forth below. The Underwriters and selling group members may allow
discounts not in excess of the amounts set forth below on sales to other
broker/dealers. After the initial public offering, the public offering prices
and concessions and discounts may be changed.
Pass Through Concession Reallowance
Certificate Designation To Dealers Concession
----------------------- ---------- -----------
2003-1G % %
The aggregate proceeds from the sale of the Class G Certificates will
be $ . American will pay the Underwriters a commission of $ .
American estimates that its out of pocket expenses for the offering will be
approximately $ (exclusive of the ongoing costs of the Policy and the
Liquidity Facility).
The Class G Certificates are a new issue of securities with no
established trading market. American does not intend to apply for listing of the
Certificates on a national securities exchange. American has been advised by one
or more of the Underwriters that they presently intend to make a market in the
Class G Certificates, as permitted by applicable laws and regulations. No
Underwriter is obligated, however, to make a market in the Class G Certificates,
and any such market-making may be discontinued at any time, at the sole
discretion of such Underwriter. Accordingly, no assurance can be given as to the
liquidity of, or trading markets for, the Class G Certificates.
American has agreed to reimburse the Underwriters for certain expenses
and has agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act, or contribute to payments which
the Underwriters may be required to make in respect thereof.
From time to time, several of the Underwriters or their affiliates
perform investment banking and advisory services for, and provide general
financing and banking services to, American and its affiliates. Phillip J.
Purcell, the Chairman and Chief Executive Officer of Morgan Stanley, the parent
of Morgan Stanley & Co. Incorporated, is a director of American. The initial
Liquidity Provider is an affiliate of Citigroup Global Markets Inc.
It is expected that delivery of the Class G Certificates will be made
against payment therefor on or about the date specified on the cover page of
this Prospectus Supplement, which will be the business day following the
date of pricing of the Class G Certificates (such settlement cycle being
referred to as "T+ "). Under Rule 15c6-1 of the Commission under the
Exchange Act, trades in the secondary market generally are required to settle
in three business days, unless the parties to any such trade expressly agree
otherwise. Accordingly, purchasers who wish to
S-77
trade Class G Certificates on any day prior to the third business day before the
date of initial delivery of the Class G Certificates will be required, by virtue
of the fact that the Class G Certificates initially will settle on a delayed
basis, to specify an alternate settlement cycle at the time of any such trade to
prevent a failed settlement and should consult their own advisor.
The Underwriters may engage in over-allotment, stabilizing
transactions, syndicate covering transactions, and penalty bids in accordance
with Regulation M under the Exchange Act.
o Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position.
o Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not
exceed a specified maximum.
o Syndicate covering transactions involve purchases of the Class
G Certificates in the open market after the distribution has
been completed in order to cover syndicate short positions.
o Penalty bids permit the Underwriters to reclaim a selling
concession from a syndicate member when the Class G
Certificates originally sold by such syndicate member are
purchased in a stabilizing transaction or a syndicate covering
transaction to cover syndicate short positions.
Such stabilizing transactions, syndicate covering transactions, and
penalty bids may cause the price of the Class G Certificates to be higher than
it would otherwise be in the absence of such transactions. These transactions,
if commenced, may be discontinued at any time.
LEGAL OPINIONS
The validity of the Class G Certificates is being passed upon for
American by Debevoise & Plimpton, New York, New York, and for the Underwriters
by Shearman & Sterling LLP, New York, New York. The respective counsel for
American and the Underwriters will rely upon Shipman & Goodwin LLP, Hartford,
Connecticut, counsel to U.S. Bank Trust National Association, as to certain
matters relating to the authorization, execution, and delivery of the Basic
Agreement, each Trust Supplement and the Certificates, and the valid and binding
effect thereof, and on the opinion of Gary F. Kennedy, Senior Vice President and
General Counsel of American, as to certain matters relating to the
authorization, execution, and delivery of the Basic Agreement and each Trust
Supplement by American.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements and schedules of AMR and American included in AMR's and
American's Annual Reports on Form 10-K for the year ended December 31, 2002, as
set forth in their reports thereon which contain an explanatory paragraph
describing conditions that raise substantial doubt about AMR's and American's
ability to continue as a going concern as described in Note 2 to the AMR and
American consolidated financial statements, which are incorporated by reference
in the Prospectus accompanying this Prospectus Supplement. Such consolidated
financial statements and schedules are incorporated therein by reference in
reliance on Ernst & Young LLP's reports, given upon their authority as experts
in accounting and auditing.
The references to AISI, BKA, and MBA and to their respective appraisal
reports, are included herein in reliance upon the authority of each such firm as
an expert with respect to the matters contained in its appraisal report.
The consolidated balance sheets of Ambac Assurance Corporation and
subsidiaries as of December 31, 2002 and December 31, 2001 and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2002,
incorporated by reference in this Prospectus Supplement, have been incorporated
herein in reliance on the report of KPMG LLP, independent public accountants,
incorporated by reference in this Prospectus Supplement, upon the authority of
said firm as experts in accounting and auditing.
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APPENDIX I
INDEX OF TERMS
The following is an index showing the page in this Prospectus
Supplement where certain defined terms appear.
Adjusted Expected Distributions .................S-56
Aggregate LTV Collateral Amount .................S-57
Aircraft ........................................S-58
AISI ............................................S-58
Ambac ...........................................S-25
American .........................................S-2
American Entity .................................S-33
Appraised Current Market Value ..................S-57
Appraisers ......................................S-58
Assumed Aircraft Value ..........................S-63
Average Life Date ...............................S-62
Avoidance Drawing ...............................S-48
Bankruptcy Code .................................S-35
Base Rate .......................................S-45
Basic Agreement .................................S-27
BKA .............................................S-58
Business Day ....................................S-30
Cash Collateral Account .........................S-43
Cede ............................................S-40
Certificate Account .............................S-29
Certificate Owner ...............................S-41
Certificateholders ..............................S-27
Certificates ....................................S-27
Class C Certificateholders ......................S-27
Class C Certificates ............................S-27
Class C Trust ...................................S-27
Class C Trustee .................................S-27
Class D Certificateholders ......................S-27
Class D Certificates ............................S-27
Class D Trust ...................................S-27
Class D Trustee .................................S-27
Class E Certificateholders ......................S-38
Class E Certificates ............................S-38
Class E Trust ...................................S-38
Class E Trustee .................................S-53
Class Exemptions ................................S-76
Class G Certificateholders ......................S-27
Class G Certificates ............................S-27
Class G Trust ...................................S-27
Class G Trustee .................................S-27
Code ............................................S-75
Commission .......................................S-2
Company ..........................................S-2
Controlling Party ...............................S-51
Current Distribution Date .......................S-53
date of determination ...........................S-62
Defaulted Series G Equipment Note ................S-9
Disposition ......................................S-9
disqualified persons ............................S-75
Distribution Date ...............................S-28
Downgrade Drawing ...............................S-43
Drawing .........................................S-45
DTC .............................................S-40
DTC Participants ................................S-40
Election Distribution Date ......................S-48
Equipment .......................................S-66
Equipment Notes .................................S-60
ERISA ...........................................S-75
ERISA Plans .....................................S-75
Event of Loss ...................................S-70
Excess Reimbursement Obligations ................S-53
Exchange Act .....................................S-1
Expected Distributions ..........................S-53
Final Distributions .............................S-51
Final Drawing ...................................S-44
Final Legal Distribution Date ...................S-28
Final Payment Date ..............................S-62
H.15(519) .......................................S-62
Indenture .......................................S-60
Indenture Events of Default .....................S-64
Indirect Participants ...........................S-41
Insolvency Proceeding ...........................S-49
Intercreditor Agreement .........................S-50
Interest Drawings ...............................S-41
Issuance Date ....................................S-4
LCCs ............................................S-19
Liquidity Event of Default ......................S-46
Liquidity Expenses ..............................S-54
Liquidity Facility ..............................S-41
Liquidity Facility LIBOR ........................S-45
Liquidity Obligations ...........................S-54
Liquidity Provider ..............................S-41
Loan Trustee ....................................S-60
LTV Appraisal ...................................S-57
LTV Collateral Amount ...........................S-57
LTV Ratio .......................................S-57
LTVs .............................................S-4
Make-Whole Amount ...............................S-62
Maximum Available Commitment ....................S-42
MBA .............................................S-58
Minimum Sale Price ..............................S-52
Moody's .........................................S-23
most recent H.15(519) ...........................S-62
No Proceeds Drawing .............................S-47
Non-Extension Drawing ...........................S-44
Non-Performing Equipment Notes ..................S-56
Non-U.S. Certificateholder ......................S-73
Note Holder .....................................S-33
Order ..............................................S-50
Participation Agreement ............................S-60
parties in interest ................................S-75
Pass Through Trust Agreements ......................S-27
Performing Equipment Note ..........................S-42
Permitted Investments ..............................S-33
Plan Asset Regulation ..............................S-75
Plans ..............................................S-75
Policy .............................................S-46
Policy Account .....................................S-49
Policy Drawing .....................................S-54
Policy Expenses ....................................S-54
Policy Fee Letter ..................................S-50
Policy Provider ....................................S-25
Policy Provider Agreement ..........................S-50
Policy Provider Default ............................S-52
Policy Provider Election ...........................S-48
Policy Provider Interest Amount ....................S-54
Policy Provider Interest Drawing Amount ............S-55
Policy Provider Obligations ........................S-54
Pool Balance .......................................S-30
Pool Factor ........................................S-30
Preference Amount ..................................S-50
Prior Funds .........................................S-9
Prospectus ..........................................S-1
Prospectus Supplement ...............................S-1
PTC Event of Default ...............................S-34
PTCE ...............................................S-76
Rating Agencies ....................................S-23
Ratings Confirmation ...............................S-39
Refunding ..........................................S-39
Regular Distribution Dates .........................S-28
Remaining Weighted Average Life ....................S-62
Replacement Facility ...............................S-43
Required Amount ....................................S-42
Scheduled Payments .................................S-28
Section 1110 .......................................S-65
Section 1110 Period ................................S-43
Securities Act ......................................S-1
Series .............................................S-60
Series C Equipment Notes ...........................S-60
Series D Equipment Notes ...........................S-60
Series E Equipment Notes ...........................S-60
Series G Equipment Notes ...........................S-60
Similar Law ........................................S-75
Special Distribution Date ..........................S-29
Special Payment ....................................S-29
Special Payments Account ...........................S-29
Standard & Poor's ..................................S-23
Stated Interest Rate ...............................S-41
Subordination Agent ................................S-50
Termination Notice .................................S-46
Threshold Rating ...................................S-43
Transportation Code ................................S-35
Treasury Yield .....................................S-62
Triggering Event ...................................S-52
Trust Indenture Act ................................S-35
Trust Property .....................................S-27
Trust Supplement ...................................S-27
Trustees ...........................................S-27
Trusts .............................................S-27
U.S. Persons .......................................S-71
U.S. related person ................................S-74
Underwriters .......................................S-77
Underwriting Agreement .............................S-77
APPENDIX II
APPRAISAL LETTERS
(MORTEN BEYER & AGNEW
AVIATION CONSULTING FIRM LETTERHEAD)
Current Base Value of
(7) Various Aircraft
AA 2003-1
PREPARED FOR:
American Airlines
JUNE 27, 2003
I. INTRODUCTION AND EXECUTIVE SUMMARY
MORTEN BEYER & AGNEW (MBA) has been retained by American Airlines (the "Client")
to determine the Current Base Value of seven (7) various aircraft as identified
in Section III of this report.
In performing this valuation, MBA did not independently inspect the aircraft or
the associated records and documentation associated with these aircraft. MBA
utilized the technical data of the aircraft provided by the Client, but at
Client's request did not independently verify the accuracy of the technical and
specification data so provided.
Section II of this report presents definitions of various terms, such as Current
Base Value and Current Market Value as promulgated by the Appraisal Program of
the International Society of Transport Aircraft Trading (ISTAT). ISTAT is a
non-profit association of management personnel from banks, leasing companies,
airlines, manufacturers, brokers, and others who have a vested interest in the
commercial aviation industry and who have established a technical and ethical
certification program for expert appraisers.
Based on the information set forth in this report, it is our opinion as of June
27, 2003, that the aggregate Current Base Value of the aircraft in this
portfolio is $532,000,000 with the respective value adjustments noted in Section
V of this report.
II. DEFINITIONS
CURRENT MARKET VALUE
ISTAT defines Current Market Value (CMV) as the appraiser's opinion of the most
likely trading price that may be generated for an asset under market
circumstances that are perceived to exist at the time in question. Current
Market Value assumes that the asset is valued for its highest, best use, and the
parties to the hypothetical sale transaction are willing, able, prudent and
knowledgeable and under no unusual pressure for a prompt transaction. It also
assumes that the transaction would be negotiated in an open and unrestricted
market on an arm's -length basis, for cash or equivalent consideration, and
given an adequate amount of time for effective exposure to prospective buyers.
Market Value of a specific asset will tend to be consistent with its Base Value
in a stable market environment. In situations where a reasonable equilibrium
between supply and demand does not exist, trading prices, and therefore Market
Values, are likely to be at variance with the Base Value of the asset. Market
Value may be based upon either the actual (or specified) physical condition or
maintenance time or condition status of the asset, or alternatively upon an
assumed average physical condition and mid-life, mid-time maintenance status.
BASE VALUE
The ISTAT definition of Base Value (BV) has, essentially, the same elements of
Market Value except that the market circumstances are assumed to be in a
reasonable state of equilibrium. Thus, BV pertains to an idealized aircraft and
market combination, but will not necessarily reflect the actual CMV of the
aircraft in question at any point in time. BV is founded in the historical trend
of values and value in use, and is generally used to analyze historical values
or to project future values.
ISTAT defines Base Value as the Appraiser's opinion of the underlying economic
value of an aircraft, engine, or inventory of aircraft parts/equipment
(hereinafter referred to as "the asset"), in an open, unrestricted, stable
market environment with a reasonable balance of supply and demand. Full
consideration is assumed of its "highest and best use". An asset's Base Value is
founded in the historical trend of values and in the projection of value trends
American Airlines
Job File #03115
Page 2 of 12
and presumes an arm's-length, cash transaction between willing, able, and
knowledgeable parties, acting prudently, with an absence of duress and with a
reasonable period of time available for marketing. In most cases, the Base Value
of an asset assumes the physical condition is average for an asset of its type
and age. It further assumes the maintenance time/life status is at mid-time,
mid-life (or benefiting from an above-average maintenance status if its is new
or nearly new, as the case may be). Since Base Value pertains to a somewhat
idealized asset and market combination it may not necessarily reflect the actual
current value of the asset in question, but is a nominal starting value to which
adjustments may be applied to determine an actual value. Because it is related
to long-term market trends, the Base Value definition is commonly applied to
analyses of historical values and projections of residual values.
It must be recognized that subsequent to September 11, 2001, there has been no
defined resale market for large transport aircraft such as those covered in this
appraisal, and that few bona-fide used transactions have taken place. Airlines
have been faced by serious reductions in traffic levels, and have permanently or
temporarily retired older aircraft in large numbers. At the same time previously
ordered new aircraft have continued to be delivered, increasing the negative
pressure on the used market. Such used transactions, which have taken place, are
largely in the form of leases, often at significantly reduced rates. Airlines
are currently seeking to reduce established lease rates to conserve cash.
Due to the cyclical nature of the airline business, we believe that these
conditions are temporary as related to newer aircraft such as the ones covered
in this valuation, and prices will return to Base Values as set forth herein,
but for the immediate future these values must be considered theoretical in
nature.
American Airlines
Job File #03115
Page 3 of 12
III. AIRCRAFT SPECIFICATIONS
Boeing 737-823 Boeing 767-300ER
SEATING: 20F/114Y SEATING: 30F/182Y
ENGINES: CFM56-7B ENGINES: CF6-80C2B6
MGTOW (LBS): 174,200 MGTOW (LBS): 408,000
(DIAGRAM OF AIRCRAFT)
American Airlines
Job File #03115
Page 4 of 12
Boeing 777-223ER
SEATING: 18F/42B/163Y - Pacific
16F/35B/194Y - Atlantic
ENGINES: TRENT 892
MGTOW (lbs): 648,000
(DIAGRAM OF AIRCRAFT)
American Airlines
Job File #03115
Page 5 of 12
IV. CURRENT MARKET CONDITIONS
BOEING 737-800
HISTORY
Boeing has extended the fuselage of the 737--300/400, and increased the engine
power, in order to develop the 737-800 as part of its 737 Next Generation family
of aircraft. With upgraded avionics and cockpit and a redesigned wing, the
737-800 is making good inroads in North American and European markets with
considerable orders by customers like American Airlines, Continental and
Ryanair. No longer a short-haul aircraft, it is not uncommon to see this
aircraft placed in transcontinental and on international South American routes,
once reserved for the 757-200. The 737-800 type appears to be gaining favor over
the 757-200, as the current 355 aircraft backlog indicates (the 757 has a total
of 30 aircraft on backlog split between the -200 and -300 types). The 737-800 is
powered exclusively by the CFM56-7 engine, and is also ETOPS capable. The -800
is currently the best seller in the B737 NG family. In American's passenger
configuration the 737-800 holds 134 passengers in a 2-class cabin, and is
operated by a crew of 2.
MARKET DEVELOPMENT
The 737-800 has a very strong presence around the world, primarily in North
America and Europe, and will for sometime to come. The values of this aircraft
have been slightly discounted due to Boeing's aggressive discounting program
designed to remain competitive with Airbus, and this value deterioration started
to take place even before the events of September 11 2001. In the meantime, the
737-800 seems to be gaining share with 703 active commercial aircraft in the
current market, the aircraft is becoming even more popular than the ubiquitous
A320. Current backlog stands at a comfortable 357 aircraft.
American Airlines
Job File #03115
Page 6 of 12
MARKET OUTLOOK
Some orders for the 737-800 may be deferred or cancelled as airlines regroup in
light of the current economic environment, but the outlook remains solid.
American assigned 15 orders to Qantas (Australia), which is undergoing a fleet
replacement and needed the positions. The future of the 737-800 will remain
solid until Boeing or Airbus decides to introduce a new, even more efficient,
medium range aircraft. Neither manufacturer, in the short to medium term, has
proposed such a product. Values and lease rates remain strong as long -800's
stay off the secondary market.
BOEING 767-300ER
HISTORY & DEVELOPMENT
The 767-300ER was introduced shortly after the 767-300 has an extended range
version, providing for greater mission capability. The 767-300ER is by far the
most successful variant of the 767 family. The 767-300ER has been the staple for
many transatlantic operations, especially for American, Delta and United. The
-300ER has by far the best operating economics of the 767 family due to its
increased range and seating capacity.
MARKET DEVELOPMENT
While the 767-300ER continues to remain popular, the newer technology A330
family continues to compete with it at every corner. The 767-300ER will be
around for a time to come, but the market will not be as strong as it once was.
For the very near future and for the duration of this recession, the 767-300ER
will see greater visibility in secondary longhaul markets as airline rework
their transatlantic and international routes, however, this does not guarantee
its liquidity. The 767-300ER has had a tough time recently as lease rates
continue to soften.
American Airlines
Job File #03115
Page 7 of 12
MARKET OUTLOOK
Twenty Boeing 767-300ERs have reached the market so far, with most of the
activity consisting in changes of lessees in the fleets of mega-lessor ILFC. It
is expected that it will be another ten years before there are retirements of
consequence by the world's major airlines. However, this could change as the
fate of United Airlines and Air Canada remains unknown. Boeing intends to
introduce a new, more efficient intermediate widebody now dubbed the 7E7, this
aircraft is expected to not only compete against the Airbus A330, but also
supercede the 767 family of aircraft.
BOEING 777-200ER
HISTORY
The very large 777-200ER is the extended range version of the 777-200, or -200A.
With an increased range and gross-weight, this aircraft is the staple of the
transatlantic crossing for many operators who used to operate the DC10s and
747s. As a twin engine aircraft, 777 is limited by ETOPS operations, but that
has not stopped large Asian carriers from ordering it.
In fact, only with the 207-minute rule extension has the 777 been able to make
real inroads into the Asian market and begin to fly some polar routes. The new
technology and operating economics of the 777 have made it one of the most
popular aircraft of all times. In American's passenger configuration, the
777-200ER aircraft holds 245 as well as 223 passengers in a three-class cabin,
and is operated by a crew of 2.
MARKET DEVELOPMENT
The 777-200ER market is quite strong, and will remain so for a time to come. As
airlines restructure themselves in this time of recession, the 777 will become a
staple of many fleets - offering both the necessary operating economics and the
flexibility to handle many different types of routes. The 777 has become a
replacement for the larger, less efficient, Boeing 747-200s, along with the
older DC10-30s and in many cases the MD -11. It does still, however, compete
head-to-head in, varying degrees, with the Airbus A330/A340 Family on range and
capacity. The current backlog for the 777-200ER currently stands at 97 aircraft.
American Airlines
Job File #03115
Page 8 of 12
MARKET OUTLOOK
The Boeing 777-200 is clearly Boeing's leading wide body versus Airbus, and will
remain so through this decade. The aircraft is larger, heavier and can be more
expensive to operate than the Airbus A330-300 with the same seating capacity
although it has a greater range of 1800 additional statute miles. The 777-200ER
will be one of the major fleets as airlines restructure and rationalize their
long haul fleets.
American Airlines
Job File #03115
Page 9 of 12
V. VALUATION
In developing the Current Base Value of these aircraft, MBA did not inspect the
aircraft or the historical maintenance documentation, but relied on partial
information supplied by the Client and not independently verified by MBA.
Therefore, we used certain assumptions that are generally accepted industry
practice to calculate the value of aircraft when more detailed information is
not available. The principal assumptions for the aircraft are as follows, for
each aircraft:
1. The aircraft is in good overall condition, or considered new.
2. The overhaul status of the airframe, engines, landing gear and
other major components are the equivalent of
mid-time/mid-life, or new, unless otherwise stated.
3. The historical maintenance documentation has been maintained
to acceptable international standards.
4. The specifications of the aircraft are those most common for
an aircraft of its type and vintage.
5. The aircraft is in a standard airline configuration.
6. The aircraft is current as to all Airworthiness Directives and
Service Bulletins.
7. Its modification status is comparable to that most common for
an aircraft of its type and vintage.
8. Its utilization is comparable to industry averages.
9. There is no history of accident or incident damage.
10. No accounting is made for lease revenues, obligations or terms
of ownership unless otherwise specified.
American Airlines
Job File #03115
Page 10 of 12
American Airlines 2003-1
--------------------------------------------------------------------------------
Aircraft Registration Delivery
Type Number Engine MTOW Date Base Values
-------- ------------ ------ ---- -------- ---------------
B737-800 N963AN CFM 56 7B 174,200 May-01 $ 41,600,000
B737-800 N961AN CFM 56 7B 174,200 Apr-01 41,600,000
B737-800 N967AN CFM 56 7B 174,200 Jul-01 41,600,000
B767-300 ER N388AA CF6-80C2B6 408,000 Jan-95 52,100,000
B777-223 ER N784AN Trent 892 648,000 Mar-00 110,500,000
B777-223 ER N760AN Trent 892 648,000 Jan-02 122,300,000
B777-223 ER N761AJ Trent 892 648,000 Mar-02 122,300,000
---------------
Total $ 532,000,000
===============
American Airlines
Job File #03115
Page 11 of 12
VI. COVENANTS
This report has been prepared for the exclusive use of American Airlines and
shall not be provided to other parties by MBA without the express consent of
American Airlines. MBA certifies that this report has been independently
prepared and that it fully and accurately reflects MBA's opinion as to the
Current Base Value. MBA further certifies that it does not have, and does not
expect to have, any financial or other interest in the subject or similar
aircraft.
This report represents the opinion of MBA as to the Current Base Value of the
subject aircraft and is intended to be advisory only, in nature. Therefore, MBA
assumes no responsibility or legal liability for any actions taken, or not
taken, by American Airlines or any other party with regard to the subject
aircraft. By accepting this report, all parties agree that MBA shall bear no
such responsibility or legal liability.
This report has been prepared by:
/s/ BRYSON P. MONTELEONE
BRYSON P. MONTELEONE
VICE PRESIDENT
Reviewed by:
/s/ MORTEN S. BEYER
JUNE 27, 2003 MORTEN S. BEYER, APPRAISER FELLOW
CHAIRMAN & CEO
ISTAT CERTIFIED APPRAISER
American Airlines
Job File #03115
Page 12 of 12
(AIRCRAFT INFORMATION SERVICES, INC. LETTERHEAD)
27 June 2003
Mr. Michael Thomas
American Airlines
4333 Amon Carter Boulevard
Mail Drop 5662
Fort Worth, TX 76155
Subject: AISI Report: A3S010BVO, Sight Unseen Base Value Appraisal
Three B737-823, One B767-323ER and Three B777-223ER Aircraft.
Reference: (a) Citigroup E-mails, 21 January 2003, 07 February 2003
(b) Citigroup Telcon, 12 June 2003
Dear Mr. Thomas:
Aircraft Information Services, Inc. (AISI) is pleased to offer American Airlines
our opinion of the sight unseen half life base value of three B737-823, one
B767-323ER and three B777-223ER aircraft as listed and defined in the above
reference (a) message and in Table I of this report.
1. METHODOLOGY AND DEFINITIONS
The standard terms of reference for commercial aircraft value are 'base value'
and `current market value' of an 'average' aircraft. Base value is a theoretical
value that assumes a hypothetical balanced market while current market value is
the value in the real market; both assume a hypothetical average aircraft
condition. All other values are derived from these values. AISI value
definitions are consistent with the current definitions of the International
Society of Transport Aircraft Trading (ISTAT), those of 01 January 1994. AISI is
a member of that organization and employs an ISTAT Certified and Senior
Certified Appraiser.
AISI defines a 'base value' as that of a transaction between an equally willing
and informed buyer and seller, neither under compulsion to buy or sell, for a
single unit cash transaction with no hidden value or liability, with supply and
demand of the sale item roughly in balance and with no event which would cause a
short term change in the market.
27 June 2003
AISI File No. A3S010BVO
Page -2-
Base values are typically given for aircraft in 'new' condition, 'average
half-life' condition, or 'adjusted' for an aircraft in a specifically described
condition at a specific time. An 'average' aircraft is an operable airworthy
aircraft in average physical condition and with average accumulated flight hours
and cycles, with clear title and standard unrestricted certificate of
airworthiness, and registered in an authority which does not represent a penalty
to aircraft value or liquidity, with no damage history and with inventory
configuration and level of modification which is normal for its intended use and
age. AISI assumes average condition unless otherwise specified in this report.
AISI also assumes that airframe, engine and component maintenance and essential
records are sufficient to permit normal commercial operation under a strict
airworthiness authority.
'Half-life' condition assumes that every component or maintenance service which
has a prescribed interval that determines its service life, overhaul interval or
interval between maintenance services, is at a condition which is one-half of
the total interval.
An 'adjusted' appraisal reflects an adjustment from half life condition for the
actual condition, utilization, life remaining or time remaining of an airframe,
engine or component.
It should be noted that AISI and ISTAT value definitions apply to a transaction
involving a single aircraft, and that transactions involving more than one
aircraft are often executed at considerable and highly variable discounts to a
single aircraft price, for a variety of reasons relating to an individual buyer
or seller.
AISI defines a 'current market value', which is synonymous with the older term
`fair market value' as that value which reflects the real market conditions
including short term events, whether at, above or below the base value
conditions. Assumption of a single unit sale and definitions of aircraft
condition, buyer/seller qualifications and type of transaction remain unchanged
from that of base value. Current market value takes into consideration the
status of the economy in which the aircraft is used, the status of supply and
demand for the particular aircraft type, the value of recent transactions and
the opinions of informed buyers and sellers. Current market value assumes that
there is no short term time constraint to buy or sell.
AISI encourages the use of base values to consider historical trends, to
establish a consistent baseline for long term value comparisons and future value
considerations, or to consider how actual market values vary from theoretical
base values. Base values are less volatile than current market values and tend
to diminish regularly with time. Base values are normally inappropriate to
determine near term values. AISI encourages the use of current market values to
consider the probable near term value of an aircraft.
27 June 2003
AISI File No. A3S010BVO
Page -3-
If more than one aircraft is contained in this report than it should be noted
that the values given are not directly additive, that is, the total of the given
values is not the value of the fleet but rather the sum of the values of the
individual aircraft if sold individually over time so as not to exceed demand.
2. VALUATION
Following is AISI's opinion of the half life base value for the subject aircraft
in June 2003 US dollars.
Valuations are presented in Table I subject to the assumptions, definitions and
disclaimers herein and are predicated upon the reference (a) data which
describes the aircraft MTOW, engines installed, and any item or capability which
would have a significant effect on value.
The terrorist actions that occurred in the United States on 11 September 2001
have had a significant negative effect on current market values of all
commercial aircraft as demand for air travel has declined sharply. The amount of
decline varies considerably with new aircraft affected the least and older
aircraft affected the most. The present used aircraft market is considered to be
a distressed market and is very tenuous, with very few transactions upon which
to base value opinions. The best value indicators available at present are lease
rates and numbers of stored aircraft. Base value opinions have also declined
where irreversible market changes have occurred with regard to specific aircraft
types in the judgment of AISI. Typically an irreversible market change occurs
when it is believed that the decline in current market value is permanent, thus
causing a corresponding decline in base value.
27 June 2003
AISI File No. A3S010BVO
Page -4-
TABLE I
Manufacturer's Delivery Aircraft Registration Half Life Base Value
Date Number June 2003 US Dollar
----------------------- ---------------------- --------------------
BOEING 737-823; CFM56-7B26, 174,200 LB. MTOW
Apr-01 N961AN 41,610,000
May-01 N963AN 41,610,000
Jul-01 N967AN 41,610,000
BOEING 767-323ER; CF6-80C2B6, 408,000 LB. MTOW
Jan-95 N388AA 57,980,000
BOEING 777-223ER; RB211-TRENT 892-17, 648,000 LB. MTOW
Mar-00 N784AN 109,990,000
Jan-02 N760AN 123,060,000
Mar-02 N761AJ 123,060,000
[LOGO]
27 June 2003
AISI File No. A3S010BVO
Page -5-
Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in
writing, this report shall be for the sole use of the client/addressee. This
report is offered as a fair and unbiased assessment of the subject aircraft.
AISI has no past, present, or anticipated future interest in the subject
aircraft. The conclusions and opinions expressed in this report are based on
published information, information provided by others, reasonable
interpretations and calculations thereof and are given in good faith. Such
conclusions and opinions are judgments that reflect conditions and values which
are current at the time of this report. The values and conditions reported upon
are subject to any subsequent change. AISI shall not be liable to any party for
damages arising out of reliance or alleged reliance on this report, or for any
party's action or failure to act as a result of reliance or alleged reliance on
this report.
Sincerely,
AIRCRAFT INFORMATION SERVICES, INC.
/s/ JOHN D. MCNICOL
John D. McNicol
Vice President
Appraisals & Forecasts
BK ASSOCIATES, INC.
1295 Northern Boulevard
Manhasset, New York 11030
(516) 365-6272 o Fax (516) 365-6287
June 27, 2003
Mr. Michael Thomas
Managing Director Corporate Finance
American Airlines
4333 Amon Carter Blvd., Mail Drop 5662
Fort Worth, TX 76155
Dear Mr. Thomas:
In response to your request, BK Associates, Inc. is pleased to provide our
opinion of the current base values of seven commercial jet transport aircraft
operated by American Airlines in passenger configuration (Aircraft). The
Aircraft are described below:
Aircraft Registration Serial Delivery
Type Number Number Date Engine MTOW
-------- ------------ ------ -------- ------ ----
B737-800 N961AN 30092 04/2001 CFM56-7B 174,200
B737-800 N963AN 29543 05/2001 CFM56-7B 174,200
B737-800 N967AN 29545 07/2001 CFM56-7B 174,200
B767-300ER N388AA 27448 01/1995 CF6-80C2B6 408,000
B777-200ER N784AN 29588 03/2000 Trent 892 648,000
B777-200ER N760AN 31477 01/2002 Trent 892 648,000
B777-200ER N761AJ 31478 03/2002 Trent 892 648,000
Based upon our knowledge of these various commercial jet aircraft and engines,
our knowledge of the capabilities and uses to which they have been put in
various parts of the world, our knowledge of the marketing of used aircraft, our
knowledge of aircraft in general, and assuming the maintenance status is at
half-time between scheduled significant maintenance events, it is our opinion
that the base values of the Aircraft in U.S. dollars is as follows:
Aircraft Serial Delivery
Type Number Date BV
-------- ------ -------- ------------
B737-800 30092 04/2001 $ 41,300,000
B737-800 29543 05/2001 41,300,000
B737-800 29545 07/2001 41,300,000
B767-300ER 27448 01/1995 60,600,000
B777-200ER 29588 03/2000 122,000,000
B777-200ER 31477 01/2002 130,000,000
B777-200ER 31478 03/2002 130,000,000
Mr. Michael Thomas
June 27, 2003
Page 2
According to the International Society of Transport Aircraft Trading's (ISTAT)
definition of base value, to which BK Associates subscribes, the base value is
the Appraiser's opinion of the underlying economic value of an aircraft in an
open, unrestricted, stable market environment with a reasonable balance of
supply and demand, and assumes full consideration of its "highest and best use".
An aircraft's base value is founded in the historical trend of values and in the
projection of future value trends and presumes an arm's length, cash transaction
between willing, able and knowledgeable parties, acting prudently, with an
absence of duress and with a reasonable period of time available for marketing.
As the definition implies, the base value is determined from long-term
historical trends. BK Associates has accumulated a database of over 8,000 data
points of aircraft sales that occurred since 1970. From analysis of these data
we know, for example, what the average aircraft should sell for as a percentage
of its new price, as well as, the high and low values that have occurred in
strong and weak markets.
Based on these data, we have developed relationships between aircraft age and
sale price for wide-bodies, narrow-bodies, large turboprops and, more recently,
regional jet and freighter aircraft. Within these groups we have developed
further refinements for such things as derivative aircraft, aircraft still in
production versus no longer in production, and aircraft early in the production
run versus later models. Within each group variations are determined by the
performance capabilities of each aircraft relative to the others. We now track
some 150 different variations of aircraft types and models and determine current
and forecast base values. These relationships are verified, and changed or
updated if necessary, when actual sales data becomes available.
However, the historic data, which are dominated by first generation jets like
the B727, B737 and DC9, also show that some aircraft are as much as 25 percent
higher or lower than the average, indicating that some attractive aircraft in
good markets have sold for higher prices than average. Further, since aircraft
are not often sold during the first seven to eight years, except under distress
circumstances, the historic data are sparse for sales of aircraft this young.
Thus, we conclude that the current half-time base values of the Aircraft are
somewhat better than the historic trend suggests.
Supply and demand is a major influence on aircraft values. As recent as 1997 the
market for commercial transport aircraft enjoyed a near balance of supply and
demand for most aircraft types along with appropriately strong market values.
According to BACK Information Services' listing of available aircraft the 1997
annualized average of surplus large jet aircraft was 310. However, by early 2001
availability had grown to 500 and continued climbing slowly until the events of
September 11, 2001 caused a subsequent
Mr. Michael Thomas
June 27, 2003
Page 3
sharp increase. Current availability of surplus large jet aircraft is reported
at 767 units and the current annualized average is 766. This imbalance of supply
and demand has a substantial negative impact on current market values of most
commercial jet transport aircraft.
It should be understood that BK Associates has not inspected the Aircraft or the
maintenance records for this appraisal, but has relied upon the information
provided to us and our own database. The assumptions have been made that the
Aircraft are in average or better condition; all Airworthiness Directives have
been complied with; accident damage has not been incurred that would affect
market values; and maintenance has been accomplished in accordance with an
Airworthiness Authority approved maintenance program and accepted industry
standards. Deviations from these assumptions can change our opinion
significantly regarding the Aircraft values.
BK Associates, Inc. has no present or contemplated future interest in the
Aircraft, nor any interest that would preclude our making a fair and unbiased
estimate. This appraisal represents the opinion of BK Associates, Inc. and
reflects our best judgment based on the information available to us at the time
of preparation and the time and budget constraints imposed by the client. It is
not given as a recommendation, or as an inducement, for any financial
transaction and further, BK Associates, Inc. assumes no responsibility or legal
liability for any action taken or not taken by the addressee, or any other
party, with regard to the appraised equipment. By accepting this appraisal, the
addressee agrees that BK Associates, Inc. shall bear no such responsibility or
legal liability. This appraisal is prepared for the use of the addressee and
shall not be provided to other parties without the express consent of the
addressee.
Sincerely,
BK ASSOCIATES, INC.
/s/ R. L. BRITTON
R. L. Britton
Vice President
ISTAT Senior Certified Appraiser
RLB/kf
APPENDIX III
EQUIPMENT NOTE PRINCIPAL PAYMENTS
APPENDIX IV
LOAN TO VALUE RATIOS OF EQUIPMENT NOTES
PROSPECTUS
$2,500,000,000
AMERICAN AIRLINES, INC.
PASS THROUGH CERTIFICATES
This Prospectus relates to the issuance of Pass Through Certificates by one
or more Pass Through Trusts to be formed by American Airlines, Inc. We will
describe the specific terms of any offering of Pass Through Certificates in a
Prospectus Supplement to this Prospectus. You should read this Prospectus and
the applicable Prospectus Supplements carefully before you invest.
THE PASS THROUGH CERTIFICATES:
- Will be issued in one or more series.
- Will be payable at the times and in the amounts specified in the
accompanying Prospectus Supplement.
- will represent interests in the relevant Trust only, will be paid only
from the assets of that Trust and will not represent obligations of, or
be guaranteed by, American.
- May have one or more forms of credit or liquidity enhancement.
EACH PASS THROUGH TRUST:
- Will own:
- Equipment Notes of one or more series or notes issued by a trust or
other entity secured by Equipment Notes, and
- other property described in this Prospectus and the accompanying
Prospectus Supplement.
- Will pass through payments on the Equipment Notes and other property that
it owns, subject to any applicable subordination provisions.
THE EQUIPMENT NOTES:
- Will be either
- Owned Aircraft Notes issued by American, or
- Leased Aircraft Notes issued on a non-recourse basis by owner trustees
pursuant to aircraft leveraged leases with American. The amounts due
from American under each such lease will be sufficient to make all
regularly scheduled payments required on the related Equipment Notes,
subject to some limited exceptions.
AMR GUARANTEES
- To the extent stated in the applicable Prospectus Supplement, American's
payment obligations in respect of any Owned Aircraft Notes or the leases
relating to any Leased Aircraft Notes will be fully and unconditionally
guaranteed by our parent, AMR Corporation.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The date of this Prospectus is March 21, 2002.
ABOUT THIS PROSPECTUS
This Prospectus is part of a registration statement on Form S-3 that we and
our parent, AMR Corporation, filed jointly with the Securities and Exchange
Commission (the "Commission") utilizing a "shelf" registration process. Under
this shelf process, we may sell the Pass Through Certificates and the related
AMR Guarantees, if any, described in this Prospectus in one or more offerings.
This Prospectus provides you with a general description of the Pass Through
Certificates and any related AMR Guarantees we may offer. Each time we sell Pass
Through Certificates, we will provide a Prospectus Supplement that will contain
specific information about the terms of that offering. The Prospectus Supplement
may also add, update or change information contained in this Prospectus. You
should read carefully both this Prospectus and any applicable Prospectus
Supplement, together with the additional information described below under
"Where You Can Find More Information".
This Prospectus does not contain all of the information set forth in the
registration statement that we filed with the Commission or in the exhibits to
that registration statement. For further information about American, AMR, the
Pass Through Certificates or any related AMR Guarantees, you should refer to
that registration statement and its exhibits. Statements contained in this
Prospectus or in any Prospectus Supplement as to the contents of any contract or
other document are not necessarily complete, and you should review the full text
of those contracts and other documents.
The registration statement that we filed with the Commission relating to
the Pass Through Certificates and any related AMR Guarantees can be obtained
from the Commission, as described below under "Where You Can Find More
Information".
In this Prospectus, "we" and "American" refer to American Airlines, Inc.
and "AMR" refers to our parent, AMR Corporation.
TABLE OF CONTENTS
PAGE
----
About this Prospectus....................................... 2
Forward-Looking Information................................. 2
Where You Can Find More Information......................... 3
The Company................................................. 4
Ratios of Earnings to Fixed Charges......................... 4
Formation of the Trusts..................................... 5
Use of Proceeds............................................. 5
Description of the Pass Through Certificates................ 6
Description of the Equipment Notes.......................... 20
Credit Enhancements......................................... 25
Certain Federal Income Tax Consequences..................... 26
Certain Connecticut Taxes................................... 28
ERISA Considerations........................................ 28
Plan of Distribution........................................ 29
Legal Opinions.............................................. 30
Experts..................................................... 30
FORWARD-LOOKING INFORMATION
This Prospectus and the documents incorporated by reference contain various
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
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which represent our expectations or beliefs concerning future events. When used
in this Prospectus and in documents incorporated by reference, the words
"believes," "expects," "plans," "anticipates," and similar expressions are
intended to identify forward-looking statements. Forward-looking statements
include, without limitation, our expectations concerning operations, financial
conditions, including changes in capacity, revenues and costs, expectations as
to future financing needs, overall economic conditions and plans and objectives
for future operations, the ability to continue to successfully integrate with
our operations the assets acquired from Trans World Airlines, Inc. ("TWA") and
the former TWA workforce, and the impact of the events of September 11, 2001 on
us and AMR and the sufficiency of our and AMR's financial resources to absorb
that impact. Other forward-looking statements include statements which do not
relate solely to historical facts, such as, without limitation, statements which
discuss the possible future effects of current known trends or uncertainties, or
which indicate that the future effects of known trends or uncertainties cannot
be predicted, guaranteed or assured. All forward-looking statements in this
Prospectus and the documents incorporated by reference are based upon
information available to us on the date of this Prospectus or such document. We
undertake no obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or otherwise.
Forward-looking statements are subject to a number of factors that could cause
actual results to differ materially from our expectations. The following
factors, in addition to other possible factors not listed, could cause actual
results to differ materially from those expressed in forward-looking statements:
failure to reach agreement with any labor union representing our employees,
changes in economic or other conditions, increases in the price of jet fuel,
future fare reductions in the airline industry, changes in our business
strategy, actions by government agencies, the adverse impact of the September
11, 2001 terrorist attacks and the possible occurrence of other terrorist
attacks, and the availability of future financing. Additional information
concerning these and other factors is contained in our Commission filings,
including but not limited to our and AMR's Forms 10-K for the year ended
December 31, 2001.
WHERE YOU CAN FIND MORE INFORMATION
We and AMR file annual, quarterly and special reports with the Commission.
These Commission filings are available to the public over the Internet at the
Commission's web site at http://www.sec.gov. You may also read and copy any such
document we or AMR file at the Commission's public reference rooms at 450 Fifth
Street, N.W., Washington, D.C. 20549, and in New York, New York and Chicago,
Illinois. Please call the Commission at 1-800-SEC-0330 for further information
on the public reference rooms and copy charges.
The Commission allows us to "incorporate by reference" the information we
and AMR file with it, which means:
- we can disclose important information to you by referring you to those
documents;
- information incorporated by reference is considered to be part of this
Prospectus, even though it is not repeated in this Prospectus or in any
Prospectus Supplement; and
- information that we and AMR file with the Commission will automatically
update and supersede this Prospectus and any Prospectus Supplements.
We incorporate by reference the documents listed below and any future
filings made with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act until we complete our offering of Pass Through Certificates:
- Annual Reports of American and of AMR on Form 10-K for the year ended
December 31, 2001;
- Current Report of American on Form 8-K filed January 16, 2002; and
- Current Report of AMR on Form 8-K filed January 16, 2002.
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You may obtain a copy of these filings (other than their exhibits, unless
those exhibits are specifically incorporated by reference in the filings) at no
cost by writing or telephoning us at the following address:
Corporate Secretary
American Airlines, Inc.
P.O. Box 619616, Mail Drop 5675
Dallas/Fort Worth Airport, Texas 75261-9616
(817) 967-1254
You should rely only on the information incorporated by reference or
provided in this Prospectus or any applicable Prospectus Supplement. We have not
authorized anyone else to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. We are not making an offer to sell any Pass Through Certificates or any
related AMR Guarantees in any jurisdiction where the offer or sale is not
permitted. You should not assume that the information in this Prospectus or in
any Prospectus Supplement is accurate as of any date other than the date on the
front page of those documents. Also, you should not assume that there has been
no change in the affairs of American or of AMR since the date of this Prospectus
or of any applicable Prospectus Supplement.
THE COMPANY
American, the principal subsidiary of AMR Corporation, was founded in 1934.
On April 9, 2001, American purchased substantially all of the assets and assumed
certain liabilities of TWA, the eighth largest United States air carrier.
American (including TWA) is the largest scheduled passenger airline in the
world. American provides scheduled jet service to numerous destinations
throughout North America, the Caribbean, Latin America, Europe and the Pacific.
American is also one of the largest scheduled air freight carriers in the world,
providing a full range of freight and mail services to shippers throughout its
system. The postal address for both American's and AMR's principal executive
offices is P.O. Box 619616, Dallas/Fort Worth Airport, Texas 75261-9616
(Telephone: 817-967-1532).
RATIOS OF EARNINGS TO FIXED CHARGES
The following table contains the ratios of earnings to fixed charges of
American and of AMR for the periods indicated:
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
Ratio of Earnings to Fixed Charges
American.......................................... 2.27 2.82 1.95 2.07 *
AMR............................................... 2.13 2.55 1.72 1.87 **
---------------
* In April 2001 the Board of Directors of American approved the guarantee by
American of the existing debt obligations of AMR. As such, as of December 31,
2001, American unconditionally guaranteed through the life of the related
obligations approximately $676 million of unsecured debt and approximately
$573 million of secured debt. The impact of these unconditional guarantees is
not included in the above computation. For the year ended December 31, 2001,
earnings were not sufficient to cover fixed charges. We needed additional
earnings of $2,584 million to achieve a ratio of earnings to fixed charges of
1.0.
** For the year ended December 31, 2001, earnings were not sufficient to cover
fixed charges. AMR needed additional earnings of $2,900 million to achieve a
ratio of earnings to fixed charges of 1.0.
For purposes of the table, "earnings" represents consolidated income from
continuing operations before income taxes, extraordinary items and fixed charges
(excluding interest capitalized). "Fixed charges" consists of interest expense
(including interest capitalized), amortization of debt expense and the portion
of rental expense we deem representative of the interest factor. See Exhibit
12.1 to the registration
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statement of which this Prospectus forms a part for the amount of rental expense
of American and AMR, respectively, we deemed representative of the interest
factor.
FORMATION OF THE TRUSTS
We will enter into a Pass Through Trust Agreement (the "Basic Agreement")
with State Street Bank and Trust Company of Connecticut, National Association,
as Trustee (the "Trustee"). Each series of Pass Through Certificates will be
issued by a separate Trust. Each separate Trust will be formed pursuant to the
Basic Agreement and a specific supplement to the Basic Agreement (each, a "Trust
Supplement") between American and the Trustee or among American, AMR and the
Trustee. All Pass Through Certificates issued by a particular Trust will
represent fractional undivided interests in such Trust and the property held in
such Trust, and, subject to the effect of any cross-subordination provisions
described in the applicable Prospectus Supplement, will have no rights, benefits
or interest in respect of any other Trust or the property held in any other
Trust.
Concurrently with the execution and delivery of each Trust Supplement, the
Trustee, on behalf of the Trust formed by the Trust Supplement, will enter into
one or more agreements (each such agreement being herein referred to as a "Note
Purchase Agreement") pursuant to which it will agree to purchase one or more
Equipment Notes. All of the Equipment Notes that constitute the property of any
one Trust will have an identical interest rate, and this interest rate will be
equal to the rate applicable to the Pass Through Certificates issued by such
Trust. The maturity dates of the Equipment Notes acquired by each Trust will
occur on or before the final expected distribution date applicable to the Pass
Through Certificates issued by such Trust. The Trustee will distribute
principal, premium, if any, and interest payments received by it as holder of
the Equipment Notes to the registered holders of Pass Through Certificates (the
"Certificateholders") of the Trust in which such Equipment Notes are held,
subject to the effect of any cross-subordination provisions described in the
applicable Prospectus Supplement.
USE OF PROCEEDS
Except as set forth in the applicable Prospectus Supplement, the Trustee
for each Trust will use the proceeds from the sale of the Pass Through
Certificates issued by such Trust to purchase one or more Equipment Notes or
notes issued by a separate trust or other entity secured by Equipment Notes.
Equipment Notes may be Owned Aircraft Notes or Leased Aircraft Notes. Any Trust
may hold Owned Aircraft Notes and Leased Aircraft Notes simultaneously. The
Owned Aircraft Notes will be secured by certain aircraft owned or to be owned by
American ("Owned Aircraft"), and the Leased Aircraft Notes will be secured by
certain aircraft leased or to be leased to American ("Leased Aircraft"). In
certain cases, Owned Aircraft Notes or Leased Aircraft Notes may be issued to
refinance debt, lease or other transactions previously entered into to finance
the applicable aircraft.
A Trust may hold Owned Aircraft Notes or Leased Aircraft Notes that are
subordinated in right of payment to other Equipment Notes or other debt related
to the same Owned or Leased Aircraft. In addition, the Trustees on behalf of one
or more Trusts may enter into an intercreditor or subordination agreement
establishing priorities among series of Pass Through Certificates. Also, a
liquidity facility, surety bond, financial guarantee or other arrangement may
support one or more payments on the Equipment Notes or Pass Through Certificates
of one or more series. We will describe any such credit enhancements in the
applicable Prospectus Supplement.
To the extent that the Trustee does not use the proceeds of any offering of
Pass Through Certificates to purchase Equipment Notes on the date of issuance of
such Pass Through Certificates, it will hold such proceeds for the benefit of
the holders of such Pass Through Certificates under arrangements that we will
describe in the applicable Prospectus Supplement. If the Trustee does not
subsequently use any portion of such proceeds to purchase Equipment Notes by the
relevant date specified in the applicable Prospectus Supplement, it will return
that portion of such proceeds to the holders of such Pass Through Certificates.
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In addition, we may offer Pass Through Certificates subject to delayed
aircraft financing arrangements, such as the following:
- A Trust may purchase Leased Aircraft Notes issued by an Owner Trustee
prior to the purchase of certain Leased Aircraft by such Owner Trustee or
the commencement of the related Lease.
- A Trust may purchase Owned Aircraft Notes issued by American prior to the
expected delivery date of certain Owned Aircraft.
- The proceeds of the offering of such Pass Through Certificates may be
invested with a depositary or represented by escrow receipts until used
to purchase Equipment Notes.
- At the date of issuance of the Pass Through Certificates, it may not yet
be determined if the Trust will purchase Owned Aircraft Notes or Leased
Aircraft Notes.
In such circumstances, we will describe in the Prospectus Supplement how the
proceeds of the Pass Through Certificates will be held or applied during any
such delayed aircraft financing period, including any depositary or escrow
arrangements.
DESCRIPTION OF THE PASS THROUGH CERTIFICATES
The following description is a summary of the terms of the Pass Through
Certificates that we expect will be common to all series. Most of the financial
terms and other specific terms of any series of Pass Through Certificates will
be described in a Prospectus Supplement to be attached to this Prospectus. Since
the terms of the specific Pass Through Certificates may differ from the general
information provided below, you should rely on the information in the Prospectus
Supplement instead of the information in this Prospectus if the information in
the Prospectus Supplement is different from the information below.
Because the following description is a summary, it does not describe every
aspect of the Pass Through Certificates or the Basic Agreement, and it is
subject to and qualified in its entirety by reference to all the provisions of
the Pass Through Certificates, the Basic Agreement and the applicable Trust
Supplements. The form of Basic Agreement has been filed as an exhibit to the
registration statement of which this Prospectus is a part. American will file
with the Commission the Trust Supplement relating to each series of Pass Through
Certificates and the forms of Indenture, Lease (if any), Note Purchase
Agreement, intercreditor and subordination agreement (if any) and liquidity
facility or other credit enhancement agreement (if any) relating to any offering
of Pass Through Certificates as exhibits to a post-effective amendment to the
registration statement of which this Prospectus is a part or a Current Report on
Form 8-K, a Quarterly Report on Form 10-Q or an Annual Report on Form 10-K.
The Pass Through Certificates offered pursuant to this Prospectus will be
limited to $2,500,000,000 aggregate public offering price (or its equivalent
(based on the applicable exchange rate at the time of sale) in one or more
foreign or composite currencies or currency units).
To the extent that any provision in any Prospectus Supplement is
inconsistent with any provision in this summary, the provision in such
Prospectus Supplement will control.
GENERAL
We expect that the Pass Through Certificates of each Trust will be issued
in fully registered form only. Each Pass Through Certificate will represent a
fractional undivided interest in the separate Trust created by the Basic
Agreement and the Trust Supplement pursuant to which such Pass Through
Certificate is issued, and all payments and distributions will be made only from
the Trust Property of each Trust. The Trust Property will include (i) the
Equipment Notes, or notes issued by a trust or other entity secured by Equipment
Notes, held in such Trust and all monies at any time paid thereon and all monies
due and to become due thereunder, subject to the effect of any
cross-subordination provisions described in the applicable Prospectus
Supplement, (ii) funds from time to time deposited with the Trustee in accounts
relating to such Trust and (iii) if so specified in the applicable Prospectus
Supplement, rights under any
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cross-subordination arrangements, monies receivable under any liquidity facility
or other credit enhancement agreement and any other rights or property described
therein.
Equipment Notes may be Owned Aircraft Notes or Leased Aircraft Notes.
American will issue Owned Aircraft Notes under separate trust indentures (the
"Owned Aircraft Indentures") between American and a bank, trust company or other
institution or person specified in the related Prospectus Supplement, as trustee
thereunder (in such capacity, herein referred to as the "Loan Trustee"). The
Owned Aircraft Notes will be recourse obligations of American. The Owned
Aircraft may secure additional debt or be subject to other financing
arrangements.
Leased Aircraft Notes will be issued in connection with the leveraged lease
of Leased Aircraft to American. Except as set forth in the applicable Prospectus
Supplement, each Leased Aircraft will be leased to American under a lease (a
"Lease") between American and a bank, trust company or other institution acting
not in its individual capacity but solely as trustee (an "Owner Trustee") of a
separate trust for the benefit of one or more beneficial owners (each, an "Owner
Participant") of the Leased Aircraft. Owner Participants may include American or
affiliates of American. The Owner Trustee will issue the Leased Aircraft Notes
on a non-recourse basis under separate trust indentures (the "Leased Aircraft
Indentures") between it and the applicable Loan Trustee to finance or refinance
a portion of the cost to it of the applicable Leased Aircraft. The Owner Trustee
will obtain a portion of the funding for the Leased Aircraft from the equity
investments of the related Owner Participants and, to the extent set forth in
the applicable Prospectus Supplement, additional debt secured by such Leased
Aircraft or other sources. No Owner Trustee or Owner Participant, however, will
be personally liable for any principal or interest payable under the related
Leased Aircraft Indenture or the Leased Aircraft Notes issued thereunder. The
rents and other amounts payable by American under the Lease relating to any
Leased Aircraft will be in amounts sufficient to pay when due all principal and
interest payments on the Leased Aircraft Notes issued under the Leased Aircraft
Indenture in respect of such Leased Aircraft, subject to some limited
exceptions. The Leased Aircraft also may be subject to other financing
arrangements. Among other things, the Owner Trustee with respect to a particular
Leased Aircraft may refinance any existing related Leased Aircraft Notes through
the issuance by a separate trust or other entity of notes secured by such Leased
Aircraft Notes. We will describe any such other financing arrangements in the
applicable Prospectus Supplement.
Each Pass Through Certificate will represent a pro rata share of the
outstanding principal amount of the Equipment Notes and other property held in
the related Trust. Unless otherwise specified in the applicable Prospectus
Supplement, each Pass Through Certificate will be issued in minimum
denominations of $1,000 or any integral multiple of $1,000 except that one Pass
Through Certificate of each series may be issued in a different denomination.
The Pass Through Certificates do not represent indebtedness of the Trusts, and
references in this Prospectus or in any Prospectus Supplement to interest
accruing on the Pass Through Certificates are included for purposes of
computation only. The Pass Through Certificates do not represent an interest in
or obligation of American, AMR, the Trustee, any of the Loan Trustees or Owner
Trustees in their individual capacities, any Owner Participant, or any of their
respective affiliates. Each Certificateholder by its acceptance of a Pass
Through Certificate agrees to look solely to the income and proceeds from the
Trust Property of the applicable Trust as provided in the Basic Agreement and
the applicable Trust Supplement.
A Trust may hold Owned Aircraft Notes or Leased Aircraft Notes that are
subordinated in right of payment to other Equipment Notes or other debt relating
to the same or certain related Owned Aircraft or Leased Aircraft. In addition,
the Trustees on behalf of one or more Trusts may enter into an intercreditor or
subordination agreement or similar arrangements establishing priorities among
series of Pass Through Certificates. Also, payments in respect of the Pass
Through Certificates of one or more series, or the Equipment Notes of one or
more series, or both, may be supported by a liquidity facility or other credit
enhancement arrangements. See "Credit Enhancements" below. Any such
intercreditor, subordination, liquidity facility or other credit enhancement
arrangements will be described in the applicable Prospectus Supplement. This
description assumes that the Pass Through Certificates will be issued without
credit enhancements. If any credit enhancements are used, certain terms of the
Pass Through Certificates will
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differ in some respects from the terms described in this Prospectus. The
applicable Prospectus Supplement will reflect the material differences arising
from any such credit enhancements.
In addition, this description generally assumes that, on or before the date
of the sale of any series of Pass Through Certificates, the related Aircraft
shall have been delivered and the ownership or lease financing arrangements for
such Aircraft shall have been put in place. However, it is possible that some or
all of the Aircraft related to a particular offering of Pass Through
Certificates may be subject to certain delayed aircraft financing arrangements.
See "Description of the Equipment Notes -- General" below. In the event of any
delayed aircraft financing arrangements, certain terms of the Pass Through
Certificates will differ in some respects from the terms described in this
Prospectus. The applicable Prospectus Supplement will reflect the material
differences arising from any such delayed aircraft financing arrangements.
Interest will be passed through to Certificateholders of each Trust at the
rate per annum payable on the Equipment Notes held in such Trust, as set forth
for such Trust on the cover page of the applicable Prospectus Supplement,
subject to the effect of any cross-subordination provisions described in the
applicable Prospectus Supplement.
Reference is made to the Prospectus Supplement that accompanies this
Prospectus for a description of the specific series of Pass Through Certificates
being offered thereby, including:
- the specific designation and title of such Pass Through Certificates and
the related Trust;
- the Regular Distribution Dates (as defined below) and Special
Distribution Dates (as defined below) applicable to such Pass Through
Certificates;
- if other then U.S. dollars, the currency or currencies (including
composite currencies or currency units) in which such Pass Through
Certificates may be denominated or payable;
- the specific form of such Pass Through Certificates, including whether or
not such Pass Through Certificates are to be issued in accordance with a
book-entry system or in bearer form;
- a description of the Equipment Notes to be purchased by such Trust,
including (a) the period or periods within which, the price or prices at
which, and the terms and conditions upon which such Equipment Notes may
or must be redeemed, purchased or defeased, in whole or in part, by
American or, with respect to Leased Aircraft Notes, the Owner Trustee or
Owner Participant, (b) the payment priority of such Equipment Notes in
relation to any other Equipment Notes or other debt issued with respect
to the same Aircraft, (c) any additional security or liquidity or other
credit enhancements therefor and (d) any intercreditor or other rights or
limitations between or among the holders of Equipment Notes of different
priorities issued with respect to the same Aircraft;
- a description of the related Aircraft, including, if determined, whether
each such Aircraft is a Leased Aircraft or an Owned Aircraft;
- a description of the related Note Purchase Agreement and related
Indentures, including a description of the events of default under the
related Indentures, the remedies exercisable upon the occurrence of such
events of default and any limitations on the exercise of such remedies
with respect to such Equipment Notes;
- if such Pass Through Certificates relate to Leased Aircraft, a
description of the related Leases, including (a) the names of the related
Owner Trustees, (b) a description of the events of default under the
related Leases, the remedies exercisable upon the occurrence of such
events of default and any material limitations on the exercise of such
remedies with respect to the applicable Leased Aircraft Notes, and (c)
the rights, if any, of the related Owner Trustee or Owner Participant to
cure failures of American to pay rent under the related Lease;
- the extent, if any, to which the provisions of the operative documents
applicable to such Equipment Notes may be amended by the parties thereto
without the consent of the holders of, or only upon
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the consent of the holders of a specified percentage of aggregate
principal amount of, such Equipment Notes;
- cross-default or cross-collateralization provisions in the related
Indentures, if any;
- a description of any intercreditor, subordination or similar provisions
among the holders of Pass Through Certificates, including any
cross-subordination provisions and provisions relating to control of
remedies among the holders of Pass Through Certificates issued by
separate Trusts;
- any arrangements for the investment or other use of proceeds of the Pass
Through Certificates prior to the purchase of Equipment Notes, and any
arrangements relating to any delayed aircraft financing arrangements;
- a description of any deposit or escrow agreement, any liquidity or credit
facility, surety bond, financial guarantee or other arrangement providing
collateralization, credit support or liquidity enhancements for any
series of Pass Through Certificates or any class of Equipment Notes; and
- a description of any other special terms pertaining to such Pass Through
Certificates, including any modification of the terms set forth herein.
If any Pass Through Certificates relate to Equipment Notes that are
denominated in one or more foreign or composite currencies or currency units,
any restrictions, special United States federal income tax considerations and
other special information with respect to such Pass Through Certificates and
such foreign or composite currency or currency units will be set forth in the
applicable Prospectus Supplement.
If any Pass Through Certificates relate to Equipment Notes that are sold at
a substantial discount below the principal amount of such Equipment Notes,
special United States federal income tax considerations and other special
information with respect to such Pass Through Certificates will be set forth in
the applicable Prospectus Supplement.
The Basic Agreement does not and the Indentures will not contain any
financial covenants or other provisions that protect Certificateholders in the
event we issue a large amount of debt or are acquired by another entity
(including in a highly leveraged transaction). However, the Certificateholders
of each series will have the benefit of a lien on the specific Aircraft securing
the related Equipment Notes held in the related Trust. See "Description of the
Equipment Notes -- Security."
To the extent described in a Prospectus Supplement, American will have the
right to surrender Pass Through Certificates issued by a Trust to the Trustee
for such Trust. In such event, the Trustee will transfer to American an equal
principal amount of Equipment Notes relating to a particular Aircraft designated
by American and will cancel the surrendered Pass Through Certificates.
BOOK-ENTRY REGISTRATION
General
Except as otherwise described in the applicable Prospectus Supplement, Pass
Through Certificates will be subject to the provisions described below.
Upon issuance, each series of Pass Through Certificates will be represented
by one or more fully registered global certificates. Unless otherwise provided
in a Prospectus Supplement, each global certificate will be deposited with, or
on behalf of, The Depository Trust Company ("DTC") and registered in the name of
Cede & Co. ("Cede"), the nominee of DTC. No person acquiring an interest in such
Pass Through Certificates (a "Certificate Owner") will be entitled to receive a
certificate representing such person's interest in such Pass Through
Certificates, except as set forth below under "-- Definitive Certificates."
Unless and until Definitive Certificates (as defined below) are issued under the
limited circumstances described herein, all references in this Prospectus and in
any Prospectus Supplement to actions by Certificateholders will refer to actions
taken by DTC upon instructions from DTC Participants (as defined below), and all
references to distributions, notices, reports and statements to
Certificateholders will refer, as the case may be, to distributions, notices,
reports and statements to DTC or Cede, as the
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registered holder of such Pass Through Certificates, or to DTC Participants for
distribution to Certificate Owners in accordance with DTC procedures.
DTC has advised American that DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered pursuant to Section
17A of the Exchange Act. DTC was created to hold securities for its participants
("DTC Participants") and to facilitate the clearance and settlement of
securities transactions between DTC Participants through electronic book-
entries, thereby eliminating the need for physical transfer of certificates. DTC
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. Indirect access to the
DTC system also is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly ("Indirect Participants").
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Pass Through Certificates among DTC Participants on whose behalf it acts with
respect to the Pass Through Certificates. Certificate Owners that are not DTC
Participants but that desire to purchase, sell or otherwise transfer ownership
of, or other interests in, Pass Through Certificates may do so only through DTC
Participants. DTC Participants and Indirect Participants with which Certificate
Owners have accounts with respect to the Pass Through Certificates, however, are
required to make book-entry transfers on behalf of their respective customers.
In addition, under the Rules, DTC is required to receive and transmit to the DTC
Participants distributions of principal of, premium, if any, and interest with
respect to the Pass Through Certificates. Certificate Owners thus will receive
all distributions of principal, premium, if any, and interest from the Trustee
through DTC Participants or Indirect Participants, as the case may be. Under
this book-entry system, Certificate Owners may experience some delay in their
receipt of payments because such payments will be forwarded by the Trustee to
Cede, as nominee for DTC, and DTC in turn will forward the payments to the
appropriate DTC Participants in amounts proportionate to the amount of such DTC
Participants' respective holdings of beneficial interests in the Pass Through
Certificates, as shown on the records of DTC or its nominee. Distributions by
DTC Participants to Indirect Participants or Certificate Owners, as the case may
be, will be the responsibility of such DTC Participants.
Unless and until Definitive Certificates are issued under the limited
circumstances described herein, the only "Certificateholder" under the Basic
Agreement will be Cede, as nominee of DTC. Certificate Owners therefore will not
be recognized by the Trustee as Certificateholders, as such term is used in the
Basic Agreement, and Certificate Owners will be permitted to exercise the rights
of Certificateholders only indirectly through DTC and DTC Participants. DTC has
advised American that it will take any action permitted to be taken by
Certificateholders under the Basic Agreement only at the direction of one or
more DTC Participants to whose accounts with DTC the Pass Through Certificates
are credited. Additionally, DTC has advised American that in the event any
action requires approval by Certificateholders of a certain percentage of
beneficial interest in each Trust, DTC will take such action only at the
direction of and on behalf of DTC Participants whose holdings include undivided
interests that satisfy any such percentage. DTC may take conflicting actions
with respect to other undivided interests to the extent that such actions are
taken on behalf of DTC Participants whose holdings include such undivided
interests. Conveyance of notices and other communications by DTC to DTC
Participants and by DTC Participants to Indirect Participants and to Certificate
Owners will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect Participants, the ability of a Certificate Owner to pledge
Pass Through Certificates to persons or entities that do not participate in the
DTC system, or to otherwise act with respect to such Pass Through Certificates,
may be limited due to the lack of a physical certificate for such Pass Through
Certificates.
None of American, AMR or the Trustee or any agent of American, AMR or the
Trustee will have any responsibility or liability for any aspect of the records
relating to or payments made on account of
10
beneficial ownership interests in the Pass Through Certificates held by Cede, as
nominee for DTC; for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests; or for the performance by DTC, any DTC
Participant or any Indirect Participant of their respective obligations under
the Rules or any other statutory, regulatory, contractual or customary
procedures governing their operations.
The applicable Prospectus Supplement will specify any additional book-entry
registration procedures applicable to Pass Through Certificates denominated in a
currency other than United States dollars.
The information contained in this Prospectus concerning DTC and its
book-entry system has been obtained from sources American believes to be
reliable, but American has not verified such information and takes no
responsibility for the accuracy thereof.
Same-Day Settlement and Payment
As long as Pass Through Certificates are registered in the name of DTC or
its nominee, all payments made by American to the Loan Trustee under any Lease
or any Owned Aircraft Indenture will be in immediately available funds. Such
payments, including the final distribution of principal with respect to the Pass
Through Certificates of any Trust, will be passed through to DTC in immediately
available funds.
Any Pass Through Certificates registered in the name of DTC or its nominee
will trade in DTC's Same-Day Funds Settlement System until maturity, and
secondary market trading activity in the Pass Through Certificates will
therefore be required by DTC to settle in immediately available funds.
Definitive Certificates
Pass Through Certificates will be issued in certificated form ("Definitive
Certificates") to Certificate Owners or their nominees, rather than to DTC or
its nominee, only if (i) American advises the Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as depository
with respect to such Pass Through Certificates and American is unable to locate
a qualified successor, (ii) American, at its option, elects to terminate the
book-entry system through DTC or (iii) after the occurrence of certain events of
default or other events specified in the related Prospectus Supplement,
Certificate Owners with fractional undivided interests aggregating not less than
a majority in interest in such Trust advise the Trustee, American and DTC
through DTC Participants in writing that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in the Certificate Owners'
best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee will be required to notify all affected Certificate
Owners through DTC Participants of the availability of Definitive Certificates.
Upon surrender by DTC of the global certificates representing the Pass Through
Certificates and receipt of instructions for re-registration, the Trustee will
reissue the Pass Through Certificates as Definitive Certificates to Certificate
Owners.
Distributions of principal of, premium, if any, and interest on the Pass
Through Certificates will thereafter be made by the Trustee, in accordance with
the procedures set forth in the Basic Agreement and the applicable Trust
Supplements, directly to holders in whose names such Definitive Certificates
were registered at the close of business on the applicable record date. Such
distributions will be made by check mailed to the address of each such holder as
it appears on the register maintained by the Trustee. The final payment on any
Pass Through Certificate, however, will be made only upon presentation and
surrender of such Pass Through Certificate at the office or agency specified in
the notice of final distribution to Certificateholders.
Definitive Certificates will be freely transferable and exchangeable at the
office of the Trustee upon compliance with the requirements set forth in the
Basic Agreement and the applicable Trust Supplements. Unless otherwise provided
in the applicable Prospectus Supplement, no service charge will be imposed for
any registration of transfer or exchange, but payment of a sum sufficient to
cover any tax or other governmental charge will be required.
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PAYMENTS AND DISTRIBUTIONS
American will make scheduled payments of principal and interest on the
Owned Aircraft Notes to the Loan Trustee under the related Indenture, and the
Loan Trustee will distribute such payments to the Trustee for each Trust that
holds such Owned Aircraft Notes.
Upon the commencement of the Lease for any Leased Aircraft, American will
make scheduled rental payments for each Leased Aircraft under the related Lease,
and these scheduled rental payments will be assigned under the applicable
Indenture by the related Owner Trustee to the Loan Trustee to provide the funds
necessary to make the corresponding scheduled payments of principal and interest
due on the Leased Aircraft Notes issued by such Owner Trustee. The Loan Trustee
will distribute such payments to the Trustee for each Trust that holds such
Leased Aircraft Notes. After the Loan Trustee has distributed such payments of
principal and interest on the Leased Aircraft Notes to the Trustee for such
Trusts, the Loan Trustee will, except under certain circumstances, pay the
remaining balance, if any, of such scheduled rental payments to the Owner
Trustee for the benefit of the related Owner Participant.
Subject to the effect of any cross-subordination provisions set forth in
the applicable Prospectus Supplement, payments of principal, premium, if any,
and interest with respect to the Equipment Notes held in each Trust received by
the Trustee will be distributed by the Trustee to Certificateholders of such
Trust on the dates and in the currency specified in the applicable Prospectus
Supplement, except in certain cases when some or all of such Equipment Notes are
in default as described in the applicable Prospectus Supplement.
Payments of principal of and interest on the Equipment Notes held in each
Trust will be scheduled to be received by the Trustee on the dates specified in
the applicable Prospectus Supplement (such scheduled payments of principal and
interest are referred to as "Scheduled Payments," and the dates specified in the
applicable Prospectus Supplement for distribution of Scheduled Payments by the
Trustee to the Certificateholders are referred to as "Regular Distribution
Dates"). Subject to the effect of any cross-subordination provisions set forth
in the applicable Prospectus Supplement, the Pass Through Trustee will
distribute on each Regular Distribution Date to the related Certificateholders
any Scheduled Payments received by the Pass Through Trustee on or before such
Regular Distribution Date. If a Scheduled Payment is not received by the Pass
Through Trustee on or before a Regular Distribution Date, but is received within
five days thereafter, it will be distributed on the date received to the
Certificateholders. Each such distribution of a Scheduled Payment will be made
by the Pass Through Trustee to the holders in whose names the Certificates of
such Trust are registered at the close of business on the 15th day preceding
such Regular Distribution Date, subject to certain exceptions. Subject to the
effect of any cross-subordination provisions set forth in the applicable
Prospectus Supplement, each Certificateholder of a Trust will be entitled to
receive a pro rata share of any distribution in respect of Scheduled Payments of
principal and interest made on the Equipment Notes held in such Trust.
Payments of principal, premium, if any, and interest received by the
Trustee on account of the early redemption or purchase, if any, of any of the
Equipment Notes relating to one or more Aircraft held in a Trust, payments
received by the Trustee following an Event of Default in respect of any such
Equipment Notes (including payments received by the Trustee on account of the
sale of such Equipment Notes by the Trustee or payments received by the Trustee
with respect to the Leased Aircraft Notes on account of the purchase of such
Notes by the related Owner Trustee or Owner Participant) and any other payments
designated as Special Payments in the applicable Trust Supplement ("Special
Payments") will be distributed on the date or dates determined as described in
the applicable Prospectus Supplement (each, a "Special Distribution Date"). The
Trustee will mail notice to the Certificateholders of record of the applicable
Trust stating any such anticipated Special Distribution Date.
If any Regular Distribution Date or Special Distribution Date is not a
business day, distributions scheduled to be made on such Regular Distribution
Date or Special Distribution Date may be made on the next succeeding business
day without additional interest.
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POOL FACTORS
Unless otherwise described in the applicable Prospectus Supplement, the
"Pool Balance" for each Trust indicates, as of any date, the original aggregate
face amount of the Pass Through Certificates of such Trust less the aggregate
amount of all payments made in respect of the Pass Through Certificates of such
Trust other than payments made in respect of interest or premium or
reimbursement of any costs and expenses in connection therewith. The Pool
Balance for each Trust as of any Regular Distribution Date or Special
Distribution Date will be computed after giving effect to the payment of
principal, if any, on the Equipment Notes or other Trust Property held in such
Trust and the distribution thereof to be made on that date.
Unless otherwise described in the applicable Prospectus Supplement, the
"Pool Factor" for each Trust as of any Regular Distribution Date or Special
Distribution Date is the quotient (rounded to the seventh decimal place)
computed by dividing (1) the Pool Balance, by (2) the aggregate original face
amount of the Pass Through Certificates of such Trust. The Pool Factor for each
Trust as of any Regular Distribution Date or Special Distribution Date shall be
computed after giving effect to the payment of principal, if any, on the
Equipment Notes or other Trust Property held in such Trust and the distribution
thereof to be made on that date. The Pool Factor for each Trust will initially
be 1.0000000; thereafter, the Pool Factor for each Trust will decline as
described above to reflect reductions in the Pool Balance of such Trust. The
amount of a Certificateholder's pro rata share of the Pool Balance of a Trust
can be determined by multiplying the original denomination of the
Certificateholder's Pass Through Certificate of such Trust by the Pool Factor
for such Trust as of the applicable Regular Distribution Date or Special
Distribution Date. The Pool Factor and the Pool Balance for each Trust will be
mailed to Certificateholders of such Trust on each Regular Distribution Date and
Special Distribution Date.
Unless there has been an early redemption, a purchase of one or more of the
Equipment Notes held in a Trust by the related Owner Trustee or Owner
Participant after an Indenture Default (as defined below), a default in the
payment of principal in respect of one or more issues of the Equipment Notes
held in a Trust or certain actions have been taken following a default thereon,
as described in the applicable Prospectus Supplement, the Pool Factor for each
Trust will decline in proportion to the scheduled repayments of principal on the
Equipment Notes held in such Trust as described in the applicable Prospectus
Supplement. In the event of such redemption, purchase or payment default (if
such payment is not made within five days of the Regular Distribution Date), the
Pool Factor and the Pool Balance of each Trust so affected will be recomputed
after giving effect thereto, and notice thereof will be mailed to
Certificateholders of such Trust. Each Trust will have a separate Pool Factor.
REPORTS TO CERTIFICATEHOLDERS
On each Regular Distribution Date and Special Distribution Date, the
Trustee will include with each distribution of a Scheduled Payment or Special
Payment to Certificateholders of the related Trust a statement, giving effect to
such distribution to be made on such Regular Distribution Date or Special
Distribution Date, setting forth the following information (per $1,000 in
aggregate principal amount of Pass Through Certificates for such Trust, as to
(1) and (2) below):
(1) the amount of such distribution allocable to principal and the
amount allocable to premium if any;
(2) the amount of such distribution allocable to interest;
(3) the Pool Balance and the Pool Factor for such Trust; and
(4) such additional or different information as may be described in
the applicable Prospectus Supplement.
As long as the Pass Through Certificates are registered in the name of
Cede, as nominee for DTC, on the record date prior to each Regular Distribution
Date and Special Distribution Date, the Trustee will request from DTC a
securities position listing setting forth the names of all DTC Participants
reflected on
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DTC's books as holding interests in the Pass Through Certificates on such record
date. On each Regular Distribution Date and Special Distribution Date, the
applicable Trustee will mail to each such DTC Participant the statement
described above and will make available additional copies as requested by such
DTC Participant for forwarding to Certificate Owners.
In addition, after the end of each calendar year, the Trustee will prepare
for each Certificateholder of each Trust at any time during the preceding
calendar year a report containing the sum of the amounts determined pursuant to
clauses (1) and (2) above with respect to the Trust for such calendar year or,
in the event such person was a Certificateholder during only a portion of such
calendar year, for the applicable portion of such calendar year, and such other
items as are readily available to the Trustee and which a Certificateholder will
reasonably request as necessary for the purpose of such Certificateholder's
preparation of its federal income tax returns. Such report and such other items
will be prepared on the basis of information supplied to the Trustee by the DTC
Participants and will be delivered by the Trustee to such DTC Participants to be
available for forwarding by such DTC Participants to Certificate Owners in the
manner described above.
At such time, if any, as the Pass Through Certificates are issued in the
form of Definitive Certificates, the Trustee will prepare and deliver the
information described above to each Certificateholder of record of each Trust as
the name and period of record ownership of such Certificateholder appears on the
records of the registrar of the Pass Through Certificates.
VOTING OF EQUIPMENT NOTES
Subject to the effect of any cross-subordination or intercreditor
provisions described in the related Prospectus Supplement and to the rights of
the providers of any liquidity facility or other credit enhancement agreement,
the Trustee, as holder of the Equipment Notes held in a Trust, has the right to
vote and give consents and waivers in respect of such Equipment Notes under the
related Indentures. The Basic Agreement and related Trust Supplement will set
forth:
- the circumstances in which the Trustee may direct any action or cast any
vote as the holder of the Equipment Notes held in the applicable Trust at
its own discretion;
- the circumstances in which the Trustee will seek instructions from the
Certificateholders of such Trust; and
- if applicable, the percentage of Certificateholders required to direct
the Trustee to take any such action.
If specified in the related Prospectus Supplement, the right of a Trustee
to vote and give consents and waivers with respect to the Equipment Notes held
in the related Trust may, in the circumstances set forth in an intercreditor,
subordination or similar agreement to be executed by such Trustee, be
exercisable by another person specified in such Prospectus Supplement.
EVENTS OF DEFAULT AND CERTAIN RIGHTS UPON AN EVENT OF DEFAULT
The Basic Agreement defines an "Event of Default" for any Trust as the
occurrence and continuance of an Indenture event of default under one or more of
the related Indentures. What constitutes an "Event of Default" for any
particular Trust, however, may be varied by the applicable Trust Supplement and
described in the applicable Prospectus Supplement. In addition, the Prospectus
Supplement will specify the events of default under the related Indentures (an
"Indenture Event of Default"). The Indenture Events of Default in the case of
Leased Aircraft Indentures will include certain events of default under the
related Leases (a "Lease Event of Default"). With respect to any Equipment Notes
that are supported by a liquidity facility or other credit enhancement
arrangement, the Indenture Events of Default may include events of default under
such liquidity facility or arrangement.
Unless otherwise provided in a Prospectus Supplement, all of the Equipment
Notes issued under the same Indenture will relate only to a single specific
Aircraft and there will be no cross-collateralization or
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cross-default provisions in the Indentures. As a result, events resulting in an
Indenture Event of Default under any particular Indenture will not necessarily
result in an Indenture Event of Default under any other Indenture. However,
since the Equipment Notes issued under any single Indenture may be held in more
than one Trust, a continuing Indenture Event of Default under such single
Indenture could result in an Event of Default in respect of each such Trust. If
an Indenture Event of Default occurs in fewer than all of the Indentures related
to a Trust, notwithstanding the treatment of Equipment Notes issued under those
Indentures under which an Indenture Event of Default has occurred, payments of
principal and interest on the Equipment Notes issued pursuant to the Indentures
with respect to which an Indenture Event of Default has not occurred will
continue to be made as originally scheduled and distributed to
Certificateholders, subject to the terms of any intercreditor, subordination or
similar arrangements applicable to such Trust.
The ability of the applicable Owner Trustee or Owner Participant under a
Leased Aircraft Indenture to cure Indenture Events of Default, including an
Indenture Event of Default that results from the occurrence of a Lease Event of
Default under the related Lease, will be described in the Prospectus Supplement.
Unless otherwise provided in a Prospectus Supplement, in the case of any Pass
Through Certificates or Equipment Notes entitled to the benefits of a liquidity
facility or other credit enhancement arrangement, a drawing or other payment
under any such liquidity facility or arrangement for the purpose of making a
payment of interest as a result of the failure by American to have made a
corresponding payment will not cure an Indenture Event of Default related to
such failure by American.
The ability of the holders of the Pass Through Certificates issued with
respect to any one Trust to cause the Loan Trustee with respect to any Equipment
Notes held in such Trust to accelerate the payment of such Equipment Notes under
the applicable Indenture or to direct the exercise of remedies by such Loan
Trustee under the applicable Indenture will depend, in part, upon the proportion
of the aggregate principal amount of the Equipment Notes outstanding under such
Indenture and held in such Trust to the aggregate principal amount of all
Equipment Notes outstanding under such Indenture. In addition, if
cross-subordination provisions are applicable to any series of Pass Through
Certificates, then the ability of the Certificateholders of any one Trust
holding Equipment Notes issued under an Indenture to cause the Loan Trustee to
accelerate such Equipment Notes or to direct the exercise of remedies by the
Loan Trustee under such Indenture will depend, in part, upon the relative
ranking of the Equipment Notes held in such Trust.
Each Trust will hold Equipment Notes with different terms than the
Equipment Notes held in the other Trusts and therefore the Certificateholders of
each Trust may have divergent or conflicting interests from those of the
Certificateholders of those other Trusts holding Equipment Notes issued under
the same Indenture. In addition, as long as the same institution acts as Trustee
of each Trust, in the absence of instructions from the Certificateholders of any
such Trust, the Trustee for such Trust could for the same reason be faced with a
potential conflict of interest upon an Indenture Event of Default. In such
event, the initial Trustee has indicated that it would likely resign as Trustee
of one or all such Trusts, and a successor trustee or successor trustees would
be appointed in accordance with the terms of the Basic Agreement.
The Prospectus Supplement for a series of Pass Through Certificates will
specify whether and under what circumstances the Trustee may or will sell for
cash to any person all or part of the Equipment Notes held in the related Trust.
The right to make any such sale may be exercisable by a person other than the
Trustee in the event that the applicable series of Pass Through Certificates are
subject to any intercreditor, subordination or similar arrangements, and the
proceeds or any such sale will be distributed as contemplated by such
arrangements. Any proceeds received by the Trustee upon any such sale that are
distributable to the Certificateholders of such Trust will be deposited in an
account established by the Trustee for the benefit of the Certificateholders of
such Trust and will be distributed to the Certificateholders of such Trust on a
Special Distribution Date. The market for Equipment Notes in default may be very
limited and there can be no assurance that they could be sold for a reasonable
price. Furthermore, as long as the same institution acts as Trustee of multiple
Trusts, it may be faced with a conflict in deciding from which Trust to sell
Equipment Notes to available buyers. If the Trustee sells any such Equipment
Notes with respect to which an Indenture Event of Default exists for less than
their
15
outstanding principal amount, the Certificateholders of such Trust will receive
a smaller amount of principal distributions than anticipated and will not have
any claim for the shortfall against American, the Trustee or any other person,
including, in the case of any Leased Aircraft, the related Owner Trustee or
Owner Participant. Neither the Trustee nor the Certificateholders of such Trust,
furthermore, could take any action with respect to any remaining Equipment Notes
held in such Trust as long as no Indenture Events of Default existed with
respect thereto.
Any amount, other than Scheduled Payments received on a Regular
Distribution Date or within five days thereafter, distributed to the Trustee of
any Trust by the Loan Trustee under any Indenture on account of the Equipment
Notes held in such Trust following an Indenture Event of Default under such
Indenture will be deposited in the special payments account for such Trust and
will be distributed to the Certificateholders of such Trust on a Special
Distribution Date. In addition, if an Indenture provides that the applicable
Owner Trustee or Owner Participant may, under circumstances specified therein,
redeem or purchase some or all of the outstanding Equipment Notes issued under
such Indenture, the price paid by such Owner Trustee or Owner Participant to the
Trustee of any Trust for any of the Equipment Notes issued under such Indenture
and held in such Trust will be deposited in the special payments account for
such Trust and will be distributed to the Certificateholders of such Trust on a
Special Distribution Date.
Any funds representing payments received with respect to any Equipment
Notes held in a Trust and which are in default, or the proceeds from the sale by
the Trustee of any such Equipment Notes, held by the Trustee in the special
payments account for such Trust will, to the extent practicable, be invested and
reinvested by the Trustee in Permitted Investments pending the distribution of
such funds on a Special Distribution Date. "Permitted Investments" will be
described in the related Prospectus Supplement.
The Basic Agreement provides that the Trustee of each Trust will, within 90
days after the occurrence of a default (as defined below) in respect of such
Trust, give to the Certificateholders of such Trust notice, transmitted by mail,
of all uncured or unwaived defaults with respect to such Trust known to it;
provided that, except in the case of default in the payment of principal of,
premium, if any, or interest on any of the Equipment Notes held in such Trust,
the Trustee will be protected in withholding such notice if it in good faith
determines that the withholding of such notice is in the interests of such
Certificateholders. Except as otherwise described in the applicable Prospectus
Supplement, the term "default," for the purpose of the provision described in
this paragraph only, means the occurrence of any Event of Default with respect
to a Trust, as specified above, except that in determining whether any such
Event of Default has occurred, any grace period or notice in connection
therewith will be disregarded.
The Basic Agreement contains a provision entitling the Trustee of each
Trust, subject to the duty of the Trustee during a default to act with the
required standard of care, to be offered reasonable security or indemnity by the
Certificateholders of such Trust before proceeding to exercise any right or
power under the Basic Agreement at the request of such Certificateholders.
The applicable Prospectus Supplement will specify the percentage of
Certificateholders entitled to waive, or to instruct the Trustee to waive, any
past default or Event of Default with respect to such Trust and its consequences
and also will specify the percentage of Certificateholders (and whether of such
Trust or of any other Trust holding Equipment Notes issued under related
Indentures) entitled to waive, or to instruct the Trustee or the Loan Trustee to
waive, any past Indenture Event of Default under any related Indenture and
thereby annul any direction given with respect thereto.
MODIFICATIONS OF THE BASIC AGREEMENT
The Basic Agreement contains provisions permitting American and the Trustee
to enter into a supplement to the Basic Agreement or, if applicable, to any Note
Purchase Agreement or to any intercreditor, subordination or like agreement or
to any liquidity facility or other credit enhancement
16
agreement, without the consent of the holders of any of the Pass Through
Certificates, to, among other things:
- provide for the formation of a Trust and the issuance of a series of Pass
Through Certificates, or to add, or to change or eliminate, any provision
affecting Pass Through Certificates not yet issued, including to make
appropriate provisions for an AMR Guarantee;
- evidence the succession of another entity to American and the assumption
by such entity of American's obligations under the Basic Agreement and
any Trust Supplement, any Note Purchase Agreement and any intercreditor,
subordination or like agreement or any liquidity facility or other credit
enhancement agreement or, if applicable, to evidence the succession of
another entity to AMR and the assumption by such entity of AMR's
obligations under any AMR Guarantee;
- add to the covenants of American or AMR for the benefit of the holders of
a series of Pass Through Certificates or surrender any right or power
conferred upon American or AMR in the Basic Agreement, any Note Purchase
Agreement or any intercreditor, subordination or like agreement or any
liquidity facility or other credit enhancement agreement or AMR
Guarantee;
- cure any ambiguity or correct any mistake or inconsistency contained in
the Pass Through Certificates of any series, the Basic Agreement, any
Trust Supplement, any Note Purchase Agreement or any intercreditor,
subordination or like agreement or any liquidity facility or other credit
enhancement agreement or any AMR Guarantee;
- make or modify any other provisions with respect to matters or questions
arising under the Pass Through Certificates of any series, the Basic
Agreement, any Trust Supplement, any Note Purchase Agreement or any
intercreditor, subordination or like agreement or any liquidity facility
or other credit enhancement agreement or any AMR Guarantee as the Company
may deem necessary or desirable and that will not materially adversely
affect the interests of the holders of the series of Pass Through
Certificates issued under such Trust Supplement;
- comply with any requirement of the Commission, any applicable law, rules
or regulations of any exchange or quotation system on which any Pass
Through Certificates may be listed or of any regulatory body;
- modify, eliminate or add to the provisions of the Basic Agreement or any
intercreditor, subordination or like agreement or any liquidity facility
or other credit enhancement agreement or any AMR Guarantee to the extent
necessary to continue or obtain the qualification of the Basic Agreement
(including any supplemental agreement) or any such agreement or facility
or other agreement or any AMR Guarantee under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act") and add to the Basic
Agreement or any intercreditor, subordination or like agreement or any
liquidity facility or other credit enhancement agreement such other
provisions as may be expressly permitted by the Trust Indenture Act;
- provide for a successor Trustee for some or all of the Trusts or add to
or change any provision of the Basic Agreement or any intercreditor,
subordination or like agreement or any liquidity facility or other credit
enhancement agreement or any AMR Guarantee as necessary to facilitate the
administration of the Trusts thereunder by more than one Trustee or to
provide multiple liquidity facilities or other credit enhancements for
any Trust or Trusts;
- provide certain information to the Trustee as required in the Basic
Agreement;
- add to or change the Pass Through Certificates of any series, the Basic
Agreement and any Trust Supplement to facilitate the issuance of any Pass
Through Certificates of such series in bearer form or to facilitate or
provide for the issuance of any Pass Through Certificates of such series
in global form in addition to or in place of Pass Through Certificates of
such series in certificated form;
- provide for the delivery of Pass Through Certificates or any supplement
to the Basic Agreement in or by means of any computerized, electronic or
other medium, including computer diskette;
17
- correct or supplement the description of any property of any Trust;
- modify, eliminate or add to the provisions of the Basic Agreement, any
applicable Trust Supplement or any applicable Note Purchase Agreement to
reflect the substitution of a substitute aircraft for any Aircraft; and
- make any other amendments or modifications to the Basic Agreement,
provided such amendments or modifications will only apply to Pass Through
Certificates of one or more series to be issued thereafter;
provided, however, that unless we tell you otherwise in the applicable
Prospectus Supplement, unless there shall have been obtained from certain rating
agencies written confirmation that such supplement would not result in a
reduction of the then current rating for Pass Through Certificates of the
relevant Trust or a withdrawal or suspension of the rating of any class of Pass
Through Certificates, American shall provide the Trustee of the relevant Trust
with an opinion of counsel to the effect that such supplement will not cause
such Trust to be treated as other than a grantor trust for U.S. federal income
tax purposes unless an Event of Default shall have occurred and be continuing,
in which case such opinion shall be to the effect that such supplement will not
cause such Trust to become an association taxable as a corporation for U.S.
federal income tax purposes.
The Basic Agreement also contains provisions permitting American and the
Trustee of each Trust, with the consent of the Certificateholders of such Trust
evidencing fractional undivided interests aggregating not less than a majority
in interest of such Trust and, in the case of Leased Aircraft, with the consent
of the Owner Trustee, to execute supplemental agreements adding any provisions
to or changing or eliminating any of the provisions of the Basic Agreement, to
the extent relating to such Trust, the applicable Trust Supplement or any
applicable intercreditor, subordination or like agreement or any liquidity
facility or other credit enhancement agreement, or modifying the rights of such
Certificateholders, except that no such supplemental agreement may, without the
consent of the holder of each such Pass Through Certificate so affected, (a)
reduce in any manner the amount of, or delay the timing of, any receipt by the
Trustee of payments on the Equipment Notes held in such Trust, or distributions
in respect of any Pass Through Certificate of such Trust, or change any date or
place of payment or change the coin or currency in which such Pass Through
Certificate is payable, other than that provided for in such Pass Through
Certificate, or impair the right of any Certificateholder of such Trust to
institute suit for the enforcement of any such payment when due, (b) permit the
disposition of any Equipment Note held in such Trust, except as provided in the
Basic Agreement or the applicable Trust Supplement or in any intercreditor,
subordination or like agreement or any liquidity facility or other credit
enhancement agreement, (c) alter the priority of distributions specified in the
relevant intercreditor agreement, if any, in a manner materially adverse to the
holders of Pass Through Certificates of such series, or (d) reduce the
percentage of the aggregate fractional undivided interests of the Trust provided
for in the Basic Agreement or the applicable Trust Supplement, the consent of
the holders of which is required for any such supplemental agreement or for any
waiver provided for in the Basic Agreement or such Trust Supplement.
MODIFICATION OF INDENTURE AND RELATED AGREEMENTS
The Prospectus Supplement will specify the Trustee's obligations in the
event that the Trustee, as the holder of any Equipment Notes held in a Trust,
receives a request for its consent to any amendment or modification of or waiver
under the Indenture or other documents relating to such Equipment Notes
(including any Lease with respect to Leased Aircraft Notes).
TERMINATION OF THE TRUSTS
The obligations of American and the Trustee with respect to a Trust will
terminate upon the distribution to Certificateholders of such Trust of all
amounts required to be distributed to them pursuant to the Basic Agreement and
the applicable Trust Supplement and the disposition of all property held in such
Trust. The Trustee will mail to each Certificateholder of record of such Trust
notice of the termination of such Trust, the amount of the proposed final
payment and the proposed date for the
18
distribution of such final payment for such Trust. The final distribution to any
Certificateholder of such Trust will be made only upon surrender of such
Certificateholder's Pass Through Certificates at the office or agency of the
Trustee specified in such notice of termination.
DELAYED PURCHASE OF EQUIPMENT NOTES
In the event that, on the issuance date of any Pass Through Certificates,
all of the proceeds from the sale of such Pass Through Certificates are not used
to purchase the Equipment Notes contemplated to be held in the related Trust,
such Equipment Notes may be purchased by the Trustee at any time on or prior to
the date specified in the applicable Prospectus Supplement. In such event, the
proceeds from the sale of such Pass Through Certificates not used to purchase
Equipment Notes will be held under an arrangement described in the applicable
Prospectus Supplement. Such an arrangement may include, without limitation, (1)
the investment of such proceeds by the Trustee in specified permitted
investments; (2) the deposit of such proceeds in a deposit or escrow account
held by a separate depositary or escrow agent; (3) the purchase by the Trustee
of debt instruments issued on an interim basis by American; or (4) the purchase
of Leased Aircraft Notes or Owned Aircraft Notes issued prior to the purchase of
Leased Aircraft or the delivery of Owned Aircraft, as the case may be. Any such
debt instrument may be secured by a collateral account or other security or
property described in the applicable Prospectus Supplement. The arrangements
with respect to the payment of interest on funds so held will be described in
the applicable Prospectus Supplement. If any such proceeds are not subsequently
utilized to purchase Equipment Notes by the relevant date specified in the
applicable Prospectus Supplement, including by reason of a casualty to one or
more Aircraft, such proceeds will be returned to the holders of such Pass
Through Certificates.
MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
American will be prohibited from consolidating with or merging into any
other entity or transferring substantially all of its assets as an entirety to
any other entity unless, in the case of a merger or consolidation where American
is not the surviving entity or in the case of the transfer of substantially all
of American's assets, the successor or transferee entity shall be organized and
existing under the laws of the United States or any State or the District of
Columbia and shall expressly assume all the obligations of American contained in
the Basic Agreement.
THE TRUSTEE
Unless otherwise provided in the Prospectus Supplement for any series of
Pass Through Certificates, State Street Bank and Trust Company of Connecticut,
National Association, will be the Trustee for each of the Trusts. With certain
exceptions, the Trustee will make no representations as to the validity or
sufficiency of the Basic Agreement, the Trust Supplements, the Pass Through
Certificates, the Equipment Notes, the Indentures, the Leases, if any, or other
related documents. The Trustee will not be liable with respect to any series of
Pass Through Certificates for any action taken or omitted to be taken by it in
good faith in accordance with the direction of the holders of a majority in face
amount of outstanding Pass Through Certificates of such series issued under the
Basic Agreement. Subject to such provisions, such Trustee will be under no
obligation to exercise any of its rights or powers under the Basic Agreement at
the request of any holders of Pass Through Certificates issued thereunder unless
they have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by the Trustee in
exercising such rights or powers. The Basic Agreement provides that the Trustee
in its individual or any other capacity may acquire and hold Pass Through
Certificates issued thereunder and, subject to certain conditions, may otherwise
deal with AMR and American and, with respect to the Leased Aircraft, with any
Owner Trustee and Owner Participant with the same rights it would have if it
were not the Trustee.
Unless otherwise provided in the Prospectus Supplement for any series of
Pass Through Certificates, State Street Bank and Trust Company of Connecticut,
National Association, will also be the Loan Trustee of the Indentures under
which the Equipment Notes are issued. It also serves as indenture trustee and as
pass through trustee in numerous other aircraft financing transactions involving
American.
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The Trustee may resign with respect to any or all of the Trusts at any
time, in which event American will be obligated to appoint a successor trustee.
If the Trustee ceases to be eligible to continue as Trustee with respect to a
Trust or becomes incapable of acting as Trustee or becomes insolvent, American
may remove such Trustee, or any holder of Pass Through Certificates of such
Trust for at least six months may, on behalf of itself and all others similarly
situated, petition any court of competent jurisdiction for the removal of such
Trustee and the appointment of a successor trustee. Any resignation or removal
of the Trustee with respect to a Trust and appointment of the successor trustee
for such Trust does not become effective until acceptance of the appointment by
the successor trustee. Pursuant to such resignation and successor trustee
provisions, it is possible that a different trustee could be appointed to act as
the successor trustee with respect to each Trust. All references in this
Prospectus to the Trustee are to the trustee acting in such capacity under each
of the Trusts and should be read to take into account the possibility that each
of the Trusts could have a different successor trustee in the event of such a
resignation or removal.
The Basic Agreement provides that American will pay the Trustee's fees and
expenses and indemnify the Trustee against certain liabilities. In certain
circumstances, the Trustee will have a priority claim on the related Trust
Property to the extent such fees, expenses or indemnities are not paid.
DESCRIPTION OF THE EQUIPMENT NOTES
The following description is a summary of certain terms that we expect will
be common to all Equipment Notes. Where no distinction is made between the
Leased Aircraft Notes and the Owned Aircraft Notes or between their respective
Indentures, such statements refer to any Equipment Notes and any Indenture. Most
of the financial terms and other specific terms of any series of Equipment Notes
will be described in a Prospectus Supplement to be attached to this Prospectus.
Since the terms of the specific Equipment Notes may differ from the general
information provided below, you should rely on the information in the Prospectus
Supplement instead of the information in this Prospectus if the information in
the Prospectus Supplement is different from the information below.
Because the following description is a summary, it does not describe every
aspect of the Equipment Notes, and it is subject to and qualified in its
entirety by reference to all the provisions of the applicable Equipment Notes,
Indentures, Leases, Note Purchase Agreements, trust agreements, participation
agreements, intercreditor and subordination agreements, liquidity facilities or
other credit enhancement arrangements and other agreements and arrangements
relating to any series of Equipment Notes.
Additional provisions with respect to the Equipment Notes and the
associated aircraft financing transactions will be described in the applicable
Prospectus Supplement. To the extent that any provision in any Prospectus
Supplement is inconsistent with any provision in this summary, the provision in
such Prospectus Supplement will control.
GENERAL
The Equipment Notes will be issued under Indentures between (a) in the case
of Owned Aircraft Notes, the related Loan Trustee and American or (b) in the
case of Leased Aircraft Notes, the related Loan Trustee and the Owner Trustee of
a trust for the benefit of the Owner Participant who is the beneficial owner of
such Leased Aircraft.
American's obligations under each Indenture relating to an Owned Aircraft
and under the related Owned Aircraft Notes will be direct obligations of
American. All of the Owned Aircraft Notes issued under the same Indenture will
relate to, and will be secured by, one or more specific Owned Aircraft and,
unless otherwise specified in the applicable Prospectus Supplement, will not be
secured by any other Aircraft.
The Leased Aircraft Notes will be nonrecourse obligations of the Owner
Trustee. All of the Leased Aircraft Notes issued under the same Indenture will
relate to and will be secured by one or more specific Leased Aircraft and,
unless otherwise specified in the applicable Prospectus Supplement, will not be
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secured by any other Aircraft. In each case, the Owner Trustee will lease the
related Leased Aircraft to American pursuant to a separate Lease between such
Owner Trustee and American.
Equipment Notes may be issued pursuant to delayed aircraft financing
arrangements, such as the following:
- The Owner Trustee may issue Leased Aircraft Notes prior to the purchase
of the related Leased Aircraft by such Owner Trustee or the commencement
of the related Leases.
- American may issue Owned Aircraft Notes prior to the expected delivery
date of the related Owned Aircraft.
The applicable Prospectus Supplement will describe any such delayed
aircraft financing arrangements, including any arrangements for the
collateralization of any such Leased Aircraft Notes or Owned Aircraft Notes with
cash, permitted investments or other property, and any depositary or escrow
arrangement pursuant to which the proceeds from the sale of such Leased Aircraft
Notes or Owned Aircraft Notes will be deposited with a third party depositary or
escrow agent.
If the anticipated aircraft financing transactions have not been completed
by the relevant date specified in the applicable Prospectus Supplement,
including by reason of a casualty to one or more Aircraft, such Leased Aircraft
Notes or Owned Aircraft Notes will be prepaid at the price specified in such
Prospectus Supplement. Alternatively, if the Lease related to any such Leased
Aircraft Notes has not commenced by such relevant date, if so specified in the
applicable Prospectus Supplement, American at its option may convert the
proposed leveraged lease financing into a type of financing available for Owned
Aircraft and such Leased Aircraft Notes (with certain modifications) will become
Owned Aircraft Notes.
Upon the commencement of the Lease for any Leased Aircraft, American will
be obligated to make or cause to be made rental payments under such Lease that
will be sufficient to pay the principal of and accrued interest on the related
Leased Aircraft Notes when due, subject to some limited exceptions. The Leased
Aircraft Notes will not be direct obligations of, or guaranteed by, American.
American's rental obligations under each Lease, however, will be general
obligations of American.
If specified in a Prospectus Supplement, American will have the right (a)
to arrange a sale and leaseback of one or more Owned Aircraft referred to in
such Prospectus Supplement and the assumption, on a non-recourse basis, of the
related Owned Aircraft Notes by an Owner Trustee or (b) to substitute other
aircraft, cash or U.S. government securities or a combination thereof in place
of the Owned Aircraft securing the related Owned Aircraft Notes. The terms and
conditions of any such sale and leaseback or substitution will be described in
the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe any special financing or
refinancing arrangements with respect to any Aircraft, including whether a
separate trust or other entity will issue notes secured by Leased Aircraft
Notes.
PRINCIPAL AND INTEREST PAYMENTS
Interest received by the Trustee on the Equipment Notes held in each Trust
will be passed through to the Certificateholders of such Trust on the dates and
at the rate per annum set forth in the applicable Prospectus Supplement until
the final distribution date for such Trust. The Equipment Notes may bear
interest at a fixed or a floating rate or may be issued at a discount. Principal
payments received by the Trustee on the Equipment Notes held in each Trust will
be passed through to the Certificateholders of such Trust in scheduled amounts
on the dates set forth in the applicable Prospectus Supplement until the final
distribution date for such Trust. Payments on the Equipment Notes, and
distributions to Certificateholders, may be subject to the terms of any
intercreditor, subordination or similar agreement or arrangement.
If any date scheduled for any payment of principal of, premium, if any, or
interest on the Equipment Notes is not a business day, such payment may be made
on the next succeeding business day without any additional interest, unless
otherwise provided in the applicable Prospectus Supplement.
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REDEMPTION
The applicable Prospectus Supplement will describe the circumstances,
whether voluntary or involuntary, under which the related Equipment Notes will
or may be redeemed or purchased prior to the stated maturity thereof, whether in
whole or in part, the premium, if any, applicable to certain redemptions or
purchases and other terms applying to such redemptions or purchases.
SECURITY
The Owned Aircraft Notes will be secured by a security interest granted by
American to the related Loan Trustee in the related Owned Aircraft. Under the
terms of each Owned Aircraft Indenture, American will be obligated, among other
things, to pay all costs of operating and maintaining such Aircraft.
The Leased Aircraft Notes will be secured by:
- an assignment by the related Owner Trustee to the related Loan Trustee of
such Owner Trustee's rights (except for certain limited rights, including
those described below) under the Lease or Leases with respect to the
related Leased Aircraft, including the right to receive payments of rent
thereunder; and
- a security interest granted by such Owner Trustee to such Loan Trustee in
such Aircraft, subject to the rights of American under such Lease or
Leases, and other property or rights, if any, described in the applicable
Prospectus Supplement.
Unless and until an Indenture Event of Default with respect to a Leased
Aircraft has occurred and is continuing, the Loan Trustee may exercise only
limited rights of the Owner Trustee under the related Lease. The assignment by
the Owner Trustee to the Loan Trustee of its rights under the related Lease will
exclude, among other things, rights of such Owner Trustee and the related Owner
Participant relating to indemnification by American for certain matters,
insurance proceeds payable to such Owner Trustee in its individual capacity and
to such Owner Participant under liability insurance maintained by American under
such Lease or by such Owner Trustee or such Owner Participant, insurance
proceeds payable to such Owner Trustee in its individual capacity or to such
Owner Participant under certain casualty insurance maintained by such Owner
Trustee or such Owner Participant, any rights of such Owner Participant or such
Owner Trustee to enforce payment of the foregoing amounts and certain
reimbursement payments made by American to such Owner Trustee.
American's obligations in respect of each Leased Aircraft will be those of
a lessee under a "net lease." Accordingly, American will be obligated, among
other things, to pay all costs of operating and maintaining such Aircraft.
The Prospectus Supplement will describe the required insurance coverage
with respect to the Aircraft.
Unless otherwise specified in the applicable Prospectus Supplement, the
Equipment Notes will not be cross-collateralized and consequently the Equipment
Notes issued in respect of any one Aircraft will not be secured by any of the
other Aircraft (or any of the other security related thereto, including, in the
case of Leased Aircraft Notes, the Lease related to any other Aircraft).
Unless otherwise specified in the applicable Prospectus Supplement,
American will be permitted to register an Aircraft in certain jurisdictions
outside the United States, subject to certain conditions specified in the
related Indenture or the related Lease, as the case may be. These conditions may
include a requirement that the laws of the new jurisdiction of registration will
give effect to the lien of and the security interest created by the related
Indenture or the related Lease in the applicable Aircraft. American also will be
permitted, subject to certain limitations, to lease any Aircraft to any United
States certificated air carrier or to certain foreign air carriers. In addition,
subject to certain limitations, American will be permitted to transfer
possession of any Aircraft other than by lease, including transfers of
possession by American or any lessee in connection with certain interchange and
pooling arrangements, "wet leases" and transfers in connection with maintenance
or modifications and transfers to certain governments or any
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instrumentalities or agencies thereof. Unless otherwise specified in the
applicable Prospectus Supplement, there will be no general geographical
restrictions on American's (or any lessee's) ability to operate Aircraft. The
extent to which the relevant Loan Trustee's lien will be recognized in an
Aircraft if such Aircraft is located in certain countries is uncertain. In
addition, any exercise of the right to repossess an Aircraft may be difficult,
expensive and time consuming, particularly when such Aircraft is located outside
the United States or has been registered in a foreign jurisdiction or leased to
a foreign operator, and may be subject to the limitations and requirements of
applicable law, including the need to obtain consents or approvals for
deregistration or re-export of the Aircraft, which may be subject to delays and
political risk. When a defaulting lessee or other permitted transferee is the
subject of a bankruptcy, insolvency or similar event such as protective
administration, additional limitations may apply.
Funds, if any, held from time to time by the Loan Trustee with respect to
any Aircraft, including funds held as the result of an event of loss to such
Aircraft or termination of the Lease, if any, relating thereto, will be invested
and reinvested by such Loan Trustee, at the direction of American (except, with
respect to a Leased Aircraft, in the case of a Lease Event of Default under the
applicable Lease or, with respect to an Owned Aircraft, in the case of an
Indenture Event of Default under the applicable Indenture), in investments
described in the related Indenture. American will pay the amount of any net loss
resulting from any such investment directed by it.
In the case of Chapter 11 bankruptcy proceedings in which an air carrier is
a debtor, Section 1110 of the U.S. Bankruptcy Code ("Section 1110") provides
special rights to lessors and holders of security interests with respect to
"equipment" (as defined in Section 1110). Under Section 1110, the right of such
financing parties to take possession of such equipment in compliance with the
provisions of a lease or security agreement is not affected by any other
provision of the U.S. Bankruptcy Code or any power of the bankruptcy court. Such
right to take possession may not be exercised for 60 days following the date of
commencement of the reorganization proceedings. Thereafter, such right to take
possession may be exercised during such proceedings unless, within the 60-day
period or any longer period consented to by the relevant parties, the debtor
agrees to perform its future obligations and cures all existing and future
defaults on a timely basis. Defaults resulting solely from the financial
condition, bankruptcy, insolvency or reorganization of the debtor need not be
cured.
"Equipment" is defined in Section 1110, in part, as an aircraft, aircraft
engine, appliance or spare part (as defined in Section 40102 of Title 49 of the
United States Code) that is subject to a security interest granted by, or that
is leased to, a debtor that, at the time such transaction is entered into, holds
an air carrier operating certificate issued by the Secretary of Transportation
pursuant to Chapter 447 of Title 49 of the United States Code for aircraft
capable of carrying ten or more individuals or 6,000 pounds or more of cargo.
The Prospectus Supplement for each offering of Pass Through Certificates
will discuss the availability of Section 1110 with respect to the related
Aircraft.
ADDITIONAL NOTES
Under certain circumstances and conditions as described in the applicable
Prospectus Supplement, American may issue and sell, in the case of an Owned
Aircraft, or cause the Owner Trustee to issue and sell, in the case of a Leased
Aircraft, additional Equipment Notes (the "Additional Notes") relating to such
Aircraft, including for the purpose of financing certain modifications,
alterations, additions, improvements or replacement parts to or for such
Aircraft. The terms, conditions and designations of such Additional Notes will
be set forth in a supplement to the related Indenture.
PAYMENTS AND LIMITATION OF LIABILITY
Each Leased Aircraft will be leased by the related Owner Trustee to
American for a term expiring on a date not earlier than the latest maturity date
of the Leased Aircraft Notes issued with respect to such Leased Aircraft, unless
previously terminated as permitted by the terms of the related Lease. The basic
rent and certain other payments by American under each such Lease will be
assigned by the Owner
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Trustee under the related Indenture to the related Loan Trustee to provide the
funds necessary to pay principal of and interest due from such Owner Trustee on
the Leased Aircraft Notes issued under such Indenture. In certain cases, the
rent and other mandatory payments under a Lease may be adjusted, but each Lease
will provide that under no circumstances will rent and other mandatory payments
by American be less than the scheduled payments of principal and interest on the
related Leased Aircraft Notes. The balance of any basic rent payments under each
Lease, after payment of amounts due on the Leased Aircraft Notes issued under
the Indenture relating to such Lease, will be paid over to the related Owner
Trustee. American's obligation to pay rent and to cause other payments to be
made under each Lease will be general obligations of American.
Except when American purchases a Leased Aircraft and assumes the Leased
Aircraft Notes related thereto, the Leased Aircraft Notes will not be
obligations of, or guaranteed by, American. Neither the Owner Trustee nor the
Owner Participant nor the Loan Trustee will be personally liable to any holder
of any Leased Aircraft Notes for any amounts payable thereunder, or, except as
provided in the Indenture relating thereto in the case of the Owner Trustee and
the Loan Trustee, for any liability under such Indenture. Except when American
has assumed any Leased Aircraft Notes, all amounts payable under any Leased
Aircraft Notes (other than payments made in connection with an optional
redemption or purchase of Leased Aircraft Notes by the related Owner Trustee or
the related Owner Participant) will be made only from the assets subject to the
lien of the Indenture with respect to such Aircraft and their proceeds
(including rent payable by American under the Lease with respect to such Leased
Aircraft), or from any applicable liquidity facility or other credit enhancement
arrangement.
American's obligations under each Owned Aircraft Indenture and under the
Owned Aircraft Notes will be general obligations of American.
DEFEASANCE OF THE INDENTURES AND THE EQUIPMENT NOTES IN CERTAIN CIRCUMSTANCES
Unless otherwise specified in the applicable Prospectus Supplement, the
obligations under the applicable Indenture of, with respect to any Leased
Aircraft Notes, the related Owner Trustee or, with respect to any Owned Aircraft
Notes, American will be deemed to have been discharged (except for certain
obligations, including the obligations to register the transfer or exchange of
Equipment Notes, to replace stolen, lost, destroyed or mutilated Equipment Notes
and to maintain paying agencies and hold money for payment in trust) on the date
of irrevocable deposit with the related Loan Trustee of money or certain
obligations of the United States or any agency or instrumentality thereof the
payment of which is backed by the full faith and credit of the United States
which, through the payment of principal and interest in respect thereof in
accordance with their terms, will provide money in an aggregate amount
sufficient to pay when due (including as a consequence of redemption in respect
of which notice is given on or prior to the date of such deposit) principal of,
premium, if any, and interest on all Equipment Notes issued thereunder in
accordance with the terms of such Indenture. Such discharge may occur only if,
among other things, there has been a change in federal tax law as in effect on
the date of this Prospectus or there has been published by the Internal Revenue
Service a ruling to the effect that holders of such Equipment Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit, defeasance and discharge and will be subject to federal income tax
on the same amounts and in the same manner and at the same times as would have
been the case if such deposit, defeasance and discharge had not occurred.
Upon such defeasance, or upon payment in full of the principal of, premium,
if any, and interest on all Equipment Notes issued under any Indenture on the
maturity date therefor or deposit with the applicable Loan Trustee of money
sufficient therefor no earlier than one year prior to the date of such maturity,
the holders of such Equipment Notes will have no beneficial interest in or other
rights with respect to the related Aircraft or other assets subject to the lien
of such Indenture and such lien will terminate.
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ASSUMPTION OF OBLIGATIONS BY AMERICAN
If specified in the applicable Prospectus Supplement with respect to any
Leased Aircraft, American may purchase such Leased Aircraft prior to the end of
the term of the related Lease and, in connection with such purchase, may assume
on a full recourse basis all of the obligations of the Owner Trustee (other than
its obligations in its individual capacity) under the Indenture with respect to
such Aircraft, including the obligations to make payments in respect of the
related Leased Aircraft Notes. In such event, certain relevant provisions of the
related Lease, including (among others) provisions relating to maintenance,
possession and use of the related Aircraft, liens, insurance and events of
default will be incorporated into such Indenture, and the Leased Aircraft Notes
issued under such Indenture will continue to be outstanding and secured by such
Aircraft. The terms and conditions of any such assumption will be described in
the applicable Prospectus Supplement.
OWNER PARTICIPANT; REVISIONS TO AGREEMENTS
If specified in the applicable Prospectus Supplement, at the time Pass
Through Certificates are issued, American may still be seeking Owner
Participants with respect to the trusts relating to certain of the Aircraft.
American or an affiliate will hold the beneficial interest under the trust
agreement relating to each such Aircraft until the date upon which a prospective
Owner Participant commits to participate in the purchase price of such Aircraft.
Any outside limit on such date will be specified in the applicable Prospectus
Supplement. American or its affiliate will transfer to such Owner Participant on
such date American's or such affiliate's beneficial interest under such trust
agreement. Such prospective Owner Participants may request revisions to the
participation agreement, Lease, trust agreement and Indenture so that the terms
of such agreements applicable to these Aircraft may differ from the description
of such agreements contained in the applicable Prospectus Supplement. Such
Prospectus Supplement will describe the extent to which such terms can be varied
at the request of prospective Owner Participants.
CREDIT ENHANCEMENTS
RANKING; CROSS-SUBORDINATION
Some of the Equipment Notes related to a specific Aircraft may be
subordinated and junior in right of payment to other Equipment Notes or other
debt related to the same or certain related Aircraft. In such event, the
applicable Prospectus Supplement will describe the terms of such subordination,
including the priority of distributions among such classes of Equipment Notes,
the ability of each such class of Equipment Notes to exercise remedies with
respect to the relevant Aircraft (and, if such Aircraft are Leased Aircraft, the
Leases) and certain other intercreditor terms and provisions.
The Equipment Notes issued under an Indenture may be held in more than one
Trust, and a Trust may hold Equipment Notes issued under more than one related
Indenture. Unless otherwise described in a Prospectus Supplement, however, only
Equipment Notes having the same priority of payment may be held in the same
Trust. A Trust that holds Equipment Notes that are junior in payment priority to
the Equipment Notes held in another related Trust formed as part of the same
offering of Pass Through Certificates as a practical matter will be subordinated
to such latter Trust. In addition, the Trustees on behalf of one or more Trusts
may enter into an intercreditor or subordination agreement that establishes
priorities among series of Pass Through Certificates or provides that
distributions on the Pass Through Certificates will be made to the
Certificateholders of a certain Trust or Trusts before they are made to the
Certificateholders of one or more other Trusts. For example, such an agreement
may provide that payments made to a Trust on account of a subordinate class of
Equipment Notes issued under one Indenture may be subordinated to the prior
payment of all amounts owing to Certificateholders of a Trust that holds senior
Equipment Notes issued under that Indenture or any related Indentures.
The applicable Prospectus Supplement will describe any such intercreditor
or subordination agreement or arrangements and the relevant cross-subordination
provisions. Such description will specify the percentage of Certificateholders
under any Trust that is permitted to (1) grant waivers of defaults under
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any related Indenture, (2) consent to the amendment or modification of any
related Indenture or (3) direct the exercise of remedies under any related
Indenture. Payments made on account of the Pass Through Certificates of a
particular series also may be subordinated to the rights of the provider of any
Liquidity Facility described below.
LIQUIDITY FACILITY
The applicable Prospectus Supplement may provide that a "Liquidity
Facility" will support, insure or guarantee one or more payments of principal,
premium, if any, or interest on the Equipment Notes of one or more series, or
one or more distributions in respect of the Pass Through Certificates of one or
more series. A Liquidity Facility may include a letter of credit, a bank
guarantee, a revolving credit agreement, an insurance policy, surety bond or
financial guarantee, or any other type of agreement or arrangement for the
provision of insurance, a guarantee or other credit enhancement or liquidity
support. In addition, if any Equipment Notes bear interest at a floating rate,
there may be a cap or swap agreement or other arrangement in case the interest
rate becomes higher than is covered by the Liquidity Facility. The institution
or institutions providing any Liquidity Facility will be identified in the
applicable Prospectus Supplement. Unless otherwise provided in the applicable
Prospectus Supplement, the provider of any Liquidity Facility will have a senior
claim on the assets securing the affected Equipment Notes and on the Trust
Property of the affected Trusts.
GUARANTEE OF AMR CORPORATION
Our parent, AMR Corporation, may guarantee unconditionally, with respect to
Leased Aircraft, the full and prompt payment of any or all amounts payable by us
under the related Leases when and as such amounts become due and payable and,
with respect to Owned Aircraft, the full and prompt payment of principal of,
premium, if any, and interest on the related Owned Aircraft Notes, when and as
such amounts become due, whether by acceleration or otherwise. If AMR Guarantees
such obligations, we will tell you in the applicable Prospectus Supplement and
describe the terms of the guarantee in the applicable Prospectus Supplement.
Unless we tell you otherwise in the applicable Prospectus Supplement, such
guarantee will be enforceable without any need to first enforce any related
Lease or any related Owned Aircraft Note against American, and will be an
unsecured obligation of AMR.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the principal federal income tax
consequences of the purchase, ownership and disposition of Pass Through
Certificates with respect to a Certificate Owner that purchases Pass Through
Certificates in the initial offering thereof at the offering price set forth in
the applicable Prospectus Supplement and holds such Pass Through Certificates as
capital assets. This discussion should be read in conjunction with any
additional discussion of federal income tax consequences included in the
applicable Prospectus Supplement. The discussion is based on laws, regulations,
rulings and decisions in effect as of the date hereof, all of which are subject
to change, possibly with retroactive effect, or different interpretation. The
discussion does not address all of the federal income tax consequences that may
be relevant to all Certificate Owners in light of their particular circumstances
(including, for example, any special rules applicable to tax-exempt
organizations, broker-dealers, insurance companies and foreign investors). The
statements of law and legal conclusion set forth herein are based upon the
opinion of Debevoise & Plimpton, counsel to American. Persons considering an
investment in the Pass Through Certificates should consult their own tax
advisors regarding the federal, state, local and any other tax consequences to
them of the purchase, ownership and disposition of Pass Through Certificates in
light of their own particular circumstances. The Trusts are not indemnified for
any federal income taxes or, with certain exceptions, other taxes that may be
imposed upon them, and the imposition of any such taxes on a Trust could result
in a reduction in the amounts available for distribution to the Certificate
Owners of such Trust.
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TAX STATUS OF THE TRUSTS
The Trusts will not be classified as associations (or publicly traded
partnerships) taxable as corporations for federal income tax purposes and will
not be subject to federal income tax. Except to the extent discussed in the
applicable Prospectus Supplement, although there is no authority addressing the
classification of entities that are similar to the Trusts in all respects, based
upon an interpretation of analogous authorities, each Trust should be classified
as a grantor trust for federal income tax purposes. The discussion below assumes
that the Trusts will be classified as grantor trusts and that each Trust will
file federal income tax returns and report to investors on the basis that it is
a grantor trust.
TAXATION OF CERTIFICATE HOLDERS GENERALLY
Each Certificate Owner will be treated as the owner of a pro rata undivided
interest in each Equipment Note and any other property held in the related Trust
and will be required to report on its federal income tax return its pro rata
share of the entire income from each of the Equipment Notes and any other
property held in the related Trust, in accordance with such Certificate Owner's
method of accounting. A Certificate Owner using the cash method of accounting
must take into account its pro rata share of income as and when received by the
Trustee. A Certificate Owner using an accrual method of accounting must take
into account its pro rata share of income as it accrues or is received by the
Trustee, whichever is earlier.
SALES OF PASS THROUGH CERTIFICATES
A Certificate Owner that sells a Pass Through Certificate will recognize
capital gain or loss (in the aggregate) equal to the difference between the
amount realized on the sale (except to the extent attributable to accrued
interest, which will be taxable as interest income if not previously included in
income) and such Certificate Owner's adjusted tax basis in the Pass Through
Certificate. Any such gain or loss generally will be long-term capital gain or
loss if the Pass Through Certificate was held for more than one year (except to
the extent attributable to any property held by the related Trust for one year
or less). Any long-term capital gains with respect to the Pass Through
Certificates are taxable to corporate taxpayers at the rates applicable to
ordinary income and to individual taxpayers at a maximum rate of 20%. Any
capital losses will be deductible by corporate taxpayers only to the extent of
capital gains and by an individual taxpayer only to the extent of capital gains
plus a limited amount of other income.
BOND PREMIUM
A Certificate Owner generally will be considered to have acquired an
interest in an Equipment Note held in the related Trust at a bond premium to the
extent such Certificate Owner's tax basis allocable to such Equipment Note
exceeds the remaining principal amount of the Equipment Note allocable to such
Certificate Owner's Pass Through Certificate. In that event, a Certificate Owner
may, in certain circumstances, be able to amortize that bond premium (generally
on a constant yield basis) as an offset to interest income with corresponding
reductions in such Certificate Owner's tax basis in such Equipment Note. Special
rules apply to an Equipment Note that may be called at a redemption premium
prior to maturity. It is unclear how these rules apply to an Equipment Note when
there is more than one possible call date and the amount of any redemption
premium is uncertain. Certificate Owners should consult their own tax advisors
regarding the advisability and consequences of an election to amortize any bond
premium with respect to the Equipment Notes.
ORIGINAL ISSUE DISCOUNT
Except to the extent specified in the applicable Prospectus Supplement, the
Equipment Notes will not be issued with original issue discount unless certain
aggregation rules set forth in the Treasury regulations apply. Under those
rules, if one investor purchases Pass Through Certificates issued by more than
one Trust, certain of that investor's interests in the Equipment Notes in those
Trusts must in certain circumstances be treated together as a single debt
instrument, which, for purposes of calculating and
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amortizing any original issue discount, has a single issue price, maturity date,
stated redemption price at maturity and yield to maturity. If the aggregation
rules apply to an investor, such Equipment Notes could be treated with respect
to such investor as having been issued with original issue discount. Generally,
a holder of a debt instrument issued with original issue discount that is not de
minimis must include such original issue discount in income for federal income
tax purposes as it accrues, in advance of the receipt of the cash attributable
to such income, under a method that takes into account the compounding of
interest. Certificate Owners should consult their own tax advisors regarding the
aggregation rules.
BACKUP WITHHOLDING
Payments made on Pass Through Certificates, and proceeds from the sale of
Pass Through Certificates to or through certain brokers, may be subject to a
"backup" withholding tax at a rate of 30% in 2002 and 2003, 29% in 2004 and
2005, 28% in 2006 through 2010 and 31% thereafter, unless the Certificate Owner
complies with certain reporting procedures or is exempt from such requirements.
Any such withheld amounts will be allowed as a credit against the Certificate
Owner's federal income tax and may entitle such Certificate Owner to a refund if
the required information is furnished to the Internal Revenue Service. Certain
penalties may be imposed by the Internal Revenue Service on a Certificate Owner
who is required to supply information but who does not do so in the proper
manner.
CERTAIN CONNECTICUT TAXES
The Trustee is a national banking association with its corporate trust
office in Connecticut. Bingham Dana LLP, counsel to the Trustee, has advised
American that, in its opinion, under currently applicable law, assuming that
each Trust will not be taxable as a corporation for federal income tax purposes,
but, rather, will be classified for such purposes as a grantor trust or as a
partnership, (i) the Trusts will not be subject to any tax (including, without
limitation, net or gross income, tangible or intangible property, net worth,
capital, franchise or doing business tax), fee or other governmental charge
under the laws of the State of Connecticut or any political subdivision thereof
and (ii) Certificate Owners that are not residents of or otherwise subject to
tax in Connecticut will not be subject to any tax (including, without
limitation, net or gross income, tangible or intangible property, net worth,
capital, franchise or doing business tax), fee or other governmental charge
under the laws of the State of Connecticut or any political subdivision thereof
as a result of purchasing, owning (including receiving payments with respect to)
or selling a Pass Through Certificate. Neither the Trusts nor the Certificate
Owners will be indemnified for any state or local taxes imposed on them, and the
imposition of any such taxes on a Trust could result in a reduction in the
amounts available for distribution to the Certificate Owners of such Trust. In
general, should a Certificate Owner or a Trust be subject to any state or local
tax that would not be imposed if the Trust were administered in a different
jurisdiction in the United States or if the Trustee were located in a different
jurisdiction in the United States, the Trustee will either relocate the
administration of the Trust to such other jurisdiction or resign and, in the
event of such a resignation, a new Trustee in such other jurisdiction will be
appointed.
ERISA CONSIDERATIONS
Unless otherwise indicated in the applicable Prospectus Supplement, Pass
Through Certificates may, subject to certain legal restrictions, be purchased
and held by an employee benefit plan (a "Plan") subject to Title I of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or an
individual retirement account or an employee benefit plan subject to section
4975 of the Internal Revenue Code. A fiduciary of a Plan must determine that the
purchase and holding of a Pass Through Certificate is consistent with its
fiduciary duties under ERISA and does not result in a non-exempt prohibited
transaction as defined in Section 406 of ERISA or Section 4975 of the Internal
Revenue Code. Employee benefit plans which are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to the fiduciary responsibility provisions of ERISA. The
Certificates may, subject to certain legal restrictions, be purchased and held
by such plans.
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PLAN OF DISTRIBUTION
We may sell Pass Through Certificates from time to time in one or more
transactions. We may sell the Pass Through Certificates of or within any series
to or through agents, underwriters or dealers or directly to one or more
purchasers.
AGENTS
We may use agents to sell Pass Through Certificates. Unless we tell you
otherwise in the applicable Prospectus Supplement, the agents will agree to use
their reasonable best efforts to solicit purchases for the period of their
appointment.
UNDERWRITERS
We may sell Pass Through Certificates to underwriters. Unless we tell you
otherwise in the applicable Prospectus Supplement, the underwriters may resell
those Pass Through Certificates in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale. The obligations of the underwriters to purchase
such Pass Through Certificates will be subject to certain conditions. Each
underwriter will be obligated to purchase all the Pass Through Certificates
allocated to it under the underwriting agreement. The underwriters may change
any initial public offering price and any discounts or concessions they give to
dealers.
DIRECT SALES
We may sell Pass Through Certificates directly to purchasers without the
involvement of underwriters or agents.
OTHER MEANS OF DISTRIBUTION
Pass Through Certificates may also be offered and sold, if we so indicate
in the applicable Prospectus Supplement, by one or more firms ("remarketing
firms") acting as dealers or as agents for American in connection with a
remarketing of such Pass Through Certificates following their purchase or
redemption.
If we so indicate in the applicable Prospectus Supplement, we may authorize
agents, underwriters or dealers to solicit offers by certain institutions to
purchase Pass Through Certificates from American pursuant to delayed delivery
contracts providing for payment and delivery at a future date.
GENERAL INFORMATION
Any underwriters, agents or remarketing firms will be identified and their
compensation described in a Prospectus Supplement.
Unless we tell you otherwise in the applicable Prospectus Supplement, we do
not intend to apply for listing of the Pass Through Certificates on a national
securities exchange.
We may have agreements with any underwriters, dealers, agents and
remarketing firms to indemnify them against certain civil liabilities, including
liabilities under the Securities Act of 1933 (the "Act"), or to contribute with
respect to payments they may be required to make.
Any underwriters, dealers, agents and remarketing firms may engage in
transactions with, or perform services for, AMR, American or our affiliates in
the ordinary course of their business.
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LEGAL OPINIONS
Unless we tell you otherwise in the applicable Prospectus Supplement, the
validity of the securities offered hereby will be passed upon for American by
Debevoise & Plimpton, New York, New York and for any agents, underwriters or
dealers by Shearman & Sterling, New York, New York. Unless we tell you otherwise
in the applicable Prospectus Supplement, Debevoise & Plimpton and Shearman &
Sterling will rely on the opinion of counsel for the Trustee as to certain
matters relating to the authorization, execution and delivery of such Pass
Through Certificates by, and the valid and binding effect thereof on, such
Trustee and on the opinion of the General Counsel of American and of AMR as to
certain matters relating to the authorization, execution and delivery of the
Basic Agreement by American and of any guarantee by AMR. Shearman & Sterling
from time to time represents American and AMR with respect to certain matters.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements and schedule of AMR and American included in AMR's and
American's Annual Reports on Form 10-K for the year ended December 31, 2001, as
set forth in their reports, which are incorporated by reference in this
Prospectus and elsewhere in the registration statement of which it is a part.
Such consolidated financial statements and schedules are incorporated by
reference herein in reliance on Ernst & Young LLP's reports, given on their
authority as experts in accounting and auditing.
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$254,863,000
(AMERICAN AIRLINES LOGO)
2003-1 PASS THROUGH TRUSTS
PASS THROUGH CERTIFICATES, SERIES 2003-1
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PROSPECTUS SUPPLEMENT
, 2003
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CITIGROUP
JPMORGAN
MERRILL LYNCH & CO.
MORGAN STANLEY
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