AMR Corp. seeks court permission to buy 400 aircraft worth $38 billion

BY D.R. STEWART World Staff Writer
Wednesday, January 23, 2013
1/23/13 at 7:17 AM

Lawyers for bankrupt American Airlines parent AMR Corp. will ask a bankruptcy judge on Wednesday to approve restructured purchase agreements with Boeing Co. and Airbus SAS for more than 400 aircraft and engines worth an estimated $38 billion.

Originally negotiated in July 2011, four months before AMR filed its Chapter 11 bankruptcy petition, the purchase agreements for 260 Airbus A320 aircraft and 200 Boeing 737s are the largest commercial aircraft order in history and the key to American's restructuring, company officials said.

AMR also will ask the court to approve its entry into a purchase agreement with Boeing for Boeing 737 MAX aircraft, certain financing commitments for Boeing 787-8 and 787-9 aircraft, Boeing 737-8 aircraft and the assumption of other aircraft spare parts, support and services agreements.

"The restructured aircraft purchase agreements will provide for certain concessions and savings to American in connection with the acquisition by American of the 737 aircraft, the 787 aircraft and aircraft spare parts," AMR said in a recent filing with the Securities and Exchange Commission. "The restructured aircraft purchase agreements will also provide for the substitution of up to 20 787-8 aircraft for 787-9 aircraft, an accelerated delivery schedule for the 787 aircraft with deliveries scheduled to commence in November 2014 and to continue in each calendar year through September 2018, and the confirmation of the purchase of the 787 aircraft, which previously had been subject to certain reconfirmation rights."

Under the restructured purchase agreements as of Jan. 31, American will have firm orders for 111 Boeing 737 jets, 18 Boeing 777s and 42 Boeing 787s, with the option to purchase 40 737s, 13 777s and 58 787s, SEC documents say.

Company officials said American is not deterred by the rash of overheating batteries on Boeing 787s that has caused the Federal Aviation Administration to ground the plane.

"First (787) delivery is scheduled for late 2014," a company official said. "We have time."

Today, American's fleet averages 15 years old, one of the oldest in the industry.

By acquiring new planes, American executives hope to reduce the airline's 2012 jet fuel costs of $8.7 billion, 26 percent more than the company spent for wages, salaries and benefits last year, as well as increasing its appeal to business and leisure travelers.

By 2017, American's mainline fleet is expected to be the youngest among U.S. network carriers, 35 percent more fuel efficient than its present fleet and capable of matching aircraft size to demand in its various markets, company executives said.

The Boeing and Airbus deals include $13 billion in financing through lease transactions that AMR said would cover the cost of the first 230 deliveries, beginning this year.

AMR's proposed assumption of the restructured purchase agreements and related contracts include settlements of claims against AMR by Boeing and its affiliates, court documents show.

AMR executives said the agreements will be valid regardless if AMR merges with another airline before or after it emerges from bankruptcy, court documents say.

"New, fuel-efficient aircraft will allow the debtors to lower costs and enable them to fully compete for their share of "high value" (business) customers and maximize their revenues, thereby assuring their long-term viability and profitability," AMR said in court documents. "The debtor's fleet plan is a fundamental element of their business plan and their successful emergence from Chapter 11.

"Further, the debtors' plans for the purchase of aircraft over the next several years would not be altered in any material respect by any potential strategic alternatives, whether pursued as part of these reorganization cases or thereafter."

AMR's four motions before U.S. Bankruptcy Judge Sean Lane are supported by the aircraft and engine manufacturers Boeing, Airbus, General Electric, Rolls-Royce and IAE, court document show.

Original Print Headline: AMR Corp. wants to buy 400 aircraft

D.R. Stewart 918-581-8451
don.stewart@tulsaworld.com