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 SEPTEMBER 16, 2002
PROSPECTUS SUPPLEMENT
TO PROSPECTUS DATED MARCH 21, 2002
$617,000,000
[AMERICAN AIRLINES 2-COLOR LOGO]
2002-1 PASS THROUGH TRUSTS
PASS THROUGH CERTIFICATES, SERIES 2002-1
------------------
American Airlines, Inc. is issuing, through three separate trusts, Class G,
Class C, and Class D Pass Through Certificates, Series 2002-1. 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 related
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 related trust and do not represent interests in
or obligations of American or any of its affiliates. Application will be made to
list the Class G Certificates on the Luxembourg Stock Exchange. The Class C and
D Certificates will not be listed on any securities exchange.
The equipment notes will be issued for each of 19 Boeing aircraft delivered
to American from January 1995 through April 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 quarterly on each March 23, June 23,
September 23, and December 23, beginning December 23, 2002. Principal payments
on the equipment notes held for the Class G and Class D Certificates will be
scheduled for payment on March 23, June 23, September 23, and December 23 in
certain years, beginning on March 23, 2003. The entire principal amount of the
equipment notes held for the Class C Certificates will be scheduled for payment
on September 23, 2007.
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 separate primary liquidity facility for each of the Class G
and Class C Certificates. There will also be an above-cap liquidity facility for
the Class G Certificates. The primary liquidity facilities, together with the
above-cap liquidity facility in the case of the Class G Certificates, are
expected to provide an amount sufficient to make six quarterly interest
distributions on the Certificates of the applicable Class. There will be no
liquidity facility for the Class D Certificates.
MBIA Insurance Corporation will issue a financial 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 their Final Legal Distribution Date and under certain other
circumstances as described herein.
[MBIA LOGO]
INVESTING IN THE CERTIFICATES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE S-19.
PASS THROUGH FINAL EXPECTED PRICE TO
CERTIFICATES FACE AMOUNT INTEREST RATE DISTRIBUTION DATE PUBLIC(1)
------------ ------------ ------------- ------------------ ---------
Class G $617,000,000 USD 3-month LIBOR + % September 23, 2007 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 $617,000,000. American will pay the underwriters a commission of $ .
Delivery of the Class G Certificates in book-entry form will be made on or about
September , 2002 against payment in immediately available funds.
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.
SALOMON SMITH BARNEY JP MORGAN
------------------
CREDIT SUISSE FIRST BOSTON
MERRILL LYNCH & CO.
MORGAN STANLEY
The date of this Prospectus Supplement is September , 2002.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
PRESENTATION OF INFORMATION..........................................S-4
PROSPECTUS SUPPLEMENT SUMMARY........................................S-5
Summary of Terms of Certificates...................................S-5
Equipment Notes and the Aircraft...................................S-6
Loan to Aircraft Value Ratios......................................S-7
Cash Flow Structure................................................S-8
The Offering.......................................................S-9
Summary Historical Consolidated Financial and
Operating Data..................................................S-17
RISK FACTORS........................................................S-19
Terrorist Attacks of September 11, 2001...........................S-19
Certain Other Risk Factors Relating to American...................S-20
Risk Factors Relating to the Certificates and the
Offering........................................................S-21
Risk Factors Relating to the Policy Provider......................S-23
THE COMPANY.........................................................S-24
DESCRIPTION OF THE POLICY PROVIDER..................................S-24
General...........................................................S-24
MBIA Financial Information........................................S-25
Financial Strength Ratings of MBIA................................S-26
USE OF PROCEEDS.....................................................S-26
DESCRIPTION OF THE CERTIFICATES.....................................S-26
General...........................................................S-27
Distribution of Payments on Equipment Notes.......................S-28
Subordination.....................................................S-30
Pool Factors......................................................S-30
Reports to Certificateholders.....................................S-32
Indenture Events of Default and Certain Rights
upon an Indenture Event of Default..............................S-32
Purchase Rights of Certificateholders.............................S-34
PTC Event of Default..............................................S-34
Merger, Consolidation, and Transfer of Assets.....................S-35
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-38
Termination of the Trusts.........................................S-39
The Trustees......................................................S-39
Book-Entry Registration; Delivery and Form........................S-40
Luxembourg Paying Agent.............................................S-40
DESCRIPTION OF THE LIQUIDITY FACILITIES.............................S-40
Primary Liquidity Facilities......................................S-41
Above-Cap Liquidity Facility......................................S-46
DESCRIPTION OF THE POLICY AND THE
POLICY PROVIDER AGREEMENT.........................................S-48
The Policy........................................................S-48
General...........................................................S-50
Definitions.......................................................S-51
The Policy Provider Agreement.....................................S-51
DESCRIPTION OF THE INTERCREDITOR
AGREEMENT.........................................................S-51
Intercreditor Rights..............................................S-52
Priority of Distributions.........................................S-53
Addition of Trustee for Class E Certificates......................S-58
Addition of Trustees Upon Refunding...............................S-58
The Subordination Agent...........................................S-59
DESCRIPTION OF THE AIRCRAFT AND THE
APPRAISALS........................................................S-59
The Aircraft......................................................S-59
The Appraisals....................................................S-59
DESCRIPTION OF THE EQUIPMENT NOTES..................................S-61
General...........................................................S-61
Subordination.....................................................S-61
Principal and Interest Payments...................................S-61
Determination of LIBOR............................................S-62
Redemption........................................................S-63
Security..........................................................S-64
Loan to Value Ratios of Equipment Notes...........................S-65
Defeasance........................................................S-65
Limitation of Liability...........................................S-65
Indenture Events of Default, Notice and Waiver....................S-65
Remedies..........................................................S-66
Modification of Indentures........................................S-67
Indemnification...................................................S-68
Certain Provisions of the Indentures..............................S-68
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES ...................................................S-72
Tax Status of the Trusts .........................................S-72
Taxation of Certificate Owners Generally..........................S-72
S-2
PAGE
----
Sales of Certificates...............................................S-72
Bond Premium......................................................S-73
Trusts Classified as Partnerships.................................S-73
Certain Federal Income Tax Consequences to
Foreign Certificateholders......................................S-73
Backup Withholding................................................S-74
CERTAIN CONNECTICUT TAXES...........................................S-74
CERTAIN ERISA CONSIDERATIONS........................................S-75
General...........................................................S-75
Plan Assets Issues................................................S-75
Prohibited Transaction Exemptions.................................S-75
Special Considerations Applicable to Insurance
Company General Accounts......................................S-76
UNDERWRITING........................................................S-76
LUXEMBOURG LISTING..................................................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
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..........................................11
Pool Factors........................................................12
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.................................18
Merger, Consolidation and Transfer of Assents.......................19
The Trustee.........................................................19
DESCRIPTION OF THE EQUIPMENT NOTES....................................20
General.............................................................20
Principal and Interest Payments.....................................21
Redemption..........................................................21
Security............................................................21
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...............................24
Owner Participant; Revisions to Agreements..........................24
CREDIT ENHANCEMENTS...................................................25
Ranking; Cross-Subordination........................................25
Liquidity Facility..................................................25
Guarantee of AMR Corporation........................................26
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES........................................................26
Tax Status of the Trusts............................................26
Taxation of Security Holders Generally..............................26
Sales of Pass Through Certificates..................................27
Bond Premium........................................................27
Original Issue Discount.............................................27
Backup Withholding..................................................27
CERTAIN CONNECTICUT TAXES.............................................28
ERISA CONSIDERATIONS..................................................28
PLAN OF DISTRIBUTION..................................................28
Agents..............................................................28
Underwriters........................................................28
Direct Sales........................................................29
Other Means of Distribution.........................................29
General Information.................................................29
LEGAL OPINIONS........................................................29
EXPERTS...............................................................29
S-3
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 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 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 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 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 or reductions in the supply of jet fuel, future fare
reductions in the airline industry, changes in our business strategy, actions by
U.S. or foreign government agencies, the adverse impact of 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 Securities and Exchange Commission
filings, including but not limited to the Form 10-K for the year ended December
31, 2001.
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
PROVIDERS, OR THE POLICY PROVIDER SINCE THE DATE OF THIS PROSPECTUS SUPPLEMENT.
----------
S-4
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 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 ................................ $ 617,000,000 $ 108,605,000 $ 91,395,000
Ratings:
Moody's ............................................ Aaa Ba1 NA
Standard & Poor's .................................. AAA BBB+ NA
Initial loan to Aircraft
value (cumulative)(2) .............................. 50.5% 59.4% 66.9%
Expected maximum loan to
Aircraft value (cumulative) ........................ 51.1% 60.1% 67.6%
Expected principal distribution window (in
years) ............................................. 0.5-5.0 5.0 0.5-5.0
Initial average life (in years) ...................... 4.0 5.0 3.5
Regular Distribution Dates ........................... March 23, June 23, March 23, June 23, March 23, June 23,
September 23 and September 23 and September 23 and
December 23 December 23 December 23
Final expected regular distribution date ............. September 23, 2007 September 23, 2007 September 23, 2007
Final Legal Distribution Date ........................ March 23, 2009 March 23, 2009 September 23, 2007
Minimum denomination ................................. $ 1,000 $ 100,000 $ 100,000
Section 1110 protection .............................. Yes Yes Yes
Liquidity Facility coverage .......................... 6 quarterly 6 quarterly
interest payments interest payments None
Policy Coverage(3) ................................... 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.
(2) The initial aggregate Assumed Aircraft Value of the Aircraft is
$1,221,023,334. 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) 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 Primary Liquidity Facility, the Primary
Cash Collateral Account, and the Above-Cap Account for the Class G
Certificates) and the distribution of the outstanding balance of the
Class G Certificates on the Final Legal Distribution Date for such
Certificates and in certain other circumstances described herein. (1)
S-5
EQUIPMENT NOTES AND THE AIRCRAFT
The Trusts will hold Equipment Notes issued for each of eight Boeing
757-223 aircraft, two Boeing 757-223ER aircraft, six Boeing 767-323ER aircraft,
and three Boeing 777-223ER aircraft. All of the Aircraft have been delivered and
are being operated by American. The Equipment Notes issued with respect to each
Aircraft will be secured by a security interest in such Aircraft. 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 APPRAISED
REGISTRATION MONTH EQUIPMENT BASE
AIRCRAFT TYPE NUMBER DELIVERED NOTES VALUE(1)
------------- ------------ ------------- ------------ ---------------
BOEING 757-223 .......... N604AA June 1995 $ 24,818,336 $ 39,016,667
BOEING 757-223 .......... N605AA June 1995 24,818,336 39,016,667
BOEING 757-223 .......... N606AA April 1996 25,781,436 40,760,000
BOEING 757-223 .......... N680AN January 1999 30,603,980 46,560,000
BOEING 757-223 .......... N176AA January 2002 37,789,460 53,730,000
BOEING 757-223 .......... N177AN January 2002 37,789,460 53,730,000
BOEING 757-223 .......... N173AN March 2002 37,870,953 53,950,000
BOEING 757-223 .......... N172AJ April 2002 37,870,953 54,060,000
BOEING 757-223 ER ....... N608AA July 1996 25,832,208 42,340,000
BOEING 757-223 ER ....... N609AA July 1996 25,832,208 42,340,000
BOEING 767-323 ER ....... N389AA January 1995 36,953,523 60,410,000
BOEING 767-323 ER ....... N390AA February 1995 37,081,936 60,680,000
BOEING 767-323 ER ....... N391AA February 1995 37,081,936 60,680,000
BOEING 767-323 ER ....... N392AN April 1998 44,479,299 71,530,000
BOEING 767-323 ER ....... N393AN May 1998 44,671,918 71,813,333
BOEING 767-323 ER ....... N395AN July 1998 45,064,567 72,256,667
BOEING 777-223 ER ....... N785AN April 2000 86,586,360 118,680,000
BOEING 777-223 ER ....... N786AN April 2000 86,586,360 118,680,000
BOEING 777-223 ER ....... N795AN December 2000 89,486,771 120,790,000
-----------------
(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-6
LOAN TO AIRCRAFT VALUE RATIOS
The following table sets forth loan to Aircraft value ratios ("LTVs")
for each Class of Certificates as of 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 secured by an Aircraft will not be secured by any other
Aircraft. This means that any excess proceeds realized from the sale of an
Aircraft or other exercise of default remedies will not be available to cover
any shortfalls on the Equipment Notes relating to any other Aircraft. See
"Description of the Equipment Notes -- Loan to Value Ratios of Equipment Notes"
and Appendix IV for LTVs for the Equipment Notes issued in respect of individual
Aircraft, which may be more relevant in a default situation than the aggregate
values shown below.
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 ........ $1,221,023,334 $ 617,000,000 $ 108,605,000 $ 91,395,000 50.5% 59.4% 66.9%
December 23, 2002 .... 1,207,930,461 617,000,000 108,605,000 91,395,000 51.1 60.1 67.6
March 23, 2003 ....... 1,190,880,796 593,697,619 108,605,000 89,772,371 49.9 59.0 66.5
June 23, 2003 ........ 1,179,907,979 585,143,261 108,605,000 87,613,966 49.6 58.8 66.2
September 23, 2003 ... 1,179,907,979 585,143,261 108,605,000 85,401,601 49.6 58.8 66.0
December 23, 2003 .... 1,166,815,106 566,097,651 108,605,000 83,133,927 48.5 57.8 64.9
March 23, 2004 ....... 1,149,765,441 541,824,134 108,605,000 80,809,561 47.1 56.6 63.6
September 23, 2004 ... 1,138,792,624 525,921,584 108,605,000 75,985,048 46.2 55.7 62.4
December 23, 2004 .... 1,125,699,751 506,875,974 108,605,000 71,349,700 45.0 54.7 61.0
March 23, 2005 ....... 1,108,650,086 482,602,457 108,605,000 66,598,468 43.5 53.3 59.3
June 23, 2005 ........ 1,097,677,269 466,699,907 108,605,000 61,728,455 42.5 52.4 58.0
September 23, 2005 ... 1,097,677,269 466,699,907 108,605,000 56,736,692 42.5 52.4 57.6
December 23, 2005 .... 1,084,584,396 447,654,296 108,605,000 51,620,135 41.3 51.3 56.0
March 23, 2006 ....... 1,067,534,731 423,380,780 108,605,000 46,375,664 39.7 49.8 54.2
June 23, 2006 ........ 1,056,561,914 407,478,230 108,605,000 41,000,081 38.6 48.8 52.7
September 23, 2006 ... 1,056,561,914 407,478,230 108,605,000 35,490,109 38.6 48.8 52.2
December 23, 2006 .... 1,043,469,041 388,432,619 108,605,000 29,842,387 37.2 47.6 50.5
March 23, 2007 ....... 1,026,419,376 364,159,102 108,605,000 24,053,472 35.5 46.1 48.4
June 23, 2007 ........ 1,015,446,559 348,256,552 108,605,000 18,119,834 34.3 45.0 46.8
September 23, 2007 ... 1,015,446,559 0 0 0 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 by
approximately 3% of the appraised base value at delivery per year for
the first 15 years after delivery by the manufacturer of such Aircraft.
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-7
CASH FLOW STRUCTURE
This diagram illustrates the structure of the Certificates and certain cash
flows.
[CASH FLOW STRUCTURE GRAPHIC]
----------
(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.
(2) Separate Primary Liquidity Facilities will be available with respect to
the Class G and Class C Certificates and an Above-Cap Liquidity
Facility will be available with respect to the Class G Certificates.
The Primary Liquidity Facilities, together with the Above-Cap Liquidity
Facility in the case of the Class G Certificates, are expected to cover
up to six quarterly interest distributions on the Certificates of the
applicable Classes. There will be no liquidity facility available with
respect to the 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-8
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 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. There will be no liquidity facility with respect
to the Class D Certificates.
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 19 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............................. State Street Bank and Trust Company of Connecticut, National Association.
Policy Provider for the
Class G Certificates......................... MBIA Insurance Corporation. There will be no Policy available with respect to
the Class C and Class D Certificates.
Primary Liquidity Provider for the
Class G and Class C Certificates............. Citibank, N.A. Citibank, N.A. intends to find a replacement primary liquidity
provider as soon as is feasible. There will be no liquidity facility available
with respect to the Class D Certificates.
Above-Cap Liquidity Provider for the Class G
Certificates................................. Credit Suisse First Boston International.
Trust Property............................... The property of each Trust will include:
o Equipment Notes acquired by such Trust.
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 Primary Liquidity
Facility and the Above-Cap Liquidity Facility for such Trust.
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o For the Class C Trust, all monies receivable under the Primary Liquidity
Facility for such Trust.
o For the Class G Trust, all monies receivable under the Policy for such
Trust.
o Funds from time to time deposited with the Trustee in accounts relating to
such Trust.
Regular Distribution Dates................... March 23, June 23, September 23, and December 23, commencing on December 23,
2002.
Record Dates................................. The fifteenth day preceding the related Distribution Date.
Distributions................................ The Trustee will distribute all payments of principal, Break Amount (if any),
Prepayment Premium (if any), 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,
Break Amount (if any), Prepayment Premium (if any), 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 Trustee for each Trust, the Liquidity Providers, 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 Facilities, and the Policy will be distributed among the Trusts, the
Liquidity Providers, and the Policy Provider. The Intercreditor Agreement also
sets forth agreements among the Trustee for each Trust, the Liquidity Providers,
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 Primary 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 on junior Certificates prior to making distributions in full on the more
senior Certificates.
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Control of Loan Trustee...................... The holders of at least a majority of the outstanding principal amount of
Equipment Notes issued under each Indenture will be entitled to direct the Loan
Trustee under such Indenture in taking action as long as no Indenture Event of
Default is continuing thereunder; provided, however, that as long as the Final
Distributions on the Class G Certificates have not been fully paid or any Policy
Provider Obligations remain outstanding and no Policy Provider Default has
occurred and is continuing, the Policy Provider will be entitled to direct the
Class G Trustee, as the holder of the Series G Equipment Notes, in directing the
taking of such action. If an Indenture Event of Default is continuing under such
Indenture, subject to certain conditions, the Controlling Party will direct the
Loan Trustee 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 paragraph, at any time prior to the time that Final
Distributions have been fully paid to the holders of the Class G Certificates
and/or at any time when 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 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 Primary
Liquidity Provider with the greatest amount owed to it will be the Controlling
Party, unless the Policy Provider pays to the Primary Liquidity Provider all
outstanding drawings and interest thereon owing the Primary Liquidity Provider
under the Primary Liquidity Facilities, 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, neither the Aircraft subject to the lien of such
Indenture nor such Equipment Notes may be sold for less than certain specified
minimums without the consent of each Trustee.
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 The Class C Certificateholders (other than American or any of its
affiliates) will have the right to purchase all, but not less than all, of
the Class G
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Certificates (unless the Policy Provider has elected to purchase such Class G
Certificates).
o The Class D Certificateholders (other than American or any of its
affiliates) will have the right to purchase all, but not less than all, of
the Class G Certificates (unless the Policy Provider has elected to purchase
such 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 will have the right
to purchase all, but not less than all, of the Class G Certificates.
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 Break Amount, Prepayment Premium or Make-Whole Amount.
Liquidity Facilities......................... Under the Primary Liquidity Facility for the Class G and Class C Trusts, the
Primary Liquidity Provider will, if necessary, make advances in an aggregate
amount that together (in the case of the Class G Certificates) with the amounts
payable by the Above-Cap Liquidity Provider, is expected to provide an amount
sufficient to pay interest distributions on the applicable Class of Certificates
on up to six successive quarterly Regular Distribution Dates at the applicable
interest rate for such Certificates. The Primary Liquidity Facilities and the
Above-Cap 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 Certificates issued by each Trust will be entitled to receive and
retain the proceeds of drawings under the Primary Liquidity Facility for such
Trust and (in the case of the Class G Certificates) withdrawals from the account
into which payments made under the Above-Cap Liquidity Facility are required to
be made for such Trust.
Upon each drawing under any Primary Liquidity Facility to pay interest
distributions on any of the Certificates, the Subordination Agent will be
obligated to reimburse the applicable Primary 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 Primary
Liquidity Provider under each Primary Liquidity Facility will rank senior to all
of the Certificates in right of payment.
There will be no liquidity facility available with respect to the Class D
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 applicable Primary
Liquidity Facility and withdrawals from the applicable Primary Cash
Collateral Account and the Above-Cap Account (collectively, the "Prior
Funds")) on any Regular Distribution Date in interest distributed on the
Class G Certificates.
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 Prepayment Premium and unpaid Break Amount) on the Class G
Certificates.
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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 21 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 Collateral under (and as
defined in) the Indenture under which such Defaulted Series G Equipment Note
was issued 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 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 21-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 21-month period (after giving effect to the application
of funds received from the related Primary Liquidity Facility, the related
Primary Cash Collateral Account, or the Above-Cap Account, in each case 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 funds available under the related Primary Liquidity Facility,
the related Primary Cash Collateral Account or the Above-Cap Account) 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
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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 21-month period referred to above, the Policy will, if not
already endorsed to so provide, be endorsed to provide for the payment to the
Primary Liquidity Provider with respect to the Class G Certificates of interest
accruing on all outstanding drawings under the related Primary Liquidity
Facility from and after the end of such 21-month period as and when such
interest becomes due in accordance with such Primary Liquidity Facility and any
drawings by the Primary Liquidity Provider in respect of such interest will be
honored by the Policy Provider. Any future amendments or modifications of the
Policy which would adversely affect the rights of the Primary Liquidity Provider
will need the consent of the Primary Liquidity Provider.
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 "The Intercreditor Agreement - Priority of Distributions."
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 Certificates issued by such Trust 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 March 23, June 23,
September 23, and December 23 of each year, commencing on the first such date
after issuance of the Equipment Notes. Interest on the Series G Equipment Notes
will be calculated on the basis of the actual number of days elapsed over a
360-day year. Interest on the Series C and Series D Equipment Notes will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
LIBOR will be determined from time to time by the Reference Agent as described
in "Description of the Equipment Notes--Determination of LIBOR."
(c) Principal............................. Amortizing Notes. Principal payments on the Series G and Series D Equipment
Notes are scheduled to be received in specified amounts on March 23, June 23,
September 23, and December 23 in certain years. See "Description of the
Certificates--Pool Factors."
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Bullet Maturity Notes. The entire principal amount of the Series C Equipment
Notes is scheduled to be paid on September 23, 2007.
The principal amounts and maturity dates of the new series C and 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) 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
and, in the case of the Series G Equipment Notes, Break Amount, but without
Prepayment Premium or Make-Whole Amount. See "Description of the Equipment Notes
-- Redemption."
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, plus, in the
case of the Series G Equipment Notes, Break Amount and Prepayment Premium, and,
in the case of the Series C and Series D Equipment Notes, Make-Whole Amount. 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."
(e) Security ................................ The Equipment Notes issued with respect to each Aircraft will be secured by a
security interest in such Aircraft.
The Equipment Notes will not be cross-collateralized. This means that the
Equipment Notes secured by an Aircraft will not be secured by any other
Aircraft. Any excess proceeds from the sale of an Aircraft or other exercise of
default remedies with respect to such Aircraft will not be available to cover
any shortfalls on the Equipment Notes relating to any other Aircraft.
By virtue of the Intercreditor Agreement, 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 in respect of a more senior Class
of Certificates.
There will not be cross-default provisions in the Indentures. This means that 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 with respect to the remaining Aircraft.
(f) 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.
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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 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
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 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 STANDARD
the Liquidity Providers................... MOODY'S & POORS
------- --------
P-1 A-1
Primary Liquidity Provider Rating............ The Primary Liquidity Provider meets the Threshold Rating requirement.
Above-Cap Liquidity Provider
Rating................................... The Above-Cap Liquidity Provider meets the Threshold Rating requirement.
STANDARD
Policy Provider Rating....................... MOODY'S & POORS
------- --------
Financial Strength Aaa AAA
Listing...................................... Application will be made to list the Class G Certificates on the Luxembourg
Stock Exchange. See "Luxembourg Listing ."
S-16
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 June 30, 2001 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, are included in Operating Statistics for the
period ended June 30, 2001 and beginning on April 10, 2001 and for the six
months ended June 30, 2002, but are not included in Operating Statistics for the
years ended December 31, 1999, 2000, and 2001. In its Quarterly Reports on Form
10-Q for the quarterly periods ended March 31, 2002 and June 30, 2002, American
stated that it had adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 required American
to discontinue amortizing its goodwill and route acquisition costs effective
January 1, 2002, and requires American to test its goodwill and indefinite-lived
intangible assets (for American, route acquisition costs) for impairment.
American completed its impairment analysis related to route acquisition costs in
the quarterly period ended March 31, 2002 resulting in no impairment charge.
American has completed Step 1 of the goodwill impairment process, noting its net
book value was in excess of its fair value at January 1, 2002. As a result
American is in the process of completing Step 2 of the goodwill impairment
process which will allocate the newly determined fair value of American to each
of its assets and liabilities. This allocation is expected to be completed in
the quarterly period ending September 30, 2002 or December 31, 2002 and will
likely result in a non-cash pre-tax charge of up to $1.3 billion to write-down
American's goodwill. Such charge would be nonoperational in nature and would be
reflected as a cumulative effect of an accounting change in the consolidated
statement of operations. See "Where You Can Find More Information" in the
Prospectus accompanying this Prospectus Supplement.
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- ----------------------------------------
2002 2001 2001 2000 1999
--------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA (IN MILLIONS):
Revenues:
Passenger ........................................... $ 7,231 $ 8,580 $ 15,780 $ 16,394 $ 14,724
Cargo ............................................... 274 362 656 714 635
Other ............................................... 413 584 1,048 1,009 979
Operating expense(1) .................................. 9,271 10,239 19,758 16,873 15,318
Operating income (loss)(1) ............................ (1,353) (713) (2,274) 1,244 1,020
Other income (expense), net ........................... (167) (43) (175) 38 34
Earnings (loss) before income taxes(1) ................ (1,520) (756) (2,449) 1,282 1,054
Net earnings (loss)(1) ................................ $ (1,028) $ (489) $ (1,562) $ 778 $ 627
OTHER DATA:
Ratio of earnings to fixed charges(2) ................. -- -- -- 2.07 1.95
OPERATING STATISTICS(3):
Scheduled Service:
Available seat miles (millions)(4) .................. 84,047 88,021 153,035 161,030 161,211
Revenue passenger miles (millions)(5) ............... 59,197 61,640 106,224 116,594 112,067
Passenger load factor (%)(6) ........................ 70.4% 70.0% 69.4% 72.4% 69.5%
Passenger revenue yield per passenger
mile (cents)(7) ................................... 12.22 13.92 13.28 14.06 13.14
Passenger revenue per available seat mile (cents) ... 8.60 9.75 9.22 10.18 9.13
Operating expenses per available seat mile (cents)(8) 11.03 10.97 11.14 10.48 9.50
Cargo ton miles (millions)(9) ....................... 981 1,159 2,058 2,280 2,068
Cargo revenue yield per ton mile (cents) ............ 27.93 31.27 30.24 31.31 30.70
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AT AT
JUNE 30, DECEMBER 31,
2001 2002
---- ----
BALANCE SHEET DATA: (IN MILLIONS)
Cash and short-term investments ............................... $ 2,543 $ 2,973
Total assets .................................................. 30,353 30,477
Current liabilities ........................................... 7,169 7,173
Long-term debt, less current maturities ....................... 7,165 6,530
Obligations under capital leases, less current obligations .... 1,331 1,396
Stockholder's equity .......................................... 4,480 5,479
----------
(1) Operating expenses, operating income (loss), earnings (loss) before
income taxes, and net earnings (loss) for the year ended December 31,
2001 and for the six months ended June 30, 2001 included an asset
impairment charge of approximately $911 million and $586 million,
respectively, relating to the write-down of the carrying value of 71
Fokker 100 aircraft and related rotables to their estimated fair market
value. In addition, such amounts for the year ended December 31, 2001
include $827 million in compensation under the Air Transportation
Safety and Stabilization Act recognized during the year ended December
31, 2001 and approximately $337 million in special charges related to
the terrorist attacks of September 11, 2001, primarily related to
aircraft groundings, facility exit costs, and employee charges.
(2) In April 2001, the Board of Directors of American approved the
guarantee by American of the existing debt obligations of its parent,
AMR Corporation. As of June 30, 2002, this guarantee covered
approximately $634 million of unsecured debt and approximately $573
million of secured debt. The impact of these unconditional guarantees
is not included in the above computation. Earnings were inadequate to
cover fixed charges by $1,561 million and $830 million for the six
months ended June 30, 2002 and June 30, 2001, respectively, and by
$2,584 million for the year ended December 31, 2001.
(3) The operating statistics of TWA Airlines LLC, the entity holding the
assets acquired from TWA, are included in Operating Statistics for the
period ended June 30, 2001 and beginning on April 10, 2001 and for the
six months ended June 30, 2002, but are not included in Operating
Statistics for the years ended December 31, 1999, 2000, and 2001.
(4) "Available seat miles" represents the number of seats available for
passengers multiplied by the number of scheduled miles the seats are
flown.
(5) "Revenue passenger miles" represents the number of miles flown by
revenue passengers in scheduled service.
(6) "Passenger load factor" is calculated by dividing revenue passenger
miles by available seat miles, and represents the percentage of
aircraft seating capacity utilized.
(7) "Passenger revenue yield per passenger mile" represents the average
revenue received from each mile a passenger is flown in scheduled
service.
(8) Operating expenses per available seat mile for the six months ended
June 30, 2001 excludes an asset impairment charge recognized in the
period then ended. Operating expenses per available seat mile for the
year ended December 31, 2001 exclude an asset impairment charge,
compensation under the Air Transportation Safety and Stabilization Act
and special charges related to the terrorist attacks of September 11,
2001 recognized in the period then ended.
(9) "Cargo ton miles" represents the tonnage of freight and mail carried
multiplied by the number of miles flown.
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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.
TERRORIST ATTACKS OF SEPTEMBER 11, 2001
LAST YEAR'S TERRORIST ATTACKS HAD, AND CONTINUE TO HAVE, A MATERIAL
ADVERSE IMPACT ON AMERICAN.
On September 11, 2001, two of American's aircraft were hijacked and
destroyed in terrorist attacks on The World Trade Center in New York City and
the Pentagon in northern Virginia. On the same day, two United Air Lines
aircraft were also hijacked and used in terrorist attacks. In addition to the
loss of all passengers and crew on board the aircraft, these attacks resulted in
untold deaths and injuries to persons on the ground and massive property damage.
In response to the terrorists attacks, the Federal Aviation Administration (the
"FAA") issued a federal ground stop order on September 11, 2001, prohibiting all
flights to, from, and within the United States. Airports did not reopen until
September 13, 2001 (except for Washington Reagan Airport, which was partially
reopened on October 4, 2001). American was able to operate only a portion of its
scheduled flights for several days thereafter. When flights were permitted to
resume, passenger traffic and yields on American's flights were significantly
lower than prior to the attacks. As a result, following these attacks, American
reduced its operating schedule to approximately eighty percent of the schedule
it flew prior to September 11, 2001. In addition, as a result of its schedule
reduction and the sharp fall-off in passenger traffic, American eliminated
approximately 20,000 jobs.
The terrorist attacks had, and continue to have, a material adverse
impact on American. The continued impact of the terrorist attacks of September
11, 2001 on American and the sufficiency of its financial resources to absorb
that impact will depend on a number of factors, including: (i) the magnitude and
duration of the adverse impact of the terrorist attacks on the economy in
general, and the airline industry in particular; (ii) American's ability to
reduce its operating costs and conserve its financial resources, taking into
account any increased costs it will incur as a consequence of the attacks,
including those referred to below; (iii) the higher costs associated with new
airline security directives, including the impact of the Aviation and
Transportation Security Act enacted in November 2001, and any other increased
regulation of air carriers; (iv) the significantly higher costs of aircraft
insurance coverage for future claims caused by acts of war, terrorism, sabotage,
hijacking, and other similar perils, and the extent to which such insurance will
continue to be available; (v) American's ability to raise additional financing
and the cost of that financing; (vi) the price and availability of jet fuel, and
the availability to American of fuel hedges in light of current industry
conditions; and (vii) the extent of the benefits received by American under the
Air Transportation Safety and System Stabilization Act (the "Act"), taking into
account any challenges to, and interpretations or amendments of, the Act or the
regulations issued pursuant thereto. Additional terrorist attacks, even if not
directed at the airline industry, or the fear of such attacks (which could
escalate at times of international crisis or U.S. military involvement in
overseas hostilities), could have a material adverse impact on American's
business, financial position and results of operations and on the airline
industry in general.
REDUCTIONS IN OUR RATINGS HAVE INCREASED OUR FINANCING COSTS.
Since the events of September 11, 2001, Standard & Poor's has
downgraded the corporate credit rating of American from BBB- to BB- and Moody's
has downgraded the senior implied rating of American from Baa3 to B1. Both
Standard & Poor's and Moody's have a negative outlook on these ratings. In
addition, both Standard & Poor's and Moody's have downgraded American's senior
unsecured credit ratings and the ratings of its outstanding pass through
certificates and have negative outlooks on these ratings. These reductions in
American's credit ratings have increased its borrowing costs. Any additional
reductions in American's credit ratings could further increase its borrowing
costs and might limit the availability of future financing.
OUR INSURANCE COSTS HAVE INCREASED SUBSTANTIALLY AS A RESULT OF THE
SEPTEMBER 11, 2001 TERRORIST ATTACKS AND FURTHER INCREASES IN INSURANCE COSTS OR
REDUCTIONS IN COVERAGE COULD HAVE A MATERIAL ADVERSE IMPACT ON AMERICAN.
As a result of the terrorist attacks of September 11, 2001, aviation
insurers have significantly reduced the maximum 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. At the same time, they significantly increased the premiums for
such coverage and for aviation insurance in general. Pursuant to authority
granted in the Act, the United States Government has supplemented American's
commercial war-risk insurance with a third party liability policy to cover
losses to persons other than employees or passengers. This coverage currently
extends through October 16, 2002. If the commercial insurance carriers reduce
further the amount of insurance coverage available to American or further
significantly increase the cost of aviation insurance, or if the United
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States Government fails to renew the war-risk insurance that it provides,
American's business, financial position, and results of operations would be
materially adversely affected.
CERTAIN OTHER RISK FACTORS RELATING TO AMERICAN
WE HAVE SUSTAINED SIGNIFICANT OPERATING LOSSES AND EXPECT TO CONTINUE
TO SUSTAIN SIGNIFICANT LOSSES IN 2002.
The terrorist attacks of September 11, 2001 and the weak domestic and
international economic conditions have materially adversely affected American's
business and results of operations and the airline industry generally. On
significantly reduced capacity since the events of September 11, 2001,
American's revenues for the first six months of 2002 were down significantly
year-over-year. For the six months ended June 30, 2002, American's revenue
declined by 16.9% and its revenue per available seat mile decreased 11.8% on a
capacity decrease of 4.5% compared to the six months ended June 30, 2001, which
include the results of TWA LLC beginning on April 10, 2001. In addition to the
residual effects of September 11, American's revenues continue to be negatively
impacted by the economic slowdown (seen largely in business travel declines),
the geographic distribution of American's network, reduced fares and increased
competition. For the six months ended June 30, 2002 and the year ended December
31, 2001, American had operating losses of $1,353 million and $2,274 million,
respectively. See "Summary Historical Consolidated Financial and Operating
Data," and for additional information, see our Report on Form 10-Q for the
quarter ended June 30, 2002 and our Report on Form 10-K for the year ended
December 31, 2001. See "Presentation of Information" in this Prospectus
Supplement and "Where You Can Find More Information" in the accompanying
Prospectus.
In response to weak demand and reduced yields in domestic and
international air travel, and perceived structural changes in the domestic
airline industry, on August 13, 2002 American announced a series of short- and
long-term initiatives to reduce its costs, reduce capacity, simplify its
aircraft fleet, and enhance productivity. These initiatives include, among other
things, "de-peaking" of American's Dallas/Fort Worth International Airport hub
(following the de-peaking of its Chicago hub in April 2002) by scheduling
flights into and out of the hub more continuously, with flights spread out more
evenly through the day; gradually phasing out operation of its 74-aircraft
Fokker F-100 aircraft fleet; and reducing capacity by nine percent by November
2002 from that in the summer of 2002. By de-peaking its Dallas/Fort Worth and
Chicago hubs American believes it can more productively use its employees,
gates, and aircraft. In addition, American announced that it would reduce by
March 2003 an estimated 7,000 jobs to realign its workforce with the planned
capacity reductions, fleet simplification, and hub restructurings. American
subsequently announced that it expects full year capacity for 2003 to be down
over three percent from 2002, giving effect to the capacity reduction described
above. American expects that job reductions and the changes in its aircraft
fleet will result in special charges in the third quarter and potentially the
fourth quarter of 2002. Additional charges may be taken in future periods in
connection with these or other initiatives. Although American expects these
initiatives to improve efficiency and reduce operating costs, there can be no
assurance that these initiatives will be successful or sufficient.
Given the revenue pressures seen in the first half of 2002, which are
expected to continue through at least the remainder of the year, American
expects to incur significant losses in the three months ended September 30, 2002
and for the full year 2002. In addition, as described under "Summary Historical
Consolidated Financial and Operating Data," in the third or fourth quarter of
2002, American will likely record a one-time, non-cash pre-tax charge of up to
$1.3 billion to write down its goodwill.
WE EXPECT THAT WE WILL NEED TO CONTINUE TO RAISE SIGNIFICANT ADDITIONAL
FINANCING.
In the aftermath of the events of September 11, 2001, American raised
substantial amounts of funding to finance capital commitments and day-to-day
operations. American expects that it will need to continue to raise significant
additional financing in the future to cover its liquidity needs. Although
American has a substantial amount of unencumbered aircraft and non-aircraft
assets, there is no guarantee that it will be able to use those assets for
financing activities or that those assets will maintain their current market
value. To the extent American may be unable to access the capital markets for
long-term capital spending requirements or short-term liquidity needs, or
American's financing costs continue to increase, including as a result of
further ratings downgrades, American's business, financial position and results
of operations would be materially adversely impacted.
THE AIRLINE INDUSTRY HAS SUFFERED SIGNIFICANT LOSSES; AIRLINE
BANKRUPTCIES COULD ADVERSELY AFFECT THE INDUSTRY.
As a result of weak domestic and international economic conditions,
reduced fares, and the terrorist attacks of September 11, 2001, the airline
industry as a whole suffered significant losses in 2001 and the first two
quarters of 2002 and is expected to suffer significant losses for all of 2002.
Many airlines, in addition to American, have announced reductions in capacity,
service and workforce in response to the industry-wide reductions in passenger
demand and yields. In addition, since September 11, 2001 several air carriers
have sought to reorganize under Chapter 11 of the United States Bankruptcy Code,
including U.S. Airways, the seventh
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largest domestic air carrier. More recently, United Air Lines, Inc. (the second
largest domestic air carrier) has publicly stated that, if it is not able to
realize substantial cost savings from its current cost savings initiatives, it
may be forced to reorganize under the Bankruptcy Code. Successful completion of
such reorganizations could present American with competitors with significantly
lower operating costs derived from labor, supply, and financing contracts
renegotiated under the protection of the Bankruptcy Code. In addition,
historically, air carriers involved in reorganizations have undertaken
substantial fare discounting in order to maintain cash flows and to enhance
continued customer loyalty. Such fare discounting could further lower yields for
all carriers, including American. Further, the market value of aircraft,
including the Aircraft, would likely be negatively impacted if a number of air
carriers, including U.S. Airways and United Air Lines, Inc., seek to reduce
capacity by eliminating aircraft from their fleets. See "Risk Factors -- Risk
Factors Relating to the Certificates and the Offering --Appraisals and
Realizable Value of Aircraft."
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. 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 September 11, 2001 referred to under " --
Terrorist Attacks of September 11, 2001." Two of the appraisals contain
disclaimers as to the effect of the events of September 11, 2001 on the market
for, and prices of, commercial aircraft. 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:
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. See "-- Certain Other Risk Factors
Relating to American --The Airline Industry Has Suffered Substantial Losses."
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.
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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 Primary Liquidity Provider will
receive payment of all amounts owed to it (including reimbursement of drawings
made to pay interest on more junior Classes of Certificates) before the holders
of any Class of Certificates receive any funds and the Policy Provider will
receive payments of Policy Provider Obligations 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."
Certain Classes of Certificates are subordinated to other Classes in
rights to distributions. See "Description of the Certificates -- Subordination."
Consequently, a payment default under any Equipment Note or a Triggering Event
may cause the distribution to more senior Classes of Certificates of payments
received on one or more junior series of Equipment Notes. If this should occur,
the interest accruing on the remaining Equipment Notes may be less than the
amount of interest expected to be distributed on the remaining Certificates of
more junior Classes. This is because the interest that Certificates of junior
Classes are expected to receive may accrue at a higher rate than interest on the
remaining Equipment Notes. As a result of this possible interest shortfall, the
holders of one or more junior Classes of Certificates may not receive the full
amount expected after a payment default under any Equipment Note even if all
Equipment Notes are eventually paid in full.
However, 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 to
junior Certificates prior to making distributions in full on more senior
Certificates.
CONTROL OVER COLLATERAL; SALE OF COLLATERAL
If an Indenture Event of Default is continuing, subject to certain
conditions, the Loan Trustee under the related Indenture will be directed by 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 paragraph, at any time prior to the time that
Final Distributions have been fully paid to the holders of the Class G
Certificates and/or at any time when 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 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
Primary Liquidity Provider with the greatest amount owed to it will be the
Controlling Party. However, if the Policy Provider pays the Primary Liquidity
Provider all outstanding drawings and interest thereon owing to the Primary
Liquidity Provider under the Primary Liquidity Facilities, then, so long as no
Policy Provider Default has occurred and is continuing, 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 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
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against us, any Trustee, 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").
In addition, the Equipment Notes will not be cross-collateralized. This
means that the Equipment Notes secured by an Aircraft will not be secured by any
other Aircraft. Accordingly, any proceeds realized from the sale of an Aircraft
or other exercise of default remedies with respect to such Aircraft in excess of
the principal amount of the Equipment Notes related to such Aircraft will not be
available to cover shortfalls, if any, on the Equipment Notes relating to any
other Aircraft. See "Description of the Equipment Notes -- Remedies."
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, the Primary Liquidity Provider, or the Above-Cap Liquidity Provider)
so warrant.
The rating of the Class G Certificates is 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 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.
LIMITED ABILITY TO RESELL THE CERTIFICATES
Prior to this offering, there has been no public market for the Class G
Certificates. Although an application will be made to list the Class G
Certificates on the Luxembourg Stock Exchange, no assurance can be given that
such application will be granted. Except for the listing of the Class G
Certificates on the Luxembourg Stock Exchange, 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
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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.
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 fully paid 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 Primary 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 and the holders of the Class G Certificates but detrimental to the
holders of the Class C or Class D Certificates.
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 MBIA Insurance
Corporation ("MBIA" or the "Policy Provider") for inclusion in this Prospectus
Supplement, and such information has not been independently verified by
American, the Underwriters, the Trustees, the Primary Liquidity Provider, or the
Above-Cap Liquidity Provider. Accordingly, notwithstanding anything to the
contrary herein, none of American, the Underwriters, the Trustees, the Primary
Liquidity Provider, or the Above-Cap Liquidity Provider assumes any
responsibility for the accuracy, completeness, or applicability of such
information.
MBIA is the principal operating subsidiary of MBIA Inc., a New York
Stock Exchange listed company (the "Parent Company"). The Parent Company is not
obligated to pay the debts of or claims against MBIA. MBIA is domiciled in the
State of New York and licensed to do business in and subject to regulation under
the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto
Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of
the United States and the Territory of Guam. MBIA has three branches, one in the
Republic of France, one in the Republic of Singapore and one in the Kingdom of
Spain. New York has laws prescribing minimum capital requirements, limiting
classes and concentrations of investments, and requiring the approval of policy
rates and forms. State laws also regulate the amount of both the aggregate and
individual risks that may be insured, the payment of dividends by MBIA, changes
in control, and transactions among affiliates. Additionally, MBIA is required to
maintain contingency reserves on its liabilities in certain amounts and for
certain periods of time.
MBIA does not accept any responsibility for the accuracy or
completeness of this Prospectus Supplement or any information or disclosure
contained herein, or omitted herefrom, other than with respect to the accuracy
of the information regarding the Policy
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Provider set forth under the heading "Description of the Policy Provider" or
incorporated by reference herein. Additionally, MBIA makes no representation
regarding the Certificates or the advisability of investing in the Certificates.
The Policy is not covered by the Property/Casualty Insurance Security
Fund specified in Article 76 of the New York Insurance Law.
MBIA FINANCIAL INFORMATION
The following documents filed by the Parent Company with the Securities
and Exchange Commission are incorporated herein by reference:
(1) the Parent Company's Annual Report on Form 10-K for the year ended
December 31, 2001; and
(2) the Parent Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002.
Any documents filed by the Parent Company pursuant to Sections 13(a),
13(c), 14, or 15(d) of the Exchange Act after the date of this Prospectus
Supplement and prior to the termination of the offering of the Certificates
shall be deemed to be incorporated by reference in this Prospectus Supplement
and to be a part hereof. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein, or contained in this Prospectus
Supplement, shall be deemed to be modified or superseded for purposes of this
Prospectus Supplement to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus Supplement.
The consolidated financial statements of MBIA, a wholly owned
subsidiary of the Parent Company and its subsidiaries as of December 31, 2001
and December 31, 2000 and for each of the three years in the period ended
December 31, 2001, prepared in accordance with generally accepted accounting
principles, included in the Annual Report on Form 10-K of the Parent Company for
the year ended December 31, 2001 and the consolidated financial statements of
MBIA and its subsidiaries as of June 30, 2002 and for the six month period ended
June 30, 2002 and June 30, 2001 included in the Quarterly Report on Form 10-Q of
the Parent Company for the period ended June 30, 2002, are hereby incorporated
by reference into this prospectus supplement and shall be deemed to be a part
hereof. All financial statements of MBIA and its subsidiaries included in
documents filed by the Parent Company pursuant to Section 13(a), 13(c), 14, or
15(d) of the Exchange Act subsequent to the date of this Prospectus Supplement
and prior to the termination of the offering of the Certificates shall be deemed
to be incorporated by reference into this Prospectus Supplement and to be a part
hereof from the respective dates of filing such documents.
The Parent Company files annual, quarterly, and special reports,
information statements and other information with the Commission under File No.
1-9583. Copies of the Commission filings (including (1) the Parent Company's
Annual Report on Form 10-K for the year ended December 31, 2001 and (2) the
Parent Company's Quarterly Reports on Form 10-Q for the quarter ended June 30,
2002) are available (i) over the Internet at the Commission's web site at
http://www.sec.gov; (ii) at the SEC's public reference room in Washington D.C.;
and (iii) at no cost, upon request to MBIA Insurance Corporation, 113 King
Street, Armonk, New York 10504. The telephone number of MBIA is (914) 273-4545.
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The tables below present selected financial information of MBIA
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities ("SAP") as well as generally
accepted accounting principles ("GAAP"):
SAP
----------------------------
December 31, June 30,
2001 2002
------------ --------
(Audited) (Unaudited)
(in millions)
Admitted Assets $8,545 $8,690
Liabilities 5,688 5,742
Capital and Surplus 2,857 2,948
GAP
----------------------------
December 31, June 30,
2001 2002
------------ --------
(Audited) (Unaudited)
(in millions)
Assets $ 9,460 $ 9,731
Liabilities 4,234 4,187
Shareholder's Equity 5,226 5,544
FINANCIAL STRENGTH RATINGS OF MBIA
Moody's rates the financial strength of MBIA "Aaa."
Standard & Poor's rates the financial strength of MBIA "AAA."
Each rating of MBIA should be evaluated independently. The ratings
reflect the respective rating agency's current assessment of the
creditworthiness of MBIA and its ability to pay claims on its policies of
insurance. Any further explanation as to the significance of the above ratings
may be obtained only from the applicable rating agency.
The above ratings are not recommendations to buy, sell, or hold any
Certificates, and such ratings may be subject to revision or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of any of the
above ratings may have an adverse effect on the market price of any
Certificates. MBIA does not guaranty the market price of any Certificates nor
does it guaranty that the ratings on the Class G Certificates will not be
revised or withdrawn.
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 Facilities, 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 Securities and Exchange Commission (the "Commission").
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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 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
2002-1 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 between American and 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
sum of 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 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 and Class C Trusts, monies receivable under the
Primary Liquidity Facility for such Trust;
o for the Class G Trust, monies receivable under the Above-Cap
Liquidity Facility;
o for the Class G Trust, monies receivable under the Policy; 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, Break Amount (if any), Prepayment Premium (if
any), 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 Certificates to be issued by such Trust 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
quarterly on March 23, June 23, September 23, and December 23 of each year,
commencing on the first such date after the issuance of the Certificates. Such
interest payments will be distributed to Certificateholders of such Trust on
each such date until the final Distribution Date for such Trust, subject to the
Intercreditor Agreement. Interest on the Series G Equipment Notes will be
calculated on the basis of the actual number of days elapsed over a 360-day
year. Interest on the Series C and Series D Equipment Notes will be calculated
on the basis of a 360-day year consisting of twelve 30-day months.
Interest payable on the Series G Equipment Notes will be determined
based on LIBOR. LIBOR for the period commencing on and including the initial
issuance date of the Certificates (the "Issuance Date") and ending on but
excluding the first Equipment Note payment date (the "Initial Interest Period")
will be determined on the second London Banking Day preceding the Issuance Date
as the rate for deposits in U.S. dollars for a period of three months that
appears on the display designated as page "3750" on the Telerate Monitor. See
"Description of the Equipment Notes--Determination of LIBOR" for an explanation
of how LIBOR is to be determined for each Interest Period after the Initial
Interest Rate Period.
As promptly as practicable after the determination of LIBOR for an
Interest Period under the Reference Agency Agreement, the Reference Agent will
give notice of such determination of LIBOR to American, the Trustees, the Loan
Trustees, the Subordination Agent, the Primary Liquidity Provider, the
Underwriters, the Above-Cap Liquidity Provider and the Policy Provider.
Certificateholders may obtain such information from the Trustee or otherwise in
the statements included with each distribution of a Scheduled Payment or Special
Payment.
Distributions of interest applicable to the Certificates to be issued
by each of the Class G and Class C Trusts will be supported by a separate
Primary Liquidity Facility and, in the case of the Class G Certificates, by the
Above-Cap Liquidity Facility, to be provided by the applicable Liquidity
Provider for the benefit of the holders of the applicable Class of Certificates,
which together are expected to provide an aggregate amount sufficient to
distribute interest on the Pool Balance thereof at the Stated Interest Rate for
such Trust on up to six successive Regular Distribution Dates (without regard to
any future distributions of principal on such Certificates). Neither the Primary
Liquidity Facility nor the Above-Cap Liquidity Facility for any Class of
Certificates provides for drawings thereunder to pay for principal of or Break
Amount or Prepayment Premium (in the case of the Class G Certificates) or
Make-Whole Amount (in the case of the Class C Certificates) on the Certificates
of such Class, any interest with respect to the Certificates of such Class in
excess of the Stated Interest Rate, or, notwithstanding the subordination
provisions of the Intercreditor Agreement, principal of or interest or Break
Amount, Prepayment Premium, or Make-Whole Amount with respect to the
Certificates of any other Class. Therefore, only the holders of the Certificates
to be issued by a particular Trust will be entitled to receive and retain the
proceeds of drawings under the Primary Liquidity Facility, and, in the case of
the Class G Certificates, the Above-Cap Liquidity Facility, for such Trust. See
"Description of the Liquidity Facilities."
After use of all available funds under the related Primary Liquidity
Facility or in the related Primary Cash Collateral Account and the Above-Cap
Account for the Class G Certificates, 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 of the Series G and Series D Equipment Notes
are scheduled to be received by the Trustee in installments on March 23, June
23, September 23, and December 23 in certain years, commencing on March 23, 2003
and ending on September 23, 2007. The entire principal amount of the Series C
Equipment Notes is scheduled for payment on September 23, 2007.
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Scheduled payments of interest or principal on the Equipment Notes
are referred to herein as "Scheduled Payments," and March 23, June 23, September
23, and December 23 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 and Class C Certificates is March 23, 2009, and for the Class D
Certificates is September 23, 2007.
Payment of principal of 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."
Subject to the Intercreditor Agreement, on each Regular Distribution
Date the Trustee of each Trust will distribute 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, subject to the Intercreditor Agreement, its proportionate share,
based upon its fractional interest in such Trust, 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 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 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 a payment
in full of 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 Certificateholders of the related Trust 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
Certificateholders of record of the related Trust 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 in full of the 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 payment.
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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 on
which commercial banks are authorized or required to close in (i) New York, New
York, Dallas, Texas, or the city and state in which the Trustee or any Loan
Trustee is located or (ii) solely with respect to draws under a Policy, Armonk,
New York or the location of the Policy Provider's fiscal agent, or (iii) solely
with respect to any payment by any Luxembourg Paying Agent, Luxembourg,
Luxembourg (any other day being 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 and interest shall be added for such
additional period in the case of the Class G Certificates, but not in the case
of the Class C or Class D Certificates.
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,
Break Amount, Prepayment Premium, Make-Whole Amount, 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 Primary 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 Primary Liquidity
Facilities 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)
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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.
CLASS G TRUST CLASS C TRUST CLASS D TRUST
--------------------------------- --------------------------------- ---------------------------------
SCHEDULED EXPECTED SCHEDULED EXPECTED SCHEDULED EXPECTED
PRINCIPAL POOL PRINCIPAL POOL PRINCIPAL POOL
DATE PAYMENTS FACTOR PAYMENTS FACTOR PAYMENTS FACTOR
---- --------------- --------- --------------- --------- --------------- ---------
December 23, 2002 $ 0.00 1.0000000 $ 0.00 1.0000000 $ 0.00 1.0000000
March 23, 2003 23,302,381.46 0.9622328 0.00 1.0000000 1,622,628.90 0.9822460
June 23, 2003 8,554,357.26 0.9483683 0.00 1.0000000 2,158,405.01 0.9586298
September 23, 2003 0.00 0.9483683 0.00 1.0000000 2,212,365.10 0.9344231
December 23, 2003 19,045,610.47 0.9175002 0.00 1.0000000 2,267,674.23 0.9096113
March 23, 2004 24,273,516.57 0.8781591 0.00 1.0000000 2,324,366.11 0.8841792
June 23, 2004 15,902,550.11 0.8523851 0.00 1.0000000 2,382,475.26 0.8581113
September 23, 2004 0.00 0.8523851 0.00 1.0000000 2,442,037.14 0.8313917
December 23, 2004 19,045,610.49 0.8215170 0.00 1.0000000 4,635,348.28 0.7806740
March 23, 2005 24,273,516.65 0.7821758 0.00 1.0000000 4,751,231.95 0.7286883
June 23, 2005 15,902,550.21 0.7564018 0.00 1.0000000 4,870,012.79 0.6754030
September 23, 2005 0.00 0.7564018 0.00 1.0000000 4,991,763.10 0.6207855
December 23, 2005 19,045,610.47 0.7255337 0.00 1.0000000 5,116,557.19 0.5648026
March 23, 2006 24,273,516.57 0.6861925 0.00 1.0000000 5,244,471.10 0.5074201
June 23, 2006 15,902,550.11 0.6604185 0.00 1.0000000 5,375,582.86 0.4486031
September 23, 2006 0.00 0.6604185 0.00 1.0000000 5,509,972.42 0.3883156
December 23, 2006 19,045,610.51 0.6295504 0.00 1.0000000 5,647,721.77 0.3265210
March 23, 2007 24,273,516.65 0.5902092 0.00 1.0000000 5,788,914.81 0.2631815
June 23, 2007 15,902,550.17 0.5644353 0.00 1.0000000 5,933,637.67 0.1982585
September 23, 2007 348,256,552.30 0.0000000 108,605,000.00 0.0000000 18,119,834.31 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."
S-31
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 and
the amount allocable to, in the case of the Class G
Certificates, Break Amount, if any, and Prepayment Premium,
if any, and, in the case of the Class C and Class D
Certificates, Make-Whole Amount, if any, indicating any
portion thereof paid by the Liquidity Providers and/or the
Policy Provider;
(2) the amount of such distribution under the Pass Through
Trust Agreement allocable to interest;
(3) the Pool Balance and the Pool Factor for such Trust; and
(4) in the case of the Class G Certificates, the LIBOR rates
for the current and immediately preceding Interest Periods,
as determined by the Reference Agent. (Trust Supplements,
Section 6.01)
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))
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 6.01(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-default or cross-acceleration provisions in the
Indentures. Consequently, 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. State Street Bank and Trust Company of Connecticut, National
Association, will be the initial Trustee under each Trust.
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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. If a Loan Trustee sells any such 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 American, any Liquidity Provider, the Policy Provider
(except in the case of the Class G Certificates) or any Trustee. Neither such
Trustee nor the Certificateholders of such Trust, furthermore, could take 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 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)
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, Break Amount (if any), Prepayment Premium (if
any), 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, Break Amount (if any), Prepayment Premium
(if any), 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
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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 the Class C Certificateholders (other than American or any
of its affiliates) will have the right to purchase all, but
not less than all, of the Class G Certificates (unless the
Policy Provider has elected to purchase the Class G
Certificates as provided below);
o the Class D Certificateholders (other than American or any
of its affiliates) will have the right to purchase all, but
not less than all, of the Class G Certificates (unless the
Policy Provider has elected to purchase the Class G
Certificates as provided below) and the Class C
Certificates;
o if the Class E Certificates are issued as described under
"--Possible Issuance of Series E Equipment Notes," the
Class E Certificateholders will have the right to purchase
all, but not less than all, of the Class G Certificates
(unless the Policy Provider has elected to purchase the
Class G Certificates as provided below), Class C, 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 there has occurred a Policy
Provider Default) shall have the right to purchase all, but
not less than all, of the Class G Certificates.
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, but without Break Amount, Prepayment Premium,
or 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 aggregate 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 the
Subordination Agent has made an Interest Drawing, or a
withdrawal from the Primary Cash Collateral Account or, in
the case of Class G Certificates, a withdrawal from the
Above-Cap 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."
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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:
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
Reference Agency Agreement, or any Liquidity Facility, or, with respect to the
Class G Trust, 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, Reference Agency
Agreement, Liquidity Facilities, 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, Reference Agency Agreement, Liquidity
Facilities, 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, Reference Agency Agreement,
Liquidity Facilities, 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, Reference Agency Agreement,
Liquidity Facilities, 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
(including the Luxembourg Stock Exchange) or quotation
system on which the Certificates are listed (or to
facilitate any listing of any Certificates on any exchange
(including the Luxembourg Stock 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, Reference Agency Agreement,
Liquidity Facilities, Policy, or Policy Provider Agreement
to the extent necessary in connection with, or to continue,
the qualification, to the extent necessary, of such Pass
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Through Trust Agreement (including any supplemental
agreement), Intercreditor Agreement, Participation
Agreements, Reference Agency Agreement, Liquidity
Facilities, 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 Through Trust Agreement,
Intercreditor Agreement, Participation Agreements,
Reference Agency Agreement, Liquidity Facilities, Policy,
or Policy Provider Agreement such other provisions as may
be expressly permitted by the Trust Indenture Act;
o evidence and 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,
Reference Agency Agreement, Liquidity Facilities, 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 multiple 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, Reference Agency Agreement,
Liquidity Facilities, Policy, or Policy Provider Agreement
to the extent necessary to provide for the issuance of new
class C and 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 any Participation Agreement or
Indenture to reflect the substitution of a substitute
aircraft for any Aircraft;
o to 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 thereafter issued; and
o amend the Policy as required by Section 3.06 of the Policy
Provider Agreement and/or 3.07 of the Intercreditor
Agreement;
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, Intercreditor Agreement, Participation Agreements,
Reference Agency Agreement, Liquidity Facilities, or, with respect to the Class
G Trust, the Policy or the Policy Provider Agreement to the extent applicable to
such Certificateholders or modifying the
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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:
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 the ownership of the Equipment Notes in such
Trust, except as provided in such Pass Through Trust
Agreement, the Intercreditor Agreement, or any 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, other than amendments
expressly permitted to be made without the consent of any
Certificateholders as described above.
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 Policy Provider
may direct the Class G Trustee with respect to the matters referred to above as
long as the Final Distributions on the Class G Certificates have not been fully
paid or any Policy Provider Obligations remain outstanding and no Policy
Provider Default shall have occurred and be continuing. 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 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)
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 2002-1 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. If the Class E Certificates are issued, the trustee under the
Class E Trust (the "Class E Trustee") 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))
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 of 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
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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 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
shall be the same and 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 only be prepaid under the circumstances
described under "Description of the Equipment Notes -- Redemption." For a new
class C pass through trust, American may arrange for a substitute primary
liquidity facility that may differ from the Primary Liquidity Facility entered
into with respect to the Class C Certificates as of the date of their issuance.
For a new class D pass through trust, American may not arrange for a liquidity
facility.
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 Facilities, 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 in full of the 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 State Street Bank and
Trust Company of Connecticut, National Association. The Trustee's address is
State Street Bank and Trust Company of Connecticut, National Association, 225
Asylum Street, Goodwin Square, Hartford, Connecticut 06103, Attention: Corporate
Trust Division. American has been informed that (i) US Bank, N.A. and State
Street Bank and Trust Company have entered into an agreement for the purchase by
US Bank, N.A. of substantially all of the corporate trust business of State
Street Bank and Trust Company and its affiliate State Street Bank and Trust
Company of Connecticut, National Association (which will act as Pass Through
Trustee, Subordination Agent, Loan Trustee and Reference Agent) and (ii) US
Bank, N.A. and State Street Bank and Trust Company estimate that such purchase
may close in December 2002.
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,
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any Liquidity Facility, either 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 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-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies and clearing corporations, and certain other organizations.
Indirect access to the DTC system 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"). See "Description of the Pass Through Certificates -- Book-Entry
Registration" in the Prospectus for a discussion of the book-entry procedures
applicable to the Certificates and the limited circumstances under which
definitive certificates may be issued for the Certificates.
So long as such book-entry procedures are applicable, no person
acquiring an interest in such 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 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.
LUXEMBOURG PAYING AGENT
So long as any of the Class G Certificates are listed on the
Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so
require, the Class G Trust will maintain a paying agent and transfer agent in
Luxembourg. We expect that Dexia Banque a Luxembourg will initially act as such
paying agent and transfer agent in Luxembourg (together with any subsequent
paying agent in Luxembourg, the "Luxembourg Paying Agent").
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 Certificates through the Luxembourg
Paying Agent, or for maintaining, supervising, or reviewing any records relating
to such beneficial ownership interests or for the performance by the Luxembourg
Paying Agent of its obligations under the rules, regulations, and procedures of
the Luxembourg Stock Exchange or any other statutory, regulatory, contractual,
or customary procedures governing its operations.
DESCRIPTION OF THE LIQUIDITY FACILITIES
The following summary describes material terms of the Liquidity
Facilities and certain provisions of the Intercreditor Agreement relating to the
Liquidity Facilities. The summary supplements (and, to the extent inconsistent
therewith, replaces) the description of the general terms and provisions
relating to the Liquidity Facilities 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 Facilities and the Intercreditor Agreement,
each of which will be filed as an exhibit
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to a Current Report on Form 8-K to be filed by American with the Commission. The
provisions of the Primary Liquidity Facilities are substantially identical
except as otherwise indicated. The term "Liquidity Facilities" refers to the
Primary Liquidity Facilities and the Above-Cap Liquidity Facility. There will be
no liquidity facility available with respect to the Class D Certificates.
PRIMARY LIQUIDITY FACILITIES
GENERAL
The primary liquidity provider for each of the Class G and Class C
Trusts (the "Primary Liquidity Provider") will enter into a separate revolving
credit agreement (each, a "Primary Liquidity Facility") with the Subordination
Agent with respect to such Trust. Under each Primary Liquidity Facility, the
Primary Liquidity Provider will, if necessary, make one or more advances
("Interest Drawings") to the Subordination Agent that will be used solely to
make distributions of interest in respect of the Pool Balance of the related
Certificates when scheduled, subject to certain limitations. The Primary
Liquidity Facility for each of the Class G and Class C Trusts, together, in the
case of the Class G Trust, with amounts in the Above-Cap Account, if any, are
expected to be sufficient to distribute interest on the related Class of
Certificates on up to six consecutive quarterly Regular Distribution Dates at
the respective interest rates shown on the cover page of this Prospectus
Supplement for the Class G Certificates and at an interest rate initially of %
for the Class C Certificates (subject to change as described in "Description of
the Certificates -- Possible Refunding of Series C Equipment Notes and Series D
Equipment Notes") (the "Stated Interest Rates"). If interest payment defaults
occur that exceed the amount covered by or available under the Primary Liquidity
Facility for any Trust, and, in the case of the Class G Trust, funds available
under the Above-Cap Account, the Certificateholders of such Trust will bear
their allocable share of the deficiencies to the extent that there are no other
sources of funds. The initial Primary Liquidity Provider with respect to each
Trust may be replaced by one or more other entities with respect to any of such
Trusts under certain circumstances. Therefore, the Primary Liquidity Provider
for the Trusts may differ.
DRAWINGS
The initial Maximum Available Commitment available under the Primary
Liquidity Facility for the Class G and Class C Trusts will be as follows:
INITIAL
MAXIMUM
AVAILABLE
TRUST COMMITMENT
----- ----------
Class G..............................................
Class C..............................................
Except as otherwise provided below, the Primary Liquidity Facility
for each of the Class G and Class C Trusts 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 Certificates of such Trust
at the Stated Interest Rate for such Trust 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 a Primary Liquidity Facility with respect to any Trust on any Regular
Distribution Date to fund any shortfall of interest on Certificates of such
Trust will not exceed the then Maximum Available Commitment under such Primary
Liquidity Facility.
The "Maximum Available Commitment" at any time under each Primary
Liquidity Facility is an amount equal to the then Required Amount of such
Primary Liquidity Facility less the aggregate amount of each Interest Drawing
then outstanding under such Primary Liquidity Facility at such time, provided
that following a Downgrade Drawing, a Final Drawing, or a Non-Extension Drawing
under a Primary Liquidity Facility, the Maximum Available Commitment under such
Primary Liquidity Facility shall be zero. Notwithstanding the foregoing, in
connection with a Refunding as described in "Description of the Certificates --
Possible Refunding of Series C Equipment Notes and Series D Equipment Notes,"
American could enter into a new primary liquidity facility with respect to the
new class C certificates with a different initial amount and Maximum Available
Commitment.
The "Required Amount" under each Primary Liquidity Facility on any
day is the aggregate amount sufficient to pay interest on the Pool Balance of
the related Certificates at the Capped Interest Rate (in the case of the Class G
Certificates) or at the Stated Interest Rate (in the case of the Class C
Certificates) on the six successive quarterly Regular Distribution Dates
following such date or, if such day is a Regular Distribution Date, on such day
and the five succeeding quarterly Regular Distribution Dates, in either case
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calculated without regard to expected future distributions of principal on such
Class of Certificates. The Pool Balance for purposes of the definition of
Required Amount with respect to the Primary Liquidity Facility for the Class G
Certificates, if any Policy Provider Election with respect to the Class G
Certificates has been made, shall be deemed to be reduced by the amount (if
positive) by which (a) the outstanding principal balance of each 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 Equipment Note.
"Capped Interest Rate" for the Class G Certificates is a rate of %
per annum.
The Primary Liquidity Facility for any Class of Certificates does not
provide for drawings thereunder to pay for principal of or Break Amount or
Prepayment Premium (in the case of the Class G Certificates) or Make-Whole
Amount (in the case of the Class C Certificates) on the Certificates of such
Class, or to pay principal of or interest, Break Amount, Prepayment Premium, or
Make-Whole Amount with respect to the Certificates of any other Class. The
Primary Liquidity Facility for the Class G Certificates does not provide for
drawings thereunder to pay interest with respect thereto in excess of an amount
equal to six full quarterly installments of interest calculated at the Capped
Interest Rate for such Class. The Primary Liquidity Facility for the Class C
Certificates does not provide for drawings thereunder to pay any interest with
respect thereto in excess of the Stated Interest Rate for such Class, or any
interest in an aggregate amount in excess of six quarterly installments of
interest with respect thereto. (Primary Liquidity Facilities, Section 2.02;
Intercreditor Agreement, Section 3.06)
Each payment by the Primary Liquidity Provider will reduce by the
same amount the Maximum Available Commitment under the related Primary Liquidity
Facility, subject to reinstatement as hereinafter described. With respect to any
Interest Drawings, upon reimbursement of the Primary Liquidity Provider in full
or in part for the amount of such Interest Drawings plus accrued interest
thereon, the Maximum Available Commitment under such Primary Liquidity Facility
will be reinstated by the amount reimbursed but not to exceed the then Required
Amount of such Primary Liquidity Facility; provided, however, such Primary
Liquidity Facility will not be so reinstated at any time if (i) a Primary
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. Any amounts paid by the Policy Provider to
a Primary Liquidity Provider as described in "Description of the Intercreditor
Agreement--Intercreditor Rights--Controlling Party" will not reinstate the
relevant Primary Liquidity Facility, but any reimbursement of such amounts
received by the Policy Provider under the distribution provisions of the
Intercreditor Agreement will reinstate the relevant Primary Liquidity Facility
to the extent of such reimbursement unless (i) a Primary 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. With respect to any other drawings under such Primary Liquidity
Facility, amounts available to be drawn thereunder are not subject to
reinstatement. (Primary Liquidity Facilities, Section 2.02(a); Intercreditor
Agreement, Section 3.06(g)) Following each reduction of the Pool Balance for the
applicable Trust, the Required Amount of the Primary Liquidity Facility for any
Trust will be reduced automatically to an amount sufficient to pay interest on
the relevant Pool Balance thereof on the next six successive quarterly Regular
Distribution Dates (without regard to expected future distributions of principal
of such Certificates) at the Capped Interest Rate (in the case of the Class G
Certificates) or at the Stated Interest Rate (in the case of the Class C
Certificates). (Primary Liquidity Facilities, 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 involving American 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 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 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 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 PRIMARY LIQUIDITY FACILITIES
If at any time (i) the short-term corporate credit rating (with
respect to Standard & Poor's) or short-term unsecured debt rating (with respect
to Moody's) of the Primary Liquidity Provider for either of the Class G or Class
C Trusts (or if such Primary Liquidity Provider does not have such a rating
issued by a given Rating Agency, the long-term corporate credit rating (with
respect to Standard & Poor's) or long-term unsecured debt rating (with respect
to Moody's) of such Primary Liquidity Provider) or, if applicable, the
short-term corporate credit rating (with respect to Standard & Poor's) or
short-term unsecured debt rating (with respect to Moody's) of any guarantor of
the obligations of the Primary Liquidity Provider issued by either Rating Agency
is lower than the
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Threshold Rating or (ii) any guarantee of the Primary Liquidity Provider's
obligations under the relevant Primary Liquidity Facility becomes invalid or
unenforceable, the Primary Liquidity Facility for such Class may be replaced by
a Replacement Primary Facility subject to receipt of the Rating Agencies'
written confirmation of their respective ratings (without regard to the Policy)
then in effect of the Certificates with respect to which such Primary Liquidity
Facility was issued (before downgrading of such ratings, if any, as a result of
downgrading of the Primary Liquidity Provider or, if applicable, the downgrading
of any guarantor of the obligations of the Primary Liquidity Provider or any
such guarantee becoming invalid or unenforceable). If such Primary Liquidity
Facility is not replaced with a Replacement Primary Facility within 10 days
after the date of the downgrading or such guarantee becomes invalid or
unenforceable, the Subordination Agent will draw the then Maximum Available
Commitment under such Primary Liquidity Facility (the "Downgrade Drawing"). The
Subordination Agent will deposit the proceeds of any Downgrade Drawing into a
cash collateral account (the "Primary Cash Collateral Account") for such Class
of 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 such Primary Liquidity Facility would be used. (Primary
Liquidity Facilities, Section 2.02(c); Intercreditor Agreement, Sections 3.06(c)
and 3.06(f))
A "Replacement Primary Facility" for any Primary Liquidity Facility
will mean an irrevocable revolving credit agreement (or agreements) in
substantially the form of the replaced Primary 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 Certificates with respect to which such Primary Liquidity Facility was
issued (before downgrading of such ratings, if any, as a result of the
downgrading of the Primary Liquidity Provider (without regard to the Policy) or,
if applicable, the downgrading of any guarantor of the obligations of the
Primary Liquidity Provider or any such guarantee becoming invalid or
unenforceable), and which, in the case of a Replacement Primary Facility for the
Class G Certificates, shall be consented to by the Policy Provider (which
consent shall not be unreasonably withheld or delayed) in a face amount (or in
an aggregate face amount) equal to the amount sufficient to pay interest on the
Pool Balance of the Certificates of such Trust (at the Capped Interest Rate in
the case of the Class G Certificates, and at the Stated Interest Rate, in the
case of the Class C Certificates, and without regard to expected future
principal distributions) on the six Regular Distribution Dates following the
date of replacement of such Primary Liquidity Facility, or, if such date is a
Regular Distribution Date, on such day and the five 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 Primary 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 corporate 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 corporate
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 corporate credit rating of A in the case of
Standard & Poor's.
The Primary Liquidity Facility for each of the Class G and Class C
Trusts provides that the Primary Liquidity Provider's obligations thereunder
will expire on the earliest of:
o 364 days after the initial issuance date of the
Certificates (counting from, and including, such issuance
date);
o the date on which the Subordination Agent delivers to such
Primary Liquidity Provider a certification that Final
Distributions on all of the Certificates of such Trust have
been paid in full or provision has been made for such
payment;
o the date on which the Subordination Agent delivers to such
Primary Liquidity Provider a certification that a
Replacement Primary Facility has been substituted for such
Primary Liquidity Facility;
o the fifth Business Day following receipt by the
Subordination Agent of a Termination Notice from such
Primary Liquidity Provider (see "-- Primary 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 such
Primary Liquidity Facility.
Each Primary Liquidity Facility provides that it may be extended for
364-day periods by mutual agreement of the relevant Primary Liquidity Provider
and the Subordination Agent. Under specified circumstances, the initial Primary
Liquidity Provider may
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extend the Primary Liquidity Facility beyond any such 364-day period to as late
as the date that is 15 days after the Final Legal Distribution Date for the
relevant Class of Certificates.
The Intercreditor Agreement will provide for the replacement of the
Primary Liquidity Facility for any Trust if such Primary Liquidity Facility is
scheduled to expire earlier than 15 days after the Final Legal Distribution Date
for the Certificates of such Trust and such Primary Liquidity Facility is not
extended at least 25 days prior to its then scheduled expiration date. If such
Primary 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 such Primary
Liquidity Facility (the "Non-Extension Drawing"). The Subordination Agent will
hold the proceeds of the Non-Extension Drawing in the Primary Cash Collateral
Account for the related Trust 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 such Primary Liquidity Facility
would be used. (Primary Liquidity Facilities, 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 Primary Facility at any time to replace the Primary Liquidity
Facility for any Trust (including without limitation any Replacement Primary
Facility described in the following sentence). In addition, if any Primary
Liquidity Provider determines not to extend any Primary Liquidity Facility, then
such Primary Liquidity Provider may, at its option, arrange for a Replacement
Primary Facility acceptable to American to replace such Primary Liquidity
Facility during the period no earlier than 40 days and no later than 25 days
prior to the then scheduled expiration date of such Primary Liquidity Facility.
The Primary Liquidity Provider may also arrange for a Replacement Primary
Liquidity Facility to replace a Primary Liquidity Facility at any time after it
has extended the expiration of such Primary Liquidity Facility for a period in
excess of a 364-day period and as late as 15 days after the Final Legal
Distribution Date for such Class of Certificates. If a Replacement Primary
Facility is provided at any time after a Downgrade Drawing or a Non-Extension
Drawing under any Primary Liquidity Facility, the funds with respect to such
Primary Liquidity Facility on deposit in the Primary Cash Collateral Account for
such Trust will be returned to the Primary Liquidity Provider being replaced.
(Intercreditor Agreement, Section 3.06(e))
Upon receipt by the Subordination Agent of a Termination Notice (as
defined under "--Primary Liquidity Events of Default" below) with respect to any
Primary Liquidity Facility from the relevant Primary Liquidity Provider, the
Subordination Agent shall request a final drawing (a "Final Drawing") under such
Primary 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 Primary Cash Collateral Account for the related Trust 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 such Primary Liquidity Facility would be used. (Primary Liquidity
Facilities, Section 2.02(d); Intercreditor Agreement, Sections 3.06(f) and
3.06(i))
Drawings under any Primary Liquidity Facility will be made by
delivery by the Subordination Agent of a certificate in the form required by
such Primary Liquidity Facility. Upon receipt of such a certificate, the
relevant Primary Liquidity Provider is obligated to make payment of the drawing
requested thereby in immediately available funds. Upon payment by the relevant
Primary Liquidity Provider of the amount specified in any drawing under any
Primary Liquidity Facility, such Primary Liquidity Provider will be fully
discharged of its obligations under such Primary Liquidity Facility with respect
to such drawing and will not thereafter be obligated to make any further
payments under such Primary 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 any
Primary 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 any Primary Liquidity Facility by reason of an
Interest Drawing or Final Drawing (each, a "Drawing") will be immediately due
and payable to the Primary 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 Primary Liquidity Provider's receipt of the
notice of such Interest 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. In the case of a Final
Drawing, however, the Subordination Agent may convert the Final Drawing into a
drawing bearing interest at the Base Rate plus 2.50% per annum on the last day
of an interest period for such Drawing.
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"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 of 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 applicable Liquidity Provider from three
Federal funds brokers of recognized standing selected by it (and reasonably
satisfactory to American) plus one quarter of one percent (0.25%).
"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 any Primary Liquidity Facility by reason of a
Downgrade Drawing or a Non-Extension Drawing and deposited in a Primary Cash
Collateral Account will be treated as follows:
o such amount will be released on any Distribution Date to
the Primary Liquidity Provider to pay any obligations to
the Primary Liquidity Provider to the extent such amount
exceeds the Required Amount;
o any portion of such amount withdrawn from the Primary Cash
Collateral Account for such Certificates to pay interest
distributions on such 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 any of the
Primary Liquidity Facilities, 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 Primary
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 (and in either case will continue to be
subject to the payment of a commitment fee on the amount of such Downgrade
Drawing or Non-Extension Drawing) and (y) from and after the date, if any, on
which it is converted into a Final Drawing as described below under "-- Primary
Liquidity Events of Default," at a rate equal to Liquidity Facility LIBOR for
the applicable interest period (or, as described in the first paragraph under
"-- Interest Drawings and Final Drawings," the Base Rate) plus 2.50% per annum.
PRIMARY LIQUIDITY EVENTS OF DEFAULT
Events of default under each Primary Liquidity Facility (each, a
"Primary Liquidity Event of Default") will consist of:
o the acceleration of all the Equipment Notes; or
o certain bankruptcy or similar events involving American.
(Primary Liquidity Facilities, Section 1.01)
If (i) any Primary Liquidity Event of Default under any Primary
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 applicable Primary Liquidity Provider may, in its
discretion, give a notice of termination of such Primary Liquidity Facility (a
"Termination Notice"). The Termination Notice will have the following
consequences:
o the related Primary 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
Primary Liquidity Provider will honor, a Final Drawing
thereunder in an amount equal to the then Maximum Available
Commitment thereunder;
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o any Drawing remaining unreimbursed as of the date of
termination will be converted automatically into a Final
Drawing under such Primary Liquidity Facility; and
o all amounts owing to the Primary Liquidity Provider will
become immediately due and payable.
Notwithstanding the foregoing, the Subordination Agent will be
obligated to pay amounts owing to the applicable Primary 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." (Primary Liquidity Facilities, Section
6.01)
Upon the circumstances described under "Description of the
Intercreditor Agreement -- Intercreditor Rights," a Primary Liquidity Provider
may become the Controlling Party with respect to the exercise of remedies under
the Indentures. (Intercreditor Agreement, Section 2.06(c))
PRIMARY LIQUIDITY PROVIDER
The initial Liquidity Provider for each of the Class G and Class C
Trusts will be Citibank, N.A. Citibank, N.A. is an affiliate of Salomon Smith
Barney Inc., which will act as an underwriter in this offering.
Citibank, N.A. has a long-term unsecured debt rating of Aa1 from
Moody's and a long-term corporate credit rating of AA from Standard & Poor's and
a short-term unsecured debt rating of P1 from Moody's and a short-term corporate
credit rating of A-1+ from Standard & Poor's.
Citibank, N.A. intends to find a replacement primary liquidity provider
as soon as is feasible.
ABOVE-CAP LIQUIDITY FACILITY
GENERAL
The Above-Cap Liquidity Provider for the Class G Trust will enter into
an irrevocable interest rate cap agreement (the "Above-Cap Liquidity Facility")
with the Subordination Agent with respect to such Trust.
PAYMENTS
Under the Above-Cap Liquidity Facility, the Above-Cap Liquidity
Provider will make payments (each, an "Above-Cap Payment") on any Distribution
Date if (i) after giving effect to the provisions of the Intercreditor Agreement
(but without regard to drawings under the related Primary Liquidity Facility or
withdrawals from the related Primary Cash Collateral Account or Above-Cap
Account), the Subordination Agent does not have sufficient funds for the payment
of interest on the Class G Certificates, and (ii) then effective LIBOR exceeds
Capped LIBOR, in an amount equal to (regardless of whether any portion of such
amount has been or is being funded by the relevant Primary Liquidity Provider as
an Interest Drawing) the product of (x) the excess of LIBOR over Capped LIBOR,
multiplied by (y) the Pool Balance of the Class G Certificates, multiplied by
(z) the actual days elapsed in the applicable interest period divided by 360.
"Capped LIBOR" is equal to % per annum.
An Above-Cap Payment under the Above-Cap Liquidity Facility will be
made to the Subordination Agent, which will immediately deposit such Above-Cap
Payment in the Above-Cap Account to be available for withdrawals as described in
"--Above-Cap Account" below. The Above-Cap Liquidity Facility will be available
to make payments only as long as the related Primary Liquidity Facility is
available to be drawn or there are amounts available to be withdrawn in the
related Primary Cash Collateral Account or the Above-Cap Account.
The Above-Cap Liquidity Facility does not provide for payments
thereunder to pay for principal of, or Break Amount or Prepayment Premium on,
the Certificates of such Class or to pay principal of, or interest, Break
Amount, Prepayment Premium, or Make-Whole Amount on, the Certificates of any
other Class. (Intercreditor Agreement, Section 3.06.) The Subordination Agent
will have no obligation to reimburse the Above-Cap Liquidity Provider for any
Above-Cap Payment.
EARLY TERMINATION
If at any time the Above-Cap Liquidity Provider fails to meet the
Threshold Rating, then the Above-Cap Liquidity Facility may be replaced by a
Replacement Above-Cap Liquidity Facility subject to receipt of the Rating
Agencies' written confirmation of
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their respective ratings (without regard to the Policy) then in effect of the
Class G Certificates (before downgrading of such ratings as a result of the
downgrading of the Above-Cap Liquidity Provider). If such Above-Cap Liquidity
Facility is not replaced with a Replacement Above-Cap Liquidity Facility within
10 days of such downgrading or, if earlier, by the expiration date of such
Above-Cap Liquidity Facility, the Above-Cap Liquidity Provider will pay to the
Subordination Agent for deposit into a reserve account (the "Above-Cap Reserve
Account") for the benefit of the Class G Certificates an amount in cash (the
"Above-Cap Reserve Amount") equal to the product of:
o 1.528, multiplied by
o % per annum minus Capped LIBOR, multiplied by
o the Pool Balance of the Class G Certificates,
plus all other unpaid amounts then due under the Above-Cap Liquidity Facility.
Upon the payment, the Above-Cap Liquidity Facility shall terminate.
The Above-Cap Liquidity Facility may be terminated upon the occurrence
of certain other specified events with respect to the Above-Cap Liquidity
Provider and upon the occurrence of any such event the Above-Cap Liquidity
Provider is obligated to pay the Above-Cap Reserve Amount into the Above-Cap
Reserve Account.
A "Replacement Above-Cap Liquidity Facility" for the Above-Cap
Liquidity Facility will mean an irrevocable interest rate cap agreement (or
agreements) in substantially the form of the replaced Above-Cap Liquidity
Facility, or in such other form as will permit the Rating Agencies to confirm in
writing their respective ratings then in effect for the Class G Certificates
(without regard to the Policy and before downgrading of such ratings, if any, as
a result of the downgrading of the Above-Cap Liquidity Provider) and issued by a
person (or persons) having debt ratings issued by both Rating Agencies that are
equal to or higher than the Threshold Rating and which person will be consented
to by the Policy Provider (which consent shall not be unreasonably withheld or
delayed); provided that in certain circumstances involving imposition of
withholding taxes upon payments to be made by the Above-Cap Liquidity Provider,
(i) no prior ratings confirmation or consent of the Policy Provider will be
required if the initial Above-Cap Liquidity Provider assigns all of its rights
and obligations under the Above-Cap Liquidity Facility to one of its offices or
pre-identified affiliates then meeting the Threshold Rating requirement and (ii)
no consent of the Policy Provider will be required if such assignment is made by
the initial Above-Cap Liquidity Provider to one of its affiliates other than
such pre-identified affiliates. (Intercreditor Agreement, Section 1.01)
Amounts will be withdrawn from the Above-Cap Reserve Account and
deposited in the Above-Cap Account as needed, to be used for the same purposes
and under the same circumstances, and subject to the same conditions, as
Above-Cap Payments under the related Above-Cap Liquidity Facility (were such
Above-Cap Liquidity Facility still in effect) would be used. Cash deposited into
the Above-Cap Reserve Account will be invested in certain specified eligible
investments.
The Above-Cap Liquidity Facility provides that the Above-Cap Liquidity
Provider's obligations thereunder will expire on the earlier of the first
Business Day after (i) the Final Legal Distribution Date for the Class G
Certificates and (ii) the date on which the Pool Balance of the Class G Trust
equals zero.
ABOVE-CAP ACCOUNT
The Subordination Agent will maintain an account (the "Above-Cap
Account") for the Class G Trust into which Above-Cap Payments made by the
Above-Cap Liquidity Provider will be deposited. If, on any Distribution Date,
after giving effect to the subordination provisions of the Intercreditor
Agreement and after giving effect to any Interest Drawing under the relevant
Primary Liquidity Facility or withdrawals from the related Primary Cash
Collateral Account, there are insufficient funds available to the Subordination
Agent to pay interest on the Class G Certificates (regardless of whether LIBOR
is lower or higher than the Capped LIBOR), the Subordination Agent shall make a
withdrawal from the related Above-Cap Account to fund such shortfall to the
extent funds are available in such Above-Cap Account (after giving effect to any
Above-Cap Payment or any transfer required from the Above-Cap Reserve Account).
Amounts deposited into the Above-Cap Account are not available to pay
principal of or Break Amount (if any), Prepayment Premium (if any), Make-Whole
Amount (if any), with respect to any Certificates. On the earlier of the first
Business Day after (i) the Final Legal Distribution Date for the Class G
Certificates and (ii) the date of payment in full of Final Distributions with
respect to the
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Class G Certificates, the Subordination Agent will pay to the Above-Cap
Liquidity Provider an amount equal to the sum of the amounts remaining in the
Above-Cap Account and the Above-Cap Reserve Account, if any.
Amounts available under the Above-Cap Liquidity Facility, together with
the maximum amount of Interest Drawings available under the related Primary
Liquidity Facility, are expected to be sufficient to pay interest (calculated at
the Stated Interest Rate for such Class of Certificates) on the Class G
Certificates on up to six consecutive Regular Distribution Dates (without regard
to any expected future payments of principal on such Certificates).
Notwithstanding the subordination provisions of the Intercreditor
Agreement, the holders of the Class G Certificates will be entitled to receive
and retain the proceeds of withdrawals from the Above Cap-Account.
INITIAL ABOVE-CAP LIQUIDITY PROVIDER
The initial Above-Cap Liquidity Provider for the Class G Trust will be
Credit Suisse First Boston International ("CSFBI") (the "Above-Cap Liquidity
Provider" and, together with each Primary Liquidity Provider, the "Liquidity
Providers"), an affiliate of Credit Suisse First Boston Corporation, one of the
underwriters in this offering. CSFBI is an unlimited liability company
incorporated in England and Wales. Its principal business is banking, including
the trading of derivative products linked to interest rates, equities, foreign
exchange and credit. CSFBI is an authorized institution under the Banking Act of
1987 and is regulated by The Financial Services Authority. CSFBI has a
short-term debt rating of P-1 from Moody's and a short-term corporate credit
rating of A-1+ (negative outlook) from Standard & Poor's, and a long-term debt
rating of Aa3 (negative outlook) from Moody's and a long-term corporate credit
rating of AA- (negative outlook) from Standard & Poor's.
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 financial guarantee insurance policy
(the "Policy") in favor of the Subordination Agent for the benefit of the
holders of the Class G Certificates. The Policy does 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:
INTEREST DRAWINGS
If, on any Regular Distribution Date (other than the Final Legal
Distribution Date) for 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
o any drawings paid under the Primary Liquidity Facility for the
Class G Certificates in respect of accrued interest on such
Certificates,
o any withdrawal of funds from the Primary Cash Collateral
Account for the Class G Certificates in respect of such
interest, and
o any withdrawal from the Above-Cap Account in respect of such
interest (collectively with the amounts described in the two
previous bullet points, "Prior Funds"),
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 applicable 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.
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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
related Collateral under (and as defined in) the related Indenture and after
giving effect to the subordination provisions of the Intercreditor Agreement and
(if such Disposition occurs prior to a Policy Provider Election with respect to
such Defaulted Series G Equipment Note) 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 for the Class G Certificates from the immediately preceding
Regular Distribution Date, then on any Policy Business Day 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 for the Class G Certificates from the immediately preceding
Regular Distribution Date.
NO PROCEEDS DRAWING
On the first Policy Business Day (which shall be a Special Distribution
Date) that is 21 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 for the Class G
Certificates from the immediately preceding Regular Distribution Date to such
Special Distribution Date. The Subordination Agent is to give prompt notice to
each Trustee, the Liquidity Providers 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.
Notwithstanding the foregoing, at the end of any such 21-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 21-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 21-month period (after
giving effect to the application of funds received from the
related Primary Liquidity Facility, the related Primary Cash
Collateral Account, and the Above-Cap Account, in each case
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 any Primary Liquidity Facility, any Primary
Cash Collateral Account, or the Above-Cap 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 Policy 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 for the Class G Certificates 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 Policy Business Day specified by the Subordination Agent upon 20
days notice to the Policy Provider (such specified Policy Business Day, an
"Election Distribution Date,"which shall be a Special Distribution Date) to
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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 for the Class G Certificates 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 21-month period,
endorse the Policy (if not already endorsed to so provide) to provide for the
payment to the Primary Liquidity Provider with respect to the Class G
Certificates of interest accruing on the outstanding drawings of the related
Primary Liquidity Facility from and after the end of such 21-month period as and
when such interest becomes due in accordance with such Primary 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 the Final Distributions (calculated as at such date but
excluding any unpaid Break Amount or Prepayment Premium) 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
Break Amount or Prepayment Premium) 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, each 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 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 3:00 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 Policy
Business Day (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 Trusts, the Class G Trustee, or the Subordination Agent
for withholding taxes, if any (including interest and penalties in respect of
that liability), (ii) any Break Amount
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or Prepayment Premium that at any time may become due on or with respect to the
Class G Certificates, or (iii) 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 the 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 is issued under and pursuant to and shall be construed
under, the laws of the State of New York, without giving effect to the conflict
of laws principles that might invoke the substantive laws of other
jurisdictions.
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 any Liquidity
Provider and the commencement of any proceedings by American or any 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 any
Liquidity Provider.
"Order" means the order referred to in the definition of the term
"Preference Amount."
"Policy Business Day" means any day that is not a Saturday, a Sunday,
or other day on which insurance companies in New York, New York or commercial
banking institutions in the cities in which the Corporate Trust Office of the
Subordination Agent or the Policy Provider (or its fiscal agent) are located are
authorized or obligated by law or executive order to close.
"Preference Amount" means, with respect to the Policy any amount paid
or required to be paid in respect of the Class G Certificates to a Class G
Certificateholder that is voided under any applicable bankruptcy, insolvency,
receivership, or similar law in an Insolvency Proceeding as a result of which
the Class G Trustee, the Subordination Agent, or any holder of the Class G
Certificates (as the case may be) is required to return all or any portion of
such voided payment (including any disgorgement from the holders of the Class G
Certificates resulting from an Insolvency Proceeding whether such disgorgement
is determined by a theory of preferential conveyance or otherwise) in accordance
with a final, nonappealable order of a court of competent jurisdiction.
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 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. 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 based on the Pool
Balance of the Class G Certificates and a fee in connection with certain
prepayments of the Class G Certificates and to reimburse the Policy Provider for
certain expenses.
DESCRIPTION OF THE INTERCREDITOR AGREEMENT
The following summary describes certain material provisions of the
Intercreditor Agreement (the "Intercreditor Agreement") among the Trustees, the
Liquidity Providers, the Policy Provider, and State Street Bank and Trust
Company of Connecticut, 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.
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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 holders of at least a majority of the outstanding principal amount of the
Equipment Notes issued under such Indenture, so long as no Indenture Event of
Default shall have occurred and be continuing thereunder. For so long as the
Subordination Agent is the registered holder of the Equipment Notes, the
Subordination Agent will act with respect to the preceding sentence in
accordance with the directions of the Trustees of the Trusts in the Trust
Property of which are Equipment Notes constituting, in the aggregate, the
required principal amount of Equipment Notes, except that, so long as the Final
Distributions on the Class G Certificates have not been paid in full or any
Policy Provider Obligations remain outstanding and no Policy Provider Default
shall have occurred and be continuing, the Subordination Agent will act with
respect to the preceding sentence in accordance with the directions of the
Policy Provider rather than the Class G Trustee with respect to the Series G
Equipment Notes. (Intercreditor Agreement, Section 2.06)
At any time after an Indenture Event of Default has occurred and is
continuing under an Indenture, 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, including
acceleration of such Equipment Notes or foreclosing the lien on the related
Aircraft, by the Controlling Party, subject to the limitations described below.
(Intercreditor Agreement, Section 2.06) Notwithstanding the foregoing, no
amendment, modification, consent, or waiver will, without the consent of each
Primary Liquidity Provider and the Policy Provider, reduce the amount of
principal or interest payable by American under any Equipment Note.
(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, at any time prior to the time that
Final Distributions have been paid in full to the holders of the Class G
Certificates and/or at any time when 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 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 any Primary 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
relevant Primary Cash Collateral Account to pay interest on the relevant Class
of Certificates or has been converted into a Final Drawing and remains
unreimbursed and (z) the date on which all Equipment Notes have been
accelerated, the Primary Liquidity Provider with the greatest amount of
unreimbursed Liquidity Obligations (but not including a Primary Liquidity
Provider that has defaulted in its obligation to make any advance under its
Primary Liquidity Facility) will have the right to become the Controlling Party
with respect to any Indenture; provided that if the Policy Provider pays to each
Primary Liquidity Provider all outstanding drawings and interest thereon owing
to such Primary Liquidity Provider under such Primary Liquidity Facilities 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 Primary Liquidity
Provider with respect to the Class G Certificates all subsequent drawings,
together with accrued interest thereon, under the related Primary Liquidity
Facility as and when such obligations become due (and if a Policy Provider
Default has occurred and is continuing, the Primary Liquidity Provider with the
highest amount of unreimbursed Liquidity Obligations, if it so elects, shall
become the Controlling Party). (Intercreditor Agreement, Section 2.06)
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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 Distributions with respect to the Certificates
of any Trust, any Break Amount, Prepayment Premium or 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 Break Amount, Prepayment
Premium, or 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 or (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 New York Insurance Department 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 shall 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 American and/or its
affiliates), 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.
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 will be distributed promptly by
the Subordination Agent on such Distribution Date in the following order of
priority:
o to the Primary 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 Primary Liquidity Provider to the extent required to
pay accrued and unpaid interest on the Liquidity Obligations
(as determined after giving effect to payments made by the
Policy Provider to the Primary Liquidity Provider in respect
of interest on drawings under the Primary Liquidity
Facilities) and to the Policy Provider to the extent required
to pay interest accrued on certain Policy Provider Obligations
(as provided in the definition thereof) and, if the Policy
Provider has elected to pay to the Primary Liquidity Provider
all outstanding drawings and interest thereon owing to the
Primary Liquidity Provider under the Primary Liquidity
Facilities, to reimburse the Policy Provider for the amount of
such payment made to the Primary Liquidity Provider
attributable to interest accrued on such drawings, pro rata;
o if applicable, to replenish ratably each Primary Cash
Collateral Account up to the applicable Required Amount and
then, to the Primary Liquidity Provider to the extent required
to pay or reimburse the Primary Liquidity Provider for the
Liquidity Obligations (other than amounts payable pursuant to
the two preceding clauses and as determined after giving
effect to payments made by the Policy Provider to the Primary
Liquidity Provider in respect of principal of drawings under
the Primary Liquidity Facilities) and, if the Policy Provider
has elected to pay to the Primary Liquidity Provider all
outstanding drawings and interest thereon owing to the Primary
Liquidity Provider under the Primary Liquidity Facilities, to
the Policy Provider to the extent required to reimburse the
Policy Provider for any payment made to the Primary Liquidity
Provider in respect of principal of drawings under the Primary
Liquidity Facilities;
o to the Primary Liquidity Provider with respect to a Primary
Liquidity Facility (if, with respect to such Primary Liquidity
Facility, any amounts are distributed to replenish the related
Primary Cash Collateral Account as described in the preceding
bullet point), an amount equal to the excess of (x) the
aggregate outstanding amount of unreimbursed Advances under
such Primary 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 applicable Required Amount, pro rata on the basis of
such amounts in respect of each Primary Liquidity Provider; o
if applicable, to replenish the Above-Cap Reserve Account up
to an amount equal to the Above-Cap Reserve Amount as
recalculated as of such date (less any amount then on deposit
in the Above-Cap Account);
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 (other than amounts payable pursuant to
the clauses above and any Excess Reimbursement Obligations)
and any amounts due under the Policy Fee Letter;
o to the Class C Trustee to the extent required to pay Expected
Distributions on the Class C Certificates;
o to the Policy Provider to the extent required to pay Excess
Reimbursement Obligations;
o to the Class D Trustee to the extent required to pay Expected
Distributions on the Class D Certificates; provided that if
all of the Certificates of such Class are owned by one or more
persons that are not affiliates of American 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, Expected Distributions on the Certificates of such
Class shall be paid immediately prior to payment of Excess
Reimbursement Obligations to the Policy Provider as described
in the preceding bullet point;
o if the Class E Certificates have been issued, to the Class E
Trustee to the extent required to pay Expected Distributions
on the Class E Certificates;
o to the Subordination Agent and each Trustee for the payment of
certain fees and expenses; and
o if applicable, to the extent necessary to replenish the
Above-Cap Reserve Account up to an amount equal to the
Above-Cap Reserve Amount as recalculated as of such date.
"Excess Reimbursement Obligations" means, (a) in the event of any
Policy Provider Election, the portion of the Policy Provider Obligations that
represents interest on the Series G Equipment Note in respect of which the
Policy Provider Election has been made in excess of 21 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 Primary Liquidity Facility for the
Class G Trust paid by the Policy Provider to the related
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Primary Liquidity Provider from and after the end of the 21-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:
(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 Break Amount, Prepayment Premium, or 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 Break
Amount, Prepayment Premium, or 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 Primary Liquidity Facilities and (ii)
any interest accrued on any Liquidity Obligations.
"Liquidity Obligations" means all principal, interest, fees, and other
amounts owing to the Primary Liquidity Provider under each Primary 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
the Participation Agreements other than (i) any amounts due under the Policy Fee
Letter, (ii) the amount of any Policy Drawing and any interest accrued thereon,
(iii) reimbursement of and interest on the Liquidity Obligations paid to any
Primary 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 all reimbursement and other
amounts, including fees and indemnities, due to the Policy Provider under the
Policy Provider Agreement, but shall not include (i) any amounts due under the
Policy Fee Letter and (ii) any interest on Policy Drawings, except, if the
Primary Liquidity Provider with respect to the Class G Trust has failed to honor
its obligation to make a payment on any Interest Drawing with respect to the
Class G Certificates, interest on the portion of any Policy Drawing made to
cover the shortfall attributable to such failure by such Primary Liquidity
Provider in an amount 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 applicable Primary Liquidity
Facility until such Policy Drawing has been repaid in full, up to a maximum of
six such Policy Drawings. For the avoidance of doubt and subject to the effect
of the payment priorities with respect to Excess Reimbursement Obligations,
Policy Provider Obligations include reimbursement of and interest on the
Liquidity Obligations in respect of the Primary Liquidity Facilities paid by the
Policy Provider to the Primary Liquidity Provider.
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AFTER A TRIGGERING EVENT
Subject to the terms of the Intercreditor Agreement, 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, Policy Provider,
or Primary 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 Primary 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 Primary Liquidity Provider to the extent required to
pay accrued and unpaid interest on the Liquidity Obligations
(as determined after giving effect to payments made by the
Policy Provider to the Primary Liquidity Provider in respect
of interest on drawings under the Primary Liquidity
Facilities) and to the Policy Provider to the extent required
to pay interest accrued on certain Policy Provider Obligations
(as provided in the definition thereof) and, if the Policy
Provider has elected to pay to the Primary Liquidity Provider
all outstanding drawings and interest thereon owing to the
Primary Liquidity Provider under the Primary Liquidity
Facilities, to reimburse the Policy Provider for the amount of
such payment made to the Primary Liquidity Provider,
attributable to interest accrued on such drawings, pro rata;
o (i) if applicable with respect to any particular Primary
Liquidity Facility, to replenish ratably the Primary Cash
Collateral Account with respect to such Primary Liquidity
Facility up to the applicable Required Amount for the related
Class of Certificates 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 such Primary Liquidity Facility or (y) a
Final Drawing has occurred under such Primary Liquidity
Facility; and then (ii) to the Primary Liquidity Provider to
the extent required to pay the outstanding amount of all
Liquidity Obligations (as determined after giving effect to
payments made by the Policy Provider to the Primary Liquidity
Provider in respect of principal of drawings under the Primary
Liquidity Facilities) and, if the Policy Provider has elected
to pay to the Primary Liquidity Provider all outstanding
drawings and interest thereon owing to the Primary Liquidity
Provider under the Primary Liquidity Facilities, to the Policy
Provider to the extent required to reimburse the Policy
Provider for any payment made to the Primary Liquidity
Provider in respect of principal of drawings under the Primary
Liquidity Facilities;
o to the Primary Liquidity Provider with respect to a Primary
Liquidity Facility (if, with respect to such Primary Liquidity
Facility, any amounts are distributed to replenish the related
Primary Cash Collateral Account as described in the preceding
bullet point), an amount equal to the excess of (x) the
aggregate outstanding amount of unreimbursed Advances under
such Primary 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 applicable Required
Amount, pro rata on the basis of such amounts in respect of
each Primary Liquidity Provider; o if applicable, unless (x)
less than 65% of the aggregate outstanding principal amount of
all Equipment Notes are Performing Equipment Notes and a
Liquidity Event of Default shall have occurred and is
continuing under the related Primary Liquidity Facility or (y)
a Final Drawing shall have occurred under such Primary
Liquidity Facility, to replenish the Above-Cap Reserve Account
up to an amount equal to the Above-Cap Reserve Amount, as
recalculated as of such date (less any amount then on deposit
in the related Above-Cap Account);
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;
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o to the Policy Provider in payment of the Policy Provider
Obligations (other than amounts payable pursuant to the first
three clauses above and any Excess Reimbursement Obligations)
and any amounts due to the Policy Provider under the Policy
Fee Letter; o to the Class C Trustee to the extent required to
pay Adjusted Expected Distributions on the Class C
Certificates;
o to pay any Excess Reimbursement Obligations to the Policy
Provider;
o to the Class D Trustee to the extent required to pay Adjusted
Expected Distributions on the Class D Certificates; provided
that if all of the Certificates of such Class are owned by one
or more persons that are not affiliates of American 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
Certificates of such Class shall be paid immediately prior to
payment of Excess Reimbursement Obligations to the Policy
Provider as described in the preceding bullet point;
o if applicable, unless (x) less than 65% of the aggregate
outstanding principal amount of all Equipment Notes are
Performing Equipment Notes and a Liquidity Event of Default
shall have occurred and is continuing under the related
Primary Liquidity Facility or (y) a Final Drawing shall have
occurred under such Primary Liquidity Facility, to replenish
the Above-Cap Reserve Account up to an amount equal to the
related Above-Cap Reserve Amount (as recalculated as of such
date); and
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 in full;
o to the Class D Trustee to the extent required to pay Final
Distributions on the Class D Certificates in full;
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 in full; 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;
provided that, until the date of the initial LTV Appraisals for all of the
Aircraft, clause (B) shall not apply.
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For purposes of calculating Adjusted Expected Distributions with
respect to the Certificates of any Trust, any Break Amount, Prepayment Premium,
or 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 Break
Amount, Prepayment Premium, or 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, after giving effect to 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 each 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 or with respect to any such
Aircraft that has been released from the related Indenture pursuant to the
defeasance provisions 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 51.1%, for the Class C
Certificates 60.1%, and for the Class D Certificates 67.6%.
Interest Drawings under the Primary Liquidity Facility, withdrawals
from the Primary Cash Collateral Account, drawings under the Policy in respect
of the Class G Trust, and withdrawals from the Above-Cap Account in respect of
the Class G Trust, in each case in respect of interest distributable on the
Certificates of any particular Trust, will be distributed to the Trustee for
such Trust, 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)).
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)
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THE SUBORDINATION AGENT
State Street Bank and Trust Company of Connecticut, 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 State Street Bank and Trust Company of
Connecticut, National Association, 225 Asylum Street, Goodwin Square, Hartford,
Connecticut 06103, Attention: Corporate Trust Division. See "Description of the
Certificates -- The Trustees."
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. American or 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 eight Boeing 757-223 aircraft, two Boeing
757-223ER aircraft, six Boeing 767-323ER aircraft, and three Boeing 777-223ER
aircraft (the "Aircraft"). All of the Aircraft were delivered new to American
from January 1995 to April 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 757-223 and 757-223ER are narrowbody commercial jet
aircraft. Seating capacity in American's two-class configuration is 176 for the
757-223 and 757-223ER. The 757-223 and 757-223ER are powered by two Rolls Royce
RB211-535E4B model commercial jet engines manufactured by Rolls Royce Ltd.
The Boeing 767-323ER and 777-223ER are both widebody commercial jet
aircraft. Seating capacity in American's two-class and three-class configuration
for the 767-323ER is 190 to 233 and for the 777-323ER is 223 to 245. The
767-323ER 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"), Aviation Solutions,
Inc. ("AvSolutions"), and Morten Beyer & Agnew, Inc. ("MBA," and together with
AISI and AvSolutions, the "Appraisers"), independent aircraft appraisal and
consulting firms, and certain additional information regarding the Aircraft.
S-59
APPRAISERS' VALUATIONS APPRAISED
AIRCRAFT REGISTRATION ---------------------------------------- BASE
TYPE NUMBER MONTH DELIVERED AISI AVSOLUTIONS MBA VALUE(1)
-------- ------------ --------------- ------------ ------------- ----------- ------------
BOEING 757-223...... N604AA June 1995 $ 42,700,000 $ 39,440,000 $ 34,910,000 $ 39,016,667
BOEING 757-223...... N605AA June 1995 42,700,000 39,440,000 34,910,000 39,016,667
BOEING 757-223...... N606AA April 1996 44,470,000 40,940,000 36,870,000 40,760,000
Boeing 757-223...... N680AN January 1999 49,760,000 46,560,000 44,150,000 46,560,000
BOEING 757-223...... N176AA January 2002 55,950,000 53,250,000 53,730,000 53,730,000
BOEING 757-223...... N177AN January 2002 55,950,000 53,250,000 53,730,000 53,730,000
BOEING 757-223...... N173AN March 2002 55,950,000 53,690,000 53,950,000 53,950,000
BOEING 757-223...... N172AJ April 2002 55,950,000 53,910,000 54,060,000 54,060,000
BOEING 757-223 ER... N608AA July 1996 45,220,000 44,320,000 37,480,000 42,340,000
BOEING 757-223 ER... N609AA July 1996 45,220,000 44,320,000 37,480,000 42,340,000
BOEING 767-323 ER... N389AA January 1995 64,030,000 57,410,000 60,410,000 60,410,000
BOEING 767-323 ER... N390AA February 1995 64,030,000 57,700,000 60,680,000 60,680,000
BOEING 767-323 ER... N391AA February 1995 64,030,000 57,700,000 60,680,000 60,680,000
BOEING 767-323 ER... N392AN April 1998 73,510,000 69,740,000 71,530,000 71,530,000
BOEING 767-323 ER... N393AN May 1998 73,510,000 70,090,000 71,840,000 71,813,333
BOEING 767-323 ER... N395AN July 1998 73,510,000 70,790,000 72,470,000 72,256,667
BOEING 777-223 ER... N785AN April 2000 118,680,000 122,190,000 116,870,000 118,680,000
BOEING 777-223 ER... N786AN April 2000 118,680,000 122,190,000 116,870,000 118,680,000
BOEING 777-223 ER... N795AN December 2000 118,680,000 126,720,000 120,790,000 120,790,000
(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 September 11, 2001 referred to under "- Terrorist
Attacks of September 11, 2001." Two of the appraisals contain disclaimers as to
the effect of the events of September 11, 2001 on the market for, and prices of,
commercial aircraft. 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,
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
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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. See "Certain Other Risk Factors Relating to American --The Airline
Industry Has Suffered Substantial Losses."
DESCRIPTION OF THE EQUIPMENT NOTES
The following summary describes certain 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 State Street Bank and Trust Company of Connecticut,
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)
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 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.
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The Equipment Notes held in the Class G Trust will accrue interest at
the applicable rate per annum for Certificates to be issued by such Trust 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 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 quarterly on March 23, June 23, September 23,
and December 23 of each year, commencing on the first such date after the
issuance of the Certificates. In the case of the Series G Certificates, such
interest will be computed on the basis of the actual number of days elapsed over
a 360-day year. In the case of the Series C and Series D Certificates, such
interest will be computed on the basis of a 360-day year of twelve 30-day
months. Overdue amounts of principal, Break Amount (if any), Prepayment Premium
(if any), Make-Whole Amount (if any), and interest on such 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 Series G and Series D Equipment
Notes will be made on March 23, June 23, September 23, and December 23 in
certain years, commencing on March 23, 2003 and ending on September 23, 2007.
The entire principal amount of the Series C Equipment Notes is scheduled to be
paid on September 23, 2007. 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, Break Amount (if
any), Prepayment Premium (if any), 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 and interest will be added for such
additional period in the case of the Series G Equipment Notes but not in the
case of the Series C or Series D Equipment Notes.
DETERMINATION OF LIBOR
For the purpose of calculating LIBOR for the periods from and including
an Equipment Note payment date to but excluding the next succeeding Equipment
Note payment date (each, an "Interest Period"), American will enter into a
Reference Agency Agreement to be dated the Issuance Date (the "Reference Agency
Agreement") with State Street Bank and Trust Company of Connecticut, National
Association, as reference agent (the "Reference Agent"), the Subordination
Agent, and the Loan Trustees. The Reference Agent will determine LIBOR for each
Interest Period on a date (the "Reference Date") that is two London Banking Days
before the date on which such Interest Period commences. "London Banking Day"
means any day on which commercial banks are open for general business in London,
England.
On each Reference Date, the Reference Agent will determine LIBOR
("LIBOR") as the rate for deposits in U.S. dollars for a period of three months
that appears on the display designated as page "3750" on the Telerate Monitor
(or such other page or service as may replace it) as of 11:00 a.m. (London time)
on such date.
If the rate determined as described in the foregoing paragraph does not
appear on the Telerate Page 3750, the Reference Agent will determine LIBOR on
the basis of the rates at which deposits in U.S. Dollars are offered by certain
reference banks as described in the Reference Agency Agreement at approximately
11:00 a.m., London time, on the Reference Date for such Interest Period to prime
banks in the London interbank market for a period of three months commencing on
the first day of such Interest Period and in an amount that is representative
for a single transaction in the London interbank market at the relevant time.
The Reference Agent will request the principal London office of each of the
reference banks to provide a quotation of its rate. If at least two such
quotations are provided, the rate for that Interest Period will be the
arithmetic mean of the quotations. If fewer than two quotations are provided,
the interest rate for the next Interest Period shall be the arithmetic mean of
the rates quoted by major banks in New York City, selected by the Reference
Agent in good faith and in a commercially reasonable manner, at approximately
11:00 a.m., New York City time, on the first day of such Interest Period for
loans in U.S. Dollars to leading European banks for a period of three months
commencing on the first day of such Interest Period and in an amount that is
representative for a single transaction in the New York market at the relevant
time, except that, if the banks so selected by the Reference Agent are not
quoting as mentioned above, LIBOR shall be the rate of interest in effect for
the last preceding Interest Period.
The Reference Agent's determination of LIBOR (in the absence of
negligence, willful default, bad faith, or manifest error) will be conclusive
and binding upon all parties.
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As promptly as is practicable after the determination thereof, the
Reference Agent will give notice of its determination of LIBOR for the relevant
Interest Period to American, the Trustees, the Loan Trustees, the Subordination
Agent, the Primary Liquidity Provider, the Above-Cap Liquidity Provider, and the
Policy Provider.
American may terminate the Reference Agent at any time on 30 days
notice and appoint a replacement reference agent in its place. Notice of any
such termination will be given to the holders of the Certificates. The Reference
Agent may not be removed or resign its duties without a successor having been
appointed.
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 and, in
the case of the Series G Equipment Notes, Break Amount, but without Prepayment
Premium or 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.
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 (i) in the case
of the Series G Equipment Notes, Break Amount and Prepayment Premium, if any,
and (ii) in the case of the Series C and Series D Equipment Notes, Make-Whole
Amount 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 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 nor 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)
"Break Amount" means, as of any date of payment, redemption, or
acceleration of any Series G Equipment Note (the "Applicable Date"), an amount
determined by the Reference Agent on the date that is two Business Days prior to
the Applicable Date pursuant to the following formula:
Break Amount = Z-Y
Where:
X= with respect to any applicable Interest Period, the sum of (i)
the amount of the outstanding principal amount for such Series
of Equipment Notes as of the first day of the then applicable
Interest Period plus (ii) interest payable thereon during such
entire Interest Period at then effective LIBOR.
Y= X, discounted to present value from the last day of the then
applicable Interest Period to the Applicable Date, using then
effective LIBOR as the discount rate.
Z= X, discounted to present value from the last day of the then
applicable Interest Period to the Applicable Date, using a
rate equal to the applicable London interbank offered rate
(determined on the same basis as LIBOR) for a period
commencing on the Applicable Date and ending on the last day
of the then applicable Interest Period, determined by the
Reference Agent as of two London Banking Days prior to the
Applicable Date as the discount rate.
No Break Amount will be payable (x) if the Break Amount, as calculated
pursuant to the formula set forth above, is equal to or less than zero or (y) on
or in respect of any Applicable Date that is a Regular Distribution Date.
(Indentures, Annex A)
"Make-Whole Amount" means, with respect to any Series C or Series D
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
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payments of principal and interest from the redemption date to maturity of such
Equipment Note computed by discounting each such payment on a quarterly 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 Series C or Series D
Equipment Note, the interest rate (expressed as a quarterly 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 quarterly
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 third Business Day prior to the applicable
redemption date. The "date of determination" of a Make-Whole Amount will be the
third Business Day prior to the applicable redemption date. (Indentures, Annex
A)
"Average Life Date" for any Series C or Series D Equipment Note means
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" at the redemption date of such Series C or Series D
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)
"Prepayment Premium" means, with respect to any Series G Equipment
Note, a prepayment premium equal to the following percentage of the principal
amount being prepaid:
If redeemed during the Series G
year prior to the anniversary of the Equipment Note
Issuance Date indicated below: Prepayment Premium
------------------------------------ ------------------
1st 1.50%
2nd 1.00%
3rd 0.50%
Thereafter 0.00%
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.
SECURITY
The Equipment Notes issued with respect to each Aircraft will be
secured by a security interest in such 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 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. See "-- Remedies." Accordingly, any excess proceeds
from the exercise of remedies with respect to the Equipment Notes relating to an
Aircraft will not be available to cover any shortfall with respect to the
Equipment Notes relating to any other Aircraft.
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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.
The tables in Appendix IV are based on the assumption (the
"Depreciation Assumption") that the initial appraised base value of the Aircraft
set forth opposite the initial Regular Distribution Date included in each table
depreciates by approximately 3% of the appraised base value at delivery per year
for the first 15 years after delivery by the manufacturer of such Aircraft. 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."
DEFEASANCE
Under certain circumstances American may legally release itself from
any payment or other obligations on all, but not less than all, of the Series C
and Series D Equipment Notes issued under one or more Indentures (a "full
defeasance") if (1) all Series G Equipment Notes issued under such Indenture or
Indentures have been fully paid or redeemed and (2) American puts in place the
following arrangements for the benefit of the holders of the Series C and Series
D Equipment Notes:
o American must deposit in trust for the benefit of the holders
of such Equipment Notes a combination of money and direct
obligations of the United States (and certain depository
receipts representing interests in such direct obligations)
("U.S. Government Obligations") that will generate enough
money to pay when due the principal of and interest on such
Equipment Notes; and
o American must deliver to the Trustees and the relevant Loan
Trustee a legal opinion stating that there has been a change
in the federal tax law from such law as in effect on the date
of this Prospectus Supplement or that there has been an IRS
ruling, in either case that lets American make the above
deposit without causing the holders of the Class C and Class D
Certificates to be taxed on their Certificates any differently
than if American did not make the deposit and simply repaid
the Series C and Series D Equipment Notes itself.
American may only accomplish full defeasance if it obtains written
confirmation from each Rating Agency that such full defeasance will not result
in a withdrawal or downgrading of the rating of any Class of Certificates. If
American were to accomplish full defeasance, as described above, holders of the
Series C and Series D Equipment Notes so defeased would rely solely on the trust
deposit for repayment on such Equipment Notes. Holders of such Equipment Notes
could not look to American for repayment if a shortfall in the payment of
principal of or interest on such Equipment Notes occurred. In addition, the
holders of such Equipment Notes would have no beneficial interest in or other
rights with respect to the related Aircraft or other assets subject to the lien
of the related Indenture and such lien would terminate. (Indentures, Section
10.01)
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, Break
Amount, if any, Prepayment Premium, if any, or Make-Whole
Amount, if any, within 15 days after the same has become due
on any Equipment Note issued thereunder;
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o the failure by American to pay any amount (other than
interest, principal, Break Amount, if any, Prepayment Premium,
if any, or Make-Whole Amount, if any) when due under the
Indenture, any Equipment Note issued thereunder, or any other
operative documents 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 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; and
o the occurrence of certain events of bankruptcy,
reorganization, or insolvency of American.
(Indentures, Section 4.01)
There will not be any cross-default provisions in the Indentures.
Consequently, 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. 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.
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, Break Amount (if any), Prepayment Premium (if any), 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)
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 and, in the case of the Series G
Equipment Notes, Break Amount, if any (but without any Prepayment Premium or
Make-Whole Amount). 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
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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.
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
"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 her
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 Facilities 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
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"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 THE CERTIFICATES -- POSSIBLE
REFUNDING OF SERIES C EQUIPMENT NOTES AND SERIES D EQUIPMENT NOTES."
(Indentures, Section 9.01)
Without the consent of the holder of each Equipment Note outstanding
under any Indenture affected thereby, no amendment or modification of such
Indenture may, among other things, (i) reduce the principal amount of, or Break
Amount (if any), Prepayment Premium (if any), Make-Whole Amount (if any), or
interest payable on, any Equipment Notes issued under such Indenture or change
the date on which any principal, Break Amount (if any), Prepayment Premium (if
any), 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, or (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. (Indentures, Section 9.02(a))
INDEMNIFICATION
American will be required to indemnify each Loan Trustee, each
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
Event of Default or of a default arising from American's failure to pay overdue
principal, interest, or Break Amount (if any), Prepayment Premium (if any),
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, 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 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
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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 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; (iv) salvage
or similar rights of insurers under insurance policies maintained by American;
and (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 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 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 the Equipment Notes. If an Aircraft
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suffers an Event of Loss, insurance proceeds up to an amount equal to the
outstanding principal amount of the Equipment Notes, together with accrued but
unpaid interest thereon, plus an amount equal to the interest that will accrue
on the outstanding principal amount of the Equipment Notes during the period
commencing on the date following the date of payment of such insurance proceeds
to the Loan Trustee and ending on the loss payment date (in either case, the
"Loan Amount"), 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 $15,000,000 (in the case of a Boeing 757-223,
Boeing 757-223ER or Boeing 767-323ER) 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 an Indenture Event of Default does not exist
under the related Indenture. 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 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 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))
In respect of each Aircraft, American is required to name the relevant
Loan Trustee, each Trustee, the Subordination Agent, the Primary Liquidity
Providers, 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 and, in the case of the Series G Equipment Notes, Break
Amount, but without any Prepayment Premium or Make-Whole Amount 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
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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 and, in the case of the Series G Equipment Notes, Break
Amount, but without any Prepayment Premium or 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 be distributed by such Loan
Trustee to American. (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;
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 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)
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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 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 report to investors on the basis that it is a grantor trust. If
the Class G Trust was treated as a partnership for federal income purposes
rather than as 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
Primary 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 Owners'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 Owners' 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
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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 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 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
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) either (A) 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 or
(B) a securities clearing organization, bank or other
financial institution that holds customers' securities in the
ordinary course of its trade or business (a "financial
institution") and that holds the Class G Certificate on behalf
of the Non-U.S. Certificateholder certifies, under penalties
of perjury, that such a certification and the Non-U.S.
Certificateholder's name and address have been received from
the Non-U.S. Certificateholder by it or by another financial
institution and furnishes to the withholding agent the name
and address of the Non-U.S. Certificateholder and a copy of
the Non-U.S. Certificateholder's certification, so long as the
U.S. Treasury Department has not published a determination
that a certification from such financial institution may not
be relied upon.
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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.
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, estate 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 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.
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.
CERTAIN CONNECTICUT TAXES
The Trustee is a national banking association with its corporate trust
office in Connecticut. Bingham McCutchen 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
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political subdivision thereof 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 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 Providers. Moreover, if Certificates
S-75
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.
UNDERWRITING
Under the terms and subject to the conditions contained in the
Underwriting Agreement dated September , 2002 (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
CLASS G
UNDERWRITER CERTIFICATES
----------- ------------
Salomon Smith Barney Inc........................................ $
J.P. Morgan Securities Inc......................................
Credit Suisse First Boston Corporation..........................
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.
S-76
PASS THROUGH CONCESSION REALLOWANCE
CERTIFICATE DESIGNATION TO DEALERS CONCESSION
----------------------- ---------- -----------
2002-1G .................................... % %
The aggregate proceeds from the sale of the Class G Certificates will
be $617,000,000. American will pay the Underwriters a commission of $ . American
estimates that its out of pocket expenses for the offering will be approximately
$ .
The Class G Certificates are a new issue of securities with no
established trading market. 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. Citibank, N.A.,
the initial Primary Liquidity Provider, is an affiliate of Salomon Smith Barney
Inc. The initial Above-Cap Liquidity Provider, Credit Suisse First Boston
International, is an affiliate of Credit Suisse First Boston Corporation. In
addition, Phillip J. Purcell, the Chairman and Chief Executive Officer of Morgan
Stanley Dean Witter & Co., the parent of Morgan Stanley & Co. Incorporated, is a
director of American.
It is expected that delivery of the Class G Certificates will be made
against payment therefor on or about the date specified in the second to last
paragraph of 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 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.
LUXEMBOURG LISTING
Application will be made to list the Class G Certificates on the
Luxembourg Stock Exchange.
S-77
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, New York, New York. The respective counsel for American
and the Underwriters will rely upon Bingham McCutchen LLP, Hartford,
Connecticut, counsel to State Street Bank and Trust Company of Connecticut,
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
Anne H. McNamara, Esq., 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, 2001, as
set forth in their reports, 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, AvSolutions, 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 MBIA Inc. and subsidiaries and MBIA
Insurance Corporation and subsidiaries as of December 31, 2001 and December 31,
2000 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, 2001, incorporated by reference in this Prospectus Supplement, have been
incorporated herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
S-78
APPENDIX I
INDEX OF TERMS
The following is an index showing the page in this Prospectus
Supplement where certain defined terms appear.
PAGE
Above-Cap Account........................................................S-47
Above-Cap Liquidity Facility.............................................S-46
Above-Cap Liquidity Provider.............................................S-48
Above-Cap Payment........................................................S-46
Above-Cap Reserve Account................................................S-47
Above-Cap Reserve Amount.................................................S-47
Act......................................................................S-19
Adjusted Expected Distributions..........................................S-57
Aggregate LTV Collateral Amount..........................................S-58
Aircraft.................................................................S-59
AISI.....................................................................S-59
American..................................................................S-5
Applicable Date..........................................................S-63
Appraised Current Market Value...........................................S-58
Appraisers...............................................................S-59
Assumed Aircraft Value...................................................S-65
Average Life Date........................................................S-64
Avoidance Drawing........................................................S-29
AvSolutions..............................................................S-59
Bankruptcy Code..........................................................S-35
Base Rate................................................................S-45
Basic Agreement..........................................................S-27
Break Amount.............................................................S-63
Business Day.............................................................S-30
Capped Interest Rate.....................................................S-42
Capped LIBOR.............................................................S-46
Cede.....................................................................S-40
Certificate Account......................................................S-29
Certificate Owner........................................................S-40
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 Certificates.....................................................S-38
Class E Trust............................................................S-38
Class E Trustee..........................................................S-38
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-26
Company...................................................................S-5
Controlling Party........................................................S-52
Current Distribution Date................................................S-55
date of determination....................................................S-64
Defaulted Series G Equipment Note........................................S-13
Depreciation Assumption..................................................S-65
Disposition..............................................................S-13
disqualified persons.....................................................S-75
Distribution Date........................................................S-29
Downgrade Drawing........................................................S-43
Drawing..................................................................S-44
DTC......................................................................S-40
DTC Participants.........................................................S-40
Election Distribution Date...............................................S-49
Equipment................................................................S-67
Equipment Notes..........................................................S-61
ERISA....................................................................S-75
ERISA Plans..............................................................S-75
Event of Loss............................................................S-71
Excess Reimbursement Obligations.........................................S-54
Exchange Act..............................................................S-4
Expected Distributions...................................................S-55
FAA......................................................................S-19
Final Distributions......................................................S-53
Final Drawing............................................................S-44
Final Legal Distribution Date............................................S-29
financial institution....................................................S-73
full defeasance..........................................................S-65
GAAP.....................................................................S-25
H.15(519)................................................................S-64
Indenture................................................................S-61
Indenture Events of Default..............................................S-65
Indirect Participants....................................................S-40
Initial Interest Period..................................................S-28
Intercreditor Agreement..................................................S-51
Interest Drawings........................................................S-41
Interest Period..........................................................S-62
Issuance Date............................................................S-28
LIBOR....................................................................S-62
Liquidity Expenses.......................................................S-55
Liquidity Facilities.....................................................S-41
Liquidity Facility LIBOR.................................................S-45
Liquidity Obligations....................................................S-55
Liquidity Providers......................................................S-48
Loan Amount..............................................................S-70
I-1
Loan Trustee.............................................................S-61
London Banking Days......................................................S-62
LTV Appraisal............................................................S-58
LTV Collateral Amount....................................................S-58
LTV Ratio................................................................S-58
LTVs......................................................................S-7
Luxembourg Paying Agent..................................................S-40
Make-Whole Amount........................................................S-63
Maximum Available Commitment.............................................S-41
MBA......................................................................S-59
MBIA.....................................................................S-24
Minimum Sale Price.......................................................S-53
Moody's..................................................................S-23
most recent H.15(519)....................................................S-64
No Proceeds Drawing......................................................S-29
Non-Extension Drawing....................................................S-44
Non-Performing Equipment Notes ..........................................S-57
Non-U.S. Certificateholder...............................................S-73
Note Holder..............................................................S-33
Order....................................................................S-51
Parent Company...........................................................S-24
Participation Agreement..................................................S-61
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-48
Policy Account...........................................................S-50
Policy Business Day......................................................S-51
Policy Drawing...........................................................S-55
Policy Expenses..........................................................S-55
Policy Fee Letter........................................................S-51
Policy Provider..........................................................S-24
Policy Provider Agreement................................................S-51
Policy Provider Default..................................................S-53
Policy Provider Election.................................................S-49
Policy Provider Obligations..............................................S-55
Pool Balance.............................................................S-30
Pool Factor..............................................................S-30
Preference Amount........................................................S-51
Prepayment Premium.......................................................S-64
Primary Cash Collateral Account..........................................S-43
Primary Liquidity Event of Default.......................................S-45
Primary Liquidity Facility...............................................S-41
Primary Liquidity Provider...............................................S-41
Prior Funds..............................................................S-48
Prospectus................................................................S-4
Prospectus Supplement.....................................................S-4
PTC Event of Default.....................................................S-34
PTCE.....................................................................S-76
Rating Agencies..........................................................S-23
Reference Agency Agreement...............................................S-62
Reference Agent..........................................................S-62
Reference Date...........................................................S-62
Refunding................................................................S-38
Regular Distribution Dates...............................................S-29
Remaining Weighted Average Life..........................................S-64
Replacement Above-Cap Liquidity Facility.................................S-47
Replacement Primary Facility.............................................S-43
Required Amount..........................................................S-41
SAP......................................................................S-26
Scheduled Payments.......................................................S-29
Section 1110.............................................................S-67
Section 1110 Period......................................................S-42
Securities Act............................................................S-4
Series...................................................................S-61
Series C Equipment Notes.................................................S-61
Series D Equipment Notes.................................................S-61
Series E Equipment Notes.................................................S-61
Series G Equipment Notes.................................................S-61
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 Rates....................................................S-41
Subordination Agent......................................................S-51
Termination Notice.......................................................S-45
Threshold Rating.........................................................S-43
Transportation Code......................................................S-35
Treasury Yield...........................................................S-64
Triggering Event.........................................................S-53
Trust Indenture Act......................................................S-36
Trust Property...........................................................S-27
Trust Supplement.........................................................S-27
Trustees.................................................................S-27
Trusts...................................................................S-27
TWA.......................................................................S-4
U.S. Government Obligations..............................................S-65
U.S. Persons.............................................................S-72
Underwriters.............................................................S-76
Underwriting Agreement...................................................S-76
I-2
APPENDIX II
APPRAISAL LETTERS
[AIRCRAFT INFORMATION SERVICES, INC. LETTERHEAD]
13 September 2002
Ms. Leslie M. Benners
Managing Director - Corporate Finance and Banking
American Airlines
4333 Amon Carter Boulevard
Mail Drop 5662
Fort Worth, TX 76155
Subject: AISI Report: A2S047BVO, Sight Unseen Base Value Appraisal
Eight B757-223, Two B757-223ER, Six B767-323ER and Three
B777-223ER Aircraft.
Reference: (a) Salomon Smith Barney E-mails, 08 Jul, 28 Aug, 09 Sep &
11 Sep 2002
Dear Ms. Benners:
Aircraft Information Services, Inc. (AISI) is pleased to offer American Airlines
our opinion of the sight unseen half life base value of eight B757-223, two
B757-223ER, six 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.
13 September 2002
AISI File No. A2S047BVO
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.
13 September 2002
AISI File No. A2S047BVO
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 September 2002 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 but
only 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 but usually smaller decline in base
value.
TABLE I
Aircraft
Manufacturer's Aircraft Serial Registration Half Life Base Value
Delivery Date Number Number Sep 2002 US Dollar
BOEING 757-223; RB211-535E4B, 250,000 LB. Mtow
Jun-95 27055 N604AA 42,700,000
Jun-95 27056 N605AA 42,700,000
Apr-96 27057 N606AA 44,470,000
Jan-99 29590 N680AN 49,760,000
Jan-02 32395 N176AA 55,950,000
Jan-02 32396 N177AN 55,950,000
Mar-02 32399 N173AN 55,950,000
Apr-02 32400 N172AJ 55,950,000
BOEING 757-223ER; RB211-535E4B, 250,000 LB. Mtow
Jul-96 27446 N608AA 45,220,000
Jul-96 27447 N609AA 45,220,000
BOEING 767-323ER; CF6-80C2B6, 408,000LB. Mtow
Jan-95 27449 N389AA 64,030,000
Feb-95 27450 N390AA 64,030,000
Feb-95 27451 N391AA 64,030,000
Apr-98 29429 N392AN 73,510,000
May-98 29430 N393AN 73,510,000
Jul-98 29432 N395AN 73,510,000
BOEING 777-223ER; RB211-TRENT 892-17, 648,000 LB. Mtow
Apr-00 30005 N785AN 118,680,000
Apr-00 30250 N786AN 118,680,000
Dec-00 30257 N795AN 118,680,000
13 September 2002
AISI File No. A2S047BVO
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
[AvSOLUTIONS LOGO]
--------------------------------------------------------------------------------
August 28, 2002
Ms. Leslie Benners
Managing Director - Corporate Finance and Banking
American Airlines
4333 Amon Carter Boulevard
Mail Drop 5662
Fort Worth, TX 76155
Dear Ms. Benners:
AvSOLUTIONS is pleased to provide its opinion on the base values as of
August 2002 of eight Boeing 757-223 aircraft, two Boeing 757-223ER aircraft, six
Boeing 767-323ER, and three Boeing 777-223ER aircraft (collectively, the
"Aircraft"). A list of the nineteen (19) aircraft, along with their
registrations, delivery dates and engine types, is provided as Attachment 1 of
this document.
Set forth below is a summary of the methodology, considerations and
assumptions utilized in this appraisal.
BASE VALUE
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 knowledge parties
acting prudently, with an absence of duress and with a reasonable period of time
available for marketing.
APPRAISAL METHODOLOGY
The method employed by AvSOLUTIONS to appraise the base values and fair
market values of aircraft and associated equipment addresses the factors that
influence the market value of an aircraft, such as its age, condition,
configuration, the population of similar aircraft, similar aircraft on the
market, operating costs, cost to acquire a new aircraft, and the state of demand
for transportation services.
To achieve this objective, cross-sectional data concerning the values
of aircraft in each of several general categories is collected and analyzed.
Cross-sectional data is then compared with reported market values at a specified
point in time. Such data reflects the effect of deterioration in aircraft
performance due to usage and exposure to the elements, as well as the effect of
obsolescence due to the evolutionary development and implementation of new
designs and materials.
The product of the analysis identifies the relationship between the
value of each aircraft and its characteristics, such as age, model designation,
service configuration and engine type. Once the relationship is identified, one
can then postulate the effects of the difference between the economic
circumstances at the time when the cross-sectional data were collected and the
current situation. Therefore, if one can determine the current value of an
aircraft in one category, it is possible to estimate the current values of all
aircraft in that category.
The manufacturer and size of the aircraft usually determine the
specific category to which it is assigned. Segregating the world airplane fleet
in this manner accommodates the potential effects of different size and
different design philosophies.
The variability of the data used by AvSOLUTIONS to determine the
current market values implies that the actual value realized will fall within a
range of values. Therefore, if a contemplated value falls within the specified
confidence range, AvSOLUTIONS cannot reject the hypothesis that it is a
reasonable representation of the current market situation.
LIMITING CONDITIONS AND ASSUMPTIONS
In order to conduct this valuation, AvSOLUTIONS is primarily relying on
information supplied by American Airlines and from data within AvSOLUTIONS' own
database. In determining the base value of the Aircraft, the following
assumptions have been researched and determined:
1. AvSOLUTIONS has not inspected these Aircraft or their maintenance records;
accordingly, AvSOLUTIONS cannot attest to their specific location or condition.
2. The Aircraft have already been delivered to American Airlines.
3. The Aircraft will be certified, maintained and operated under United States
Federal Aviation Regulation (FAR) Part 121.
4. All mandatory inspections and Airworthiness Directives have been complied
with.
5. The Aircraft have no damage history.
6. The Aircraft are in good condition.
7. AvSOLUTIONS considers the economic useful life of these aircraft to be at
least 32 years.
Based upon the above methodology, considerations and assumptions, it is
AvSOLUTIONS' opinion that the base values of each Aircraft are as listed in
Attachment 1.
[AvSOLUTIONS LOGO]
--------------------------------------------------------------------------------
STATEMENT OF INDEPENDENCE
This appraisal report represents the opinion of AvSOLUTIONS, Inc. and is
intended to be advisory in nature. Therefore, AvSOLUTIONS assumes no
responsibility or legal liability for actions taken or not taken by the American
Airlines ("Client") or any other party with regard to the Aircraft. By accepting
this report, the Client agrees that AvSOLUTIONS shall bear no responsibility or
legal liability regarding this report. Further, this report is prepared for the
exclusive use of the Client and shall not be provided to other parties without
AvSOLUTIONS' express consent. AvSOLUTIONS hereby states that this valuation
report has been independently prepared and fairly represents the Aircraft and
AvSOLUTIONS' opinion of their values. AvSOLUTIONS further states that it has no
present or contemplated future interest or association with the Aircraft.
Signed,
/s/ SCOTT E. DANIELS
Scott E. Daniels
Director, Asset Management
ATTACHMENT 1
AMERICAN AIRLINES
Original/
Scheduled Engine MTOW Base Value
Registration Delivery Type (lb) $ millions
------------ ---------- ------------ ------- ----------
BOEING 757-223ER
1 N608AA 16-Jul-96 RB211-535E4B 250,000 44.32
2 N609AA 29-Jul-96 RB211-535E4B 250,000 44.32
BOEING 757-223
3 N604AA 12-Jun-95 RB211-535E4B 250,000 39.44
4 N605AA 28-Jun-95 RB211-535E4B 250,000 39.44
5 N606AA 11-Apr-96 RB211-535E4B 250,000 40.94
6 N680AN 28-Jan-99 RB211-535E4B 250,000 46.56
7 N176AA 11-Jan-02 RB211-535E4B 250,000 53.25
8 N177AN 18-Jan-02 RB211-535E4B 250,000 53.25
9 N173AN 21-Mar-02 RB211-535E4B 250,000 53.69
10 N172AJ 30-Apr-02 RB211-535E4B 250,000 53.91
767-323ER
11 N389AA 18-Jan-95 CF6-80C2B6 408,000 57.41
12 N390AA 1-Feb-95 CF6-80C2B6 408,000 57.70
13 N391AA 16-Feb-95 CF6-80C2B6 408,000 57.70
14 N392AN 30-Apr-98 CF6-80C2B6 408,000 69.74
15 N393AN 18-May-98 CF6-80C2B6 408,000 70.09
16 N395AN 10-Jul-98 CF6-80C2B6 408,000 70.79
777-223ER
17 N785AN 12-Apr-00 Trent 892 648,000 122.19
18 N786AN 21-Apr-00 Trent 892 648,000 122.19
19 N795AN 16-Dec-00 Trent 892 648,000 126.72
[MORTEN BEYER & AGNEW LETTERHEAD]
--------------------------------
AVIATION CONSULTING FIRM
Current Base Value of 19 Various Aircraft
(AA 2002-1)
PREPARED FOR:
American Airlines
SEPTEMBER 13, 2002
Washington, D.C. Europe Pacific Rim
2107 Wilson Blvd. 12/14 Rond Point des 3-16-16 Higashiooi
Champs Elysees
Suite 750 Shinagawa-ku
Paris 75008
Arlington, Virginia 22201 Tokyo 140-0011
France
United States Japan
Phone + 33 1 5353-1664
Phone + 703 276 3200 Phone + 81 3 3763 6845
Fax + 33 1 5353-1400
Fax + 703 276 3201
I. INTRODUCTION AND EXECUTIVE SUMMARY
MORTEN BEYER & AGNEW (MBA) has been retained by American Airlines (the "Client")
to determine the Current Base Value of 19 various aircraft as identified in
Section III of this report.
In performing this valuation, MB A 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
September 12, 2002, that the aggregate Current Base Value of the aircraft in
this portfolio is $1,193,410,000 with the respective value adjustments noted in
Section V of this report..AMERICAN AIRLINES
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
AMERICAN AIRLINES
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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.
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
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III. AIRCRAFT SPECIFICATIONS
[GRAPHIC] Boeing 757-223/ER
N608AA SEATING: 22F/154Y
ENGINES: RB211-535E4B
MGTOW (lbs): 250,000
[GRAPHIC] Boeing 767-323ER
N390AA SEATING: 10F/24B/156Y
ENGINES: CF6-80C2B6
MGTOW (lbs): 408,000
[GRAPHIC] Boeing 777-223ER
N786AN SEATING: 18F/42B/163Y - Pacific
16F/35B/194Y - Atlantic
Engines: TRENT 892
MGTOW (lbs): 648,000
AMERICAN AIRLINES
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IV. CURRENT MARKET CONDITIONS
[GRAPHIC] Boeing 757-200/ER
N176AJ
HISTORY & DEVELOPMENT
The twin engine 757-200 was introduced in 1978, and first delivered in 1982 as
the successor to the 727-200. Known as one of the most efficient aircraft in
operation the 757-200 has evolved since its initial first deliveries. With an
increased gross-weight allowing for greater capacity and range, operators found
the 757-200 suitable for the thin long-haul routes. The later model 757-200 is
certified for ETOPS that also allows it to cross the Atlantic on a direct
routing. The 757-200 has also been delivered as a PF (Package Freighter) to UPS.
Both PW and Rolls-Royce powerplants are offered for the 757-200.
MARKET DEVELOPMENT
The 757-200, while economically superior to most other aircraft on the market,
has found itself in an interesting market. Many airlines have either decreased
their aircraft size with larger Next Generation 737s or the A321, or they have
increased their aircraft size to smaller widebodies like the 767, or A330-
leaving out the 757-200 completely. The order book for the 757-200 continues to
decrease as shown by the current backlog. The market has been soft for sometime
with a continuing increase of 757s available on the market. Values for older
aircraft are expected to soften even more, and may remain that way for sometime,
as US Airways plans to release over 30 aircraft from its fleet by the last
quarter of this year. Boeing has developed a cargo conversion program to meet
the needs of those carriers that will eventually start to retire 727 freighters.
As used acquisition costs continue to soften it is likely that the 757-cargo
conversion market will
AMERICAN AIRLINES
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look more favorable to those who could not previously afford it. Current List
prices for the 757-200 remain between $73.5-80.5 million. Actual new delivered
prices are some 25% less.
MARKET OUTLOOK
The backlog of the Boeing 757-200 has shrunk to 4 aircraft, partially replaced
by the 30 757-300s on order, indicating an overall shrinkage in demand for the
model. No new orders have been recorded for 2002, and none are likely for the
foreseeable future. Boeing may eventually rationalize its fleets of aircraft as
demand continues to decrease. Values for older used aircraft will be depressed
for sometime to come.
[GRAPHIC] BOEING 767-300ER.
N389AA
HISTORY & DEVELOPMENT
The 767-300ER was introduced shortly after the 767-300 and has an extended range
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 continue
to serve a
AMERICAN AIRLINES
Job File #02213
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significant sector, but the market will not be as strong as it once was. Cargo
applications for this aircraft are ultimately likely, although at this time are
still too expensive except for the likes of FedEx and UPS.
MARKET OUTLOOK
Few Boeing 767-300s have been offered for sale, 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.
Boeing 777-200ER
[GRAPHIC]
HISTORY & DEVELOPMENT
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. Because it is still limited by ETOPS operations, this aircraft does not
serve the Pacific routes as easily, but that has not stopped large Asian
carriers from ordering it. The new technology and operating economics of the 777
have made it one of the most popular aircraft of all times.
AMERICAN AIRLINES
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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 126
aircraft.
MARKET OUTLOOK
The Boeing 777-200 is clearly Boeing's leading widebody 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 with the same seating capacity. The
777-200ER will be one of the major fleets as airlines restructure and
rationalize their longhaul fleets.
AMERICAN AIRLINES
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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.
2. The overhaul status of the airframe, engines, landing gear and
other major components are the equivalent of mid-time/mid-life,
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
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AMERICAN AIRLINES 2002-1
--------------------------------------------------------------------------------
REGISTRATION DELIVERY MBA CURRENT
AIRCRAFT TYPE NUMBER DATE MTOW ENGINES BASE VALUE
------------- ------------ -------- ------- --------------- -----------
B757-223 N604AA Jun-95 250,000 RB211-535E4B 34.91
B757-223 N605AA Jun-95 250,000 RB211-535E4B 34.91
B757-223 N606AA Apr-96 250,000 RB211-535E4B 36.87
B757-223 N680AN Jan-99 250,000 RB211-535E4B 44.15
B757-223 N176AA Jan-02 250,000 RB211-535E4B 53.73
B757-223 N177AN Jan-02 250,000 RB211-535E4B 53.73
B757-223 N173AN Mar-02 250,000 RB211-535E4B 53.95
B757-223 N172AJ Apr-02 250,000 RB211-535E4B 54.06
B757-223 ER N608AA Jul-96 250,000 RB211-535E4B 37.48
B757-223 ER N609AA Jul-96 250,000 RB211-535E4B 37.48
B767-323 ER N389AA Jan-95 408,000 CF6-80C2B6 60.41
B767-323 ER N390AA Feb-95 408,000 CF6-80C2B6 60.68
B767-323 ER N391AA Feb-95 408,000 CF6-80C2B6 60.68
B767-323 ER N392AN Apr-98 408,000 CF6-80C2B6 71.53
B767-323 ER N393AN May-98 408,000 CF6-80C2B6 71.84
B767-323 ER N395AN Jul-98 408,000 CF6-80C2B6 72.47
B777-223 ER N785AN Apr-00 648,000 RB211-Trent 892 116.87
B777-223 ER N786AN Apr-00 648,000 RB211-Trent 892 116.87
B777-223 ER N795AN Dec-00 648,000 RB211-Trent 892 120.79
---------
TOTAL $1,193.41
=========
*Values in ($000,000)
AMERICAN AIRLINES
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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 OPERATIONS
Reviewed by:
/s/ MORTEN S. BEYER
SEPTEMBER 13, 2002 MORTEN S. BEYER, APPRAISER FELLOW
CHAIRMAN & CEO
ISTAT CERTIFIED SENIOR APPRAISER
AMERICAN AIRLINES
Job File #02213
Page 11 of 11
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........................................ 28
Legal Opinions.............................................. 29
Experts..................................................... 29
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"),
2
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.
3
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
4
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.
5
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
6
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
7
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
8
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
9
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.
11
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.
12
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
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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
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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
20
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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