American Airlines: $713 million charge needed to adjust aircraft value

By Caroline Salls

Pittsburgh, Jan. 23 - American Airlines, Inc. said a test for asset impairment has revealed that the carrying value of Boeing 757 aircraft used in its domestic market was no longer recoverable, according to an 8-K filed Monday with the Securities and Exchange Commission.

As a result, American said its 2011 results will include a $713 million non-cash impairment charge to write the Boeing 757 aircraft and related long-lived assets down to their estimated fair values.

According to the 8-K, American entered into agreements with Airbus and Boeing in the second quarter of 2011 under which it plans to acquire 460 narrowbody aircraft from the Boeing 737 and Airbus A320 families during the period of 2013 to 2022.

The company said the U.S. Bankruptcy Court for the Southern District of New York has not yet approved its assumption of those contracts, but it has allowed American to continue to accept delivery of Boeing 737 aircraft for the remainder of 2012.

In connection with the Boeing and Airbus aircraft agreements and the company's expected acceleration of its fleet renewal and replacement plan, American said it evaluated the useful lives of fleets, including McDonnell Douglas MD-80, Boeing 757 and Boeing 767 aircraft.

Upon finalization of the fleet plan, the company concluded that a triggering event had occurred, requiring some of the assets be tested for impairment.

AMR Corp., the Fort Worth, Texas-based parent of American Airlines, filed for bankruptcy on Nov. 29 in the U.S. Bankruptcy Court for the Southern District of New York. Its Chapter 11 case number is 11-15463.

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