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United States Securities and Exchange Commission
 Washington, D.C. 20549
 
 Form 10-K
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year
ended December 31, 2005
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission
File Number: 1-2691
 American Airlines, Inc.
  Delaware
    
    13-1502798(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification Number)
 4333 Amon Carter Blvd.
Fort Worth, Texas 76155
 (817) 963-1234
 
  Title of Each Class
    
    Name of Exchange on Which RegisteredNONE
    
    NONE
 NONE
 
 þ  ̈
  ̈ þ
 þ  ̈
 þ
  ̈  ̈ þ
  ̈ þ
  The registrant meets the conditions set forth in, and is filing this form with
the reduced disclosure format prescribed by, General Instructions I(1)(a) and
(b) of Form 10-K.




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TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 1A. RISK FACTORSITEM 1B. UNRESOLVED STAFF COMMENTSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5. MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERSITEM 6. SELECTED CONSOLIDATED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8. CONSOLIDATED FINANCIAL STATEMENTSITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A. CONTROLS AND PROCEDURESPART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESComputation of Ratio of Earnings to Fixed ChargesConsent of Independent Registered Public Accounting FirmCertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification Pursuant to Section 906    Table of Contents  
 PART I
 
 ITEM 1. BUSINESS
   Recent Events
    
    
    American re-marketed $198 million of Dallas-Fort Worth International Airport Facility Improvement Corporation Revenue
Refunding Bonds, Series 2000A, due May 1, 2029.
 
    
    The New York City Industrial Development Agency issued $800 million of special facility revenue bonds on behalf of
American, and $491 million of bond proceeds was paid to American to reimburse prior construction costs.
 
    
    American sold and leased back 89 spare engines for net proceeds of $133 million.
 
    
    American purchased certain obligations due October 2006 with a face value of $261 million at par value from an
institutional investor. In conjunction with the purchase, American borrowed an additional $245 million under an
existing mortgage agreement with a final maturity in December 2012 from the same investor.
  1




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Competition
 Domestic Air Transportation
    International Air Transportation
  2




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one one one one
 Price Competition
  Distribution Systems
    Regulation
 General
 3




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International
  Security
  Airline Fares
 4




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Airport Access st
    Environmental Matters
  5




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6




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Labor
    Fuel
  Average
    
    
    Percent ofGallons
    
    
    
    
    
    
    Cost Per
    
    
    AmericansConsumed
    
    
    Total Cost
    
    
    Gallon
    
    
    OperatingYear
    
    (in millions)
    
    
    (in millions)
    
    
    (in cents)
    
    
    Expenses2003
    
    
    2,956
    
    
    $
    2,586
    
    
    
    87.5
    
    
    
    14.02004
    
    
    3,014
    
    
    
    3,653
    
    
    
    121.2
    
    
    
    19.22005
    
    
    2,948
    
    
    
    5,080
    
    
    
    172.3
    
    
    
    24.2
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Frequent Flyer Program
      8




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Other Matters
 Seasonality and Other Factors
  Insurance
   Other Government Matters
 9




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Available Information www.aa.com www.aa.com www.aa.com www.aa.com
 10




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##### Table of Contents



ITEM 1A. RISK FACTORS
  As a result of significant losses in recent years, our financial condition has been materially
weakened.
  Our initiatives to generate additional revenues and significantly reduce our costs may not be
adequate or successful.
  Our business is affected by many changing economic and other conditions beyond our control, and our
results of operations tend to be volatile.
  
    
    actual or potential changes in international, national, regional and local economic,
business and financial conditions, including recession, inflation and higher interest
rates, war, terrorist attacks or political instability;
    
    changes in consumer preferences, perceptions, spending patterns or demographic trends;
    
    actual or potential disruptions to the air traffic control system;
    
    increases in costs of safety, security and environmental measures;
    
    outbreaks of diseases that affect travel behavior; or
    
    weather and natural disasters.
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Our indebtedness and other obligations are substantial and could adversely affect our business and
liquidity.
  
    
    limit our ability to obtain additional financing for working capital, capital
expenditures, acquisitions and general corporate purposes, or adversely affect the terms on
which such financing could be obtained;
    
    require us to dedicate a substantial portion of our cash flow from operations to
payments on our indebtedness and other obligations, thereby reducing the funds available
for other purposes;
    
    make us more vulnerable to economic downturns;
    
    limit our ability to withstand competitive pressures and reduce our flexibility in
responding to changing business and economic conditions; or
    
    limit our flexibility in planning for, or reacting to, changes in our business and the
industry in which we operate.
 We may be unable to comply with our financial covenants.
  We are being adversely affected by increases in fuel prices, and we would be adversely affected by
disruptions in the supply of fuel.
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The airline industry is fiercely competitive and fares are at historically low levels.
    We compete with reorganized and reorganizing carriers, which may result in competitive
disadvantages for us or fare discounting.
   Our reduced pricing power adversely affects our ability to achieve adequate pricing, especially
with respect to business travel.
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We need to raise additional funds to maintain sufficient liquidity, but we may be unable to do so
on acceptable terms.
     Our business strategy may change.
  Our business is subject to extensive government regulation, which can result in increases in our
costs, limits on our operating flexibility and competitive disadvantages.
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
    
    changes in the law which affect the services that can be offered by airlines in
particular markets and at particular airports;
    
    the granting and timing of certain governmental approvals (including foreign government
approvals) needed for codesharing alliances and other arrangements with other airlines;
    
    restrictions on competitive practices (for example court orders, or agency regulations
or orders, that would curtail an airlines ability to respond to a competitor);
    
    the adoption of regulations that impact customer service standards (for example new
passenger security standards); or
    
    the adoption of more restrictive locally-imposed noise restrictions.
   We could be adversely affected by conflicts overseas or terrorist attacks.
   Our international operations could be adversely affected by numerous events, circumstances or
government actions beyond our control.
  We could be adversely affected by an outbreak of a disease that affects travel behavior.
  15




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We could be adversely affected if we are unable to maintain satisfactory relations with any
unionized or other employee work group.
  Our insurance costs have increased substantially and further increases in insurance costs or
reductions in coverage could have an adverse impact on us.
    We may be unable to retain key management personnel.
  We could be adversely affected by a failure or disruption of our computer, communications or other
technology systems.
  16




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##### Table of Contents



ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
 Flight Equipment  Operating
  AverageAverage Seating
    
    
    
    
    
    Capital
    
    Operating
    
    
    
    
    
    AgeEquipment Type
    
    Capacity
    
    Owned
    
    Leased
    
    Leased
    
    Total
    
    (Years)American Airlines AircraftAirbus A300-600R
    
    
    267
    
    
    
    10
    
    
    
    
    
    
    
    24
    
    
    
    34
    
    
    
    16Boeing 737-800
    
    
    148
    
    
    
    67
    
    
    
    
    
    
    
    10
    
    
    
    77
    
    
    
    6Boeing 757-200
    
    
    187
    
    
    
    87
    
    
    
    6
    
    
    
    50
    
    
    
    143
    
    
    
    11Boeing 767-200 Extended Range
    
    
    165
    
    
    
    4
    
    
    
    11
    
    
    
    1
    
    
    
    16
    
    
    
    19Boeing 767-300 Extended Range
    
    
    220
    
    
    
    45
    
    
    
    2
    
    
    
    11
    
    
    
    58
    
    
    
    12Boeing 777-200 Extended Range
    
    
    246
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    5McDonnell Douglas MD-80
    
    
    136
    
    
    
    138
    
    
    
    72
    
    
    
    117
    
    
    
    327
    
    
    
    16Total
    
    
    
    
    
    
    395
    
    
    
    91
    
    
    
    213
    
    
    
    699
    
    
    
    13
  Flight Equipment  Non-Operating
  Capital
    
    OperatingEquipment Type
    
    Owned
    
    Leased
    
    Leased
    
    TotalAmerican Airlines AircraftBoeing 777-200 Extended Range
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Boeing 767-200
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    2Boeing 767-200 Extended Range
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Fokker 100
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4McDonnell Douglas MD-80
    
    
    13
    
    
    
    6
    
    
    
    8
    
    
    
    27Total
    
    
    15
    
    
    
    6
    
    
    
    15
    
    
    
    36
    17




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2011andEquipment Type
    
    2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    ThereafterAmerican Airlines AircraftAirbus A300-600R
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3
    
    
    
    9
    
    
    
    9Boeing 737-800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10Boeing 757-200
    
    
    
    
    
    
    15
    
    
    
    9
    
    
    
    1
    
    
    
    
    
    
    
    31Boeing 767-200 Extended Range
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    1
    
    
    
    1
    
    
    
    8Boeing 767-300 Extended Range
    
    
    2
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    8McDonnell Douglas MD-80
    
    
    
    
    
    
    1
    
    
    
    9
    
    
    
    4
    
    
    
    12
    
    
    
    1632
    
    
    
    16
    
    
    
    26
    
    
    
    9
    
    
    
    22
    
    
    
    229
  Ground Properties
   18




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ITEM 3. LEGAL PROCEEDINGS
 Westways World Travel, Inc. v. AMR Corp., et al.
 Tam Travel et. al., v. Delta Air Lines et. al Paula Fausky
d/b/a Timeless Travel v. American Airlines, et. al, Swope Travel et al. v. Orbitz et.
al
 Power Travel International, Inc. v. American Airlines, Inc., et al.
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Miami-Dade County, Florida v. Advance Cargo
Services, Inc., et al.
 Kimmell v. AMR,
et al. Baldwin v. AMR, et al. Rosenberg v. AMR, et al. Anapolsky v. AMR,
et al Kimmell Baldwin Rosenberg Anapolsky Kimmell Rosenberg
 Harrington v. Delta Air Lines, Inc., et al. Teitelbaum v. Alaska Airlines, et
al.
 IAP Intermodal, L.L.C. v. AMR Corp., et al.
 20




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Ann M. Marcoux, et al., v. American
Airlines Inc., et al. (Sherry Cooper,
et al. v. TWA Airlines, LLC, et al.
  Animal Land, Inc. v. Air Canada et
al. Adams v. British Airways, et al
 21




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS
  
 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
  22




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS(Abbreviated pursuant to General Instructions I(2)(a) of Form 10-K).
 Forward-Looking Information
  Overview
  Year ended December 31,(in millions)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Operating loss
    
    $
    (351
    )
    
    $
    (421
    )
    
    $
    (1,129
    )
    
    $
    (3,313
    )
    
    $
    (2,274
    )Net loss
    
    
    (892
    )
    
    
    (821
    )
    
    
    (1,318
    )
    
    
    (3,495
    )
    
    
    (1,562
    )
  23




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
    
    Following the Terrorist Attacks, the Company reduced its operating
schedule by approximately 20 percent and reduced its workforce by
approximately 20,000 jobs.
 
    
    In 2002, the Company announced a series of initiatives to reduce
its annual costs by $2 billion. These initiatives involved: (i)
scheduling efficiencies, (ii) fleet simplification, (iii)
streamlined customer interaction, (iv) distribution modifications,
(v) in-flight product changes, (vi) operational changes and (vii)
headquarters/administration efficiencies. As a result of these
initiatives, the Company reduced an estimated 7,000 jobs by March
2003.
 
    
    In February 2003, the Company asked its employees for
approximately $1.8 billion in annual savings through a combination
of changes in wages, benefits and work rules. In April 2003,
American reached agreements with its three unions (the Labor
Agreements) and also implemented various changes in the pay plans
and benefits for non-unionized personnel, including officers and
other management (the Management Reductions). The Labor Agreements
and Management Reductions resulted in an estimated $1.8 billion in
annual savings and included a workforce reduction of approximately
9,300 jobs. In addition, American reached concessionary
agreements with certain vendors, lessors, lenders and suppliers
(collectively, the Vendors, and the agreements, the Vendor
Agreements), resulting in an estimated $200 million in annual cost
savings. Generally, under the terms of these Vendor Agreements,
American received the benefit of lower rates and charges for
certain goods and services, and more favorable rent and financing
terms with respect to certain of its aircraft.
 
    
    Subsequent to the April 2003 Labor Agreements and Management
Reductions, the Company announced the Turnaround Plan. The
Turnaround Plan is the Companys strategic framework for returning
to sustained profitability and emphasizes: (i) lower costs, (ii)
an increased focus on what customers truly value and are prepared
to pay for, (iii) increased union and employee involvement in the
operation of the Company and (iv) the need for a more sound
balance sheet and financial structure.
 
    
    Subsequent to the announcement of the Turnaround Plan, the Company
has worked with its unions and employees to identify and implement
additional initiatives designed to increase efficiencies and
revenues and reduce costs. These initiatives included: (i) the
return of under-used gate space and the consolidation of terminal
space, (ii) the de-peaking of its hub at Miami, the reduction in
the size of its St. Louis hub and the simplification of its
domestic operations, (iii) the acceleration of the retirement of
certain aircraft and the cancellation or deferral of aircraft
deliveries, (iv) the improvement of aircraft utilization across
its fleet and an increase in seating density on certain fleet
types, (v) the sale of certain non-core assets, (vi) the expansion
of its international network, where the Company believes that
higher revenue generating opportunities currently exist, (vii) the
implementation of an on-board food purchase program and new fees
for ticketing and baggage services, (viii) lower distribution
costs, (ix) the implementation of fuel conservation initiatives,
(x) the increase in third-party maintenance contracts obtained by
the Companys Maintenance and Engineering group, (xi) upgrading of
flight navigation systems to provide more direct routings and
(xii) numerous other initiatives.
 
    
    As part of its effort to build greater employee involvement, the
Company has sought to make its labor unions and its employees its
business partners in working for continuous improvement under the
Turnaround Plan. Among other things, the senior management of the
Company meets regularly with union officials to discuss the
Companys financial results as well as the competitive landscape.
These discussions include (i) the Companys own cost reduction and
revenue enhancement initiatives, (ii) a review of initiatives,
in-place or contemplated, at other airlines and the impact of
those initiatives on the Companys competitive position, and (iii)
benchmarking the Companys revenues and costs against what would
be considered best in class (the Companys Performance
Leadership Initiative).
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Cash, Short-Term Investments and Restricted Assets
  Significant Indebtedness and Future Financing
  Credit Ratings
  Credit Facility Covenants
  26




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Cash Flow Activity
  JFK Facilities Sublease Revenue Bonds, net (2)
    
    $
    491Sale and leaseback of spare engines
    
    
    133Re-marketing of DFW-FIC Revenue Refunding Bonds, Series 2000A,
maturing in 2029
    
    
    198$
    822
 
 (1)
    
    The table does not include a transaction in which American purchased certain obligations
due October 2006 with a face value of $261 million at par value from an institutional investor. In
conjunction with the purchase, American borrowed an additional $245 million under an existing
mortgage agreement with a final maturity in December 2012 from the same investor.(2)
    
    Amount shown is net of $207 million the Company will receive to fund future capital spending at JFK, $77 million
held by a trustee for future debt service on the bonds and a discount of $25 million.     27




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Working
Capital
  Off Balance Sheet Arrangements
    Commitments
 Pension Obligations
  28




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Other Commitments
  ®
   Year Ended December 31,2005
    
    
    2004Revenues:Regional Affiliates
    
    $
    2,148
    
    
    $
    1,876Other
    
    
    88
    
    
    
    78$
    2,236
    
    
    $
    1,954Expenses:Regional payments
    
    $
    2,238
    
    
    $
    1,869Other incurred expenses
    
    
    277
    
    
    
    235$
    2,515
    
    
    $
    2,104
   29




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Results of Operations
  Revenues
 2005 Compared
to 2004
 Year Ended December 31, 2005RASM
    
    
    Y-O-Y
    
    
    ASMs
    
    
    Y-O-Y(cents)
    
    
    Change
    
    
    (billions)
    
    
    ChangeDOT Domestic
    
    
    9.37
    
    
    
    10.6
    %
    
    
    115
    
    
    
    (2.3
    )%International
    
    
    9.56
    
    
    
    6.6
    
    
    
    61
    
    
    
    8.6DOT Latin America
    
    
    9.48
    
    
    
    7.9
    
    
    
    30
    
    
    
    6.0DOT Atlantic
    
    
    10.08
    
    
    
    9.0
    
    
    
    24
    
    
    
    6.7DOT Pacific
    
    
    8.12
    
    
    
    (7.7
    )
    
    
    7
    
    
    
    30.1
     30




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Operating Expenses
 2005 Compared to 2004
 (in millions)
    
    Year endedDecember
    
    
    Change
    
    
    PercentageOperating Expenses
    
    31, 2005
    
    
    from 2004
    
    
    ChangeWages, salaries and benefits
    
    $
    6,173
    
    
    $
    (51
    )
    
    
    (0.8
    )%Aircraft fuel
    
    
    5,080
    
    
    
    1,427
    
    
    
    39.1
    
    
    
    (a
    )Regional payments to AMR Eagle
    
    
    2,048
    
    
    
    348
    
    
    
    20.5
    
    
    
    (b
    )Other rentals and landing fees
    
    
    1,145
    
    
    
    79
    
    
    
    7.4Commissions, booking fees and
credit card expense
    
    
    1,113
    
    
    
    6
    
    
    
    0.5Depreciation and amortization
    
    
    977
    
    
    
    (147
    )
    
    
    (13.1
    )
    
    
    (c
    )Maintenance, materials and repairs
    
    
    802
    
    
    
    (19
    )
    
    
    (2.3
    )Aircraft rentals
    
    
    571
    
    
    
    (17
    )
    
    
    (2.9
    )Food service
    
    
    500
    
    
    
    (52
    )
    
    
    (9.4
    )Other operating expenses
    
    
    2,599
    
    
    
    405
    
    
    
    18.5
    
    
    
    (d
    )Total operating expenses
    
    $
    21,008
    
    
    $
    1,979
    
    
    
    10.4
    %
 
 
  
 
 Other Income (Expense)
  2005 Compared to 2004
 Income Tax Benefit
 2005 and 2004
 31




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Outlook
  Other Information
 Environmental Matters
 32




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ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Market Risk Sensitive
Instruments and Positions
  Aircraft Fuel
 Foreign Currency
 Interest
 33




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Other
 34




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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    36Consolidated Statements of Operations
    
    
    37Consolidated Balance Sheets
    
    
    38-39Consolidated Statements of Cash Flows
    
    
    40Consolidated Statements of Stockholders Equity (Deficit)
    
    
    41Notes to Consolidated Financial Statements
    
    
    42-67
 35




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     /s/ Ernst & Young LLP
 
 36




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##### Table of Contents



AMERICAN AIRLINES, INC.  CONSOLIDATED STATEMENTS OF OPERATIONS
 Year Ended December 31,2005
    
    
    2004
    
    
    2003RevenuesPassenger
    
    $
    16,614
    
    
    $
    15,021
    
    
    $
    14,332Regional Affiliates
    
    
    2,148
    
    
    
    1,876
    
    
    
    1,519Cargo
    
    
    622
    
    
    
    625
    
    
    
    558Other
    
    
    1,273
    
    
    
    1,086
    
    
    
    994Total operating revenues
    
    
    20,657
    
    
    
    18,608
    
    
    
    17,403ExpensesWages, salaries and benefits
    
    
    6,173
    
    
    
    6,224
    
    
    
    6,831Aircraft fuel
    
    
    5,080
    
    
    
    3,653
    
    
    
    2,586Regional payments to AMR Eagle
    
    
    2,048
    
    
    
    1,700
    
    
    
    1,392Other rentals and landing fees
    
    
    1,145
    
    
    
    1,066
    
    
    
    1,084Commissions, booking fees and credit card expense
    
    
    1,113
    
    
    
    1,107
    
    
    
    1,064Depreciation and amortization
    
    
    977
    
    
    
    1,124
    
    
    
    1,213Maintenance, materials and repairs
    
    
    802
    
    
    
    821
    
    
    
    714Aircraft rentals
    
    
    571
    
    
    
    588
    
    
    
    666Food service
    
    
    500
    
    
    
    552
    
    
    
    606Other operating expenses
    
    
    2,599
    
    
    
    2,194
    
    
    
    2,691U.S. government grant
    
    
    
    
    
    
    
    
    
    
    (315
    )Total operating expenses
    
    
    21,008
    
    
    
    19,029
    
    
    
    18,532Operating Loss
    
    
    (351
    )
    
    
    (421
    )
    
    
    (1,129
    )Other Income (Expense)Interest income
    
    
    146
    
    
    
    64
    
    
    
    54Interest expense
    
    
    (712
    )
    
    
    (650
    )
    
    
    (524
    )Interest capitalized
    
    
    64
    
    
    
    77
    
    
    
    66Related party interest  net
    
    
    (12
    )
    
    
    (2
    )
    
    
    7Miscellaneous  net
    
    
    (27
    )
    
    
    111
    
    
    
    117(541
    )
    
    
    (400
    )
    
    
    (280
    )Loss Before Income Taxes
    
    
    (892
    )
    
    
    (821
    )
    
    
    (1,409
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    (91
    )Net Loss
    
    $
    (892
    )
    
    $
    (821
    )
    
    $
    (1,318
    )
  37




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##### Table of Contents



AMERICAN AIRLINES, INC.  CONSOLIDATED BALANCE SHEETS
 December 31,2005
    
    
    2004AssetsCurrent AssetsCash
    
    $
    133
    
    
    $
    117Short-term investments
    
    
    3,637
    
    
    
    2,787Restricted cash and short-term investments
    
    
    510
    
    
    
    478Receivables, less allowance for uncollectible
accounts (2005 - $59; 2004 - $58)
    
    
    967
    
    
    
    821Inventories, less allowance for obsolescence
(2005 - $363; 2004 - $329)
    
    
    474
    
    
    
    450Other current assets
    
    
    321
    
    
    
    233Total current assets
    
    
    6,042
    
    
    
    4,886Equipment and PropertyFlight equipment, at cost
    
    
    18,501
    
    
    
    18,619Less accumulated depreciation
    
    
    6,805
    
    
    
    6,31511,696
    
    
    
    12,304Purchase deposits for flight equipment
    
    
    277
    
    
    
    277Other equipment and property, at cost
    
    
    4,989
    
    
    
    4,839Less accumulated depreciation
    
    
    2,637
    
    
    
    2,4742,352
    
    
    
    2,36514,325
    
    
    
    14,946Equipment and Property Under Capital LeasesFlight equipment
    
    
    1,880
    
    
    
    1,914Other equipment and property
    
    
    197
    
    
    
    1682,077
    
    
    
    2,082Less accumulated amortization
    
    
    1,059
    
    
    
    9841,018
    
    
    
    1,098Other AssetsRoute acquisition costs and airport
operating and gate lease rights, less
accumulated amortization (2005 - $290; 2004
- $270)
    
    
    1,167
    
    
    
    1,194Other assets
    
    
    3,489
    
    
    
    3,3384,656
    
    
    
    4,532Total Assets
    
    $
    26,041
    
    
    $
    25,462
  38




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##### Table of Contents



AMERICAN AIRLINES, INC.  CONSOLIDATED BALANCE SHEETS
 December 31,2005
    
    
    2004Liabilities and Stockholders Equity (Deficit)Current LiabilitiesAccounts payable
    
    $
    998
    
    
    $
    945Accrued salaries and wages
    
    
    603
    
    
    
    517Accrued liabilities
    
    
    1,602
    
    
    
    1,336Air traffic liability
    
    
    3,615
    
    
    
    3,183Payable to affiliates
    
    
    544
    
    
    
    359Current maturities of long-term debt
    
    
    829
    
    
    
    475Current obligations under capital leases
    
    
    138
    
    
    
    104Total current liabilities
    
    
    8,329
    
    
    
    6,919Long-Term Debt, Less Current Maturities
    
    
    8,785
    
    
    
    8,787Obligations Under Capital Leases,
Less Current Obligations
    
    
    922
    
    
    
    1,061Other Liabilities and CreditsDeferred gains
    
    
    422
    
    
    
    470Pension and postretirement benefits
    
    
    4,998
    
    
    
    4,743Other liabilities and deferred credits
    
    
    3,764
    
    
    
    3,5879,184
    
    
    
    8,800Commitments and ContingenciesStockholders Equity (Deficit)Common stock  $1 par value;
1,000 shares authorized, issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    3,406
    
    
    
    3,273Accumulated other comprehensive loss
    
    
    (1,087
    )
    
    
    (772
    )Accumulated deficit
    
    
    (3,498
    )
    
    
    (2,606
    )(1,179
    )
    
    
    (105
    )Total Liabilities and Stockholders Equity (Deficit)
    
    $
    26,041
    
    
    $
    25,462
  39




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##### Table of Contents



AMERICAN AIRLINES, INC.  CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended December 31,2005
    
    
    2004
    
    
    2003Cash Flow from Operating Activities:Net Loss
    
    $
    (892
    )
    
    $
    (821
    )
    
    $
    (1,318
    )Adjustments to reconcile net loss to net cash provided (used)
by operating activities:Depreciation
    
    
    849
    
    
    
    976
    
    
    
    1,071Amortization
    
    
    128
    
    
    
    148
    
    
    
    142Provisions for asset impairments and restructuring charges
    
    
    134
    
    
    
    21
    
    
    
    190Gain on sale of investments
    
    
    
    
    
    
    (146
    )
    
    
    (154
    )Redemption payments under operating leases for special
facility revenue bonds
    
    
    (104
    )
    
    
    
    
    
    
    (521
    )Change in assets and liabilities:Decrease (increase) in receivables
    
    
    (146
    )
    
    
    (83
    )
    
    
    615Decrease (increase) in inventories
    
    
    (53
    )
    
    
    7
    
    
    
    49Increase (decrease) in accounts payable
and accrued liabilities
    
    
    158
    
    
    
    (102
    )
    
    
    (237
    )Increase in air traffic liability
    
    
    432
    
    
    
    377
    
    
    
    184Increase in other liabilities and deferred credits
    
    
    196
    
    
    
    32
    
    
    
    244Other, net
    
    
    30
    
    
    
    11
    
    
    
    (56
    )Net cash provided by operating activities
    
    
    732
    
    
    
    420
    
    
    
    209Cash Flow from Investing Activities:Capital expenditures, including purchase deposits on
flight equipment
    
    
    (381
    )
    
    
    (391
    )
    
    
    (330
    )Net increase in short-term investments
    
    
    (850
    )
    
    
    (313
    )
    
    
    (640
    )Net decrease (increase) in restricted cash and short-term
investments
    
    
    (32
    )
    
    
    49
    
    
    
    256Proceeds from sale of equipment and property and
investments
    
    
    30
    
    
    
    233
    
    
    
    387Other
    
    
    1
    
    
    
    (12
    )
    
    
    23Net cash used for investing activities
    
    
    (1,232
    )
    
    
    (434
    )
    
    
    (304
    )Cash Flow from Financing Activities:Payments on long-term debt and capital lease obligations
    
    
    (870
    )
    
    
    (1,472
    )
    
    
    (731
    )Proceeds from:Issuance of long-term debt and special facility bond
transactions
    
    
    934
    
    
    
    1,030
    
    
    
    353Securitization transactions
    
    
    133
    
    
    
    
    
    
    
    Funds transferred from affiliates, net
    
    
    319
    
    
    
    455
    
    
    
    491Net cash provided by financing activities
    
    
    516
    
    
    
    13
    
    
    
    113Net increase (decrease) in cash
    
    
    16
    
    
    
    (1
    )
    
    
    18Cash at beginning of year
    
    
    117
    
    
    
    118
    
    
    
    100Cash at end of year
    
    $
    133
    
    
    $
    117
    
    
    $
    118Activities Not Affecting CashFunding of construction and debt service reserve accounts
    
    $
    284
    
    
    $
    
    
    
    $
    Capital lease obligations incurred
    
    $
    13
    
    
    $
    13
    
    
    $
    140Flight equipment acquired through seller financing
    
    $
    
    
    
    $
    
    
    
    $
    554Reduction to capital lease and other obligations
    
    $
    
    
    
    $
    
    
    
    $
    (190
    )
  40




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##### Table of Contents



AMERICAN AIRLINES, INC.  CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
 AccumulatedAdditional
    
    
    OtherCommon
    
    
    Paid-in
    
    
    Comprehensive
    
    
    AccumulatedStock
    
    
    Capital
    
    
    Loss
    
    
    Deficit
    
    
    TotalBalance at January 1, 2003
    
    $
    
    
    
    $
    2,598
    
    
    $
    (1,184
    )
    
    $
    (467
    )
    
    $
    947Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,318
    )
    
    
    (1,318
    )Minimum pension liability
    
    
    
    
    
    
    
    
    
    
    337
    
    
    
    
    
    
    
    337Changes in fair value of
derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    (43
    )
    
    
    
    
    
    
    (43
    )Unrealized loss on investments
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,027
    )Transactions with Parent (Note 13)
    
    
    
    
    
    
    425
    
    
    
    
    
    
    
    
    
    
    
    425Balance at December 31, 2003
    
    
    
    
    
    
    3,023
    
    
    
    (893
    )
    
    
    (1,785
    )
    
    
    345Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (821
    )
    
    
    (821
    )Minimum pension liability
    
    
    
    
    
    
    
    
    
    
    129
    
    
    
    
    
    
    
    129Changes in fair value of
derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Unrealized loss on investments
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (700
    )Transactions with Parent (Note 13)
    
    
    
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    250Balance at December 31, 2004
    
    
    
    
    
    
    3,273
    
    
    
    (772
    )
    
    
    (2,606
    )
    
    
    (105
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (892
    )
    
    
    (892
    )Minimum pension liability
    
    
    
    
    
    
    
    
    
    
    (379
    )
    
    
    
    
    
    
    (379
    )Changes in fair value of
derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    
    
    
    
    58Unrealized gain on investments
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    6Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,207
    )Transactions with Parent (Note 13)
    
    
    
    
    
    
    133
    
    
    
    
    
    
    
    
    
    
    
    133Balance at December 31, 2005
    
    $
    
    
    
    $
    3,406
    
    
    $
    (1,087
    )
    
    $
    (3,498
    )
    
    $
    (1,179
    )
  41




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1.
    
    Summary of Accounting Policies
 Basis of Presentation
 Reclassifications
 Use of Estimates
 Restricted Cash and Short-term Investments
 Inventories
 Maintenance and Repair Costs
 Intangible Assets
 Statements of Cash Flows
 Measurement of Asset Impairments
 42




---



##### Table of Contents



1.
    
    Summary of Accounting Policies (Continued)
 Equipment and Property
 Depreciable LifeAmerican jet aircraft and engines
    
    20  30 yearsMajor rotable parts, avionics and assemblies
    
    Life of equipment to which applicableImprovements to leased flight equipment
    
    Term of leaseBuildings and improvements (principally on
 leased land)
    
    5  30 years or term of lease, including estimated renewal options when renewal is economically compelled at key airportsFurniture, fixtures and other equipment
    
    3  10 yearsCapitalized software
    
    3  10 years
    Regional Affiliates
 Passenger Revenue
 43




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##### Table of Contents



1.
    
    Summary of Accounting Policies (Continued)
 Frequent Flyer Program
 Tax Contingencies
 Advertising Costs
 Stock Options
 44




---



##### Table of Contents



1.
    
    Summary of Accounting Policies (Continued)
  Year Ended December 31,2005
    
    
    2004
    
    
    2003Net Loss, as reported
    
    $
    (892
    )
    
    $
    (821
    )
    
    $
    (1,318
    )Add: Stock-based
employee
compensation expense
included in reported
net loss
    
    
    127
    
    
    
    20
    
    
    
    19Deduct: Total
stock-based employee
compensation expense
determined under
fair value based
methods for all
awards
    
    
    (169
    )
    
    
    (84
    )
    
    
    (78
    )Pro forma net loss
    
    $
    (934
    )
    
    $
    (885
    )
    
    $
    (1,377
    )
 New Accounting Pronouncement
 45




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##### Table of Contents



2.
    
    Restructuring Charges and U.S. Government Grant
    Aircraft
    
    
    Facility
    
    
    EmployeeCharges
    
    
    Exit Costs
    
    
    Charges
    
    
    Other
    
    
    TotalRemaining accrual at
January 1, 2003
    
    $
    206
    
    
    $
    17
    
    
    $
    44
    
    
    $
    
    
    
    $
    267Restructuring charges
    
    
    341
    
    
    
    62
    
    
    
    92
    
    
    
    (68
    )
    
    
    427Adjustments
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )Non-cash charges
    
    
    (264
    )
    
    
    (17
    )
    
    
    23
    
    
    
    68
    
    
    
    (190
    )Payments
    
    
    (69
    )
    
    
    (6
    )
    
    
    (133
    )
    
    
    
    
    
    
    (208
    )Remaining accrual at
December 31, 2003
    
    
    194
    
    
    
    56
    
    
    
    26
    
    
    
    
    
    
    
    276Restructuring charges
    
    
    21
    
    
    
    
    
    
    
    41
    
    
    
    
    
    
    
    62Adjustments
    
    
    (20
    )
    
    
    (21
    )
    
    
    (11
    )
    
    
    
    
    
    
    (52
    )Non-cash charges
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )Payments
    
    
    (48
    )
    
    
    (9
    )
    
    
    (21
    )
    
    
    
    
    
    
    (78
    )Remaining accrual at
December 31, 2004
    
    
    126
    
    
    
    26
    
    
    
    35
    
    
    
    
    
    
    
    187Restructuring charges
    
    
    155
    
    
    
    19
    
    
    
    
    
    
    
    (37
    )
    
    
    137Adjustments
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (2
    )Non-cash charges
    
    
    (119
    )
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    (82
    )Payments
    
    
    (12
    )
    
    
    (7
    )
    
    
    (35
    )
    
    
    
    
    
    
    (54
    )Remaining accrual at
December 31, 2005
    
    $
    150
    
    
    $
    36
    
    
    $
    
    
    
    $
    
    
    
    $
    186
  46




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##### Table of Contents



2.
    
    Restructuring Charges and U.S. Government Grant (Continued)
 U.S. government grant
  Other
  3.
    
    Investments
  December 31,2005
    
    
    2004Overnight investments and time deposits
    
    $
    210
    
    
    $
    222Corporate and bank notes
    
    
    3,340
    
    
    
    2,214U. S. government agency mortgages
    
    
    74
    
    
    
    115U. S. government agency notes
    
    
    13
    
    
    
    212Asset backed securities
    
    
    
    
    
    
    24$
    3,637
    
    
    $
    2,787
  Due in one year or less
    
    $
    2,394Due between one year and three years
    
    
    1,169Due after three years
    
    
    74$
    3,637
  47




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##### Table of Contents



3.
    
    Investments (Continued)
   4.
    
    Commitments, Contingencies and Guarantees
      48




---



##### Table of Contents



4.
    
    Commitments, Contingencies and Guarantees (Continued)
          49




---



##### Table of Contents



5.
    
    Leases
  Capital
    
    
    OperatingYear Ending December 31,
    
    Leases
    
    
    Leases2006
    
    $
    238
    
    
    $
    1,0372007
    
    
    193
    
    
    
    1,0212008
    
    
    236
    
    
    
    9642009
    
    
    175
    
    
    
    8692010
    
    
    139
    
    
    
    8132011 and thereafter
    
    
    793
    
    
    
    7,4431,774
    
    
    $
    12,147
    (1)Less amount representing interest
    
    
    714Present value of net minimum lease payments
    
    $
    1,060
 
 (1)
    
    As of December 31, 2005, included in Accrued liabilities and Other liabilities and
deferred credits on the accompanying consolidated balance sheet is approximately $1.4
billion relating to rent expense being recorded in advance of future operating lease
payments.   50




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##### Table of Contents



5.
    
    Leases (Continued)
   6.
    
    Indebtedness
  December 31,2005
    
    
    2004Secured variable and fixed rate indebtedness due through 2021
(effective rates from 4.33% - 10.68% at December 31, 2005)
    
    $
    3,677
    
    
    $
    3,732Enhanced equipment trust certificates due through 2012
(rates from 3.86% - 12.00% at December 31, 2005)
    
    
    3,424
    
    
    
    3,7076.125% - 8.5% special facility revenue bonds due through 2036
    
    
    1,697
    
    
    
    946Credit facility agreement due through 2010
(effective rate of 8.73% at December 31, 2005)
    
    
    788
    
    
    
    850Other
    
    
    28
    
    
    
    279,614
    
    
    
    9,262Less current maturities
    
    
    829
    
    
    
    475Long-term debt, less current maturities
    
    $
    8,785
    
    
    $
    8,787
   51




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##### Table of Contents



6.
    
    Indebtedness (Continued)
     52




---



##### Table of Contents



6.
    
    Indebtedness (Continued)
    Four Quarter Period Ending
    
    Cash Flow Coverage RatioDecember 31, 2005
    
    
    1.10:1.00March 31, 2006
    
    
    1.20:1.00June 30, 2006
    
    
    1.25:1.00September 30, 2006
    
    
    1.30:1.00December 31, 2006
    
    
    1.30:1.00March 31, 2007
    
    
    1.35:1.00June 30, 2007
    
    
    1.40:1.00September 30, 2007
    
    
    1.40:1.00December 31, 2007
    
    
    1.40:1.00March 31, 2008 (and each fiscal quarter
thereafter)
    
    
    1.50:1.00
   53




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##### Table of Contents



6.
    
    Indebtedness (Continued)
     54




---



##### Table of Contents



7. Financial Instruments and Risk Management
   Fuel Price Risk Management
   55




---



##### Table of Contents



7. Financial Instruments and Risk Management (Continued)
  Foreign Exchange Risk Management
  Fair Values of Financial Instruments
  December 31,2005
    
    
    2004Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueSecured variable and
fixed rate indebtedness
    
    $
    3,677
    
    
    $
    3,613
    
    
    $
    3,732
    
    
    $
    3,456Enhanced equipment trust
certificates
    
    
    3,424
    
    
    
    3,414
    
    
    
    3,707
    
    
    
    3,5786.125% - 8.5% special
facility revenue bonds
    
    
    1,697
    
    
    
    1,673
    
    
    
    946
    
    
    
    797Credit facility agreement
    
    
    788
    
    
    
    791
    
    
    
    850
    
    
    
    852Other
    
    
    28
    
    
    
    28
    
    
    
    27
    
    
    
    27$
    9,614
    
    
    $
    9,519
    
    
    $
    9,262
    
    
    $
    8,710
 56




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##### Table of Contents



8. Income Taxes
   Year Ended December 31,2005
    
    
    2004
    
    
    2003Current
    
    $
    
    
    
    $
    
    
    
    $
    (91
    )Deferred
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (91
    )
   Year Ended December 31,2005
    
    
    2004
    
    
    2003Statutory income tax benefit
    
    $
    (312
    )
    
    $
    (287
    )
    
    $
    (493
    )State income tax benefit, net of federal tax effect
    
    
    (18
    )
    
    
    (13
    )
    
    
    (26
    )IRS audit settlement
    
    
    
    
    
    
    
    
    
    
    (91
    )Meal expense
    
    
    7
    
    
    
    8
    
    
    
    10Expiration of foreign tax credits
    
    
    
    
    
    
    
    
    
    
    6Deferred tax assets not benefited
    
    
    318
    
    
    
    286
    
    
    
    502Other, net
    
    
    5
    
    
    
    6
    
    
    
    1Income tax benefit
    
    $
    
    
    
    $
    
    
    
    $
    (91
    )
    57




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##### Table of Contents



8. Income Taxes (Continued)
  December 31,2005
    
    
    2004Deferred tax assets:Postretirement benefits other than pensions
    
    $
    1,109
    
    
    $
    1,083Rent expense
    
    
    500
    
    
    
    603Alternative minimum tax credit carryforwards
    
    
    545
    
    
    
    550Operating loss carryforwards
    
    
    2,043
    
    
    
    1,721Pensions
    
    
    725
    
    
    
    535Frequent flyer obligation
    
    
    302
    
    
    
    266Gains from lease transactions
    
    
    155
    
    
    
    194Other
    
    
    588
    
    
    
    497Total deferred tax assets
    
    
    5,967
    
    
    
    5,449Valuation allowance
    
    
    (1,740
    )
    
    
    (1,255
    )Net deferred tax assets
    
    
    4,227
    
    
    
    4,194Deferred tax liabilities:Accelerated depreciation and amortization
    
    
    (3,886
    )
    
    
    (3,849
    )Other
    
    
    (341
    )
    
    
    (345
    )Total deferred tax liabilities
    
    
    (4,227
    )
    
    
    (4,194
    )Net deferred tax liability
    
    $
    
    
    
    $
    
   9. Stock Awards and Options
   58




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##### Table of Contents



10. Retirement Benefits
     59




---



##### Table of Contents



10. Retirement Benefits (Continued)
  Pension Benefits
    
    
    Other Benefits2005
    
    
    2004
    
    
    2005
    
    
    2004Reconciliation of benefit obligationObligation at January 1
    
    $
    10,022
    
    
    $
    8,894
    
    
    $
    3,303
    
    
    $
    3,263Service cost
    
    
    372
    
    
    
    358
    
    
    
    75
    
    
    
    75Interest cost
    
    
    611
    
    
    
    567
    
    
    
    197
    
    
    
    202Actuarial (gain) loss
    
    
    649
    
    
    
    647
    
    
    
    (12
    )
    
    
    (81
    )Plan amendments
    
    
    
    
    
    
    27
    
    
    
    
    
    
    
    Benefit payments
    
    
    (651
    )
    
    
    (471
    )
    
    
    (179
    )
    
    
    (156
    )Obligation at December 31
    
    $
    11,003
    
    
    $
    10,022
    
    
    $
    3,384
    
    
    $
    3,303Reconciliation of fair value
of plan assetsFair value of plan assets at January 1
    
    $
    7,335
    
    
    $
    6,230
    
    
    $
    151
    
    
    $
    120Actual return on plan assets
    
    
    779
    
    
    
    1,109
    
    
    
    11
    
    
    
    18Employer contributions
    
    
    315
    
    
    
    467
    
    
    
    178
    
    
    
    169Benefit payments
    
    
    (651
    )
    
    
    (471
    )
    
    
    (179
    )
    
    
    (156
    )Fair value of plan assets at December 31
    
    $
    7,778
    
    
    $
    7,335
    
    
    $
    161
    
    
    $
    151Funded statusAccumulated benefit obligation (ABO)
    
    $
    10,041
    
    
    $
    9,158
    
    
    $
    
    
    
    $
    Projected benefit obligation (PBO)
    
    
    11,003
    
    
    
    10,022
    
    
    
    
    
    
    
    Accumulated postretirement benefit
obligation (APBO)
    
    
    
    
    
    
    
    
    
    
    3,384
    
    
    
    3,303Fair value of assets
    
    
    7,778
    
    
    
    7,335
    
    
    
    161
    
    
    
    151Funded status at December 31
    
    
    (3,225
    )
    
    
    (2,687
    )
    
    
    (3,223
    )
    
    
    (3,152
    )Unrecognized loss
    
    
    2,174
    
    
    
    1,698
    
    
    
    300
    
    
    
    311Unrecognized prior service cost
    
    
    170
    
    
    
    186
    
    
    
    (61
    )
    
    
    (71
    )Unrecognized transition asset
    
    
    (1
    )
    
    
    (2
    )
    
    
    
    
    
    
    Net amount recognized
    
    $
    (882
    )
    
    $
    (805
    )
    
    $
    (2,984
    )
    
    $
    (2,912
    )
   60




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##### Table of Contents



10. Retirement Benefits (Continued)
  Pension Benefits2005
    
    
    2004
    
    
    2003Components of net periodic benefit costDefined benefit plans:Service cost
    
    $
    372
    
    
    $
    358
    
    
    $
    370Interest cost
    
    
    611
    
    
    
    567
    
    
    
    569Expected return on assets
    
    
    (658
    )
    
    
    (569
    )
    
    
    (473
    )Amortization of:Transition asset
    
    
    (1
    )
    
    
    (1
    )
    
    
    (1
    )Prior service cost
    
    
    16
    
    
    
    14
    
    
    
    18Unrecognized net loss
    
    
    52
    
    
    
    58
    
    
    
    106Curtailment loss
    
    
    
    
    
    
    
    
    
    
    46Net periodic benefit cost for
defined benefit plans
    
    
    392
    
    
    
    427
    
    
    
    635Defined contribution plans
    
    
    154
    
    
    
    156
    
    
    
    175Total
    
    $
    546
    
    
    $
    583
    
    
    $
    810
 Other Benefits2005
    
    
    2004
    
    
    2003Components of net periodic benefit costService cost
    
    $
    75
    
    
    $
    75
    
    
    $
    85Interest cost
    
    
    197
    
    
    
    202
    
    
    
    218Expected return on assets
    
    
    (14
    )
    
    
    (11
    )
    
    
    (9
    )Amortization of:Prior service cost
    
    
    (10
    )
    
    
    (10
    )
    
    
    (9
    )Unrecognized net loss
    
    
    2
    
    
    
    8
    
    
    
    20Net periodic benefit cost
    
    $
    250
    
    
    $
    264
    
    
    $
    305
  Pension Benefits
    
    
    Other Benefits2005
    
    
    2004
    
    
    2005
    
    
    2004Prepaid benefit cost
    
    $
    6
    
    
    $
    5
    
    
    $
    
    
    
    $
    Accrued benefit liability
    
    
    (888
    )
    
    
    (810
    )
    
    
    (2,984
    )
    
    
    (2,912
    )Additional minimum liability
    
    
    (1,383
    )
    
    
    (1,021
    )
    
    
    
    
    
    
    Intangible asset
    
    
    177
    
    
    
    194
    
    
    
    
    
    
    
    Accumulated other
comprehensive loss
    
    
    1,206
    
    
    
    827
    
    
    
    
    
    
    
    Net amount recognized
    
    $
    (882
    )
    
    $
    (805
    )
    
    $
    (2,984
    )
    
    $
    (2,912
    )
 61




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##### Table of Contents



10. Retirement Benefits (Continued)
 Pension Benefits
    
    Other Benefits2005
    
    2004
    
    2005
    
    2004Weighted-average
assumptions used to
determine benefit
obligations as of
December 31Discount rate
    
    
    5.75
    %
    
    
    6.00
    %
    
    
    5.75
    %
    
    
    6.00
    %Salary scale (ultimate)
    
    
    3.78
    
    
    
    3.78
    
    
    
    
    
    
    
    
 Pension Benefits
    
    Other Benefits2005
    
    2004
    
    2005
    
    2004Weighted-average assumptions
used to determine net
periodic benefit cost for the
years ended December 31Discount rate
    
    
    6.00
    %
    
    
    6.25
    %
    
    
    6.00
    %
    
    
    6.25
    %Salary scale (ultimate)
    
    
    3.78
    
    
    
    3.78
    
    
    
    
    
    
    
    Expected return on plan assets
    
    
    9.00
    
    
    
    9.00
    
    
    
    9.00
    
    
    
    9.00
   2005
    
    2004Long duration bonds
    
    
    37
    %
    
    
    38
    %U.S. stocks
    
    
    31
    
    
    
    31International stocks
    
    
    21
    
    
    
    21Emerging markets stocks and bonds
    
    
    6
    
    
    
    6Alternative (private) investments
    
    
    5
    
    
    
    4Total
    
    
    100
    %
    
    
    100
    %
  62




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##### Table of Contents



10. Retirement Benefits (Continued)
 Pre-65 Individuals
    
    Post-65 Individuals2005
    
    2004
    
    2005
    
    2004Assumed health care
trend rates at
December 31Health care cost
trend rate assumed
for next year
    
    
    4.5
    %
    
    
    4.5
    %
    
    
    9.0
    %
    
    
    10.0
    %Rate to which the
cost trend rate is
assumed to decline
(the ultimate trend
rate)
    
    
    4.5
    %
    
    
    4.5
    %
    
    
    4.5
    %
    
    
    4.5
    %Year that the rate
reaches the
ultimate trend rate
    
    
    
    
    
    
    
    
    
    
    2010
    
    
    
    2010
  One Percent
    
    One PercentIncrease
    
    DecreaseImpact on 2005 service and interest cost
    
    $
    26
    
    
    $
    (25
    )Impact on postretirement benefit obligation
as of December 31, 2005
    
    $
    241
    
    
    $
    (232
    )
   Pension
    
    Other2006
    
    $
    494
    
    
    $
    1962007
    
    
    561
    
    
    
    2032008
    
    
    595
    
    
    
    2042009
    
    
    698
    
    
    
    2112010
    
    
    682
    
    
    
    2222011  2015
    
    
    3,660
    
    
    
    1,198
 63




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##### Table of Contents



11. Intangible Assets
   2005Accumulated
    
    
    Net BookCost
    
    
    Amortization
    
    
    ValueAmortized intangible assets:Airport operating rights
    
    $
    449
    
    
    $
    200
    
    
    $
    249Gate lease rights
    
    
    179
    
    
    
    90
    
    
    
    89Total
    
    $
    628
    
    
    $
    290
    
    
    $
    338
 2004
 AccumulatedCost
    
    
    Amortization
    
    
    Net Book ValueAmortized intangible assets:Airport operating rights
    
    $
    449
    
    
    $
    181
    
    
    $
    268Gate lease rights
    
    
    186
    
    
    
    89
    
    
    
    97Total
    
    $
    635
    
    
    $
    270
    
    
    $
    365
  64




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##### Table of Contents



12. Accumulated Other Comprehensive Loss
  UnrealizedUnrealized
    
    
    Gain/(Loss)
    
    
    IncomeMinimum
    
    
    Gain/(Loss)
    
    
    on Derivative
    
    
    TaxPension
    
    
    on
    
    
    Financial
    
    
    Benefit/Liability
    
    
    Investments
    
    
    Instruments
    
    
    (Expense)
    
    
    TotalBalance at January 1, 2003
    
    $
    (1,293
    )
    
    $
    5
    
    
    $
    68
    
    
    $
    36
    
    
    $
    (1,184
    )Current year net change
    
    
    337
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    334Reclassification of derivative
financial instruments into
earnings
    
    
    
    
    
    
    
    
    
    
    (146
    )
    
    
    
    
    
    
    (146
    )Change in fair value of
derivative financial
instruments
    
    
    
    
    
    
    
    
    
    
    103
    
    
    
    
    
    
    
    103Balance at December 31, 2003
    
    
    (956
    )
    
    
    2
    
    
    
    25
    
    
    
    36
    
    
    
    (893
    )Current year net change
    
    
    129
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    125Reclassification of derivative
financial instruments into
earnings
    
    
    
    
    
    
    
    
    
    
    (89
    )
    
    
    
    
    
    
    (89
    )Change in fair value of
derivative financial
instruments
    
    
    
    
    
    
    
    
    
    
    85
    
    
    
    
    
    
    
    85Balance at December 31, 2004
    
    
    (827
    )
    
    
    (2
    )
    
    
    21
    
    
    
    36
    
    
    
    (772
    )Current year net change
    
    
    (379
    )
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    (373
    )Reclassification of derivative
financial instruments into
earnings
    
    
    
    
    
    
    
    
    
    
    (50
    )
    
    
    
    
    
    
    (50
    )Change in fair value of
derivative financial
instruments
    
    
    
    
    
    
    
    
    
    
    108
    
    
    
    
    
    
    
    108Balance at December 31, 2005
    
    $
    (1,206
    )
    
    $
    4
    
    
    $
    79
    
    
    $
    36
    
    
    $
    (1,087
    )
  65




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##### Table of Contents



13. Transactions with Related Parties
    .
    66




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##### Table of Contents



14. Segment Reporting
   Year Ended December 31,2005
    
    
    2004
    
    
    2003DOT Domestic
    
    $
    13,190
    
    
    $
    12,155
    
    
    $
    12,650DOT Latin America
    
    
    3,568
    
    
    
    3,115
    
    
    
    2,477DOT Atlantic
    
    
    3,115
    
    
    
    2,678
    
    
    
    1,980DOT Pacific
    
    
    784
    
    
    
    660
    
    
    
    296Total consolidated revenues
    
    $
    20,657
    
    
    $
    18,608
    
    
    $
    17,403
  15. Quarterly Financial Data (Unaudited)
  First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter2005Operating revenues
    
    $
    4,737
    
    
    $
    5,296
    
    
    $
    5,471
    
    
    $
    5,153Operating income (loss)
    
    
    (44
    )
    
    
    153
    
    
    
    (25
    )
    
    
    (435
    )Net earnings (loss)
    
    
    (171
    )
    
    
    41
    
    
    
    (161
    )
    
    
    (601
    )2004Operating revenues
    
    $
    4,503
    
    
    $
    4,821
    
    
    $
    4,753
    
    
    $
    4,531Operating income (loss)
    
    
    (25
    )
    
    
    123
    
    
    
    (93
    )
    
    
    (426
    )Net loss
    
    
    (182
    )
    
    
    (13
    )
    
    
    (225
    )
    
    
    (401
    )
  67




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Managements Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
   Internal Control  Integrated Framework .
  /s/ Gerard J. ArpeyGerard J. ArpeyChairman, President and Chief Executive Officer/s/ James A. BeerJames A. BeerSenior Vice President and Chief Financial Officer
 68




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##### Table of Contents



Report of Independent Registered Public Accounting Firm on Internal Control over Financial
Reporting
 
     .
  /s/ Ernst & Young LLP
 
 69




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##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  2005
    
    
    2004Audit Fees
    
    $
    2,220
    
    
    $
    2,317Audit Related Fees
    
    
    348
    
    
    
    505Tax Fees
    
    
    111
    
    
    
    242Total
    
    $
    2,679
    
    
    $
    3,064
 Audit Fees:
 Audit-Related Fees:
 Tax Fees:
 70




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##### Table of Contents



Audit Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
  
 PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a)
    
    (1)      The following financial statements and Independent Auditors Report are filed as part of this report:
 PageReport of Independent Registered Public Accounting Firm
    
    36Consolidated Statements of Operations for the Years EndedDecember 31, 2005, 2004 and 2003
    
    37Consolidated Balance Sheets at December 31, 2005 and 2004
    
    38-39Consolidated Statements of Cash Flows for the Years EndedDecember 31, 2005, 2004 and 2003
    
    40Consolidated Statements of Stockholders Equity (Deficit) for theYears Ended December 31, 2005, 2004 and 2003
    
    41Notes to Consolidated Financial Statements
    
    42-67
 (2)
    
    The following financial statement schedule and Independent Auditors Report are
filed as part of this report:
 PageReport of Independent Registered Public Accounting Firm
    
    76Schedule II Valuation and Qualifying Accounts and
Reserves
    
    77
  (3)
    
    Exhibits required to be filed by Item 601 of Regulation S-K. (Where the amount of
securities authorized to be issued under any of Americans long-term debt agreements does
not exceed 10 percent of Americans assets, pursuant to paragraph (b)(4) of Item 601 of
Regulation S-K, in lieu of filing such as an exhibit, American hereby agrees to furnish
to the Commission upon request a copy of any agreement with respect to such long-term
debt.)
 71




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##### Table of Contents



Exhibit
 10.1
    
    Information Technology Services Agreement, dated July 1, 1996, between
American and The Sabre Group, Inc., incorporated by reference to Exhibit 10.6 to The
Sabre Group Holdings, Inc.s Registration Statement on Form S-1, file number
333-09747. Confidential treatment was granted as to a portion of this document.10.2
    
    Bylaws of American Airlines, Inc., amended January 22, 2003, incorporated
by reference to Americans report on Form 10-K for the year ended December 31, 2002.10.3
    
    American Airlines, Inc. 2004 Employee Profit Sharing Plan, incorporated
by reference to Exhibit 10.1 to AMRs report on Form 10-Q for the quarterly period
ended March 31, 2004.10.4
    
    American Airlines, Inc. 2004 Annual Incentive Plan, incorporated by
reference to Exhibit 10.2 to AMRs report on Form 10-Q for the quarterly period
ended March 31, 2004.10.5
    
    American Airlines, Inc. 2005 Annual Incentive Plan, incorporated by
reference to Exhibit 99.1 to AMRs current report on Form 8-K dated February 4,
2005.10.6
    
    American Airlines, Inc. 2006 Annual Incentive Plan, incorporated by
reference to Exhibit 99.1 to AMRs current report on Form 8-K dated February 10,
2006.10.7
    
    Amended and Restated Executive Termination Benefits Agreement between
AMR, American Airlines and Gerard J. Arpey dated May 21, 1998, incorporated by
reference to Exhibit 10.61 to AMRs report on Form 10-K for the year ended December
31, 1998.10.8
    
    Amended and Restated Executive Termination Benefits Agreement between
AMR, American Airlines and Peter M. Bowler, dated May 21, 1998, incorporated by
reference to Exhibit 10.63 to AMRs report on Form 10-K for the year ended December
31, 1998.10.9
    
    Amended and Restated Executive Termination Benefits Agreement between
AMR, American Airlines and Daniel P. Garton, dated May 21, 1998, incorporated by
reference to Exhibit 10.66 to AMRs report on Form 10-K for the year ended December
31, 1998.10.10
    
    Amended and Restated Executive Termination Benefits Agreement between
AMR, American Airlines and Monte E. Ford, dated November 15, 2000, incorporated by
reference to Exhibit 10.74 to AMRs report on Form 10-K for the year ended December
31, 2000.10.11
    
    Amended and Restated Executive Termination Benefits Agreement between
AMR, American Airlines and Henry C. Joyner, dated January 19, 2000, incorporated by
reference to Exhibit 10.74 to AMRs report on Form 10-K for the year ended December
31, 1999.10.12
    
    Amended and Restated Executive Termination Benefits Agreement between
AMR, American Airlines and Charles D. MarLett, dated May 21, 1998, incorporated by
reference to Exhibit 10.70 to AMRs report on Form 10-K for the year ended December
31, 1998.10.13
    
    Amended and Restated Executive Termination Benefits Agreement between
AMR, American Airlines and William K. Ris, Jr., dated October 20, 1999, incorporated
by reference to Exhibit 10.79 to AMRs report on Form 10-K for the year ended
December 31, 1999.
 72




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##### Table of Contents



10.14
    
    Amended and Restated Executive Termination Benefits Agreement between AMR,
American Airlines and Ralph L. Richardi dated September 26, 2002, incorporated
by reference to Exhibit 10.54 to AMRs report on Form 10-K for the year ended
December 31, 2002.10.15
    
    Amended and Restated Executive Termination Benefits Agreement between
AMR, American Airlines and Gary F. Kennedy dated February 3, 2003, incorporated by
reference to Exhibit 10.55 to AMRs report on Form 10-K for the year ended December
31, 2002.10.16
    
    Amended and Restated Executive Termination Benefits Agreement between
AMR, American Airlines and Robert W. Reding dated May 20, 2003, incorporated by
reference to Exhibit 10.71 to AMRs report on Form 10-K for the year ended December
31, 2003.10.17
    
    Amended and Restated Executive Termination Benefits Agreement between
AMR, American Airlines and James A. Beer dated January 5, 2004, incorporated by
reference to Exhibit 10.72 to AMRs report on Form 10-K for the year ended December
31, 2003.10.18
    
    Employment agreement between AMR, American Airlines and William K. Ris,
Jr. dated November 11, 1999, incorporated by reference to Exhibit 10.73 to AMRs
report on Form 10-K for the year ended December 31, 2003.10.19
    
    Employment agreement between AMR, American Airlines and Robert W. Reding
dated May 21, 2003, incorporated by reference to Exhibit 10.94 to AMRs report on
Form 10-K for the year ended December 31, 2004.10.20
    
    Amended and Restated Executive Termination Benefits Agreement between
AMR, American Airlines and Jeffrey J. Brundage dated April 1, 2004, incorporated by
reference to Exhibit 10.5 to AMRs report on Form 10-Q for the quarterly period
ended March 31, 2004.10.21
    
    Supplemental Executive Retirement Program for Officers of American
Airlines, Inc., as amended on October 15, 2002, incorporated by reference to Exhibit
10.60 to AMRs report on Form 10-K for the year ended December 31, 2002.10.22
    
    Aircraft Purchase Agreement by and between American Airlines, Inc. and
The Boeing Company, dated October 31, 1997, incorporated by reference to Exhibit
10.48 to AMR Corporations report on Form 10-K for the year ended December 31, 1997.
Confidential treatment was granted as to a portion of this document.10.23
    
    Letter Agreement dated November 17, 2004 and Purchase Agreement
Supplements dated January 11, 2005 between the Boeing Company and American Airlines,
Inc., incorporated by reference to Exhibit 10.99 to AMRs report on Form 10-K for
the year ended December 31, 2004. Portions of the exhibit have been omitted pursuant
to a request for confidential treatment.10.24
    
    Letter Agreement between the Boeing Company and American Airlines, Inc.
dated May 5, 2005, incorporated by reference to Exhibit 10.7 to AMRs report on Form
10-Q for the quarterly period ended June 30, 2005.  Confidential
treatment was granted as to a portion of this agreement.
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##### Table of Contents



10.25
    
    Credit Agreement dated as of December 17, 2004, among American Airlines, Inc.,
AMR Corporation, the Lenders from time to time party thereto, Citicorp USA,
Inc., as Administrative Agent for the Lenders, JPMorgan Chase Bank, N.A., as
Syndication Agent and Citigroup Global Markets Inc. and J.P. Morgan Securities
Inc., as Joint Lead Arrangers and Joint Book-Running Managers, incorporated by
reference to Exhibit 10.103 to AMRs report on Form 10-K for the year ended
December 31, 2004.12
    
    Computation of ratio of earnings to fixed charges for the years ended
December 31, 2005, 2004, 2003, 2002, and 2001.23
    
    Consent of Independent Registered Public Accounting Firm.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a).31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a).32
    
    Certification pursuant to Rule 13a-14(b) and section 906 of the
Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of
title 18, United States Code).
 74




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##### Table of Contents



SIGNATURES
  American Airlines, Inc.
 By:
    
    /s/ Gerard J. ArpeyGerard J. ArpeyChairman, President and Chief Executive Officer(Principal Executive Officer)
   /s/ Gerard J. Arpey
    
    /s/ James A. BeerGerard J. Arpey
    
    James A. BeerDirector, Chairman and Chief Executive Officer
    
    Senior Vice President and Chief Financial Officer(Principal Executive Officer)
    
    (Principal Financial and Accounting Officer)/s/ John W. Bachmann
    
    /s/ Philip J. PurcellJohn W. Bachmann, Director
    
    Philip J. Purcell, Director/s/ David L. Boren
    
    /s/ Ray M. RobinsonDavid L. Boren, Director
    
    Ray M. Robinson, Director/s/ Edward A. Brennan
    
    /s/ Joe M. RodgersEdward A. Brennan, Director
    
    Joe M. Rodgers, Director/s/ Armando M. Codina
    
    /s/ Judith RodinArmando M. Codina, Director
    
    Judith Rodin, Director/s/ Earl G. Graves
    
    /s/ Matthew K. RoseEarl G. Graves, Director
    
    Matthew K. Rose, Director/s/ Ann McLaughlin Korologos
    
    /s/ Roger T. StaubachAnn McLaughlin Korologos, Director
    
    Roger T. Staubach, Director/s/ Michael A. MilesMichael A. Miles, DirectorDate: February 24, 2006
 75




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
   /s/ Ernst & Young LLP
 
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##### Table of Contents



AMERICAN AIRLINES, INC.
Schedule II  Valuation and Qualifying Accounts and Reserves
(in millions)
 Changescharged to
    
    
    
    
    
    
    
    
    
    Sales,Balance
    
    statement
    
    
    
    
    
    
    
    
    
    retire-
    
    Balanceat
    
    of
    
    
    
    
    
    Write-offs
    
    ments
    
    atbeginning
    
    operations
    
    
    
    
    
    (net of
    
    and
    
    end ofof year
    
    accounts
    
    Payments
    
    recoveries)
    
    transfers
    
    yearYear ended December 31, 2005Allowance for
obsolescence of inventories
    
    $
    329
    
    
    $
    28
    
    
    $
    
    
    
    $
    
    
    
    $
    6
    
    
    $
    363Allowance for
uncollectible accounts
    
    
    58
    
    
    
    6
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    59Reserves for environmental
remediation costs
    
    
    62
    
    
    
    (18
    )
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    40Allowance for insurance
receivable
    
    
    22
    
    
    
    (22
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Year ended December 31, 2004Allowance for
obsolescence of inventories
    
    
    374
    
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    (80
    )
    
    
    329Allowance for
uncollectible accounts
    
    
    61
    
    
    
    8
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    58Reserves for environmental
remediation costs
    
    
    72
    
    
    
    (2
    )
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    62Allowance for insurance
receivable
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22Year ended December 31, 2003Allowance for
obsolescence of inventories
    
    
    398
    
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    (88
    )
    
    
    374Allowance for
uncollectible accounts
    
    
    65
    
    
    
    14
    
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    61Reserves for environmental
remediation costs
    
    
    92
    
    
    
    (12
    )
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    72Allowance for insurance
receivable
    
    
    12
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22
 77