Subject:  Fleet Simplification Efforts Continue

Summary:  American is further simplifying its fleet by returning 19 non-standard 757-200s, previously part of the TWA fleet, to their lessors as the leases expire starting in January 2007.  Employees will be informed this week via Jetwire and Jetnet. 

Key Points:

·         Returning these aircraft to the lessors reduces AA’s lease costs by approximately $50 million per year and avoids adding debt to AA’s balance sheet.  It also removes an aircraft with less attractive cabin amenities.

o        Upgrading these 19 aircraft to refurbish interiors and match the amenities of our remaining 757 fleet is costly.

o        Returning these former TWA aircraft also allows American to avoid additional maintenance expense necessary to transition the aircraft to American’s maintenance program.

o        The former TWA 757s have several differences from the other 124 757s in our fleet, which create significant complexity and drive additional operating costs:

§         Different seating configuration which is disruptive with aircraft substitutions

§         Eight exit doors versus six exit doors requiring additional qualification training

§         Non-AA galleys, which have different parts and components (galley carts, oven racks, etc.) and drive unique catering provisioning

§         Smaller overhead bins which provide less storage space, often leading to gate-check of customer bags

§         Lack of in-seat power-ports which is not attractive to customers

§         The uniqueness of these aircraft results in additional maintenance complexity

§         These aircraft have Pratt & Whitney engines, versus Rolls-Royce engines on the remaining 124 757s in our fleet.  Pratt & Whitney engine maintenance is outsourced driving additional M&E and purchasing effort.  These aircraft also require additional spare engines as compared to the rest of the 757 fleet.

§         The uniqueness of these aircraft ultimately requires a unique inventory of parts which are more difficult to source.

·         We are communicating this now because the lessor has secured a customer and will likely announce this soon.  It was important to share this information with employees first.

·         Aircraft will remain in service until the leases expire and will be returned to the lessors between January 2007 and March 2008.

·         American can continue to manage capacity and improve profitability using aircraft made available from our simplification, depeaking, and other efforts to improve efficiency.  As development of the 2007 operating plan begins, American will continue to seek opportunities to improve performance by reducing poor performing flying.  American also has 27 temporarily stored MD80s should the industry environment and the airline’s performance improve enough to support growth.

·         While we have made much progress, we continue to compete against carriers that have radically reduced their cost structures through bankruptcy. With continued cost pressures, we need to continue to carefully control all of our expenses and capacity.

·         To return to and sustain profitability, American must operate our assets – airplanes, people and facilities – with greater productivity.