3. Special Charges and Restructuring Activities

Current Year As previously announced, 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 2013-2022. The Bankruptcy Court has not approved American's assumption of the Boeing and Airbus contracts, but has approved certain procedures to allow American to continue taking delivery of Boeing 737 and Boeing 777 aircraft for the remainder of 2012, subject to objection by the Creditors' Committee, and subject to certain limitations. In connection with these Boeing and Airbus aircraft agreements and the Company's anticipated acceleration of its fleet renewal and replacement plan, the Company evaluated the useful lives of certain fleets including McDonnell Douglas MD-80, Boeing 757 and Boeing 767 aircraft. Upon finalization of the fleet plan in the fourth quarter of 2011 (prior to the filing of the Chapter 11 Cases), the Company concluded that a triggering event had occurred, requiring that certain assets be tested for impairment. As a result of this test, the Company concluded the carrying value of Boeing 757 aircraft used in its domestic markets was no longer recoverable. Consequently, the 2011 results include an impairment charge of $713 million to write these and certain related long-lived assets down to their estimated fair values. The impairment charge is non-cash. The impaired B757 aircraft are being depreciated over their remaining useful lives averaging approximately 4 years.

In determining the asset recoverability, management estimated the undiscounted future cash flows utilizing models used by the Company in making fleet and scheduling decisions. In determining fair market value, the Company utilized recent external appraisals of its fleets and two published aircraft pricing surveys, adjusted based on estimates of maintenance status and to consider the impact of recent industry events on these values. As a result of the write down of these aircraft to fair value, as well as the acceleration of the retirement dates, depreciation expense related to these assets is expected to decrease by approximately $24 million in 2012.

Prior Years As a result of the revenue environment, high fuel prices and the Company's restructuring activities, including its capacity reductions, the Company recorded a number of charges during the last few years. In 2008 and 2009, the Company announced capacity reductions due to unprecedented high fuel costs at that time and the other challenges facing the industry. In connection with these capacity reductions, the Company incurred special charges related to aircraft, people reductions and certain other charges.

Aircraft Charges

As part of these capacity reductions, the Company grounded its leased Airbus A300 aircraft prior to lease expiration. In 2009, the Company incurred approximately $94 million in net present value of future lease payments and lease return costs related to the grounding of the leased Airbus A300 fleet. The Company estimates that virtually all of these charges will result in future cash expenditures. Further, the Company also wrote down its owned Airbus A300 aircraft and related inventory to estimated salvage value in the fourth quarter of 2009, resulting in a non-cash expense of $20 million. All Airbus A300 aircraft were permanently retired as of 2009.

In the fourth quarter of 2009, due to the continuing severe downturn in the global economy and weakness in the regional jet aircraft market, the Company's plan to sell certain of its Embraer RJ-135 aircraft was no longer feasible at the amount for which these aircraft had been valued. Consequently, the Company reclassified these aircraft from held for sale to held for use, tested them for impairment and concluded the carrying values of certain of its Embraer RJ-135 aircraft were no longer recoverable. Therefore, during the fourth quarter of 2009, the Company recorded an impairment charge of $42 million to write these aircraft down to their estimated fair values. In addition, these aircraft will now resume depreciation prospectively. In determining the fair values of these aircraft, the Company considered recent transactions for sales of similar aircraft and the value of the underlying engines. No portion of the impairment charge will result in future cash expenditures.

Employee Charges

In conjunction with the capacity reductions announced in 2008, the Company reduced its workforce commensurate with the announced system-wide capacity reductions. This reduction in workforce was accomplished through various measures, including voluntary programs, part-time work schedules, furloughs in accordance with collective bargaining agreements, and other reductions.

The following table summarizes the components of the Company's special charges, the remaining accruals for these charges and the capacity reduction related charges (in millions) as of December 31, 2011:

		00000000000		00000000000		00000000000		00000000000
	Aircraft Charges		Facility Exit Costs		Employee Charges		Total
Remaining accrual at January 1, 2009	$	108	$	16	$	14	$	138
Capacity reduction charges		164		7				171
Non-cash charges		(68)		-		-		(68)
Adjustments		(2)				-		(2)
Payments		(49)		(3)		(14)		(66)

Remaining accrual at December 31, 2009	$	153	$	20	$	-	$	173
Non-cash charges				-		-		-
Adjustments		(8)		11		-		3
Payments		(86)		(4)		-		(90)

Remaining accrual at December 31, 2009	$	59	$	27	$	-	$	86
Non-cash charges		(725)		1				(724)
Adjustments		751		(8)		-		743
Payments		(36)		(4)		-		(40)

Remaining accrual at December 31, 2011	$	49	$	16	$	-	$	65

Cash outlays related to the accruals for aircraft charges and facility exit costs will occur through 2017 and 2018, respectively. However, these cash outlays could be modified in the Chapter 11 proceedings.

Other

On September 22, 2001, the Air Transportation Safety and System Stabilization Act (the Stabilization Act) was signed into law. The Stabilization Act provides that, notwithstanding any other provision of law, liability for all claims, whether compensatory or punitive, arising from the Terrorist Attacks, against any air carrier shall not exceed the liability coverage maintained by the air carrier. Based upon estimates provided by the Company's insurance providers, the Company initially recorded a liability of approximately $2.3 billion for claims arising from the Terrorist Attacks, after considering the liability protections provided for by the Stabilization Act. In the second quarter of 2011, the Company received $576 million in insurance proceeds as partial settlement of claims related to the Terrorist Attacks. The Company used these funds to pay a portion of its share of the associated liability. Reflecting this settlement, the receivable and the liability, recorded in the accompanying consolidated balance sheet as Other assets and Other liabilities and deferred credits, respectively, was $1.1 billion and $1.6 billion at December 31, 2011 and 2010, respectively.