美國航空 (AAL) 2002 Q3 法說會逐字稿

)) Operator: . Good afternoon. Welcome to the American Airlines third quarter earnings release conference call. All participants will be able to listen only until the question and answer session of the call. At the request of American Airlines, this conference is being recorded. If you have any objections you may disconnect at this time. I would now like to introduced today's speaker, Mr. Jeff Campbell, senior vice president of finance and chief financial officer of AMR.

)) Jeff Campbell: Good afternoon, thanks for joining us on the call today. During the call I'm going to walk you through our third quarter results and I'm also going to provide an update on where we are with some of our strategic initiatives. And I'll also try and give you as best that I can some outlook on the fourth quarter in 2003. Because some of what I'm going to talk about is forward looking I do need to run through the legal disclosure you've all become very familiar with. Many of my comments today on matters related to our outlook for revenues and earnings, cost estimates and forecast of capacity traffic, growth factor and fuel costs will constitute forward-looking statements. These matters are, of course, subject to a number of factors that could cause actual results to differ materially from our expectations. These factors include general economic conditions, commodity prices, general competitive factors, government regulations, uncertainty in domestic or international operations, acts of war or terrorism, access to capital markets and changes in the company's business strategy, any of which could affect our actual results. With that out of the way, let me get right to the numbers.

As is evident from the results that we released this morning, the third quarter was another terrible quarter for American. AMR on a consolidated basis reported a net loss of 475 million dollars, excluding special items, which was 50 million dollars better than last year's third quarter loss before special items. On an earnings per share basis that equates to a loss of $3.05 per share for the quarter, up 35 cents for the third quarter of 2001. Including special items. AMR lost 924 million dollars or $5.93 per share in the third quarter of this year, down 510 million dollars or $3.25 per share from last year, also including special items.

As I've discussed on previous conference calls, and in our 10-Q filings, we had a number of primarily noncash special items this quarter that were necessary to reflect changes resulting from our various restructuring initiatives we announced during the third quarter. Since I talked about all these items before I'll just give you a quick update on the restructuring portion now that that analysis is complete. There were two key components of restructuring related items that we took this quarter. The first part relates to our recent fleet decisions, including the early retirement of the F 100s and the former TWA 767s that I talked about on our August 13 conference call. It includes the bow wing changes we announced today as well as related to the changes to our turbo prop. The second piece which was addressed on our August call is employee related and covers expenses associated with our recent work force reductions. The collective impact of these primarily noncash items, $2.88 per share.

Let me turn now to American's revenue performance. For the third quarter our system unit revenue was down 4.9 percent from last year's third quarter. September did prove to be a particularly weak month during the quarter, with unit revenues substantially below July and August levels. But a quarter our system low factor was 72 percent, up half a point from last year, but yields remained weak, falling 5.6 percent from last year's levels. As I've mentioned on some of our previous calls, the geographic mix of our flying relative to other carriers has impacted our recent revenue performance. Given the general weakness in U.S. business demand, as well as the continued weakness in many large Latin American markets our revenues have been particularly hard hit versus carriers with greater exposure to Asia and Continental Europe where revenues have held up much better. During the third quarter we estimate that this geographic mix resulted in our revenues being about 100 million dollars below what they would have been under an industry average mix of regional flying. Had our network earned that extra revenue, our unit revenue decline at the system level would have been about two percent versus the five percent we reported. Let me briefly run through the revenue results by entity. Our domestic unit revenues for the third quarter were down 6.2 percent from last year, on a load factor increase of 0.8 point and a yield decline of 7.2 percent.

Generally speaking, we continue to see the greatest weakness in business markets, especially those with significant exposure to high tech and telecom. However, a significant increase in competition in our San Juan markets, particularly from low cost carriers, has also contributed to particular weakness in our domestic Caribbean operation as well. Internationally unit revenues were down just 1.5 percent in the third quarter on a yield decline of 1.7 percent and relatively flat load factors. Our European market performance remained mixed during the fourth quarter. Unit revenue trends were positive in Continental Europe where AA and industry capacity was down substantially year over year.

However the UK markets, while improving somewhat month over month have seen a build-up of capacity as carriers have added back service at a greater rate than on the continent. In total European unit revenues for the third quarter were up 5.6 percent on solid improvements in load factors, but basically flat yields.

As we've discussed before, our relatively large exposure to Latin America has been particularly painful of late, as economic weakness in a growing number of countries has eroded revenues. Unfortunately, we see this trend continuing and expanding beyond Argentina and Brazil, with Chile convenience wail la and Columbia and a number of central American countries exhibiting significant year over year weakness. The collective result for our Latin American operations was a unit revenue decline of over nine percent during the third quarter on weaker yields and load weak, falling 5.6 percent from last year's levels.

As I've mentioned on some of our previous calls, the geographic mix of our flying relative to other carriers has impacted our recent revenue performance. Given the general weakness in U.S. business demand, as well as the continued weakness in many large Latin America markets our revenues have been particularly hard hit versus carriers with greater exposure to Asia and Continental Europe where revenues have held up much better. During the third quarter we estimate that this geographic mix resulted in our revenues being about 100 million dollars below what they would have been under an industry average mix of regional flying. Had our network earned that extra revenue, our unit revenue decline at the system level would have been about two percent versus the five percent we reported. Let me briefly run through the revenue results by entity. Our domestic unit revenues for the third quarter were down 6.2 percent from last year, on a load factor increase of zero.8 point and a yield decline of 7.2 percent.

Generally speaking, we continue to see the greatest weakness in business markets, especially those with significant exposure to high tech and telecom. However, a significant increase in competition in our San Juan markets, particularly from low cost carriers, has also contributed to particular weakness in our domestic Caribbean operation as well. Internationally unit revenues were down just 1.5 percent in the third quarter on a yield decline of 1.7 percent and relatively flat load factors. Our European market performance remained mixed during the fourth quarter. Unit revenue trends were positive in Continental Europe where AA and industry capacity was down substantially year over year. However the UK markets, while improving somewhat month over month have seen a build-up of capacity as carriers have added back service at a greater rate than on the continent. In total European unit revenues for the third quarter were up 5.6 percent on solid improvements in load factors, but basically flat yields.

As we've discussed before, our relatively large exposure to Latin America has been particularly painful of late, as economic weakness in a growing number of countries has eroded revenues. Unfortunately, we see this trend continuing and expanding beyond Argentina and Brazil, with Chile, Venezuela Columbia and a number of central American countries exhibiting significant year over year weakness. The collective result for our Latin American operations was a unit revenue decline of over nine percent during the third quarter on weaker yields and load factors.

The Pacific remains a bright spot in terms of performance, but of course as most of you know unfortunately for us it's a small portion of our operations. Unit revenue during the third quarter rose 6.6 percent on stronger yields and load factors. Now before I talk about our unit cost performance, let me briefly touch on our results at Eagle and for our cargo operations. At Eagle unit revenues rose by one percent year over year during the third quarter. While yields fell nine percent in part due to a 10 percent longer average stage length. Load factor rose by 6.6 points during the third quarter, offsetting the yield decline. Consistent with our scope of limitation on ASNs (ph) with Eagle, capacity for the third quarter was flat at last year's level. As we've discussed before, our cargo division revenues continued to be negatively impacted by a general drop in cargo demand, as well as the significant restriction on cargo shipments for security reasons. Cargo revenue fell 12 percent year-over-year during the third quarter. Until there's some resolution to the FAA's restrictions currently in place or a significant uptick in cargo traffic, I would expect absolute revenues to remain depressed.

Let me now briefly run through our expense performance for the third quarter. Main line unit cost came in slightly better than expected, down six percent from last year's third quarter. That equates to a decline of 5.4 percent, holding fuel price costs down. Fuel price during the third quarter was slightly better than its year ago level. But up substantially from the first half of this year. For the third quarter as a whole, our average mainline fuel price, including the effects of our few hedging programs came in at 78 cents per gallon, down four percent from last year.

This compares to fuel prices that were nine percent better year over year in the second quarter and 23 percent better in the first quarter of 2002. While mainline ASMs were down two percent from last year, we saw fuel consumption decrease by over six percent from the third quarter of last year. This reduction in fuel consumption was driven, in part, by our more modern fleet, as we have retired the entire 727 and DC9 (ph) fleet. As well as by our many fuel conservation efforts that have begun to take root. In addition to fuel, the elimination of domestic base commissions which took effect in the first quarter, continue to provide benefit as commission expense fell 48 percent this quarter from last year's level.

During the third quarter, 16 percent of our flown revenue came from online sources, up from last year's six percent level. We also experiences solid savings in many of our other controllable lines of expense like food and beverage, advertising, facility rent, communications, data processing and many other areas, as our employees have done a tremendous job of rooting out savings in every part of the company. However, we continue to see security and insurance costs. Come in significantly hire year over year. While we made significant reducing many of our expenses, the current revenue environment clearly means we must make additional structural changes in order to reach a satisfactory level of profitably again.

As we've talked about before, our efforts at redesigning the business to reduce long term operating costs have been focused around seven key areas. These include schedule efficiency, fleet simplification, streamlined customer interaction, pricing distribution, in-flight product, flight operations and headquarters our administrative functions. Within each of these areas, we are working to redesign or simplify processes or procedures wherever we can, in some cases, to eliminate them completely.

We've talked extensively about many of these initiatives (inaudible) are large hubs in spoke cities, eliminating more than half of our fleet types to simplify our operations, reducing fuel consumption in our aircraft by changing how we tax (inaudible) of the aircraft, cutting commissions and other distribution costs, modifying our in-flight product offerings, renegotiating supplier contracts automating the airport process and where possible, eliminating paper that requires extra processing.

All of these examples get at the heart of simplifying how we operate our business so that we can use our people and our assets more productively and eliminate doing things that do not generate value. Initially, we took another big step just a few weeks ago when we launched the EveryFare (ph) product, which is aimed at making a further reduction in our distribution costs over time. We've also moved to consolidate our headquarters operations, outsource our duty free business and simplify our in-flight entertainment provisioning, just to name a few of our most recent changes.

On previous calls, I've talked about our identified capacity independent savings we expect to realize from all of these initiatives our current tally of the steady state benefits we have identified, to date, stands at over two billion dollars. Now, since all of these initiatives cannot be implemented simultaneously, or immediately, their benefits do phase in over time. Relative to our pre-September 11 cost structure and independent of capacity changes, the initiatives we identified so far should translate in savings of almost 1.4 billion in 2003 and about 1.7 billion in 2004. Clearly part of these savings are already captured in the terrible numbers we reported today. And even more will be reflected in our fourth quarter results. The outlook for which I'll talk about in a few minutes. However, we should still expect to see additional savings of about 500 million dollars reflected in our 2003 numbers, relative to where we will end 2002, based on the savings we have identified to date. While the initiatives we've identified so far are significant, many of the benefits as I said will not be fully realized for another few years. Given this, we clearly have a lot of work remaining.

All of our operating groups are continuing to root out savings wherever possible. And we are continuing to get a lot of great ideas from our field employees as well. Many of which are included in the numbers I've shared with you. Despite our progress so far, we need to do more to reach an operating cost structure that will allow us to survive in this very challenging environment. While we still have a ways to go on the operating cost front, I do want to take a minute and update you on some additional progress we've made on improving the short-term outlook for the reducing of capital spending. To address the near term revenue environment, we've taken a number of steps in recent weeks to help shore up the top line. We've been aggressively eliminating the use of corporate discounts against our lowest fares. We're also eliminating the use of waver and favors whereby certain ticketing and fare rules can be overriden.

We're cutting back on the number of people around the company who have overbooking already an action which can significantly diminish our yield management efforts. All of these initiatives collectively have the potential to improve annual revenues by several hundred million dollars. We've attempted in the last few weeks to increase the lowest published leisure fares, both in traditional and low cost carrier competitive markets. This effort, unfortunately, continues to produce mixed results. Consistent with the capacity reduction we announced back in August, we today put forward a plan to store 84 aircraft starting next year. By putting these 28 MD 80s and [inaudible] 600s into storage we'll save 100 million dollars in operating expenses over in the next two years largely due to reduced maintenance expenses. While this fleet adjustment doesn't automatically drive a change to our capacity plan for 2003, we're clearly reviewing our 2003 and 2004 plan to see if we want to make any additional modifications. Complimenting this short-term grounding of aircraft, we've also reached an agreement with Boeing to further modify our delivery schedule for aircraft over the next few years. With a lot of hard work by our fleet transaction folks here at American and our good friends at Boeing, we're shift prognosis a significant portion of our 2003 through 2005 deliveries out into the future.

As you may recall, excuse me, from our most recent fleet plan, we were scheduled to take delivery of 19 aircraft in 2003 and another 13 each year in both 2004 and 2005. Under the new plan we will take just 11 aircraft. Two of these will be 777s and nine will be the 767300s that are selling the last TW A-6 hundred aircraft [phonetic] We're retiring this year. In addition we're receiving back stop financing for all 11 of these aircraft should we choose to exercise that option. Once we take delivery of our 11 units in 2003, we will have no further mainline aircraft deliveries until 2006. With these changes to our mainline fleet plans, as well as some additional adjustments to the nonfleet parts of our plan, we've reduced our capital expenditure estimates for 2003 and 2004. Previously we had expected capital expenditures in 2003 of a little over two billion dollars. With these changes, that number should come in at about 1.4 billion.

With about 1.2 billion of that covered by financing that we already have arranged. In terms of liquidity, we finished September with over 2.8 billion dollars of cash. This is an increase from the 2.6 billion we had at the end of the second quarter due to our continued access to the capital markets. During the third quarter we raised over 600 million dollars in a public WETC (ph) Offering out over 400 million in a JMA tax financing and over 300 million in a private market, including over 100 million dollars in September. As of September 30th our pool of unencumbered aircraft stands at about 4.2 billion. In addition, we have about 4.5 billion of unencumbered nonaircraft assets, which includes roots, slots, engines, spare parts, buildings, and the like.

Finally we have stakes in or partial ownership of a number of Noncore (ph) assets that we're either actively engaged in selling or considering selling as market conditions and our strategic considerations evolve. That would include noncore assets such as vacations, world span, eagle, orbits, a rink and several other businesses. Additionally, unlike a number of other companies, our required pension contribution this year is minimal. We've already contributed about 250 million dollars in cash to our plans this year, which is in excess of our required minimums. For those of you modeling short-term cash flows, our remaining principal payments for this year are approximately 100 million dollars.

Now let me briefly run you through where the balance sheet stands since the end of the third quarter. We ended the third quarter with approximately 18.6 billion dollars of net debt which put our net debt to total capital ratio at 88 percent. Clearly relative to where the balance sheet was just a year and a half ago, we have significantly increased our leverage. Before I move on to our outlook for the fourth quarter I'd be remiss if I didn't provide some comments on our operational performance during the past quarter. Despite the challenges we face and the many changes we are implementing quickly in these challenging times, our operational folks, led by American's president [inaudible] Have been very focused making sure our performance has been running on top of the industry. We've implemented new initiatives which with tremendous support from our front line employees have greatly improved our operational performance both on an absolute basis and relative to our competitors.

During the third quarter it looks like American will rank third fourth in on time performance among the big six carriers with over 84 percent of our flights operating on time. That's almost a seven and a half point increase from last year when we ranked fifth. And contributing to that performance was a completion factor of 99 percent in the quarter, up two points from 97 percent last year. When combined with substantial improvements and strong relative performance in the other DOT metrics like consumer complaints, overbooking, baggage performance, we are clearly running a very reliable operation.

Let me now turn to our outlook for the fourth quarter. As we've discussed previously we've adjusted our capacity plans for the fourth quarter. We now expect mainline reporting capacity to be up about six percent from last year's fourth quarter, which equates to a decline of over 13 percent for the fourth quarter of 2000. Eagle capacity will be up about 10 percent in the fourth quarter, from its year ago level. But down about one percent of the fourth quarter of 2000. Our system wide booked load factor for the fourth quarter is currently flat, with where it was this time last year. Relative to the fourth quarter of 2000 however that represents a decline of over five load factor points. With the continued shift towards closer end bookings, I expect the traffic for the fourth quarter will finish up about 13 percent from last year's very depressed levels, but that's still down about 15 percent from the fourth quarter of 2000. For those who followed traffic trends on a monthly basis I should point out there will be a noticeable shift in holiday bookings around

Thanksgiving which will make this year's November traffic look weak on a year-over-year basis but will increase December's results relative to last year. In reviewing our advanced bookings by entity, all regions are exhibiting some weakness when compared to 2000. Relative to last year, however, we actually see greater weakness domestically, especially in November due to the holiday traffic shift. Internationally Europe and the Pacific continue to outperform based on advanced booking. While it's likely that traffic will remain weak during the seasonally short fourth quarter we should be able to make some additional head way on unit costs despite rising oil prices. The fourth quarter our fuel costs are expected to be up substantially relative to a year ago level.

Based on our current forecast, which does not include any possible effects from a Gulf war or costs for fuel will be 88 cents per gallon, up about 23 percent from last year even with this significant increase in expected fuel costs, we still anticipate seeing total mainline unit costs down about three percent versus last year. At 11.Zero cents reflecting more effects of our cost reduction efforts. On a fuel adjusted basis this would represent a unit cost improvement of over five percent from last year.

At the AMR level, unit costs for the fourth quarter are expected to come in at 11.4 cents. Also about three percent better than last year's level. As we move through the fourth quarter, we'll continue to update you on fuel and overall unit costs through our 8-K filings. We do have fuel hedges in place for both the fourth quarter of 2002 as well as for 2003. In the fourth quarter we're hedged on about 44 percent of our plan consumption and a little under 24 dollars per barrel of WTI crude. And for 2003 we're HEJTD on about 33 percent of expected consumption and around 23 dollars per barrel. Based on all of these expected traffic and unit cost TI crude. And for 2003 we're HEJTD on about 33 percent of expected consumption and around 23 dollars per barrel. Based on all of these expected traffic and unit cost expectations, I expect that we will report another significant loss in the seasonally weak fourth quarter. One which will likely exceed our third quarter loss.

Since I know many of you are trying to update your models now for 2003, I also wanted to give you some insight into what we're expecting based on where we stand right now. First off, in terms of modeling cash flows, our principal payments for 2003, based on financings in place today would total about 750 million dollars, with about 40 percent of that or a little less in the first half of the year and the remained in the back half F additionally as I mentioned earlier our capital expenditures for next year should be about 1.4 billion, with about 1.2 billion of that in either prefinanced or we back stop financing in place. WRE also expect to receive another tax refund when we file our 2002 return, which should provide about 550 million dollars in cash. In terms of employee counts, we finished the third quarter with 99 thousand equivalent employees. As we've indicated, we expect to reduce this number as we move through the rest of this year and into the first quarter. Based on our previously reduced reduction of 7,000 employees we expect to end the quarter with about 93 thousand equivalent full-time employees. In terms of capacity, as we've also indicated previously, domestic capacity for 2003 will be down about three percent relative to 2002. Finally, based on our macro look in 2003, I'd expect unit costs to be down one to two percent, assuming fuel at about 79 cents per gallon or two percent higher than our expectations for full year 2002. Now with all of that as background, I'd be happy to take whatever questions you may have

)) Operator: Thank you. At this time if you would like to ask a question, press star followed by the number 1. You'll be announced prior to asking your question. To withdraw the question, press star followed by the number 2. Once again, to ask a question press star followed by the number 1 now. Our first question comes from Brian Harris from Salomon Smith Barney.

)) Brian Harris: Hi, thanks very much for giving the details regarding where you are on a macro level on the cost savings. I assume you're about a 900 million run rate this year and then you said 1.4 next and then 1.7 in 2004. You have like a whole list of these costs, can you just highlight like say the top three or four and put some figures to that so I can get a sense what the main drivers of those numbers are?

)) Jeff Campbell: Brian, let me -- the first response to your question is to get to 1.7 billion, which is where we are by 2004, the reality is there are not two or three or five or six main drivers. You get to that big a number by making hundreds, literally hundreds if not thousands of changes in every part of our operation. Now, I think the simplest way to think about this is to go back to the seven touch tones or themes that we've tended to group these changes around, all of which are designed to move us over a period of time to a position where we have a cost structure that is much more competitive with the low cost carriers than what we have today. So if you take those seven hours in turn, the first one is the scheduling area. And clearly we've talked a lot about the benefits of depeaking how that works where you get labor savings and where you get savings in terms of aircraft time and of course in the results we just published we haven't even gotten to DFW depeaking. That's something that's effective November 1. We're beginning to depeak spokes November one.

To be honest we're not going to be optimizing spokes in terms of depeaking probably until well into 2003 just because it's a complicated process to change a complex operation like ours. But that's perhaps the biggest driver in the scheduling area, although obviously there's a long list of other things that are smaller. The next item on the list is fleet simplification. And when you think about fleet simplification there's a couple of big areas that drive tremendous savings. First and perhaps most obvious of which is pilot training. As you simplify the fleet, you are able to have the pilots doing more of what they love, fly airplanes, and less sitting in the school house learning to fly new airplanes as we have to rotate people along the seniority list through different aircraft types. You also as you simplify the feet get very significant savings from an M and E perspective as you have a less complex operation.

The third category is customer interaction. This is perhaps the longest list in terms of their being just lots and lots of individual projects. So this is self-service at the airport. This is modifying the gate process over time so we needless manning to manage the process at the gate. This is modifying the way the reservation process works so that more can be done with voice recognition, so that more is moved to A.com (ph), et cetera. The next area is in the pricing and distribution area. Clearly the every fare initiative over time is unlike some of the other areas, the biggest player in the area of pricing and distribution. As you know, we spend hundreds and hundreds of millions of dollars every year on CRS booking fees. That's a cost we've got to find a way to move closer to the level of the low cost carriers. And we think we're embarked on a course of action to achieve that. But in addition on the pricing and distribution area. You've got all kinds of little things. A couple of which I mentioned on the call, eliminating waivers and favors, changing some of the restrictions we have on fairs, et cetera.

The next area you've got are in-flight products. And so clearly we've made big changes since September 11th already in terms of what you see on board aircraft, food and beverage, as well as other in-flight issues, those are real cost savings. Again, a lot of little things. Operationally, we talked about fuel conservation on the call, where, despite having a roughly two percent reduction in flying, we had six percent reduction in actual fuel consumption. That is real savings that comes about from lots of little things that we're doing in the operation to be more efficient with the way we use fuel F the other big thing you have operationally are lots of things in the M and E area. And lastly you get to the headquarters and administrative functions, where we are working aggressively with all of our suppliers to achieve sustainable efficiencies in our supplier's operations which translates into cost savings for us. We are working on lots of paperless ideas in the back office. Lots of things aren't too glamorous and even in this area aren't necessarily things that customers see, but collectively add up to a lot of dollars. I think what you need to do as you think through the 900, the 1.4 billion, 1.Seven billion, you need to line up those areas, categories, and think through how haul these things fit into those categories, realizing that this is a very long list of changes that we're making in every nook and cranny of the company.

)) Brian Harris: Current [inaudible] But in some way this thing is similar to what Delta tried in the early'90s leadership 1.75 cost bow GI in which they had a some good progress about there the short-term but we haven't seen an example where a high cost carrier have been able to lower their costs without revenues moving in that same direction. Do you have any sense of this 1.7 billion dollar number, what order of magnitude of those costs could be partially defrayed by reduced revenues [Gap in audio]..

)) Jeff Campbell: Clearly we aim to be the first carrier to succeed in what you just articulated. As we go through each one of these changes a key driver of what we're trying to balance is hanging onto the attributes of our product that drive the revenue premium that we historically get against the industry and the low cost carriers. The interesting thing, as you know in an airline, if you came to Dallas, walked around our headquarters building, you would find 12 different groups in the company, all of whom kind of claim credit for driving the exact same revenue. Our freedom flyer folks will say we have a revenue because of the frequent flyer program. Our scheduling folks it's because we have the tight test and best schedule. And our sales folks will say it's because we have the best travel agency and other customer incentives. You can kind of go on and on we could list 12 or 15 things T the conclusion we have reached is that we can clearly get at 80 percent of the items that drive cost while only marginally impacting our revenue. And that is our challenge, Brian. And our challenge in the current revenue environment is to do it quick enough to fix our short-term severe financial challenges.

)) Brian Harris: Did I hear you right, you think 80 percent of those costs you're getting out will not have a revenue impact?

)) Jeff Campbell: Brian, I don't want to cite a number to you. But clearly we are mindful in every change we are making of the balance you cited. And as we tick through the 1.7 billion dollar list that we have thus far, and we think about what's going on in the industry and what is driving consumer choice today, we think we can make those changes without significantly impacting our revenue.

)) Brian Harris: Okay. Thank you

)) Operator: Our next question comes from Kevin Murphy from Morgan Stanley.

)) Kevin Murphy: Thank you. Jeff, sort of following along with Brian's point. You're reducing the size of the system in something that has dramatically changed since leadership 7.5 that Delta didn't have to contend with, that is you've got very good low cost producers going into long haul market with southwest jet blue. Doesn't that fortify their edge by you bringing down capacity?

)) Jeff Campbell: I think the challenge for us as we think about capacity is that, number one, it is hard for us to argue that the industry doesn't have a little more capacity than we might like out there, when you look at the entire industry's revenue results and financial results for the third quarter. Number two, the starting point from our network advantage for somebody living in Dallas, Los Angeles, New York, Boston, the starting point in terms of the scope of this network, scope of choice that we offer to a traveler in any of the key cities that we serve, is so much faster than what any of the new start-up carriers offer that we clearly thing that trimming frequencies in a couple markets where there's not as much business travel as there used to be and focusing on the key markets is not something that will materially impact our market position, versus the low cost carriers, because the gap is so large, trimming five, 10, 15 percent out of our capacity is not what we have done since September 11th. It's not going to materially change a consumers view, the scope of the product we offer.

)) Kevin Murphy: And the second question, you mentioned on noncore (ph) assets that could be sold, like American [inaudible] Vacations world spin and eagle, how aggressive are those programs to make those dispositions?

)) Jeff Campbell: Well, I don't mean to announce in a public forum here today, Kevin, that we are going to move to sell any of those tomorrow. The point I'm trying to make there is that we have a lot of noncore (ph)assets which are salable depending upon how overall market conditions evolve. And in the current industry climate, all of those sales are things we're certainly contemplating. When we have a sale completed, we'll be ready to tell you about it. And I think it will be a nice boost to our liquidity. I think the other important thing to keep in mind there is that the stable we have of noncore (ph)assets, I would suggest, is quite different than the stable of noncore (ph)assets that most of our other competitors have. So as we think about our overall liquidity position in the industry, I think they're very important differentiate TORS for us.

)) Kevin Murphy: We've seen most of your competitors announce sales of their regional airline units. Could eagle be far behind...

)) Jeff Campbell: Like I said, I don't mean to on this call announce that we're selling anything but clearly everything is on the table and excuse me the process we're embarked upon, everything how we do our business, everything about our business model and everything about what I would call the noncore (ph)assets and whether they really should be part of the AMR family or better from a shareholder creditor, from a strategic standpoint as companies owned under a different ownership structure.

)) Kevin Murphy: Very good. Thank you. Thanks a lot

)) Operator: The next question comes from Glenn Engle from Goldman Sachs.

)) Glenn Engle: Good afternoon. First, I didn't catch the cash figure, could you repeat it.

)) Jeff Campbell: We ended the third quarter, Glen, with 2.8 billion dollars.

)) Glenn Engle: Delta mentioned with the drop in the market next year they'll be 200 more million pension accruals than this year, and this year I think it was up about 400 million versus last year. What would your numbers roughly be that you have to overcome?

)) Jeff Campbell: As I said just so everyone is clear, maybe I should talk about them in tandem. If you look at calendar 2000, AMR has already made about 250 million in cash contributions to its defined benefit pension plans. That is above already the legally required minimum. So we don't actually have any further funding IRXS between now and the end of 2002. As you looked to 2003, if you have to start making a range of interest rate and act rare al assumptions but under any range of assumptions our cash contribution number for 2003 in terms of the legally retired medium is quite modest. It's probable in the 200 million dollars range, SLO I said that's a ways away and the actuarial world could have changed? So as we think of all the challenges facing AMR next the next two months depending now and the end of 2003. What we're focused on and pay a lot of attention to them, we don't see cash funding needs in our pension plans as a significant issue for AMR between now and the T end of 2003.

)) Glenn Engle: I didn't make myself clear. I was thinking more of from the accrual point of view. That you've will to accrue much higher pension expenses this year. Most airlines have because of the drop in the market and because the market has dropped again that would imply once again you're going to have to race your pension accruals which will raise you were unit costs, again for next year.

)) Jeff Campbell: Yeah, if you think about pension expense, there's a couple things that drive it. Yeah, for accounting expense, we have to make an assumption that we make once a year about what the expected long-term return is on the assets in our pension plan. That's a number that we will set on 12-31 of this year. I suspected, along with the rest of industrial America, that number will inch its way down in a minute, which will have the effect of increasing expense. Although the fact unless there's a dramatic turn around in the next 45 days or so, the market has performed so poorly in 2002, means the base level of assets against which we're applying that return is going to be lower. And so that's going to hurt us a little bit as well. Also you've got interest rate changes and employee changes and there. All of that said if our best forecast, Glen, is that our pension expense for next year will be accounting expense will be about 200 million dollars higher than it was in 2002. But a lot of assumptions have to go into that number.

)) Glenn Engle: Even with that you can get unit costs down next year.

)) Jeff Campbell: Absolutely. Glen, we are focused on so many different aspects of this company. The reality is if we don't succeed in doing that, we will not succeed in doing what Brian and Kevin were alluding to, which is being the first airline to successfully meet the challenge of getting its cost structure in line with what it needs to be longer term to compete with the lower cost segment.

)) Glenn Engle: Finally Delta said their North American revenue was actually up a percent in the summer quarter. I think U.S. airs showed it was down roughly one percent and yet your number is down six T why would thereby that much of a gap.

)) Jeff Campbell: As we've talked about, when you focus on the domestic system, clearly I think we were more heavily dependent on business markets in general, telecom and high tech in general than many of our competitors. And as those segments of the market have been particularly hard hit, we have been particularly hard hit. And while we have begun to redeploy capacity and will continue to redeploy capacity out of those kinds of markets, heavy telecom, heavy high tech, heavy business, into more leisure oriented markets, that's a bit of a slow process F as well as, in our domestic numbers you have what we call the San Juan domestic piece. And if you look at the year-over-year comparison for the third quarter, you have had a massive entrance. That's really the only word for it, of low cost carriers into the San Juan Caribbean segment that is knew there the last 12 months. That in fact there's lots of different ways to measure this. But as we look at the portion of our domestic Caribbean San Juan New York that's exposed to low cost carriers, a year ago that number was about 25 percent. And this year that number is about 75 percent. And that is a stun not guilty one year change.

)) Glenn Engle: Thank you very much

)) Operator: Our next question comes from Gary Chase from Lehman Brothers.

)) Gary Chase: Hi there.

)) Operator:

)) Jeff Campbell: How are you.

)) Gary Chase: I just wanted to ask a couple questions related to the new savings goals. First, and I guess you came out with a number where you could achieve 1.1 billion, and at this point you're almost double that. I'm curious what accounted for the change was it just underestimating some of the savings potential from the initiative you had before or whether there were that many things that were identified in that time frame.

)) Jeff Campbell: It's a little bit, a couple things. First of all, when we use the two billion in the press release today, that's what I'm going to call [inaudible] Number. In response to Brian's question we reiterated the fact that if you really get out of that you've got maybe 902, maybe you're up to a billion four in 2003. You're in a billion seven in 2004. I mean it means GEPTH beyond that [inaudible]. [Gap in audio] I'd admit my ability to predict out timing that far is not that great. So that's the sort of the first thing. The second thing is that we've continued every week to find new ways we can comment up with to get our business model more in line with what we think it needs to be in a world where, the example I just cited, where 75 percent of our domestic Caribbean carrier is [Gap in audio] Low priced costing. We're pretty confident that two billion dollar number is real, that it's achievable. We also know that it's not enough. And that it takes us too long to get it which is why we both need to find more, need to find things to do more quickly.

)) Gary Chase: In terms of how we should think about the numbers you gave, and by the way I appreciate the detail where you gave the 900 million, the one.4 BM. I assume there's off sets to all of those. You've got wage escalation in probably all your contracts, any staffing reductions you're making here isn't helping that equation. You've got pension expense going up. Should we really think of this as 500 million of savings we can take to the bank last next year. Or is it offset by all the things we're talking about.

)) Jeff Campbell: That's a good question and the answer is absolutely they're offset F what we're talking about is initiatives versus a base for where we are now. Now, that drives two further points that are important for me to make. Number one, the fact that there's lots of [inaudible] That's driving our cost up. Part of why I say A this isn't big enough and we've got to find more quick. I also think it's important to point out that some of those offsets are offsets that are going to affect everyone including the low cost carrier segment. So everybody has some seniority base -- as employees, agent of the year, the job. Everyone is going to suffer from certain kinds of suppliers to the airline industry, despite our best interests. All I can do is increase the cross over time T our key is to make sure we can eliminate the things that today make us uniquely, have a higher cost structure than the low cost carrier segment.

)) Gary Chase: One more, I was thinking of things that drive your revenue premium and not doing the things that don't. Could you just sort of walk through us again the rationale for focused cities, is that in question in this environment RS? Do you think that derives the revenue premium you were talking about or is that something that you could revisit over time and maybe skinny down some of your flying there and focus more on your real strength and your H*UBS, that is.

)) Jeff Campbell: You have to consider the focus, I expect there may be a few people on the call, Gary who may not know what we mean. Let me back up. As we think about our network, we have certain things we think of as focus city like New York, Boston, LA, perhaps being the best examples, where while we don't operate a traditional connecting hub structure, we have a lot of flights. We operate into a AI lot of points. What that really is all about is our experience which absolutely continues to hold true even at the current revenue environment that a fair amount of what drives customer choice, particularly amongst the business travel segment, which is smaller than it used to be but still very significant, is having one carrier whom they can focus their flying, focus their frequent flyer miles, focus their customer relationship on that goes to most of the places they need to go. You also have to think about that the focus cities that we have, again I think Boston New York, LA are probably the best examples, are some of the largest revenue markets in the U.S.. and so there's a tremendous (inaudible) from those cities for the connecting cities we fly over did last Chicago and St. Louis but there's a real synergy between connecting those types of services and the key nonstops that we serve out of those focus cities where there's enough traffic out of those focus cities to support a nonstop. And where we can strengthen our overall marketplace at present. I think it's fair to say that we don't plan on giving up the market position we developed in cities like Boston. In fact, we've reallocated some of our flying out of business markets and into places where demand has held up better.

)) Gary Chase: And Jeff, I assume that those cities are still holding up well on a relative basis, relative to the rest of the network right now? )) Jeff Campbell: Yes.

)) Gary Chase: Thanks very much

)) Operator: Our next question comes from Michael Linenberg from Merrill Lynch.

)) Michael Linenberg: Just two quick questions. I think during on your last conference call you discussed I think in some detail about the reverse code share. And I think of late the St. Louis hub had a decent amount of reverse code share flying. I was curious, were you holding on to that traffic? What have you seen over the past couple of months as you've introduced the AX code?

)) Jeff Campbell: You're right, Michael, the code share started in a limited number of St. Louis markets on August 1st and has been expanded in small phases since then. Today we have about 41 markets in and out of St. Louis where the AX code is being used. To be honest, I think it's still early in the process for me to with any high degree of confidence tell you how it's going. But I would say that the initial results are very encouraging.

)) Michael Linenberg: And my question, it's more of an accounting question. When you look at your losses year-to-date, we're sort of looking at the.

)) Michael Linenberg: And my question, it's more of an accounting question. When you look at your losses year-to-date, we're sort of looking at the gap number here. It's about a loss of three billion dollars for the first nine months of the year. At what point do you get into a situation where you're not able to book any income tax benefits? Is that something that we will see sometime in 2003? Any sort of color on that would be helpful?

)) Jeff Campbell: That's a very good question, Michael. And you are quite correct that while we will carry back our 2002 tax loss and therefore recover there the early part of the first quarter of 2003 about 550 misdemeanor of federal income taxes -- and I referenced that earlier on the call, this 2002 loss carry back, combined with a loss carry back from 2001, which this year gave us the 658 million dollar tax refund, those things mean that we will at that point have recovered essentially all the federal income taxes that we paid in 1996 for 2000. So in regards to future losses, I say it's certainly possible if not probable that as early as sometime there the third quarter we may not no longer be able to [Gap in audio] Under the financial accounting rules we'll not be able to use forecasts of future income to justify the recording of a tax benefit continuing losses. We've recorded a [Gap in audio] And to offset future taxable income from timing differences that is certain to be realized in the future. But like most accounting issues, that may sound a little complicated to some of the folks on the phone call. To simplify and cut to the conclusion, I think it's fair to say that sometime around the end of the fourth quarter, early first quarter 2003, our accounting financial statements or to probably be very precise include what's called a tax valuation allowance which essentially means the tax provision will show a zero.

)) Gary Chase: Thank you very much

)) Operator: Our next question comes from Jamie Baker from JP Morgan.

))Jamie Baker: Jeff, a couple of questions. I know it's a cliche to say that the model is broken. But you have to admit, what you're doing right now just doesn't seem to be working. When does AMR try something truly rad can Cal (ph), other than layoffs and aircraft (inaudible).

)) Jeff Campbell: I'll agree with the first part of your statement which is a model for us and I would suggest for much of the industry is clearly broken. That's why we're engaged in what we believe is a pretty comprehensive program of change in our business now, the word radical I think is the word you used, is one that I think in our business there's a couple very good reasons to be cautious about. First off let's never forget the fact that while we were running a business for the benefit of shareholders, the business that we run is a business of winging people in the air over 500 miles an hour in what's the safest mode of transportation in the world. That is not an operation where you radically say let's tomorrow change things. You make change in ways that allow you to be absolutely certain that you you're maintaining the integrity of what you do. The second issue is that we also operate in hey hyper competitive industry. And we have certainly -- we tried a few radical things, I guess the one that comes to mind dates back to 1992, for those on the call old enough to remember the industry in 1992 we took a radical step called value pricing, and before a bunch -- let's just say it led to a very radical impact on the entire industry. Financially. Clearly an impact in which the whole industry in its current shape couldn't withstand. The whole industry couldn't withstand what happened as a result of that. So some combination of our experience with what happens trying to make radical business change in the hyper competitive environment we're in and the reality of the kind of complex operation we run makes us a little cautious about radical change and believe the right way to do this is to evolve. But with that said, Jamie, let me go back to the two points I made earlier, which is we're absolutely clear that the two billion dollar steady state number I'm talking about here A is not enough and B the time line that I have laid out for you is not quick enough to solve our problems. So we need to find more ways to make our economics better and we need to find more things to do to create very large changes quickly.

)) Jamie Baker: If I'm going to argue that value pricing was probably an idea that was simply ahead of its time. Secondly Delta succeeded in deferring all of its deliveries in 2003 and [Gap in audio] At the same time you're parking planes. Why are you bothering to take anything?

)) Jeff Campbell: Well, I think if you look at the Boeing deferrals that were done after September 11th, as well as sort of this latest rounds of deferrals by carrier you'll see a distinction if you think about the timing between aircraft that are already sitting on a production line, pretty much built, versus aircraft that are still a gleam in a project manager's eye. So in the first round sort of depending on where the different airlines were in the SIESHG Continental, some of it's got to completely defer or cancel certain larger number of orders than others, and I think we're seeing the same thing in what I want to call this latest round of deferrals. So the 11 airplanes we're taking are airplanes that are all relatively early in 2003 and therefore are in fairly advanced stages of production, which makes the economics of not taking those airplanes a little bit more challenging. So your second question, I think you have to think about sweet simplicities, and that what we're trying to do in every area is operate a SIM FLER more consistent operation than we have. In the fleet area in particular we're trying to eliminate sub fleets and airplanes that have different kinds of engines than other kinds of engines. So the aircraft we're taking pretty much fit into the one common type of 706 seven 300 that we're going to operate for a very long time into the future. And the aircraft that you see us storing, selling, parking, whatever, are aircraft that do not fit into that very simplified view of a longer term fleet.

)) Jamie Baker: Did you give any guidance on Q4 cash burn rates. Did I miss that before?

)) Jeff Campbell: No.

)) Jamie Baker: Could you offer us any color there?

)) Jeff Campbell: I guess my comment would be airlines define cash burn in so many different ways I encourage people to look at reported financial results and kind of tax pretax income and add back depreciation and amortization and that gets you to some rate. So I'm sure pickup will do your usual excellent job of coming up with an earnings estimate that will allow you to do that calculation.

)) Jamie Baker: Thanks a lot.

)) Operator: Helane Becker from the Buckingham Research Group.

)) Helane Becker: Just a couple of things. I've kind of gone through my numbers from the past few years and I can't find a year in which you didn't take a nonrecurring charge against earnings. So if we assume that nonrecurring charges are part of your future, on a going forward basis what do you think that number would look like in the fourth quarter and next year?

)) Jeff Campbell: Clearly by definition we don't plan or attempt to take nonrecurring charges out. What has happened in particular with aircraft, and in particular with turbo props and the F 100 over the last two to three years is that their value has been on a one way drive down. It hasn't gone up and down. It's just been straight DOUNL. So we started off a couple years ago. And if you think about the rules for accounting for fixed assets, there's the concept of impairment. And starting a couple years ago, under those rules we could look at the F 100 fleet which clearly is a fleet that with the advent. RJs operated by commuters and commuter carrier cost, the F 100 has gotten squeezed out of having a commercially viable niche. So it became clear a couple of years ago that under the accounting rules the if I have 100s [inaudible] And you have a similar issue with turbo props where they're slowly getting squeezed out of all markets in the world. A massive worldwide glut on turbo props. But it became very clear a year ago that the turbo props were impaired. Once an asset is impaired, the next question you do under the accounting rules now you have to come up with what's the fair market value of those. So two years ago we went out and we got appraisals and we went back and forth with our auditors, Ernst & Young we agreed, boy the F 100s and the turbo props are impaired but here's the appraisal, here's the right value. NEN a little time went on, in the three six 12 months went by then the auditors came by and said the F 100s the turbo props are still impaired which means you need to get a new evaluation we go out and get a new one and there goes another decrease -

)) Helane Becker: I'm going to disagree with -

)) Jeff Campbell: This is a good question. It's a very frustrating issue to us. I think I can say that the value to which we have written down the F 100s and the turbo props at this point should be a value which under any disastrous value of the values going forward will not cause us to take another one time charge with regard to the value of these darn things. I think our auditors Ernst & Young are comfortable we have the right value and it's the right accounting but it's been a very frustrating two to three year experience that we have had with one time charges on all these things.

)) Helane Becker: I'm sure that's true. It's when you make a statement that you have four billion dollars or so in unencumbered assets you have to keep writing them down year after year, I'm not sure that's reasonable. But be that as it may -

)) Jeff Campbell: Let me just answer that. Because it's a very good question. When I give you that 4.2 billion dollar number, we are using very conservative aircraft values. We're including essentially zero for the F 100s. And zero for the turbo props. And so I think I feel completely comfortable telling you that I'm as frustrated as you are with our history of write downs on these F 100s and turbo props and I'm also very comfortable that the 4.2 billion dollar number that I'm giving is you a conservative value reflective of what I think aircraft values are today. Goodness knows what aircraft values are going to be in the future, though.

)) Helane Becker: On another mundane subject, could you just say what your revenues from Internet bookings were?

)) Jeff Campbell: Let me grab that number the portion of the revenues in the third quarter that came from any Internet site, so this is both the internal data, domestic stuff as well as THID party Internet providers that was 16 percent of our revenues in the third quarter this year, whereas the third quarter of 2001, that same exact number was 10 percent ^^.com.

)) Helane Becker: My last question I know you said the fourth quarter loss would be substantially worse than the third quarter. Do you care to comment relative to either the first call consensus or the first call range.

)) Jeff Campbell: To be honest, I prefer to leave it at what I said earlier. And the words we included in the press release. I suppose the range is okay. But it's so early right now. And I'll be honest, I know some of the other carriers are looking at their advanced books and for a couple weeks of results and making comments. I think our experience since September 11th has made me very cautious about telling you I know what the future is going to look like. So I prefer to just wait until we have some real facts and then we'll let you know.

)) Helane Becker: Okay. Thank you

)) Operator: Our next question comes from Jim Higgins from credit Suisse First Boston.

)) Jim Higgins: I'm wondering, in looking at your September traffic versus the industry, if you think you may have seen any evidence that ^ perhaps there was a bit more booking away from American around the anniversary of the toys attacks caused because of last year's experience ^^ the terrorist attacks caused because of last year's experience.

)) Jeff Campbell: There wasn't anything that was obviously discernible to us, clearly for the whole industry September 11 was a real outline of this quarter. As we look at revenue trends you've got June, July, August going. September falls off the charts then we're right back on the trend line where we were in October, if you kind of just wipe out September. As to whether our numbers were any worse in September than any others, I don't have any proof of that. I think it's also important to remember that we pulled down a lot of capacity around September 11th. I don't know and I don't have with me here exactly what the final numbers were on how much we pulled down versus others but I think the fact that we all pulled down varying amounts I think is kind of making comparisons very difficult.

)) Jim Higgins: Sure you also alluded to some recent mixed results in increasing the lowest published fares, could you give us a little bit of color on what has been attempted and what has stuck.

)) Jeff Campbell: I'd like to but I think you know that the lawyers will come and put a gag around my mouth if I say a whole lot.. )) Jim Higgins: Soap even looking at it historically. )) Jeff Campbell: It's a pretty sensitive area. Suffice to say I think I would just repeat what I said earlier, which is we have, it's public, made several attempts to get the lowest leisure fares up into a little better range and clearly those results have not been as successful as we would like and perhaps I should leave it at that.

)) Jim Higgins: Finally, the incremental stored aircraft for next year, most of those have some sort of mortgage or operating lease payments that are ongoing, correct.

)) Jeff Campbell: Yes.

)) Jim Higgins: Thank you very much

)) Operator: Next question comes from Sam Buttrick from UBS Warburg.

)) Sam Buttrick: Obviously there's been considerable speculation throughout the industry that you AL corp. may be forced to file for bankruptcy protection sometime in the not too distant future. Oddly to me, when I discuss the subject with folks, both inside and outside of AMR I get wildly divergent views as to whether this is a good or a bad thing for AMR corp. on balance, because you share. Could you share your thoughts.

)) Jeff Campbell: Perhaps you're getting widely varying thoughts because we're spending 99.9 percent of our time focused on trying to figure out how to fix our own business. And I am so busy, as I think the whole management team is here and all of our employees trying to do that that I try not to understand or perhaps follow every nuance of what some of my competitors, particularly united is struggling with some of the very challenging issues it has. All of that said, I don't want to sound naive on the phone. Clearly what happened at U.S. air and united had a lot of consequences for the industry and for AMR and that's the situation we're pretty darn foe darn focused on. And bankruptcy is a process, we've talked about this, I think it ties people, underplay the risk and uncertainty that a bankruptcy brings about. And so when you ask people ^ about would a bankruptcy at a certain entity be good or bad for the industry for year, well, there isn't a prepackaged plan that I know of that tells you exactly what's going to happen in a bankruptcy. So I suspect the reason you're getting widely varying answers is because people make widely varying assumptions about what bankruptcy means. I guess if that risk and uncertainty that leads Don car tee to keep making the comments which I think is a good one, that we're working as hard as we're working at this company because we're trying to keep from going down the path of bankruptcy ^ that said, these are tough times in the industry. And you don't have to do anything more than just look at the kind of financial results that we at Delta reported and that I suspect the rest of the industry will report based on your estimates and other estimates and just look at the way all of our financial instruments are trading to say that these are tough challenging times.

)) Sam Buttrick: I'll take that as a good. I think. Lastly you may just not want to go here, but you've done a good job of assessing what some of your potential sources of liquidity could be. Can you help us think about how you're looking at your capital requirements over the next 12 months, and perhaps pushing aircraft aside or looking at it anyway that you want to recognizing all of these options that you have, how much do you need to raise in one way, shape or form over the next 12 months.

)) Jeff Campbell: Well, yeah, that's a tough one, because of course what you're asking for there is the hour-long presentation here's our detailed capital spending, I've tried to give you capital spending. Here's our hour-long presentation to our base case for earnings, as I said earlier I'm sure you and the others on the call will do your usual fine job of, making your own estimates on earnings. I've tried to give you a little bit of understanding of some of the basics we have on cash needs like pensions and like principal payments and I've tried to point out various sources of liquidity that we have. And I've also tried to point out that the capital spending we do have left we have almost, of the 1.4, 1.2 of that we already have financing prearranged financings for. So in many ways I think the real question you're asking is what is the operating environment and the revenue environment look like for 2003. And I'll be honest, I don't know what the answer is to that question.

)) Sam Buttrick: I guess really what I'm trying to assess is whether we're in the same ballpark in terms of how much you need to raise in any shape or form over the next 12 months in order to assess the feasibility of that. But I won't push it further. Thank you

)) Operator: Our next question comes from Susan Danovoy (ph) from Deutsche Banc.

)) Susan Danoyoy (ph): Can you update us with the respect to the status of labor negotiations with your pilots.

)) Jeff Campbell: Yes. Let me answer it a little more broadly. As you know, just to make sure everyone on the call is clear, we have an open contract with our pilot slots union. And we're engaged in negotiations. We have a federal mediator involved in those negotiations. Those are ongoing. Our other two large organized labor groups, APFA and TWU, you should assume that we have an ongoing dialog about the very, very significant financial challenges that the industry and our company is facing. Clearly as a company, to succeed in the task we've taken on, which some of your colleagues Susan articulated as being the first airline to try to successfully change its business model and cost structure to compete against the low cost guys, we need every employee at American Airlines making that change. And there's something we're going to have to change. And we are embarked on that dialog.

)) Susan Danoyoy (ph): Great. My second question is a little more strategic. Delta is trying to get a code share with Continental and northwest, and certainly united and U.S. air have one already. I'm just trying to think about how you're thinking about strategically what you're going to do for the longer term in order to kind of keep your market penetration, if that does in fact occur..

)) Jeff Campbell: That's a good question, Susan. I think in some ways -- I'll pick on two words in which you asked the question. That's long-term. As we look at united and U.S. air, first off that's a relationship that in terms of the economic impact to us longer term is less troubling than dental Continental northwest. Secondly, clearly both united and U.S. air have a lot of challenges on their plate how quickly and effectively strongly they will be able to launch this new marketing effort and all the ^ complications these add to your marketing business. I don't know. It's certainly not something that I'm focused on. That we're focusing on as one of our key challenges to try to get through the flex 12 to 24 months, because I suspect those carriers will have their own challenges in the next 12 to 24 MORS. Delta Continental and northwest that's a combination that long-term is clearly more troubling to us. I suspect, and now this is sheer speculation on my part, that is more troubling to the regulators in WA DV if they get approval for that transaction. I suspect there will be significant carve outs, which will not only mitigate the power of it a little bit you but to be honest also make these things which are already complicated to implement and communicate to COMPLERZ. Even more complicated to implement and communicate to customers. Plus a three way alliance just sounds to me like it's about five times as hard as a two-way alliance in terms of actual implementing and getting going. So I think as we think about our key business challenges and where we should be spending our resources in the next eight, 12 to 24 months, we don't see either of these two alliances as one of the key things that's going to help determine how successful we are in the next 12 to 24 months. Now long-term, as you said Delta Continental and northwest, if they get approval, if they're able to really make ILTS start working with consumers, that's a troubling one and we will have to find some ways to address it. I think it's very fair to say that our view is we have some time on that one.

)) Susan Danoyoy (ph): Great. Thank you

)) Operator: Our last question comes from Raynidel (ph) from Blailock (ph). )) Raynidel (ph) : For the fourth quarter you gave mainline up six percent for the fourth quarter versus last year down 13 percent two years earlier. Was that RPMs or ASMs?

)) Jeff Campbell: That would have been ASMs.

)) Raynidel (ph) : Great. Did you give an ASM forecast for 2003?

)) Jeff Campbell: What I said is the domestic system for 2003 as we sit here today we expect to be down about three percent and we're still kind of working through the numbers internationally.

)) Raynidel (ph) : Okay. The changes in the aircraft for next year, for if active Mainland aircraft, what's going to be the number do you estimate?

)) Jeff Campbell: You know, Ray, I don't know if I've got that handy. Let me suggest this, that if up get with Michael Thomas head of investor relations group after the call we'll track that number down for you. We've got it I just don't happen to have it in the C [inaudible] At the moment.

)) Raynidel (ph) : I think you said the aircraft are going to be grounded whether they're owned or leased you're going to continue making payments on those.

)) Jeff Campbell: Absolutely.

)) Raynidel (ph) : The last thing is really wild estimate on your part if you care to make it is you mentioned all those core assets that American has available. I think there's a lot of value there, would you convenient CLUR a range of value?

)) Jeff Campbell: I hate to disappoint you, but I think I prefer not to put public values on those. I'll leave that to you and others who are experts in the capital markets. Suffice it to stay we think it's a very material pool of noncore assets, many of which are quite sellable and which we think gives us a little bit of a unique position relative to some of our competitors.

)) Raynidel (ph) : And finally, at this point the capital markets as far as you can decipher as far as for secure debt remained open to the market; is that correct.

)) Jeff Campbell: Yes, we're confident we've continued access to the capital markets. As we said, we continue to raise money through the month of September in both the public and private markets and are confident in our continued ability to access both of those.

)) Raynidel (ph) : Good. Thanks a lot, Jeff.

)) Jeff Campbell: Thank you everyone. And thanks for participating today. For those who are ling anything in for the media if you'll stay on the line I'll be back with you in a few minutes and I'll be happy to take your questions.

)) Operator: This concludes today's conference call media please stand by for your question and answer session.