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Sep 22, 2002
DALLAS (AP) -- AMR Corp., the parent of American Airlines, said Friday it could face a charge against shareholder equity of more than $1 billion to cover its minimum pension liability unless investment returns improve by year end.
AMR said the liability reflects the gap between the pension plans'' obligations and its assets set aside to pay pension costs.
Although the exact amount of the charge to stockholders'' equity is not known at this time, it will likely exceed $1 billion before tax, AMR said.
Fort Worth-based AMR, which announced this week that it lost $924 million in the third quarter, disclosed the minimum pension liability in a footnote of its quarterly report filed with the Securities and Exchange Commission.
An AMR spokesman said the benefits of retirees and workers are protected.
It''s really an accounting issue. Our pension fund is fine, said Al Becker. We are well within all the minimum funding requirements for the pension fund.
The minimum pension liability is simply a reflection of the current conditions in the economy, the fact that markets are down, Becker said. It''s an issue most companies will have to address.
Becker said AMR has contributed $250 million to its pension funds this year and could pay the minimum liability out of cash -- company officials say they have $2.8 billion in cash and short-term investments.
But, Becker said, officials decided it would be wiser for AMR to conserve cash because of turmoil in the industry. All the major U.S. carriers except Southwest Airlines have reported large losses this year.
By recording the pension liability as a charge against shareholder equity, AMR might also have been seeking to protect its credit ratings. In the SEC filing, AMR said the charge won''t affect convenants in any of AMR''s credit agreements.
In June, Standard & Poor''s downgraded the credit ratings of AMR and American and other airlines. In September, Moody''s Investors Service lowered the unsecured credit ratings of both AMR and American. The downgrades have raised AMR''s borrowing costs, the company said.
AMR said its minimum pension liability reduced stockholder equity by $172 million before taxes at the beginning of this year.
The value of pension plan assets invested in stocks have been plunging at many large companies.
This week, S&P lowered its ratings on General Motors Corp.''s long-term debt largely because of questions about pension liabilities and was reviewing Ford Motor Co. GM said its pension-fund assets are down 10 percent and Ford''s are down 15 percent this year.
In trading Friday, shares of AMR rose 5 cents to $4.30
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