Welcome to the AMR third quarter 2008 earnings conference call. (Operator Instructions) We are very pleased to have on the call with us today AMR’s Chairman and Chief Executive Officer, Gerard Arpey, and Executive Vice President of Finance and Planning and Chief Financial Officer, Tom Horton. Here with our opening remarks is AMR’s Managing Director of Investor Relations Eric Briggle.

During the call Gerard Arpey will provide an overview of our performance and outlook and then Tom Horton will provide the details regarding our earnings for the third quarter along with some perspective on the remainder of 2008. After that we’ll be happy to take your questions. In the interest of time, please limit your questions to one with a follow up. Our earnings release earlier today contains highlights of our financial results for the quarter. This release continues to provide additional information regarding entity performance and cost guidance which should assist you in having accurate information about our performance and outlook. In addition, the earnings release contains reconciliations of any non-GAAP financial measurements that we may discuss. This release along with the webcast of today’s call is available on the Investor Relations section of www.aa.com. Finally, let me note that many of our comments today regarding our outlook for revenue and costs as well as forecasts of capacity, traffic, load factor, fuel costs, fleet plans and other matters will constitute forward-looking statements. These matters are subject to a number of factors that could cause actual results to differ from our expectations. These factors include changes in economic, business and financial conditions, high fuel prices and other factors referred to in our SEC filings including our 2007 annual report on Form 10K. With that I’ll turn the call over to Gerard.

As you’ve all seen in today’s press release excluding special items in the third quarter we posted a loss of $360 million, which obviously compares very unfavorably to the $215 million profit that we earned in the third quarter a year ago. As in previous quarters this year, fuel prices were the big driver of our performance and the volatility of fuel prices continues to be quite extraordinary. The last time we were together on one of these conference calls, the cost of a barrel of oil was about $135 a barrel. Yesterday oil closed at about $79 a barrel, which is obviously a big drop but I do think we need to all keep in mind that $70+ a barrel for oil is not really a bargain by historical standards and volatility continues to be a significant concern. As so often seems the case in the airline industry, there’s another challenge on the horizon. As we have all witnessed over the last month, the financial markets are in turmoil and this is certainly having an impact on the economies both here in the United States and abroad. Events of this magnitude will undoubtedly have an impact on our business although how much of an impact remains to be seen. I’d like to reiterate that we have accomplished a lot over the last several years to prepare us for difficult times, and whether our challenges are historically high fuel prices or troubled economies we are continuing to move forward. As you will hear today we continue to take steps to ensure that we not only can meet our near-term challenges but also build for the future. One big factor in our ability to navigate this tough road has been our capacity discipline. As fuel prices climbed throughout this year we…

As you can see laid out in the press release, we recognized a few special items during the quarter. The most significant of these was the $432 million gain associated with our sale of American Beacon Advisors. For the remainder of the call I’ll exclude the impact of special items to more accurately reflect our performance on an ongoing basis. Excluding these special items, we lost $360 million versus a profit of $215 million in the third quarter of last year, a change of over $575 million. The driver of this change was clearly fuel prices. Remarkably in this quarter alone we spent almost $1.1 billion more for fuel than we would have paid at last year’s third quarter prices. The good news is that spot prices for fuel have come down from the record highs of early July but fuel prices remain high and volatile by historical standards and remain an enormous challenge. While fuel may have abated somewhat for the time being, these are extraordinary times. The turmoil in the financial markets reflects yet another challenge we intend to face head on. Through our efforts over the past several years we have put ourselves in a better position to face difficult times, and we continue to take action in light of these challenges. A part of the solution is to affect a more stable supply demand balance, and for several years we have taken a very disciplined approach to our capacity plans. Earlier in the year we announced capacity reductions that have begun to take effect, and we’ll see the full effect of these cuts towards the end of the fourth quarter. These reductions will help to offset weakness in the revenue environment associated with a recessionary economy, and given that we think it makes sense to revise…

(Operator Instructions) Our first question comes from Jamie Baker - J.P. Morgan.

Gerard, having joined in 1982 you’ve been in the industry through two recessions and obviously one terrorist attack. I think that’s a bit more industry experience than some of your peers. Given the current size and shape of AMR and the industry and given the spot jet [carol] price in the $230 range, have you ever witnessed a demand environment that you couldn’t handle at today’s fundamentals? Because quite frankly I’m struggling and I think others are as well to come up with a plausible scenario where you don’t make money next year unless the economy does something meaningfully worse by several orders of magnitude than anything that’s ever happened.

You’ve been around a long time as well so you’ve seen many cycles. I do think that we’re sitting here compared to where we were in July with oil at $147 a barrel and the crack spread then I can’t remember what it was, but the leverage in that oil number is obviously very significant and it has obviously moved significantly in our direction since mid-summer. But oil is still, and again it’s moving every day, but it’s still up a little bit from where it was a year ago and it’s very volatile. I think we can’t necessarily depend on oil one way or the other, and we’ve been I think for many years focused on the fact that we were going to get in difficult times again whether that was going to be the economy, whether it was going to be the oil or God-forbid something else that would put the industry in some difficulty. So we have been building our cash reserves, paying down debt and preparing for difficult times. We’ve certainly had them this year and I think the wild card which you highlighted is the economy, and this industry is highly correlated, traffic is highly correlated to GDP. That’s going to be the wild card along with oil for next year. I don’t think anybody really knows what the fallout is going to be from all of this financial turmoil but I do think the capacity reductions that we decided on early this year are coming just in time and we’ve got lots of degrees of freedom to work next year if GDP really significantly goes in the wrong direction or if oil likewise goes in the wrong direction. I think we have been and continue to do everything we can to prepare for very, very difficult times in the near term while at the same time recognizing that we’re running the business for the long term and we are trying to do the right things for our shareholders for the very long term. That’s what the aircraft replacement program and the 787 decision is all about. I’m not specifically answering your question but I think I’m giving you fuel for how I look at it.

You came pretty close. I didn’t think you were going to let me paint you into a corner there, but that brings me to a follow up though. Tom, Mark and I were wondering if there’s any more color you could give us on the financings, what parties were involved in the sale leasebacks and whether it’s Boeing that’s the backstop provider?

Unfortunately, given the confidentiality provisions of those contracts I can’t disclose that. But those were significant moves forward in financing. We’ve obviously accelerated our fleet replacement plan which we feel pretty good about and in the last month we’ve also secured most of the financing with respect to that. The backstop deal covers 2/3 of the 76 airplanes, now we’ve got permanent financing for 20 of those, so the way to think about that is almost all of those airplanes are now financed one way or the other. In this market I think that’s good. We’ve got more work to do but I think we’re in a pretty good spot right now.

If I could just add something to that, I would again credit a lot of good work by our treasury team and a lot of my colleagues in the finance organization. But the point I’d like to add to is that I do think that I have been saying and my team has been saying for a long time that it should matter to the capital markets who pays you back and who doesn’t. As you know we have paid folks who have lent us money over many, many years; we’ve paid them back and I’d like to think that does matter and is mattering right now.

Gerard, just one final question. Now that you’ve got 787s on order if I’m not mistaken, that plane has to be painted which is a concept you are somewhat unfamiliar with. Have you chosen a color?

I’m sure our engineering staff is wrestling with that very [inaudible]. That’s one I’m not terribly troubled with right now.

Not a top priority, I realize that. We’ve just been waiting for the 787 order for a while.

You know Gerard’s a Texas Longhorn so he’s been looking at burnt orange.

Our next question comes from Bob McAdoo - Avondale Partners, LLC.

You talked about booked load factor but didn’t give us any sense about what yields are looking like in the upcoming period, and are new bookings continuing to flow in at normal rates or do we see any kind of degradation here in the last few weeks?

We generally don’t comment forward on yields but I think the way to think about that is we’ve got a little bit of a mixed bag here. We’ve got unit revenues which have really been quite strong, up almost 11% in the most recent quarter, but if you look at the third quarter traffic is off around 5%. So going into the fourth quarter we have got capacity down much more. It’s down 8.3% for the system and a booked load factor that’s down a couple of points. So all of that implies that traffic in the fourth quarter is going to be a fair bit weaker than it was in the third quarter but fortunately we’ve got the meaningful capacity reduction in place. That seems to have had the predicted affect on unit revenues. I think we’re just going to have to wait and see.

That leads us where I was hoping it would go. The way the prepared remarks were, it wasn’t clear whether you were trying to paint a darker story than maybe we’ve seen here in the most recent quarter where obviously squeezing capacity does in fact drive the RASM up. The other thing is, can you give us any clue as to what you’ve done so far in hedging out into 2009? Do you have anything out there that would drive your costs higher than what spot prices might imply in terms of fuel going forward?

As you know we’ve tried to take a very disciplined and systematic approach to fuel hedging. So we haven’t reacted strongly one way or the other as oil prices have moved, and I think that’s served us pretty well. For this year our hedges have saved us over $500 million and that’s worked out reasonably well. As you look out into ’09 we do have today about 20% of our consumption hedged. The cap on that is about $109 a barrel. That’s what we’ve got going out into next year. It does have a floor; some of it has a floor around in the $80 a barrel range.

If we were lucky enough to or at least got rid of the volatility and stayed at $80 a barrel throughout, you wouldn’t necessarily be paying a penalty on that 20%. Is that what that says?

That’s right.

Our next question comes from William Greene - Morgan Stanley.

Gerard, I’m wondering if you can talk a little bit more about this order on the 787s. It’s pretty big and I realize that it’s quite flexible, but am I right in assuming you either have tremendous flexibility or an incredibly good price because it’s not clear to me why at current return levels you’d even want to look at investing? I realize this is way out in the future but even so we’re talking about at least the next 12 months being rather uncertain. How should I think about what you’re trying to do here?

I think that’s a fair question on the basis of certainly our current earnings and the past several years although we did manage to get ourselves profitable in ’06 and ’07 but as you point out, not very profitable. The way to think about this order is it positions us to begin to replace our 767s as they reach their maturity level and the economics of that airplane against an old 767 are going to be very favorable. The 42 airplanes in the context of the entire wide body fleet that we have, which of course includes the 34 A300s that’ll be out of the fleet by the end of next year and then 150+/- 767s, we’ve got lots of room there for replacement economics and then the options position us for growth that we anticipate if we/when we, however best to say it, get into more calm waters. I thought for many, many years that once this industry reaches some sort of supply/demand equilibrium so it can price its product in a way that we can get sensible returns for our shareholders, once we’re at that point there’s no reason why our company shouldn’t be able to grow with GDP here in the US and around the world. If you couple that with the AA/BA/Iberia immunity application which just puts us on a level playing field with Star and SkyTeam, we should have some growth opportunities there. That’s a long way out and we’ve got a lot of flexibility to decide whether these airplanes are replacement or growth. That’s the way I’d describe it.

Maybe I can turn it now as well to CASM. If we look at your CASM guidance for the fourth quarter here, it’s going to go up a fair amount which seems like you’ve had maybe less success recently taking out some of the structural costs, maybe just more on the variable side versus some of the competitors. I’m just wondering if you can talk a little bit about are there any other options you have here to remove costs permanently or is a lot of what we’re going to see here based on the capacity cuts going to lead to pretty big CASM growth ex-fuel?

I think what you’re seeing is as you pull out capacity it takes a little while to get some of the fixed costs out. That is reflected in our fourth quarter cost numbers. Specifically we’ve got capacity down pretty significantly but at the same time we have maintenance and repairs costs going up as our fleet has aged a bit and as we continue to work on our dependability. Those are things that will begin to abate as we start moving the fleet age in the other direction, but we’re seeing that for now. We’re also seeing as we pull down capacity and the rest of the industry pulls down capacity, these facilities costs at airports don’t go away. They just get spread over a smaller base so that tends to have an unfortunate affect on unit costs. The last thing, in the most recent quarter was pretty significant foreign exchange impacts as foreign currencies were moving around on us. I think the important point is it’s going to take us a while to get the fixed costs more in line with the size of the company, and we’re going to be very focused on that as we roll into the ’09 planning process. We’ll have some more to say about that on the next conference call.

Debt payments and pension in ’09? Do you have those handy what they will be?

In ’09 our total debt maturities are $1.5 billion. That includes the $300 million roughly convert. We don’t have any required pension contribution for ’09.

Our next question comes from Michael Linenberg - Merrill Lynch.

Maybe this is a bit of a nit to Tom, but when you put out your 8K in the middle of September I think you were forecasting a cash balance of $4.9 billion at the end of the quarter and you came in at $5.1 billion. I’m curious. The $200 million swing, was that something your end of quarter maybe financing or one of the deals tied to the aircraft?

A little bit bigger than expected seasonality associated with the air traffic liability but nothing material other than that.

When the DOT, I think it was last week when they put out the August consumer report we saw that on-time was the best in five years. I think the rivals were up 6% points and I think they indicated it wasn’t really weather but it was supply was coming out. August was down but September’s going to be down a lot. Obviously there are a lot of cost headwinds. Tom, you just ran through them. When we start thinking about the size of your operation and the block hour times and the schedule, is there an opportunity as maybe delays in congestion come down that you can reduce block and as you know there’s obviously significant cost savings on that? What are your thoughts or where you are on that?

That’s a good question. We, American, have not been happy with or satisfied with our dependability this year and there are a lot of reasons why we haven’t performed up to the standards we hold ourselves to. Some of those within our control and some outside of our control. One of the biggest ones outside our control is the fact that with the high degree of concentration of operations that we have at O’Hare and in the Northeast, we’re subject to something like 30% to 35% more ATC ground hold activity on average than any other airline in the US. That’s just because of the percentage of flights we have in those locations. We kind of start every month knowing we’re going to be in the hole because of that. Certainly over the years we have worked really hard to push the utilization of our airplanes to extract block time, to extract ground time and some of those initiatives as our fleet has aged have not synced up as well as we would like. So we’re having to reinvest some ground time and some block time into our network in order to offset some of the ATC environment, some of the reliability issues we’re dealing with as our fleet ages, and hopefully we will pick up the benefit that you highlighted, which is with the reduction in overall flying in the country it will take some pressure off the air traffic control system which today certainly in the Northeast and in Chicago is absolutely overscheduled. It cannot handle the scheduled operation. We can’t operate reliably in New York on a good weather day given the amount of flights that are today scheduled. I don’t anticipate a lot of relief in New York but we may get some relief across the…

Just one quick follow up because you did bring up O’Hare and capacity. When the additional runway comes on, will that help you? I’m just trying to figure out where that capacity comes from and maybe it’s new entrants, or do we have some unintended consequences where you get more capacity in Chicago?

Sure the new runway is going to help but I believe what we should be doing is lowering the capacity levels at these congested airports until we get the capacity levels to the point where we can run reliably. Then when we get them there, then we can start talking about how we increase capacity at these airports but do it in a way where we don’t take it out on our customers. The notion that airlines over-schedule is a confusing and sort of fallacious discussion or argument because we schedule the airplanes when people want to go. That’s why there are lots of flights at 5:00 out of LaGuardia. It’s not because we’re trying to jam the ATC system. That’s when people want to leave New York or go to New York. That’s why when we cut our schedule earlier this year, we cut significantly LaGuardia; we said very publicly to the DOT and the FAA, “Here are some slots at LaGuardia. You should vanquish these slots, draw capacity down, use these as a first cut, draw it even further down and we suspect other airlines that have capacity at LaGuardia may or may not participate. We can’t talk to them.” But thus far the FAA and DOT have not taken us up on that so we ended up adding back flights into LaGuardia. We’ve kept our capacity cut the same so we took the flying out elsewhere but we put the flying back into LaGuardia to protect a lot of our slots. We’re not making much progress on my world view as to what we ought to do with capacity but I think until you can get more volume in the system, you ought to just reduce it until we can figure out how to build more runways, create more ATC and let people travel reliably. We’ll keep sending that message and see what happens.

As a road warrior I’m in full agreement of what you said.

Our next question comes from Gary Chase - Barclays Capital.

I wondered Tom if you could give us a little context. You talk about the booked load factor comparisons in the fourth quarter. I think we’ve heard that booked loads have actually been running up or people have been booking in advance from if not American, others during the year. How does that experience that you described compare to where you’ve been in prior quarters this year, and do you think there’s some read that we ought to get on what’s happening as a result of that?

I don’t know that we have enough insight on that to be able to give you a good answer as to whether the booking pattern is changing as we roll into the fourth quarter. We have seen a little bit lower corporate travel. That’s down a few percent in the month of September, though it’s down less than it was in August. We saw a pretty good down-draft in corporate travel in August. It’s really a little too early for us to have a good look at that because it tends to be late bookings. I guess the point is a little bit of a mixed bag over the last couple of months on that front. We have seen that with the turmoil in the financial markets the demand out of New York is softening more than other parts of our domestic system. So as we look at our advanced book load factors out of New York, it’s weaker than the rest of the system. I’m not sure if that answers your question directly. It’s too early to tell but clearly some weakness in corporate travel and certainly what you would expect to see given the headlines.

I think when you said not a moment too soon, I was wondering if you were trying to telegraph that it was not a mixed bag and something a bit more negative.

No. I just think given the traffic reduction that we saw in the third quarter and is implied for the fourth quarter, it’s awfully good that we got in front of the capacity.

Shifting gears entirely, as you look at the aircraft replacement decisions that you’ve been making, I’m thinking particularly on the narrow body side, obviously the calculus there is very sensitive to fuel prices and I understand your point that it’s volatile and they could be back north of $100 shortly. But at current levels, would that change the thought process on how compelling those replacement decisions are?

I don’t think it would because I think the other variable you’re trying to manage is the overall age of your fleet; not that you’re concerned necessarily about age but you are concerned about maintenance costs and reliability as the fleet ages. When you have a fleet as large as ours, you’ve got to stay at that every year or you can get behind the curve. Certainly we’ve had hatches battened down here for many years as we have navigated our way through some tough times. I think irrespective of fuel prices, we’re doing the sensible thing on the narrow body fleet side given the size of our narrow body fleet. I think the same goes for the wide body fleet.

Our next question comes from Hunter Keay - Stifel Nicolaus & Company. Hunter Keay - Stifel Nicolaus & Company: On pension you said you had no minimum required contributions next year. How has the funding status been impacted by the recent conditions in the market?

We formally update that analysis at the end of each year, so we don’t have the formal answer. But you can surmise from what’s happened in the markets that the funding status is down considerably from where it was at the end of last year. We’ve been working real hard to improve our pension funding status through funding and through returns that have exceeded our peer group. By the end of last year we were up to about 96% funded status. It’s down from there but moving day-by-day, moving today in fact. Hunter Keay - Stifel Nicolaus & Company: So the declines wouldn’t necessarily impact the potential cash obligation that you would have next year if you do readdress at year end?

Right. Not for 2009. Hunter Keay - Stifel Nicolaus & Company: On the financing I know your hands are tied with regard to confidentiality, but as you look at the sale leaseback and the backstop financing, can you at least maybe give us an indication if this is from maybe a new provider of financing or is this from an organization that you guys have used before in previous transactions? Any color there at all?

I can’t really give you any color unfortunately because we’ve got to comply with the confidentiality provisions. I will say it’s really important to have that financing in place in an environment like this and I credit [Bev Goulet] and our entire treasury team for doing a great job of getting out in front of this and being really aggressive about getting the financing lined up for the fleet replacement, which is something that’s going to be really good for our company going forward.

Our next question comes from Kevin Crissey - UBS.

Fx impact in terms of RASM this quarter and maybe on a go-forward business at current exchange rate?

Let’s see if I have that handy here somewhere. There was an impact. It was about two points of our third quarter transatlantic RASM improvement. About two points of it was driven by fx.

What about your ability to cut more international capacity? What is your ability there?

We have an ability to do so if we choose to go down that track. I think we’re going to have to watch the international environment very carefully. In recent quarters it’s been quite strong but I think we all know that the international part of our business and the airline business, transatlantic in particular, tends to be more cyclical than the rest of our business. As the global economies get softer, we’re going to have to keep a real close eye on what happens with that part of the business. As you saw from our booked load factor numbers, our advance bookings internationally are a little softer than they are for the system. I think you’ve seen some of the other airlines have added a lot of capacity across the Atlantic over the past few years and I think it remains to be seen whether there’s perhaps a little more capacity than we need right now.

In your prepared remarks you were talking about the difference in capacity international was flat to slightly down I thought was your overall number. What are you going to do? Park those aircraft? Just go from five flights to four flights? How would that work? It seems to me you have less flexibility on the international front given the long stage length and the size of the aircraft and so forth. How might that work?

It’s too early to say but if we chose to pull back on international capacity, there are lots of different ways to do it. You could fly fewer frequencies; you could pull some of the flying back into the domestic long-haul system. It’s also important to remember that we’ve got the Airbus A300 aircraft retiring in 2009 so that’s a meaningful chunk of wide body capacity that’s going to be coming out and some of that will be backfilled with 767s.

How did you get the 787 slots so early? Was it your relationship or was it that someone canceled?

We’ve been saying for a long time that by virtue of our long-term agreement with Boeing we have access to the 787s. This is just manifestation of what we’ve been saying.

Our next question comes from [Bill Mastora - Broad Point Capital]. [Bill Mastora - Broad Point Capital]: Tom, my question is for you. The aircraft that you’re going to take out of your system next year besides the A300s, are those all unencumbered or would they have debt attached to it that might suggest a future additional charge?

It’s a mixed bag. I don’t know that there’s anything that would drive an additional charge. Some airplanes are leased. Other than what we put in the press release about the A300s as we retire those, but other than that I’m not aware of anything that would drive an additional charge. [Bill Mastora - Broad Point Capital]: Do you have the flexibility if general economic conditions get worse to further ground other unencumbered aircraft? I’m assuming these would all be MD-80s. Correct me if I’m wrong here.

We have considerable flexibility and yes, the MD-80 would be the most likely candidate. [Bill Mastora - Broad Point Capital]: Are there any other aircraft that would be candidates? I’m just curious.

No plans at this time.

The only thing I might add there is the economics of the 737-800 potentially the 900 traded against the 757. I think it’s something we’re going to want to be looking at very carefully in the next couple of years because we’re looking at some stiff increases in stuff that would be a rounding error to you guys in terms of your modeling, but something that we’re paying attention to related to the costs on the rolls powered 757. So we’re going to be looking at those 757s in comparison to a new 737-800, possibly 900 and trying to decide whether there’s a better trade-off there for us going forward. [Bill Mastora - Broad Point Capital]: So it is safe to say, and this is just for capacity through the end of next year, that really all of these are unencumbered aircraft. Did I state that correctly Tom?

What are you defining as these? [Bill Mastora - Broad Point Capital]: On capacity reduction. Aircraft that is being put on the ground. In other words there’s no associated let’s say ETC or EETC that might be impacted is really what I’m getting at.

No, I don’t believe so. I think you’re materially correct.

Ladies and Gentlemen, members of the analyst and financial community, that does conclude your question and answer session for today.