Ladies and gentlemen, thank you for standing by. Good afternoon, and welcome to the AMR Second Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. We are very pleased to have on the call with us today, AMR's Chairman and Chief Executive Officer, Gerard Arpey; the President of AMR and American Airlines, Tom Horton; and Senior Vice President and Chief Financial Officer, Bella Goren. And here with our opening remarks is AMR's Managing Director of Investor Relations, Chris Ducey. Please go ahead.

Thanks. Good afternoon, everyone, and thank you for joining us on today's AMR earnings call. During the call, Gerard Arpey will provide an overview of our performance and outlook, and then Bella Goren will provide details regarding our earnings for the second quarter along with some perspective on the third quarter and the full year of 2011. After that, we'll be happy to take your questions. [Operator Instructions] 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 aa.com. Finally, let me note that many of our comments today, including statements regarding our outlook for revenue and costs, forecasts of capacity, traffic, load factor, fuel costs, fleet plans and statements regarding our plans and expectations, 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 2010 annual report on Form 10-K and our most recent 10-Q. And with that, I'll turn the call over to Gerard.

Thank you, Chris. Good afternoon, everyone. As you've seen from our earlier announcements, we have a lot of significant news to cover today, so let me take just a few minutes to hit the highlights. All of us know that our company and our industry face a long list of challenges at American. And even as we work to address the immediate hurdles of an uncertain economy, much higher fuel prices in a very competitive industry environment, we are also squarely focused on building a successful company for the long term. So with the major decisions we are announcing today, we are continuing to execute under our Flight Plan 2020 framework and are determined to position our company for long-term success. At the same time, we are working diligently to address the current environment. First, I'd like to cover today's news regarding our landmark fleet deal with 2 outstanding partners, Boeing and Airbus, and our next steps with American Eagle. Both of these announcements are major developments in our plan to position American Airlines to compete vigorously. Over the last couple of years, we’ve significantly strengthened our flexibility to make sensible investments by completing over $6 billion of financing in the midst of the deepest recession in a generation. We’ve dramatically restructured our network with over 98% of our capacity now touching our 5 cornerstone cities. And we launched joint businesses with British Airways and Iberia across the Atlantic and Japan Airlines across the Pacific. And these are just a few examples of the foundational changes that we are making and continue to make. Today, we are taking another seminal step forward by announcing plans to significantly accelerate our fleet renewal efforts. The nature of the transactions we've been able to structure are certainly unprecedented in our company's history and…

Thank you, Gerard, and good afternoon, everyone. As you have seen in our press release this morning, our loss in the second quarter was $286 million. This compares to a loss of $11 million in the second quarter of last year. We did not call out any special items in the second quarter either this year or last year. Thus my comments this afternoon about our results and future outlook will not include a reference to any special items. As the results indicate, the second quarter was a challenging period for us. Much higher fuel prices drove almost $525 million in additional fuel expense year-over-year. In addition, the impact of extreme weather at our DFW hub and the ongoing effects of the earthquake in Japan represented an estimated combined revenue impact of about $60 million in the second quarter. In light of the current environment, we are announcing a number of actions to improve our financial performance, which I will cover in more detail in a few moments. As we are taking action to address a number of challenges in the near term, we are also taking bold steps to strengthen our company's future. We are confident that we have a strong plan, and we also recognize that we must take immediate action. Let me start with our efforts to address our near-term challenges by adding more detail to some of the items Gerard mentioned. In terms of capacity, in addition to canceling non-strategic, high-cost flying such as San Francisco to Honolulu, we are looking carefully at our scheduled flying for the winter season. In particular, we are evaluating our early 2010 transatlantic capacity in conjunction with our joint business partners. In the Pacific, we have a flight to the DOT for a slot waiver at Tokyo's Haneda Airport through…

[Operator Instructions] First question comes from the line of Mike Linenberg from Deutsche Bank.

I guess 2 questions here. With respect to the spinoff of Eagle, is that -- how is that structured? Is that a partial spin? Is that a full spin? Any light you can shed on that would be great.

Well, Mike, what we announced today was our intention to spin off Eagle. And the presumption there is that it would be a full spinoff of the company. And we'll file the Form-10 with the SEC in short order, and we have not foreclosed on the opportunity of a sale. were we to conclude that was in better interest of our AMR shareholders, but clearly headed down the tracks to a full spin.

Okay. And then just secondly, when I look at your margin performance, and thus far you're the only to report, but if we look at sort of where the estimates are out there, the last couple of quarters, it looked like that there was definitely some convergence between you and the others, although it feels like this last quarter that the gap has widened again. And I didn't know if there was anything -- you mentioned Japan, and I know that impacts some of your competitors and some weather in Dallas. I wasn't sure, is it -- was anything maybe related to what's going on, on the GDS front, or maybe just the fact that you had a pretty meaningful ramp-up in -- flying out of LAX, maybe there's some geography issues? What -- was there anything that was maybe a driver or some of the drivers behind that?

Mike, I'll take that one. And in addition, to kind of as you point out, we did have some weather impacts. We also kind of referred to the fact that our capacity was lower than we had originally planned so that put a little bit more pressure on our cost. And in general, I would say we are taking action both in the short term, and as today's announcements point out, we're at a disadvantage with respect to our fleet fuel efficiency, and so those impact -- impacted us to a considerable extent. So the GDS issue, I would say, is not what we're referring to as far as the drivers.

Your next question comes from the line of Dan McKenzie from Rodman & Renshaw. Daniel McKenzie - Rodman & Renshaw, LLC: I'd like to circle back on the potential network changes that you mentioned in the prepared remarks. It does seem like there's some low-hanging fruit that could be restructured domestically. And I guess when I peel back the onion on AMR's network, I am seeing capacity up double digits in at least 6 of your top 15 markets. The common theme in each of the 6 markets is increased exposure to low-cost competition. I guess, what I'm taking away from the prepared remarks is possible capacity adjustments in 2012. How should we be thinking about those? And in particular, what if anything is holding AMR back from taking a more aggressive approach to cutting unprofitable flying?

So Dan, I would kind of just refer to maybe a 5-year history on the capacity changes and the fact that if we look back to 2006, our capacity is down almost double the other major legacy network carriers. And I think the way we look at our network, where we stand today, that is not what is going to yield us a better result and so I think that on a year-over-year basis, it's sort of one look. But if you look at a 5-, 6-year trend, we stack up pretty well versus the industry and shown considerable capacity discipline.

Dan, this is Tom. I would just add to that. You alluded to us growing or getting stronger in some of the top markets. Well, that is in fact our strategy. And so the flip side of that is that you would see us maybe pulling down some of the markets who we view as less strategic, that's sort of the essence of the cornerstone strategy. So that's what we're doing and that shouldn't come as a great surprise to anybody, and we think it’s the right strategy for the long term. It is a big change in our network, and that's what we've been doing over the past couple of years. At the same time, we're -- in addition to making the adjustments that Bella referred to, we are making some adjustments in terms of the way we just scheduled the airline, which I think are going to be quite positive and that is in terms of reducing capacity on days of weaker demand and yield. So in the fall, mainline American will cancel 3 -- about 270 departures targeted at weaker travel days, and that will be sort of pull downs on Tuesdays and Wednesdays and Saturdays. And I think that's going to allow us to improve our unit revenue performance and improve our profit margins as well. So I think there are smart things to do for the long term, but think of those as day of week reductions as opposed to pulling back from markets that are important to us. Daniel McKenzie - Rodman & Renshaw, LLC: I understand. I guess, for my second question here, under the scenario where AMR's content becomes invisible to corporate travel managers from the Sabre dispute, is it logical to conclude corporate travel managers are no longer obligated to honor their market share obligations? I guess what I'm getting at is there does seem to be some material revenue risk from the dispute. And I'm hoping you could just help me understand that revenue risk a little better if revenue risk in fact even exists.

Dan, I guess, I'll get started on that answer. And at this point, we are fully available in the GDSs, and so I think it probably would not be productive to speculate about various outcomes. We do feel that we have a strong position and certainly pursuing all of our options through legal channels and intend to do so and believe that our position is pretty strong. So without speculating further, I would just say that our intent is to manage our content and to do so wisely.

Dan, this is Gerard. Look, there's no secret to the fact that there is enormous revenue at risk here, and there are enormous stakes in the outcome of these discussions with the GDSs. And that's why, candidly, they have wound up in court because what we're trying to do is break some of these monopolistic practices. And whether or not we will be successful remains to be seen but there's no doubt there's a tremendous amount at stake.

Your next question comes from the line of Hunter Keay from Wolfe Trahan. Hunter Keay - Wolfe Trahan & Co.: So can you just verify that the pilot contract does not allow for the operation right now of the NEOs, the 777-300ERs and the 787? And I guess, if so doesn't that kind of just give them -- give the pilots a significant bargaining chip in these negotiations?

Hunter, I think, using the language, doesn't allow, is a bit strong. I do think it's fair to say that we don't have rates of pay for Airbus and narrowbody airplanes. But we certainly have the equivalent for 737s. And so I think that the fleet plan that we announced today should really be viewed as really the potential catalyst for a restructured pilot agreement that will allow American to be much more competitive than we are today. So I don't necessarily come at it the way that you did, but I would acknowledge that we don't necessarily have those rates of pay in the contract. But I have no doubt that by 2013 when we take delivery of the first Airbus that, that issue will be behind us and behind us in a satisfactory way. Hunter Keay - Wolfe Trahan & Co.: Okay. Can I get a little bit more color from you guys in terms of sort of how to model this cash commitment we talked about briefly in the call this morning? But when you say these aircraft are fully financed, I mean, is there a PDP portion that's included in that? I mean, obviously, there's no cash CapEx outlined for the purchase prices but maybe some color on how to model 2012 CapEx and maybe in a longer-term basis, where this is going to impact the cash flow statement. It will be very helpful.

Hunter, I'll ask my colleagues to jump in here. But the terms under these deals are confidential. But we feel very, very good about the PDP structure and other sorts of things that tend to go with these deals. We feel very, very good about what we've structured with both companies in comparison to what we've had in the past and what we believe our competition has. So we actually look at it going forward in a very positive light relative to where we were before this morning's announcements.

And I might just add for folks who maybe weren't with us this morning that the deal -- the fleet deals we've announced today include $13 billion of operating lease financing, which really covers all of the current generation deliveries, 230 airplanes, which run out to 2017 so essentially all of our fleet replacement and growth to the extent that we choose to do that is covered by the financing of these deals, 100%.

Your next question comes from line of Bill Greene from Morgan Stanley.

Just one point of clarification on that. If you found better financing outside of this deal, could you use it?

Those kind of terms are confidential, Bill.

You don't -- I just didn't know if you had an option to keep looking for -- or is this backstop, in other words, or is this something that is -- just it's done, this is it, no more, we're not looking?

We just don't have the option to talk about it.

Okay. Can you -- you mentioned in the conference call earlier today that there was -- that you kind of modeled out the complexity cost and that this deal sort of more than offset that. Can you give us a sense for the magnitude of the complexity cost, how do we think about putting those into the model?

It's modest. It's net of the rebates and coverage we got from the suppliers, I would say on the order of less than $1 million an airplane.

Okay, because we had a pretty big effort to simplify the fleet. I was under the impression that complexity costs were much bigger than that. Maybe it's because the fleet was more complex; I'm not sure.

Well, one thing you've got to take into account here is that today, our domestic fleet, it's all Boeing, it's also all disparate. We have MD-80s, 737s, 757s, and 767-200s. So while we've been trying to simplify, and it's much simpler than it was, going to 2 families is a whole different thing so 2 families, the Boeing family 737s and the A320s, inside of that family we’ll have a common cockpit, common training, common engines, common parts, common maintenance. That's going to be -- that's going to be actually a pretty good layout for us.

Okay, that's fair. And just one quick follow-up, just on the labor issues, it sort of sounded like maybe there's some movement here. When we think about kind of the big sort of differential -- pensions are obviously a big part of it. Is it too much to hope that there could be any sort of movement afoot to address some of the longer-term pension consequences here as a result of this potential growth that we have for some of the unions, or how do I think about what you can do with pensions?

Well, Bill, I think, the way that I would think about it is -- I think I would think about it differently for active employees versus employees not yet on the payroll so I think clearly for what we affectionately refer to the unborn, we're talking about pension plans that mirror the market. And so across all of our labor groups, that's pretty much what we have on the table with organized labor. And when you look at benefits -- structural benefits, the biggest place where we're off market is actually not pensions. Because if you look at our defined benefit pension plans over the long run and you take their cost as a percentage of salary, you'll find that, that math leads to about 5%, 6% in terms of pension cost over time. And if you look at what the former bankrupt companies have put in place that terminated or froze their DB plans. Many of them are approaching -- matching DC kind of contributions that are headed in that direction. So we don't look at, from an ongoing standpoint, our active employee DB plans necessarily as the biggest structural disadvantage we have. I think the bigger structural disadvantage we have is that our active employees do not contribute nearly as much to their medical plans, their medical contributions, as the other airlines. And certainly, our retirees are still being paid retiree medical benefits. And for all of the bankrupt companies, they pretty much wiped that out in its entirety so order of magnitude, that's $200 million, $250 million a year that we're still paying versus the other guys that's virtually nothing. So for active employees, we are talking to them, not about wiping out their retiree medical benefit but having a contribution for that benefit that more looks like what they have seen in their active career. And then of course for people who don't work here yet, we would change that in its entirety. So I hope that gives us some flavor for how we're thinking about that.

Your next question comes from the line of Jamie Baker from JP Morgan. Jamie Baker - JP Morgan Chase & Co: On the Eagle, what's the amount of debt that can realistically be spun out along with the divestiture? I'm assuming you have a sense for this and the potential legal capitalization. And do you expect that, that debt would remain recourse to American. I'm trying to get at whether the spin reduces the mother ship's financial burden.

Jamie, it's Bella. We will be filing the SEC document within the next month, and it will provide more information on the actual transaction. All that we have announced today is the intent to take that next step and proceed with the spinoff but have not disclosed any specifics at this point. Jamie Baker - JP Morgan Chase & Co: Okay, fair enough. And a follow up on Mike's earlier question. What's your confidence that the margin gap to the industry -- and just to add some numbers around that, it does appear to be worse in the second quarter than at any point in the last 15 years. What's your confidence that this quarter was, in fact, an outlier and that from here, things do generally start to get better, and sort of at what rate and what magnitude are you targeting?

Well, Jamie, obviously, it is a huge priority for us. We've outlined some things that were specific to this quarter and also kind of shared with you what our plans are for the remainder of the year. And what I can tell you is that our entire team is working very hard to keep closing that gap and improve our results both in the immediate timeframe, as well as in the long term.

Your next question comes from the line of Helane Becker from Dahlman Rose. Please go ahead. Helane Becker - Dahlman Rose & Company, LLC: Can you comment with respect to training costs for the A320 on the pilots and how that will be handled? Do you have to pay for that, or will the manufacturers pick up this cost?

Helane, this is Tom. As Gerard mentioned earlier, we really can't comment too much on the nature of the agreements with the manufacturers, other than to say there are incremental training costs associated with introducing a new fleet type, and I alluded to that a minute ago. But it is baked into the economics that we shared with you all this morning, which are overwhelmingly positive for replacing present airplanes with these new generation airplanes. So it's a big win for us, and we obviously drove as a hard bargain as we could with the manufacturers so you can bet that we took that into account. Helane Becker - Dahlman Rose & Company, LLC: Okay. And then just on my follow-up, as we think about adding this and adding the AerCap deal to our models, we should be thinking about these as being off-balance sheet debt so I guess, balance sheet debt declines, off-balance sheet debt increases. Do you have a number of what -- at the peak of this CapEx program -- or this refleeting program -- your debt’s going to look like or your balance sheet will look like, maybe?

So Helane, at this point, I think what we can share with you is that the financing and the structure of the deals in the $13 billion in financing, as we look at our capital plan over the next few years, it looks better than what we had anticipated before, significantly better. And so this year, as we pointed out, it will be the same even with these deals. And going forward, it is better than what we had anticipated. So overall, it's a very positive deal for us.

Your next question from the line of Glenn Engel from Bank of America.

A question please on RASM gains. One, if I look at you versus the industry domestically, you're up 4.9%, the industry was up 8.9%; if I look at the Atlantic, you were down 4.7%, the industry was up 5%. Why are we seeing such big gaps? And will that change?

Glenn, your question on the revenue side is obviously a really important one. And what I can share with you is that we’re continuing to maximize our joint business agreement value. And as we've said all along, there is going to be a ramp-up period and some growing pains as we synchronize our deals, and also as we are able to convert our corporate accounts to the joint deals so that's part of the answer. Another aspect to it is we think we, I think, have stated it publicly is that over the Atlantic, there's been too much capacity. And so we are pleased to see that, that is changing. And we think it will be a stronger marketplace going forward.

I guess, I'm still puzzled why the RASM gap would be getting worse in the June quarter. You would have thought it would start close some, and it really wouldn't really explain why domestically there's that big RASM gap.

Well, $60 million of it is explained by the weather impact and the earthquake effect.

That’s about 1 point.

I'm sorry?

That's about 1 point.

I guess, we'll have to see where everyone else comes in, but what we're seeing for the remainder of the summer is better than our June trends.

Finally, can you clarify with me the capacity? The numbers that you show do not include some of the more recent cuts like Haneda or San Francisco or -- I was a little bit confused.

Okay. So it includes -- it does not include Haneda, but as we -- so some of the other adjustments is how we're going to achieve the prior capacity cuts that were announced that have been shared previously. The additional one is Haneda, and in the fourth quarter, it's about 0.5 point reduction in our fourth quarter capacity, incremental to what we have previously provided.

Your next question comes from line of Gary Chase from Barclays Capital.

Let me just ask a quick clarification question and then one on contingencies. You mentioned that the summer months is better than June, now a couple of times, Bella. What -- can you give us just a -- I guess, we can estimate it. But can you give us a sense of what June was, so we get our arms around what's better than what -- would it be better than the quarter?

I am not sure, Gary, that I can -- that I have it in front of me to provide that. But I would certainly say that June was a bit disappointing for us versus May, for example.

Okay. And then, the main question I have is about contingencies. I also was intrigued, Gerard, with the way you addressed a question about labor earlier. And I guess what I'm wondering is, is any part of the aircraft order contingent upon achieving the convergence that you've been describing on the labor cost side?

Gary, I think contingent is not necessarily the right word because we've committed to the airplanes. But I think, there's a real opportunity here for our labor groups since our interests are aligned to work together to make the most of this transformational opportunity that's in front of us. So I think it's a great opportunity for our pilots at TWU and our flight attendants to recognize the opportunity that's in front of them, and hopefully we can capitalize on it.

And then maybe in a similar vein, just curious if there's any thought that the Eagle spin would require some form of concession from any stakeholder or whether that's something that you're going to pursue regardless of that.

I don't know of any labor obstacle that exists, Gary. Although if there is one, maybe it has not manifested itself yet. But as we have thought it through, and we've clearly been transparent with all of the unions at American and at American Eagle. And as we sit here now, I don't see any obstacles.

Sorry, Gerard, maybe I didn't word that right. I guess, I meant you're not -- from your vantage point, you don't need them to -- there's no stakeholder that needs to make a concession in order for you to proceed with that transaction, a cost reduction or debt relief or anything like that? You're going to do this regardless.

Yes. That's accurate. Although I want to be sure when you see what comes out that you look back on this question and we've answered it clearly, I think there is going to be the opportunity for labor at Eagle perhaps to do some things that might make the deal better for American Eagle. But irrespective of whether or not they take that opportunity, we're going down this path, if that helps.

Ladies and gentlemen, this will be our last question for this session of the analyst Q&A. That question will come from the line of Kevin Crissey from UBS.

Can you guys just lay out the CapEx aircraft, other and scheduled debt maturities this year and next?

Yes, Kevin. If you just give me one moment, I am going to go back to my notes so we can do that accurately. Okay so for the year, our CapEx is about $1.7 billion, of which about $300 million is non-aircraft related. That's for 2011.

Yes. And how about for 2012?

That at this point, we have not provided guidance on.

And you had $2.5 billion of scheduled debt maturities this year.

Yes, that's correct.

And some of that becomes unencumbers from aircraft that maybe could be refinanced, is that right?

Absolutely, yes. Throughout the remainder of the year, we do have aircraft that becomes unencumbered.

Okay. And so it's safe to say that perhaps this new deal reduces your CapEx demand next year. Because I'm looking at it, and I'm looking at your results, and I say, "Okay, you raised -- your debt went up a decent amount but your cash didn't." And if that continues over a decent amount of time, you run out of cash so -- and particularly when you've got $2.5 billion of that to pay down, and you've got $1.4 billion of CapEx, and your losses are about the same size as your depreciation, there's not just a lot of cash flow there. So any guidance you guys could give toward this would be great because I can't imagine I'm the only one thinking about where your cash goes to by the end of 2012. But these planes, whether or not, they're good or not, you've got to get to that point first.

Kevin, that's a fair question. And now that I understand kind of what you were looking at a little more closely, I guess, I'll point out to the fact that as we structured these agreements, we were very mindful of what our prospects are for capital spending. And we're very thoughtful in doing the finance, and the deals that we struck today make our plan -- prior plans look better.

Okay. When would we expect to get guidance on kind of the 2012 type…

I think we typically provide in the fourth quarter -- or in the third quarter. So in a few months, we'll be able to share more with you about capital spending for next year.

Ladies and gentlemen, members of the analyst and financial community, that does conclude your question-and-answer session for today. After a brief break, we will begin the media Q&A session.