American Airlines' parent AMR will record a non-cash impairment charge of about $1.1-1.2 billion during the second quarter to write down its Boeing MD-80 and Embraer ERJ-135 fleets - and certain long-lived assets - to their estimated fair value.
The company concludes that the carrying values of its MD-80s and ERJ-135s "are no longer recoverable".
AMR on 21 May announced plans to slash capacity and retire aircraft at its American Airlines and American Eagle units and initiate layoffs to offset soaring fuel prices and a weakening economy.
The company estimates that it will reduce its workforce commensurate with previously announced system-wide capacity reductions by December 2008, resulting in a charge of roughly $75-100 million for severance related costs. A portion of this may be recorded in the third quarter, it says, adding: "All severance related costs represent cash outlays and will be incurred over a period of up to 12 months."
Additionally, AMR expects to record other accounting charges related to these capacity reductions, "such as other disposal costs and other associated costs". It says it cannot now reasonably estimate the amount and timing of these charges.