AMR – Pleading Update 1/16/2012 – Bankruptcy

The Debtors filed a motion requesting that the Court further extend the deadline to file their (i) schedules of assets and liabilities, (ii) schedules of executory contracts and unexpired leases, and (iii) statements of financial affairs by an additional thirty (30) days – through February 27, 2012 – without prejudice to the Debtors’ right to request additional time should it become necessary.

The hearing on the motion is scheduled for January 27, 2012 at 10:00 a.m. (Eastern). Objections are due by January 20, 2012 at 4:00 p.m. (Eastern).

The Debtors filed a motion seeking entry of an order, authorizing them: (i) to reject certain leases (the “Leases”) for aircraft (including engines and other related equipment) (the “Excess Leased Equipment”); (ii) to transfer title to certain aircraft (including engines and other related equipment) (the “Excess Owned Equipment”) to the collateral trustee or other interested parties (the “Owned Aircraft Secured Parties”) under the documents governing the security interests; and (iii) to abandon the Excess Owned Equipment.

The Debtors state that as an ongoing component of the chapter 11 process, the Debtors have targeted significant cost savings and will continue to seek different methods and initiatives to reach their goals. Moreover, in view of the large number of aircraft American Airlines has on order, it seeks to accelerate its fleet renewal strategy. To meet these goals, the Debtors represent that they are analyzing the benefits of rejecting leases, selling and abandoning owned aircraft and engines, and contemplating methods for the return and surrender of rejected and abandoned aircraft and engines. As a result, the Debtors will seek to retire numerous aircraft and engines from their fleet through rejection and abandonment, of which this motion is a step in that process.

The Debtors assert that after reviewing the terms of the Leases, the Debtors have determined they are of no utility or value to them. Much of the Excess Leased Equipment has already been taken out of service; the remainder will be taken out of service on or before the applicable effective date of rejection. Consequently, the unused equipment is languishing in expensive storage space without generating any value for the Debtors’ estates and the Excess Leased Equipment is nothing more than a cash drain on the Debtors’ businesses. If the rejection of the Leases is approved, the Debtors assert that they will maintain sufficient aircraft and engines to operate their businesses and meet their passengers’ needs.

The Debtors state that they lack equity in the Excess Owned Equipment and the liens against the property exceed their value to the estates. In addition, the Excess Owned Equipment is in storage or has been ear-marked for storage. As such, the costs of storage, maintenance and labor associated with the Excess Owned Equipment would be burdensome to the Debtors’ estates, with little, if any, corresponding benefit to the Debtors or their creditors. Accordingly, transferring title to the Excess Owned Equipment to the Owned Aircraft Secured Parties will divest the Debtors of burdensome obligations and inure to the benefit of the Debtors, their creditors, and all parties in interest.

The Debtors state that the abandonment of the Excess Owned Equipment will not pose an environmental hazard and is not likely to cause a serious risk to the public. The Excess Owned Equipment is of inconsequential value and no benefit to the estates. The costs of storage, maintenance and labor costs associated with retaining the Excess Owned Equipment would be a significant burden on the Debtors and their estates. As such, the Debtors submit that the abandonment of the Excess Owned Equipment is in the best interest of the Debtors’ estates.

The Debtors have provided information on the exhibits to the motion that will assist the leased aircraft financiers and Owned Aircraft Secured Parties in retrieving the excess equipment. Such parties must remove the relevant excess equipment from the location designated in the applicable exhibit. If such parties do not retrieve the excess equipment within fifteen (15) days of the relevant effective date, such party will be responsible for the costs of storing such equipment and other attendant costs as determined by the Debtors, including the costs of insuring the relevant excess equipment. If such parties do not remove their excess equipment or make timely payments for storage, the Debtors may file a motion to compel removal of the excess equipment and/or payment of storage and other attendant costs.

The Debtors represent that to preserve the value of the excess equipment before the appropriate party takes possession, the Debtors will maintain their current insurance coverage and continue the existing storage maintenance program pursuant to the Debtors’ FAA-approved maintenance program, if applicable, until the earlier of: (i) the fifteenth (15th) day after the relevant effective date; or (ii) the date on which the appropriate party takes possession of the excess equipment. Thereafter, however, the Debtors will stop insuring and maintaining the excess equipment. If any of the excess equipment is non-serviceable, the Debtors will be under no obligation to repair such excess equipment to make it serviceable.

According to the motion, the Debtors will (i) upon effectiveness of rejection or transfer of title and abandonment, as applicable, or as soon as reasonably practicable thereafter, make available to the applicable party all “records and documents” (as defined in the Bankruptcy Code) in the Debtors’ possession related to the excess equipment (collectively, the “Aircraft Records”), (ii) as soon as reasonably practicable after entry of the Order, provide such party with reasonable access to the Aircraft Records and (iii) from and after entry of the Order, respond to reasonable inquiries regarding the Aircraft Records.

The hearing on the motion is scheduled for January 27, 2012 at 10:00 a.m. (Eastern). Objections are due by January 20, 2012 at 4:00 p.m. (Eastern).

The Debtors and the Official Committee of Unsecured Creditors (the “Committee”) have proposed a stipulated protective order that establishes procedures for protecting confidential information the Debtors share with the Committee. Confidential information (“Confidential Information”) means information not generally available to the public, including, but not limited to, information concerning the Debtors’ assets, liabilities, business operations, performance, structure, business practices, business plans, business ventures, intellectual property and trade secrets, financial projections, financial and business analyses and compilations, summaries, reproductions and other documents and studies relating to or using in hole or in part the foregoing whether prepared internally or by outside experts, commercially sensitive information, personal information including compensation information about the Debtors’ employees unless publicly disclosed and information relating to the Debtors’ contractual relationships, unless such information becomes generally available to the public or is or becomes available to the Committee on a non-confidential basis.

The Committee, which includes the current nine (9) creditors appointed by the United States Trustee (each such creditor, a “Member” and collectively, the “Members”), whether through their individuals designated to serve as primary and, if they choose, alternate representatives to attend Committee meetings (“Representative(s)”) or otherwise, will not directly or indirectly share any Confidential Information with any third parties, including, without limitation, the media or any employees, representatives or agents of the Member’s respective businesses, affiliates and entities (the “Committee Member’s Company”) who are not Representatives of Members. Representatives of a Member will include such persons, including counsel, financial advisors, employees and other advisors, who reasonably have a need to receive and review the Confidential Information in order to assist the Member in executing its duties as a Member of the Committee.

According to the proposed protective order:

(a) The Committee may share Confidential Information with legal counsel, financial advisors and other advisors engaged by the Committee (the “Committee Professionals”).

(b) Representatives may share Confidential Information with (i) the management of the Committee Member’s Company who, due to their duties and responsibilities, have a legitimate need to know such Confidential Information in connection with discharging the Member’s duties on the Committee, (ii) their respective legal counsel and financial advisors in connection with seeking counsel or advice to discharge the Member’s duties on the Committee, (iii) any professional retained by the Committee; (iv) regulators, auditors, designated legal and compliance personnel of the Committee Member’s Company for the purpose of rendering advice and guidance to the Representatives; (v) such entities that Members may be required to communicate with pursuant to law, including by subpoena or other legal process, by the rules of an applicable securities exchange or request of any congressional committee, joint committee, or subcommittee, with each such exception to be consistent with and subject to all laws and regulations pertaining to non-public information including public securities laws; and (vi) as otherwise authorized by the Debtors in writing.

(c) Nothing will preclude a Committee Member’s Company from engaging in business transactions with third parties, including but not limited to, customers and vendors who may also have business relationships with or may be competitors of the Debtors, or the use of public information about the Debtors for any lawful business purpose; provided, that Confidential Material obtained by a Member from the Committee may not be used in connection with such transactions.

(d) Professionals retained by a Member are deemed to represent that Member and will not be deemed to represent the Committee as a whole or any other Member.

In addition, the Committee may disclose Confidential Information to the following authorized recipients: (i) a witness who may testify concerning the Confidential Information at any deposition, hearing or trial subject to certain provisions; (ii) the Bankruptcy Court and its personnel; and (iii) court reporters employed in connection with proceedings in these Chapter 11 Cases (the “Confidential Authorized Recipients”).

The Debtors may also designate certain Confidential Information “Highly

Confidential – Restricted Dissemination Only” (“Highly Confidential Information”). Highly Confidential Information includes, but is not limited to, information or materials the Debtors believe constitute or contain material non-public information that is competitively sensitive and/or proprietary to the Debtors, or from which competitively sensitive and/or proprietary information belonging to the Debtors could be derived. Given the fiduciary and statutory responsibilities of the Committee, the Debtors and the Committee anticipate that this designation will be used by the Debtors only in appropriate circumstances and, in each instance, if requested, the Debtors will provide an explanation to the Committee’s attorneys for the rationale supporting the use of the designation. The Debtors are entitled to use the Highly Confidential –Restricted Dissemination Only designation to the extent the designated Information can be disclosed to some but not all Members of the Committee or in circumstances where the Debtors believe the designated Information should be reviewed by “Attorneys’ or Advisors’ Eyes Only”.

The Committee’s attorneys and/or advisors receiving the same may disclose Highly Confidential Information to the following authorized recipients: (i) the Committee’s other attorneys, advisor(s), or consultants; (ii) a witness who may testify concerning the Confidential and/or Highly Confidential Information at any deposition, hearing or trial subject to certain provisions; (iii) the Bankruptcy Court and its personnel; (iv) court reporters employed in connection with proceedings in these Chapter 11 Cases; and (v) any other person or entity that the Debtors and the Committee mutually designate in writing (the “Highly Confidential Authorized Recipients”). The Committee’s attorneys will instruct the Highly Confidential Authorized Recipients to treat the Highly Confidential Information in a confidential manner and in accordance with the restrictions on use and disclosure set forth in the protective order The Committee and each Member will also maintain a current list of all Highly Confidential Authorized Recipients which will be furnished to the Debtors upon request.

The Committee and the Committee’s attorneys are authorized to file documents under seal without further Order of the Court. Such documents will be released only as provided by order of the Court. Where possible, only those portions of filings that disclose Confidential Information or Highly Confidential Information will be filed under seal.

The hearing on the protective order is scheduled for January 27, 2012 at 12:00 noon (Eastern). Objections are due by January 27, 2012 at 11:30 a.m. (Eastern).

The Debtors filed a motion requesting issuance of an order extending the Debtors’ time to file notices of removal (the “Removal Period”) of the civil actions and proceedings in state and federal courts to which the Debtors are parties (the “Civil Actions”) from February 27, 2012, until the date an order is entered confirming a chapter 11 plan in the Debtors’ chapter 11 cases. The Debtors state that they are aware of in excess of 200 litigation claims pending in a variety of state and federal courts as of the petition date. Commencement Date, the Debtors are party to in excess of 200 pending Civil Actions. The Debtors claim they require additional time to consider whether to file notices of removal of the Civil Actions because the Debtors’ key personnel must assess these numerous lawsuits while concurrently administering these complex chapter 11 cases. The Debtors believe that the extension requested will provide sufficient additional time to for them to consider, and decide upon, removal of the Civil Actions.

The hearing on the motion is scheduled for January 27, 2012 at 10:00 a.m. (Eastern). Objections are due by January 20, 2012 at 4:00 p.m. (Eastern).

The Debtors filed a motion requesting authority to enter into agreements (“Agreements”) with various parties to modify the automatic stay to (i) allow claimants (the “Injury & Damage Claimants”) to prosecute certain claims solely to the extent of available and collectible insurance proceeds, and (ii) allow payment of indemnification claims of claimants (the “Indemnification Claimants” and together with the Injury & Damage Claimants, the “Claimants”) solely to the extent of available and collectible insurance proceeds, subject to certain conditions. The Debtors also request that the automatic stay be modified to allow payment of claims of certain of the Debtors’ professionals (the “Defense Counsel”) for prepetition fees and expenses, but solely to the extent of available and collectible insurance proceeds.

The Debtors represent that because of the nature of their business, they are subject to various claims for (i) personal injury and property damage (the “Injury & Damage Claims”), (ii) claims stemming from indemnification provisions in various leases and contracts (the “Indemnification Claims” and together with the Injury & Damage Claims, the “Claims”), and (iii) claims for fees and expenses of Defense Counsel in connection with defending against the Claims (the “Defense Costs”). According to the motion, most, but not all, of the Claims are subject to pending litigation. At the start of their bankruptcy cases, the Debtors were involved in excess of 200 proceedings relating to Claims in various jurisdictions throughout the world.

In connection with the operation of their business and to protect against the risk of litigation stemming from, among other things, the Claims, the Debtors maintain various liability insurance policies (the “Insurance Policies”) with numerous insurance carriers (the “Insurance Carriers”). The Insurance Policies provide coverage for all or a portion of any Claim or Defense Cost. The coverage available and collectible under the Insurance Policies varies by Insurance Policy. Under some of the Debtors’ Insurance Policies, the Debtors may be covered for up to 100% of (i) the liquidated final judgments or settlements entered in favor of Injury & Damage Claimants, (ii) Indemnification Claims, and (iii) Defense Costs. Under certain other Insurance Policies, the Debtors may be required to contribute a portion of any liquidated Claim or Defense Cost in the form of either a self-insured retention or a deductible. Moreover, how the Insurance Carriers effectuate payment under the various Insurance Policies varies from Insurance Carrier to Insurance Carrier and Insurance Policy to Insurance Policy. In certain situations, regardless of whether the Insurance Policy provides full or partial coverage, the Debtors pay Claimants directly and seek reimbursement from the Insurance Carrier. Under other Insurance Policies, the Insurance Carrier pays the Claimant and then invoices the Debtors for any applicable deductible or self-insured retention.

The Debtors state that many of the Claims against the Debtors are covered in full or in part by applicable Insurance Policies. As such, the Debtors anticipate a significant amount of requests to modify the automatic stay to be filed by Claimants with the Court. To avoid piecemeal litigation over such requests and to streamline the process, the Debtors seek authority to enter into Agreements with Claimants to modify the automatic stay to the limited extent necessary to enable Claimants to either prosecute their Injury & Damage Claims to final judgment or settlement (including commencing litigation with respect to a Claim), or seek payment for their Indemnification Claims, as applicable, subject to the certain terms and conditions. Additionally, to ensure that the Debtors have adequate representation with respect to the Claims, the Debtors seek authority to modify the automatic stay pursuant in order to allow Defense Counsel to seek payment for Defense Costs, but solely to the extent such fees and expenses are paid from Available and Collectible Coverage. The automatic stay will not be modified to allow Defense Counsel to seek payment for any portion of such prepetition fees and expenses that under one or more of the Insurance Policies are subject to a self-insured retention or deductible.

The Debtors propose that modification of the automatic stay for Claims be subject to the following terms and conditions (the “Terms and Conditions”):

a) All Claimants must seek consent of the Debtors to obtain modification of the automatic stay, and such consent must be memorialized by an Agreement;

b) Any Claimant who seeks to modify the automatic stay to proceed against Available and Collectible Coverage may send a request to the Debtors’ counsel;

c) As a condition precedent to executing an Agreement with the Debtors, a Claimant must agree to the following terms:

(i) Claimants may only seek to recover any liquidated final judgment or settlement or be paid, as applicable, with respect to the Claims solely from the insurance coverage, if any, available and collectible under one or more of the Insurance Policies that cover the Claims (the “Available and Collectible Coverage”);

(ii) The automatic stay will not be modified to permit a Claimant to attempt to recover from any party for intentional conduct or punitive damages;

(iii) Any final judgment or settlement obtained by a Claimant will be reduced by (i) the amount of any applicable deductible or self-insured retention under the applicable Insurance Policy, and (ii) any share of liability under the applicable Insurance Policy of any insolvent or non-performing insurer or co-insurer;

(iv) A Claimant whose Claim is covered under one or more of the Insurance Policies providing, in the aggregate, 100% of any liquidated final judgment or settlement, or indemnification payment, as applicable, will grant extensive waivers and releases to the Debtors and their estates from all claims, causes of action, and other liabilities that arise from the Claim, except to the extent of the Available and Collectible Coverage;

(v) A Claimant whose Claim is covered under one of the Insurance Policies requiring the Debtors to pay a self-insured retention or deductible, will proceed solely against the Available and Collectible Coverage and the automatic stay will not be modified with respect to any deductible or self-insured retention and the Claimant, or the Insurance Carrier, as applicable, will comply with all deadlines for asserting a general unsecured claim;

d) Nothing in the motion will be construed as an agreement by the Debtors to provide assistance to or to cooperate with the Claimants in any way in the Claimants’ efforts to prosecute or seek payment of their Claims or to recover from the Available and Collectible Coverage;

e) Nothing in the motion will be deemed or construed to impact, impair, affect, determine, release, waive, modify, limit, or expand: (i) the terms and conditions of any Insurance Policies; or (ii) any rights, remedies, defenses to coverage, and other defenses of any Insurance Carrier under or for any Insurance Policies (including the right of any Insurance Carrier to disclaim coverage), nor otherwise alter any Insurance Carrier’s existing indemnity payment obligations. Furthermore, nothing in the motion will affect the existing obligations of any Insurance Carrier to pay defense fees or expenses or the existing arrangements for the payment thereof;

f) Agreements must be filed with the Court and will not become effective until so filed;

g) Upon the filing of an Agreement by the Debtors with the Court, no further action by the Court will be required for the modification of the automatic stay, subject to the Terms and Conditions, to become effective.

The hearing on the motion is scheduled for January 27, 2012 at 10:00 a.m. (Eastern). Objections are due by January 20, 2012 at 4:00 p.m. (Eastern).

S. Jason Teele, Esq.

Member of the Firm

LOWENSTEIN SANDLER PC