SecProbe.io

CORRESP
1
filename1.htm

    arcorresp08.htm

May
      21,
      2009

    VIA
      EDGAR

    David
      R. Humphrey,
      Accounting Branch Chief

    Division
      of
      Corporate Finance

    U.S.
      Securities and
      Exchange Commission

    100
      F Street
      N.E.

    Washington,
      DC  20549

    Re:
      AMR Corporation

    Form
      10-K filed for the year ended December 31,
      2008

    Filed
      February 19, 2009

    File
      No. 1-8400

    Dear
      Mr.
      Humphrey:

    This
      letter sets
      forth AMR Corporation’s (AMR or the Company) responses with respect to the
      staff’s comment letter dated May 8, 2009 regarding AMR’s Form 10-K for the year
      ended December 31, 2008.  Both the staff’s comments and AMR’s
      responses have been included.

    Item
      8 –
Financial Statements and Supplementary Data

    Notes
      to
      Consolidated Financial Statements

    Note
      7 –
Financial Instruments and Risk Management

    Fuel
      Price Risk
      Management

    We
      note the
      disclosure with respect to your estimate that during the next twelve months
      you
      will reclassify from Accumulated other comprehensive loss into earnings
      approximately $711 million in net losses (based on prices as of December 31,
      2008) related to your fuel derivative hedges, including losses from terminated
      contracts with a bankrupt counterparty and unwound trades.  In this
      regard, since the terminated contracts and unwound trades transpired during
      2008, please tell us what accounting literature you relied upon to arrive at
      the
      conclusion that you should reclassify these amounts over the next twelve months
      instead of during 2008.  Additionally, please reconcile your
      accounting policy, which indicates that you discontinue hedge accounting if
      you
      decide to discontinue the hedging relationship, to the accounting you applied
      to
      terminated contracts and unwound trades.

    Response:

    As
      part of the
      Company's risk management program, it uses a variety of financial instruments,
      primarily heating oil option and collar contracts, as cash flow hedges to
      mitigate commodity price risk.  These instruments qualify as cash flow
      hedges under Statement of Financial Accounting Standards No. 133 Accounting
      for
      Derivative Instruments and Hedging Activities” (SFAS 133), and thus, the
      derivative instrument portfolio is marked-to-market on a monthly basis with
      the
      increase or decrease in the value of the portfolio reflected on the balance
      sheet as an increase or decrease to the fuel derivative asset or liability,
      as
      appropriate.  The effective portion of the changes in fair value is
      recorded in other comprehensive income (OCI), as required by SFAS 133, and
      deferred until the underlying forecasted transaction has occurred (the purchase
      of jet fuel), while the ineffective portion of these changes is recorded to
      fuel
      expense.  In light of the Company’s hedging levels (currently at
      approximately 37% of forecasted fuel usage), the likelihood of the forecasted
      transaction not occurring is minimal.

    The
      $711 million
      represents losses deferred in OCI related to our fuel hedging program (based
      on
      prices as of December 31, 2008) that will be reclassified to earnings as the
      forecasted transaction (the purchase of jet fuel) occurs throughout
      2009.  This amount includes deferred losses on unwound trades and
      terminated contracts that transpired during 2008.

    First,
      in an effort
      to cap losses on certain trades, on December 23, 2008 (the measurement date),
      the Company entered into new derivative instruments to “effectively” terminate
      certain existing instruments that were in a loss position.  As of that
      measurement date, the Company de-designated the old trades as cash flow hedges
      thereby discontinuing hedge accounting prospectively. Changes in the market
      value of the old trades and new trades are recorded to other income/expense
      until settlement of the instruments.

    In
      accordance with
      paragraphs 31 and 32 of SFAS 133, amounts deferred in OCI for the original
      contracts through December 23, 2008 should be reclassed to earnings in the
      period in which the forecasted transaction affects earnings.  As the
      forecasted transaction is still probable of occurring, the amounts have been
      deferred in OCI until the underlying jet fuel usage takes place, which will
      occur throughout 2009.

    Second,
      the
      bankruptcy of one of our counterparties triggered the termination of the
      derivative contracts and therefore we discontinued hedge accounting
      prospectively.  However, such amounts deferred in OCI related to these
      contracts will be reclassed to earnings as the forecasted purchase of jet fuel
      is still probable of occurring.

    The
      Company’s
      accounting policy for derivatives states, “The Company discontinues hedge
      accounting prospectively if it determines that a derivative is no longer
      expected to be highly effective as a hedge or if it decides to discontinue
      the
      hedging relationship.”  This is the accounting applied to both
      terminated and unwound contracts in Form 10-K for the fiscal year ended December
      31, 2008.

    AMR
      acknowledges
      that the adequacy and accuracy of the disclosures in its filing with the
      Commission are the responsibility of the Company.  The Company
      acknowledges that staff comments or changes to disclosures in response to staff
      comments do not foreclose the Commission from taking any action with respect
      to
      the filing.  The Company also acknowledges that staff comments may not
      be asserted as a defense in any proceeding initiated by the Commission or any
      person under the federal securities laws of the United States.

    We
      appreciate the
      staff’s assistance in this process and would be pleased to discuss with you at
      your earliest convenience any additional comments the staff may
      have.

                Very
      truly
      yours,

                 /s/
      Thomas W.
      Horton

                 Thomas
      W.
      Horton

                 Executive
      Vice President and Chief
      Financial Officer