Supplemental Declaration of Denise Lynn (related document(s) 2035)

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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ---------------------------------------------------------------x : In re : Chapter 11 Case No. : AMR CORPORATION, et al., : 11-15463 (SHL) : Debtors. : (Jointly Administered) : ---------------------------------------------------------------x REVISED SUPPLEMENTAL DECLARATION OF DENISE LYNN IN SUPPORT OF DEBTORS’ MOTION TO REJECT COLLECTIVE BARGAINING AGREEMENTS PURSUANT TO 11 U.S.C. § 1113 11-15463-shl Doc 2868 Filed 05/23/12 Entered 05/23/12 10:35:58 Main Document Pg 1 of 11

Transcript of Supplemental Declaration of Denise Lynn (related document(s) 2035)

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ---------------------------------------------------------------x

:In re : Chapter 11 Case No.

:AMR CORPORATION, et al., : 11-15463 (SHL)

:Debtors. : (Jointly Administered)

:---------------------------------------------------------------x

REVISED SUPPLEMENTAL DECLARATION OF DENISE LYNN IN SUPPORT OF DEBTORS’ MOTION TO REJECT COLLECTIVE BARGAINING

AGREEMENTS PURSUANT TO 11 U.S.C. § 1113

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TABLE OF CONTENTS

I. BACKGROUND ............................................................................................................... 1

II. CONTRARY TO THE ALLEGATIONS OF YEARLEY AND ROGHAIR, AMERICAN RESPONDED FULLY TO APA’S REQUESTS FOR INFORMATION ABOUT ITS FLEET ORDER. ............................................................. 2

A. The Capex Request. ............................................................................................... 3

B. The ROIC Request................................................................................................. 5

III. AMERICAN PROVIDED INFORMATION RELATED TO NON-LABOR SAVINGS. ......................................................................................................................... 6

IV. APFA ACCESS TO INTRALINKS DOCUMENTS........................................................ 7

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EXHIBIT LIST

No. Exhibit

1801 February 16, 2012 e-mail exchange between Matthew Chou and Benjamin Tisdell regarding priority diligence items

1802 February 22, 2012 e-mail from Andrew Chang to Matthew Chou regarding aircraft leases

1803 July 18, 2011 “Strategic Update” presentation (Intralinks Document No. 4.15) (UNDER SEAL)

1804 March 2012 “Fleet Replacement Economics” presentation (Intralinks Document No. 20.24) (UNDER SEAL)

1805 March 26, 2012 e-mail from Benjamin Tisdell to Matthew Chou and James Queen regarding new diligence items

1806 Renewing Our Fleet Slide 30 (Intralinks Document No. 4.13) (UNDER SEAL)

1807 777-200ER Retrofit (Intralinks Document No. 22.74) (UNDER SEAL)

1808 March 2012 Widebody Retrofit Plan (Intralinks Document No. 20.25) (UNDER SEAL)

1821 May 19, 2012 Project AMR Restructuring: APFA advisors 2

1822 April 21, 2012 Report Generated By Intralinks Identifying Documents To Which The APFA Advisors 2 Group Received Access

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I, DENISE LYNN, subject to the penalties provided by law for perjury, do hereby declare

the following to be true and correct on the basis of my personal knowledge and upon information

from the business records of American Airlines, Inc. in my custody and control.

I. BACKGROUND

1. On March 25, 2012, I executed the DECLARATION OF DENISE LYNN IN

SUPPORT OF DEBTORS’ MOTION TO REJECT COLLECTIVE BARGAINING

AGREEMENTS PURSUANT TO 11 U.S.C. § 1113 (the “March 25, 2012 Lynn Declaration”).

The March 25, 2012 Lynn Declaration describes in detail, among other things, (a) the

Company’s “Open Books, Open Doors” policy for the information sharing process; (b) when,

how, and why the Company adopted Intralinks, a web-based dataroom that the Company has

used to share documents and information with the Unions; (c) American’s meetings with Union

leaders and advisors, and its voluntary production of its reorganization Business Plan and other

detailed information regarding its proposals; and (d) American’s responses to the Unions’

extensive information requests.

2. In the March 25, 2012 Lynn Declaration, I provided a detailed description of my

employment history at American Airlines, Inc. (“American” or “the Company”). See

Declaration of Denise Lynn (dated March 25, 2012) ¶ 1, 2. Since I filed my last declaration, my

position has changed. On May 1, 2012, I took on the position of Senior Vice President, People

Department, and have assumed the responsibilities previously held by Mr. Jeffrey Brundage.

3. On March 27, 2012, American filed the March 25, 2012 Lynn Declaration in

support of its motion to reject the nine collective bargaining agreements (“CBAs”) between the

Company and APA, TWU, and APFA (APA, TWU, and APFA are referred to collectively

herein as the “Unions”).

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4. The March 25, 2012 Lynn Declaration accounts for information-sharing that took

place on or before approximately March 23, 2012. The Company has since continued to

diligently gather and produce documents and information in response to the Unions’ requests.

5. I make this Supplemental Declaration in order to respond to certain statements

alleging that the Company failed to provide certain information.

6. This declaration is based on my personal knowledge and experience, upon

information and materials provided to me at my request by others working under my supervision,

and upon records regularly kept in the ordinary course of American’s business that are within my

custody and control as Vice President, Employee Relations. I would be competent to testify to

these matters as a witness if called to do so.

II. CONTRARY TO THE ALLEGATIONS OF YEARLEY AND ROGHAIR, AMERICAN RESPONDED FULLY TO APA’S REQUESTS FOR INFORMATION ABOUT ITS FLEET ORDER.

7. Neil Roghair and Andrew Yearley claim that American failed to respond to two

requests for financial information from American relating to the Company’s July 2011 fleet

order: (1) Lazard’s February 9 request for a “Copy of 6-year model with new aircraft as capex

instead of operating leases in order to understand the return on incremental invested capital” (the

“Capex Request”)1; and (2) Lazard’s March 26 request for “all analyses (including management

and board presentations) that relate to the projected return on investment associated with planned

widebody and narrowbody aircraft purchases” (the “ROIC request”). See Roghair ¶ 95; Yearley

¶¶ 33-36 and Appendix B.

1 This request was submitted by Lazard on February 9. The same requests were transmitted on February 13 as an enclosure to a letter from APA negotiating chair Neal Roghair to Denny Newgren (the “APA/Lazard” requests). True and correct copies of Mr. Roghair’s February 13, 2012 e-mail and the referenced set of requests are submitted as AA Ex. 1550.

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A. The Capex Request.

8. With respect to the first request for a copy of the Business Plan Model with new

aircraft as “capex,” or capital expenditures, the Company responded on March 7, 2012 that

“American does not have documents or information regarding a 6-year model with new aircraft

as capex instead of operating leases.” Mr. Yearley asserts that American did not provide this

information. American never developed such an analysis, however, because the Company plans

to lease, not buy, most of its new aircraft. American’s Business Plan Model was based on the

Company’s plan that most new aircraft would be acquired through operating leases. Fulfilling

APA’s request would have required American to create a new model using the different

assumption that all aircraft would be purchased.

9. Mr. Yearley also suggests that the Company took too long to provide a response

to the request for a 6-year model using capex. The capex question, however, was one of 68

requests. Mr. Roghair’s February 13 letter indicated that APA “would appreciate AA’s response

on a ‘rolling’ basis to avoid unnecessary delays.” See AA Ex. 1550. During the information-

sharing process, Lazard identified certain items that were most time sensitive, so that American

could work on those responses first. While the Company worked to respond as quickly as

possible to all of APA’s requests, Lazard’s prioritization guided the order in which items were

handled. Lazard did not include the Capex Request in its list of most time sensitive items, which

the Company agreed to prioritize and answer first. The Company answered the Capex Request

more than two weeks before the 1113 Motion was filed.

10. Mr. Yearley’s declaration purports to summarize, but does not attach, any of the

emails that he references. The actual emails tell a different story. American previously

submitted Lazard’s (Mr. Tisdell’s) February 16 email as AA Ex. 1552. Rothchild’s (Mr. Chou’s)

response is submitted as AA Ex. 1801. As indicated in these emails, Lazard did not designate

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the request for a 6-year model with new aircraft as capex instead of operating leases as among

the “most time sensitive” requests.

11. On February 17, 2012, I attended a large group meeting requested by APA and

Lazard at which American and the APA representatives discussed multiple subjects. Among

other things, Lazard suggested that the Business Plan Model did not show enough of the

underlying detail with regard to aircraft contracts and financing arrangements. In response,

Candice Irvin and Ryan Solomon of American Airlines advised that all of these details were in

the Business Plan Model and explained that because APA is on the UCC Fleet Subcommittee,

APA representatives had access to all such information.

12. According to Mr. Yearley’s Appendix B, on February 22, 2012, Andrew Chang of

Lazard contacted Matthew Chou of Rothschild via email to “again emphasize the importance of

the recast Business Plan Model.” Mr. Chang’s email, AA Ex. 1802, actually sought “follow up”

on two items that he asserted were “briefly raised” during the February 17 meeting, which he

described as:

1. We understand the new aircraft are being financed with 10-year operating leases but we do not have the data to evaluate if they were purchased (i.e. capex) instead of leased. It was mentioned that the data was in the model, but as I look in the “Fleet” tab, it looks like the calc is simply an aircraft lease rate (blended within an aircraft type since it’s not a unit-by-unit build-up) multiplied by number of aircraft. We are evaluating the relative cost between leasing and buying.

2. What are the monthly lease rates for the new 737s (the ones on 10-year timeframe)? How do these compare to current market rates for 737s (which probably have a 20-25 year life)?

In other words, Mr. Chang’s email requested follow up on a “briefly raised” question about

whether there was data available in the model to evaluate if the aircraft were purchased instead

of leased; the request was not characterized as a “recast Business Plan Model.”

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13. On or about February 24, 2012, American provided to Lazard a July 2011 Board

presentation, Intralinks No. 4.15, which contained the qualitative rationale for the aircraft

purchase. While certain pricing information was redacted due to third party confidentiality

agreements, the document contained the net present value number that the Company calculated

at the time to quantify the benefit of the transaction. A copy of the July Board presentation is

AA Ex. 1803.

14. On March 7, 2012, American posted to Intralinks its response to the Capex

Request (previously submitted as AA Exs. 1556 and 1555). In response to Request 25, the

Company explained: “American does not have documents or information regarding a 6-year

model with new aircraft as capex instead of operating leases.”

15. On or about March 12, 2012, American also provided Lazard and APA with

access to a document entitled “March 2012 Fleet Replacement Economics,” Intralinks document

20.24. This document included information on the July 2011 aircraft order and discussed how

the Company analyzed fleet replacement economics. A copy of Intralinks document 20.24 is

AA Ex. 1804.

16. On March 13, 2012, James Queen of Rothschild followed up with Mr. Tisdell by

email, confirming that American does not have a model that reflects aircraft as capex instead of

operating leases, and that American would not create such a model. AA Ex. 1590.

B. The ROIC Request.

17. The second request at issue seeks a return on invested capital (“ROIC”) analysis

associated with widebody and narrowbody aircraft purchases. Lazard submitted this request for

the first time on March 26 in an email which specifically identified the question as “new.” AA

Ex. 1805. Mr. Tisdell stated, “We have added two new items (highlighted in yellow) in the

attached:

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5. Please provide all analyses (including management and board presentations) that relate to the projected return on investment associated with proposed (i.e. in the Business Plan) and in-process (e.g. seat purchases) product enhancements

6. Please provide all analysis (including management and board presentations) that relate to the projected return on investment associated with planned widebody and narrowbody aircraft purchases.

Mr. Yearley states in Appendix B of his declaration that the request for the ROIC associated with

planned widebody and narrowbody aircraft purchases was part of Lazard’s February 9 request,

but this is not correct. In fact, this request was first communicated on March 26, as corroborated

by Mr. Tisdell’s description of the request as one of “two new items.”

18. As of the time of the March 26 Request, however, the Company had not

performed a ROIC analysis because it planned to lease, not purchase, most of the new aircraft

contemplated in the Business Plan Model. Instead, American had conducted a net present value

analysis (“NPV”) of the fleet order and provided APA with information related to the NPV

analysis. Information regarding American’s NPV analysis appears in several documents that

were posted on Intralinks and available to APA and Lazard: AA Ex. 1806 (4.13 Rpl

Economics); AA Ex. 1803 (4.15 -BOD Fleet 07 18 2011_Redacted); AA Ex. 1804 (20.24 - Fleet

Replacement for PBGC); AA Ex. 1807 (22.74 WB Retrofit NPV); and AA Ex. 1808 (20.25 UCC

Widebody Retrofit).

19. As an accommodation to Lazard and APA, the Company agreed to prepare a

ROIC analysis for APA. American provided this analysis to Lazard on April 25.

III. AMERICAN PROVIDED INFORMATION RELATED TO NON-LABOR SAVINGS.

20. The declaration of Mr. Roghair claims that American failed to provide

information relating to an accounting of the non-labor savings American planned to achieve in

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bankruptcy. This is not correct. Mr. Roghair cites Lazard’s request for a “detailed breakdown of

the cost savings for AA in AMR’s plan for 2017 totaled and broken down into the following

categories. Show detailed elements of each category: (a) Labor; (b) Aircraft operating

efficiencies associated with a changed fleet mix; (c) Restructuring items other than 3a & 3b such

as renegotiation of fleet terms, facilities, vendors, professional fees, debt restructuring, vendor

freeze, promotions, and other.”

21. In response, American referred APA to Intralinks document 25.55 “BPM 3.0

Savings Summary (4-22-12).” It includes costs savings amounts associated with a number of

categories, including, but not limited to: Eagle, Supplier Concessions (AA), Supplier

Concessions (Eagle), Facilities, 1110 AC Rent & MTX, Marketing, Unsecured int Expense

Savings, Unsecured Tax Exempt Savings (Int Related), BNDES Depreciation, and Payable

Vendor Freeze. Mr. Roghair has contended that this document did not specify the depth of the

cuts individually or on average. However, that particular information was not sought by the

request.

IV. APFA ACCESS TO INTRALINKS DOCUMENTS

22. I understand that APFA has questioned whether its advisor Mr. Akins was granted

access to information contained in Intralinks document 25.35, entitled “2017 Frequencies.”

APFA’s advisors, including Mr. Akins, had access to 25.35 as of March 20, 2012.

23. Representatives from Jefferies & Company and Daniel Akins are members of an

Intralinks group (APFA Advisors 2) which received access to 25.35 on March 20, 2012. AA

Ex. 1822 is a report generated on or about April 21, 2012 by Intralinks showing a list of the

Highly Confidential documents to which the APFA Advisors 2 group received access, and the

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AA Exhibit 1801

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AA Ex. 1801

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AA Ex. 1801

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AA Ex. 1801

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AA Ex. 1801

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AA Ex. 1801

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AA Exhibit 1802

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REDACTED

AA Ex. 1802

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AA Ex. 1802

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AA Ex. 1802

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AA Ex. 1802

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AA Ex. 1802

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AA Exhibit 1803 **Filed Under Seal**

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AA Exhibit 1804 **Filed Under Seal**

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AA Exhibit 1805

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REDACTED

AA Ex. 1805

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AA Ex. 1805

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AA Ex. 1805

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AA Exhibit 1806 **Filed Under Seal**

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AA Exhibit 1807 **Filed Under Seal**

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AA Exhibit 1808 **Filed Under Seal**

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AA Exhibit 1821

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2

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