American Airlines’ Asset / Liability Management Wyatt Crumpler Vice President, Asset Management American Beacon Advisors, Inc.

Asset / Liability Management Phase I – 1981 / 1982 Cash matched dedicated bonds for retirees – Using Treasury Bonds yielding 16.1% Cash matched “near retirees over age 55” – Using Treasury Bonds yielding 15.3% Asset allocation of 60% bonds and 40% stocks

Asset / Liability Management Phase II – 1987 Converted to dollar duration bond portfolio 50% of assets invested in 26-year duration strips – Hedged 100% of liabilities with 13-year duration Yield on bonds exceeded 9%

Asset / Liability Management Phase III – Early 2000s Converted 40% of strips to corporate bonds with year duration to introduce credit spread exposure (approx 150 bps) Better hedged corporate bond rate used by FASB Entered interest rate swaps to maintain duration and hedge ratio

Asset / Liability Management Phase VI –2002 Eliminated swaps due to concerns on leverage in “Enron” environment Reduced duration to 18 years Reduced bond allocation to 40% Resulted in hedge ratio of 40%

Asset / Liability Management Phase V – 2007 & 2008 Reintroduced swaps in 2007 to increase hedge to 50% Developed hedge ratio matrix based on corporate bond rates and funded status of the defined benefit plan

Asset / Liability Management Phase VI – 2009 to current Eliminated swaps in early 2009 as the spread between AA rates and swap rates widened Reintroduced swaps in mid-2010 to maintain a 40% hedge Reduced hedge to 35% in April 2011 and to 30% in August 2011 by removing swaps

Asset / Liability Management Corporate Bond Rate Funded Status (PBO) Below 5%5% to 7%7% to 8%Above 8% Below 65% 30%40%50%60% Below 75% 30%40%60%70% Below 85% 40%50%60%70% Below 95% 50%60% 70% Above 95% 60%70% Current Liability Hedge Matrix