CMAA Owners’ Forum May 2010 American Airlines Ken Bower, MD Facilities

1. CMAA Owners’ ForumMay 2010American AirlinesKen Bower, MD Facilities

2. AMR Capital Planning • An annual forecast of all capital needs They are grouped into one of the following categories: 1) business critical, 2) has a quick ROI, 3) a regulatory requirement or 4) improves the customer experience • Capital spending falls into the following six asset categories • Aircraft • Facility • Interior A/C Modification • Other A/C Modifications • Ground Equipment • Computer

3. PROPOSED PROJECTS 2010

4. PROPOSED PROJECTS 2010

5. Departmental Guidelines • If a firm is interested in doing work for American…it will go through a comprehensive prequalification process • Complete our standard qualification form and get that in front of the right person • Include all pertinent company information, i.e. staff, financials, experience, etc • AA requires that all qualified firms must have: • Airport experience • Project type of experience

6. Departmental Guidelines • We only use AA standard contracts • Normally, Initial project funding will provide for design services through the Design Development Phase • A&E agreement : compensation based upon DLM • cost estimate / schedule • Estimate is basis for creation of construction funding document used to gain company approval. • Over $25M …..must be approved by BOD

7. Departmental Guidelines • AA Project Manager Responsible for development of project’s business plan, i.e. project implementation/delivery • For those projects that exceed $10M, AA will typically secure additional resources to assist the Project Manager • Project auditor/accountant • Contract project manager • For those projects that exceed $50M we will secure supplemental staff via: • Program Manager • Construction Manager • Extended A&E Services

8. Recipe for Project Delivery • Selecting a project delivery method is a lot like ordering off a menu at a NY diner • Everyone here is aware that there are numerous methods and that the language and terms used for each can be confusing • Design-Bid-Build: The most tried and true way to contract for a project. Owners hires architect to design and prepare contract documents, general contractor then bid on the documents with the successful bidder being awarded a contract to build it. • Considered by American to be the safest option • In theory, it may be the slowest way to execute a project

9. Recipe for Project Delivery • Design-Bid-Build: (cont) • It is price driven and prices may reflect an artificially low bid/s • Owner must have in-house expertise and resources to play the game • Provides owner with desired checks and balances • Design –Build: Owner elects to secure services for design and construction from a single entity. • Faster project completion • Enhanced communications between A/E & contractor • Fewer administrative duties • A/E under contractor…owner loss of control over designer

10. Recipe for Project Delivery • Design –Build: (cont) • No checks and balances • Requires owner’s in house staff resources with an additional challenge • Construction Management: A method of delivery with the most variations There are three basic ways to use with the manager acting as an advisor, an agent or at risk constructor • CM-Advisor : Contractual relationship is with owner to oversee the designer and contractor • Something goes wrong…CM says “sorry” as he is not financially at risk • Additional cost to owner • More appropriate for large projects and owners without in-house resources • No guarantees to owner

11. Recipe for Project Delivery • Construction Management: (cont) • CM-Agent : Contractual relationship is with owner acting as its agent , CM administers the construction throughout the planning design and construction phases of the project. • Usually empowered to act in behalf of the owner, but, CM is not financially at risk for anything that may go wrong • Owner still holds separate contracts with designer and general contractor and/or various prime subs • CM not responsible for means or methods • Additional cost to owner • More appropriate for large projects & owners w/o in-house resources • No guarantees to owner

12. Recipe for Project Delivery • Construction Management: (Cont) • CM-at -Risk: Perhaps the most popular model with most owners The CM is hired by owner and engaged during the initial stages of design and ultimately becomes the general contractor • Owner gains expertise of builder early in the project’s development. • Removes any ‘mystery’ of pricing for the contractor • Cost and schedule of the project are guaranteed • Program Management: The PM serves an ‘owners representative’ in all aspects • Any company with restricted resources or is lacking in-house expertise • True PM is also completely free from any conflict of interest

13. Recipe for Project Delivery • So how many project delivery methods are there? • Traditional ‘Design-Bid-Build ‘and … • The ‘Team Approach’ • You can use any term you want….general contractor, design-builder, construction manager, program manager or any other names ….… • They all simply help describe how you want to assign design and construction responsibilities….and • They all work off of the customary owner-architect-contractor relationships

14. What AA’s Menu Looks like • So which project delivery system is best….from one owner’s perspective it is the one that : • Has the right People (integrity, confidence and trust) • Completes the project within Budget • Completes the project on Schedule • Has the ability to cost effectively Manage Change • Produces uncompromising Quality • Delivers a Safe work environment • Provides for DMWBE participation • Provides the Resources necessary to get the job done

15. This Owner Selected the wrong Delivery Method

17. Intro • Thank you……………… I do recall that there was a pre-AMR life for me …but time has blurred the details? • Following the suggested framework…I will start by touching upon AMR’s programs and plans related to capital construction • Slide 1 AMR Capital Planning

18. AMR Capital PlanningTalking points • The following two slides represent the majority of the projects that actually made the 2010-2011 Capital plan • Each department, division, station compiles its list of projects along with a brief description/scope of work…..this is often referred to as the “wish list” • Process begins each September and is completed in January when the final project list is reviewed with the BOD

19. Talking points slides 3/4 • Over 90% of the projects in any given year will be under $10M • The majority of the capital dollars spent in any given year will be spent at our “corner posts”….. • DFW….MIA….ORD…..New York…..LAX • This list reflects a projected CRE capital spending of $65M in 2010 and $42M in 2011 • In comparison we spent in: • 2005….$275M

20. A&E Selection Process • RFP’s are issued by the responsible project manager • Proposals are requested by invitation only and are evaluated and rated based upon a number of subjective as well as a number of quantitative measures: • People & related experience • Consultants & related experience • Hourly rates and total fee must be competitive • DMWBE participation with a goal of 22%

21. CRE Departmental Guidelines • Bid Threshold • Less than $25K…..local project (CRE not required) • $25k to $50K……CRE managed & can sole source the work • Excess of $50K……CRE managed and competitively bid • AMR uses Standard Contracts for professional services and construction • Stipulated Sum • Time and Material (GMAX, Cost Plus, Unit Price)

22. CRE Contractor Selection Process • AA Project Manager responsible for establishing list of contractors to be invited to bid. • All firms must have been prequalified • Previous experience with: • American • work on airport • projects of similar type and size • References: Firm and staff • Financial strength • Willingness to sign standard contract