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CMAA Owners’ Forum

May 2010American Airlines

Ken Bower, MD Facilities

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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

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PROPOSED PROJECTS 2010

Project Name Asset Type 2010 $,000 Dept Location

BOS Admirals Club Facility $ 2,200 MKTG BOS

BWI GSE & Cargo Relocation Facility 1,050 Cargo BWI

HDQ Campus Furnishings Facility 7,500 CRE HDQ

HDQ FTA Central Plant Analysis Facility 388 CRE HDQ

HDQ TCC Refurbishment and Remodel (3 Yr Plan) Facility 1,000 CRE HDQ

JFK Admirals C Club Expansion Facility 4,100 MKTG JFK

JFK Concourse B Scanners Facility 900 DCS JFK

JFK Expand FIS Recheck Facility Facility 1,344 DCS JFK

JFK Hangar 10 Fire Alarm Facility 400 DCS JFK

JFK Interstitial Level Ventilation Facility 600 DCS JFK

JFK Master Plan Baggage Facility 335 DCS JFK

JFK Relocation to Nippon Cargo Facility Facility 7,124 DCS JFK

LAX Prelim A&E In-Line Bag Screening System Facility 3,235 DCS LAX

LAX Priority Check-in Facility 260 DCS LAX

LGA Admirals Club Executive Center Facility 500 DCS LGA

LGA Admirals Club Refurbishment Facility 1,500 DCS LGA

LGA Brick Restoration Facility 300 DCS LGA

LGA Concourse D Security Checkpoint Facility 800 DCS LGA

LGA Concourse D Upgrade Facility 2,475 DCS LGA

LGA Escalator Facility 4,100 DCS LGA

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PROPOSED PROJECTS 2010

Project Name Asset Type 2010 $000 Dept Location

LGA Fire Alarm Replacement Hgr 1,3,5 Facility $ 380 DCS LGA

LGA Prelim A&E Fees In-Line Bag Screening Facility 822 DCS LGA

LHR Admirals Club Facility 9,937 MKTG LHR

MIA Capitalized Management Costs Facility 400 CRE MIA

MIA Communications Infrastructure Facility 196 CRE MIA

MIA Conveyor & Airfield Equipment Facility 512 DCS MIA

MIA Early Bag Storage System Facility 312 DCS MIA

MIA Flagship Lounge Facility 995 MKTG MIA

MIA North Terminal Expansion - CRE Facility 1,495 CRE MIA

MIA Program Contingency Facility 640 CRE MIA

MIA Regional Commuter Facility Facility 570 DCS MIA

MIA Sabre Infrastructure & Equipment Facility 609 DCS MIA

ORD- Baggage Handling System Upgrade (BHS Computer) Facility 206 DCS ORD

ORD Hanger 1&2 Fire Protection Facility 5,650 DCS ORD

ORD Jet-bridges Facility 5,200 DCS ORD

RNO Right Sizing Facility 150 DCS RNO

SFO Admiral Club Refurbishment Facility 1,077 MKTG LHR

SFO Terminal Move Facility 240 DCS MIA

TUS SWRO UPS Replacement Facility 176 CRE ORD

YYZ Admirals Club Relocation Facility 150 MKTG ORD

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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This Owner

Selected the wrong Delivery Method

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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

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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

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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

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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%

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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)

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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