$388 million in settlement charges primarily related to the Pilot Plan due to a significant increase in pilot retirements and lump sum distributions from plan assets (see Note 10 of the Notes to the Consolidated Financial Statements).

 	 	 

	·	Workforce reduction. A $46 million charge related to our decision in 2005 to reduce staffing by approximately 7,000 to 9,000 jobs by December 2007 , which has been substantially completed. This charge was offset by a net $3 million reduction in accruals associated with prior year workforce reduction programs.

 

	·	Asset charges. A $10 million charge related to the removal from service of six B-737-200 aircraft prior to their lease expiration dates.

 

Other. The decrease in other operating expense primarily reflects (1) a 12% decrease due to an adjustment related to certain nonincome tax reserves, (2) a 10% decrease from certain Accounting Adjustments discussed above and (3) an 8% decrease related to the change in how we classify ASA’s expenses as a result of its sale to SkyWest.

 

Operating Income (Loss) and Operating Margin

 

We reported operating income of $58 million for the year ended December 31, 2006, compared to an operating loss of $2.0 billion for the year ended December 31, 2005. Operating margin, which is the ratio of operating income (loss) to operating revenues, was less than 1% and (12%) for 2006 and 2005, respectively.

 

Other (Expense) Income

 

Other expense, net for 2006 was $820 million, compared to $974 million for 2005. This change is substantially attributable to a 16%, or $162 million, decrease in interest expense which was partially offset by a $19 million increase in miscellaneous, net expense primarily associated with our fuel hedge positions.

 

The reduction in interest expense is primarily attributable to a $206 million decrease due to the accounting treatment of certain interest charges under our Chapter 11 proceedings in accordance with SOP 90-7 (see Note 2 of the Notes to the Consolidated Financial Statements). The decrease in interest expense was partially offset by a $97 million increase from a higher level of debt outstanding and higher interest rates.

 

The increase in miscellaneous, net expense is primarily due to charges related to the ineffective portion of our fuel hedge positions accounted for in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” For additional information about our fuel hedge positions, see Note 2 of the Notes to the Consolidated Financial Statements.

 

Reorganization Items, Net

 

Reorganization items, net totaled a $6.2 billion charge for 2006, primarily consisting of the following:

 

	·	Pilot pension termination. $2.2 billion and $801 million allowed general, unsecured pre-petition claims in connection with our settlement agreements with the PBGC and a group representing retired pilots, respectively. Charges for these claims were offset by $1.3 billion in settlement gains associated with the derecognition of previously recorded Pilot Plan and pilot non-qualified plan obligations upon each plan’s termination. For additional information regarding these settlement agreements and