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

 

For 2004, restructuring, asset writedowns, pension settlements and related items, net totaled a $41 million gain consisting of the following:

 

	·	Elimination of Retiree Healthcare Subsidy. A $527 million gain related to our decision to eliminate the company provided healthcare coverage subsidy for employees who retire after January 1, 2006 (see Note 10 of the Notes to the Consolidated Financial Statements).

 

	·	Pension Settlements. $251 million in settlement charges related to the Pilot Plan due to a significant increase in pilot retirements and lump sum distribution from plan assets (see Note 10 of the Notes to the Consolidated Financial Statements).

 

	·	Workforce Reduction. A $194 million charge related to our decision to reduce staffing by approximately 6,000 to 7,000 jobs by December 2005. This charge included charges of $152 million related to special termination benefits and $42 million related to employee severance (see Note 10 of the Notes to the Consolidated Financial Statements).

 

	·	Asset Charges. A $41 million aircraft impairment charge related to our agreement to sell eight owned MD-11 aircraft. In October 2004, we sold these aircraft and related inventory to a third party for $227 million.

 

Other. The increase in other operating expense primarily reflects a 13% rise due to the increase of incremental costs associated with our SkyMiles frequent flyer program and a 5% increase from higher fuel taxes. These increases were partially offset by the impact of our sale of ASA. For additional information regarding our SkyMiles frequent flyer program, see Note 2 of the Notes to the Consolidated Financial Statements.

 

Other (Expense) Income

 

Other expenses, net for 2005 increased 42% to $974 million, compared to $684 million for 2004. This change is substantially attributable to a 25%, or $208 million, increase in interest expense in 2005 and a gain from sale of investments which we recognized in 2004.

 

Interest expense increased primarily due to a 31% increase from higher levels of debt outstanding and higher interest rates as well as a 10% rise due to additional interest related to the reclassification of certain aircraft leases from operating leases to capital leases as a result of renegotiations during the December 2004 quarter (see discussion of aircraft rent expense above). These increases were offset by a 15% decrease due to the accounting treatment of certain interest charges under our Chapter 11 proceedings in accordance with SOP 90-7.

 

Gain from sale of investments was $123 million for 2004 primarily due to the sale of our remaining equity interest in Orbitz, Inc. For additional information about this sale, see Note 2 of the Notes to the Consolidated Financial Statements.

 

Reorganization Items, Net

 

Reorganization items, net totaled an $884 million charge for 2005.  See “Results of Operations - 2006 Compared to 2005” for additional information on these items.

 

Income Tax Benefit (Provision)

 

In 2004, we recorded a valuation allowance on our net deferred tax