Annual Report of Southwest Airlines Co\. for year 2019

The Company is also reliant upon the performance of its third party vendors for timely and effective implementation and support of many of its technology initiatives and for maintaining adequate information security measures\. If any of the Company's significant technologies or automated systems were to cease functioning, or if its third party vendor service providers were to fail to adequately and timely provide technical support, system maintenance, or software upgrades for any of the Company's existing systems, the Company could experience service interruptions, delays, and loss of critical data, which could harm its operations, and result in financial losses and reputational damage\.

In the ordinary course of business, the Company's systems will continue to require modification and refinements to address growth and changing business requirements\. In addition, the Company's systems may require modification to enable the Company to comply with changing regulatory requirements\. Modifications and refinements to the Company's systems have been and are expected to continue to be expensive to implement and can divert management’s attention from other matters\. In addition, the Company's operations could be adversely affected, or the Company could face imposition of regulatory penalties, if it were unable to timely or effectively modify its systems as necessary or appropriately balance the introduction of new capabilities with the management of existing systems\.

The Company has experienced system interruptions and delays that have made its websites and operational systems unavailable or slow to respond, which has prevented the Company from efficiently processing Customer transactions or providing services\. Any future system interruptions or delays could reduce the Company's operating revenues and the attractiveness of its services, as well as increase the Company's costs\.

The Company's technologies and systems and functions could be damaged or interrupted by catastrophic events beyond its control such as fires, floods, earthquakes, tornadoes and hurricanes, power loss, computer and telecommunications failures, acts of war or terrorism, computer viruses, security breaches, and similar events or disruptions\. Any of these events could cause system interruptions, delays, and loss of critical data, and could prevent the Company from processing Customer transactions or providing services, which could make the Company's business and services less attractive and subject the Company to liability\. Any of these events could damage the Company's reputation and be expensive to remedy\.

The Company's business is labor intensive; therefore, the Company could be adversely affected if it were unable to maintain satisfactory relations with its Employees or its Employees' Representatives\.

The airline business is labor intensive\. Salaries, wages, and benefits represented approximately 43 percent of the Company's operating expenses for the year ended December 31, 2019\. In addition, as of December 31, 2019, approximately 83 percent of the Company's Employees were represented for collective bargaining purposes by labor unions, making the Company particularly exposed in the event of labor\-related job actions\. Employment\-related matters (some of which relate to negotiated items) that have impacted, and continue to impact, the Company's results of operations include hiring/retention rates, pay rates, outsourcing, work rules, health care costs, and retirement benefits\.

The Company is currently dependent on a single engine supplier, as well as single suppliers of certain other aircraft parts and equipment; therefore, the Company could be materially adversely affected (i) if it were unable to obtain timely or sufficient delivery of aircraft parts or equipment from Boeing or other suppliers or adequate maintenance or other support from any of these suppliers, or (ii) in the event of a mechanical or regulatory issue associated with the Company's aircraft parts or equipment\.

The Company is dependent on Boeing as its sole supplier for many of its aircraft parts\. The Company is also dependent on sole or limited suppliers for aircraft engines and certain other aircraft parts, equipment, and services\. If Boeing, or other suppliers, were unable or unwilling to timely provide adequate products or support for their products, or in the event of a mechanical or regulatory issue associated with engines or other parts, the Company's operations could be materially adversely affected\. The Company could also be materially adversely affected if the pricing or operational attributes of its aircraft equipment were to become less competitive\.

Developing and expanding data security and privacy requirements could increase the Company's operating costs, and any failure of the Company to maintain the security of certain Customer, Employee, and business\-related information could result in damage to the Company's reputation and could be costly to remediate\.

The Company must receive information related to its Customers and Employees in order to run its business, and the Company's operations depend upon secure retention and the secure transmission of information over public networks, including information permitting cashless payments\. This information is subject to the continually evolving risk of

24


Annual Report of Southwest Airlines Co\. for year 2018

|     |                                                                                |
| --- | -------------------------------------------------------------------------------------------------------------------------------------------------- |
| (a) | A revenue passenger mile is one paying passenger flown one mile\. Also referred to as "traffic," which is a measure of demand for a given period\. |

|     |                                                                                |
| --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (b) | An available seat mile is one seat (empty or full) flown one mile\. Also referred to as "capacity," which is a measure of the space available to carry passengers in a given period\. |

|     |                                                           |
| --- | --------------------------------------------------------- |
| (c) | Revenue passenger miles divided by available seat miles\. |

|     |                                                                                |
| --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (d) | Seats flown is calculated using total number of seats available by aircraft type multiplied by the total trips flown by the same aircraft type during a particular period\. |

|     |                                                                          |
| --- | ------------------------------------------------------------------------ |
| (e) | Seats per trip is calculated using seats flown divided by trips flown\.  |

|     |                                                                                |
| --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (f) | Calculated as passenger revenue divided by revenue passenger miles\. Also referred to as "yield," this is the average cost paid by a paying passenger to fly one mile, which is a measure of revenue production and fares\. |

|     |                                                                                |
| --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (g) | Calculated as operating revenues divided by available seat miles\. Also referred to as "operating unit revenues" or "RASM," this is a measure of operating revenue production based on the total available seat miles flown during a particular period\.  |

|     |                                                                                |
| --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (h) | Calculated as passenger revenue divided by available seat miles\. Also referred to as "passenger unit revenues," this is a measure of passenger revenue production based on the total available seat miles flown during a particular period\. |

|     |                                                                                |
| --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (i) | Calculated as operating expenses divided by available seat miles\. Also referred to as "unit costs" or "cost per available seat mile," this is the average cost to fly an aircraft seat (empty or full) one mile, which is a measure of cost efficiencies\. |

|     |                                                                                |
| --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| (j) | Year ended 2015 RASM excludes a $172 million one\-time special revenue adjustment in July 2015 as a result of the Company's amendment of its co\-branded credit card agreement with Chase Bank USA, N\.A\. and the resulting required change in accounting methodology\. Including the special revenue adjustment, RASM would have been 14\.11 cents for the year ended 2015\. |

|     |                                                                                |
| --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (k) | The Company has chosen to not recast 2015 and 2014 results for the New Revenue Standard, as permitted\. Therefore, 2015 and 2014 only reflect recast results for the New Retirement Standard and the New Hedging Standard\. |

38


Annual Report of United Continental Holdings, Inc\. and United Airlines, Inc\. for year 2017

##### [Table of Contents](https://www.example.com#toc) #####

|            |                 |                                                                                |
| ----------:|:--------------- |:-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| \*^10\.170 | UAL
United | [Supplemental Agreement No\. 10 to Purchase Agreement No\. 2484, dated January 14, 2015 (filed as Exhibit 10\.4 to UAL’s Form  10\-Q for the quarter ended March 31, 2015, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312515144255/d891332dex104.htm)                                                                  |
| \*^10\.171 | UAL
United | [Supplemental Agreement No\. 11 to Purchase Agreement No\. 2484, dated April 30, 2015 (filed as Exhibit 10\.3 to UAL’s Form  10\-Q for the quarter ended June 30, 2015, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312515261239/d941677dex103.htm)                                                                    |
| \*^10\.172 | UAL
United | [Amended and Restated Letter Agreement No\. 11, dated August 8, 2005, by and among Continental and General Electric Company (filed as Exhibit 10\.3 to Continental’s Form  10\-Q for the quarter ended September 30, 2005, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968705000138/f3rd10qexhibit103.htm)             |
| \*^10\.173 | UAL
United | [Agreement, dated May 7, 2003, by and among Continental and the United States of America, acting through the Transportation Security Administration (filed as Exhibit 10\.1 to Continental’s Form  10\-Q for the quarter ended June 30, 2003, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968703000041/exhibit101.htm) |
| \*^10\.174 | UAL
United | [Purchase Agreement No\.  PA\-03784, dated July 12, 2012, between The Boeing Company and United Air Lines, Inc\. (filed as Exhibit 10\.1 to UAL’s Form  10\-Q for the quarter ended September 30, 2012, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312512435658/d408868dex101.htm)                                     |
| \*^10\.175 | UAL
United | [Supplemental Agreement No\. 01 to Purchase Agreement No\.  PA\-03784, dated September 27, 2012 (filed as Exhibit 10\.2 to UAL’s Form  10\-Q for the quarter ended September 30, 2012, Commission file number  1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312512435658/d408868dex102.htm)                                                       |
| \*^10\.176 | UAL
United | [Supplemental Agreement No\. 02 to Purchase Agreement Number  PA\-03784, dated March 1, 2013 (filed as Exhibit 10\.3 to UAL’s Form  10\-Q for the quarter ended June 30, 2013, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312513302696/d552832dex103.htm)                                                              |
| \*^10\.177 | UAL
United | [Supplemental Agreement No\. 03 to Purchase Agreement Number  PA\-03784, dated June 27, 2013 (filed as Exhibit 10\.7 to UAL’s Form  10\-Q for the quarter ended June 30, 2013, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312513302696/d552832dex107.htm)                                                              |
| \*^10\.178 | UAL
United | [Supplemental Agreement No\. 04 to Purchase Agreement Number  PA\-03784, dated September 11, 2013 (filed as Exhibit 10\.2 to UAL’s Form  10\-Q for the quarter ended September 30, 2013, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312513409916/d578285dex102.htm)                                                    |
| \*^10\.179 | UAL
United | [Supplemental Agreement No\. 05 to Purchase Agreement Number  PA\-03784, dated March 3, 2014 (filed as Exhibit 10\.2 to UAL’s Form  10\-Q for the quarter ended June 30, 2014, Commission file number  1\-6033 and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312514278970/d732259dex102.htm)                                                               |
| \*^10\.180 | UAL
United | [Supplemental Agreement No\. 06 to Purchase Agreement Number  PA\-03784, dated June 6, 2014 (filed as Exhibit 10\.3 to UAL’s Form  10\-Q for the quarter ended June 30, 2014, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312514278970/d732259dex103.htm)                                                               |
| \*^10\.181 | UAL
United | [Supplemental Agreement No\. 07 to Purchase Agreement Number  PA\-03784, dated May 26, 2015 (filed as Exhibit 10\.6 to UAL’s Form  10\-Q for the quarter ended June 30, 2015, Commission file number  1\-10323 and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312515261239/d941677dex106.htm)                                                               |

126


Annual Report of DELTA AIR LINES, INC\.  for year 2019

Unless otherwise indicated, the terms "Delta," "we," "us," and "our" refer to Delta Air Lines, Inc\. and its subsidiaries\.

FORWARD\-LOOKING STATEMENTS

Statements in this Form 10\-K (or otherwise made by us or on our behalf) that are not historical facts, including statements about our estimates, expectations, beliefs, intentions, projections or strategies for the future, may be "forward\-looking statements" as defined in the Private Securities Litigation Reform Act of 1995\. Forward\-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or our present expectations\. Known material risk factors applicable to Delta are described in "Risk Factors Relating to Delta" and "Risk Factors Relating to the Airline Industry" in "Item 1A\. Risk Factors" of this Form 10\-K, other than risks that could apply to any issuer or offering\. All forward\-looking statements speak only as of the date made, and we undertake no obligation to publicly update or revise any forward\-looking statements to reflect events or circumstances that may arise after the date of this report\.

1


Annual Report of American Airlines Group Inc\. for year 2017

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC\.**

**1\. Basis of Presentation and Summary of Significant Accounting Policies**

***(a) Basis of Presentation***

American Airlines, Inc\. (American) is a Delaware corporation whose primary business activity is the operation of a major network air carrier\. American is the principal wholly\-owned subsidiary of American Airlines Group Inc\. (AAG), which owns all of American’s outstanding common stock, par value $1\.00 per share\. On December 9, 2013, a subsidiary of AMR Corporation (AMR) merged with and into US Airways Group, Inc\. (US Airways Group), a Delaware corporation, which survived as a wholly\-owned subsidiary of AAG, and AAG emerged from Chapter 11 (the Merger)\. Upon closing of the Merger and emergence from Chapter 11, AMR changed its name to American Airlines Group Inc\. On December 30, 2015, in order to simplify AAG’s internal corporate structure, US Airways, Inc\. (US Airways), a wholly\-owned subsidiary of US Airways Group, merged with and into American, with American as the surviving corporation\. All significant intercompany transactions have been eliminated\.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States (GAAP) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements\. Actual results could differ from those estimates\. The most significant areas of judgment relate to passenger revenue recognition, impairment of goodwill, impairment of long\-lived and intangible assets, the loyalty program, valuation allowance for deferred tax assets, as well as pension and retiree medical and other postretirement benefits\.

***(b) Short\-term Investments***

Short\-term investments are classified as available\-for\-sale and stated at fair value\. Realized gains and losses are recorded in nonoperating expense on the consolidated statement of operations\. Unrealized gains and losses are recorded in accumulated other comprehensive loss on the consolidated balance sheets\.

***(c) Restricted Cash and Short\-term Investments***

American has restricted cash and short\-term investments related primarily to collateral held to support workers’ compensation obligations\.

***(d) Aircraft Fuel, Spare Parts and Supplies, Net***

Aircraft fuel is recorded on a first\-in, first\-out basis\. Spare parts and supplies are recorded at average costs less an allowance for obsolescence\. These items are expensed when used\.

***(e) Operating Property and Equipment***

Operating property and equipment is recorded at cost and depreciated or amortized to residual values over the asset’s estimated useful life or the lease term, whichever is less, using the straight\-line method\. Residual values for aircraft, engines and related rotable parts are generally 5% to 10% of original cost\. Costs of major improvements that enhance the usefulness of the asset are capitalized and depreciated or amortized over the estimated useful life of the asset or the lease term, whichever is less\. The estimated useful lives for the principal property and equipment classifications are as follows:

|                                                     |                           |
| --------------------------------------------------- | ------------------------- |
| **Principal Property and Equipment Classification** | **Estimated Useful Life** |
| Aircraft, engines and related rotable parts         | 20 – 30 years             |
| Buildings and improvements                          | 5 – 30 years              |
| Furniture, fixtures and other equipment             | 3 – 10 years              |
| Capitalized software                                | 5 – 10 years              |

American assesses impairment on operating property and equipment when events and circumstances indicate that the assets may be impaired\. An asset or group of assets is considered impaired when the undiscounted cash flows estimated to be generated by the assets are less than the carrying amount of the assets and the net book value of the assets exceeds their estimated fair value\. If such assets are considered to be impaired, the impairment to be recognized

131


Annual Report of Southwest Airlines Co\. for year 2019

15 \. SUPPLEMENTAL FINANCIAL INFORMATION

|                                       |                       |                       |
| ------------------------------------- | --------------------- | --------------------- |
| **(in millions)**                     | **December 31, 2019** | **December 31, 2018** |
| Trade receivables                     | $53                   | $57                   |
| Credit card receivables               | 112                   | 107                   |
| Business partners and other suppliers | 779                   | 319                   |
| Income tax receivable                 | 87                    | 22                    |
| Other                                 | 55                    | 63                    |
| Accounts and other receivables        | $1,086                | $568                  |

|                          |                       |                       |
| ------------------------ | --------------------- | --------------------- |
| **(in millions)**        | **December 31, 2019** | **December 31, 2018** |
| Derivative contracts     | $49                   | $95                   |
| Intangible assets, net   | 296                   | 400                   |
| Finance lease receivable | —                     | 61                    |
| Other                    | 232                   | 164                   |
| Other assets             | $577                  | $720                  |

|                                      |                       |                       |
| ------------------------------------ | --------------------- | --------------------- |
| **(in millions)**                    | **December 31, 2019** | **December 31, 2018** |
| Accounts payable trade               | $304                  | $263                  |
| Salaries payable                     | 231                   | 216                   |
| Taxes payable excluding income taxes | 227                   | 220                   |
| Aircraft maintenance payable         | 162                   | 69                    |
| Fuel payable                         | 129                   | 122                   |
| Other payable                        | 521                   | 526                   |
| Accounts payable                     | $1,574                | $1,416                |

|                                 |                       |                       |
| ------------------------------- | --------------------- | --------------------- |
| **(in millions)**               | **December 31, 2019** | **December 31, 2018** |
| Profitsharing and savings plans | $695                  | $580                  |
| Vacation pay                    | 434                   | 403                   |
| Health                          | 120                   | 107                   |
| Workers compensation            | 166                   | 166                   |
| Property and income taxes       | 79                    | 68                    |
| Other                           | 255                   | 425                   |
| Accrued liabilities             | $1,749                | $1,749                |

|                              |                       |                       |
| ---------------------------- | --------------------- | --------------------- |
| **(in millions)**            | **December 31, 2019** | **December 31, 2018** |
| Postretirement obligation    | $288                  | $232                  |
| Other deferred compensation  | 313                   | 247                   |
| Other                        | 105                   | 171                   |
| Other noncurrent liabilities | $706                  | $650                  |

For further information on supplier receivables, see Note 16\. For further information on fuel derivative and interest rate derivative contracts, see Note  10 \.

Other Operating Expenses

108


Annual Report of American Airlines Group Inc\. for year 2018

compared to 2017\. This income was offset in part by a $104 million net special charge for mark\-to\-market unrealized losses associated with certain of American’s equity investments, $54 million of net foreign currency losses principally associated with certain Latin American currencies and $13 million of net special charges associated with debt refinancings and extinguishments\.

In 2017, other nonoperating income, net principally included $138 million of non\-service related pension and other postretirement benefit plan income, offset in part by $22 million of net special charges associated with debt refinancings and extinguishments and $4 million of net foreign currency losses\.

*Income Taxes*

American is part of the AAG consolidated income tax return\.

In 2018, American recorded an income tax provision of $534 million at an effective rate of approximately 24%, which was substantially non\-cash\. This provision included an $18 million special income tax charge related to an international income tax matter\. Substantially all of American’s income before income taxes is attributable to the United States\. At December 31, 2018, American had approximately $10\.6 billion of federal NOLs and $3\.1 billion of state NOLs, substantially all of which American expects to be available in 2019 to reduce future federal and state taxable income\.

In 2017, American recorded an income tax provision of $2\.3 billion, which was substantially non\-cash\. This provision included a special, non\-cash income tax charge of $924 million to reflect the impact of lower corporate income tax rates on the Company’s deferred tax asset and liabilities due to the 2017 Tax Act, which reduced the federal corporate income tax rate from 35% to 21%\.

See Note 5 to American’s Consolidated Financial Statements in Part II, Item 8B for additional information on income taxes\.

***Results of Operations –*** ***2017*** ***Compared to*** ***2016***

American realized pre\-tax income of $3\.6 billion and net income of $1\.3 billion in 2017\. This compares to $4\.3 billion of pre\-tax income and $2\.7 billion of net income in 2016\.

The year\-over\-year decline in American’s pre\-tax income was principally driven by an increase in fuel costs and higher wage rates\.

*Operating Revenues*

|                          |                                              |                                              |                                              |                                                       |
| ------------------------ | -------------------------------------------- | -------------------------------------------- | -------------------------------------------- | ----------------------------------------------------- |
|                          | **Year Ended**

**December 31,**       | **Year Ended**

**December 31,**       | **Increase**

**(Decrease)**           | **Percent**

**Increase**

**(Decrease)** |
|                          | **2017**                                     | **2016**                                     | **Increase**

**(Decrease)**           | **Percent**

**Increase**

**(Decrease)** |
|                          | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)**          |
| Passenger                | $39,131                                      | $37,045                                      | $2,086                                       | 5\.6                                                  |
| Cargo                    | 890                                          | 785                                          | 105                                          | 13\.3                                                 |
| Other                    | 2,589                                        | 2,295                                        | 294                                          | 12\.8                                                 |
| Total operating revenues | $42,610                                      | $40,125                                      | $2,485                                       | 6\.2                                                  |

Passenger revenue increased $2\.1 billion, or 5\.6%, in 2017 from 2016 primarily due to a year\-over\-year increase in yields driven by strong demand\.

Cargo revenue increased $105 million, or 13\.3%, in 2017 from 2016 driven primarily by an increase in freight volume\.

Other revenue increased $294 million, or 12\.8%, in 2017 from 2016 driven by higher revenue associated with American’s loyalty program\. In 2017 and 2016, loyalty revenue included in other revenue was $2\.1 billion and $1\.9 billion, respectively\.

Total operating revenues in 2017increased $2\.5 billion, or 6\.2%, from 2016 driven principally by a 5\.6% increase in passenger revenue as described above\.

62


Annual Report of Southwest Airlines Co\. for year 2019

Other operating expenses consist of distribution costs, advertising expenses, personnel expenses, professional fees, and other operating costs, none of which individually exceed  10 percent  of Operating expenses\.

16 \. BOEING 737 MAX AIRCRAFT GROUNDING

On March 13, 2019, the FAA issued an emergency order for all U\.S\. airlines to ground all Boeing MAX aircraft\. The Company immediately complied with the order and grounded all   34  MAX aircraft in its fleet\. The Company will continue to monitor the situation and any potential future accounting implications that arise\. The most significant financial impacts of this grounding to the Company thus far have been lost revenues, operating income, and operating cash flows, and delayed capital expenditures, directly associated with its grounded MAX fleet and other new aircraft that have not been able to be delivered\. In July 2019, the Boeing Company announced a   $4\.9 billion  after\-tax charge for "potential concessions and other considerations to customers for disruptions related to the 737 MAX grounding\." In January 2020, the Boeing Company announced an additional pre\-tax charge of   $2\.6 billion  related to "estimated potential concessions and other considerations to customers related to the 737 MAX grounding\."

During fourth quarter 2019, the Company entered into a Memorandum of Understanding with Boeing to compensate Southwest for financial damages incurred during 2019 related to the grounding of the MAX\. The terms of the agreement are confidential, but are intended to provide for a substantial portion of the Company’s financial damages associated with both the   34  MAX aircraft that were grounded as of March 13, 2019, as well as the   41  additional MAX aircraft the Company was scheduled to receive (  28  owned MAX from Boeing and   13  leased MAX from third parties) from March 13, 2019 through December 31, 2019\. In accordance with applicable accounting principles, the Company will account for substantially all of the proceeds received from Boeing as a reduction in cost basis spread across both the existing   31  owned MAX in the Company’s fleet, plus the Company’s future firm aircraft deliveries as of the date of the agreement\.  No  material financial impacts of the agreement were realized in the Company’s earnings during fourth quarter or the year ended December 31, 2019\. Amounts received in cash from Boeing are reflected within Investing Activities in the Consolidated Statement of Cash Flows for the year ended December 31, 2019\. Amounts agreed to but not yet received are recorded within Accounts and Other Receivables and are also reflected as a Supplemental Noncash Transaction in the Consolidated Statement of Cash Flows\. Approximately   $86 million  of the amount agreed to has been allocated as a reduction of Flight equipment (for aircraft already in the Company's MAX fleet) and the remainder has been reflected as a reduction of Deposits on flight equipment purchase contracts, within the Consolidated Balance Sheet as of December 31, 2019\.

109


Annual Report of DELTA AIR LINES, INC\.  for year 2018

NOTE 5 \. DERIVATIVES AND RISK MANAGEMENT

Changes in fuel prices, interest rates and foreign currency exchange rates impact our results of operations\.  In an effort to manage our exposure to these risks, we may enter into derivative contracts and adjust our derivative portfolio as market conditions change\.  We recognize derivative contracts at fair value on our balance sheets\.

Fuel Price Risk

Our derivative contracts to hedge the financial risk from changing fuel prices are primarily related to Monroe’s refining margins\.  During the year ended December 31,  2018  fuel hedges did not have a material impact on our income statement\. During the years ended December 31, 2017 and 2016 we recorded fuel hedge losses of   $81 million  and   $366 million , respectively\.

Interest Rate Risk

Our exposure to market risk from adverse changes in interest rates is primarily associated with our long\-term debt obligations\. Market risk associated with our fixed and variable rate long\-term debt relates to the potential reduction in fair value and negative impact to future earnings, respectively, from an increase in interest rates\.

In an effort to manage our exposure to the risk associated with our variable rate long\-term debt, we periodically enter into interest rate swaps\. We designate interest rate contracts used to convert the interest rate exposure on a portion of our debt portfolio from a floating rate to a fixed rate as cash flow hedges, while those contracts converting our interest rate exposure from a fixed rate to a floating rate are designated as fair value hedges\.

In April 2018, we entered into interest rate swaps which are designated as fair value hedges\. These swaps range from two to nine years remaining and have a total notional value of   $1\.6 billion \. The objective of the swaps is to manage toward a higher percentage of net floating rate debt by swapping payments of fixed rate interest on the unsecured notes that we issued in the June 2018 quarter for payments of floating rate interest\. The gains/losses on the swaps are recorded within interest expense in the income statement and offset the gain/losses in the related debt obligations due to interest rate fluctuations\.

We also have exposure to market risk from adverse changes in interest rates associated with our cash and cash equivalents and benefit plan obligations\. Market risk associated with our cash and cash equivalents relates to the potential decline in interest income from a decrease in interest rates\. Pension, postretirement, postemployment and worker's compensation obligation risk relates to the potential increase in our future obligations and expenses from a decrease in interest rates used to discount these obligations\.

Foreign Currency Exchange Rate Risk

We are subject to foreign currency exchange rate risk because we have revenue and expense denominated in foreign currencies\. To manage exchange rate risk, we execute both our international revenue and expense transactions in the same foreign currency to the extent practicable\.  From time to time, we may also enter into foreign currency option and forward contracts\.  Our Japanese yen foreign currency exchange contracts are designated as cash flow hedges with the effective portion of the gains or losses on the derivatives recorded in passenger revenue in the income statement in the same period in which the hedged transaction affects earnings\.

In January 2018, we entered into a three\-year U\.S\. dollar\-Euro cross currency swap with a notional value of   €375 million \. This swap was intended to mitigate foreign currency volatility resulting from our Euro\-denominated investment in Air France\-KLM\. In response to favorable changes in interest rates and the U\.S\. dollar\-Euro exchange rate, we settled the cross currency swap in August 2018\. Upon settlement, we recognized gains of   $18 million  in miscellaneous in our Consolidated Statement of Operations under non\-operating expense\. Subsequently, we entered into a new U\.S\. dollar\-Euro cross currency swap with a notional value of   €397 million  and a maturity date in December 2020\. During the year ended December 31, 2018, we recorded an unrealized loss on this new swap of   $4 million , which is reflected in unrealized gain/(loss) on investments under non\-operating expense\.

 72


Annual Report of Southwest Airlines Co\. for year 2018

The Company has contractual obligations and commitments primarily with regard to future purchases of aircraft, repayment of debt (see Note 6), and lease arrangements (see Note 7)\. During the year endedDecember 31, 2018, the Company purchased 18 new 737 MAX 8 aircraft and 26 new 737\-800 aircraft from Boeing and acquired one used 737\-700 aircraft from a third party under a capital lease\. The Company has firm orders in place with Boeing for 219 737 MAX 8 aircraft and 30 737 MAX 7 aircraft, as well as options for 115 737 MAX 8 aircraft as of December 31, 2018\. The Company's capital commitments associated with these firm orders and additional aircraft are as follows: $924 million in 2019, $1\.4 billion in 2020, $1\.7 billion in 2021, $1\.2 billion in 2022, $1\.6 billion in 2023, and $3\.4 billion thereafter\.

**Fort Lauderdale\-Hollywood International Airport**

In December 2013, the Company entered into an agreement with Broward County, Florida, which owns and operates Fort Lauderdale\-Hollywood International Airport ("FLL"), to oversee and manage the design and construction of the airport's Terminal 1 Modernization Project\. Pursuant to an addendum entered into during 2016, the cost of the project could not exceed $333 million\. In addition to significant improvements to the existing Terminal 1, the project included the design and construction of a new five\-gate Concourse A with an international processing facility\. Funding for the project has come directly from Broward County aviation sources, but flows through the Company in its capacity as manager of the project\. Major construction on the project began during third quarter 2015\. Construction of Concourse A was completed during second quarter 2017, and construction on Terminal 1 was substantially complete and operational as of the end of third quarter 2018\. The Company has determined that due to its agreed upon role in overseeing and managing the project, it is considered the owner of the project for accounting purposes\. As such, during construction the Company records expenditures as Assets constructed for others ("ACFO") in the Consolidated Balance Sheet, along with a corresponding outflow within Assets constructed for others in the Consolidated Statement of Cash Flows, and an increase to Construction obligation (with a corresponding cash inflow from Financing activities in the Consolidated Statement of Cash Flows) as reimbursements are received from Broward County\. Upon completion of different phases of the project, the Company has placed the associated assets in service and has begun depreciating the assets over their estimated useful lives\.

**Los Angeles International Airport**

In March 2013, the Company executed a lease agreement (the "T1 Lease") with Los Angeles World Airports ("LAWA"), which owns and operates Los Angeles International Airport ("LAX")\. Under the T1 Lease, which was amended in June 2014 and September 2017, the Company oversaw and managed the design, development, financing, construction, and commissioning of the airport's Terminal 1 Modernization Project at a cost that did not exceed $526 million (including proprietary renovations, or $510 million excluding proprietary renovations)\. In October 2017, the Company executed a separate lease agreement with LAWA (the "T1\.5 Lease")\. Under the T1\.5 Lease, the Company is overseeing and managing the design, development, financing, construction, and commissioning of a passenger processing facility between Terminal 1 and 2 (the "Terminal 1\.5 Project")\. The Terminal 1\.5 Project is expected to include ticketing, baggage claim, passenger screening, and a bus gate at a cost not to exceed $479 million for site improvements and non\-proprietary improvements\.

These projects are being funded primarily using the Regional Airports Improvement Corporation (the "RAIC"), which is a quasi\-governmental special purpose entity that acts as a conduit borrower under syndicated credit facilities provided by groups of lenders\. Loans made under the separate credit facilities for the Terminal 1 Modernization Project and the Terminal 1\.5 Project are being used to fund the development of each of these projects, and the outstanding loans will be repaid with the proceeds of LAWA’s payments to purchase completed construction phases\. The Company has guaranteed the obligations of the RAIC under each of the credit facilities associated with the respective lease agreements\. At December 31, 2018, the Company's outstanding remaining guaranteed obligations under the credit facilities for the Terminal 1 Modernization Project and the Terminal 1\.5 Project were $111 million and $106 million, respectively\.

Construction on the Terminal 1 Modernization Project began during 2014 and was substantially complete and operational during fourth quarter 2018\. Construction on the Terminal 1\.5 Project began during third quarter 2017 and

84


Annual Report of United Continental Holdings, Inc\. and United Airlines, Inc\. for year 2018

[Table of Contents](https://www.example.com#sCFFD9DA26B5659A3A528A4B51B718F87)

*Airport Access\.* Historically, access to foreign markets has been tightly controlled through bilateral agreements between the U\.S\. and each foreign country involved\. These agreements regulate the markets served, the number of carriers allowed to serve each market and the frequency of carriers' flights\. Since the early 1990s, the U\.S\. has pursued a policy of "Open Skies" (meaning all U\.S\.\-flag carriers have access to the destination), under which the U\.S\. government has negotiated a number of bilateral agreements allowing unrestricted access between U\.S\. and foreign markets\. Currently, there are more than 100 Open Skies agreements in effect\. However, even with Open Skies, many of the airports that the Company serves in Europe, Asia and Latin America maintain slot controls\. A large number of these slot controls exist due to congestion, environmental and noise protection and reduced capacity due to runway and air traffic control ("ATC") construction work, among other reasons\. London Heathrow International Airport, Frankfurt Rhein\-Main Airport, Shanghai Pudong International Airport, Beijing Capital International Airport, Sao Paulo Guarulhos International Airport and Tokyo Haneda International Airport are among the most restrictive foreign airports due to slot and capacity limitations\.

The Company's ability to serve some foreign markets and expand into certain others is limited by the absence of aviation agreements between the U\.S\. government and the relevant foreign governments\. Shifts in U\.S\. or foreign government aviation policies may lead to the alteration or termination of air service agreements\. Depending on the nature of any such change, the value of the Company's international route authorities and slot rights may be materially enhanced or diminished\. Similarly, foreign governments control their airspace and can restrict our ability to overfly their territory, enhancing or diminishing the value of the Company's existing international route authorities and slot rights\.

***Environmental Regulation***

The airline industry is subject to increasingly stringent federal, state, local and international environmental requirements, including those regulating emissions to air, water discharges, safe drinking water and the use and management of hazardous substances and wastes\.

*Climate Change*\. There is an increasing global regulatory focus on greenhouse gas ("GHG") emissions and their potential impacts relating to climate change\. Initiatives to regulate GHG emissions from aviation had previously been adopted by the European Union ("EU") in 2009, but applicability to flights arriving or departing from airports outside the EU have been postponed several times\. In December 2017, the European Parliament voted to extend exemptions for extra\-EU flights until December 2023 in order to align the extension date with the completion of the pilot phase of the International Civil Aviation Organization's ("ICAO") Carbon Offsetting and Reduction Scheme for International Aviation ("CORSIA")\. CORSIA, which was adopted in October 2016, is intended to create a single global market\-based measure to achieve carbon\-neutral growth for international aviation after 2020, which can be achieved through airline purchases of carbon offset credits\. Certain CORSIA program details remain to be developed and could potentially be affected by political developments in participating countries or the results of the pilot phase of the program, and thus the impact of CORSIA cannot be fully predicted\. However, CORSIA is expected to increase operating costs for airlines that operate internationally\. In 2016, ICAO also adopted a carbon dioxide ("CO2") emission standard for aircraft\. In 2016, the U\.S\. Environmental Protection Agency ("EPA") commenced procedural steps necessary to adopt its own standard, but the timing of further action by the EPA is unknown\. While the precise timing and final form of these various programs and requirements continue to evolve, in 2018, the Company announced a pledge to reduce its greenhouse gas emissions by 50 percent relative to 2005 levels by the year 2050 and is taking various actions that are expected to help reduce its CO2 emissions over time such as improving fuel efficiency, fleet renewal, aircraft retrofits and the commercialization of aviation alternative fuels\.

*Other Regulations*\. Our operations are subject to a variety of other environmental laws and regulations both in the United States and internationally\. These include noise\-related restrictions on aircraft types and operating times and state and local air quality initiatives which have, or could in the future, result in curtailments in services, increased operating costs, limits on expansion, or further emission reduction requirements\. Certain airports and/or governments, both domestically and internationally, either have or are seeking to establish environmental fees and other requirements applicable to carbon emissions, local air quality pollutants and/or noise\. The implementation of state plans to achieve national standards for ozone is expected to result in restrictions on mobile sources such as cars, trucks and airport ground support equipment in some locations\. Certain states may also elect to impose restrictions apart from the revised national standards\. Finally, environmental cleanup laws could require the Company to undertake or subject the Company to liability for investigation and remediation costs at certain owned or leased locations or third\-party disposal locations\.

Until applicability of new regulations to our specific operations is better defined and/or until pending regulations are finalized, future costs to comply with such regulations will remain uncertain but are likely to increase our operating costs over time\. While we continue to monitor these developments, the precise nature of future requirements and their applicability to the Company are difficult to predict, but the financial impact to the Company and the aviation industry could be significant\.

7


Annual Report of ALASKA AIR GROUP, INC\. for year 2017

Our outstanding long\-term debt and other fixed obligations could have important consequences\. For example, they could limit our ability to obtain additional financing to fund our future capital expenditures, working capital or other purposes; require us to dedicate a material portion of our operating cash flow to fund lease payments and interest payments on indebtedness, thereby reducing funds available for other purposes; or limit our ability to withstand competitive pressures and reduce our flexibility in responding to changing business and economic conditions\.

Although we have historically been able to generate sufficient cash flow from our operations to pay our debt and other fixed obligations when they become due, we cannot ensure we will be able to do so in the future\. If we fail to do so, our business could be harmed\.

***Our maintenance costs will increase as our fleet ages, and we will periodically incur substantial maintenance costs due to the timing of maintenance events of our aircraft\.***

As of December 31, 2017, the average age of our NextGen aircraft (B737\-800, \-900, \-900ERs) was approximately 7\.5 years, the average age of our A319, A320, and A321neo aircraft was approximately 7\.3 years, the average age of our Embraer E175 aircraft was approximately 1\.2 years, and the average age of our Q400 aircraft was approximately 11 years\. Our relatively new aircraft require less maintenance currently than they will in the future\. Any significant increase in maintenance expenses could have a material adverse effect on our results of operations\.

***Our ability to use Virgin America’s net operating loss carryforwards to offset future taxable income for U\.S\. federal and state income tax purposes may be limited if we are unable to earn adequate taxable income in future periods\.***

Our ability to use the net operating loss carryforwards (NOLs) will depend on the amount of taxable income generated in future periods\. The NOLs may expire before we can generate sufficient taxable income to utilize the NOLs\.

***BRAND AND REPUTATION***

***As we evolve our brand to appeal to a changing demographic and grow into new markets, we will engage in strategic initiatives that may not be favorably received by all of our guests\.***

We continue to focus on strategic initiatives designed to increase our brand appeal to a diverse and evolving demographic of airline travelers\. These efforts could include significant enhancements to our in\-airport and on\-board environments, increasing our direct customer relationships through improvements to our purchasing portals (digital and mobile) and optimization of our customer loyalty programs\.

In pursuit of these efforts we may negatively affect our reputation with some of our existing customer base\.

***LABOR RELATIONS AND LABOR STRATEGY***

***A significant increase in labor costs, unsuccessful attempts to strengthen our relationships with union employees or loss of key personnel could adversely affect our business and results of operations\.***

Labor costs are a significant component of our total expenses\. Each of Alaska, Horizon, Virgin America, and McGee Air Service's represented employee groups has a separate collective bargaining agreement\. In relation to the Virgin America integration, the workgroups that have not yet reached a transition agreement could make demands that would increase our operating expenses and adversely affect our financial performance if we agree to them\. The same result could apply if we experience a significant increase in vendor labor costs, including wage rate increases, which could ultimately flow through to us under the applicable services agreement\.

Although we have a long track record of fostering good communications, negotiating approaches and developing other strategies to enhance workforce engagement in our long\-term vision, future uncertainty around open contracts\-including the collective bargaining negotiations for the integration of Alaska's and Virgin America's represented work groups\-could be a distraction, affecting employee focus on our business and diverting management’s attention from other projects and issues\.

We compete against the major U\.S\. airlines and other businesses for labor in many highly skilled positions\. If we are unable to hire, train and retain qualified employees at a reasonable cost, achieve and sustain employee engagement in our strategic vision, or if we are unsuccessful at implementing succession plans for our key staff, we may be unable to grow or sustain our business\.

 26


Annual Report of American Airlines Group Inc\. for year 2018

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC\.**

The carrying value and estimated fair value of American’s long\-term debt, including current maturities, were as follows (in millions):

|                                               |                               |                           |                               |                           |
| --------------------------------------------- | ----------------------------- | ------------------------- | ----------------------------- | ------------------------- |
|                                               | **December 31, 2018**         | **December 31, 2018**     | **December 31, 2017**         | **December 31, 2017**     |
|                                               | **Carrying**

**Value** | **Fair**

**Value** | **Carrying**

**Value** | **Fair**

**Value** |
| Long\-term debt, including current maturities | $22,503                       | $22,497                   | $22,523                       | $23,165                   |

**8\. Employee Benefit Plans**

American sponsors defined benefit and defined contribution pension plans for eligible employees\. The defined benefit pension plans provide benefits for participating employees based on years of service and average compensation for a specified period of time before retirement\. Effective November 1, 2012, substantially all of American’s defined benefit pension plans were frozen and American began providing enhanced benefits under its defined contribution pension plans for certain employee groups\. American uses a December 31 measurement date for all of its defined benefit pension plans\. American also provides certain retiree medical and other postretirement benefits, including health care and life insurance benefits, to retired employees\. Effective November 1, 2012, American modified its retiree medical and other postretirement benefits plans to eliminate the company subsidy for employees who retire on or after November 1, 2012\. As a result of modifications to its retiree medical and other postretirement benefits plans in 2012, American recognized a negative plan amendment of $1\.9 billion, which is included as a component of prior service benefit in accumulated other comprehensive income (loss) (AOCI) and will be amortized over the future service life of the active plan participants for whom the benefit was eliminated, or approximately eight years\. As of December 31, 2018, $390 million of prior service benefit remains to be amortized\.

***Benefit Obligations, Fair Value of Plan Assets and Funded Status***

The following tables provide a reconciliation of the changes in the pension and retiree medical and other postretirement benefits obligations, fair value of plan assets and a statement of funded status as of December 31, 2018 and 2017:

|                                           |                      |                      |                                                                  |                                                                  |
| ----------------------------------------- | -------------------- | -------------------- | ---------------------------------------------------------------- | ---------------------------------------------------------------- |
|                                           | **Pension Benefits** | **Pension Benefits** | **Retiree Medical and**

**Other Postretirement Benefits** | **Retiree Medical and**

**Other Postretirement Benefits** |
|                                           | **2018**             | **2017**             | **2018**                                                         | **2017**                                                         |
|                                           | **(In millions)**    | **(In millions)**    | **(In millions)**                                                | **(In millions)**                                                |
| Benefit obligation at beginning of period | $18,175              | $17,148              | $1,010                                                           | $990                                                             |
| Service cost                              | 2                    | 2                    | 5                                                                | 4                                                                |
| Interest cost                             | 670                  | 717                  | 35                                                               | 39                                                               |
| Actuarial (gain) loss  ^(1) (2)^          | (1,905)              | 1,007                | (132)                                                            | 49                                                               |
| Settlements                               | (4)                  | (4)                  | —                                                                | —                                                                |
| Benefit payments                          | (659)                | (723)                | (81)                                                             | (80)                                                             |
| Other                                     | 3                    | 28                   | —                                                                | 8                                                                |
| Benefit obligation at end of period       | $16,282              | $18,175              | $837                                                             | $1,010                                                           |

|                                                  |          |          |        |        |
| ------------------------------------------------ | -------- | -------- | ------ | ------ |
| Fair value of plan assets at beginning of period | $11,340  | $9,968   | $295   | $266   |
| Actual return on plan assets                     | (1,148)  | 1,788    | (24)   | 37     |
| Employer contributions  ^(3)^                    | 472      | 286      | 35     | 72     |
| Settlements                                      | (4)      | (4)      | —      | —      |
| Benefit payments                                 | (659)    | (723)    | (81)   | (80)   |
| Other                                            | —        | 25       | —      | —      |
| Fair value of plan assets at end of period       | $10,001  | $11,340  | $225   | $295   |
| Funded status at end of period                   | $(6,281) | $(6,835) | $(612) | $(715) |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | The  December 31, 2018  and  2017  pension actuarial (gain) loss primarily relates to changes in American’s weighted average discount rate and mortality assumptions and, in 2018, changes to American’s retirement rate assumptions\. |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | The  December 31, 2018  and  2017  retiree medical and other postretirement benefits actuarial (gain) loss primarily  |

158


Annual Report of American Airlines Group Inc\. for year 2018

**American Airlines Group Inc\.**

**American Airlines, Inc\.**

**Form 10\-K**

**Year Ended** **December 31, 2018**

**Table of Contents**

|                                                                                |                                                                                |                                                                                |
| --------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- |
|                                                                                |                                                                                | **Page**                                                                                |
| [**PART I**](https://americanairlines.gcs-web.com/email-alerts#s315AC4E5333A5A47AA884D93FDDC633B)   | [**PART I**](https://americanairlines.gcs-web.com/email-alerts#s315AC4E5333A5A47AA884D93FDDC633B)                                                                                | [**PART I**](https://americanairlines.gcs-web.com/email-alerts#s315AC4E5333A5A47AA884D93FDDC633B)   |
| [Item 1\.](https://americanairlines.gcs-web.com/email-alerts#sE7DF88641DF853FF9859ABDAE7EAE59A)     | [Business](https://americanairlines.gcs-web.com/email-alerts#sE7DF88641DF853FF9859ABDAE7EAE59A)                                                                                |
[5](https://americanairlines.gcs-web.com/email-alerts#sE7DF88641DF853FF9859ABDAE7EAE59A)        |
| [Item 1A\.](https://americanairlines.gcs-web.com/email-alerts#s4FB19BAF93BE555A89051C935DA5E703)    | [Risk Factors](https://americanairlines.gcs-web.com/email-alerts#s4FB19BAF93BE555A89051C935DA5E703)                                                                                |
[16](https://americanairlines.gcs-web.com/email-alerts#s4FB19BAF93BE555A89051C935DA5E703)       |
| [Item 1B\.](https://americanairlines.gcs-web.com/email-alerts#s51D5DA2A7C6059EE9D63014F199D62ED)    | [Unresolved Staff Comments](https://americanairlines.gcs-web.com/email-alerts#s51D5DA2A7C6059EE9D63014F199D62ED)                                                                                |
[35](https://americanairlines.gcs-web.com/email-alerts#s51D5DA2A7C6059EE9D63014F199D62ED)       |
| [Item 2\.](https://americanairlines.gcs-web.com/email-alerts#sA0EAEDDEEE1F5EFB94043C4AEC34D113)     | [Properties](https://americanairlines.gcs-web.com/email-alerts#sA0EAEDDEEE1F5EFB94043C4AEC34D113)                                                                                |
[36](https://americanairlines.gcs-web.com/email-alerts#sA0EAEDDEEE1F5EFB94043C4AEC34D113)       |
| [Item 3\.](https://americanairlines.gcs-web.com/email-alerts#sDB8B0E6E06F85619AFF72E7B269A55D0)     | [Legal Proceedings](https://americanairlines.gcs-web.com/email-alerts#sDB8B0E6E06F85619AFF72E7B269A55D0)                                                                                |
[39](https://americanairlines.gcs-web.com/email-alerts#sDB8B0E6E06F85619AFF72E7B269A55D0)       |
| [Item 4\.](https://americanairlines.gcs-web.com/email-alerts#sD61748447FE15AA29E114700E683A231)     | [Mine Safety Disclosures](https://americanairlines.gcs-web.com/email-alerts#sD61748447FE15AA29E114700E683A231)                                                                                |
[39](https://americanairlines.gcs-web.com/email-alerts#sD61748447FE15AA29E114700E683A231)       |
| [**PART II**](https://americanairlines.gcs-web.com/email-alerts#s94F360240C795E3293BD26186669D663)  | [**PART II**](https://americanairlines.gcs-web.com/email-alerts#s94F360240C795E3293BD26186669D663)                                                                                | [**PART II**](https://americanairlines.gcs-web.com/email-alerts#s94F360240C795E3293BD26186669D663)  |
| [Item 5\.](https://americanairlines.gcs-web.com/email-alerts#s52EE917E6E4C5236B101B3D26C6FAB53)     | [Market for American Airlines Group’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities](https://americanairlines.gcs-web.com/email-alerts#s52EE917E6E4C5236B101B3D26C6FAB53) |
[40](https://americanairlines.gcs-web.com/email-alerts#s52EE917E6E4C5236B101B3D26C6FAB53)       |
| [Item 6\.](https://americanairlines.gcs-web.com/email-alerts#s42FEF90909CF5ECB8508EB57331D0E44)     | [Selected Consolidated Financial Data](https://americanairlines.gcs-web.com/email-alerts#s42FEF90909CF5ECB8508EB57331D0E44)                                                                                |
[43](https://americanairlines.gcs-web.com/email-alerts#s42FEF90909CF5ECB8508EB57331D0E44)       |
| [Item 7\.](https://americanairlines.gcs-web.com/email-alerts#s14E231FBAEAC5591A949080690BAEF2B)     | [Management’s Discussion and Analysis of Financial Condition and Results of Operations](https://americanairlines.gcs-web.com/email-alerts#sB56B4B9888CE5676A7F875BEA34DB822)                                    |
[48](https://americanairlines.gcs-web.com/email-alerts#sB56B4B9888CE5676A7F875BEA34DB822)       |
| [Item 7A\.](https://americanairlines.gcs-web.com/email-alerts#s392A5AC78D425AB6961A6F965272346D)    | [Quantitative and Qualitative Disclosures About Market Risk](https://americanairlines.gcs-web.com/email-alerts#s392A5AC78D425AB6961A6F965272346D)                                                               |
[78](https://americanairlines.gcs-web.com/email-alerts#s392A5AC78D425AB6961A6F965272346D)       |
| [Item 8A\.](https://americanairlines.gcs-web.com/email-alerts#sE606302AE9115475A77D90488F02B5FA)    | [Consolidated Financial Statements and Supplementary Data of American Airlines Group Inc\.](https://americanairlines.gcs-web.com/email-alerts#sE606302AE9115475A77D90488F02B5FA)                                |
[80](https://americanairlines.gcs-web.com/email-alerts#sE606302AE9115475A77D90488F02B5FA)       |
| [Item 8B\.](https://americanairlines.gcs-web.com/email-alerts#s8A1AFE8A15BB589DB783F365EA4D0245)    | [Consolidated Financial Statements and Supplementary Data of American Airlines, Inc\.](https://americanairlines.gcs-web.com/email-alerts#s8A1AFE8A15BB589DB783F365EA4D0245)                                     |
[129](https://americanairlines.gcs-web.com/email-alerts#s8A1AFE8A15BB589DB783F365EA4D0245)      |
| [Item 9\.](https://americanairlines.gcs-web.com/email-alerts#sB040A5CA58725461926EB367F26E5811)     | [Changes In and Disagreements with Accountants on Accounting and Financial Disclosure](https://americanairlines.gcs-web.com/email-alerts#sB040A5CA58725461926EB367F26E5811)                                     |
[174](https://americanairlines.gcs-web.com/email-alerts#sB040A5CA58725461926EB367F26E5811)      |
| [Item 9A\.](https://americanairlines.gcs-web.com/email-alerts#sBA130A1C5225557DBCA7CF684647C89E)    | [Controls and Procedures](https://americanairlines.gcs-web.com/email-alerts#sBA130A1C5225557DBCA7CF684647C89E)                                                                                |
[174](https://americanairlines.gcs-web.com/email-alerts#sBA130A1C5225557DBCA7CF684647C89E)      |
| [**PART III**](https://americanairlines.gcs-web.com/email-alerts#s27B0D58AFBDF5815B53DA6C0B3545AE3) | [**PART III**](https://americanairlines.gcs-web.com/email-alerts#s27B0D58AFBDF5815B53DA6C0B3545AE3)                                                                                | [**PART III**](https://americanairlines.gcs-web.com/email-alerts#s27B0D58AFBDF5815B53DA6C0B3545AE3) |
| [Item 10\.](https://americanairlines.gcs-web.com/email-alerts#s349003CDADFA50FE8BD15A79652FCA50)    | [Directors, Executive Officers and Corporate Governance](https://americanairlines.gcs-web.com/email-alerts#s349003CDADFA50FE8BD15A79652FCA50)                                                                   |
[178](https://americanairlines.gcs-web.com/email-alerts#s349003CDADFA50FE8BD15A79652FCA50)      |
| [Item 11\.](https://americanairlines.gcs-web.com/email-alerts#s1A0B6FAF6848554E9C1DFC334B7AED38)    | [Executive Compensation](https://americanairlines.gcs-web.com/email-alerts#s1A0B6FAF6848554E9C1DFC334B7AED38)                                                                                |
[178](https://americanairlines.gcs-web.com/email-alerts#s1A0B6FAF6848554E9C1DFC334B7AED38)      |
| [Item 12\. ](https://americanairlines.gcs-web.com/email-alerts#sCCA8B630053F5F8797D80E7F0307A59C)   | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](https://americanairlines.gcs-web.com/email-alerts#sCCA8B630053F5F8797D80E7F0307A59C)                           |
[178](https://americanairlines.gcs-web.com/email-alerts#sCCA8B630053F5F8797D80E7F0307A59C)      |
| [Item 13\.](https://americanairlines.gcs-web.com/email-alerts#sD917D7FEAE13583EABEE9925B99AE591)    | [Certain Relationships and Related Transactions, and Director Independence](https://americanairlines.gcs-web.com/email-alerts#sD917D7FEAE13583EABEE9925B99AE591)                                                |
[178](https://americanairlines.gcs-web.com/email-alerts#sD917D7FEAE13583EABEE9925B99AE591)      |
| [Item 14\.](https://americanairlines.gcs-web.com/email-alerts#sD2129A5E930E5A73BEDE0CB22F0593A5)    | [Principal Accountant Fees and Services](https://americanairlines.gcs-web.com/email-alerts#sD2129A5E930E5A73BEDE0CB22F0593A5)                                                                                |
[178](https://americanairlines.gcs-web.com/email-alerts#sD2129A5E930E5A73BEDE0CB22F0593A5)      |
| [**PART IV**](https://americanairlines.gcs-web.com/email-alerts#sA4A6E48551045A17B8B706F648A34D51)  | [**PART IV**](https://americanairlines.gcs-web.com/email-alerts#sA4A6E48551045A17B8B706F648A34D51)                                                                                | [**PART IV**](https://americanairlines.gcs-web.com/email-alerts#sA4A6E48551045A17B8B706F648A34D51)  |
| [Item 15\.](https://americanairlines.gcs-web.com/email-alerts#s9FAF1D6737875D6193F530033AED2A20)    | [Exhibits and Financial Statement Schedules](https://americanairlines.gcs-web.com/email-alerts#s9FAF1D6737875D6193F530033AED2A20)                                                                               |
[179](https://americanairlines.gcs-web.com/email-alerts#s9FAF1D6737875D6193F530033AED2A20)      |
| [Item 16\.](https://americanairlines.gcs-web.com/email-alerts#sCDAA687A88365262B1F66758A701DC68)    | [Form 10\-K Summary](https://americanairlines.gcs-web.com/email-alerts#sCDAA687A88365262B1F66758A701DC68)                                                                                |
[199](https://americanairlines.gcs-web.com/email-alerts#sCDAA687A88365262B1F66758A701DC68)      |
| [SIGNATURES](https://americanairlines.gcs-web.com/email-alerts#s4A6DFCB156835EF5ABE737E47F0215FE)   | [SIGNATURES](https://americanairlines.gcs-web.com/email-alerts#s4A6DFCB156835EF5ABE737E47F0215FE)                                                                                |
[200](https://americanairlines.gcs-web.com/email-alerts#s4A6DFCB156835EF5ABE737E47F0215FE)      |

3


Annual Report of United Continental Holdings, Inc\. and United Airlines, Inc\. for year 2018

[Table of Contents](https://www.example.com#sCFFD9DA26B5659A3A528A4B51B718F87)

stock of Azul)\. The Company recognizes changes to the fair value of its equity investment in Azul in Miscellaneous, net in its statements of consolidated operations\.

**Synergy Term Loan** \- On November 29, 2018, United, as lender, entered into a Term Loan Agreement (the "Synergy Loan Agreement") with affiliates of Synergy Aerospace Corporation ("Synergy"), as borrower and guarantor, respectively, and, pursuant to the Synergy Loan Agreement, on November 30, 2018, United provided a $456 million term loan to Synergy (the "Synergy Term Loan"), secured by a pledge of borrower's equity, as well as Synergy's 516 million shares of common stock of AVH, the parent company of Avianca (equivalent to 64\.5 million American Depositary Receipts ("ADRs"), the class of AVH securities that trades on the New York Stock Exchange ("NYSE"))\. Pursuant to the Synergy Loan Agreement, the Synergy Term Loan is due and payable in five annual installments beginning on November 30, 2021, to be repaid in full on November 30, 2025 (a portion of which is subject to extension in limited circumstances)\. Subject to the satisfaction of collateral coverage thresholds, minimum share price levels and certain other conditions, Synergy may repay United in shares of AVH common stock, at market value, in an amount up to 25 percent of any principal installment, or with cash from the sale of Synergy's shares of AVH stock\. The Synergy Term Loan bears interest at an annual rate of 3 percent per annum, payable quarterly in arrears\. United also obtained an option to acquire, on a gross or net basis and at a fixed price, up to 77\.4 million shares of AVH common stock from Synergy (the "AVH Call Options"), and agreed with Synergy to share in any increase in value of the remaining 438\.6 million shares of Synergy's AVH common stock within certain price ranges (the "AVH Share Appreciation Rights")\. Until the third anniversary of funding, Synergy has the option to capitalize interest that would have been due, adding it to the outstanding principal balance of the Synergy Term Loan\. Pursuant to the Synergy Loan Agreement, Synergy has agreed to certain financial and non\-financial covenants, as well as customary events of default\.

In connection with funding the Synergy Loan Agreement, on November 29, 2018, United also entered into an agreement with AVH's significant minority shareholder, Kingsland Holdings Limited ("Kingsland"), pursuant to which, in return for Kingsland's pledge of its 144\.8 million shares of AVH common stock (equivalent to 18\.1 million ADRs) and its consent to Synergy's pledge of its AVH common stock to United under the Synergy Loan Agreement, United (1) granted to Kingsland the right to put its shares of AVH common stock to United at market price on the fifth anniversary of the Synergy Loan Agreement, and (2) guaranteed Synergy's obligation to pay Kingsland (which amount, if paid by United, will increase United's secured loan to Synergy by such amount) if the market price of AVH common stock on the fifth anniversary is less than $12 per ADR on the NYSE, for an aggregate maximum possible combined put payment and guarantee amount on the fifth anniversary of $217\.2 million\. United also agreed with Kingsland to share in any increase in value of AVH common stock within certain price ranges (the "Upside Sharing Agreement")\.

**AVH Derivative Assets \-** The AVH Call Options, AVH Share Appreciation Rights and the Upside Sharing Agreement (collectively, the "AVH Derivative Assets") are recorded at fair value as Other assets on the Company's balance sheet and are included in the table above\. Changes in the fair value of the AVH Derivative Assets are recorded as part of Nonoperating income (expense): Miscellaneous, net on the Company's statements of consolidated operations\.

Investments presented in the table above have the same fair value as their carrying value\. The table below presents the carrying values and estimated fair values of financial instruments not presented in the tables above as of December 31 (in millions)\. Carrying amounts include any related discounts, premiums, issuance costs and origination costs:

|                   |                     |                |                |                |                |                     |                |                |                |                |
| ----------------- | ------------------- | -------------- | -------------- | -------------- | -------------- | ------------------- | -------------- | -------------- | -------------- | -------------- |
|                   | **2018**            | **2018**       | **2018**       | **2018**       | **2018**       | **2017**            | **2017**       | **2017**       | **2017**       | **2017**       |
|                   | **Carrying Amount** | **Fair Value** | **Fair Value** | **Fair Value** | **Fair Value** | **Carrying Amount** | **Fair Value** | **Fair Value** | **Fair Value** | **Fair Value** |
|                   |                     | **Total**      | **Level 1**    | **Level 2**    | **Level 3**    |                     | **Total**      | **Level 1**    | **Level 2**    | **Level 3**    |
| Long\-term debt   | $13,445             | $13,450        | $—             | $9,525         | $3,925         | $13,268             | $13,787        | $—             | $10,115        | $3,672         |
| Synergy Term Loan | 478                 | 422            | —              | —              | 422            | —                   | —              | —              | —              | —              |

Fair value of the financial instruments included in the tables above was determined as follows:

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