Annual Report of DELTA AIR LINES, INC\.  for year 2017

|                                                                                |                                                                    |
| ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ |
| **Table of Contents**                                                                                | **Table of Contents**                                              |
|                                                                                | **Page**                                                           |
| [Forward\-Looking Statements](http://ir.delta.com/.#s9C660AB1B5E751EFBFF1397E87FD0791)                                                                                |
[ 1](http://ir.delta.com/.#s9C660AB1B5E751EFBFF1397E87FD0791)  |
| **PART I**                                                                                |                                                                    |
| [**ITEM 1\. BUSINESS**](http://ir.delta.com/.#s66A82B80860656B8820C39C9C17CA57E)                                                                                |
[ 2](http://ir.delta.com/.#s66A82B80860656B8820C39C9C17CA57E)  |
| [General](http://ir.delta.com/.#sF0F090E0FC855DE29E4BF3C7AB17C8FA)                                                                                |
[ 2](http://ir.delta.com/.#sF0F090E0FC855DE29E4BF3C7AB17C8FA)  |
| [Frequent Flyer Program](http://ir.delta.com/.#s6DDA41D5C59F5AA19DF244660885F7CF)                                                                                |
[ 4](http://ir.delta.com/.#s0F572D4042A452F7A6ACBB03932DDE89)  |
| [Fuel](http://ir.delta.com/.#s0F572D4042A452F7A6ACBB03932DDE89)                                                                                |
[ 4](http://ir.delta.com/.#s6DDA41D5C59F5AA19DF244660885F7CF)  |
| [Other Businesses](http://ir.delta.com/.#s45A27AE74C145033A35B297B4A81B103)                                                                                |
[ 5](http://ir.delta.com/.#s45A27AE74C145033A35B297B4A81B103)  |
| [Distribution and Expanded Product Offerings](http://ir.delta.com/.#sB27BE734F75D5A979BB059BD51B4FF75)                                                                                |
[ 5](http://ir.delta.com/.#sB27BE734F75D5A979BB059BD51B4FF75)  |
| [Competition](http://ir.delta.com/.#s2186D61BF6545A598FA9C63C6D126AF1)                                                                                |
[ 6](http://ir.delta.com/.#s2186D61BF6545A598FA9C63C6D126AF1)  |
| [Regulatory Matters](http://ir.delta.com/.#sC782BE645A155DA8B2EE353C79AE7BC1)                                                                                |
[ 7](http://ir.delta.com/.#sC782BE645A155DA8B2EE353C79AE7BC1)  |
| [Employee Matters](http://ir.delta.com/.#sBD975A0863655B52B28C9FA5B61AE7B0)                                                                                |
[ 10](http://ir.delta.com/.#sBD975A0863655B52B28C9FA5B61AE7B0) |
| [Executive Officers of the Registrant](http://ir.delta.com/.#s0B106DB2E6B55E3CB3B43CC2376BBBAC)                                                                                |
[ 11](http://ir.delta.com/.#s0B106DB2E6B55E3CB3B43CC2376BBBAC) |
| [Additional Information](http://ir.delta.com/.#s7B7DE818733F58DA96F9608A56039F14)                                                                                |
[ 11](http://ir.delta.com/.#s7B7DE818733F58DA96F9608A56039F14) |
| [**ITEM 1A\. RISK FACTORS**](http://ir.delta.com/.#s32E7B8D7CFCC5890893B5F4F82775D13)                                                                                |
[ 12](http://ir.delta.com/.#s32E7B8D7CFCC5890893B5F4F82775D13) |
| [Risk Factors Relating to Delta](http://ir.delta.com/.#sFD6951C588F6530E8ECBDECBC6A23377)                                                                                |
[ 12](http://ir.delta.com/.#sFD6951C588F6530E8ECBDECBC6A23377) |
| [Risk Factors Relating to the Airline Industry](http://ir.delta.com/.#sBF4C8C65F2BB55C7851B35F3865E141F)                                                                                |
[ 17](http://ir.delta.com/.#sBF4C8C65F2BB55C7851B35F3865E141F) |
| [**ITEM 1B\. UNRESOLVED STAFF COMMENTS**](http://ir.delta.com/.#s77E66D98E4845619A2CD8FB441C2CFA6)                                                                                |
[ 19](http://ir.delta.com/.#s77E66D98E4845619A2CD8FB441C2CFA6) |
| [**ITEM 2\. PROPERTIES**](http://ir.delta.com/.#s0AD7CB6FEB815783A9E8B28434C131CF)                                                                                |
[ 20](http://ir.delta.com/.#s0AD7CB6FEB815783A9E8B28434C131CF) |
| [Flight Equipment](http://ir.delta.com/.#sC1C036F535B35588AC93BF9E6D1C0E76)                                                                                |
[ 20](http://ir.delta.com/.#sC1C036F535B35588AC93BF9E6D1C0E76) |
| [Ground Facilities](http://ir.delta.com/.#sE2C1257B409C52ECB22BCAF98ED22CDB)                                                                                |
[ 21](http://ir.delta.com/.#sE2C1257B409C52ECB22BCAF98ED22CDB) |
| [**ITEM 3\. LEGAL PROCEEDINGS**](http://ir.delta.com/.#sCF7D4DC11BAA544D8D73ED9D1939B71B)                                                                                |
[ 22](http://ir.delta.com/.#sCF7D4DC11BAA544D8D73ED9D1939B71B) |
| [**ITEM 4\. MINE SAFETY DISCLOSURES**](http://ir.delta.com/.#sEB1EEDF4445A5AE381FABA2ACB432666)                                                                                |
[ 22](http://ir.delta.com/.#sEB1EEDF4445A5AE381FABA2ACB432666) |
| **PART II**                                                                                |                                                                    |
| [**ITEM 5\. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER**](http://ir.delta.com/.#s699C4BCD54D2582DB52C9CF0568753E8)

[**MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES**](http://ir.delta.com/.#s699C4BCD54D2582DB52C9CF0568753E8) |
[ 23](http://ir.delta.com/.#s699C4BCD54D2582DB52C9CF0568753E8) |
| [**ITEM 6\. SELECTED FINANCIAL DATA**](http://ir.delta.com/.#sCCB479AEF0535114A10D6CA240A00EC1)                                                                                |
[ 25](http://ir.delta.com/.#sCCB479AEF0535114A10D6CA240A00EC1) |
| [**ITEM 7\. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND**](http://ir.delta.com/.#s2F0D246DA9B45245A4DC549A76EE901F)

[**RESULTS OF OPERATION**](http://ir.delta.com/.#s2F0D246DA9B45245A4DC549A76EE901F)**S**                   |
[ 27](http://ir.delta.com/.#s2F0D246DA9B45245A4DC549A76EE901F) |
| [Financial Highlights \- 2017 Compared to 2016](http://ir.delta.com/.#s1854A5FE8DAC5CAE888D634B94649771)                                                                                |
[ 27](http://ir.delta.com/.#s1854A5FE8DAC5CAE888D634B94649771) |
| [Results of Operations \- 2017 Compared to 2016](http://ir.delta.com/.#sD85E84FAF2E65537B5DD04C6C6528673)                                                                                |
[ 28](http://ir.delta.com/.#sD85E84FAF2E65537B5DD04C6C6528673) |
| [Results of Operations \- 2016 Compared to 2015](http://ir.delta.com/.#sB8E583D6BDD554A6A4539E013BB18847)                                                                                |
[ 32](http://ir.delta.com/.#sB8E583D6BDD554A6A4539E013BB18847) |
| [Non\-Operating Results](http://ir.delta.com/.#s0A09F0A81F045F95B8DF4D8A7BAA539A)                                                                                |
[ 35](http://ir.delta.com/.#s0A09F0A81F045F95B8DF4D8A7BAA539A) |
| [Income Taxes](http://ir.delta.com/.#s17BD50889F5A5E6186EB54DD64F35FF5)                                                                                |
[ 35](http://ir.delta.com/.#s17BD50889F5A5E6186EB54DD64F35FF5) |
| [Refinery Segment](http://ir.delta.com/.#sE0CFF62740FC52E8886BC44A8733F418)                                                                                |
[ 35](http://ir.delta.com/.#sE0CFF62740FC52E8886BC44A8733F418) |
| [Financial Condition and Liquidity](http://ir.delta.com/.#s6CCF7426EEE855BB8678A6A4CBE8E43E)                                                                                |
[ 36](http://ir.delta.com/.#s6CCF7426EEE855BB8678A6A4CBE8E43E) |
| [Contractual Obligations](http://ir.delta.com/.#s941FC03B31535E0DA3F5818655FB4084)                                                                                |
[ 39](http://ir.delta.com/.#s941FC03B31535E0DA3F5818655FB4084) |
| [Critical Accounting Policies and Estimates](http://ir.delta.com/.#s7BFF24C2C6EB53D5ABAAC317CEEB0BC0)                                                                                |
[ 40](http://ir.delta.com/.#s7BFF24C2C6EB53D5ABAAC317CEEB0BC0) |
| [Supplemental Information](http://ir.delta.com/.#s4D59E3F454AD51738E180B190836FD4B)                                                                                |
[ 45](http://ir.delta.com/.#s4D59E3F454AD51738E180B190836FD4B) |
| [Glossary of Defined Terms](http://ir.delta.com/.#s65F846AB63565CF5A23E38097EDB2A73)                                                                                |
[ 46](http://ir.delta.com/.#s65F846AB63565CF5A23E38097EDB2A73) |
| [**ITEM 7A\. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**](http://ir.delta.com/.#sEBBFC6FC966D57FE92763ED11BEB7DF0)                                                                                |
[ 47](http://ir.delta.com/.#sEBBFC6FC966D57FE92763ED11BEB7DF0) |
| [**ITEM 8\. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**](http://ir.delta.com/.#s64EDC3EA643158F9B7785EF1F17626AF)                                                                                |
[ 48](http://ir.delta.com/.#s64EDC3EA643158F9B7785EF1F17626AF) |
| [**ITEM 9\. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND**](http://ir.delta.com/.#sA7A516179EA152B68F962E32D20A14CF)

[**FINANCIAL DISCLOSURE**](http://ir.delta.com/.#sA7A516179EA152B68F962E32D20A14CF)                         |
[ 89](http://ir.delta.com/.#sA7A516179EA152B68F962E32D20A14CF) |
| [**ITEM 9A\. CONTROLS AND PROCEDURES**](http://ir.delta.com/.#s6FDE1FAE0F4651898268E10BABEB0C87)                                                                                |
[ 89](http://ir.delta.com/.#s6FDE1FAE0F4651898268E10BABEB0C87) |


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

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

**United Continental Holdings, Inc\. Management Report on Internal Control Over Financial Reporting**

February 22, 2018

To the Stockholders of United Continental Holdings, Inc\.

Chicago, Illinois

The management of United Continental Holdings, Inc\. (“UAL”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a\-15(f)\. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles\. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements\. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate\.

Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the design and operating effectiveness of our internal control over financial reporting as of December 31, 2017\. In making this assessment, management used the framework set forth in Internal Control—Integrated Framework (2013 Framework)issued by the Committee of the Sponsoring Organizations of the Treadway Commission\. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting was effective as of December 31, 2017\.

Our independent registered public accounting firm, Ernst & Young LLP, who audited UAL’s consolidated financial statements included in this Form 10\-K, has issued a report on UAL’s internal control over financial reporting, which is included herein\.

**United Airlines, Inc\. Management Report on Internal Control Over Financial Reporting**

February 22, 2018

To the Stockholder of United Airlines, Inc\.

Chicago, Illinois

The management of United Airlines, Inc\. (“United”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a\-15(f)\. United’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles\. Because of its inherent limitations, United’s internal control over financial reporting may not prevent or detect misstatements\. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate\.

Under the supervision and with the participation of management, including United’s Chief Executive Officer and Chief Financial Officer, United conducted an evaluation of the design and operating effectiveness of its internal control over financial reporting as of December 31, 2017\. In making this assessment, management used the framework set forth in Internal Control—Integrated Framework (2013 Framework) issued by the Committee of the Sponsoring Organizations of the Treadway Commission\. Based on this evaluation, United’s Chief Executive Officer and Chief Financial Officer concluded that its internal control over financial reporting was effective as of December 31, 2017\.

This annual report does not include an attestation report of United’s registered public accounting firm regarding internal control over financial reporting\. Management’s report was not subject to attestation by United’s registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit United to provide only management’s report in this annual report\.

104


Annual Report of American Airlines Group Inc\. for year 2019

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

7\. Fair Value Measurements and Other Investments

Assets Measured at Fair Value on a Recurring Basis

Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability (i\.e\. an exit price) on the measurement date in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability\. Accounting standards include disclosure requirements around fair values used for certain financial instruments and establish a fair value hierarchy\. The hierarchy prioritizes valuation inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market\. Each fair value measurement is reported in one of three levels:

|   |                                                                      |
| - | -------------------------------------------------------------------- |
| • | Level 1 – Observable inputs such as quoted prices in active markets; |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------- |
| • | Level 2 – Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and |

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Level 3 – Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions\. |

When available, American uses quoted market prices to determine the fair value of its financial assets\. If quoted market prices are not available, American measures fair value using valuation techniques that use, when possible, current market\-based or independently\-sourced market parameters, such as interest rates and currency rates\.

American utilizes the market approach to measure the fair value of its financial assets\. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets\. American’s short\-term investments classified as Level 2 primarily utilize broker quotes in a non\-active market for valuation of these securities\. No changes in valuation techniques or inputs occurred during the year ended  December 31, 2019 \.

Assets measured at fair value on a recurring basis are summarized below (in millions):

|                                                    |                                                     |                                                     |                                                     |                                                     |
| -------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- |
|                                                    | **Fair Value Measurements as of December 31, 2019** | **Fair Value Measurements as of December 31, 2019** | **Fair Value Measurements as of December 31, 2019** | **Fair Value Measurements as of December 31, 2019** |
|                                                    | **Total**                                           | **Level 1**                                         | **Level 2**                                         | **Level 3**                                         |
| Short\-term investments  ^(1),^  ^(2)^ :           |                                                     |                                                     |                                                     |                                                     |
| Money market funds                                 | $331                                                | $331                                                | $—                                                  | $—                                                  |
| Bank notes/certificates of deposit/time deposits   | 2,106                                               | —                                                   | 2,106                                               | —                                                   |
| Corporate obligations                              | 1,021                                               | —                                                   | 1,021                                               | —                                                   |
| Repurchase agreements                              | 85                                                  | —                                                   | 85                                                  | —                                                   |
|                                                    | 3,543                                               | 331                                                 | 3,212                                               | —                                                   |
| Restricted cash and short\-term investments  ^(1)^ | 158                                                 | 10                                                  | 148                                                 | —                                                   |
| Long\-term investments  ^(3)^                      | 204                                                 | 204                                                 | —                                                   | —                                                   |
| Total                                              | $3,905                                              | $545                                                | $3,360                                              | $—                                                  |

|                                                    |                                                     |                                                     |                                                     |                                                     |
| -------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- |
|                                                    | **Fair Value Measurements as of December 31, 2018** | **Fair Value Measurements as of December 31, 2018** | **Fair Value Measurements as of December 31, 2018** | **Fair Value Measurements as of December 31, 2018** |
|                                                    | **Total**                                           | **Level 1**                                         | **Level 2**                                         | **Level 3**                                         |
| Short\-term investments  ^(1)^ :                   |                                                     |                                                     |                                                     |                                                     |
| Money market funds                                 | $14                                                 | $14                                                 | $—                                                  | $—                                                  |
| Bank notes/certificates of deposit/time deposits   | 2,435                                               | —                                                   | 2,435                                               | —                                                   |
| Corporate obligations                              | 1,658                                               | —                                                   | 1,658                                               | —                                                   |
| Repurchase agreements                              | 375                                                 | —                                                   | 375                                                 | —                                                   |
|                                                    | 4,482                                               | 14                                                  | 4,468                                               | —                                                   |
| Restricted cash and short\-term investments  ^(1)^ | 154                                                 | 12                                                  | 142                                                 | —                                                   |
| Long\-term investments  ^(3)^                      | 189                                                 | 189                                                 | —                                                   | —                                                   |
| Total                                              | $4,825                                              | $215                                                | $4,610                                              | $—                                                  |

140


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

Plan asset by fund category (in millions):

|                                         |            |          |                          |
| --------------------------------------- | ---------- | -------- | ------------------------ |
|                                         | **2017**   | **2016** | **Fair Value Hierarchy** |
| **Fund type:**                          |            |          |                          |
| U\.S\. equity market fund               | **$515**   | $545     | 1                        |
| Non\-U\.S\. equity fund                 | **226**    | 218      | 1                        |
| Credit bond index fund                  | **1,232**  | 989      | 1                        |
| Plan assets in common commingled trusts | **$1,973** | $1,752   |                          |
| Real estate                             | **97**     | 91       | (a)                      |
| Cash equivalents                        | **13**     | 3        | 1                        |
| Total plan assets                       | **$2,083** | $1,846   |                          |

|     |                                                                                |
| --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (a) | In accordance with Subtopic 820\-10, certain investments that are measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy\.  |

The following table sets forth the status of the qualified defined\-benefit pension plans (in millions):

|                                        |            |          |
| -------------------------------------- | ---------- | -------- |
|                                        | **2017**   | **2016** |
| **Projected benefit obligation (PBO)** |            |          |
| Beginning of year                      | **$2,043** | $1,898   |
| Service cost                           | **39**     | 37       |
| Interest cost                          | **74**     | 73       |
| Actuarial loss                         | **300**    | 104      |
| Benefits paid                          | **(69)**   | (69)     |
| End of year                            | **$2,387** | $2,043   |
| **Plan assets at fair value**          |            |          |
| Beginning of year                      | **$1,846** | $1,737   |
| Actual return on plan assets           | **291**    | 178      |
| Employer contributions                 | **15**     | —        |
| Benefits paid                          | **(69)**   | (69)     |
| End of year                            | **$2,083** | $1,846   |
| Unfunded status                        | **$(304)** | $(197)   |
| Percent funded                         | **87%**    | 90%      |

The accumulated benefit obligation for the combined qualified defined\-benefit pension plans was $2\.2 billion and $1\.9 billion at December 31, 2017 and 2016\.

The amounts recognized in the consolidated balance sheets (in millions):

|                                                         |          |          |
| ------------------------------------------------------- | -------- | -------- |
|                                                         | **2017** | **2016** |
| Accrued benefit liability\-long term                    | **$335** | $225     |
| Plan assets\-long term (within Other noncurrent assets) | **(31)** | (28)     |
| Total liability recognized                              | **$304** | $197     |

The amounts not yet reflected in net periodic benefit cost and included in AOCL (in millions):

|                                    |          |          |
| ---------------------------------- | -------- | -------- |
|                                    | **2017** | **2016** |
| Prior service credit               | **$(9)** | $(10)    |
| Net loss                           | **597**  | 509      |
| Amount recognized in AOCL (pretax) | **$588** | $499     |

 84


Annual Report of DELTA AIR LINES, INC\.  for year 2017

[Table of Contents](http://ir.delta.com/.#s38B278257A885660AB93394F5F0EFBED)

Life Expectancy \. Changes in life expectancy may significantly change our benefit obligations and future expense\. We use the Society of Actuaries ("SOA") published mortality data, other publicly available information and our own perspective of future longevity to develop our best estimate of life expectancy\. The SOA publishes annual updated mortality tables for U\.S\. plans and updated improvement scale\. Each year we consider updates by the SOA in setting our mortality assumptions for purposes of measuring pension and other postretirement and postemployment benefit obligations\.

Funding\.  Our funding obligations for qualified defined benefit plans are governed by the Employee Retirement Income Security Act\.  The Pension Protection Act of 2006 allows commercial airlines to elect alternative funding rules ("Alternative Funding Rules") for defined benefit plans that are frozen\. We elected the Alternative Funding Rules under which the unfunded liability for a frozen defined benefit plan may be amortized over a fixed 17\-year period and is calculated using an  8\.85%  discount rate\.

While the Pension Protection Act makes our funding obligations for these plans more predictable, factors outside our control continue to have an impact on the funding requirements\. Estimates of future funding requirements are based on various assumptions and can vary materially from actual funding requirements\. Assumptions include, among other things, the actual and projected market performance of assets, statutory requirements and demographic data for participants\. For additional information, see  Note 9  of the Notes to the Consolidated Financial Statements\.

Recent Accounting Standards

Revenue from Contracts with Customers

On January 1, 2018, we will adopt ASU No\. 2014\-09, "Revenue from Contracts with Customers (Topic 606)" using the full retrospective method\. While the adoption will not have a significant impact on earnings, the classification of certain revenues that are currently classified in other revenue will be reclassified to passenger revenue\. These include baggage fees, administrative charges and other travel\-related fees, all of which will be deemed part of the single performance obligation of providing passenger transportation\. These revenues, which are approximately  $2 billion  annually, will be reclassified from the current presentation in other revenue to passenger revenue\.

In addition, the adoption of the new standard increases the rate used to account for frequent flyer miles\. We currently analyze our standalone sales of mileage credits to other airlines and customers to establish the accounting value for frequent flyer miles\. Considering the guidance in the new standard, we will change our valuation of a mileage credit to an analysis of the award redemption value\. The new valuation considers the value a passenger receives by redeeming miles rather than paying cash for an award ticket\. This change increases our frequent flyer liability by approximately  $2 billion \. The mileage deferral and redemption rates are approximately the same; therefore, assuming stable volume, there would not be a significant change in revenue recognized from the program for a given period\.

The adoption of the new standard will also reduce our air traffic liability by approximately  $500 million \. This change primarily results from estimating the tickets that will expire unused and recognizing revenue at the scheduled flight date rather than when the unused tickets expire\.

Retirement Benefits

In 2017, the FASB issued ASU No\. 2017\-07, "Compensation—Retirement Benefits (Topic 715)\." This standard requires an entity to report the service cost component in the same line item as other compensation costs\. The other components of net (benefit) cost will be required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations\. In 2017, we recorded $50 million of non\-service costs that will be reclassified to non\-operating expense upon adoption\. This standard is effective for interim and annual reporting periods beginning after December 15, 2017\. We will adopt the standard effective January 1, 2018\.

 43


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

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

|                                                                                |                                   |                                   |
|:------------------------------------------------------------------------------------- | ---------------------------------:| ---------------------------------:|
|                                                                                | **Other Postretirement Benefits** | **Other Postretirement Benefits** |
| **Assumptions used to determine benefit obligations**                                 |                         **2017**  |                         **2016**  |
| Discount rate                                                                         |                            3\.63% |                            4\.07% |
| **Assumptions used to determine net expense**                                         |                                   |                                   |
| Discount rate                                                                         |                            4\.07% |                            4\.49% |
| Expected return on plan assets                                                        |                            3\.00% |                            3\.00% |
| Health care cost trend rate assumed for next year                                     |                            6\.25% |                            6\.50% |
| Rate to which the cost trend rate is assumed to decline (ultimate trend rate in 2023) |                            5\.00% |                            5\.00% |

The Company used the Society of Actuaries’ 2014 mortality tables, modified to reflect the Social Security Administration Trustee’s Report on current projections regarding expected longevity improvements\.

The Company selected the 2017 discount rate for substantially all of its plans by using a hypothetical portfolio of high quality bonds at December 31, 2017, that would provide the necessary cash flows to match projected benefit payments\.

We develop our expected long\-term rate of return assumption for our defined benefit plans based on historical experience and by evaluating input from the trustee managing the plans’ assets\. Our expected long\-term rate of return on plan assets for these plans is based on a target allocation of assets, which is based on our goal of earning the highest rate of return while maintaining risk at acceptable levels\. The plans strive to have assets sufficiently diversified so that adverse or unexpected results from one security class will not have an unduly detrimental impact on the entire portfolio\. Plan fiduciaries regularly review our actual asset allocation and the pension plans’ investments are periodically rebalanced to our targeted allocation when considered appropriate\. United’s plan assets are allocated within the following guidelines:

|                          |                  |                                           |
|:------------------------ |:----------------:|:-----------------------------------------:|
|                          | Percent of Total | Expected Long\-Term

Rate of Return |
| Equity securities        |     27\-42 %     |                   9\.5 %                  |
| Fixed\-income securities |      30\-40      |                   5\.5                    |
| Alternatives             |      10\-25      |                   7\.3                    |
| Other                    |      0\-10       |                   7\.3                    |

One\-hundred percent of other postretirement plan assets are invested in a deposit administration fund\.

Assumed health care cost trend rates have a significant effect on the amounts reported for the other postretirement plans\. A 1% change in the assumed health care trend rate for the Company would have the following additional effects (in millions):

|                                                                                |                 |                 |
|:------------------------------------------------------------------------------ | ---------------:| ---------------:|
|                                                                                | **1% Increase** | **1% Decrease** |
| Effect on total service and interest cost for the year ended December 31, 2017 |            $11  |            $(8) |
| Effect on postretirement benefit obligation at December 31, 2017               |            170  |           (149) |

A one percentage point decrease in the weighted average discount rate would increase the Company’s postretirement benefit liability by approximately $185 million and increase the estimated 2017 benefits expense by approximately $8 million\.

81


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

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

*Advance Ticket Sales\.* Advance ticket sales represent the Company's liability to provide air transportation in the future\. In the years ended December 31, 2018 and 2017, the Company recognized approximately $3\.1 billion and $2\.9 billion, respectively, of passenger revenue for tickets that were included in Advance ticket sales at the beginning of those periods\. All tickets sold at any given point of time have travel dates extending up to twelve months\. As a result, the balance of the Company's Advance ticket sales liability represents activity that will be recognized in the next twelve months\.

|                                                                                |
| ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| *Revenue by Geography\.*  The Company further disaggregates revenue by geographic regions\. Operating segments are defined as components of an enterprise with separate financial information, which are evaluated regularly by the chief operating decision maker and are used in resource allocation and performance assessments\.  |

The Company deploys its aircraft across its route network through a single route scheduling system to maximize its value\. When making resource allocation decisions, the Company's chief operating decision maker evaluates flight profitability data, which considers aircraft type and route economics\. The Company's chief operating decision maker makes resource allocation decisions to maximize the Company's consolidated financial results\. Managing the Company as one segment allows management the opportunity to maximize the value of its route network\.

The Company's operating revenue by principal geographic region (as defined by the U\.S\. Department of Transportation) for the years ended December 31 is presented in the table below (in millions):

|                              |          |           |           |
| ---------------------------- | -------- | --------- | --------- |
|                              | **2018** | **2017¹** | **2016¹** |
| Domestic (U\.S\. and Canada) | $25,552  | $23,114   | $22,151   |
| Atlantic                     | 7,103    | 6,340     | 6,194     |
| Pacific                      | 5,188    | 4,914     | 4,984     |
| Latin America                | 3,460    | 3,416     | 3,229     |
| Total                        | $41,303  | $37,784   | $36,558   |

(1) Amounts adjusted due to the adoption of Accounting Standards Update No\. 2014\-09, *Revenue from Contracts with Customers (Topic 606)\.* See (u) below for additional information\.

The Company attributes revenue among the geographic areas based upon the origin and destination of each flight segment\. The Company's operations involve an insignificant level of dedicated revenue\-producing assets in geographic regions as the overwhelming majority of the Company's revenue\-producing assets (primarily U\.S\. registered aircraft) can be deployed in any of its geographic regions\.

*Ancillary Fees\.*The Company charges fees, separately from ticket sales, for certain ancillary services that are directly related to passengers' travel, such as ticket change fees, baggage fees, inflight amenities fees, and other ticket\-related fees\. These ancillary fees are part of the travel performance obligation and, as such, are recognized as passenger revenue when the travel occurs\. The Company recorded $2\.2 billion, $2\.0 billion, and $1\.9 billion of ancillary fees within passenger revenue in the years ended December 31, 2018, 2017 and 2016 respectively\.

|     |                                                                                |
| --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| (c) | **Frequent Flyer Accounting—**  United's MileagePlus loyalty program builds customer loyalty by offering awards, benefits and services to program participants\. Members in this program earn miles for travel on United, United Express, Star Alliance members and certain other airlines that participate in the program\. Members can also earn miles by purchasing the goods and services of our network of non\-airline partners\. We have contracts to sell miles to these partners with the terms extending from one to eight years\. These partners include domestic and international credit card issuers, retail merchants, hotels, car rental companies and our participating airline partners\. Miles can be redeemed for free (other than taxes and government imposed fees), discounted or upgraded air travel and non\-travel awards\. Miles expire after 18 months of member account inactivity\.  |

*Miles Earned in Conjunction with Travel\.* When frequent flyers earn miles for flights, the Company recognizes a portion of the ticket sales as revenue when the travel occurs and defers a portion of the ticket sale representing the value of the related miles as a separate performance obligation\. The Company determines the estimated selling price of travel and miles as if each element is sold on a separate basis\. The total consideration from each ticket sale is then allocated to each of these elements, individually, on a pro\-rata basis\. At the time of travel, the Company records the portion allocated to the miles to Frequent flyer deferred revenue on the Company's consolidated balance sheet and subsequently recognizes it into revenue when miles are redeemed for air travel and non\-air travel awards\.

The Company's estimated selling price of miles is based on an equivalent ticket value less breakage, which incorporates the expected redemption of miles, as the best estimate of selling price for these miles\. The equivalent ticket value is based on the prior 12 months' weighted average equivalent ticket value of similar fares as those used to

55


Annual Report of Southwest Airlines Co\. for year 2017

price basis, of any undelivered element remaining at the date of contract modification\. The relative selling price of the undelivered element (air transportation) was lower than the rate at which it had been deferred under the previous contract and the Company recorded a one\-time, non\-cash adjustment to decrease frequent flyer deferred revenue and increase revenue through the recording of a Special revenue adjustment of $172 million during 2015\. In addition, 2015, 2016, and 2017 Operating revenues increased year\-over\-year by an estimated net $255 million, $544 million, and $544 million respectively, as a result of the amended Agreement with Chase and the resulting July 1, 2015, required change in accounting methodology\. See Note 1 to the Consolidated Financial Statements for further information\.

Under its current program, Southwest estimates the portion of frequent flyer points that will not be redeemed\. In estimating spoilage, the Company takes into account the Member’s past behavior, as well as several factors related to the Member’s account that are expected to be indicative of the likelihood of future point redemption\. These factors include, but are not limited to, tenure with program, points accrued in the program, and whether or not the customer has a co\-branded credit card\. During fourth quarter 2014, the Company obtained sufficient historical behavioral data to develop a predictive statistical model to analyze the amount of spoilage expected for points sold to business partners\. The Company updates this model at least annually, and applies the new spoilage rates effective October 1st each year, or more frequently if required by changes in the business\. The new spoilage rates applied in 2015, 2016, and 2017 did not have a material impact to Passenger revenues during 2015, 2016, or 2017\. For the year ended December 31, 2017, based on actual redemptions of points sold to business partners, a hypothetical one percentage point change in the estimated spoilage rate would have resulted in a change to Passenger revenue of approximately $48 million (an increase in spoilage would have resulted in an increase in revenue and a decrease in spoilage would have resulted in a decrease in revenue)\. Given that Member behavior will continue to develop as the program matures, the Company expects the current estimates may change in future periods\. However, the Company believes its current estimates are reasonable given current facts and circumstances\.

***Goodwill and Other Intangible Assets***

As a result of the Company’s acquisition of AirTran on May 2, 2011, the Company has reflected Goodwill on its Consolidated Balance Sheet in the amount of $970 million at December 31, 2017, the excess of the consideration transferred over the fair value of AirTran’s assets and liabilities on the acquisition date\. In addition, the Company's other intangible assets have a net carrying amount of approximately $413 million at December 31, 2017, of which $295 million related to indefinite\-lived intangible assets\. Indefinite\-lived assets are not amortized and primarily consist of take\-off and landing slots at certain domestic slot\-controlled airports\. Goodwill and indefinite\-lived intangible assets are not amortized, but tested for impairment annually, as of October 1st, or more frequently if events or circumstances indicate that impairment may exist\.

The Company applies a fair value based impairment test to the carrying value of goodwill and indefinite\-lived intangible assets annually on October 1st, or more frequently if certain events or circumstances indicate that an impairment loss may have been incurred\. The Company assesses the value of goodwill and indefinite\-lived assets under either a qualitative or quantitative approach\. Under a qualitative approach, the Company considers various market factors, including applicable key assumptions listed below\. These factors are analyzed to determine if events and circumstances have affected the fair value of goodwill and indefinite\-lived intangible assets\. If the Company determines that it is more likely than not that an indefinite\-lived intangible asset is impaired, the quantitative approach is used to assess the asset’s fair value and the amount of the impairment\. Under a quantitative approach, the fair value is calculated based on key assumptions listed below\. If the asset’s carrying value exceeds its fair value calculated using the quantitative approach, an impairment charge is recorded for the difference in fair value and carrying value\.

When performing a quantitative impairment assessment of goodwill and indefinite\-lived intangible assets, fair value is estimated based on (i) recent market transactions, where available; (ii) projected discounted cash flows (an income approach); or (iii) a combination of limited market transactions and the lease savings method (which reflects potential annual after\-tax lease savings arising from owning the slots rather than leasing them from another airline at market rates)\.

Key assumptions and/or estimates made in the Company’s impairment tests include: (i) a projection of revenues, expenses, and cash flows; (ii) terminal period revenue growth and cash flows; (iii) an estimated weighted average cost

65


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

***Regional***

As of December 31, 2017, the fleet of our wholly\-owned and third\-party regional carriers operating as American Eagle consisted of the following aircraft:

|                          |                                         |           |            |                                                                          |           |                                           |                                                                  |
| ------------------------ | --------------------------------------- | --------- | ---------- | ------------------------------------------------------------------------ | --------- | ----------------------------------------- | ---------------------------------------------------------------- |
|                          | **Average Seating**

**Capacity** | **Owned** | **Leased** | **Owned or**

**Leased by**

**Regional**

**Carrier** | **Total** | **Operating Regional**

**Carrier** | **Number of**

**Aircraft**

**Operated**  **^(1)^** |
| Bombardier CRJ 200       | 50                                      | 12        | 23         | 33                                                                       | 68        | PSA                                       | 35                                                               |
|                          |                                         |           |            |                                                                          |           | Air Wisconsin  ^(2)^                      | 23                                                               |
|                          |                                         |           |            |                                                                          |           | SkyWest                                   | 10                                                               |
|                          |                                         |           |            |                                                                          |           | Total                                     | 68                                                               |
| Bombardier CRJ 700       | 66                                      | 54        | 7          | 49                                                                       | 110       | SkyWest                                   | 37                                                               |
|                          |                                         |           |            |                                                                          |           | PSA                                       | 34                                                               |
|                          |                                         |           |            |                                                                          |           | Envoy                                     | 27                                                               |
|                          |                                         |           |            |                                                                          |           | ExpressJet                                | 12                                                               |
|                          |                                         |           |            |                                                                          |           | Total                                     | 110                                                              |
| Bombardier CRJ 900       | 77                                      | 54        | —          | 64                                                                       | 118       | Mesa                                      | 64                                                               |
|                          |                                         |           |            |                                                                          |           | PSA                                       | 54                                                               |
|                          |                                         |           |            |                                                                          |           | Total                                     | 118                                                              |
| De Havilland Dash 8\-100 | 37                                      | 3         | —          | —                                                                        | 3         | Piedmont                                  | 3                                                                |
| De Havilland Dash 8\-300 | 48                                      | —         | 11         | —                                                                        | 11        | Piedmont                                  | 11                                                               |
| Embraer E175             | 76                                      | 64        | —          | 84                                                                       | 148       | Republic                                  | 84                                                               |
|                          |                                         |           |            |                                                                          |           | Envoy                                     | 44                                                               |
|                          |                                         |           |            |                                                                          |           | Compass                                   | 20                                                               |
|                          |                                         |           |            |                                                                          |           | Total                                     | 148                                                              |
| Embraer ERJ 140          | 44                                      | 21        | —          | —                                                                        | 21        | Envoy                                     | 21                                                               |
| Embraer ERJ 145          | 50                                      | 118       | —          | —                                                                        | 118       | Envoy                                     | 68                                                               |
|                          |                                         |           |            |                                                                          |           | Piedmont                                  | 35                                                               |
|                          |                                         |           |            |                                                                          |           | Trans States                              | 15                                                               |
|                          |                                         |           |            |                                                                          |           | Total                                     | 118                                                              |
| Total                    |                                         | 326       | 41         | 230                                                                      | 597       |                                           | 597                                                              |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Excluded from the total operating aircraft count above are  38  owned Embraer ERJ 140s that are being held in temporary storage and two Embraer E170s that were operated by Republic under a short\-term contract\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------ |
| ^(2)^ | Air Wisconsin previously operated regional jet aircraft for us; however, this arrangement ended in February 2018\. |

See Note 11 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 9 to American’s Consolidated Financial Statements in Part II, Item 8B for additional information on our capacity purchase agreements with third\-party regional carriers\.

34


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

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

***Our significant investments in airlines in other parts of the world and the commercial relationships that we have with those carriers may not produce the returns or results we expect\.***

An important part of our strategy to expand our global network includes making significant investments in airlines in other parts of the world and expanding our commercial relationships with these carriers\. In 2015, we made a $100 million investment in Azul Linhas Aéreas Brasileiras S\.A\. (“Azul”) and enhanced our commercial arrangements with Azul\. We expect to continue exploring similar non\-controlling investments in, and entering into joint ventures, commercial agreements, loan transactions and strategic alliances with, other carriers as part of our global business strategy\. These transactions and relationships (including our strategic partnership with, and investment in, Azul) involve significant challenges and risks, including that we may not realize a satisfactory return on our investment, that we may not receive repayment of invested funds, that they may distract management from our operations or that they may not generate the expected revenue synergies\. These events could have a material adverse effect on our operating results or financial condition\.

In addition, we are dependent on these other carriers for significant aspects of our network in the regions in which they operate\. While we work closely with these carriers, we do not have control over their operations or business methods\. We may be subject to consequences from any improper behavior of joint venture partners, including for failure to comply with anti\-corruption laws such as the U\.S\. Foreign Corrupt Practices Act\. Furthermore, our relationships with these carriers may be subject to the laws and regulations of non\-U\.S\. jurisdictions in which these carriers are located or conduct business\. Any political or regulatory change in these jurisdictions that negatively impact or prohibit our arrangements with these carriers could have an adverse effect on our results of operations or financial condition\. To the extent that the operations of any of these carriers are disrupted over an extended period of time or their actions subject us to the consequences of failure to comply with laws and regulations, our results of operations may be adversely affected\.

|                |                                  |
| -------------- | -------------------------------- |
|  **ITEM 1B\.** | **UNRESOLVED STAFF COMMENTS\.**  |

None\.

20


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

Our ability to provide service can also be impaired at airports, such as ORD in Chicago and Los Angeles International Airport (LAX), where the airport gate and other facilities are currently inadequate to accommodate all of the service that we would like to provide\.

Existing law also permits domestic local airport authorities to implement procedures and impose restrictions designed to abate noise, provided such procedures and restrictions do not unreasonably interfere with interstate or foreign commerce or the national transportation system\. In some instances, these restrictions have caused curtailments in service or increases in operating costs\.

***Airline Fares, Taxes and User Fees***

Airlines are permitted to establish their own domestic fares without governmental regulation\. The DOT maintains authority over certain international fares, rates and charges, but applies this authority on a limited basis\. In addition, international fares and rates are sometimes subject to the jurisdiction of the governments of the foreign countries which we serve\.

Airlines are obligated to collect a federal excise tax, commonly referred to as the “ticket tax,” on domestic and international air transportation, and to collect other taxes and charge other fees, such as foreign taxes, security fees and passenger facility charges\. Although these taxes and fees are not our operating expenses, they represent an additional cost to our customers\. These taxes and fees are subject to increase from time to time\.

***DOT Passenger Protection Rules***

The DOT regulates airline interactions with passengers through the ticketing process, at the airport and on board the aircraft\. Among other things, these regulations govern how our fares are displayed online, required customer disclosures, access by disabled passengers, handling of long onboard flight delays and reporting of mishandled bags\. In addition, the DOT is likely to issue a regulation in 2019 that would require air carriers to refund checked bag fees in the event of certain delays in delivery\.

***International***

International air transportation is subject to extensive government regulation, including aviation agreements between the U\.S\. and other countries or governmental authorities, such as the EU\. Moreover, alliances with international carriers may be subject to the jurisdiction and regulations of various foreign agencies\. The U\.S\. government has negotiated “open skies” agreements with over 120 countries, which allow unrestricted route authority access between the U\.S\. and the foreign markets\. While the U\.S\. has worked to increase the number of countries with which open skies agreements are in effect, a number of markets important to us, including China, do not have open skies agreements\.

In addition, foreign countries impose passenger protection rules, which are analogous to, and often meet or exceed the requirements of, the DOT passenger protection rules discussed above\. In cases where these foreign requirements exceed the DOT rules, we may bear additional burdens and liabilities\. Further, various foreign airport authorities impose noise restrictions at their local airports\.

***Security***

Since shortly after the events of September 11, 2001, substantially all aspects of civil aviation security in the U\.S\. or affecting U\.S\. carriers have been controlled or regulated by the federal government through the Transportation Security Administration (TSA)\. Requirements include flight deck security; carriage of federal air marshals at no charge; enhanced security screening of passengers, baggage, cargo, mail, employees and vendors; fingerprint\-based background checks of all employees and vendor employees with access to secure areas of airports; and the provision of certain passenger data to the federal government and other international border security authorities, for security and immigration controls\. Funding for the TSA is provided by a combination of air carrier fees, passenger fees and taxpayer funds\. Customs and Border Protection, which, like the TSA, is part of the Department of Homeland Security (DHS), also promulgates requirements, performs services and collects fees that impact our provision of services\. Additionally, we have at times found it necessary or desirable to make significant expenditures to comply with security\-related requirements while seeking to reduce their impact on our customers, such as expenditures for automated security screening lines at airports\. Our international service further requires us to comply with the civil aviation security regimes imposed at the foreign airports we serve\.

12


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

Passenger revenues related to our international regions  increased  0\.5%  year\-over\-year primarily due to strength in the Atlantic and Latin America regions, partially offset by revenue declines in the Pacific\. During 2017, we continued to expand our branded fare products offered throughout the international regions\.

The Atlantic region closed 2017 with three consecutive quarters of year\-over\-year unit revenue growth on strong business class bookings\. We continued to leverage our alliance partners' hub positions in Europe's leading business markets of Amsterdam, London and Paris to increase the volume of U\.S\. point\-of\-sale traffic\. The U\.K\. was particularly robust, with unit revenue growth throughout 2017, including double\-digit growth in the second half of 2017\. During the year, we expanded our Basic Economy product to mitigate the impact of ultra\-low cost carrier capacity increases\.

Unit revenues increased in Latin America principally resulting from unit revenue improvement in Brazil, related to both improved traffic and higher fares\. This improvement was driven by the strengthening of the Brazilian economy and additional connectivity for our customers provided by our relationship with GOL\. Increased leisure traffic to Mexico and the Caribbean, and the incremental value provided by our alliance with Aeroméxico also contributed to the Latin America unit revenue improvement\. Although unit revenue improved in the Caribbean, hurricane damage in several markets during 2017 resulted in temporary service adjustments\. Finally, we continued to differentiate our product offerings, including expanding Basic Economy and selling Comfort\+ as a separate fare product in Latin America\.

Unit revenue declines in the Pacific primarily resulted from industry capacity growth in the region\. We continued to optimize the Pacific region with a  7\.7%  reduction in capacity during 2017, focused on refining the network to generate incremental value from our Chinese and Korean alliances and differentiating our product offerings, including expanding Basic Economy and selling Comfort\+ as a separate fare product\. During 2017, we reached an agreement to create a transpacific joint venture with Korean Air, offering an enhanced and expanded network, industry\-leading products and service, and a seamless customer experience between the U\.S\. and Asia\. We also retired our last B\-747\-400 and introduced our new A350\-900 with Delta One suites and the Delta Premium Select cabin on routes from Detroit to Tokyo\-Narita and Seoul\-Incheon, resulting in improvements in both profitability and customer feedback\. These efforts began to show results as the Pacific returned to positive PRASM growth during the December 2017 quarter for the first time in more than four years\.

Other Revenue

|                                   |                             |                             |              |                |
| --------------------------------- | --------------------------- | --------------------------- | ------------ | -------------- |
|                                   | **Year Ended December 31,** | **Year Ended December 31,** | **Increase** | **% Increase** |
| **(in millions)**                 | **2017**                    | **2016**                    | **Increase** | **% Increase** |
| Ancillary businesses and refinery | $1,591                      | $1,293                      | $298         | 23\.0%         |
| Loyalty program                   | 1,269                       | 1,110                       | 159          | 14\.3%         |
| Miscellaneous                     | 587                         | 549                         | 38           | 6\.9%          |
| Total other revenue               | $3,447                      | $2,952                      | $495         | 16\.8%         |

Ancillary Businesses and Refinery\.  Ancillary businesses and refinery includes aircraft maintenance and staffing services provided to third parties, our vacation wholesale operations, our private jet operations and refinery sales to third parties\.  The increase in ancillary businesses and refinery primarily resulted from $268 million of additional refinery sales to third parties\.

Loyalty Program\.  Loyalty program revenues relate to brand usage by third parties and other performance obligations embedded in mileage credits sold, including redemption of mileage credits for non\-travel awards\.  Loyalty program revenues increased compared to 2016 related to growth in our co\-brand credit card relationship with American Express\.

Miscellaneous\.  Miscellaneous revenue is primarily composed of lounge access and codeshare revenues\.

 33


Annual Report of American Airlines Group Inc\. for year 2019

Aircraft and Engine Purchase Commitments

As of  December 31, 2019 , we had definitive purchase agreements with Airbus, Boeing, Embraer and Bombardier for the acquisition of the following mainline and regional aircraft  ^(1)^ :

|                       |          |          |          |          |          |                         |           |
| --------------------- | -------- | -------- | -------- | -------- | -------- | ----------------------- | --------- |
|                       | **2020** | **2021** | **2022** | **2023** | **2024** | **2025 and Thereafter** | **Total** |
| **Airbus**            |          |          |          |          |          |                         |           |
| A320neo Family  ^(2)^ | 18       | 15       | 25       | 8        | 22       | 20                      | 108       |
| **Boeing**            |          |          |          |          |          |                         |           |
| 737 MAX Family  ^(3)^ | 22       | 14       | —        | —        | —        | 40                      | 76        |
| 787 Family            | 12       | 10       | —        | 6        | 6        | 13                      | 47        |
| **Embraer**           |          |          |          |          |          |                         |           |
| E175                  | 14       | —        | —        | —        | —        | —                       | 14        |
| **Bombardier**        |          |          |          |          |          |                         |           |
| CRJ900                | 3        | —        | —        | —        | —        | —                       | 3         |
| Total                 | 69       | 39       | 25       | 14       | 28       | 73                      | 248       |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Delivery schedule represents our best estimate as of the date of this report\. Actual delivery dates are subject to change based on many potential factors including production delays by the manufacturer\.  |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| ^(2)^ | In October 2019, the Office of the U\.S\. Trade Representative announced a 10% tariff on new Airbus aircraft imported from Europe\. Effective March 18, 2020, this tariff rate will increase to 15%\. We are evaluating the impact of this tariff on our future Airbus deliveries\. See Part I, Item 1A\. Risk Factors \- “ *We operate a global business with international operations that are subject to economic and political instability and have been, and in the future may continue to be, adversely affected by numerous events, circumstances or government actions beyond our control\.* ” |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(3)^ | On March 13, 2019, a directive from the FAA grounded all U\.S\.\-registered Boeing 737 MAX aircraft\. We currently have 76 Boeing 737 MAX Family aircraft on order and we have not taken delivery of any Boeing 737 MAX Family aircraft since the grounding\. The extent of the delay to the scheduled deliveries of the Boeing 737 MAX aircraft included in the table above is expected to be impacted by the length of time the FAA order remains in place, Boeing's production rate and the pace at which Boeing can deliver aircraft following the lifting of the FAA order, among other factors\. The above table reflects our estimate of future Boeing 737 MAX aircraft deliveries based on information currently available to us; however, the actual delivery schedule may differ from the table above, potentially materially\. |

We also have agreements for  34  spare engines to be delivered in  2020  and beyond\.

We currently have financing commitments in place for all aircraft on order and scheduled to be delivered through  May 2020 \. Our ability to draw on the financing commitments we have in place is subject to the satisfaction of various terms and conditions, including in some cases, on our acquisition of the aircraft by a certain date\. We do not have financing commitments in place for  four  aircraft scheduled to be delivered in  2020 :  two  Airbus A320neo Family aircraft and  two  Boeing 737 MAX Family aircraft\. We also do not have financing commitments in place for any of the aircraft scheduled to be delivered beyond 2020, except for 10 Boeing 787 Family aircraft scheduled to be delivered in 2021\. See Part I, Item 1A\. Risk Factors – “We will need to obtain sufficient financing or other capital to operate successfully”  for additional discussion\.

See Note 12 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 10 to American’s Consolidated Financial Statements in Part II, Item 8B for additional information on aircraft and engine acquisition commitments\.

39


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

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

In 2017, the Company retired 25 million treasury shares that were originally acquired at an average cost of approximately $63 per share\.

At December 31, 2017, approximately 10 million shares of UAL’s common stock were reserved for future issuance related to the issuance of equity\-based awards under the Company’s incentive compensation plans\.

As of December 31, 2017, UAL had two shares of junior preferred stock (par value $0\.01 per share) outstanding\. In addition, UAL is authorized to issue 250 million shares of preferred stock (without par value) under UAL’s amended and restated certificate of incorporation\.

**NOTE 4 \- EARNINGS PER SHARE**

The computations of UAL’s basic and diluted earnings per share are set forth below for the years ended December 31 (in millions, except per share amounts):

|                                              |            |            |            |
|:-------------------------------------------- | ----------:| ----------:| ----------:|
|                                              |  **2017**  |  **2016**  |  **2015**  |
| Earnings available to common stockholders    |    $2,131  |    $2,263  |    $7,340  |
| Basic weighted\-average shares outstanding   |    302\.7  |    329\.9  |    376\.1  |
| Effect of convertible notes                  |         —  |         —  |      0\.3  |
| Effect of employee stock awards              |      0\.9  |      0\.4  |      0\.5  |
| Diluted weighted\-average shares outstanding |    303\.6  |    330\.3  |    376\.9  |
| Earnings per share, basic                    |    $7\.04  |    $6\.86  |   $19\.52  |
| Earnings per share, diluted                  |    $7\.02  |    $6\.85  |   $19\.47  |

The number of antidilutive securities excluded from the computation of diluted earnings per share amounts was not material\.

**NOTE 5 \- SHARE\-BASED COMPENSATION PLANS**

UAL maintains several share\-based compensation plans\. In May 2017, UAL’s Board of Directors and stockholders approved the United Continental Holdings, Inc\. 2017 Incentive Compensation Plan (the “2017 Plan”)\. The 2017 Plan is an incentive compensation plan that allows the Company to use different forms of long\-term equity incentives to attract, retain, and reward officers and employees (including prospective officers and employees)\. The 2017 Plan replaced the United Continental Holdings, Inc\. 2008 Incentive Compensation Plan (the “2008 Plan”)\. Any awards granted under the 2008 Plan prior to the approval of the 2017 Plan remain in effect pursuant to their terms\. Awards may not be granted under the 2017 Plan after May 24, 2027\. Under the 2017 Plan, the Company may grant: non\-qualified stock options, incentive stock options (within the meaning of Section 422 of the Internal Revenue Code of 1986), stock appreciation rights, restricted shares, RSUs, performance compensation awards, performance units, cash incentive awards, other equity\-based and equity\-related awards, and dividends and dividend equivalents\.

All awards are recorded as either equity or a liability in the Company’s consolidated balance sheets\. The share\-based compensation expense is recorded in salaries and related costs\.

During 2017, UAL granted share\-based compensation awards pursuant to both the 2008 Plan and the 2017 Plan\. These share\-based compensation awards include approximately 1\.6 million RSUs, consisting of 1\.0 million time\-vested RSUs and 0\.6 million performance\-based RSUs, and approximately 36,000 stock options\. The time\-vested RSUs vest pro\-rata, a majority of which vest on February 28th of each year over a three year period from the date

70


Annual Report of American Airlines Group Inc\. for year 2019

of alternative reference rates in the United Kingdom, the United States or elsewhere\. See also the discussion of interest rate risk in Part II, Item 7A\. Quantitative and Qualitative Disclosures About Market Risk –  “Interest\.”

We may in the future pursue amendments to our LIBOR\-based debt transactions to provide for a transaction mechanism or other reference rate in anticipation of LIBOR’s discontinuation, but we may not be able to reach agreement with our lenders on any such amendments\. As of  December 31, 2019 , we had  $9\.6 billion  of borrowings based on LIBOR\. The replacement of LIBOR with a comparable or successor rate could cause the amount of interest payable on our long\-term debt to be different or higher than expected\.

We will need to obtain sufficient financing or other capital to operate successfully\.

Our business plan contemplates continued significant investments related to modernizing our fleet, improving the experience of our customers and updating our facilities\. Significant capital resources will be required to execute this plan\. We estimate that, based on our commitments as of  December 31, 2019 , our planned aggregate expenditures for aircraft purchase commitments and certain engines on a consolidated basis for calendar years  2020 \- 2024  would be approximately  $8\.1 billion \. We may also require financing to refinance maturing obligations and to provide liquidity to fund other corporate requirements\. Accordingly, we will need substantial financing or other capital resources to finance such aircraft and engines and meet such other liquidity needs\. If we are unable to arrange such financing at customary advance rates and on terms and conditions acceptable to us, we may need to use cash from operations or cash on hand to purchase such aircraft and engines or may seek to negotiate deferrals for such aircraft and engines with the applicable aircraft and engine manufacturers or otherwise defer corporate obligations\. Depending on numerous factors applicable at the time we seek capital, many of which are out of our control, such as the state of the domestic and global economies, the capital and credit markets’ view of our prospects and the airline industry in general, and the general availability of debt and equity capital, the financing or other capital resources that we will need may not be available to us, or may be available only on onerous terms and conditions\. There can be no assurance that we will be successful in obtaining financing or other needed sources of capital to operate successfully\. An inability to obtain necessary financing on acceptable terms would have a material adverse impact on our business, results of operations and financial condition\.

The loss of key personnel upon whom we depend to operate our business or the inability to attract additional qualified personnel could adversely affect our business\.

We believe that our future success will depend in large part on our ability to retain or attract highly qualified management, technical and other personnel\. We may not be successful in retaining key personnel or in attracting other highly qualified personnel\. Any inability to retain or attract significant numbers of qualified management and other personnel would have a material adverse effect on our business, results of operations and financial condition\.

Union disputes, employee strikes and other labor\-related disruptions, or our inability to otherwise maintain labor costs at competitive levels may adversely affect our operations and financial performance\.

Relations between air carriers and labor unions in the U\.S\. are governed by the RLA\. Under the RLA, CBAs generally contain “amendable dates” rather than expiration dates, and the RLA requires that a carrier maintain the existing terms and conditions of employment following the amendable date through a multi\-stage and usually lengthy series of bargaining processes overseen by the NMB\. For the dates that the CBAs with our major work groups become amendable under the RLA, see Part I, Item 1\. Business –  “Employees and Labor Relations \.”

In the case of a CBA that is amendable under the RLA, if no agreement is reached during direct negotiations between the parties, either party may request that the NMB appoint a federal mediator\. The RLA prescribes no timetable for the direct negotiation and mediation processes, and it is not unusual for those processes to last for many months or even several years\. If no agreement is reached in mediation, the NMB in its discretion may declare that an impasse exists and proffer binding arbitration to the parties\. Either party may decline to submit to arbitration, and if arbitration is rejected by either party, a 30\-day “cooling off” period commences\. During or after that period, a PEB may be established, which examines the parties’ positions and recommends a solution\. The PEB process lasts for 30 days and is followed by another 30\-day “cooling off” period\. At the end of this “cooling off” period, unless an agreement is reached or action is taken by Congress, the labor organization may exercise “self\-help,” such as a strike, which could materially adversely affect our business, results of operations and financial condition\.

None of the unions representing our employees presently may lawfully engage in concerted slowdowns or refusals to work, such as strikes, sick\-outs or other similar activity, against us\. Nonetheless, there is a risk that employees, either with or without union involvement, could engage in one or more concerted refusals to work that could individually or collectively harm the operation of our airline and impair our financial performance\. For example, last year we initiated litigation and obtained a permanent injunction after the unions representing our mechanics and other ground workers

20


Annual Report of American Airlines Group Inc\. for year 2019

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

On March 13, 2019, a directive from the Federal Aviation Administration (FAA) grounded all U\.S\.\-registered Boeing 737 MAX aircraft\. American currently has   76  Boeing 737 MAX Family aircraft on order and American has not taken delivery of any Boeing 737 MAX Family aircraft since the grounding\. The extent of the delay to the scheduled deliveries of the Boeing 737 MAX aircraft is expected to be impacted by the length of time the FAA order remains in place, Boeing's production rate and the pace at which Boeing can deliver aircraft following the lifting of the FAA order, among other factors\. Due to uncertainty surrounding the timing of delivery of certain aircraft, the amounts in the table represent American’s current best estimate, including with respect to the delivery of Boeing 737 MAX aircraft; however, the actual delivery schedule may differ from the table above, potentially materially\.

The amounts in the table exclude   22  787\-8 aircraft to be delivered in 2020 and 2021 for which Boeing has committed to provide sale\-leaseback financing (in the form of operating leases)\. See Note 4 for information regarding this operating lease commitment\.

Additionally, American has purchase commitments related to aircraft fuel, construction projects and information technology support as follows (approximately):   $3\.5 billion  in  2020 ,   $3\.5 billion  in  2021 ,   $1\.3 billion  in  2022 ,   $130 million  in  2023 ,   $81 million  in  2024  and   $77 million  in  2025 and thereafter \.

(b) Capacity Purchase Agreements with Third\-Party Regional Carriers

American has capacity purchase agreements with third\-party regional carriers\. The capacity purchase agreements provide that all revenues, including passenger, in\-flight, ancillary, mail and freight revenues, go to American\. American controls marketing, scheduling, ticketing, pricing and seat inventories\. In return, American agrees to pay predetermined fees to these airlines for operating an agreed\-upon number of aircraft, without regard to the number of passengers on board\. In addition, these agreements provide that American either reimburses or pays   100%  of certain variable costs, such as airport landing fees, fuel and passenger liability insurance\.

As of  December 31, 2019 , American’s capacity purchase agreements with third\-party regional carriers had expiration dates ranging from  2020  to  2032 , with rights of American to extend the respective terms of certain agreements\.

As of  December 31, 2019 , American’s minimum obligations under its capacity purchase agreements with third\-party regional carriers are as follows (approximately, in millions):

|                                                                                |          |          |          |          |          |                         |           |
| ------------------------------------------------------------------------------------------------- | -------- | -------- | -------- | -------- | -------- | ----------------------- | --------- |
|                                                                                | **2020** | **2021** | **2022** | **2023** | **2024** | **2025 and Thereafter** | **Total** |
| Minimum obligations under capacity purchase agreements with third\-party regional carriers  ^(1)^ | $1,115   | $1,185   | $1,126   | $1,077   | $1,077   | $3,402                  | $8,982    |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Represents minimum payments under capacity purchase agreements with third\-party regional carriers, which are estimates of costs based on assumed minimum levels of flying under the capacity purchase agreements and American’s actual payments could differ materially\. Excludes payments for the lease of certain aircraft under capacity purchase agreements, which are reflected in the operating lease obligations in Note 4\.  |

(c) Airport Redevelopment

Los Angeles International Airport (LAX)

In  2018 , American executed a lease agreement with Los Angeles World Airports (LAWA), which owns and operates LAX, in connection with a   $1\.6 billion  modernization project related to LAX Terminals 4 and 5\. Construction will occur in a phased approach, which started in October 2018 and is expected to be completed in 2028\. The modernization project will include a unified departure hall to combine the entranceway of Terminals 4 and 5, reconfigured ticket counter and check\-in areas with seamless access to security screening areas,   16  security screening lanes with automated technology and upgraded amenities at gate areas\. The project will also include renovated break rooms, multi\-use meeting rooms and team gathering spaces throughout the terminals to support American’s team members at LAX\.

American is managing this project and has legal title to the assets during their construction\. As each phase is completed, the assets will be sold and transferred to LAWA, including the site improvements and non\-proprietary improvements\. As American controls the assets during construction, they are recognized on its balance sheet until legal title has transferred\. For  2019 , American incurred approximately   $98 million  in costs relating to the LAX modernization project, which are included within operating property and equipment on its consolidated balance sheet as of  December 31, 2019 \.

151


Annual Report of Southwest Airlines Co\. for year 2018

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements\. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate\.

/s/ Ernst & Young LLP

Dallas, Texas

February 5, 2019

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