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

DELTA AIR LINES, INC\.

Consolidated Statements of Operations

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|                                                                                |                                                                                |                                                                                |                                 Year Ended December 31,                                  |                                 Year Ended December 31,                                  |                                 Year Ended December 31,                                  |                                 Year Ended December 31,                                  |                                 Year Ended December 31,                                  |                                 Year Ended December 31,                                  |                                 Year Ended December 31,                                  |                                 Year Ended December 31,                                  |                                 Year Ended December 31,                                  |  |  |  |  |  |  |  |  |  |  |  |  |
|                           (in millions, except per share data)                           |                           (in millions, except per share data)                           |                           (in millions, except per share data)                           |                                           2019                                           |                                                                                |                                                                                |                                                                                |                                           2018                                           |                                                                                |                                                                                |                                                                                |                                           2017                                           |
|                                    Operating Revenue:                                    |                                    Operating Revenue:                                    |                                    Operating Revenue:                                    |                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |
|                                        Passenger                                         |                                        Passenger                                         |                                        Passenger                                         |                                         $ 42,277                                         |                                                                                |                                                                                |                                                                                |                                         $ 39,755                                         |                                                                                |                                                                                |                                                                                |                                         $ 36,947                                         |
|                                          Cargo                                           |                                          Cargo                                           |                                          Cargo                                           |                                           753                                            |                                                                                |                                                                                |                                                                                |                                           865                                            |                                                                                |                                                                                |                                                                                |                                           744                                            |
|                                          Other                                           |                                          Other                                           |                                          Other                                           |                                          3,977                                           |                                                                                |                                                                                |                                                                                |                                          3,818                                           |                                                                                |                                                                                |                                                                                |                                          3,447                                           |
|                                  Total operating revenue                                 |                                  Total operating revenue                                 |                                  Total operating revenue                                 |                                          47,007                                          |                                                                                |                                                                                |                                                                                |                                          44,438                                          |                                                                                |                                                                                |                                                                                |                                          41,138                                          |
|                                    Operating Expense:                                    |                                    Operating Expense:                                    |                                    Operating Expense:                                    |                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |
|                                Salaries and related costs                                |                                Salaries and related costs                                |                                Salaries and related costs                                |                                          11,225                                          |                                                                                |                                                                                |                                                                                |                                          10,743                                          |                                                                                |                                                                                |                                                                                |                                          10,058                                          |
|                             Aircraft fuel and related taxes                              |                             Aircraft fuel and related taxes                              |                             Aircraft fuel and related taxes                              |                                          8,519                                           |                                                                                |                                                                                |                                                                                |                                          9,020                                           |                                                                                |                                                                                |                                                                                |                                          6,756                                           |
|                        Regional carriers expense, excluding fuel                         |                        Regional carriers expense, excluding fuel                         |                        Regional carriers expense, excluding fuel                         |                                          3,584                                           |                                                                                |                                                                                |                                                                                |                                          3,438                                           |                                                                                |                                                                                |                                                                                |                                          3,466                                           |
|                                   Contracted services                                    |                                   Contracted services                                    |                                   Contracted services                                    |                                          2,641                                           |                                                                                |                                                                                |                                                                                |                                          2,175                                           |                                                                                |                                                                                |                                                                                |                                          2,108                                           |
|                              Depreciation and amortization                               |                              Depreciation and amortization                               |                              Depreciation and amortization                               |                                          2,581                                           |                                                                                |                                                                                |                                                                                |                                          2,329                                           |                                                                                |                                                                                |                                                                                |                                          2,222                                           |
|                     Passenger commissions and other selling expenses                     |                     Passenger commissions and other selling expenses                     |                     Passenger commissions and other selling expenses                     |                                          1,993                                           |                                                                                |                                                                                |                                                                                |                                          1,941                                           |                                                                                |                                                                                |                                                                                |                                          1,827                                           |
|                               Landing fees and other rents                               |                               Landing fees and other rents                               |                               Landing fees and other rents                               |                                          1,762                                           |                                                                                |                                                                                |                                                                                |                                          1,662                                           |                                                                                |                                                                                |                                                                                |                                          1,501                                           |
|                    Aircraft maintenance materials and outside repairs                    |                    Aircraft maintenance materials and outside repairs                    |                    Aircraft maintenance materials and outside repairs                    |                                          1,751                                           |                                                                                |                                                                                |                                                                                |                                          1,575                                           |                                                                                |                                                                                |                                                                                |                                          1,591                                           |
|                                      Profit sharing                                      |                                      Profit sharing                                      |                                      Profit sharing                                      |                                          1,643                                           |                                                                                |                                                                                |                                                                                |                                          1,301                                           |                                                                                |                                                                                |                                                                                |                                          1,065                                           |
|                                    Passenger service                                     |                                    Passenger service                                     |                                    Passenger service                                     |                                          1,251                                           |                                                                                |                                                                                |                                                                                |                                          1,178                                           |                                                                                |                                                                                |                                                                                |                                          1,123                                           |
|                            Ancillary businesses and refinery                             |                            Ancillary businesses and refinery                             |                            Ancillary businesses and refinery                             |                                          1,245                                           |                                                                                |                                                                                |                                                                                |                                          1,695                                           |                                                                                |                                                                                |                                                                                |                                          1,495                                           |
|                                      Aircraft rent                                       |                                      Aircraft rent                                       |                                      Aircraft rent                                       |                                           423                                            |                                                                                |                                                                                |                                                                                |                                           394                                            |                                                                                |                                                                                |                                                                                |                                           351                                            |
|                                          Other                                           |                                          Other                                           |                                          Other                                           |                                          1,771                                           |                                                                                |                                                                                |                                                                                |                                          1,723                                           |                                                                                |                                                                                |                                                                                |                                          1,609                                           |
|                                 Total operating expense                                  |                                 Total operating expense                                  |                                 Total operating expense                                  |                                          40,389                                          |                                                                                |                                                                                |                                                                                |                                          39,174                                          |                                                                                |                                                                                |                                                                                |                                          35,172                                          |
|                                     Operating Income                                     |                                     Operating Income                                     |                                     Operating Income                                     |                                          6,618                                           |                                                                                |                                                                                |                                                                                |                                          5,264                                           |                                                                                |                                                                                |                                                                                |                                          5,966                                           |
|                                 Non\-Operating Expense:                                  |                                 Non\-Operating Expense:                                  |                                 Non\-Operating Expense:                                  |                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |
|                                  Interest expense, net                                   |                                  Interest expense, net                                   |                                  Interest expense, net                                   |                                          (301)                                           |                                                                                |                                                                                |                                                                                |                                          (311)                                           |                                                                                |                                                                                |                                                                                |                                          (396)                                           |
|                             Gain/(loss) on investments, net                              |                             Gain/(loss) on investments, net                              |                             Gain/(loss) on investments, net                              |                                           119                                            |                                                                                |                                                                                |                                                                                |                                            38                                            |                                                                                |                                                                                |                                                                                |                                            —                                             |
|                                    Miscellaneous, net                                    |                                    Miscellaneous, net                                    |                                    Miscellaneous, net                                    |                                          (238)                                           |                                                                                |                                                                                |                                                                                |                                           160                                            |                                                                                |                                                                                |                                                                                |                                           (70)                                           |
|                            Total non\-operating expense, net                             |                            Total non\-operating expense, net                             |                            Total non\-operating expense, net                             |                                          (420)                                           |                                                                                |                                                                                |                                                                                |                                          (113)                                           |                                                                                |                                                                                |                                                                                |                                          (466)                                           |
|                                Income Before Income Taxes                                |                                Income Before Income Taxes                                |                                Income Before Income Taxes                                |                                          6,198                                           |                                                                                |                                                                                |                                                                                |                                          5,151                                           |                                                                                |                                                                                |                                                                                |                                          5,500                                           |
|                                   Income Tax Provision                                   |                                   Income Tax Provision                                   |                                   Income Tax Provision                                   |                                         (1,431)                                          |                                                                                |                                                                                |                                                                                |                                         (1,216)                                          |                                                                                |                                                                                |                                                                                |                                         (2,295)                                          |
|                                        Net Income                                        |                                        Net Income                                        |                                        Net Income                                        |                                         $ 4,767                                          |                                                                                |                                                                                |                                                                                |                                         $ 3,935                                          |                                                                                |                                                                                |                                                                                |                                         $ 3,205                                          |
|                                 Basic Earnings Per Share                                 |                                 Basic Earnings Per Share                                 |                                 Basic Earnings Per Share                                 |                                         $ 7\.32                                          |                                                                                |                                                                                |                                                                                |                                         $ 5\.69                                          |                                                                                |                                                                                |                                                                                |                                         $ 4\.45                                          |
|                                Diluted Earnings Per Share                                |                                Diluted Earnings Per Share                                |                                Diluted Earnings Per Share                                |                                         $ 7\.30                                          |                                                                                |                                                                                |                                                                                |                                         $ 5\.67                                          |                                                                                |                                                                                |                                                                                |                                         $ 4\.43                                          |
|                            Cash Dividends Declared Per Share                             |                            Cash Dividends Declared Per Share                             |                            Cash Dividends Declared Per Share                             |                                         $ 1\.51                                          |                                                                                |                                                                                |                                                                                |                                         $ 1\.31                                          |                                                                                |                                                                                |                                                                                |                                         $ 1\.02                                          |
| The accompanying notes are an integral part of these Consolidated Financial Statements\. | The accompanying notes are an integral part of these Consolidated Financial Statements\. | The accompanying notes are an integral part of these Consolidated Financial Statements\. | The accompanying notes are an integral part of these Consolidated Financial Statements\. | The accompanying notes are an integral part of these Consolidated Financial Statements\. | The accompanying notes are an integral part of these Consolidated Financial Statements\. | The accompanying notes are an integral part of these Consolidated Financial Statements\. | The accompanying notes are an integral part of these Consolidated Financial Statements\. | The accompanying notes are an integral part of these Consolidated Financial Statements\. | The accompanying notes are an integral part of these Consolidated Financial Statements\. | The accompanying notes are an integral part of these Consolidated Financial Statements\. | The accompanying notes are an integral part of these Consolidated Financial Statements\. |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

54


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

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

|           |                 |                                                                                |
| ---------:|:--------------- |:-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
|  \*†10\.8 | UAL
United | [SERP Agreement, dated as of October 1, 2010, by and among United Continental Holdings, Inc\., Continental Airlines, Inc\. and Gerald Laderman (filed as Exhibit 10\.2 to UAL’s Form  10\-Q for the quarter ended September 30, 2015, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312515350093/d63220dex102.htm)                               |
|  \*†10\.9 | UAL
United | [SERP Agreement, dated as of October 1, 2010, by and among United Continental Holdings, Inc\., Continental Airlines, Inc\. and Michael P\. Bonds (filed as Exhibit 10\.10 to UAL’s Form  10\-K for the year ended December 31, 2010, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312511042335/dex1010.htm)                                      |
| \*†10\.10 | UAL
United | [United Continental Holdings, Inc\. Senior Officer Severance Plan (effective October 1, 2014) (filed as Exhibit 10\.1 to UAL’s Form  10\-Q for the quarter ended September 30, 2015, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312515350093/d63220dex101.htm)                                                                                |
| \*†10\.11 | UAL
United | [Employment Agreement, dated as of October 1, 2010, by and among United Continental Holdings, Inc\., United Air Lines, Inc\., Continental Airlines, Inc\. and Jeffery A\. Smisek (filed as Exhibit 10\.21 to UAL’s Form  10\-K for the year ended December 31, 2010, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312511042335/dex1021.htm)      |
| \*†10\.12 | UAL
United | [Performance Award Agreement, dated May 5, 2016, by and among United Continental Holdings, Inc\., United Airlines, Inc\. and Brett J\. Hart (filed as Exhibit 10\.3 to UAL’s Form  10\-Q for the quarter ended June 30, 2016, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312516651221/d188420dex103.htm)                                       |
| \*†10\.13 | UAL             | [Form of Stock Option Award Notice pursuant to the United Continental Holdings, Inc\. 2008 Incentive Compensation Plan (filed as Exhibit 10\.1 to UAL’s Form  10\-Q for the quarter ended September 30, 2016, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312516739859/d259980dex101.htm)                                                       |
| \*†10\.14 | UAL             | [Form of Restricted Stock Unit Award Notice pursuant to the United Continental Holdings, Inc\. 2008 Incentive Compensation Plan (filed as Exhibit 10\.2 to UAL’s Form  10\-Q for the quarter ended September 30, 2016, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312516739859/d259980dex102.htm)                                              |
| \*†10\.15 | UAL
United | [Confidentiality and  Non\-Competition Agreement, dated April 23, 2009, by and among Continental Airlines, Inc\. and Jeffery A\. Smisek (filed as Exhibit 10\.1 to Continental Airlines, Inc\.’s Quarterly Report on Form  10\-Q for the quarter ended March 31, 2009, Commission file number  1\-10323, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/000031968709000020/exhibit101.htm) |
| \*†10\.16 | UAL
United | [Separation Agreement, dated as of September 8, 2015, by and among United Continental Holdings, Inc\., United Airlines, Inc\. and Jeffery A\. Smisek (filed as Exhibit 10\.1 to UAL’s Form  8\-K filed September 8, 2015, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000110465915064079/a15-19109_1ex10d1.htm)                                       |
| \*†10\.17 | UAL
United | [Description of Benefits for Officers of United Continental Holdings, Inc\. and United Airlines, Inc\. (filed as Exhibit 10\.11 to UAL’s Form  10\-K for the year ended December 31, 2015, Commission file number  1\-6033 and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312516468479/d13806dex1011.htm)                                                                           |
| \*†10\.18 | UAL             | [United Continental Holdings, Inc\. Officer Travel Policy (filed as Exhibit 10\.24 to UAL’s Form  10\-K for the year ended December 31, 2010, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312511042335/dex1024.htm)                                                                                |

112


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

|           |                                                                                |
| --------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.14(a) | [Delta Air Lines, Inc\. 2017 Long\-Term Incentive Program (Filed as Exhibit 10\.15 to Delta's Annual Report on Form 10\-K for the year ended December 31, 2016)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000004/dal12312016ex1015.htm) |

|           |                                                                                |
| --------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.14(b) | [First Amendment to the Delta Air Lines, Inc\. 2017 Long\-Term Incentive Program (Filed as Exhibit 10\.3 to Delta’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2017)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000013/dal6302017ex103.htm) |

10\.14(c) [Second Amendment to the Delta Air Lines, Inc\. 2017 Long\-Term Incentive Program (Filed as Exhibit 10\.16(c) to Delta’s Annual Report on Form 10\-K for the year ended December 31, 2017)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790418000006/dal12312017ex1016c.htm)

|           |                                                                                |
| --------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.14(d) | [Model Award Agreement for the Delta Air Lines, Inc\. 2017 Long\-Term Incentive Program (Filed as Exhibit 10\.3 to Delta's Quarterly Report on Form 10\-Q for the quarter ended March 31, 2017)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000008/dal3312017ex103.htm) |

|           |                                                                                |
| --------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.15(a) | [Delta Air Lines, Inc\. 2018 Long\-Term Incentive Program (Filed as Exhibit 10\.17 to Delta’s Annual Report on Form 10\-K for the year ended December 31, 2017)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790418000006/dal12312017ex1017.htm) |

|           |                                                                                |
| --------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.15(b) | [Model Award Agreement for the Delta Air Lines, Inc\. 2018 Long\-Term Incentive Program (Filed as Exhibit 10\.1 to Delta’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2018)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790418000013/dal3312018ex101.htm) |

|        |                                                                                |
| ------ | ------------------------------------------------------------------------------------------------------- |
| 10\.16 | [Delta Air Lines, Inc\. 2019 Long\-Term Incentive Program\.](http://ir.delta.com/dal12312018ex1016.htm) |

|        |                                                                                |
| ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.17 | [Delta Air Lines, Inc\. 2018 Management Incentive Plan (Filed as Exhibit 10\.19 to Delta's Annual Report on Form 10\-K for the year ended December 31, 2017)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790418000006/dal12312017ex1019.htm) |

|        |                                                                                |
| ------ | ---------------------------------------------------------------------------------------------------- |
| 10\.18 | [Delta Air Lines, Inc\. 2019 Management Incentive Plan\.](http://ir.delta.com/dal12312018ex1018.htm) |

|        |                                                                                |
| ------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.19 | [Letter Agreement dated as of June 11, 2008 between counsel for and on behalf of Mickey P\. Foret and Aviation Consultants, LLC, and counsel for and on behalf of Northwest Airlines, Inc\. (Filed as Exhibit 10\.22 to Delta's Annual Report on Form 10\-K for the year ended December 31, 2008)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000119312509042726/dex1022.htm) |

|        |                                                                                |
| ------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.20 | [Delta Air Lines, Inc\. Restoration Long Term Disability Plan (Filed as Exhibit 10\.24 to Delta's Annual Report on Form 10\-K for the year ended December 31, 2011)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000144530512000272/dal12312011ex1024.htm) |

|        |                                                                                |
| ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.21 | [Terms of 2017 Restricted Stock Awards for Non\-Employee Directors (Filed as Exhibit 10\.4 to Delta’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2017)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000013/dal6302017ex104.htm) |

|        |                                                                                |
| ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| 10\.22 | [Terms of 2018 Restricted Stock Award for Non\-Employee Directors (filed as Exhibit 10\.2 to Delta’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2018)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790418000016/dal6302018ex102.htm) |

|       |                                                                              |
| ----- | ---------------------------------------------------------------------------- |
| 21\.1 | [Subsidiaries of the Registrant\.](http://ir.delta.com/dal12312018ex211.htm) |

|       |                                                                            |
| ----- | -------------------------------------------------------------------------- |
| 23\.1 | [Consent of Ernst & Young LLP\.](http://ir.delta.com/dal12312018ex231.htm) |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------- |
| 31\.1 | [Rule 13a\-14(a)/15d\-14(a) Certification of Chief Executive Officer\.](http://ir.delta.com/dal12312018ex311.htm) |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------- |
| 31\.2 | [Rule 13a\-14(a)/15d\-14(a) Certification of Chief Financial Officer\.](http://ir.delta.com/dal12312018ex312.htm) |

|    |                                                                                |
| -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 32 | [Certification pursuant to 18 U\.S\.C\. Section 1350, as adopted pursuant to Section 906 of the Sarbanes\-Oxley Act 2002\.](http://ir.delta.com/dal12312018ex32.htm) |

 104


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

We value goodwill and indefinite\-lived intangible assets primarily using market capitalization and income approach valuation techniques\. These measurements include the following key assumptions:  (1) forecasted revenues, expenses and cash flows, (2) terminal period revenue growth and cash flows, (3) an estimated weighted average cost of capital, (4) assumed discount rates depending on the asset and (5) a tax rate\. These assumptions are consistent with those that hypothetical market participants would use\. Because we are required to make estimates and assumptions when evaluating goodwill and indefinite\-lived intangible assets for impairment, actual transaction amounts may differ materially from these estimates\.

Changes in certain events and circumstances could result in impairment or a change from indefinite\-lived to definite\-lived\. Factors which could cause impairment include, but are not limited to, (1) negative trends in our market capitalization, (2) reduced profitability resulting from lower passenger mile yields or higher input costs (primarily related to fuel and employees), (3) lower passenger demand as a result of weakened U\.S\. and global economies, (4) interruption to our operations due to a prolonged employee strike, terrorist attack or other reasons, (5) changes to the regulatory environment (e\.g\., diminished slot access or additional Open Skies agreements), (6) competitive changes by other airlines and (7) strategic changes to our operations leading to diminished utilization of the intangible assets\.

Goodwill\.  When we evaluate goodwill for impairment using a quantitative approach, we estimate the fair value of the reporting unit by considering both market capitalization and projected discounted future cash flows (an income approach)\.  If the reporting unit's fair value exceeds its carrying value, no further testing is required\. If it does not, we recognize an impairment charge if the carrying value of the reporting unit's goodwill exceeds its estimated fair value\.

Identifiable Intangible Assets\.  Indefinite\-lived assets are not amortized and consist of routes, slots, the Delta tradename and assets related to SkyTeam and collaborative arrangements\. Definite\-lived intangible assets consist primarily of marketing and maintenance service agreements and are amortized on a straight\-line basis or under the undiscounted cash flows method over the estimated economic life of the respective agreements\. Costs incurred to renew or extend the term of an intangible asset are expensed as incurred\.

We assess our indefinite\-lived assets under a qualitative or quantitative approach\. We analyze market factors to determine if events and circumstances have affected the fair value of the indefinite\-lived intangible assets\. If we determine that it is more likely than not that the asset value may be impaired, we use the quantitative approach to assess the asset's fair value and the amount of the impairment\. We perform the quantitative impairment test for indefinite\-lived intangible assets by comparing the asset's fair value to its carrying value\. Fair value  is estimated based on (1) recent market transactions, where available, (2) the royalty method for the Delta tradename (which assumes hypothetical royalties generated from using our tradename) or (3) projected discounted future cash flows (an income approach)\.  We recognize an impairment charge if the asset's carrying value exceeds its estimated fair value\.

Income Taxes

We account for deferred income taxes under the liability method\. We recognize deferred tax assets and liabilities based on the tax effects of temporary differences between the financial statement and tax basis of assets and liabilities, as measured by current enacted tax rates\. Deferred tax assets and liabilities are net by jurisdiction and are recorded as noncurrent on the balance sheet\.

A valuation allowance is recorded to reduce deferred tax assets when necessary\. We periodically assess whether it is more likely than not that we will generate sufficient taxable income to realize our deferred income tax assets\. We establish valuation allowances if it is not likely we will realize our deferred income tax assets\. In making this determination, we consider all available positive and negative evidence and make certain assumptions\. We consider, among other things, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, our historical financial results and tax planning strategies\.

Fuel Card Obligation

We have a purchasing card with American Express for the purpose of buying jet fuel and crude oil\. The card currently carries a maximum credit limit of   $1\.1 billion  and must be paid monthly\. At  December 31, 2018  and  December 31, 2017 , we had   $1\.1 billion  outstanding on this purchasing card, and the activity was classified as a financing activity in our Consolidated Statements of Cash Flows\.

 63


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

In 2018, other nonoperating income, net principally included $308 million of non\-service related pension and other postretirement benefit plan income, which reflects an increase in the expected return on pension plan assets in 2018 as compared to 2017\. This income was offset in part by a $104 million net special charge for mark\-to\-market unrealized losses associated with certain of our equity investments, $55 million of net foreign currency losses principally associated with certain Latin American currencies and $13 million of net special charges associated with debt refinancings and extinguishments\.

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

*Income Taxes*

In 2018, we recorded an income tax provision of $472 million at an effective rate of approximately 25%, which was substantially non\-cash\. This provision included an $18 million special income tax charge related to an international income tax matter\. Substantially all of our income before income taxes is attributable to the United States\. At December 31, 2018, we had approximately $10\.2 billion of federal NOLs and $3\.2 billion of state NOLs, substantially all of which we expect to be available in 2019 to reduce future federal and state taxable income\.

In 2017, we recorded an income tax provision of $2\.1 billion, which was substantially non\-cash\. This provision included a special, non\-cash income tax charge of $823 million to reflect the impact of lower corporate income tax rates on our deferred tax asset and liabilities due to the 2017 Tax Act, which reduced the federal corporate income tax rate from 35% to 21%\.

See Note 7 to AAG’s Consolidated Financial Statements in Part II, Item 8A for additional information on income taxes\.

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

Pre\-tax income and net income were $3\.4 billion and $1\.3 billion in 2017, respectively\. This compares to 2016 pre\-tax income and net income of $4\.2 billion and $2\.6 billion, respectively\. Excluding the effects of pre\-tax net special items, pre\-tax income was $4\.2 billion and $4\.9 billion in 2017 and 2016, respectively\. For reconciliation of pre\-tax income excluding special items to their comparable measures on a GAAP basis, see Part II, Item 6\. Selected Consolidated Financial Data –*“Reconciliation of GAAP to Non\-GAAP Financial Measures*\.*”*

The year\-over\-year declines in our pre\-tax income on both a GAAP basis and excluding pre\-tax net special items were principally driven by an increase in fuel costs and higher wage rates\.

*Operating Revenues*

|                          |                                              |                                              |                                              |                                                       |
| ------------------------ | -------------------------------------------- | -------------------------------------------- | -------------------------------------------- | ----------------------------------------------------- |
|                          | **Year Ended December 31,**                  | **Year Ended December 31,**                  | **Increase**

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

**Increase**

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

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

**Increase**

**(Decrease)** |
|                          | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)**          |
| Passenger                | $39,131                                      | $37,045                                      | $2,086                                       | 5\.6                                                  |
| Cargo                    | 890                                          | 785                                          | 105                                          | 13\.3                                                 |
| Other                    | 2,601                                        | 2,312                                        | 289                                          | 12\.5                                                 |
| Total operating revenues | $42,622                                      | $40,142                                      | $2,480                                       | 6\.2                                                  |

This table presents our total passenger revenue and the year\-over\-year change in certain operating statistics:

|                   |                                       |                                                                |                                                                |                                                                |                                                                |                                                                |                                                                |
| ----------------- | ------------------------------------- | -------------------------------------------------------------- | -------------------------------------------------------------- | -------------------------------------------------------------- | -------------------------------------------------------------- | -------------------------------------------------------------- | -------------------------------------------------------------- |
|                   |                                       | **Increase (Decrease)
vs\. Year Ended December 31, 2016** | **Increase (Decrease)
vs\. Year Ended December 31, 2016** | **Increase (Decrease)
vs\. Year Ended December 31, 2016** | **Increase (Decrease)
vs\. Year Ended December 31, 2016** | **Increase (Decrease)
vs\. Year Ended December 31, 2016** | **Increase (Decrease)
vs\. Year Ended December 31, 2016** |
|                   | **Year Ended
December 31, 2017** | **Passenger
Revenue**                                     | **RPMs**                                                       | **ASMs**                                                       | **Load
Factor**                                           | **Passenger
Yield**                                       | **PRASM**                                                      |
|                   | **(In millions)**                     |                                                                |                                                                |                                                                |                                                                |                                                                |                                                                |
| Passenger revenue | $39,131                               | 5\.6%                                                          | 1\.3%                                                          | 1\.1%                                                          | 0\.2pts                                                        | 4\.3%                                                          | 4\.5%                                                          |

55


Annual Report of Southwest Airlines Co\. for year 2019

these instruments is determined utilizing observable inputs in non\-active markets\. Other available\-for\-sale securities primarily consist of investments associated with the Company’s excess benefit plan\.

The Company’s fuel and interest rate derivative instruments consist of over\-the\-counter contracts, which are not traded on a public exchange\. Fuel derivative instruments currently consist solely of option contracts, whereas interest rate derivatives consist solely of swap agreements\. See  Note 10  for further information on the Company’s derivative instruments and hedging activities\. The fair values of swap contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets\. Therefore, the Company has categorized these swap contracts as Level 2\. The Company’s Treasury Department, which reports to the Chief Financial Officer, determines the value of option contracts utilizing an option pricing model based on inputs that are either readily available in public markets, can be derived from information available in publicly quoted markets, or are provided by financial institutions that trade these contracts\. The option pricing model used by the Company is an industry standard model for valuing options and is the same model used by the broker/dealer community (i\.e\., the Company’s counterparties)\. The inputs to this option pricing model are the option strike price, underlying price, risk free rate of interest, time to expiration, and volatility\. Because certain inputs used to determine the fair value of option contracts are unobservable (principally implied volatility), the Company has categorized these option contracts as Level 3\. Volatility information is obtained from external sources, but is analyzed by the Company for reasonableness and compared to similar information received from other external sources\. The fair value of option contracts considers both the intrinsic value and any remaining time value associated with those derivatives that have not yet settled\. The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values\. To validate the reasonableness of the Company’s option pricing model, on a monthly basis, the Company compares its option valuations to third party valuations\. If any significant differences were to be noted, they would be researched in order to determine the reason\. However, historically, no significant differences have been noted\. The Company has consistently applied these valuation techniques in all periods presented and believes it has obtained the most accurate information available for the types of derivative contracts it holds\.

Included in Other available\-for\-sale securities are the Company's investments associated with its deferred compensation plans, which consist of mutual funds that are publicly traded and for which market prices are readily available\. These plans are non\-qualified deferred compensation plans designed to hold contributions in excess of limits established by the Internal Revenue Code of 1986, as amended\. The distribution timing and payment amounts under these plans are made based on the participant's distribution election and plan balance\. Assets related to the funded portions of the deferred compensation plans are held in a rabbi trust, and the Company remains liable to these participants for the unfunded portion of the plans\. The Company records changes in the fair value of the assets in the Company's earnings\.

99


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

The percentage of our capacity by region is as follows:

|                       |          |                    |          |          |          |
| --------------------- | -------- | ------------------ | -------- | -------- | -------- |
|                       | **2017** | **2016** **^(a)^** | **2015** | **2014** | **2013** |
| West Coast            | 28%      | 34%                | 36%      | 36%      | 34%      |
| Transcon/midcon       | 43%      | 29%                | 24%      | 22%      | 22%      |
| Hawaii and Costa Rica | 13%      | 17%                | 18%      | 18%      | 19%      |
| Alaska                | 10%      | 14%                | 15%      | 15%      | 16%      |
| Mexico                | 5%       | 5%                 | 6%       | 6%       | 7%       |
| Canada                | 1%       | 1%                 | 1%       | 3%       | 2%       |
| Total                 | 100%     | 100%               | 100%     | 100%     | 100%     |

|     |                                                                                |
| --- | ---------------------------------------------------------------------------------------------------- |
| (a) | Includes information for Virgin America for the period December 14, 2016 through December 31, 2016\. |

**MAINLINE**

Our mainline operations include Boeing 737 (B737) and Airbus family (A319, A320, and A321neo) jet service offered by Alaska and Virgin America\. We offer extensive passenger service from the western U\.S\. throughout the contiguous United States, Alaska, Hawaii, Canada, Mexico, and Costa Rica\. Our largest concentration of departures are in Seattle, Portland, and the Bay Area\. We also offer cargo service throughout our network and have dedicated cargo aircraft that operate primarily to and within the state of Alaska\.

In 2017, we carried 35 million revenue passengers in our mainline operations\. At December 31, 2017, our mainline operating fleet consisted of 154 B737 jet aircraft and 67 Airbus A320 family jet aircraft compared to 155 B737 aircraft and 63 Airbus aircraft as of December 31, 2016\.

The percentage of mainline passenger capacity by region and average stage length is presented below:

|                      |          |                    |          |          |          |
| -------------------- | -------- | ------------------ | -------- | -------- | -------- |
|                      | **2017** | **2016** **^(a)^** | **2015** | **2014** | **2013** |
| West Coast           | 24%      | 30%                | 31%      | 31%      | 28%      |
| Transcon/midcon      | 45%      | 30%                | 27%      | 25%      | 25%      |
| Hawaii               | 15%      | 19%                | 20%      | 20%      | 21%      |
| Alaska               | 11%      | 15%                | 16%      | 16%      | 18%      |
| Mexico               | 5%       | 6%                 | 6%       | 7%       | 7%       |
| Canada               | —%       | —%                 | —%       | 1%       | 1%       |
| Total                | 100%     | 100%               | 100%     | 100%     | 100%     |
| Average Stage Length | 1,301    | 1,225              | 1,195    | 1,182    | 1,177    |

|     |                                                                                |
| --- | ---------------------------------------------------------------------------------------------------- |
| (a) | Includes information for Virgin America for the period December 14, 2016 through December 31, 2016\. |

**REGIONAL**

Our regional operations consist of flights operated by Horizon, SkyWest and PenAir\. In 2017, our regional operations carried approximately 9 million revenue passengers, primarily in the states of Washington, Oregon, Idaho and California\. Horizon is the largest regional airline in the Pacific Northwest and carries approximately 74% of Air Group's regional revenue passengers\.

Based on 2017 Horizon passenger enplanements on regional aircraft, our most significant concentration of regional activity was in Seattle and Portland\. At December 31, 2017, Horizon’s operating fleet consisted of 10 Embraer 175 (E175) jet aircraft and 50 Bombardier Q400 turboprop aircraft\. The regional fleet operated by SkyWest consisted of 23 E175 aircraft\.

 7


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

**PART I**

**ITEM 1\. BUSINESS**

**Overview**

American Airlines Group Inc\. (AAG), a Delaware corporation, is a holding company and its principal, wholly\-owned subsidiaries are American Airlines, Inc\. (American), Envoy Aviation Group Inc\. (Envoy), PSA Airlines, Inc\. (PSA) and Piedmont Airlines, Inc\. (Piedmont)\. AAG was formed in 1982 under the name AMR Corporation (AMR) as the parent company of American, which was founded in 1934\. On December 9, 2013, a subsidiary of AMR merged with and into US Airways Group, Inc\. (US Airways Group), a Delaware corporation, which survived as a wholly\-owned subsidiary of AAG, and AAG emerged from Chapter 11 (the Merger)\. Upon closing of the Merger and emergence from Chapter 11, AMR changed its name to American Airlines Group Inc\. On December 30, 2015, in order to simplify AAG’s internal corporate structure, US Airways Group merged with and into AAG, with AAG as the surviving corporation and, immediately thereafter, US Airways, Inc\. (US Airways), a wholly\-owned subsidiary of US Airways Group, merged with and into American, with American as the surviving corporation\.

AAG’s and American’s principal executive offices are located at 4333 Amon Carter Boulevard, Fort Worth, Texas 76155 and their telephone number is 817\-963\-1234\.

**Airline Operations**

Our primary business activity is the operation of a major network carrier, providing scheduled air transportation for passengers and cargo\.

Together with our wholly\-owned regional airline subsidiaries and third\-party regional carriers operating as American Eagle, our airline operates an average of nearly 6,700 flights per day to nearly 350 destinations in more than 50 countries\. We have hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington, D\.C\. In 2017, approximately 200 million passengers boarded our mainline and regional flights\. During 2017, we launched new nonstop service to Amsterdam, Netherlands and Rome, Italy from Dallas/Fort Worth International Airport (DFW), to Barcelona, Spain from Chicago O’Hare International Airport (ORD) and to Beijing, China from Los Angeles International Airport (LAX), further expanding our global footprint\. We also announced new seasonal nonstop service beginning in Summer 2018 between Philadelphia International Airport (PHL) and Budapest, Hungary and Prague, Czech Republic; between ORD and Venice, Italy; and between DFW and Reykjavik\-Keflavik, Iceland\.

As of December 31, 2017, we operated 948 mainline aircraft and are supported by our regional airline subsidiaries and third\-party regional carriers, which operated an additional 597 regional aircraft\. See Part I, Item 2\. Properties for further discussion on our mainline and regional aircraft and “*Regional*” below for further discussion on our regional operations\.

American is a founding member of the **one**world^®^ alliance, whose members serve more than 1,000 destinations with approximately 14,250 daily flights to over 150 countries\. See below for further discussion on the **one**world alliance and other agreements with domestic and international airlines\.

See Part II, Item 7\. Management’s Discussion and Analysis of Financial Condition and Results of Operations – *“Operational Highlights,” “Financial Overview,” “AAG’s Results of Operations”* and *“American’s Results of Operations”* for further discussion of AAG’s and American’s operating results and operating performance\. Also, see Note 13 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 11 to American’s Consolidated Financial Statements in Part II, Item 8B for information regarding our operating segments and operating revenue in principal geographic areas\.

***Regional***

Regional carriers provide scheduled air transportation under the brand name “American Eagle\.” The American Eagle carriers include our wholly\-owned regional carriers, Envoy, PSA and Piedmont, as well as third\-party regional carriers including Republic Airline Inc\. (Republic), Mesa Airlines, Inc\. (Mesa), Compass Airlines, LLC (Compass), ExpressJet Airlines, Inc\. (ExpressJet), SkyWest Airlines, Inc\. (SkyWest) and Trans States Airlines, Inc\. (Trans States)\. In addition, Air Wisconsin Airlines Corporation (Air Wisconsin) operated regional jet aircraft for us during 2017; however, this arrangement ended in February 2018\. These carriers are an integral component of our operating network\. We rely heavily on feeder traffic to our hubs from low\-density markets that are not economical for us to serve with larger, mainline aircraft\. In addition, regional carriers offer complementary service in our existing mainline markets\. During 2017, approximately 55 million passengers boarded our regional carriers’ planes, approximately 44% of whom connected to or from our mainline flights\. Of these passengers, approximately 28 million were enplaned by our wholly\-owned regional carriers and approximately 27 million

5


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

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

**7\. Income Taxes**

The significant components of the income tax provision were (in millions):

|                                |                             |                             |                             |
| ------------------------------ | --------------------------- | --------------------------- | --------------------------- |
|                                | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                | **2018**                    | **2017**                    | **2016**                    |
| Current income tax provision:  |                             |                             |                             |
| State and Local                | $3                          | $10                         | $3                          |
| Foreign                        | 29                          | 14                          | 9                           |
| Current income tax provision   | 32                          | 24                          | 12                          |
| Deferred income tax provision: |                             |                             |                             |
| Federal                        | 390                         | 2,026                       | 1,456                       |
| State and Local                | 50                          | 63                          | 100                         |
| Deferred income tax provision  | 440                         | 2,089                       | 1,556                       |
| Total income tax provision     | $472                        | $2,113                      | $1,568                      |

The income tax provision differed from amounts computed at the statutory federal income tax rate as follows (in millions):

|                                                       |                             |                             |                             |
| ----------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                       | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                       | **2018**                    | **2017**                    | **2016**                    |
| Statutory income tax provision                        | $396                        | $1,188                      | $1,453                      |
| State income tax provision, net of federal tax effect | 44                          | 59                          | 56                          |
| Foreign income taxes, net of federal tax effect       | 23                          | 7                           | 6                           |
| Book expenses not deductible for tax purposes         | 12                          | 33                          | 35                          |
| Bankruptcy administration expenses                    | —                           | 1                           | 1                           |
| 2017 Tax Act                                          | —                           | 823                         | —                           |
| Change in valuation allowance                         | (6)                         | (3)                         | 7                           |
| Other, net                                            | 3                           | 5                           | 10                          |
| Income tax provision                                  | $472                        | $2,113                      | $1,568                      |

We provide a valuation allowance for our deferred tax assets, which include our net operating losses (NOLs), when it is more likely than not that some portion, or all of our deferred tax assets, will not be realized\. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income\. We consider all available positive and negative evidence and make certain assumptions in evaluating the realizability of our deferred tax assets\. Many factors are considered that impact our assessment of future profitability, including conditions which are beyond our control, such as the health of the economy, the level and volatility of fuel prices and travel demand\.

The total decrease to the valuation allowance was $6 million in 2018\. In 2017, the total increase to the valuation allowance was $7 million, $10 million of which is included in the 2017 Tax Act amount in the table above\. In 2016, the total increase to the valuation allowance was $7 million\.

107


Annual Report of United Continental Holdings, Inc\. and United Airlines, Inc\. for year 2019

[Table of Contents](https://www.example.com#s1B306C2BC5705F95B83EC9EC687675EF)

result in significant expense and a diversion of management's time and attention from the operation of our business, which could impede our ability to achieve our business objectives\. Additionally, any amount that we may be required to pay to satisfy a judgment, settlement, fine or penalty may not be covered by insurance\. If we fail to comply with the terms contained in any settlement, order or agreement with a governmental authority relating to these matters, we could be subject to criminal or civil penalties, which could have a material adverse impact on the Company\. Under our charter and certain indemnification agreements that we have entered into (and may in the future enter into) with our officers, directors and certain third parties, we could be required to indemnify and advance expenses to them in connection with their involvement in certain actions, suits, investigations and other proceedings\. There can be no assurance that any of these payments will not be material\.

Our significant investments in other airlines, including 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 both domestically and in other parts of the world and expanding our commercial relationships with these carriers\. For example, in January 2019, we completed the acquisition of a 49\.9% interest in ManaAir LLC, which, as of immediately following the closing of that investment, owns 100% of the equity interests in ExpressJet Airlines LLC, a domestic regional airline\. We also have minority equity interests in CommutAir and Republic Airways Holdings Inc\. See Note 9 to the financial statements included in Part II, Item 8 of this report for additional information regarding our investments in regional airlines\. We also have significant investments in Latin American airlines, including significant investments in Avianca Holdings, S\.A\. ("AVH") and BRW Aviation LLC ("BRW"), an affiliate of Synergy Aerospace Corporation and the majority shareholder of AVH, and an equity investment in Azul\. See Note 8 and Note 9 to the financial statements included in Part II, Item 8 of this report for additional information regarding our investments in AVH and Azul, respectively\. See also the additional risks with respect to our investment in AVH described in this Part I, Item 1A\. Risk Factors\.

We expect to continue exploring similar non\-controlling investments in, and entering into JBAs, commercial agreements, loan transactions and strategic alliances with, other carriers as part of our regional and global business strategy\. These transactions and relationships involve significant challenges and risks, and we face competition in forming and maintaining these relationships, since there are a limited number of potential arrangements and other airlines are looking to enter into similar relationships\. 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, each is a separately certificated commercial air carrier, and we do not have control over their operations, strategy, management or business methods\. And not only are these airlines subject to a number of the same risks as our business, which are described elsewhere in this Part I, Item 1A\. Risk Factors, including competitive pressures on pricing, demand and capacity, changes in aircraft fuel pricing, and the impact of global and local political and economic conditions on operations and customer travel patterns, among others, they are also subject to their own distinct financial and operational risks\.

As a result of these and other factors, we may not realize a satisfactory return on our investment, and we may not receive repayment of any invested or loaned funds\. Further, these investments may not generate the revenue or operational synergies we expect, and they may distract management focus from our operations or other strategic options\. Finally, our reliance on these other carriers in the regions in which they operate may negatively impact our regional and global operations and results if those carriers are impacted by general business risks or perform below our expectations or needs\. Any one or more of these events could have a material adverse effect on our operating results or financial condition\.

We may also be subject to consequences from any illegal conduct of JBA 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\. In addition, any political or regulatory change in these jurisdictions that negatively impacts or prohibits our arrangements with these carriers could have an adverse effect on our operating results 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 operating results may be adversely affected\.

Our significant investments in AVH and its affiliates, and the commercial relationships that we have with Avianca may not produce the returns or results we expect\.

In November 2018, as part of our global network strategy, United entered into a revenue\-sharing JBA with Avianca, a subsidiary of AVH, Copa and several of their respective affiliates, subject to regulatory approval\. Concurrently with this transaction, United, as lender, entered into a Term Loan Agreement (the "BRW Term Loan Agreement") with, among others, BRW Aviation Holding LLC ("BRW Holding") and BRW, as guarantor and borrower, respectively\. Pursuant to the BRW Term Loan Agreement, United provided to BRW a $456 million term loan (the "BRW Term Loan"), secured by a pledge of BRW's equity, as well as BRW's 516 million common shares of AVH (which are eligible to be converted into the same number of

15


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

NOTE 15 \. SEGMENTS AND GEOGRAPHIC INFORMATION

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker and is used in resource allocation and performance assessments\. Our chief operating decision maker is considered to be our executive leadership team\. Our executive leadership team regularly reviews discrete information for our   two  operating segments, which are determined by the products and services provided: our airline segment and our refinery segment\.

Airline Segment

Our airline segment is managed as a single business unit that provides scheduled air transportation for passengers and cargo throughout the U\.S\. and around the world and other ancillary airline services\. This allows us to benefit from an integrated revenue pricing and route network\. Our flight equipment forms one fleet, which is deployed through a single route scheduling system\. When making resource allocation decisions, our chief operating decision maker evaluates flight profitability data, which considers aircraft type and route economics, but gives no weight to the financial impact of the resource allocation decision on an individual carrier basis\. Our objective in making resource allocation decisions is to optimize our consolidated financial results\.

Refinery Segment

In 2012, our wholly owned subsidiaries, Monroe Energy, LLC, and MIPC, LLC (collectively, "Monroe"), acquired the Trainer oil refinery and related assets located near Philadelphia, Pennsylvania, as part of our strategy to mitigate the cost of the refining margin reflected in the price of jet fuel\. The acquisition included pipelines and terminal assets that allow the refinery to supply jet fuel to our airline operations throughout the Northeastern U\.S\., including our New York hubs at LaGuardia and JFK\.

Our refinery segment operates for the benefit of the airline segment by providing jet fuel to the airline segment from its own production and through jet fuel obtained through agreements with third parties\. The refinery's production consists of jet fuel as well as non\-jet fuel products\. We use several counterparties to exchange the non\-jet fuel products produced by the refinery for jet fuel consumed in our airline operations\. The gross fair value of the products exchanged under these agreements during the years ended  December 31, 2018 ,  2017  and  2016  was   $3\.6 billion ,   $3\.2 billion  and   $2\.7 billion , respectively\.

 94


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

Our principal investing activities in 2017 included expenditures of $6\.0 billion for property and equipment, including 20 Airbus A321 aircraft, 20 Boeing 737\-800 aircraft, 16 Embraer E175 aircraft, 13 Boeing 787 family aircraft and four Boeing 737\-8 MAX aircraft\. We also made a $203 million equity investment in China Southern Airlines\. These cash outflows were offset in part by $1\.3 billion in net sales of short\-term investments, $947 million of net proceeds primarily from aircraft sale\-leaseback transactions, and a $309 million decrease in restricted short\-term investments\.

Our principal investing activities in 2016 included expenditures of $5\.7 billion for property and equipment, including 25 Airbus A321 aircraft, 24 Embraer E175 aircraft, 20 Boeing 737\-800 aircraft, 18 Bombardier CRJ 900 aircraft, eight Boeing 787 aircraft and two Boeing 777 aircraft\.

*Financing Activities*

Our net cash used in financing activities was $1\.1 billion and $894 million in 2017 and 2016, respectively\.

Our principal financing activities in 2017 included $2\.3 billion in scheduled debt repayments, $1\.6 billion in share repurchases and $198 million in dividend payments\. These cash outflows were offset in part by net proceeds of $3\.1 billion from the issuance of debt, including the issuance of $2\.0 billion of EETCs and $1\.0 billion borrowed in connection with the financing of certain aircraft\.

Our principal financing activities in 2016 included $4\.5 billion in share repurchases, $3\.8 billion in debt repayments, including the repayment of $588 million and $970 million in remaining principal of the tranche B\-2 and tranche B\-1 term loans, respectively, under a credit facility for which Citicorp was the Administrative Agent (the 2013 Citicorp Credit Facility), and $224 million in dividend payments\. These cash outflows were offset in part by net proceeds of $7\.7 billion from the issuance of debt, including the issuance of $2\.8 billion of EETCs, $2\.3 billion provided under term loan facilities and $1\.8 billion borrowed in connection with the financing of certain aircraft\.

***American***

*2018* *Compared to* *2017*

*Operating Activities*

American’s net cash provided by operating activities was $1\.9 billion and $2\.9 billion in 2018 and 2017, respectively, a year\-over\-year decrease of $927 million\. This decrease in operating cash flows was primarily due to lower profitability in 2018 driven by an increase in fuel costs, which was offset in part by higher revenues\.

*Investing Activities*

American’s net cash used in investing activities was $1\.9 billion and $3\.6 billion in 2018 and 2017, respectively\.

American’s principal investing activities in 2018 included expenditures of $3\.7 billion for property and equipment, including 16 Boeing 737\-8 MAX aircraft, six Boeing 787 family aircraft and five Embraer E175 aircraft\. These cash outflows were offset in part by $1\.4 billion of net proceeds primarily from aircraft sale\-leaseback transactions and $293 million in net sales of short\-term investments\.

American’s principal investing activities in 2017 included expenditures of $5\.9 billion for property and equipment, including 20 Airbus A321 aircraft, 20 Boeing 737\-800 aircraft, 16 Embraer E175 aircraft, 13 Boeing 787 family aircraft and four Boeing 737\-8 MAX aircraft\. American also made a $203 million equity investment in China Southern Airlines\. These cash outflows were offset in part by $1\.3 billion in net sales of short\-term investments, $922 million of net proceeds primarily from aircraft sale\-leaseback transactions, and a $309 million decrease in restricted short\-term investments\.

*Financing Activities*

American’s net cash used in financing activities was $147 million in 2018 and net cash provided by financing activities was $668 million in 2017\.

American’s principal financing activities in 2018 included $2\.4 billion in debt repayments, consisting of $1\.9 billion in scheduled debt repayments and $513 million in the prepayment of secured loans\. These cash outflows were offset in part by net proceeds of $2\.4 billion from the issuance of debt, consisting of $1\.9 billion in connection with the issuance of equipment notes related to EETCs and the financing of certain aircraft and pre\-delivery purchase deposits, as well as an incremental $500 million on a term loan facility\.

67