Annual Report of ALASKA AIR GROUP, INC\. for year 2019

CONSOLIDATED BALANCE SHEETS

|                                                |                                                |                                                |          |  |  |  |          |
|:---------------------------------------------- |:---------------------------------------------- |:---------------------------------------------- | --------:|:- |:- |:- | --------:|
| As of December 31  *(in millions)*             | As of December 31  *(in millions)*             | As of December 31  *(in millions)*             |     2019 |  |  |  |     2018 |
| ASSETS                                         | ASSETS                                         | ASSETS                                         |          |  |  |  |          |
| Current Assets                                 | Current Assets                                 | Current Assets                                 |          |  |  |  |          |
| Cash and cash equivalents                      | Cash and cash equivalents                      | Cash and cash equivalents                      |    $ 221 |  |  |  |    $ 105 |
| Marketable securities                          | Marketable securities                          | Marketable securities                          |    1,300 |  |  |  |    1,131 |
| Total cash and marketable securities           | Total cash and marketable securities           | Total cash and marketable securities           |    1,521 |  |  |  |    1,236 |
| Receivables \- net                             | Receivables \- net                             | Receivables \- net                             |      323 |  |  |  |      366 |
| Inventories and supplies \- net                | Inventories and supplies \- net                | Inventories and supplies \- net                |       72 |  |  |  |       60 |
| Prepaid expenses and other current assets      | Prepaid expenses and other current assets      | Prepaid expenses and other current assets      |      121 |  |  |  |      125 |
| Total Current Assets                           | Total Current Assets                           | Total Current Assets                           |    2,037 |  |  |  |    1,787 |
| Property and Equipment                         | Property and Equipment                         | Property and Equipment                         |          |  |  |  |          |
| Aircraft and other flight equipment            | Aircraft and other flight equipment            | Aircraft and other flight equipment            |    8,549 |  |  |  |    8,221 |
| Other property and equipment                   | Other property and equipment                   | Other property and equipment                   |    1,306 |  |  |  |    1,363 |
| Deposits for future flight equipment           | Deposits for future flight equipment           | Deposits for future flight equipment           |      533 |  |  |  |      439 |
|                                                |                                                |                                                |   10,388 |  |  |  |   10,023 |
| Less accumulated depreciation and amortization | Less accumulated depreciation and amortization | Less accumulated depreciation and amortization |    3,486 |  |  |  |    3,242 |
| Total Property and Equipment \- Net            | Total Property and Equipment \- Net            | Total Property and Equipment \- Net            |    6,902 |  |  |  |    6,781 |
| Other Assets                                   | Other Assets                                   | Other Assets                                   |          |  |  |  |          |
| Operating lease assets                         | Operating lease assets                         | Operating lease assets                         |    1,711 |  |  |  |        — |
| Goodwill                                       | Goodwill                                       | Goodwill                                       |    1,943 |  |  |  |    1,943 |
| Intangible assets \- net                       | Intangible assets \- net                       | Intangible assets \- net                       |      122 |  |  |  |      127 |
| Other noncurrent assets                        | Other noncurrent assets                        | Other noncurrent assets                        |      278 |  |  |  |      274 |
| Total Other Assets                             | Total Other Assets                             | Total Other Assets                             |    4,054 |  |  |  |    2,344 |
| Total Assets                                   | Total Assets                                   | Total Assets                                   | $ 12,993 |  |  |  | $ 10,912 |

50


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

Indicate by check mark if the registrant is a well\-known seasoned issuer, as defined in Rule 405 of the Securities Act\.

|                               |     |   |    |   |
| ----------------------------- | --- | - | -- | - |
| American Airlines Group Inc\. | Yes | ☒ | No | ☐ |
| American Airlines, Inc\.      | Yes | ☒ | No | ☐ |

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act\.

|                               |     |   |    |   |
| ----------------------------- | --- | - | -- | - |
| American Airlines Group Inc\. | Yes | ☐ | No | ☒ |
| American Airlines, Inc\.      | Yes | ☐ | No | ☒ |

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days\.

|                               |     |   |    |   |
| ----------------------------- | --- | - | -- | - |
| American Airlines Group Inc\. | Yes | ☒ | No | ☐ |
| American Airlines, Inc\.      | Yes | ☒ | No | ☐ |

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S\-T (§232\.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)\.

|                               |     |   |    |   |
| ----------------------------- | --- | - | -- | - |
| American Airlines Group Inc\. | Yes | ☒ | No | ☐ |
| American Airlines, Inc\.      | Yes | ☒ | No | ☐ |

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non\-accelerated filer, a smaller reporting company, or emerging growth company\. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b\-2 of the Exchange Act\.

|                               |   |                         |   |                   |   |                        |   |                           |   |                         |
| ----------------------------- | - | ----------------------- | - | ----------------- | - | ---------------------- | - | ------------------------- | - | ----------------------- |
| American Airlines Group Inc\. | ☒ | Large accelerated filer | ☐ | Accelerated filer | ☐ | Non\-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company |
| American Airlines, Inc\.      | ☐ | Large accelerated filer | ☐ | Accelerated filer | ☒ | Non\-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act\.

|                               |   |
| ----------------------------- | - |
| American Airlines Group Inc\. | ☐ |
| American Airlines, Inc\.      | ☐ |

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b\-2 of the Act)\.

|                               |     |   |    |   |
| ----------------------------- | --- | - | -- | - |
| American Airlines Group Inc\. | Yes | ☐ | No | ☒ |
| American Airlines, Inc\.      | Yes | ☐ | No | ☒ |

As of  February 14, 2020 , there were   426,058,744  shares of American Airlines Group Inc\. common stock outstanding\. The aggregate market value of the voting stock held by non\-affiliates of the registrant as of  June 30, 2019 , was approximately   $14\.4 billion \.

As of  February 14, 2020 , there were   1,000  shares of American Airlines, Inc\. common stock outstanding, all of which were held by American Airlines Group Inc\.

OMISSION OF CERTAIN INFORMATION

American Airlines Group Inc\. and American Airlines, Inc\. meet the conditions set forth in General Instruction I(1)(a) and (b) of Form 10\-K and have therefore omitted the information otherwise called for by Items 10\-13 of Form 10\-K as allowed under General Instruction I(2)(c)\.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement related to American Airlines Group Inc\.’s  2020  Annual Meeting of Stockholders, which proxy statement will be filed under the Securities Exchange Act of 1934 within 120 days of the end of American Airlines Group Inc\.’s fiscal year ended  December 31, 2019 , are incorporated by reference into Part III of this Annual Report on Form 10\-K\.


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

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

Supplemental cash flow and other information related to leases was as follows (in millions):

|                                                                         |                             |                             |
| ----------------------------------------------------------------------- | --------------------------- | --------------------------- |
|                                                                         | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                                         | **2019**                    | **2018**                    |
| Cash paid for amounts included in the measurement of lease liabilities: |                             |                             |
| Operating cash flows from operating leases                              | $2,013                      | $1,931                      |
| Operating cash flows from finance leases                                | 43                          | 48                          |
| Financing cash flows from finance leases                                | 83                          | 78                          |
| Non\-cash transactions:                                                 |                             |                             |
| ROU assets acquired through operating leases                            | 1,145                       | 1,292                       |
| Operating lease conversion to finance lease                             | 41                          | —                           |
| Property and equipment acquired through finance leases                  | 20                          | —                           |
| Gain on sale leaseback transactions, net                                | 107                         | 59                          |

Maturities of lease liabilities were as follows (in millions):

|                              |                       |                       |
| ---------------------------- | --------------------- | --------------------- |
|                              | **December 31, 2019** | **December 31, 2019** |
|                              | **Operating Leases**  | **Finance Leases**    |
| 2020                         | $1,990                | $153                  |
| 2021                         | 1,817                 | 128                   |
| 2022                         | 1,620                 | 132                   |
| 2023                         | 1,429                 | 110                   |
| 2024                         | 1,030                 | 116                   |
| 2025 and thereafter          | 3,276                 | 171                   |
| Total lease payments         | 11,162                | 810                   |
| Less: Imputed interest       | (2,033

)       | (140

)         |
| Total lease obligations      | 9,129                 | 670                   |
| Less: Current obligations    | (1,708

)       | (112

)         |
| Long\-term lease obligations | $7,421                | $558                  |

As of  December 31, 2019 , we have additional operating lease commitments that have not yet commenced of approximately   $2\.0 billion  for   22  787\-8 aircraft to be delivered in  2020  and  2021  with lease terms of   10 years \.

93


Annual Report of Southwest Airlines Co\. for year 2019

Company's other aircraft; however, the MAX groundings resulted in the removal of these more fuel\-efficient aircraft from the Company's schedule, which, in turn, drove a decline in the Company's overall fuel efficiency in 2019\. The Company continues to undertake a number of other fuel conservation initiatives, which are discussed in detail under "Regulation \- Environmental Regulation\."

The table below sets forth the Company's available seat miles produced per fuel gallon consumed over the last five years:

|                                               |                             |                             |                             |                             |                             |
| --------------------------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                               | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** |
|                                               | **2019**                    | **2018**                    | **2017**                    | **2016**                    | **2015**                    |
| Available seat miles per fuel gallon consumed | 75\.7                       | 76\.3                       | 75\.2                       | 74\.4                       | 73\.9                       |

The Company also enters into fuel derivative contracts to manage its risk associated with significant increases in fuel prices\. The Company's fuel hedging activities, as well as the risks associated with high and/or volatile fuel prices, are discussed in more detail below under "Risk Factors," "Management’s Discussion and Analysis of Financial Condition and Results of Operations," and Note 10 to the Consolidated Financial Statements\.

Salaries, wages, and benefits expense constituted approximately 42\.6 percent of the Company's operating expenses during 2019 and was the Company's largest operating cost\. The Company's ability to control labor costs is limited by the terms of its collective\-bargaining agreements, and increased labor costs have negatively impacted the Company's low\-cost competitive position\. The Company's labor costs, and risks associated therewith, are discussed in more detail below under "Risk Factors" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations\."

Fare Structure

General

Southwest offers a relatively simple fare structure that features competitive fares and product benefits, including unrestricted fares, as well as lower fares available on a restricted basis\. Southwest fare products include three major categories: "Wanna Get Away ^®^ ," "Anytime," and "Business Select ^®^ ," with the goal of making it easier for Customers to choose the fare they prefer\. All fare products include the privilege of two free checked bags (weight and size limits apply) and complimentary soft drinks and snacks, as well as free messaging, music, movies\-on\-demand, and live and on\-demand television on WiFi\-enabled aircraft\. In addition, regardless of the fare product, Southwest does not charge fees for changes to flight reservations although fare differences may apply\.

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | "Wanna Get Away" fares are generally the lowest fares and are typically subject to advance purchase requirements\. They are nonrefundable, but, subject to Southwest's No Show Policy, funds may be applied towards future travel on Southwest\. Wanna Get Away fares earn six Rapid Rewards ^®^  points, under Southwest's Rapid Rewards loyalty program, for each dollar spent on the base fare\. The Company's loyalty program is discussed below under "Rapid Rewards Loyalty Program\." |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| • | "Anytime" fares are, subject to Southwest's No Show Policy, refundable if canceled, or funds may be applied towards future travel on Southwest\. If this fare is purchased with nonrefundable funds, then the funds will be nonrefundable if travel is canceled\. Anytime fares earn 10 Rapid Rewards points for each dollar spent on the base fare\.  |

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | "Business Select" fares are, subject to Southwest's No Show Policy, refundable if canceled, or funds may be applied towards future travel on Southwest\. If this fare is purchased with nonrefundable funds, then the funds will be nonrefundable if travel is canceled\. Business Select fares also include additional perks such as priority boarding with a boarding position in the first 15 boarding positions within boarding group "A," 12 Rapid Rewards points per dollar spent on the base fare \- the highest loyalty point multiplier of all Southwest fare products, "Fly By ^®^ " priority security and/or ticket counter access in participating airports, and one complimentary premium beverage coupon for the day of travel (Customers must be of legal drinking age to drink alcoholic beverages)\. |

Southwest's No Show Policy applies if a Customer does not change or cancel a flight segment at least ten minutes prior to scheduled departure and the Customer does not travel on the scheduled flight\. In such event, subject to certain

6


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

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

Results of Operations \-  2016  Compared to  2015

Operating Revenue

|                   |                             |                             |                         |                           |
| ----------------- | --------------------------- | --------------------------- | ----------------------- | ------------------------- |
|                   | **Year Ended December 31,** | **Year Ended December 31,** | **Increase (Decrease)** | **% Increase (Decrease)** |
| **(in millions)** | **2016**                    | **2015**                    | **Increase (Decrease)** | **% Increase (Decrease)** |
| Passenger         | 33,777                      | 34,782                      | (1,005)                 | (2\.9)%                   |
| Cargo             | 668                         | 813                         | (145)                   | (17\.8)%                  |
| Other             | 5,194                       | 5,109                       | 85                      | 1\.7 %                    |
| Total             | $39,639                     | $40,704                     | $(1,065)                | (2\.6)%                   |

Passenger Revenue

|                   |                                  |                                                                      |                                                                      |                                                                      |                                                                      |                                                                      |                                                                      |                                                                      |
| ----------------- | -------------------------------- | -------------------------------------------------------------------- | -------------------------------------------------------------------- | -------------------------------------------------------------------- | -------------------------------------------------------------------- | -------------------------------------------------------------------- | -------------------------------------------------------------------- | -------------------------------------------------------------------- |
|                   |                                  | **Increase (Decrease)**

**vs\. Year Ended December 31, 2015** | **Increase (Decrease)**

**vs\. Year Ended December 31, 2015** | **Increase (Decrease)**

**vs\. Year Ended December 31, 2015** | **Increase (Decrease)**

**vs\. Year Ended December 31, 2015** | **Increase (Decrease)**

**vs\. Year Ended December 31, 2015** | **Increase (Decrease)**

**vs\. Year Ended December 31, 2015** | **Increase (Decrease)**

**vs\. Year Ended December 31, 2015** |
| **(in millions)** | **Year Ended December 31, 2016** | **Passenger Revenue**                                                | **RPMs**  **(Traffic)**                                              | **ASMs (Capacity)**                                                  | **Passenger Mile Yield**                                             | **PRASM**                                                            | **Load Factor**                                                      | **Load Factor**                                                      |
| Mainline          | $17,932                          | — %                                                                  | 4\.3 %                                                               | 5\.2 %                                                               | (4\.1)%                                                              | (5\.0)%                                                              | (0\.8)                                                               | pts                                                                  |
| Regional carriers | 5,672                            | (3\.6)%                                                              | 0\.6 %                                                               | 1\.0 %                                                               | (4\.2)%                                                              | (4\.6)%                                                              | (0\.3)                                                               | pts                                                                  |
| Domestic          | 23,604                           | (0\.9)%                                                              | 3\.6 %                                                               | 4\.5 %                                                               | (4\.4)%                                                              | (5\.2)%                                                              | (0\.6)                                                               | pts                                                                  |
| Atlantic          | 5,185                            | (6\.5)%                                                              | (1\.7)%                                                              | 0\.3 %                                                               | (4\.9)%                                                              | (6\.8)%                                                              | (1\.7)                                                               | pts                                                                  |
| Pacific           | 2,616                            | (12\.8)%                                                             | (4\.6)%                                                              | (6\.6)%                                                              | (8\.6)%                                                              | (6\.7)%                                                              | 1\.8                                                                 | pts                                                                  |
| Latin America     | 2,372                            | (1\.8)%                                                              | 3\.5 %                                                               | 0\.8 %                                                               | (5\.1)%                                                              | (2\.6)%                                                              | 2\.3                                                                 | pts                                                                  |
| Total             | $33,777                          | (2\.9)%                                                              | 1\.7 %                                                               | 2\.1 %                                                               | (4\.5)%                                                              | (4\.9)%                                                              | (0\.3)                                                               | pts                                                                  |

Passenger revenue decreased $1\.0 billion over the prior year\. PRASM decreased 4\.9% and passenger mile yield decreased 4\.5% on 2\.1% higher capacity\. Load factor was 0\.3 points lower than the prior year at 84\.6%\.

Unit revenues of the domestic region decreased 5\.2%, resulting from weakness in the close\-in yield environment during most of the year despite strong volume\.

Revenues related to our international regions decreased 7\.2% year\-over\-year primarily due to yield declines resulting from imbalances between supply and demand, principally in the Atlantic region and China, the impact of foreign currency fluctuations, continued reductions in international fuel surcharges and economic challenges in certain regions\.

In the Atlantic, the unit revenue decline predominantly resulted from lower yields driven by industry capacity growth outpacing passenger demand and the strength of the U\.S\. dollar\. In core European markets, U\.S\. point\-of\-sale demand was strong and recovered quickly following the Brussels airport terrorist attack in March 2016\. However, Europe point\-of sale demand was soft largely due to the impact of weaker Euro exchange rates\.

Unit revenue declines in the Pacific compared to 2015 primarily resulted from lower yen hedge gains, lower international fuel surcharges and yield declines resulting from industry capacity growth between the U\.S\. and China\. During the September 2016 quarter, the U\.S\. Department of Transportation announced that we were awarded two daytime slot pairs at Tokyo's Haneda Airport (from Los Angeles and Minneapolis)\. We commenced these routes and canceled other routes in the Pacific region during the December 2016 quarter as part of our ongoing optimization of the Pacific region\.

Although Latin America unit revenues declined compared to 2015, unit revenues improved in the second half of 2016 compared to the second half of 2015\. An Open Skies agreement between the U\.S\. and Mexico took effect in August 2016 and our application for antitrust immunity with Aeroméxico was approved in the December 2016 quarter, which continued to strengthen our performance in the important Mexican business markets\.

Cargo Revenue

Cargo revenue decreased $145 million, or 17\.8%, primarily due to weaker international demand compared to the prior year\.

 32


Annual Report of Southwest Airlines Co\. for year 2018

in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions\.

As of December 31, 2018, the Company held certain items that are required to be measured at fair value on a recurring basis\. These included cash equivalents, short\-term investments (primarily treasury bills and certificates of deposit), interest rate derivative contracts, fuel derivative contracts, and available\-for\-sale securities\. The majority of the Company’s short\-term investments consist of instruments classified as Level 1\. However, the Company has certificates of deposit, commercial paper, and time deposits that are classified as Level 2, due to the fact that the fair value for 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\.

105


Annual Report of Southwest Airlines Co\. for year 2017

exposed to competition from surface transportation in these instances\. The airline industry is also subject to competition from alternatives to travel such as videoconferencing and the Internet, which can increase in the event of travel inconveniences and economic downturns\. The Company is subject to the risk that air travel inconveniences and economic downturns may, in some cases, result in permanent changes to consumer behavior in favor of surface transportation and electronic communications\.

**Seasonality**

The Company's business is seasonal\. Generally, in most markets the Company serves, demand for air travel is greater during the summer months, and therefore, revenues in the airline industry tend to be stronger in the second (April 1 \- June 30) and third (July 1 \- September 30) quarters of the year than in the first (January 1 \- March 31) and fourth (October 1 \- December 31) quarters of the year\. As a result, in many cases, the Company's results of operations reflect this seasonality\. Factors that could alter this seasonality include, among others, the price of fuel, general economic conditions, extreme or severe weather and natural disasters, fears of terrorism or war, or changes in the competitive environment\. Therefore, the Company's quarterly operating results are not necessarily indicative of operating results for the entire year, and historical operating results in a quarterly or annual period are not necessarily indicative of future operating results\.

**Employees**

At December 31, 2017, the Company had approximately 56,100 active fulltime equivalent Employees, consisting of approximately 23,600 flight, 3,000 maintenance, 20,000 ground, Customer, and fleet service, and 9,500 management, technology, finance, marketing, and clerical personnel (associated with non\-operational departments)\. Approximately 83 percent of these Employees were represented by labor unions\. The Railway Labor Act establishes the right of airline employees to organize and bargain collectively\. Under the Railway Labor Act, collective\-bargaining agreements between an airline and a labor union generally do not expire, but instead become amendable as of an agreed date\. By the amendable date, if either party wishes to modify the terms of the agreement, it must notify the other party in the manner required by the Railway Labor Act and/or described in the agreement\. After receipt of the notice, the parties must meet for direct negotiations\. If no agreement is reached, either party may request the National Mediation Board to appoint a federal mediator\. If no agreement is reached in mediation, the National Mediation Board may determine an impasse exists and offer binding arbitration to the parties\. If either party rejects binding arbitration, a 30\-day "cooling off" period begins\. At the end of this 30\-day period, the parties may engage in "self\-help," unless a Presidential Emergency Board is established to investigate and report on the dispute\. The appointment of a Presidential Emergency Board maintains the "status quo" for an additional period of time\. If the parties do not reach agreement during this period, the parties may then engage in "self\-help\." "Self\-help" includes, among other things, a strike by the union or the airline’s imposition of any or all of its proposed amendments and the hiring of new employees to replace any striking workers\. The following table sets forth the Company's Employee groups subject to collective bargaining and the status of their respective collective\-bargaining agreements as of December 31, 2017:

19


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

|                               |                                                                                |
| ----------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| **Exhibit**

**Number** | **Description**                                                                                |
| 4\.179                        | [Revolving Credit Agreement (2017\-2A), dated as of August 14, 2017, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2017\-2A, as Borrower, and National Australia Bank Limited, as Liquidity Provider (incorporated by reference to Exhibit 4\.15 to American’s Current Report on Form 8\-K filed on August 14, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517257245/d376721dex415.htm)                                                                                |
| 4\.180                        | [Trust Supplement No\. 2016\-3B, dated as of October 4, 2017, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on October 5, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517304687/d466899dex42.htm)                                                                                |
| 4\.181                        | [Amended and Restated Note Purchase Agreement, dated as of October 4, 2017, amending the Note Purchase Agreement, dated as of October 3, 2016, among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4\.4 to American’s Current Report on Form 8\-K filed on October 5, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517304687/d466899dex44.htm)                                                                                |
| 4\.182                        | [Form of First Amendment to Participation Agreement (First Amendment to Participation Agreement among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust Company, as Loan Trustee, and Wilmington Trust Company, in its individual capacity as set forth therein) (incorporated by reference to Exhibit A to Exhibit 4\.4 to American’s Current Report on Form 8\-K filed on October 5, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517304687/d466899dex44.htm)                                                                                |
| 4\.183                        | [Form of First Amendment to Indenture and Security Agreement (First Amendment to Indenture and Security Agreement between American Airlines, Inc\., and Wilmington Trust Company, as Loan Trustee) (incorporated by reference to Exhibit E to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on October 6, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517305920/d463889dex46.htm#toc463889_35)                                                                                |
| 4\.184                        | [Form of First Amendment to Indenture and Security Agreement (First Amendment to Indenture and Security Agreement between American Airlines, Inc\., and Wilmington Trust Company, as Loan Trustee) (incorporated by reference to Exhibit B to Exhibit 4\.4 to American’s Current Report on Form 8\-K filed on October 5, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517304687/d466899dex44.htm)                                                                                |
| 4\.185                        | [Form of Pass Through Trust Certificate, Series 2016\-3B (incorporated by reference to Exhibit A to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on October 5, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517304687/d466899dex42.htm)                                                                                |
| 4\.186                        | [Revolving Credit Agreement (2016\-3B), dated as of October 4, 2017, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2016\-3B, as Borrower, and KfW IPEX\-Bank GmbH, as Liquidity Provider 3B (incorporated by reference to Exhibit 4\.8 to American’s Current Report on Form 8\-K filed on October 5, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517304687/d466899dex42.htm)                                                                                |
| 4\.187                        | [Trust Supplement No\. 2017\-2B, dated as of October 5, 2017, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on October 6, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517305920/d463889dex42.htm)                                                                                |
| 4\.188                        | [Amended and Restated Intercreditor Agreement (2017\-2), dated as of October 5, 2017, among Wilmington Trust Company, as Trustee of the American Airlines Pass Through Trust 2017\-2AA, as Trustee of the American Airlines Pass Through Trust 2017\-2A and as Trustee of the American Airlines Pass Through Trust 2017\-2B, National Australia Bank Limited, as Class AA Liquidity Provider, Class A Liquidity Provider and Class B Liquidity Provider, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4\.3 to American’s Current Report on Form 8\-K filed on October 6, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517305920/d463889dex43.htm) |
| 4\.189                        | [Deposit Agreement (Class B), dated as of October 5, 2017, between Wilmington Trust, National Association, as Escrow Agent, and Natixis S\.A\., acting through its New York Branch, as Depositary (incorporated by reference to Exhibit 4\.4 to American’s Current Report on Form 8\-K filed on October 6, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517305920/d463889dex44.htm)                                                                                |
| 4\.190                        | [Escrow and Paying Agent Agreement (Class B), dated as of October 5, 2017, among Wilmington Trust, National Association, as Escrow Agent, Deutsche Bank Securities Inc\. and Credit Suisse Securities (USA) LLC, as the representatives of the underwriters named therein, Wilmington Trust Company, not in its individual capacity, but solely as Pass Through Trustee for and on behalf of American Airlines Pass Through Trust 2017\-2B, and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4\.5 to American’s Current Report on Form 8\-K filed on October 6, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517305920/d463889dex45.htm)                     |
| 4\.191                        | [Amended and Restated Note Purchase Agreement, dated as of October 5, 2017, among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust, National Association, as Escrow Agent, and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on October 6, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517305920/d463889dex46.htm)                                                                                |

189


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

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

|              |                                                                                |
| ------------ | ------------------------------------------------------------------------------------------ |
| **ITEM 9\.** | **CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE\.** |

None\.

|               |                             |
| ------------- | --------------------------- |
| **ITEM 9A\.** | **CONTROLS AND PROCEDURES** |

***Evaluation of Disclosure Control and Procedures***

UAL and United each maintain controls and procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted by UAL and United to the SEC is recorded, processed, summarized and reported, within the time periods specified by the SEC's rules and forms, and is accumulated and communicated to management including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure\. The management of UAL and United, including the Chief Executive Officer and Chief Financial Officer, performed an evaluation to conclude with reasonable assurance that UAL's and United's disclosure controls and procedures were designed and operating effectively to report the information each company is required to disclose in the reports they file with the SEC on a timely basis\. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer of UAL and United have concluded that as of December 31, 2018, disclosure controls and procedures were effective\.

***Changes in Internal Control over Financial Reporting during the Quarter Ended*** ***December 31, 2018***

During the three months ended December 31, 2018, there was no change in UAL's or United's internal control over financial reporting that materially affected, or is reasonably likely to materially affect, their internal control over financial reporting\.

90


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

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

***(a) 2013, 2014, April 2016 and December 2016 Credit Facilities***

*2013 Credit Facilities*

In May 2018, American and AAG entered into a Fourth Amendment (the Fourth Amendment to the 2013 Credit Agreement) to the Amended and Restated Credit and Guaranty Agreement, amending the Amended and Restated Credit and Guaranty Agreement dated as of May 21, 2015, which amended and restated the Credit and Guaranty Agreement dated as of June 27, 2013 (as previously amended, the 2013 Credit Agreement, the revolving facility established thereunder, the 2013 Revolving Facility, the term loan facility established thereunder, the 2013 Term Loan Facility, and the 2013 Revolving Facility together with the 2013 Term Loan Facility, the 2013 Credit Facilities), pursuant to which American refinanced $1\.8 billion of the existing term loans outstanding under the 2013 Credit Facilities with proceeds of term loans incurred under the Fourth Amendment to the 2013 Credit Agreement (the 2013 Replacement Term Loans)\. The LIBOR margin on the 2013 Replacement Term Loans was reduced from 2\.00% to 1\.75% and the base rate margin on the 2013 Replacement Term Loans was reduced from 1\.00% to 0\.75%\. Additionally, the maturity date of the 2013 Replacement Term Loans was extended to June 2025 pursuant to the Fourth Amendment to the 2013 Credit Agreement\.

In December 2018, American and AAG entered into a Fifth Amendment (the Fifth Amendment to the 2013 Credit Agreement) to the 2013 Credit Agreement, as previously amended by the Fourth Amendment to the 2013 Credit Agreement\. Pursuant to the Fifth Amendment to the 2013 Credit Agreement, adjustments to the 2013 Revolving Facility were made, including reducing the total aggregate commitments under the 2013 Revolving Facility by $200 million, extending the maturity date for the revolver loans thereunder from October 2022 to October 2023 and reducing the LIBOR margin from 2\.25% to 2\.00% and the base rate margin from 1\.25% to 1\.00% for certain of the lenders of the revolver loans thereunder\. As of December 31, 2018, there were no borrowings or letters of credit outstanding under the 2013 Revolving Facility\.

*2014 Credit Facilities*

In September 2018, American and AAG entered into a Fifth Amendment (the Fifth Amendment to the 2014 Credit Agreement) to the Amended and Restated Credit and Guaranty Agreement, amending the Amended and Restated Credit and Guaranty Agreement dated as of April 20, 2015, which amended and restated the Credit and Guaranty Agreement dated as of October 10, 2014 (as previously amended, the 2014 Credit Agreement, the revolving credit facility established thereunder, the 2014 Revolving Facility, the term loan facility established thereunder, the 2014 Term Loan Facility, and the 2014 Revolving Facility together with the 2014 Term Loan Facility, the 2014 Credit Facilities)\. The Fifth Amendment to the 2014 Credit Agreement provides for incremental term loans in the amount of $500 million under the 2014 Term Loan Facility\. The terms of such incremental term loans are substantially similar to the terms of the existing term loans under the 2014 Term Loan Facility, including those with regard to maturity and interest rate margins\. As of December 31, 2018, approximately $1\.2 billion was outstanding under the 2014 Term Loan Facility\.

In December 2018, American and AAG entered into a Sixth Amendment (the Sixth Amendment to the 2014 Credit Agreement) to the 2014 Credit Agreement, as previously amended by the Fifth Amendment to the 2014 Credit Agreement\. Pursuant to the Sixth Amendment to the 2014 Credit Agreement, adjustments to the 2014 Revolving Facility were made, including increasing the total aggregate commitments under the 2014 Revolving Facility by approximately $543 million, extending the maturity date for the revolver loans thereunder from October 2022 to October 2023 and reducing the LIBOR margin from 2\.25% to 2\.00% and the base rate margin from 1\.25% to 1\.00% for certain of the lenders of the revolver loans thereunder\. In addition to the slots, gates and routes (SGR) between airports in the United States and LHR previously pledged as collateral for the 2014 Credit Facilities, SGR between airports in the United States and other countries in the European Union were added as collateral under the 2014 Credit Facilities pursuant to the Sixth Amendment to the 2014 Credit Agreement\. As of December 31, 2018, there were no borrowings or letters of credit outstanding under the 2014 Revolving Facility\.

*April 2016 Credit Facilities*

In December 2018, American and AAG entered into a Fourth Amendment (the Fourth Amendment to the April 2016 Credit Agreement) to the Credit and Guaranty Agreement, amending the Credit and Guaranty Agreement dated as of April 29, 2016 (as previously amended, the April 2016 Credit Agreement, and the revolving credit facility established thereunder, the April 2016 Revolving Facility, the term loan facility established thereunder, the 2016 Term Loan Facility and the 2016 April Revolving Facility together with the 2016 Term Loan Facility, the April 2016 Credit Facilities)\. Pursuant to the Fourth Amendment to the April 2016 Credit Agreement, adjustments to the April 2016 Revolving Facility were made, including extending the maturity date from October 2022 to October 2023 for the revolver loans established thereunder and reducing the LIBOR margin from 2\.25% to 2\.00% and the base rate margin from 1\.25% to 1\.00% for certain of the lenders of the revolver loans thereunder\. As of December 31, 2018, there were no borrowings or letters of credit outstanding under the April 2016 Revolving Facility\.

100


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

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

We have an equity method investment in the entity which owns IAT, our sublessor at Terminal 4\. The Sublease requires us to pay certain fixed management fees\. We determined the investment is a variable interest entity and assessed whether we have a controlling financial interest in IAT\. Our rights under the Sublease, with respect to management of Terminal 4, are consistent with rights granted to an anchor tenant under a standard airport lease\. Accordingly, we do not consolidate the entity in which we have an investment in our Consolidated Financial Statements\.

Los Angeles International Airport

During 2016, we announced plans to modernize, upgrade and connect Terminals 2 and 3 at Los Angeles International Airport (“LAX”) over the next seven years\. A substantial majority of the project costs will be funded through the Regional Airports Improvement Corporation ("RAIC"), a California public benefit corporation, using an   $800 million  revolving credit facility provided by a group of lenders\. The credit facility was executed during 2017\. We have guaranteed the obligations of the RAIC under the credit facility\. Because the RAIC remains in compliance with the terms of its credit facility, we have not recorded a liability on our Consolidated Balance Sheet as of  December 31, 2017 \.

New York\-LaGuardia Airport

As part of the terminal redevelopment project at LaGuardia Airport, we are partnering with the Port Authority of New York and New Jersey (the “Port Authority”) to replace Terminals C and D with a new state\-of\-the\-art terminal facility consisting of   37  gates across   four  concourses connected to a central headhouse\. The terminal will feature a new, larger Delta Sky Club, wider concourses, more gate seating and   30 percent  more concessions space than the existing terminals\. The facility will also offer direct access between the parking garage and terminal with improved roadways and drop\-off/pick\-up areas\. The design of the new terminal will integrate sustainable technologies and improved energy efficiency\. Construction will be phased to limit passenger inconvenience and is expected to be completed by 2026\.

In connection with the redevelopment, during 2017, we entered into an amended and restated terminal lease with the Port Authority with a term through 2050\. Pursuant to the lease agreement we will (1) fund (through debt issuance and existing cash) and undertake the design, management and construction of the terminal and certain off\-premises supporting facilities, (2) receive a Port Authority contribution of   $600 million  to facilitate construction of the terminal and other supporting infrastructure, (3) be responsible for all operations and maintenance during the term of the lease and (4) have preferential rights to all gates in the terminal subject to Port Authority requirements with respect to accommodation of designated carriers\.

NOTE 9 \. EMPLOYEE BENEFIT PLANS

We sponsor defined benefit and defined contribution pension plans, healthcare plans and disability and survivorship plans for eligible employees and retirees and their eligible family members\.

Defined Benefit Pension Plans\.  We sponsor defined benefit pension plans for eligible employees and retirees\. These plans are closed to new entrants and frozen for future benefit accruals\.  The Pension Protection Act of 2006 allows commercial airlines to elect alternative funding rules ("Alternative Funding Rules") for defined benefit plans that are frozen\. We elected the Alternative Funding Rules under which the unfunded liability for a frozen defined benefit plan may be amortized over a fixed 17\-year period and is calculated using an   8\.85%  discount rate\.  We have no minimum funding requirements in 2018\. However, in January 2018, we voluntarily contributed approximately   $500 million  to these plans\.

Defined Contribution Pension Plans\.  We sponsor several defined contribution plans\. These plans generally cover different employee groups and employer contributions vary by plan\. The costs associated with our defined contribution pension plans were   $875 million ,   $733 million  and   $592 million  for the years ended December 31, 2017, 2016 and 2015, respectively\.

Postretirement Healthcare Plans\.  We sponsor healthcare plans that include providing benefits to eligible retirees and their dependents who are under age   65 \. We have generally eliminated company\-paid post age   65  healthcare coverage, except for (1) subsidies available to a limited group of retirees and their dependents and (2) a group of retirees who retired prior to 1987\. Benefits under these plans are funded from current assets and employee contributions\.

Postemployment Plans\.  We provide certain other welfare benefits to eligible former or inactive employees after employment but before retirement, primarily as part of the disability and survivorship plans\. Substantially all employees are eligible for benefits under these plans in the event of death and/or disability\.

 73


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

The rapid spread of contagious illnesses can have a material adverse effect on our business and results of operations\.

The rapid spread of a contagious illness such as a novel coronavirus, or fear of such an event, can have a material adverse effect on the demand for worldwide air travel and therefore have a material adverse effect on our business and results of operations\. As a result of the outbreak of a novel coronavirus first identified in Wuhan, Hubei Province, China, we have temporarily ceased operations in China and the continued spread of the virus could have a significant adverse impact on the demand for air travel and, as a result, our financial results\. Moreover, our operations could be negatively affected if employees are quarantined as the result of exposure to a contagious illness\. Similarly, travel restrictions or operational issues resulting from the rapid spread of contagious illnesses in a part of the world in which we have significant operations may have a material adverse effect on our business and results of operations\.

ITEM 1B\. UNRESOLVED STAFF COMMENTS

None\.

21


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

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

Non\-Operating Results

|                                   |                             |                             |                             |                             |                             |
| --------------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                   | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **(Unfavorable) Favorable** | **(Unfavorable) Favorable** |
| **(in millions)**                 | **2017**                    | **2016**                    | **2015**                    |  **2017 vs\. 2016**         |  **2016 vs\. 2015**         |
| Interest expense, net             | $(396)                      | $(388)                      | $(481)                      | $(8)                        | $93                         |
| Miscellaneous, net                | (17)                        | 72                          | (164)                       | (89)                        | 236                         |
| Total non\-operating expense, net | $(413)                      | $(316)                      | $(645)                      | $(97)                       | $329                        |

At December 31, 2016, the principal amount of debt and capital leases was  $7\.4 billion \. During 2017, we issued $2\.5 billion of unsecured notes\. As a result of the debt issuances, partially offset by scheduled principal payments, the amount of debt and capital leases was  $8\.9 billion  at  December 31, 2017 \.

Miscellaneous, net is primarily composed of our proportionate share of earnings from our equity investments in Virgin Atlantic and Grupo Aeroméxico, foreign exchange gains/losses and charitable contributions\. Our equity investment earnings and foreign exchange gains/losses vary and impact the comparability of miscellaneous, net from period to period\.

Income Taxes

Our effective tax rate for 2017 was  37\.2% \. We recorded a provisional estimate of $150 million related to the Tax Cuts and Jobs Act of 2017, resulting in a 2\.6% increase to our effective tax rate\. We expect our annual effective tax rate to be between 21% and 23% for 2018\. At  December 31, 2017 , we had approximately  $5\.1 billion  of U\.S\. federal pre\-tax net operating loss carryforwards, which do not begin to expire until  2027 \. Accordingly, we believe we will not pay cash federal income taxes before 2019\. See  Note 11  of the Notes to the Consolidated Financial Statements for more information\.

Refinery Segment

The refinery primarily produces gasoline, diesel and jet fuel\.  Monroe exchanges the non\-jet fuel products the refinery produces with third parties for jet fuel consumed in our airline operations\.  The jet fuel produced and procured through exchanging gasoline and diesel fuel produced by the refinery provided approximately 200,000 barrels per day for use in our airline operations during  2017 \. We believe that the jet fuel supply resulting from the refinery's operation has contributed to the reduction in the market price of jet fuel, and thus lowered our cost of jet fuel compared to what it otherwise would have been\.

The refinery recorded operating revenues of  $5\.0 billion  in  2017 , compared to  $3\.8 billion  in  2016 \. Operating revenues in  2017  were primarily composed of  $3\.2 billion  of non\-jet fuel products exchanged with third parties to procure jet fuel and  $886 million  of sales of jet fuel to the airline segment\. Refinery revenues increased compared to the prior year due to higher product demand and an increase in margins during the second half of 2017 due to hurricanes that caused extensive refinery closures on the Gulf Coast for several weeks\.

The refinery recorded income of  $110 million  in  2017 , compared to a loss of  $125 million  recorded in  2016 \. The refinery's income  in  2017  was primarily due to higher refined product cracks, lower crude costs and higher throughput levels\.

A refinery is subject to annual EPA requirements to blend renewable fuels into the gasoline and on\-road diesel fuel it produces\. Alternatively, a refinery may purchase renewable energy credits, called RINs, from third parties in the secondary market\. The refinery, operated by Monroe purchases the majority of its RINs requirement in the secondary market\. We recognized  $159 million  and $171 million of expense related to the RINs requirement in  2017  and  2016 , respectively\. RINs expense decreased during  2017  primarily as a result of a slight decrease in the unit cost of RINs during  2017  after a significant increase in the unit cost of RINs during 2016\.

The Monroe refinery is planning for a shutdown of approximately 60 days in the December 2018 quarter\. This planned outage, called a turnaround, is in accordance with the long term maintenance plan for the facility to allow for the safe completion of major repairs and upgrades\. During that planned outage, we have identified other sources of fuel to maintain service levels and to mitigate the financial impact\.

 For more information regarding the refinery's results, see  Note 14  of the Notes to the Consolidated Financial Statements\.

 35


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

ITEM 8B\. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF AMERICAN AIRLINES, INC\.

Report of Independent Registered Public Accounting Firm

To the Stockholder and Board of Directors

American Airlines, Inc\.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of American Airlines, Inc\. and subsidiaries (American) as of  December 31, 2019  and  2018 , the related consolidated statements of operations, comprehensive income, cash flows, and stockholder’s equity for each of the years in the three\-year period ended  December 31, 2019 , and the related notes (collectively, the consolidated financial statements)\. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of American as of  December 31, 2019  and  2018 , and the results of its operations and its cash flows for each of the years in the three\-year period ended  December 31, 2019 , in conformity with U\.S\. generally accepted accounting principles\.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), American’s internal control over financial reporting as of  December 31, 2019 , based on criteria established in  Internal Control  –  Integrated Framework (2013)  issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated  February 19, 2020  expressed an unqualified opinion on the effectiveness of American’s internal control over financial reporting\.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, American has changed its method of accounting for leases as of January 1, 2018 due to the modified retrospective adoption of Accounting Standards Update 2016\-02,  Leases (Topic 842) ,  as amended\.

Basis for Opinion

These consolidated financial statements are the responsibility of American’s management\. Our responsibility is to express an opinion on these consolidated financial statements based on our audits\. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to American in accordance with the U\.S\. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB\.

We conducted our audits in accordance with the standards of the PCAOB\. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud\. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks\. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements\. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements\. We believe that our audits provide a reasonable basis for our opinion\.

115


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

*Other Revenue*

Other revenue includes revenue associated with our loyalty program, which is comprised principally of the marketing component of mileage sales to co\-branded credit card and other partners and other marketing related payments\. The accounting and recognition for the loyalty program marketing services are discussed above in “*Loyalty Revenue*\.” The remaining amounts included within other revenue relate to airport clubs, advertising and vacation\-related services\.

***Long\-lived Assets***

Long\-lived assets consist of flight equipment, as well as other fixed assets and finite\-lived intangible assets such as certain domestic airport slots, customer relationships, marketing agreements, tradenames and airport gate leasehold rights\. In addition to the original cost, the recorded value of our fixed assets is impacted by a number of estimates made, including estimated useful lives, salvage values and our determination as to whether aircraft are temporarily or permanently grounded\. Finite\-lived intangible assets are originally recorded at their acquired fair values and are subsequently amortized over their estimated useful lives\. See Note 1 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 1 to American’s Consolidated Financial Statements in Part II, Item 8B for further information\.

We assess impairment on long\-lived assets used in operations when events and circumstances indicate that the assets may be impaired\. An asset or group of assets is considered impaired when the undiscounted cash flows estimated to be generated by the assets are less than the carrying amount of the assets and the net book value of the assets exceeds their estimated fair value\. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets\. Estimates of fair value represent management’s best estimate based on appraisals, industry trends and reference to market rates and transactions\.

The majority of American’s aircraft fleet types are depreciated over 25\-30 years\. It is possible that the ultimate lives of our aircraft will be significantly different than the current estimate due to unforeseen events in the future that impact our fleet plan, including positive or negative developments in the areas described above\. For example, operating the aircraft for a longer period will result in higher maintenance, fuel and other operating costs than if we replaced the aircraft\.

***Leases***

We adopted ASU 2016\-02: Leases (Topic 842) (the New Lease Standard) as of January 1, 2018\. See “*Recent Accounting Pronouncements*” below for further discussion about the New Lease Standard and its impact on our consolidated balance sheet\. We determine if an arrangement is a lease at inception\. Operating leases are included in operating lease right\-of\-use (ROU) assets, current operating lease liabilities and noncurrent operating lease liabilities in our consolidated balance sheet\. Finance leases are included in property and equipment, current maturities of long\-term debt and finance leases and long\-term debt and finance leases, net of current maturities, in our consolidated balance sheet\.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease\. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term\.

We use our estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments\. We give consideration to our recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates\. A 100 basis point decrease in our estimate of the incremental borrowing rate at January 1, 2018 (the date of our adoption of the New Lease Standard) would increase our operating lease liability by approximately $275 million\.

Our lease term includes options to extend the lease when it is reasonably certain that we will exercise that option\. Leases with a term of 12 months or less are not recorded on the balance sheet\. Our lease agreements do not contain any residual value guarantees\.

Under certain of our capacity purchase agreements with third\-party regional carriers, we do not own the underlying aircraft\. However, since we control the marketing, scheduling, ticketing, pricing and seat inventories of these aircraft and therefore control the asset, the aircraft is deemed to be leased for accounting purposes\. For these capacity purchase agreements, we account for the lease and non\-lease components separately\. The lease component consists of the aircraft and the non\-lease components consist of services, such as the crew and maintenance\. We allocate the consideration in the capacity purchase agreements to the lease and non\-lease components using their estimated relative standalone prices\. See Note 12(b) to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 10(b) to American’s Consolidated Financial Statements in Part II, Item 8B for additional information on our capacity purchase agreements\.

For real estate, we account for the lease and non\-lease components as a single lease component\.

73


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

ITEM 9\. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND  FINANCIAL DISCLOSURE

None\.

ITEM 9A\. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of our disclosure controls and procedures, which have been designed to permit us to record, process, summarize and report, within time periods specified by the SEC's rules and forms, information required to be disclosed\. Our management, including our Chief Executive Officer and Chief Financial Officer, concluded that the controls and procedures were effective as of  December 31, 2018  to ensure that material information was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure\.

Changes in Internal Control

Except as set forth below, during the three months ended  December 31, 2018 , we did not make any changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting\.

During the three months ended  December 31, 2018 , we implemented a new lease accounting system and process in response to the adoption of ASU No\. 2016\-02, "Leases (Topic 842)," effective January 1, 2018\. These implementations resulted in a material change in a component of our internal control over financial reporting\. The operating effectiveness of these changes to our internal control over financial reporting were evaluated as part of our annual assessment of the effectiveness of internal control over financial reporting as of the end of 2018\.

Management's Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a\-15(f) and 15d\-15(f) under the Securities Exchange Act of 1934\. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America\.

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

Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of  December 31, 2018  using the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in the 2013 Internal Control\-Integrated Framework\. Based on that evaluation, management believes that our internal control over financial reporting was effective as of  December 31, 2018 \.

The effectiveness of our internal control over financial reporting as of  December 31, 2018  has been audited by Ernst & Young LLP, an independent registered public accounting firm, which also audited our Consolidated Financial Statements for the year ended  December 31, 2018 \. Ernst & Young LLP's report on our internal control over financial reporting is set forth below\.

 98


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

AMERICAN AIRLINES, INC\.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

|                                                                                |                              |                              |                              |
| ------------------------------------------------------------------------------------- | ---------------------------- | ---------------------------- | ---------------------------- |
|                                                                                |  **Year Ended December 31,** |  **Year Ended December 31,** |  **Year Ended December 31,** |
|                                                                                | **2019**                     | **2018**                     | **2017**                     |
| **Cash flows from operating activities:**                                             |                              |                              |                              |
| Net income                                                                            | $1,972                       | $1,658                       | $1,285                       |
| Adjustments to reconcile net income to net cash provided by operating activities:     |                              |                              |                              |
| Depreciation and amortization                                                         | 2,267                        | 2,108                        | 1,964                        |
| Net loss (gains) from sale of property and equipment and sale\-leaseback transactions | (109

)                | (57

)                 | 2                            |
| Special items, net non\-cash                                                          | 384                          | 458                          | 272                          |
| Pension and postretirement                                                            | (178

)                | (302

)                | (132

)                |
| Deferred income tax provision                                                         | 623                          | 503                          | 2,246                        |
| Share\-based compensation                                                             | 94                           | 86                           | 90                           |
| Other, net                                                                            | (56

)                 | (102

)                | (146

)                |
| **Changes in operating assets and liabilities:**                                      |                              |                              |                              |
| Decrease (increase) in accounts receivable                                            | 130                          | 232                          | (189

)                |
| Increase in other assets                                                              | (321

)                | (354

)                | (405

)                |
| Increase (decrease) in accounts payable and accrued  liabilities                      | 273                          | (171

)                | 266                          |
| Increase in air traffic liability                                                     | 469                          | 297                          | 65                           |
| Increase in receivables from related parties, net                                     | (1,772

)              | (1,849

)              | (1,994

)              |
| Increase (decrease) in loyalty program liability                                      | 76                           | (283

)                | (308

)                |
| Contributions to pension plans                                                        | (1,224

)              | (472

)                | (286

)                |
| Increase (decrease) in other liabilities                                              | (199

)                | 191                          | 140                          |
| Net cash provided by operating activities                                             | 2,429                        | 1,943                        | 2,870                        |
| **Cash flows from investing activities:**                                             |                              |                              |                              |
| Capital expenditures and aircraft purchase deposits                                   | (4,156

)              | (3,677

)              | (5,881

)              |
| Proceeds from sale\-leaseback transactions                                            | 850                          | 1,096                        | 853                          |
| Proceeds from sale of property and equipment                                          | 49                           | 106                          | 69                           |
| Purchases of short\-term investments                                                  | (3,184

)              | (3,412

)              | (4,633

)              |
| Sales of short\-term investments                                                      | 4,144                        | 3,705                        | 5,915                        |
| Proceeds from vendor                                                                  | 250                          | —                            | —                            |
| Decrease (increase) in restricted short\-term investments                             | (3

)                  | 72                           | 309                          |
| Proceeds from sale of investments                                                     | —                            | 207                          | —                            |
| Purchase of equity investment                                                         | —                            | —                            | (203

)                |
| Other investing activities                                                            | (96

)                 | (7

)                  | —                            |
| Net cash used in investing activities                                                 | (2,146

)              | (1,910

)              | (3,571

)              |
| **Cash flows from financing activities:**                                             |                              |                              |                              |
| Proceeds from issuance of long\-term debt                                             | 3,210                        | 2,354                        | 3,058                        |
| Payments on long\-term debt and finance leases                                        | (3,440

)              | (2,442

)              | (2,332

)              |
| Deferred financing costs                                                              | (52

)                 | (59

)                 | (85

)                 |
| Other financing activities                                                            | —                            | —                            | 27                           |
| Net cash provided by (used in) financing  activities                                  | (282

)                | (147

)                | 668                          |
| Net increase (decrea se) in cash and restricted cash                                  | 1                            | (114

)                | (33

)                 |
| Cash and restricted cash at beginning of year                                         | 276                          | 390                          | 423                          |
| Cash and restricted cash at end of year  ^(a)^                                        | $277                         | $276                         | $390                         |

^(a)^  The following table provides a reconciliation of cash and restricted cash to amounts reported within the consolidated balance sheets:

|                                                                         |      |      |      |
| ----------------------------------------------------------------------- | ---- | ---- | ---- |
| Cash                                                                    | $267 | $265 | $287 |
| Restricted cash included in restricted cash and short\-term investments | 10   | 11   | 103  |
| Total cash and restricted cash                                          | $277 | $276 | $390 |

See accompanying notes to consolidated financial statements\.

120


Annual Report of Southwest Airlines Co\. for year 2017

**7****\. LEASES**

The Company's fleet included 53 aircraft on operating lease and 69 aircraft on capital lease as of December 31, 2017, compared with 83 aircraft on operating lease and 51 aircraft on capital lease, as of December 31, 2016\. Amounts applicable to these aircraft on capital lease that are included in property and equipment were:

|                                |          |          |
| ------------------------------ | -------- | -------- |
| **(in millions)**              | **2017** | **2016** |
| Flight equipment               | $1,207   | $923     |
| Less: accumulated amortization | 172      | 82       |
|                                | $1,035   | $841     |

Total rental expense for operating leases, both aircraft and other, charged to operations in 2017, 2016, and 2015 was $939 million, $932 million, and $909 million, respectively\. The majority of the Company’s terminal operations space, as well as 144 aircraft, including 76 B717s subleased to Delta and 15 Classic aircraft grounded in September 2017, were under operating leases at December 31, 2017\. For aircraft operating leases and for terminal operations leases and other real estate leases, expense is recorded on a straight–line basis and included in Aircraft rentals and in Landing fees and other rentals, respectively, in the Consolidated Statement of Income\. The majority of the Company’s terminal operations space was under operating leases at December 31, 2017; however, due to the nature of airport terminal lease arrangements, most of those future lease payments are considered variable, and thus excluded from the Company’s disclosures of future minimum lease payments\. Future minimum lease payments under capital leases and noncancelable operating leases and rentals to be received under subleases with initial or remaining terms in excess of one year at December 31, 2017, were:

|                                             |                               |                                     |               |                                      |
| ------------------------------------------- | ----------------------------- | ----------------------------------- | ------------- | ------------------------------------ |
| **(in millions)**                           | **Capital**

**leases** | **Operating**

**leases (b)** | **Subleases** | **Operating**

**leases, net** |
| 2018                                        | $107                          | $359                                | $(102)        | $257                                 |
| 2019                                        | 106                           | 331                                 | (98)          | 233                                  |
| 2020                                        | 105                           | 264                                 | (78)          | 186                                  |
| 2021                                        | 100                           | 155                                 | (41)          | 114                                  |
| 2022                                        | 96                            | 85                                  | (17)          | 68                                   |
| Thereafter                                  | 416                           | 177                                 | (8)           | 169                                  |
| Total minimum lease payments                | $930                          | $1,371                              | $(344)        | $1,027                               |
| Less amount representing interest           | 150                           |                                     |               |                                      |
| Present value of minimum lease payments (a) | 780                           |                                     |               |                                      |
| Less current portion                        | 79                            |                                     |               |                                      |
| Long\-term portion                          | $701                          |                                     |               |                                      |
| \* See Note  4  for further details         |                               |                                     |               |                                      |

(a) Excludes lease incentive obligation of $105 million\.

(b) Includes 15 remaining Classic aircraft on operating leases, which net remaining lease payments were included in the $63 million grounding charge recorded during 2017\.

The aircraft leases generally can be renewed for one to five years at rates based on fair market value at the end of the lease term\. Most aircraft leases have purchase options at or near the end of the lease term at fair market value, generally limited to a stated percentage of the lessor’s defined cost of the aircraft\.

On July 9, 2012, the Company signed an agreement with Delta Air Lines, Inc\. and Boeing Capital Corp\. to lease or sublease all 88 of AirTran Airways' B717s to Delta at agreed\-upon lease rates\. As of December 31, 2016, the Company had delivered all B717s to Delta\. A total of 76 of the B717s are on operating lease, ten are owned, and two are on capital lease\.

90


Annual Report of Southwest Airlines Co\. for year 2018

**PART III**

**Item 10\.** ***Directors, Executive Officers, and Corporate Governance***

**Directors and Executive Officers**

The information required by this Item 10 regarding the Company’s directors will be set forth under the heading “Proposal 1 \- Election of Directors” in the Proxy Statement for the Company’s 2019 Annual Meeting of Shareholders and is incorporated herein by reference\. The information required by this Item 10 regarding the Company’s executive officers is set forth under the heading “Executive Officers of the Registrant” in Part I of this Form 10\-K and is incorporated herein by reference\.

**Section 16(a) Compliance**

The information required by this Item 10 regarding compliance with Section 16(a) of the Exchange Act will be set forth under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement for the Company’s 2019 Annual Meeting of Shareholders and is incorporated herein by reference\.

**Corporate Governance**

Except as set forth in the following paragraph, the remaining information required by this Item 10 will be set forth under the heading “Corporate Governance” in the Proxy Statement for the Company’s 2019 Annual Meeting of Shareholders and is incorporated herein by reference\.

The Company has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer, and principal accounting officer or controller\. The Company’s Code of Ethics, as well as its Corporate Governance Guidelines and the charters of its Audit, Compensation, and Nominating and Corporate Governance Committees, are available on the Company’s website, www\.southwest\.com\. Copies of these documents are also available upon request to Investor Relations, Southwest Airlines Co\., P\.O\. Box 36611, Dallas, TX 75235\. The Company intends to disclose any amendments to, or waivers from, its Code of Ethics that apply to the Company’s principal executive officer, principal financial officer, and principal accounting officer or controller on the Company’s website, www\.southwest\.com, under the “About Southwest” caption, promptly following the date of any such amendment or waiver\.

**Item 11\.** ***Executive Compensation***

The information required by this Item 11 will be set forth under the headings “Compensation of Executive Officers” and “Compensation of Directors” in the Proxy Statement for the Company’s 2019 Annual Meeting of Shareholders and is incorporated herein by reference\.

**Item 12\.** ***Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters***

Except as set forth below regarding securities authorized for issuance under equity compensation plans, the information required by this Item 12 will be set forth under the heading “Voting Securities and Principal Shareholders” in the Proxy Statement for the Company’s 2019 Annual Meeting of Shareholders and is incorporated herein by reference\.

**Securities Authorized for Issuance under Equity Compensation Plans**

The following table provides information as of December 31, 2018, regarding compensation plans (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance\.

121


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

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

In June 2016, the FASB issued Accounting Standards Update No\. 2016\-13, *Financial Instruments—Credit Losses* ("ASU 2016\-13")\. The main objective is to provide financial statement users with more decision\-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date\. The amendments in this update replace the incurred loss methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates\. For trade receivables, loans and held\-to\-maturity debt securities, entities will be required to estimate lifetime expected credit losses\. For available\-for\-sale debt securities, entities will be required to recognize an allowance for credit losses rather than a reduction to the carrying value of the asset\. The amendments are effective for public business entities for fiscal years and interim periods beginning after December 15, 2019\. The Company is evaluating the impact the adoption of ASU 2016\-13 will have on its consolidated financial statements and believes that it will not have a material impact on its consolidated financial statements\.

In 2016, the FASB amended the FASB Accounting Standards Codification and created a new Topic 842, *Leases* (the "New Lease Standard")\. The guidance requires lessees to recognize a right\-of\-use asset and a lease liability for all leases (with the exception of short\-term leases) at the commencement date and recognize expenses on their income statements similar to the current Topic 840, *Leases* ("Topic 840")\. The New Lease Standard is effective for fiscal years and interim periods beginning after December 15, 2018\. The Company adopted this standard on January 1, 2019 using a modified retrospective approach for all leases existing at or commencing after the date of initial application and utilizing certain practical expedients\.

The adoption of the New Lease Standard is expected to impact our reported results as shown in the tables below (in millions, except per share amounts):

61