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

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *DGS\.*  In December 2018, we sold DGS, which provides aviation\-related, ground support equipment maintenance and professional security services, to a new subsidiary of Argenbright Holdings, LLC\. The new company will continue to service our customers and third parties, and is expected to continue operating at the same airport locations it currently serves\. |

At the time of the sale, we received a non\-controlling   49%  equity stake in the new company of   $109 million  and   $40 million  cash\. We recognized a gain upon deconsolidation of   $91 million  in miscellaneous under non\-operating expense\.

After the sale, we will record our portion of the new entity's financial results in contracted services under operating expense as this entity is integral to the operations of our business\.

Fair Value Investments

We account for the following investments at fair value with adjustments to fair value recognized in unrealized gain/(loss) on investments within non\-operating expense\.

|     |                                                                                |
| --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| *•* | *Air France\-KLM\.*  We own   9%  of the outstanding shares of Air France\-KLM, which are recorded at   $408 million  as of  December 31, 2018 \. In addition, we have a joint venture with Air France\-KLM and entered into an agreement with Air France\-KLM and Virgin Atlantic to combine our separate transatlantic joint ventures into a single three\-party transatlantic joint venture\. The three\-party agreement remains subject to required regulatory approvals\. |

|     |                                                                                |
| --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| *•* | *GOL\.*  We own   9%  of the outstanding capital stock of GOL Linhas Aéreas Inteligentes, the parent company of VRG Linhas Aéreas (operating as GOL), through ownership of its preferred shares\. Our ownership stake is recorded at   $213 million  as of  December 31, 2018 \. |

Additionally, GOL has a   $300 million  five \-year term loan facility with third parties, which we have guaranteed\. Our entire guaranty is secured by GOL's ownership interest in Smiles, GOL's publicly\-traded loyalty program\. Because GOL remains in compliance with the terms of its loan facility, we have not recorded a liability on our balance sheet as of  December 31, 2018 \.

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------ |
| • | *China Eastern\.*  We own a   3%  equity interest in China Eastern, which is recorded at   $259 million  as of  December 31, 2018 \. |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *Alclear Holdings, LLC ("CLEAR")* \. We own a   7%  equity interest in CLEAR\. During the year ended December 31, 2018, we sold a portion of our equity interest and recognized a gain of   $18 million  in miscellaneous, net in our income statement under non\-operating expense\. |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| • | *Republic Airways* \. We own a   17%  equity interest in Republic Airways Holdings Inc\. ("Republic")\. This ownership interest is currently recorded at our original cost, as Republic's shares are not actively traded on a public exchange and we do not have the ability to exercise significant influence over Republic\. |

 71


Annual Report of Southwest Airlines Co\. for year 2019

monitors the market position of the fuel hedging program and its relative market position with each counterparty\. However, if one or more of these counterparties were in a liability position to the Company and were unable to meet their obligations, any open derivative contracts with the counterparty could be subject to early termination, which could result in substantial losses for the Company\. At  December 31, 2019 , the Company had agreements with all of its active counterparties containing early termination rights and/or bilateral collateral provisions whereby security is required if market risk exposure exceeds a specified threshold amount based on the counterparty’s credit rating\. The  C ompany also had agreements with counterparties in which cash deposits, letters of credit, and/or pledged aircraft are required to be posted as collateral whenever the net fair value of derivatives associated with those counterparties exceeds specific thresholds\. Refer to the counterparty credit risk and collateral table provided in  Note 10  to the Consolidated Financial Statements for the fair values of fuel derivatives, amounts held as collateral, and applicable collateral posting threshold amounts as of  December 31, 2019 , at which such postings are triggered\.

The Company is also subject to the risk that the fuel derivatives it uses to hedge against fuel price volatility do not provide adequate protection\. The Company has found that financial derivative instruments in commodities, such as West Texas Intermediate crude oil, Brent crude oil, and refined products, such as heating oil and unleaded gasoline, can be useful in decreasing its exposure to jet fuel price volatility\. In addition, to add further protection, the Company may periodically enter into jet fuel derivatives for short\-term timeframes\. Jet fuel is not widely traded on an organized futures exchange and, therefore, there are limited opportunities to hedge directly in jet fuel for time horizons longer than approximately  24  months into the future\.

The Company also has agreements with each of its counterparties associated with its outstanding interest rate swap agreements in which cash collateral may be required based on the fair value of outstanding derivative instruments, as well as the Company’s and its counterparty’s credit ratings\. As of  December 31, 2019 , no cash collateral deposits were provided by or held by the Company based on its outstanding interest rate swap agreements\.

Due to the significance of the Company’s fuel hedging program and the emphasis that the Company places on utilizing fuel derivatives to reduce its fuel price risk, the Company has created a system of governance and management oversight and has put in place a number of internal controls designed so that procedures are properly followed and accountability is present at the appropriate levels\. For example, the Company has put in place controls designed to: (i) create and maintain a comprehensive risk management policy; (ii) provide for proper authorization by the appropriate levels of management; (iii) provide for proper segregation of duties; (iv) maintain an appropriate level of knowledge regarding the execution of and the accounting for derivative instruments; and (v) have key performance indicators in place in order to adequately measure the performance of its hedging activities\. The Company believes the governance structure that it has in place is adequate given the size and sophistication of its hedging program\.

Financial Market Risk

The vast majority of the Company’s tangible assets are aircraft, which are long\-lived\. The Company’s strategy is to maintain a conservative balance sheet and grow capacity steadily and profitably under the right conditions\. While the Company uses financial leverage, it strives to maintain a strong balance sheet and has an " A \-" rating with Fitch, a " BBB \+" rating with Standard & Poor’s, and an " A3 " credit rating with Moody’s as of  December 31, 2019 , all of which are considered "investment grade\." As disclosed in  Note 10  to the Consolidated Financial Statements, the Company has converted certain of its long\-term debt to floating rate debt by entering into an interest rate swap agreement\. See Note  6  to the Consolidated Financial Statements for more information on the material terms of the Company’s short\-term and long\-term debt\.

61


Annual Report of Southwest Airlines Co\. for year 2017

(a) Intangible assets primarily consist of acquired leasehold rights to certain airport owned gates, takeoff and landing slots (a "slot" is the right of an air carrier, pursuant to regulations of the FAA, to operate a takeoff or landing at a specific time at certain airports) at certain domestic slot\-controlled airports, and certain intangible assets acquired\.

The Company's definite lived assets are amortized on a straight\-line basis over the useful life of the asset\. The aggregate amortization expense for 2017, 2016, and 2015 was $13 million, $17 million, and $19 million, respectively\. Estimated aggregate amortization expense for the five succeeding years and thereafter is as follows: 2018 – $13 million, 2019 – $13 million, 2020 – $12 million, 2021 – $12 million, 2022 – $12 million, and thereafter – $56 million\.

***Revenue Recognition***

Tickets sold are initially deferred as Air traffic liability\. Passenger revenue is recognized when transportation is provided\. Air traffic liability primarily represents tickets sold for future travel dates and funds that are past flight date and remain unused\. The majority of the Company’s tickets sold are nonrefundable\. Refundable tickets that are sold but not flown on the travel date can be reused for another flight, up to a year from the date of sale, or refunded, subject to certain conditions\. A small percentage of tickets (or partial tickets) expire unused\. The Company has a No Show policy that applies to fares that are not canceled or changed by a Customer at least ten minutes prior to a flight's scheduled departure\. Based on the Company's revenue recognition policy, revenue is recorded at the flight date for a Customer who does not change his/her itinerary and loses his/her funds\. Amounts collected from passengers for ancillary service fees are generally recognized as Other revenue when the service is provided, which is typically the flight date\.

The Company's policy is to record Passenger revenue for the estimated spoilage of tickets (including partial tickets) once the flight date has passed under the redemption method\. Initial spoilage estimates are routinely adjusted and ultimately finalized once the tickets expire, which is typically twelve months after the original purchase date\. Spoilage estimates are based on the Customers' historical travel behavior as well as assumptions about the Customers' future travel behavior\. Assumptions used to generate spoilage estimates can be impacted by several factors including, but not limited to: fare increases, fare sales, events leading to significant flight cancellations, changes to the Company's ticketing policies, changes to the Company’s refund, exchange and unused funds policies, and economic factors\.

The Company is also required to collect certain taxes and fees from Customers on behalf of government agencies and remit these back to the applicable governmental entity on a periodic basis\. These taxes and fees include foreign and U\.S\. federal transportation taxes, federal security charges, and airport passenger facility charges\. These items are collected from Customers at the time they purchase their tickets, but are not included in Passenger revenue\. The Company records a liability upon collection from the Customer and relieves the liability when payments are remitted to the applicable governmental agency\.

***Frequent Flyer Program***

The Company records a liability for the estimated incremental cost of providing free travel under its frequent flyer program for all amounts earned from flight activity that are expected to be redeemed for future travel\. The estimated incremental cost includes direct passenger costs such as fuel, food, and other operational costs, but does not include any contribution to fixed overhead costs or profit\.

The Company also sells frequent flyer points and related services to companies participating in its frequent flyer program\. Historically, until July 1, 2015, funds received from the sale of points associated with these agreements were accounted for under the residual method\. Under this method, the Company estimated the portion of the amounts received from the sale of frequent flyer points that related to free travel and these amounts were deferred and recognized as Passenger revenue when the ultimate free travel awards were flown\. Effective July 1, 2015, the Company entered into an amended co\-branded credit card agreement ("Agreement") with Chase Bank USA, N\.A\. ("Chase"), through which the Company sells loyalty points and other items to Chase\. This material modification triggered a required accounting change under Accounting Standards Update ("ASU") No\. 2009\-13, which was recorded on a prospective basis\. The impact of the accounting change is that the Company estimated the selling prices and volumes over the term of the Agreement in order to determine the allocation of proceeds to each of the deliverables (travel points to be awarded;

78


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

Goodwill \. Our goodwill balance, which is related to the airline segment, was $9\.8 billion at December 31, 2019\. Based upon our quantitative assessment of all relevant factors, including applicable factors noted in " Key Assumptions " above, we determined that the fair value of goodwill significantly exceeded the carrying value and, therefore, there was no indication that goodwill was impaired\.

Identifiable Intangible Assets\.  Our identifiable intangible assets, which are related to the airline segment, had a net carrying amount of $5\.2 billion at December 31, 2019, of which $5\.1 billion related to indefinite\-lived intangible assets\. Indefinite\-lived assets are not amortized and consist primarily of routes, slots, the Delta tradename and assets related to SkyTeam and collaborative arrangements\. Definite\-lived assets consist primarily of marketing and maintenance service agreements\.

In 2019, we performed quantitative assessments of our indefinite\-lived intangible assets, including applicable factors noted in " Key Assumptions " above, and determined that there was no indication that the assets were impaired as the fair value of each asset exceeded its carrying value by at least 15%\.

Long\-Lived Assets

Our flight equipment, which consists of aircraft and associated engines and parts, and other long\-lived assets have a recorded value of $31\.3 billion at December 31, 2019\. This value is based on various factors, including the assets' estimated useful lives and salvage values\. We review flight equipment and other long\-lived assets used in operations for impairment losses when events and circumstances indicate the assets may be impaired\. Factors which could be indicators of impairment include, but are not limited to, (1) a decision to permanently remove flight equipment or other long\-lived assets from operations, (2) significant changes in the estimated useful life, (3) significant changes in projected cash flows, (4) permanent and significant declines in fleet fair values and (5) changes to the regulatory environment\. For long\-lived assets held for sale, we discontinue depreciation and record impairment losses when the carrying amount of these assets is greater than the fair value less the cost to sell\.

To determine whether impairments exist for aircraft used in operations, we group assets at the fleet\-type level or at the contract level for aircraft operated by regional carriers (i\.e\., the lowest level for which there are identifiable cash flows) and then estimate future cash flows based on projections of capacity, passenger mile yield, fuel costs, labor costs and other relevant factors\. If an asset group is impaired, the impairment loss recognized is the amount by which the asset group's carrying amount exceeds its estimated fair value\. We estimate aircraft fair values using published sources, appraisals and bids received from third parties, as available\.

As part of our ongoing fleet transformation, during 2019 we committed to accelerating the retirement of our MD\-90 fleet\. This fleet will now be retired by the end of 2022, which is approximately two years earlier than previously planned\. We evaluated the MD\-90 fleet and determined that the fleet was not impaired as the future cash flows from operation of the fleet through the updated retirement date significantly exceeded the carrying value\. However, the decision to retire the fleet by 2022, including the permanent retirement of 35 aircraft during 2019, resulted in accelerated depreciation of $79 million during 2019, which is recorded in depreciation and amortization in our income statement\.

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\. As of December 31, 2019, the unfunded benefit obligation for these plans recorded on our balance sheet was $5\.4 billion\. We had no minimum funding requirements in 2019\. However, during 2019, we voluntarily contributed $1 billion to these plans\. We have no minimum funding requirements in 2020, but we plan to voluntarily contribute approximately $500 million to these plans\. The most critical assumptions impacting our defined benefit pension plan obligations and net periodic benefit cost are the discount rate, the expected long\-term rate of return on plan assets and life expectancy\.

Weighted Average Discount Rate\.  We determine our weighted average discount rate on our measurement date primarily by reference to annualized rates earned on high\-quality fixed income investments and yield\-to\-maturity analysis specific to our estimated future benefit payments\. We used a weighted average discount rate to value the obligations of 3\.40% and 4\.33% at December 31, 2019 and 2018, respectively\. Our weighted average discount rate for net periodic benefit cost in each of the past three years has varied from the rate selected on our measurement date, ranging from 3\.69% to 4\.33%\.

43


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

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

**Number** | **Description**                                                                                |
| 4\.6                          | [Indenture and Security Agreement (N907AN), dated as of September 9, 2013, between American Airlines, Inc\. and Wilmington Trust Company, as Loan Trustee (incorporated by reference to Exhibit 4\.7 to AMR’s Current Report on Form 8\-K filed on November 27, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513456230/d634326dex47.htm)                                                                                |
| 4\.7                          | [First Amendment to Participation Agreement (N907AN), dated as of November 27, 2013, 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 4\.8 to AMR’s Current Report on Form 8\-K filed on November 27, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513456230/d634326dex48.htm)                                                  |
| 4\.8                          | [First Amendment to Indenture and Security Agreement (N907AN), dated as of November 27, 2013, between American Airlines, Inc\. and Wilmington Trust Company, as Loan Trustee (incorporated by reference to Exhibit 4\.9 to AMR’s Current Report on Form 8\-K filed on November 27, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513456230/d634326dex49.htm)                                                                                |
| 4\.9                          | [Series 2013\-2A N907AN Equipment Note No\. 1, dated as of September 9, 2013 (incorporated by reference to Exhibit 4\.10 to AMR’s Current Report on Form 8\-K filed on November 27, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513456230/d634326dex410.htm)                                                                                |
| 4\.10                         | [Series 2013\-2B N907AN Equipment Note No\. 1, dated as of November 27, 2013 (incorporated by reference to Exhibit 4\.11 to AMR’s Current Report on Form 8\-K filed on November 27, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513456230/d634326dex411.htm)                                                                                |
| 4\.11                         | [Schedule I (Pursuant to Instruction 2 to Item 601 of Regulation S\-K, this Schedule I contains a list of documents applicable to the financing of the Aircraft in connection with the offering of the Class B Certificates, which documents are substantially identical to those filed herewith as Exhibits 4\.6, 4\.7, 4\.8, 4\.9 and 4\.10\. Schedule I sets forth the details by which such documents differ from the corresponding Exhibits) (incorporated by reference to Exhibit 99\.2 to AMR’s Current Report on Form 8\-K filed on November 27, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513456230/d634326dex992.htm) |
| 4\.12                         | [Amended and Restated Intercreditor Agreement (2013\-2), dated as of December 20, 2013, among Wilmington Trust Company, as Trustee of American Airlines Pass Through Trust 2013\-2A, American Airlines Pass Through Trust 2013\-2B and American Airlines Pass Through Trust 2013\-2C, Morgan Stanley Bank, N\.A\., as Class A Liquidity Provider and as Class B Liquidity Provider, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4\.4 to AMR’s Current Report on Form 8\-K filed on December 20, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513480827/d647497dex44.htm)            |
| 4\.13                         | [Second Amendment to Participation Agreement (N907AN), dated as of December 20, 2013, 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 4\.9 to AMR’s Current Report on Form 8\-K filed on December 20, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513480827/d647497dex49.htm)                                                 |
| 4\.14                         | [Second Amendment to Indenture and Security Agreement (N907AN), dated as of December 20, 2013, between American Airlines, Inc\. and Wilmington Trust Company, as Loan Trustee (incorporated by reference to Exhibit 4\.10 to AMR’s Current Report on Form 8\-K filed on December 20, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513480827/d647497dex410.htm)                                                                                |
| 4\.15                         | [Indenture, dated as of May 24, 2013, between American Airlines Group Inc\. (as successor in interest to US Airways Group, Inc\.) and Wilmington Trust, National Association, as Trustee (incorporated by reference to Exhibit 4\.1 to US Airways Group’s Current Report on Form 8\-K filed on May 24, 2013 (Commission File No\. 1\-8444))\.](http://www.sec.gov/Archives/edgar/data/701345/000119312513235868/d544095dex41.htm)                                                                                |
| 4\.16                         | [First Supplemental Indenture, dated as of May 24, 2013, among American Airlines Group Inc\. (as successor in interest to US Airways Group, Inc\.), American Airlines, Inc\. (as successor in interest to US Airways, Inc\.) and Wilmington Trust, National Association, as Trustee (incorporated by reference to Exhibit 4\.2 to US Airways Group’s Current Report on Form 8\-K filed on May 24, 2013 (Commission File No\. 1\-8444))\.](http://www.sec.gov/Archives/edgar/data/701345/000119312513235868/d544095dex42.htm)                                                                                |
| 4\.17                         | [Second Supplemental Indenture dated as of December 9, 2013, among American Airlines Group Inc\. (as successor in interest to US Airways Group, Inc\.) and Wilmington Trust, National Association, as trustee, to the Indenture, dated as of May 24, 2013 (incorporated by reference to Exhibit 4\.1 to AAG’s Current Report on Form 8\-K filed on December 9, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513466973/d640718dex41.htm)                                                                                |
| 4\.18                         | [Third Supplemental Indenture, dated as of December 30, 2015, among American Airlines Group Inc\., American Airlines, Inc\. and Wilmington Trust, National Association, as trustee, to the Indenture dated as of May 24, 2013 (incorporated by reference to Exhibit 4\.1 to AAG’s Current Report on Form 8\-K filed on December 31, 2015 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515418305/d110614dex41.htm)                                                                                |
| 4\.19                         | [Pass Through Trust Agreement, dated as of September 16, 2014, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee (incorporated by reference to Exhibit 4\.1 to American’s Current Report on Form 8\-K filed on September 17, 2014 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312514343482/d790263dex41.htm)                                                                                |
| 4\.20                         | [Trust Supplement No\. 2014\-1A, dated as of September 16, 2014, 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 September 17, 2014 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312514343482/d790263dex42.htm)                                                                                |

181


Annual Report of Southwest Airlines Co\. for year 2018

**Southwest Airlines Co\.**

**Consolidated Statement of Cash Flows**

(in millions)

|                                                                                |                             |                             |                             |
| --------------------------------------------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                                                | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** |
|                                                                                | **2018**                    | **2017**                    | **2016**                    |
|                                                                                |                             | **As Recast**               | **As Recast**               |
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                                               |                             |                             |                             |
| Net income                                                                              | $2,465                      | $3,357                      | $2,183                      |
| Adjustments to reconcile net income to cash provided by (used in) operating activities: |                             |                             |                             |
| Depreciation and amortization                                                           | 1,201                       | 1,218                       | 1,221                       |
| Loss on asset impairment                                                                | —                           | —                           | 21                          |
| Aircraft grounding charge                                                               | —                           | 63                          | —                           |
| Unrealized/realized gains on fuel derivative instruments                                | (14)                        | (50)                        | (200)                       |
| Deferred income taxes                                                                   | 301                         | (1,066)                     | 419                         |
| Changes in certain assets and liabilities:                                              |                             |                             |                             |
| Accounts and other receivables                                                          | 117                         | (102)                       | (50)                        |
| Other assets                                                                            | (227)                       | (262)                       | (119)                       |
| Accounts payable and accrued liabilities                                                | 545                         | 233                         | 221                         |
| Air traffic liability                                                                   | 506                         | 343                         | 227                         |
| Cash collateral received from (provided to) derivative counterparties                   | (15)                        | 316                         | 535                         |
| Other, net                                                                              | 14                          | (121)                       | (165)                       |
| Net cash provided by operating activities                                               | 4,893                       | 3,929                       | 4,293                       |
| **CASH FLOWS FROM INVESTING ACTIVITIES:**                                               |                             |                             |                             |
| Capital expenditures                                                                    | (1,922)                     | (2,123)                     | (2,038)                     |
| Assets constructed for others                                                           | (54)                        | (126)                       | (109)                       |
| Purchases of short\-term investments                                                    | (2,409)                     | (2,380)                     | (2,388)                     |
| Proceeds from sales of short\-term and other investments                                | 2,342                       | 2,221                       | 2,263                       |
| Other, net                                                                              | 5                           | —                           | —                           |
| Net cash used in investing activities                                                   | (2,038)                     | (2,408)                     | (2,272)                     |
| **CASH FLOWS FROM FINANCING ACTIVITIES:**                                               |                             |                             |                             |
| Proceeds from issuance of long\-term debt                                               | —                           | 600                         | 515                         |
| Proceeds from Employee stock plans                                                      | 35                          | 29                          | 29                          |
| Reimbursement for assets constructed for others                                         | 170                         | 126                         | 107                         |
| Payments of long\-term debt and capital lease obligations                               | (342)                       | (592)                       | (523)                       |
| Payments of convertible debt                                                            | —                           | —                           | (68)                        |
| Payments of cash dividends                                                              | (332)                       | (274)                       | (222)                       |
| Repayment of construction obligation                                                    | (30)                        | (10)                        | (9)                         |
| Repurchase of common stock                                                              | (2,000)                     | (1,600)                     | (1,750)                     |
| Other, net                                                                              | 3                           | 15                          | (3)                         |
| Net cash used in financing activities                                                   | (2,496)                     | (1,706)                     | (1,924)                     |
| **NET CHANGE IN CASH AND CASH EQUIVALENTS**                                             | 359                         | (185)                       | 97                          |
| **CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD**                                    | 1,495                       | 1,680                       | 1,583                       |
| **CASH AND CASH EQUIVALENTS AT END OF PERIOD**                                          | $1,854                      | $1,495                      | $1,680                      |
| **CASH PAYMENTS FOR:**                                                                  |                             |                             |                             |
| Interest, net of amount capitalized                                                     | $107                        | $81                         | $100                        |
| Income taxes                                                                            | $327                        | $992                        | $902                        |
| **SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:**                                    |                             |                             |                             |
| Flight equipment acquired through the assumption of debt                                | $—                          | $—                          | $20                         |
| Flight equipment under capital leases                                                   | $32                         | $233                        | $307                        |
| Assets constructed for others                                                           | $171                        | $197                        | $196                        |

See accompanying notes\.

71


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

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

NOTE 8 \- NOTES RECEIVABLE

BRW Term Loan\.  In November 2018, United, as lender, entered into a Term Loan Agreement (the "BRW Term Loan Agreement") with, among others, BRW Aviation Holding LLC and BRW Aviation LLC ("BRW"), as guarantor and borrower, respectively, BRW Aviation Holding LLC and BRW are affiliates of Synergy Aerospace Corporation ("Synergy"), and BRW is the majority shareholder of Avianca Holdings S\.A\. ("AVH")\. Pursuant to the BRW Term Loan Agreement, United provided to BRW a   $456 million  term loan (the "BRW Term Loan"), secured by a pledge of BRW's equity, as well as BRW's   516 million  common shares of AVH (which are eligible to be converted into the same number of preferred shares, which may be deposited with the depositary for AVH's American Depositary Receipts ("ADRs"), the class of AVH securities that trades on the New York Stock Exchange (the "NYSE"), in exchange for   64\.5 million  ADRs) (such equity and shares, collectively, the "BRW Loan Collateral")\. BRW is currently in default under the BRW Term Loan Agreement\.

In order to protect the value of its collateral, on May 24, 2019, United began to exercise certain remedies available to it under the terms of the BRW Term Loan Agreement and related documents\. In connection with the delivery by United of a notice of default to BRW, Kingsland Holdings Limited ("Kingsland"), AVH's largest minority shareholder, was granted, in accordance with the agreements related to the BRW Term Loan Agreement, authority to manage BRW, which remains the majority shareholder of AVH\. In addition, Kingsland is pursuing a foreclosure process which is expected to result in a judicially supervised sale of the BRW Loan Collateral\.

United evaluated the   $499 million  carrying value of the BRW Term Loan as of  December 31, 2019  using the fair value of the BRW Loan Collateral and determined that the value of the BRW Loan Collateral is sufficient to recover the carrying value of the BRW Term Loan\. As a result, the Company concluded that the BRW Term Loan is not impaired\. The carrying value of the BRW Term Loan represents the original loan amount plus accrued and unpaid interest and certain expenses associated with the loan origination\.

The fair market value of AVH equity was estimated using an income approach and a market approach with equal weight applied to each approach\. Under the income approach, the value was estimated by discounting expected future cash flows at a weighted average cost of capital to a single present value amount\. Under the market approach, the value was estimated by reference to multiples of enterprise value to earnings before interest, taxes, depreciation, amortization and rent ("EBITDAR") for a group of publicly\-traded market comparable companies, along with AVH's own EBITDAR levels\.

Avianca Loan\.  In November 2019, United entered into a senior secured convertible term loan agreement (the "AVH Convertible Loan Agreement") with, among others, AVH, as borrower, for the provision by the lenders thereunder (including United) to AVH of convertible term loans for general corporate purposes\. In December 2019, United provided such a convertible term loan to AVH under the AVH Convertible Loan Agreement in the aggregate amount of   $150 million  (the "AVH Convertible Loan")\. The AVH Convertible Loan (1) is payable in a single installment in December 2023, (2) bears paid\-in\-kind interest at a rate of   3 percent  per annum ("PIK Interest") and (3) is secured by a pledge of capital stock in AVH's major subsidiaries and, until released, certain Colombian Peso\-denominated credit card receivables owing to Aerovias del Continente Americano S\.A\. ("Avianca"), a subsidiary of AVH and guarantor under the AVH Convertible Loan Agreement\. United has the option to convert the AVH Convertible Loan, in minimum   $5 million  principal increments, into equity of AVH at a conversion price of   $4\.6217  per one American Depositary Share (as evidenced by an ADR) or  eight  AVH shares\. Following the occurrence of a change of control of AVH, the conversion price will be reduced to   $4\.1595  per ADR\. Additionally, AVH may, on or after the day occurring  360 days  after the funding date of the AVH Convertible Loan, require that United convert   100%  of the outstanding principal amount (including capitalized PIK Interest) of the AVH Convertible Loan, together with accrued cash interest thereon, into AVH shares, if certain conditions are satisfied, including conditions corresponding to a minimum volume\-weighted average market price of AVH ADRs and a minimum AVH average cash balance\. As of  December 31, 2019 , the fair value of the AVH Convertible Loan approximated its carrying value\.

74


Annual Report of Southwest Airlines Co\. for year 2017

In addition, A\-List Preferred Members enjoy free inflight WiFi on equipped flights\. Members who attain A\-List or A\-List Preferred status receive priority boarding privileges for an entire year\. When these Customers purchase travel at least 36 hours prior to flight time, they receive the best boarding pass number available (generally, an "A" boarding pass)\. During the day of travel, if an A\-List or A\-List Preferred Member's plans change, they have free same\-day standby privileges, which allow them to fly on earlier flights between the same city pairs if space is available\. Members who fly 100 qualifying one\-way flights or earn 110,000 qualifying points in a calendar year automatically receive a Companion Pass, which provides for unlimited travel free of airline charges (does not include taxes and fees from $5\.60 one\-way)\. The Companion Pass is valid for the remainder of the calendar year in which status was earned and for the following full calendar year to any destination available on Southwest for a designated companion of the qualifying Member\. The Member and designated companion must travel together on the same flight\.

Southwest's Rapid Rewards frequent flyer program has been designed to drive more revenue by (i) bringing in new Customers, including new Members, as well as new holders of Southwest's co\-branded Chase Visa credit card; (ii) increasing business from existing Customers; and (iii) strengthening the Company's Rapid Rewards hotel, rental car, credit card, and retail partnerships\.

For the Company's 2017 consolidated results, Customers of Southwest redeemed approximately 9\.6 million flight awards, accounting for approximately 13\.8 percent of revenue passenger miles flown\. For the Company's 2016 consolidated results, Customers of Southwest redeemed approximately 8\.3 million flight awards, accounting for approximately 12\.7 percent of revenue passenger miles flown\. For the Company's 2015 consolidated results, Customers of Southwest redeemed approximately 7\.3 million flight awards, accounting for approximately 12\.0 percent of revenue passenger miles flown\. The Company's accounting policies with respect to its frequent flyer programs are discussed in more detail in Note 1 to the Consolidated Financial Statements\.

**Digital Customer Platforms including Southwest\.com**

The Company offers a suite of digital platforms to support Customers' needs across the travel journey including Southwest\.com®, mobile\.southwest\.com, an iOS app, an Android app, an email subscription service, and push notifications\. The Company also offers Swabiz\.com, a website tailored for business Customers that offers businesses shared stored company credit cards, company activity reporting, and centralized traveler management\. These digital tools are designed to help make the Customer's experience personal and intuitive with features such as recognizing the Customer's location to provide relevant deals, remembering recent searches to make it easy to get to trips of interest, offering a calendar view to find the best date to travel for the lowest fare, and providing a "My Account" section to provide a detailed view into a Customer's travel and loyalty activity\.

The Company's digital assets are also used to highlight points of differentiation between Southwest and other air carriers, as well as provide information on the Company's fare and ancillary products\. In addition, Southwest\.com and Swabiz\.com are available in a translated Spanish version, which provides Customers who prefer to transact in Spanish the same level of Customer Service provided by the English versions of the websites\. Both sites meet Web Content Accessibility Guidelines (2\.0, Level AA) in order to provide an optimal experience for Customers with accessibility needs\.

The Company continues to invest to broaden and improve these digital assets\. In 2017, the Company launched enhanced Customer experiences on the desktop application for Car Bookings, Viewing Flight Reservations, and Flight Checkin, which were all launched on a new modern architecture that is expected to be used for additional enhancements in the future\. The Company continues to invest in growing mobile applications, such as adding the ability to buy EarlyBird within the booking path, offering buttons to view Inflight Drinks and Entertainment options while flying, building mobile friendly versions of Special Offers, simplifying the checkout process, redesigning the apps' homepages, and adding targeting capabilities to better match Customers with relevant information\.

For the year ended December 31, 2017, approximately 80 percent of the Company’s Passenger revenues originated from its websites (including revenues from Swabiz\.com)\.

**Marketing**

During 2017, the Company continued to aggressively market and benefit from Southwest's points of differentiation from its competitors\. For example, the Company's Trans**fare**ncy^SM^ campaign emphasizes Southwest's approach to

9


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

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

The components of lease expense were as follows (in millions):

|                               |                             |                             |
| ----------------------------- | --------------------------- | --------------------------- |
|                               | **Year Ended December 31,** | **Year Ended December 31,** |
|                               | **2019**                    | **2018**                    |
| Operating lease cost          | $2,027                      | $1,907                      |
| Finance lease cost:           |                             |                             |
| Amortization of assets        | 79                          | 78                          |
| Interest on lease liabilities | 43                          | 48                          |
| Variable lease cost           | 2,558                       | 2,353                       |
| Total net lease cost          | $4,707                      | $4,386                      |

Included in the table above is   $236 million  and   $226 million  of operating lease cost under our capacity purchase agreement with Republic for the years ended  December 31, 2019  and  2018 , respectively\. We hold a   25%  equity interest in Republic Holdings, the parent company of Republic\.

Supplemental balance sheet information related to leases was as follows (in millions, except lease term and discount rate):

|                                                   |                  |                  |
| ------------------------------------------------- | ---------------- | ---------------- |
|                                                   | **December 31,** | **December 31,** |
|                                                   | **2019**         | **2018**         |
| Operating leases:                                 |                  |                  |
| Operating lease ROU assets                        | $8,737           | $9,151           |
| Current operating lease liabilities               | $1,708           | $1,654           |
| Noncurrent operating lease liabilities            | 7,421            | 7,902            |
| Total operating lease liabilities                 | $9,129           | $9,556           |
| Finance leases:                                   |                  |                  |
| Property and equipment, at cost                   | $954             | $936             |
| Accumulated amortization                          | (447

)    | (391

)    |
| Property and equipment, net                       | $507             | $545             |
| Current finance lease liabilities                 | $112             | $81              |
| Noncurrent finance lease liabilities              | 558              | 613              |
| Total finance lease liabilities                   | $670             | $694             |
| Weighted average remaining lease term (in years): |                  |                  |
| Operating leases                                  | 7\.4             | 7\.6             |
| Finance leases                                    | 6\.2             | 7\.4             |
| Weighted average discount rate:                   |                  |                  |
| Operating leases                                  | 4\.7%            | 4\.6%            |
| Finance leases                                    | 6\.2%            | 6\.5%            |

92


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

Operating Expense

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

**(Decrease)** | **% Increase**

**(Decrease)** |
| **(in millions)**                                  | **2018**                    | **2017**                    | **Increase**

**(Decrease)** | **% Increase**

**(Decrease)** |
| Salaries and related costs                         | $10,743                     | $10,058                     | $685                               | 6\.8 %                               |
| Aircraft fuel and related taxes                    | 9,020                       | 6,756                       | 2,264                              | 33\.5 %                              |
| Regional carriers expense, excluding fuel          | 3,438                       | 3,466                       | (28)                               | (0\.8)%                              |
| Depreciation and amortization                      | 2,329                       | 2,222                       | 107                                | 4\.8 %                               |
| Contracted services                                | 2,175                       | 2,108                       | 67                                 | 3\.2 %                               |
| Passenger commissions and other selling expenses   | 1,941                       | 1,827                       | 114                                | 6\.2 %                               |
| Ancillary businesses and refinery                  | 1,695                       | 1,495                       | 200                                | 13\.4 %                              |
| Landing fees and other rents                       | 1,662                       | 1,501                       | 161                                | 10\.7 %                              |
| Aircraft maintenance materials and outside repairs | 1,575                       | 1,591                       | (16)                               | (1\.0)%                              |
| Profit sharing                                     | 1,301                       | 1,065                       | 236                                | 22\.2 %                              |
| Passenger service                                  | 1,178                       | 1,123                       | 55                                 | 4\.9 %                               |
| Aircraft rent                                      | 394                         | 351                         | 43                                 | 12\.3 %                              |
| Other                                              | 1,723                       | 1,609                       | 114                                | 7\.1 %                               |
| Total operating expense                            | $39,174                     | $35,172                     | $4,002                             | 11\.4 %                              |

Salaries and Related Costs\.  The increase in salaries and related costs is primarily due to pay rate increases for eligible employees implemented during 2017 and 2018\.

Aircraft Fuel and Related Taxes\.  Fuel expense increased  $2\.3 billion  compared to the prior year due to a 31% increase in the market price per gallon of fuel and a  3\.6%  capacity growth, which was partially offset by improved fuel efficiency driven by our investment in new aircraft\.

The table below shows the impact of hedging and the refinery on fuel expense and average price per gallon, adjusted (non\-GAAP financial measures):

|                                           |                             |                             |                                    |                              |                              |                              |
| ----------------------------------------- | --------------------------- | --------------------------- | ---------------------------------- | ---------------------------- | ---------------------------- | ---------------------------- |
|                                           |                             |                             |                                    | **Average Price Per Gallon** | **Average Price Per Gallon** | **Average Price Per Gallon** |
|                                           | **Year Ended December 31,** | **Year Ended December 31,** | **Increase**

**(Decrease)** | **Year Ended December 31,**  | **Year Ended December 31,**  | **Increase (Decrease)**      |
| **(in millions, except per gallon data)** | **2018**                    | **2017**                    | **Increase**

**(Decrease)** | **2018**                     | **2017**                     | **Increase (Decrease)**      |
| Fuel purchase cost ^(1)^                  | $9,131                      | $6,833                      | $2,298                             | $2\.22                       | $1\.70                       | $0\.52                       |
| Fuel hedge impact                         | (53)                        | 33                          | (86)                               | (0\.01)                      | 0\.01                        | (0\.02)                      |
| Refinery segment impact                   | (58)                        | (110)                       | 52                                 | (0\.01)                      | (0\.03)                      | 0\.02                        |
| Total fuel expense                        | $9,020                      | $6,756                      | $2,264                             | $2\.20                       | $1\.68                       | $0\.52                       |
| MTM adjustments and settlements ^(2)^     | 53                          | 259                         | (206)                              | 0\.01                        | 0\.06                        | (0\.05)                      |
| Total fuel expense, adjusted              | $9,073                      | $7,015                      | $2,058                             | $2\.21                       | $1\.74                       | $0\.47                       |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------- |
| ^(1)^ | Market price for jet fuel at airport locations, including related taxes and transportation costs\. |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | MTM adjustments and settlements include the effects of the derivative transactions disclosed in  Note 5  of the Notes to the Condensed Consolidated Financial Statements\. For additional information and the reason for adjusting fuel expense, see "Supplemental Information" below\. |

Regional Carriers Expense, Excluding Fuel\.  The decrease in regional carriers expense compared to the prior year results from the  $75 million  reduction in rent expense following the impairment of the Endeavor CRJ\-200 fleet effective January 1, 2018\. For additional information on this impairment, see  Note 8  of the Notes to the Consolidated Financial Statements\.

Depreciation and Amortization\.  The increase in depreciation and amortization primarily results from our increased capital expenditures in recent years\. These investments have allowed for additional new aircraft deliveries, including A321\-200s, B\-737\-900ERs, A350\-900s, A220\-100s and CRJ\-900s, fleet modifications and technology enhancements\. As we take delivery of new aircraft, we continue to evaluate our current fleet compared to network requirements\.

 30


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

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

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Fleet restructuring expenses principally included accelerated depreciation and rent expense for aircraft and related equipment grounded or expected to be grounded earlier than planned\. |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | Merger integration expenses included costs associated with integration projects, principally American's flight attendant, human resources and payroll, and technical operations systems\. |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------- |
| ^(3)^ | Severance expenses primarily included costs associated with reductions of management and support staff team members\. |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(4)^ | Settlement of a private party antitrust lawsuit\. See Note 10(e) \- “ *Private Party Antitrust Action Related to Passenger Capacity* ” for further discussion\.  |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(5)^ | Intangible asset impairment includes a non\-cash charge to write\-off American’s Brazil route authority as a result of the U\.S\.\-Brazil open skies agreement\. |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------- |
| ^(6)^ | Bankruptcy obligations that will be settled in shares of AAG common stock are marked\-to\-market based on AAG’s stock price\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| ^(7)^ | Employee bonus expense included costs related to the  $1,000  cash bonus and associated payroll taxes granted to mainline employees as of December 31, 2017 in recognition of the 2017 Tax Act\. |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(8)^ | Mark\-to\-market adjustments on equity investments relate to net unrealized losses primarily associated with American’s equity investments in China Southern Airlines and Mesa Air Group, Inc\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------ |
| ^(9)^ | Income tax special items for 2018 included an  $18 million  charge related to an international income tax matter\. |

|        |                                                                                |
| ------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(10)^ | Impact of the 2017 Tax Act includes a  $924 million  non\-cash charge to income tax expense to reflect the impact of lower corporate income tax rates on the Company’s deferred tax asset and liabilities resulting from the 2017 Tax Act, which reduced the federal corporate income tax rate from 35% to 21%\. |

**3\. Debt**

Long\-term debt included in the consolidated balance sheets consisted of (in millions):

|                                                                                |                  |                  |
| --------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------- | ---------------- |
|                                                                                | **December 31,** | **December 31,** |
|                                                                                | **2018**         | **2017**         |
| *Secured*                                                                                |                  |                  |
| 2013 Credit Facilities, variable interest rate of 4\.26%, installments through 2025  ^(a)^                                                                      | $1,825           | $1,825           |
| 2014 Credit Facilities, variable interest rate of 4\.39%, installments through 2021  ^(a)^                                                                      | 1,215            | 728              |
| April 2016 Credit Facilities, variable interest rate of 4\.52%, installments through 2023  ^(a)^                                                                | 980              | 990              |
| December 2016 Credit Facilities, variable interest rate of 4\.46%, installments through 2023  ^(a)^                                                             | 1,225            | 1,238            |
| Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 3\.00% to 9\.01%, averaging 4\.21%, maturing from 2019 to 2029  ^(b)^ | 11,648           | 11,881           |
| Equipment loans and other notes payable, fixed and variable interest rates ranging from 2\.34% to 8\.48%, averaging 4\.26%, maturing from 2019 to 2030  ^(c)^   | 5,060            | 5,259            |
| Special facility revenue bonds, fixed interest rates of 5\.00%, maturing from 2019 to 2031                                                                      | 769              | 828              |
| Other secured obligations                                                                                | —                | 1                |
| Total long\-term debt                                                                                | 22,722           | 22,750           |
| Less: Total unamortized debt discount, premium and issuance costs                                                                                | 219              | 227              |
| Less: Current maturities                                                                                | 2,466            | 1,980            |
| Long\-term debt, net of current maturities                                                                                | $20,037          | $20,543          |

The table below shows the maximum availability under revolving credit facilities, all of which were undrawn, as of December 31, 2018 (in millions):

146


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

In addition, several states have adopted or are considering initiatives to regulate GHG emissions, primarily through the planned development of GHG emissions inventories, regional GHG cap and trade programs or low carbon fuel programs\.

We have taken a number of actions that mitigate our GHG emissions and conserve fuel such as:

|   |                                                                                |
| - | ----------------------------------------------------------------------------------- |
| • | Retiring older aircraft and replacing them with new, more fuel\-efficient aircraft; |

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Reducing fuel consumption through our Fuel Smart Program, which is an employee\-led effort to safely reduce fuel consumption at American; a similar program is underway to reduce fuel consumption at our regional carriers; |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------- |
| • | Working with the FAA and vendors to facilitate efficient airspace procedures, which also reduces aircraft emissions; |

|   |                                                                |
| - | -------------------------------------------------------------- |
| • | Replacing existing cargo containers with lightweight versions; |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Replacing older, inefficient ground support equipment with new, more fuel\-efficient ground support equipment, including alternative\-fuel and electric powered equipment; |

|   |                                                           |
| - | --------------------------------------------------------- |
| • | Purchasing renewable energy to reduce indirect emissions; |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Seeking certification of certain of our buildings to the U\.S\. Green Building Council’s Leadership in Energy and Environmental Design (LEED) standard; |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Entering into discussions with potential vendors to further explore potential production pathways for sustainable alternative jet fuel; and |

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------------------------------- |
| • | Cooperating with airports and other stakeholders to accelerate the introduction of sustainable alternative fuels |

For further information, see our annual Corporate Responsibility Report, available on our website at *www\.aa\.com*\. None of the information or contents of our website is incorporated into this Annual Report on Form 10\-K\.

***Impact of Regulatory Requirements on Our Business***

Regulatory requirements, including but not limited to those discussed above, affect operations and increase operating costs for the airline industry, including our airline subsidiaries, and future regulatory developments may continue to do the same in the future\. See Part I, Item 1A\. Risk Factors – “*Evolving data security and privacy requirements could increase our costs, and any significant data security incident could disrupt our operations, harm our reputation, expose us to legal risks and otherwise materially adversely affect our business, results of operations and financial condition,” “If we are unable to obtain and maintain adequate facilities and infrastructure throughout our system and, at some airports, adequate slots, we may be unable to operate our existing flight schedule and to expand or change our route network in the future, which may have a material adverse impact on our operations,” “Our business is subject to extensive government regulation, which may result in increases in our costs, disruptions to our operations, limits on our operating flexibility, reductions in the demand for air travel, and competitive disadvantages,” “The airline industry is heavily taxed,*” *“We are subject to many forms of environmental and noise regulation and may incur substantial costs as a result”* and *“We are subject to risks associated with climate change, including increased regulation to reduce emissions of greenhouse gases”* for additional information\.

**Available Information**

***Use of Websites to Disclose Information***

Our website is located at *www\.aa\.com*\. We have made and expect in the future to make public disclosures to investors and the general public of information regarding AAG and its subsidiaries by means of the investor relations section of our website as well as through the use of our social media sites, including Facebook and Twitter\. In order to receive notifications regarding new postings to our website, investors are encouraged to enroll on our website to receive automatic email alerts (see *https://americanairlines\.gcs\-web\.com/email\-alerts*), “follow” American (@AmericanAir) on Twitter and “like” American on our Facebook page (*www\.facebook\.com/AmericanAirlines*)\. None of the information or contents of our website or social media postings is incorporated into this Annual Report on Form 10\-K\.

14


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

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

**UNITED CONTINENTAL HOLDINGS, INC\.**

**UNITED AIRLINES, INC\.**

**COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**Overview**

United Continental Holdings, Inc\. (together with its consolidated subsidiaries, "UAL" or the "Company") is a holding company and its principal, wholly\-owned subsidiary is United Airlines, Inc\. (together with its consolidated subsidiaries, "United")\. As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL, unless otherwise noted\. United's operating revenues and operating expenses comprise nearly 100% of UAL's revenues and operating expenses\. In addition, United comprises approximately the entire balance of UAL's assets, liabilities and operating cash flows\. When appropriate, UAL and United are named specifically for their individual contractual obligations and related disclosures and any significant differences between the operations and results of UAL and United are separately disclosed and explained\. We sometimes use the words "we," "our," "us," and the "Company" in this report for disclosures that relate to all of UAL and United\.

**NOTE 1 \- SIGNIFICANT ACCOUNTING POLICIES**

|     |                                                                                |
| --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (a) | **Use of Estimates—** The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes\. Actual results could differ from those estimates\. |

|     |                                                                                |
| --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (b) | **Revenue Recognition—**  The Company presents Passenger revenue, Cargo revenue and Other operating revenue on its income statement\. Passenger revenue is recognized when transportation is provided and Cargo revenue is recognized when shipments arrive at their destination\. Other operating revenue is recognized as the related performance obligations are satisfied\.  |

Passenger tickets and related ancillary services sold by the Company for mainline and regional flights are purchased primarily via credit card transactions, with payments collected by the Company in advance of the performance of related services\. The Company initially records ticket sales in its Advance ticket sales liability, deferring revenue recognition until the travel occurs\. For travel that has more than one flight segment, the Company deems each segment as a separate performance obligation and recognizes revenue for each segment as travel occurs\. Tickets sold by other airlines where the Company provides the transportation are recognized as passenger revenue at the estimated value to be billed to the other airline when travel is provided\. Differences between amounts billed and the actual amounts may be rejected and rebilled or written off if the amount recorded was different from the original estimate\. When necessary, the Company records a reserve against its billings and payables with other airlines based on historical experience\.

The Company sells certain tickets with connecting flights with one or more segments operated by its other airline partners\. For segments operated by its other airline partners, the Company has determined that it is acting as an agent on behalf of the other airlines as they are responsible for their portion of the contract (i\.e\. transportation of the passenger)\. The Company, as the agent, recognizes revenue within Other operating revenue at the time of the travel for the net amount representing commission to be retained by the Company for any segments flown by other airlines\.

Refundable tickets expire after one year from the date of issuance\. Non\-refundable tickets generally expire on the date of the intended travel, unless the date is extended by notification from the customer on or before the intended travel date\.The Company records breakage revenue on the travel date for its estimate of tickets that will expire unused\. To determine breakage, the Company uses its historical experience with refundable and nonrefundable expired tickets and other facts, such as recent aging trends, program changes and modifications that could affect the ultimate expiration patterns of tickets\. Fees charged in association with changes or extensions to non\-refundable tickets are considered part of the Company's passenger travel obligation\. As such, those fees are deferred at the time of collection and recognized at the time the travel is provided\.

United initially capitalizes the costs of selling airline travel tickets and then recognizes those costs as Distribution expense at the time of travel\. Passenger ticket costs include credit card fees, travel agency and other commissions paid, as well as global distribution systems booking fees\.

54


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

DOT consumer rules dictate procedures for customer handling during long onboard delays, further regulate airline interactions with passengers, including passengers with disabilities, through the ticketing process, at the airport, and onboard the aircraft, and require disclosures concerning airline fares and ancillary fees such as baggage fees\. Other DOT rules apply to post\-ticket purchase price increases and an expansion of tarmac delay regulations to international airlines\.

The Aviation and Transportation Security Act mandates the federalization of certain airport security procedures and imposes additional security requirements on airports and airlines, most of which are funded by a per\-ticket tax on passengers and a tax on airlines\. Present and potential future security requirements can have the effect of imposing costs and inconvenience on travelers, potentially reducing the demand for air travel\.

The results of our operations, demand for air travel, and the manner in which we conduct business each may be affected by changes in law and future actions taken by governmental agencies, including:

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | changes in law that affect the services that can be offered by airlines in particular markets and at particular airports, or the types of fares offered or fees that can be charged to passengers; |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | the granting and timing of certain governmental approvals (including antitrust or foreign government approvals) needed for codesharing alliances, joint businesses and other arrangements with other airlines; |

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | restrictions on competitive practices (for example, court orders, or agency regulations or orders, that would curtail an airline’s ability to respond to a competitor); |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------- |
| • | the adoption of new passenger security standards or regulations that impact customer service standards; |

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | restrictions on airport operations, such as restrictions on the use of slots at airports or the auction or reallocation of slot rights currently held by us; and |

|   |                                                                        |
| - | ---------------------------------------------------------------------- |
| • | the adoption of more restrictive locally\-imposed noise restrictions\. |

Each additional regulation or other form of regulatory oversight increases costs and adds greater complexity to airline operations and, in some cases, may reduce the demand for air travel\. There can be no assurance that our compliance with new rules, anticipated rules or other forms of regulatory oversight will not have a material adverse effect on us\.

Any significant reduction in air traffic capacity at and in the airspace serving key airports in the U\.S\. or overseas could have a material adverse effect on our business, results of operations and financial condition\. In addition, the United States National Airspace System (the ATC system) is not successfully modernizing to meet the growing demand for U\.S\. air travel\. Air traffic controllers rely on outdated procedures and technologies that routinely compel airlines to fly inefficient routes or take significant delays on the ground\. The ATC system’s inability to manage existing travel demand has led government agencies to implement short\-term capacity constraints during peak travel periods or adverse weather conditions in certain markets, resulting in delays and disruptions of air traffic\. The outdated technologies also cause the ATC system to be less resilient in the event of a failure\. For example, an automation failure and an evacuation, in 2015 and 2017, respectively, at the Washington Air Route Control Center resulted in cancellations and delays of hundreds of flights traversing the greater Washington, D\.C\. airspace\.

In the early 2000s, the FAA embarked on a path to modernize the national airspace system, including migration from the current radar\-based ATC system to a GPS\-based system\. This modernization of the ATC system, generally referred to as “NextGen,” has been plagued by delays and cost overruns, and it remains uncertain when the full array of benefits expected from this modernization will be available to the public and the airlines\. Failure to update the ATC system in a timely manner and the substantial costs that may be imposed on airlines in order to fund a modernized ATC system may have a material adverse effect on our business\.

Further, our business has been adversely impacted when government agencies have ceased to operate as expected including due to partial shut\-downs, sequestrations or similar events\. These events have resulted in, among other things, reduced demand for air travel, an actual or perceived reduction in ATC and security screening resources and related travel delays, as well as disruption in the ability of the FAA to grant required regulatory approvals, such as are involved when a new aircraft is first placed into service\.

Our operating authority in international markets is subject to aviation agreements between the U\.S\. and the respective countries or governmental authorities, such as the EU, and in some cases, fares and schedules require the approval of the DOT and/or the relevant foreign governments\. Moreover, alliances with international carriers may be subject to the jurisdiction and regulations of various foreign agencies\. The U\.S\. government has negotiated “open skies” agreements with many

24


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

Refinery Operations

Our wholly owned subsidiaries, Monroe and MIPC, own and operate the Trainer refinery and related assets in Pennsylvania\. The facility includes pipelines and terminal assets that allow the refinery to supply jet fuel to our airline operations throughout the Northeastern U\.S\., including our New York hubs at LaGuardia and JFK\.

ITEM 3\. LEGAL PROCEEDINGS

Capacity Antitrust Litigation

In July 2015, a number of purported class action antitrust lawsuits were filed alleging that Delta, American, United and Southwest had conspired to restrain capacity\. The lawsuits were filed in the wake of media reports that the U\.S\. Department of Justice had served civil investigative demands upon these carriers seeking documents and information relating to this subject\. The lawsuits have been consolidated into a single Multi\-District Litigation proceeding in the U\.S\. District Court for the District of Columbia\. In November 2016, the District Court denied the defendants' motion to dismiss the claims, and the matter is now proceeding through discovery\. Delta believes the claims in these cases are without merit and is vigorously defending these lawsuits\.

\*\*\*

For a discussion of certain environmental matters, see "Business\-Regulatory Matters\-Environmental Matters" in Item 1\.

ITEM 4\. MINE SAFETY DISCLOSURES

Not applicable\.

24


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

*Operating Special Items, Net*

|                                                         |                              |                              |
| ------------------------------------------------------- | ---------------------------- | ---------------------------- |
|                                                         | **Year Ended December 31,**  | **Year Ended December 31,**  |
|                                                         | **2016**                     | **2015**                     |
|                                                         | **(In millions)**            | **(In millions)**            |
| Merger integration expenses  ^(1)^                      | $514                         | $826                         |
| Fleet restructuring expenses  ^(2)^                     | 177                          | 210                          |
| Mark\-to\-market adjustments for bankruptcy obligations | 25                           | (53)                         |
| Other operating charges (credits), net                  | (7)                          | 68                           |
| Total mainline operating special items, net             | 709                          | 1,051                        |
| Regional operating special items, net                   | 14                           | 29                           |
| Total operating special items, net                      | $723                         | $1,080                       |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Merger integration expenses included costs related to information technology, re\-branding of aircraft, airport facilities and uniforms, alignment of labor union contracts, professional fees, severance, relocation and training, and, in 2015, also included share\-based compensation related to awards granted in connection with the Merger that fully vested in December 2015\. |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | Fleet restructuring expenses, driven in part by the Merger, principally included the acceleration of depreciation, impairments, remaining lease payments and lease return costs for aircraft and related equipment grounded or expected to be grounded earlier than planned\. |

*Regional Operating Expenses*

|                                   |                                              |                                              |                                              |                                              |
| --------------------------------- | -------------------------------------------- | -------------------------------------------- | -------------------------------------------- | -------------------------------------------- |
|                                   | **Year Ended December 31,**                  | **Year Ended December 31,**                  | **Increase
(Decrease)**                 | **Percent
Increase
(Decrease)**    |
|                                   | **2016**                                     | **2015**                                     | **Increase
(Decrease)**                 | **Percent
Increase
(Decrease)**    |
|                                   | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** |
| Aircraft fuel and related taxes   | $1,109                                       | $1,230                                       | $(121)                                       | (9\.8)                                       |
| Other                             | 4,935                                        | 4,753                                        | 182                                          | 3\.8                                         |
| Total regional operating expenses | $6,044                                       | $5,983                                       | $61                                          | 1\.0                                         |

Regional operating expenses increased $61 million, or 1\.0%, in 2016 as compared to 2015\. The year\-over\-year increase was due in part to a $182 million, or 3\.8%, increase in other regional operating expenses\. The increase in other regional operating expenses was primarily driven by an increase in capacity, principally from our wholly\-owned regional carriers\. Offsetting this increase was a $121 million, or 9\.8%, decrease in fuel costs\. The decrease in fuel costs was driven primarily by a 14\.5% decline in the average price per gallon of fuel to $1\.48 in 2016 from $1\.73 in 2015, offset in part by a 5\.5% increase in consumption\. See Note 1(q) to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information on regional expenses\.

*Nonoperating Results*

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

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

**Increase**

**(Decrease)** |
|                                 | **2016**                                     | **2015**                                     | **Increase**

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

**Increase**

**(Decrease)** |
|                                 | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)**          |
| Interest income                 | $63                                          | $39                                          | 24                                           | 60\.9                                                 |
| Interest expense, net           | (991)                                        | (880)                                        | (111)                                        | 12\.6                                                 |
| Other, net                      | (57)                                         | (747)                                        | 690                                          | (92\.4)                                               |
| Total nonoperating expense, net | $(985)                                       | $(1,588)                                     | $603                                         | (38\.1)                                               |

Our short\-term investments in each period consisted of highly liquid investments that provided nominal returns\. Interest income increased $24 million, or 60\.9%, principally due to a 50 basis point increase in average yields in 2016 as compared to 2015\.

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