Annual Report of Southwest Airlines Co\. for year 2017

financial statements in accordance with GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying footnotes\. The Company’s estimates and assumptions are based on historical experience and changes in the business environment\. However, actual results may differ from estimates under different conditions, sometimes materially\. Critical accounting policies and estimates are defined as those that both (i) are most important to the portrayal of the Company’s financial condition and results and (ii) require management’s most subjective judgments\. The Company’s most critical accounting policies and estimates are described below\.

***Revenue Recognition***

Tickets sold for Passenger air travel are initially deferred as Air traffic liability\. Passenger revenue is recognized and Air traffic liability is reduced when the service is provided (i\.e\., when the flight takes place)\. Air traffic liability primarily represents tickets sold for future travel dates and funds that are past flight date and remain unused, as well as a portion of the Company’s liability associated with its frequent flyer program\. Air traffic liability fluctuates throughout the year based on seasonal travel patterns, fare sale activity, and activity associated with the Company’s frequent flyer program\. See Note 2 to the Consolidated Financial Statements for information about changes to Accounting Standards Update ("ASU") No\. 2014\-09 for revenue recognition that are effective for 2018\.

For air travel on Southwest, the amount of tickets that will expire unused are estimated and recognized in Passenger revenue once the scheduled flight date has passed\. Estimating the amount of tickets that will expire unused involves some level of subjectivity and judgment\. The majority of Southwest’s tickets sold are nonrefundable, which is the primary source of unused tickets\. Southwest 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\. See Note 1 to the Consolidated Financial Statements for further information\. According to Southwest’s current "Contract of Carriage," all 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 some tickets can be refunded\. This policy also applies to unused Customer funds that may be the result of an exchange downgrade, in which a Customer exchanges their ticket from a previously purchased flight for a lower priced ticket, with the price difference being available for use by the Customer towards travel up to twelve months from the date of original purchase\. Fully refundable tickets rarely expire unused\. Estimates of tickets that will expire unused are based on historical experience over many years\. Southwest has consistently applied this accounting method to estimate revenue from unused tickets at the date of scheduled travel\.

Events and circumstances outside of historical fare sale activity or historical Customer travel patterns can result in actual spoiled tickets differing significantly from estimates\. The Company evaluates its estimates within a narrow range of acceptable amounts\. If actual spoilage results in an amount outside of this range, estimates and assumptions are reviewed and adjustments to Air traffic liability and to Passenger revenue are recorded, as necessary\. Additional factors that may affect estimated spoiled tickets include, but may not be limited to, changes to the Company’s ticketing policies, the Company’s refund, exchange, and unused funds policies, the mix of refundable and nonrefundable fares, promotional fare activity, events leading to significant flight cancellations, and the impact of the economic environment on Customer behavior\. The Company’s estimation techniques have been consistently applied from year to year; however, as with any estimates, actual spoiled tickets may vary from estimated amounts\.

The Company believes it is unlikely that materially different estimates for future spoiled tickets would be reported based on other reasonable assumptions or conditions suggested by actual historical experience and other data available at the time estimates were made\.

***Accounting for Long\-Lived Assets***

Flight equipment and related assets make up the majority of the Company’s long\-lived assets\. Flight equipment primarily relates to the 653 Boeing 737 aircraft in the Company’s fleet at December 31, 2017, which are either owned or on capital lease\. The remaining 53 Boeing 737 aircraft in the Company’s fleet at December 31, 2017, are operated under operating leases\. The Company also has 88 B717 aircraft, which are part of the lease/sublease with Delta\. As these aircraft are not in service for the Company, they are not included in the fleet count as of December 31, 2017 or 2016\.

60


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

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

|               |                   |
| ------------- | ----------------- |
|  **ITEM 2\.** | **PROPERTIES\.**  |

**Fleet**

Including aircraft operated by United’s regional carriers, United’s fleet consisted of 1,262 aircraft as of December 31, 2017, the details of which are presented in the tables below:

|                   |           |           |            |  |                                          |                                          |                                 |
|:-----------------:| ---------:| ---------:| ----------:|:- | ----------------------------------------:| ----------------------------------------:| -------------------------------:|
| **Aircraft Type** | **Total** | **Owned** | **Leased** |  | **Seats in Standard
Configuration** | **Seats in Standard
Configuration** | **Average Age (In
Years)** |
|   **Mainline:**   |           |           |            |  |                                          |                                          |                                 |
|    777\-300ER     |       14  |       14  |         —  |  |                                     366  |                                     366  |                           0\.7  |
|    777\-200ER     |       55  |       40  |        15  |  |                                267\-269  |                                267\-269  |                          17\.8  |
|     777\-200      |       19  |       19  |         —  |  |                                     364  |                                     364  |                          20\.5  |
|      787\-9       |       21  |       21  |         —  |  |                                     252  |                                     252  |                           2\.1  |
|      787\-8       |       12  |       12  |         —  |  |                                     219  |                                     219  |                           4\.5  |
|    767\-400ER     |       16  |       14  |         2  |  |                                     242  |                                     242  |                          16\.3  |
|    767\-300ER     |       35  |       22  |        13  |  |                                183\-214  |                                183\-214  |                          22\.5  |
|     757\-300      |       21  |        9  |        12  |  |                                     213  |                                     213  |                          15\.3  |
|     757\-200      |       56  |       50  |         6  |  |                                142\-169  |                                142\-169  |                          21\.7  |
|    737\-900ER     |      136  |      136  |         —  |  |                                     179  |                                     179  |                           5\.0  |
|     737\-900      |       12  |        8  |         4  |  |                                     179  |                                     179  |                          16\.3  |
|     737\-800      |      141  |       77  |        64  |  |                                154\-166  |                                154\-166  |                          13\.8  |
|     737\-700      |       40  |       20  |        20  |  |                                118\-126  |                                118\-126  |                          18\.8  |
|     A320\-200     |       99  |       66  |        33  |  |                                     150  |                                     150  |                          19\.3  |
|     A319\-100     |       67  |       50  |        17  |  |                                     128  |                                     128  |                          16\.7  |
|  Total mainline   |      744  |      558  |       186  |  |                                          |                                          |                          14\.3  |

|                            |                                                      |             |              |                                                        |                                                                             |                                                                             |                                          |
|:--------------------------:| ----------------------------------------------------:| -----------:| ------------:| ------------------------------------------------------:|:---------------------------------------------------------------------------:| ---------------------------------------------------------------------------:| ----------------------------------------:|
|     **Aircraft Type**      | **Capacity
Purchase
Agreement
Total** |  **Owned**  |  **Leased**  | **Owned or
Leased by
Regional
Carrier** | **Regional Carrier
Operator and**
**Number of**
**Aircraft** | **Regional Carrier
Operator and**
**Number of**
**Aircraft** | **Seats in Standard
Configuration** |
|       **Regional:**        |                                                      |             |              |                                                        |                                                                             |                                                                             |                                          |
|        Embraer E175        |                                                 152  |         54  |           —  |                                                    98  |                        SkyWest:
Mesa: Republic:                        |                                                             65
59  28  |                                      76  |
|        Embraer 170         |                                                  38  |          —  |           —  |                                                    38  |                                  Republic:                                  |                                                                         38  |                                      70  |
|           CRJ700           |                                                  65  |          —  |           —  |                                                    65  |                         SkyWest:
GoJet: Mesa:                          |                                                             20
25  20  |                                      70  |
|           CRJ200           |                                                  85  |          —  |           —  |                                                    85  |                        SkyWest:
Air Wisconsin:                         |                                                                 55
30  |                                      50  |
| Embraer ERJ 145 (XR/LR/ER) |                                                 168  |         29  |         139  |                                                     —  |                  ExpressJet:
Trans States: CommutAir:                  |                                                            110
36  22  |                                      50  |
|          Q200 (a)          |                                                   7  |          —  |           —  |                                                     7  |                                 CommutAir:                                  |                                                                          7  |                                      37  |
|    Embraer ERJ 135 (a)     |                                                   3  |          —  |           3  |                                                     —  |                                 ExpressJet:                                 |                                                                          3  |                                      37  |
|       Total regional       |                                                 518  |         83  |         142  |                                                   293  |                                                                             |                                                                             |                                          |
|           Total            |                                               1,262  |        641  |         328  |                                                   293  |                                                                             |                                                                             |                                          |

(a) United exited service of both the Q200 and ERJ 135 aircraft types in January 2018\.

21


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

ITEM 9B\. OTHER INFORMATION

None\.

PART III

ITEM 10\. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Except as stated below, the information required by this Item will be set forth in the Proxy Statement under the captions “Proposal 1 – Election of Directors,” “Executive Officers,” “Board Composition” and “Information About the Board of Directors and Corporate Governance” and is incorporated by reference into this Annual Report on Form 10\-K\.

AAG and American have adopted Standards of Business Conduct (the Ethics Standards) within the meaning of Item 406(b) of Regulation S\-K\. The Ethics Standards apply to all officers and employees of AAG and its subsidiaries, including American\. The Ethics Standards are available on our website at  www\.aa\.com \. If we make substantive amendments to the Ethics Standards or grant any waiver, including any implicit waiver, to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, we will disclose the nature of such amendment or waiver on our website or in a Current Report on Form 8\-K in accordance with applicable rules and regulations\.

ITEM 11\. EXECUTIVE COMPENSATION

The information required by this Item will be set forth in the Proxy Statement under the captions “Information About the Board of Directors and Corporate Governance \- Risk Assessment with Respect to Compensation Practices,” “Director Compensation,” “Compensation Discussion and Analysis,” “Executive Compensation” and “Compensation Committee Report” and is incorporated by reference into this Annual Report on Form 10\-K\.

ITEM 12\. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item will be set forth in the Proxy Statement under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” and is incorporated by reference into this Annual Report on Form 10\-K\.

ITEM 13\. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item will be set forth in the Proxy Statement under the captions “Certain Relationships and Related Party Transactions” and “Information About the Board of Directors and Corporate Governance” and is incorporated by reference into this Annual Report on Form 10\-K\.

ITEM 14\. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item will be set forth in the Proxy Statement under the caption “Proposal 2 – Ratification of Appointment of Independent Registered Public Accounting Firm” and is incorporated by reference into this Annual Report on Form 10\-K\.

162


Annual Report of Southwest Airlines Co\. for year 2018

**QUARTERLY FINANCIAL DATA**

**(unaudited)**

|                                            |                        |                        |                        |                        |     |
| ------------------------------------------ | ---------------------- | ---------------------- | ---------------------- | ---------------------- | --- |
|                                            | **Three months ended** | **Three months ended** | **Three months ended** | **Three months ended** |     |
| **(in millions except per share amounts)** | **March 31**           | **June 30**            | **Sept\. 30**          | **Dec\. 31**           |     |
| **2018**                                   |                        |                        |                        |                        |     |
| Operating revenues                         | $4,944                 | $5,742                 | $5,575                 | $5,704                 |     |
| Operating income                           | 616                    | 972                    | 798                    | 820                    |     |
| Income before income taxes                 | 602                    | 960                    | 786                    | 817                    |     |
| Net income                                 | 463                    | 733                    | 615                    | 654                    |     |
| Net income per share, basic                | 0\.79                  | 1\.27                  | 1\.08                  | 1\.17                  |     |
| Net income per share, diluted              | 0\.79                  | 1\.27                  | 1\.08                  | 1\.17                  |     |
|                                            | **March 31**           | **June 30**            | **Sept\. 30**          | **Dec\. 31**           |     |
|                                            | **As Recast**          | **As Recast**          | **As Recast**          | **As Recast**          |     |
| **2017**                                   |                        |                        |                        |                        |     |
| Operating revenues                         | $4,854                 | $5,731                 | $5,303                 | $5,258                 |     |
| Operating income                           | 606                    | 1,215                  | 845                    | 741                    |     |
| Income before income taxes                 | 532                    | 1,165                  | 832                    | 736                    |     |
| Net income                                 | 339                    | 743                    | 528                    | 1,747                  | (a) |
| Net income per share, basic                | 0\.55                  | 1\.23                  | 0\.88                  | 2\.95                  | (a) |
| Net income per share, diluted              | 0\.55                  | 1\.23                  | 0\.88                  | 2\.94                  | (a) |

(a) Includes a $1\.3 billion reduction in Provision for income taxes related to the Tax Cuts and Jobs Act legislation enacted in December 2017, which resulted in a re\-measurement of the Company's deferred tax assets and liabilities at the new federal corporate tax rate of 21 percent\. See Note 14 to the Consolidated Financial Statements for further information\.

118


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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Delta Air Lines, Inc\.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Delta Air Lines, Inc\. (the Company) as of  December 31, 2018  and  2017 , and the related consolidated statements of operations, comprehensive income, cash flows, and stockholders' equity for each of the three years in the period ended  December 31, 2018 , and the related notes (collectively referred to as the “consolidated financial statements”)\. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at  December 31, 2018  and  2017 , and the results of its operations and its cash flows for each of the three years in the period ended  December 31, 2018 , in conformity with U\.S\. generally accepted accounting principles\.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of  December 31, 2018 , based on criteria established in Internal Control\-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated  February 15, 2019  expressed an unqualified opinion thereon\.

Adoption of New Accounting Standards

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method for recognizing revenue from contracts with customers and for accounting for leases in fiscal year 2018 due to the adoption of the new revenue standard and new lease standard, respectively\. The Company adopted the new revenue standard using the full retrospective approach and adopted the new lease standard using a modified retrospective approach\.

Basis for Opinion

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

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

|                                                      |                       |
| ---------------------------------------------------- | --------------------- |
|                                                      | /s/ Ernst & Young LLP |
| We have served as the Company's auditor since 2006\. |                       |
| Atlanta, Georgia                                     |                       |
| February 15, 2019                                    |                       |

 52


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

**AMERICAN AIRLINES GROUP INC\.**

**CONSOLIDATED BALANCE SHEETS**

**(In millions, except shares and par value)**

|                                                                                |                  |                  |
| ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------- | ---------------- |
|                                                                                | **December 31,** | **December 31,** |
|                                                                                | **2017**         | **2016**         |
| **ASSETS**                                                                                |                  |                  |
| **Current assets**                                                                                |                  |                  |
| Cash                                                                                | $295             | $322             |
| Short\-term investments                                                                                | 4,771            | 6,037            |
| Restricted cash and short\-term investments                                                                                | 318              | 638              |
| Accounts receivable, net                                                                                | 1,752            | 1,594            |
| Aircraft fuel, spare parts and supplies, net                                                                                | 1,359            | 1,094            |
| Prepaid expenses and other                                                                                | 651              | 639              |
| Total current assets                                                                                | 9,146            | 10,324           |
| **Operating property and equipment**                                                                                |                  |                  |
| Flight equipment                                                                                | 40,318           | 37,028           |
| Ground property and equipment                                                                                | 8,267            | 7,116            |
| Equipment purchase deposits                                                                                | 1,217            | 1,209            |
| Total property and equipment, at cost                                                                                | 49,802           | 45,353           |
| Less accumulated depreciation and amortization                                                                                | (15,646)         | (14,194)         |
| Total property and equipment, net                                                                                | 34,156           | 31,159           |
| **Other assets**                                                                                |                  |                  |
| Goodwill                                                                                | 4,091            | 4,091            |
| Intangibles, net of accumulated amortization of $622 and $578, respectively                                                                                | 2,203            | 2,173            |
| Deferred tax asset                                                                                | 427              | 1,498            |
| Other assets                                                                                | 1,373            | 2,029            |
| Total other assets                                                                                | 8,094            | 9,791            |
| **Total assets**                                                                                | $51,396          | $51,274          |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                |                  |                  |
| **Current liabilities**                                                                                |                  |                  |
| Current maturities of long\-term debt and capital leases                                                                                | $2,554           | $1,855           |
| Accounts payable                                                                                | 1,688            | 1,592            |
| Accrued salaries and wages                                                                                | 1,672            | 1,516            |
| Air traffic liability                                                                                | 3,978            | 3,912            |
| Loyalty program liability                                                                                | 2,791            | 2,789            |
| Other accrued liabilities                                                                                | 2,281            | 2,208            |
| Total current liabilities                                                                                | 14,964           | 13,872           |
| **Noncurrent liabilities**                                                                                |                  |                  |
| Long\-term debt and capital leases, net of current maturities                                                                                | 22,511           | 22,489           |
| Pension and postretirement benefits                                                                                | 7,497            | 7,842            |
| Other liabilities                                                                                | 2,498            | 3,286            |
| Total noncurrent liabilities                                                                                | 32,506           | 33,617           |
| **Commitments and contingencies (Note 11)**                                                                                |
           |
           |
| **Stockholders’ equity**                                                                                |                  |                  |
| Common stock, $0\.01 par value; 1,750,000,000 shares authorized, 475,507,887 shares issued and outstanding at December 31, 2017; 507,294,153 shares issued and outstanding at December 31, 2016 | 5                | 5                |
| Additional paid\-in capital                                                                                | 5,714            | 7,223            |
| Accumulated other comprehensive loss                                                                                | (5,154)          | (5,083)          |
| Retained earnings                                                                                | 3,361            | 1,640            |
| Total stockholders’ equity                                                                                | 3,926            | 3,785            |
| **Total liabilities and stockholders’ equity**                                                                                | $51,396          | $51,274          |

See accompanying notes to consolidated financial statements\.

83


Annual Report of Southwest Airlines Co\. for year 2017

**PART III**

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

**Directors and Executive Officers**

The information required by this Item 10 regarding the Company’s directors will be set forth under the heading “Proposal 1 \- Election of Directors” in the Proxy Statement for the Company’s 2018 Annual Meeting of Shareholders and is incorporated herein by reference\. The information required by this Item 10 regarding the Company’s executive officers is set forth under the heading “Executive Officers of the Registrant” in Part I of this Form 10\-K and is incorporated herein by reference\.

**Section 16(a) Compliance**

The information required by this Item 10 regarding compliance with Section 16(a) of the Exchange Act will be set forth under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement for the Company’s 2018 Annual Meeting of Shareholders and is incorporated herein by reference\.

**Corporate Governance**

Except as set forth in the following paragraph, the remaining information required by this Item 10 will be set forth under the heading “Corporate Governance” in the Proxy Statement for the Company’s 2018 Annual Meeting of Shareholders and is incorporated herein by reference\.

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

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

The information required by this Item 11 will be set forth under the headings “Compensation of Executive Officers” and “Compensation of Directors” in the Proxy Statement for the Company’s 2018 Annual Meeting of Shareholders and is incorporated herein by reference\.

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

Except as set forth below regarding securities authorized for issuance under equity compensation plans, the information required by this Item 12 will be set forth under the heading “Voting Securities and Principal Shareholders” in the Proxy Statement for the Company’s 2018 Annual Meeting of Shareholders and is incorporated herein by reference\.

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

The following table provides information as of December 31, 2017, regarding compensation plans (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance\.

115


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

The credit facilities also contain other events of default customary for such financings\. If an event of default were to occur, the lenders could, among other things, declare outstanding amounts due and payable and where applicable, repossess collateral, which may include aircraft or other valuable assets\. In addition, an event of default or declaration of acceleration under any of the credit facilities could also result in an event of default under other of our financing agreements\. The acceleration of significant amounts of debt could require us to renegotiate, repay or refinance the obligations under the credit facilities or other financing arrangements\.

Employee strikes and other labor\-related disruptions may have a material adverse effect on our  operations\.

Our business is labor intensive, utilizing large numbers of pilots, flight attendants, aircraft maintenance technicians, ground support personnel and other personnel\. As of December 31, 2019, approximately 19%  of our workforce, primarily pilots, was unionized\. Relations between air carriers and labor unions in the United States are governed by the Railway Labor Act, which provides that a collective bargaining agreement between an airline and a labor union does not expire, but instead becomes amendable as of a stated date\. The Railway Labor Act generally prohibits strikes or other types of self help actions both before and after a collective bargaining agreement becomes amendable, unless and until the collective bargaining processes required by the Railway Labor Act have been exhausted\. The collective bargaining agreement with our pilots became amendable on December 31, 2019 and we are in discussions with representatives of the pilots regarding terms of the collective bargaining agreement\. Monroe's relations with unions representing its employees are governed by the NLRA, which generally allows self help after a collective bargaining agreement expires\.

If we or our subsidiaries are unable to reach agreement with any of our unionized work groups on future negotiations regarding the terms of their collective bargaining agreements or if additional segments of our workforce become unionized, we may be subject to work interruptions or stoppages, subject to the requirements of the Railway Labor Act or the NLRA, as the case may be\. Strikes or labor disputes with our unionized employees may have a material adverse effect on our ability to conduct business\. Likewise, if third\-party regional carriers with whom we have contract carrier agreements are unable to reach agreement with their unionized work groups in current or future negotiations regarding the terms of their collective bargaining agreements, those carriers may be subject to work interruptions or stoppages, subject to the requirements of the Railway Labor Act, which could have a material adverse effect on our operations\.

Our results can fluctuate due to the effects of weather, natural disasters and seasonality\.

Our results of operations are impacted by severe weather, natural disasters and seasonality\. Severe weather conditions and natural disasters (or other environmental events) can significantly disrupt service and create air traffic control problems\. These events decrease revenue and can also increase costs\. In addition, increases in the frequency, severity or duration of thunderstorms, hurricanes, typhoons or other severe weather events, including from changes in the global climate, could result in increases in delays and cancellations, turbulence\-related injuries and fuel consumption to avoid such weather, any of which could result in loss of revenue and higher costs\. In addition, demand for air travel is typically higher in the June and September quarters, particularly in our international markets, because there is more vacation travel during these periods than during the remainder of the year\. The seasonal shifting of demand causes our financial results to vary on a seasonal basis\. Because of fluctuations in our results from weather, natural disasters and seasonality, operating results for a historical period are not necessarily indicative of operating results for a future period and operating results for an interim period are not necessarily indicative of operating results for an entire year\.

An extended disruption in services provided by third parties, including third\-party regional  carriers, could have a material adverse effect on our results of operations\.

We utilize the services of third parties in a number of areas in support of our operations that are integral to our business, including third\-party carriers in the Delta Connection program and ground operations at some airports\. While we have agreements with these providers that define expected service performance, we do not have direct control over their operations\. In particular, some third\-party regional carriers are facing a shortage of qualified pilots due to government mandated increases in flight experience required for pilots working for airlines\. If this shortage becomes more widespread, third\-party regional carriers may not be able to comply with their obligations to us\. To the extent that a significant disruption in services occurs because third party providers are unable to perform their obligations over an extended period of time, our revenue may be reduced or our expenses may be increased, resulting in a material adverse effect on our results of operations\.

15


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

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

***(p) Other Operating Expenses***

Other operating expenses includes costs associated with ground and cargo handling, crew travel, aircraft food and catering, passenger accommodation, airport security, international navigation fees and certain general and administrative expenses\.

***(q) Regional Expenses***

Expenses associated with American Eagle operations are classified as regional expenses on our consolidated statements of operations\. Regional expenses consist of the following (in millions):

|                                                               |                             |                             |                             |
| ------------------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                               | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                               | **2018**                    | **2017**                    | **2016**                    |
| Aircraft fuel and related taxes                               | $1,843                      | $1,382                      | $1,109                      |
| Salaries, wages and benefits                                  | 1,591                       | 1,452                       | 1,333                       |
| Capacity purchases from third\-party regional carriers  ^(1)^ | 1,431                       | 1,581                       | 1,538                       |
| Maintenance, materials and repairs                            | 340                         | 281                         | 345                         |
| Other rent and landing fees                                   | 610                         | 625                         | 564                         |
| Aircraft rent                                                 | 32                          | 35                          | 36                          |
| Selling expenses                                              | 369                         | 361                         | 347                         |
| Depreciation and amortization                                 | 318                         | 315                         | 301                         |
| Special items, net                                            | 6                           | 22                          | 14                          |
| Other                                                         | 593                         | 492                         | 457                         |
| Total regional expenses                                       | $7,133                      | $6,546                      | $6,044                      |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | In  2018 , we recognized  $565 million  of expense under our capacity purchase agreement with Republic Airline Inc\. (Republic)\. We hold a  25%  equity interest in Republic Airways Holdings Inc\. (Republic Holdings), the parent company of Republic\. |

96


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

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

(d) Off\-Balance Sheet Arrangements

Aircraft and Engines

American currently operates   382  owned aircraft and   69  leased aircraft, and owns   79  spare aircraft engines, which in each case were financed with EETCs issued by pass\-through trusts\. These trusts are off\-balance sheet entities, the primary purpose of which is to finance the acquisition of flight equipment or to permit issuance of debt backed by existing flight equipment\. In the case of aircraft EETCs, rather than finance each aircraft separately when such aircraft is purchased, delivered or refinanced, these trusts allow American to raise the financing for a number of aircraft at one time and, if applicable, place such funds in escrow pending a future purchase, delivery or refinancing of the relevant aircraft\. Similarly, in the case of the spare engine EETCs, the trust allows American to use its existing pool of spare engines to raise financing under a single facility\. The trusts have also been structured to provide for certain credit enhancements, such as liquidity facilities to cover certain interest payments, that reduce the risks to the purchasers of the trust certificates and, as a result, reduce the cost of aircraft financing to American\.

Each trust covers a set number of aircraft or spare engines scheduled to be delivered, financed or refinanced upon the issuance of the EETC or within a specific period of time thereafter\. At the time of each covered aircraft or spare engine financing, the relevant trust used the proceeds of the issuance of the EETC (which may have been available at the time of issuance thereof or held in escrow until financing of the applicable aircraft following its delivery) to purchase equipment notes relating to the financed aircraft or engines\. The equipment notes are issued, at American’s election, in connection with a mortgage financing of the aircraft or spare engines or, in certain cases, by a separate owner trust in connection with a leveraged lease financing of the aircraft\. In the case of a leveraged lease financing, the owner trust then leases the aircraft to American\. In both cases, the equipment notes are secured by a security interest in the aircraft or engines, as applicable\. The pass\-through trust certificates are not direct obligations of, nor are they guaranteed by, AAG or American\. However, in the case of mortgage financings, the equipment notes issued to the trusts are direct obligations of American and, in certain instances, have been guaranteed by AAG\. As of  December 31, 2019 ,   $11\.9 billion  associated with these mortgage financings is reflected as debt in the accompanying consolidated balance sheet\.

With respect to leveraged leases, American evaluated whether the leases had characteristics of a variable interest entity\. American concluded the leasing entities met the criteria for variable interest entities; however, American concluded it is not the primary beneficiary under these leasing arrangements and accounts for the majority of its EETC leveraged lease financings as operating leases\. American’s total future payments to the trusts of each of the relevant EETCs under these leveraged lease financings are   $177 million  as of  December 31, 2019 , which are reflected in the operating lease obligations in Note 4\.

Letters of Credit and Other

American provides financial assurance, such as letters of credit, surety bonds or restricted cash and investments, primarily to support projected workers’ compensation obligations and airport commitments\. As of  December 31, 2019 , American had   $572 million  of letters of credit and surety bonds securing various obligations\. The letters of credit and surety bonds that are subject to expiration will expire on various dates through  2022 \.

(e) Legal Proceedings

Chapter 11 Cases \. On November 29, 2011, AMR, American, and certain of AMR’s other direct and indirect domestic subsidiaries (the Debtors) filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court)\. On October 21, 2013, the Bankruptcy Court entered an order approving and confirming the Debtors’ fourth amended joint plan of reorganization (as amended, the Plan)\. On the Effective Date, December 9, 2013, the Debtors consummated their reorganization pursuant to the Plan and completed the Merger\.

Pursuant to rulings of the Bankruptcy Court, the Plan established the Disputed Claims Reserve to hold shares of AAG common stock reserved for issuance to disputed claimholders at the Effective Date that ultimately become holders of allowed claims\. The shares of AAG common stock issued to the Disputed Claims Reserve were originally issued on December 13, 2013 and have at all times since been included in the number of shares issued and outstanding as reported by AAG from time to time in its quarterly and annual reports, including for purposes of calculating earnings per common share\. As disputed claims are resolved, the claimants receive distributions of shares from the Disputed Claims Reserve\. However, American is not required to distribute additional shares above the limits contemplated by the Plan, even if the shares remaining for distribution in the Disputed Claims Reserve are not sufficient to fully pay any additional allowed unsecured claims\. To the extent that any of the reserved shares remain undistributed upon resolution of all remaining disputed claims, such shares will not be returned to AAG but rather will be distributed to former AMR stockholders and former convertible noteholders

152


Annual Report of Southwest Airlines Co\. for year 2018

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized\.

|                  |                         |                                                      |
| ---------------- | ----------------------- | ---------------------------------------------------- |
|                  | SOUTHWEST AIRLINES CO\. | SOUTHWEST AIRLINES CO\.                              |
| February 5, 2019 | By                      | /s/ Tammy Romo                                       |
|                  |                         | Tammy Romo                                           |
|                  |                         | *Executive Vice President & Chief Financial Officer* |
|                  |                         | *(On behalf of the Registrant and in*                |
|                  |                         | *her capacity as Principal Financial*                |
|                  |                         | *and Accounting Officer)*                            |

129


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

**Contractual Obligations**

The following table provides details of our future cash contractual obligations as of December 31, 2017\. The table does not include commitments that are contingent on events or other factors that are uncertain or unknown at this time\.

|                                                                       |                            |                            |                            |                            |                            |                            |                            |
| --------------------------------------------------------------------- | -------------------------- | -------------------------- | -------------------------- | -------------------------- | -------------------------- | -------------------------- | -------------------------- |
|                                                                       | **Payments Due by Period** | **Payments Due by Period** | **Payments Due by Period** | **Payments Due by Period** | **Payments Due by Period** | **Payments Due by Period** | **Payments Due by Period** |
|                                                                       | **2018**                   | **2019**                   | **2020**                   | **2021**                   | **2022**                   | **2023 and Thereafter**    | **Total**                  |
| *American*  *^(a)^*                                                   |                            |                            |                            |                            |                            |                            |                            |
| Debt and capital lease obligations  ^(b) (d)^

(See Note 3)     | $2,098                     | $2,118                     | $3,563                     | $2,854                     | $1,286                     | $11,602                    | $23,521                    |
| Interest obligations  ^(c)^  ^(d)^                                    | 966                        | 904                        | 788                        | 658                        | 535                        | 1,409                      | 5,260                      |
| Aircraft and engine purchase

commitments  ^(e)^  (See Note 9) | 1,826                      | 2,730                      | 2,730                      | 2,858                      | 2,138                      | 1,482                      | 13,764                     |
| Operating lease commitments  ^(f)^

(See Note 9)                | 2,178                      | 1,966                      | 1,776                      | 1,331                      | 1,155                      | 3,253                      | 11,659                     |
| Regional capacity purchase agreements  ^(g)^  (See Note 9)            | 1,457                      | 1,311                      | 1,063                      | 866                        | 699                        | 2,073                      | 7,469                      |
| Minimum pension obligations  ^(h)^

(See Note 7)                | 464                        | 890                        | 484                        | 495                        | 581                        | 1,476                      | 4,390                      |
| Retiree medical and other postretirement benefits (See Note 7)        | 96                         | 92                         | 80                         | 75                         | 70                         | 314                        | 727                        |
| Other purchase obligations  ^(i)^  (See Note 9)                       | 2,036                      | 1,405                      | 894                        | 956                        | 9                          | 2                          | 5,302                      |
| Total American Contractual Obligations                                | $11,121                    | $11,416                    | $11,378                    | $10,093                    | $6,473                     | $21,611                    | $72,092                    |
| *AAG Parent and Other AAG Subsidiaries*  *^(a)^*                      |                            |                            |                            |                            |                            |                            |                            |
| Debt and capital lease obligations  ^(b)^

(See Note 5)         | $500                       | $750                       | $506                       | $2                         | $2                         | $20                        | $1,780                     |
| Interest obligations  ^(c)^                                           | 82                         | 67                         | 14                         | 2                          | 2                          | 6                          | 173                        |
| Minimum pension obligations  ^(h)^

(See Note 9)                | 3                          | 4                          | 3                          | 3                          | 4                          | 15                         | 32                         |
| Operating lease commitments                                           | 17                         | 8                          | 8                          | 8                          | 4                          | 13                         | 58                         |
| Total AAG Contractual Obligations                                     | $11,723                    | $12,245                    | $11,909                    | $10,108                    | $6,485                     | $21,665                    | $74,135                    |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(a)^ | For additional information, see the Notes to AAG’s and American’s Consolidated Financial Statements in Part II, Items 8A and 8B referenced in the table above\. |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(b)^ | Amounts represent contractual amounts due\. Excludes $227 million and $236 million of unamortized debt discount, premium and issuance costs as of  December 31, 2017  for American and AAG, respectively\. |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------- |
| ^(c)^ | For variable\-rate debt, future interest obligations are estimated using the current forward rates at  December 31, 2017 \. |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(d)^ | Includes  $11\.9 billion  of future principal payments and  $2\.7 billion  of future interest payments, respectively, as of  December 31, 2017 , related to EETCs associated with mortgage financings for the purchase of certain aircraft\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| ^(e)^ | See Part I, Item 2\. Properties –  *“Aircraft and Engine Purchase Commitments”*  for additional information about the firm commitment aircraft delivery schedule\. |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(f)^ | Includes  $572 million  of future minimum lease payments related to EETC leveraged lease financings of certain aircraft as of  December 31, 2017 \. |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(g)^ | Represents minimum payments under capacity purchase agreements with third\-party regional carriers\. These commitments are estimates of costs based on assumed minimum levels of flying under the capacity purchase agreements and our actual payments could differ materially\. |

71