Annual Report of ALASKA AIR GROUP, INC\. for year 2018

|                                         |                                  |                                  |                                  |                                     |                                  |                                  |                                  |
| --------------------------------------- | -------------------------------- | -------------------------------- | -------------------------------- | ----------------------------------- | -------------------------------- | -------------------------------- | -------------------------------- |
|                                         | **Year Ended December 31, 2016** | **Year Ended December 31, 2016** | **Year Ended December 31, 2016** | **Year Ended December 31, 2016**    | **Year Ended December 31, 2016** | **Year Ended December 31, 2016** | **Year Ended December 31, 2016** |
|                                         | **Mainline** **^(a)^**           | **Regional**                     | **Horizon**                      | **Consolidating & Other** **^(b)^** | **Air Group Adjusted** **^(c)^** | **Special Items** **^(d)^**      | **Consolidated**                 |
| **Operating revenues**                  |                                  |                                  |                                  |                                     |                                  |                                  |                                  |
| Passenger revenues                      | 4,415                            | 977                              | —                                | —                                   | 5,392                            | —                                | 5,392                            |
| CPA revenues                            | —                                | —                                | 424                              | (424)                               | —                                | —                                | —                                |
| Mileage Plan other revenue              | 333                              | 37                               | —                                | —                                   | 370                              | —                                | 370                              |
| Cargo and other                         | 160                              | 4                                | —                                | (1)                                 | 163                              | —                                | 163                              |
| **Total operating revenues**            | 4,908                            | 1,018                            | 424                              | (425)                               | 5,925                            | —                                | 5,925                            |
| **Operating expenses**                  |                                  |                                  |                                  |                                     |                                  |                                  |                                  |
| Non\-fuel operating expenses            | 2,919                            | 769                              | 407                              | (424)                               | 3,671                            | 117                              | 3,788                            |
| Fuel expense                            | 719                              | 125                              | —                                | —                                   | 844                              | (13)                             | 831                              |
| **Total operating expenses**            | 3,638                            | 894                              | 407                              | (424)                               | 4,515                            | 104                              | 4,619                            |
| **Nonoperating income (expense)**       |                                  |                                  |                                  |                                     |                                  |                                  |                                  |
| Interest income                         | 26                               | —                                | 1                                | —                                   | 27                               | —                                | 27                               |
| Interest expense                        | (42)                             | —                                | (9)                              | (4)                                 | (55)                             | —                                | (55)                             |
| Interest capitalized                    | 20                               | —                                | 1                                | 4                                   | 25                               | —                                | 25                               |
| Other                                   | 13                               | —                                | —                                | —                                   | 13                               | —                                | 13                               |
| **Total nonoperating income (expense)** | 17                               | —                                | (7)                              | —                                   | 10                               | —                                | 10                               |
| **Income (loss) before income tax**     | $1,287                           | $124                             | $10                              | $(1)                                | $1,420                           | $(104)                           | $1,316                           |

|     |                                                                                |
| --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (a) | As the acquisition of Virgin America closed on December 14, 2016, Mainline financial results, presented above include Virgin America only for the period from December 14, 2016 to December 31, 2016\. Financial results also reflect the impacts of purchase accounting\.  |

|     |                                                                                |
| --- | ---------------------------------------------------------------------------------------------------------- |
| (b) | Includes consolidating entries, Parent Company, McGee Air Services, and other immaterial business units\.  |

|     |                                                                                |
| --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (c) | The Air Group Adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocations and excludes certain income and charges\. |

|     |                                                                                |
| --- | -------------------------------------------------------------------------------------------------------------- |
| (d) | Includes merger\-related costs, mark\-to\-market fuel\-hedge accounting adjustments, and other special items\. |

|                                |             |          |          |
| ------------------------------ | ----------- | -------- | -------- |
|                                | **2018**    | **2017** | **2016** |
| Depreciation and amortization: |             |          |          |
| Mainline                       | **$316**    | $308     | $296     |
| Horizon                        | **82**      | 64       | 67       |
| Consolidated                   | **$398**    | $372     | $363     |
| Capital expenditures:          |             |          |          |
| Mainline                       | **$571**    | $734     | $608     |
| Horizon                        | **389**     | 292      | 70       |
| Consolidated                   | **$960**    | $1,026   | $678     |
| Total assets at end of period: |             |          |          |
| Mainline                       | **$16,853** | $16,663  |          |
| Horizon                        | **1,229**   | 929      |          |
| Consolidating & Other          | **(7,170)** | (6,846)  |          |
| Consolidated                   | **$10,912** | $10,746  |          |

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

None\.

 91


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

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

**Number** | **Description**                                                                                |
| 4\.50                         | [Revolving Credit Agreement (2015\-1A), dated as of March 16, 2015, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2015\-1A, as Borrower, and Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Liquidity Provider (incorporated by reference to Exhibit 4\.14 to American’s Current Report on Form 8\-K filed on March 16, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515093938/d890456dex414.htm)                                                                                |
| 4\.51                         | [Revolving Credit Agreement (2015\-1B), dated as of March 16, 2015, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2015\-1B, as Borrower, and Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Liquidity Provider (incorporated by reference to Exhibit 4\.15 to American’s Current Report on Form 8\-K filed on March 16, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515093938/d890456dex415.htm)                                                                                |
| 4\.52                         | [Trust Supplement No\. 2015\-2AA, dated as of September 24, 2015, 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 24, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515327525/d69559dex42.htm)                                                                                |
| 4\.53                         | [Trust Supplement No\. 2015\-2A, dated as of September 24, 2015, 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\.3 to American’s Current Report on Form 8\-K filed on September 24, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515327525/d69559dex43.htm)                                                                                |
| 4\.54                         | [Trust Supplement No\. 2015\-2B, dated as of September 24, 2015, 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\.4 to American’s Current Report on Form 8\-K filed on September 24, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515327525/d69559dex44.htm)                                                                                |
| 4\.55                         | [Intercreditor Agreement (2015\-2), dated as of September 24, 2015, among Wilmington Trust Company, as Trustee of the American Airlines Pass Through Trust 2015\-2AA, as Trustee of the American Airlines Pass Through Trust 2015\-2A and as Trustee of the American Airlines Pass Through Trust 2015\-2B, Commonwealth Bank of Australia, New York Branch, as Class AA Liquidity Provider, Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Class A Liquidity Provider and Class B Liquidity Provider, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4\.5 to American’s Current Report on Form 8\-K filed on September 24, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515327525/d69559dex45.htm) |
| 4\.56                         | [Note Purchase Agreement, dated as of September 24, 2015, among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on September 24, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515327525/d69559dex46.htm)                                                                                |
| 4\.57                         | [Form of Participation Agreement (Participation Agreement among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust Company, as Loan Trustee, and Wilmington Trust Company, in its individual capacity as set forth therein) (incorporated by reference to Exhibit B to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on September 24, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515327525/d69559dex46.htm)                                                                                |
| 4\.58                         | [Form of Indenture and Security Agreement (Indenture and Security Agreement between American Airlines, Inc\., and Wilmington Trust Company, as Loan Trustee) (incorporated by reference to Exhibit C to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on September 24, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515327525/d69559dex46.htm)                                                                                |
| 4\.59                         | [Form of Pass Through Trust Certificate, Series 2015\-2AA (incorporated by reference to Exhibit A to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on September 24, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515327525/d69559dex42.htm)                                                                                |
| 4\.60                         | [Form of Pass Through Trust Certificate, Series 2015\-2A (incorporated by reference to Exhibit A to Exhibit 4\.3 to American’s Current Report on Form 8\-K filed on September 24, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515327525/d69559dex43.htm)                                                                                |
| 4\.61                         | [Form of Pass Through Trust Certificate, Series 2015\-2B (incorporated by reference to Exhibit A to Exhibit 4\.4 to American’s Current Report on Form 8\-K filed on September 24, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515327525/d69559dex44.htm)                                                                                |
| 4\.62                         | [Revolving Credit Agreement (2015\-2AA), dated as of September 24, 2015, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2015\-2AA, as Borrower, and Commonwealth Bank of Australia, New York Branch, as Liquidity Provider (incorporated by reference to Exhibit 4\.12 to American’s Current Report on Form 8\-K filed on September 24, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515327525/d69559dex412.htm)                                                                                |
| 4\.63                         | [Revolving Credit Agreement (2015\-2A), dated as of September 24, 2015, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2015\-2A, as Borrower, and Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Liquidity Provider (incorporated by reference to Exhibit 4\.13 to American’s Current Report on Form 8\-K filed on September 24, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515327525/d69559dex413.htm)                                                                                |

180


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

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

are amortized on a straight\-line basis over approximately nine years and 30 years, respectively\. Tradenames are fully amortized\.

American recorded amortization expense related to these intangible assets of $44 million, $76 million and $55 million for the years ended December 31, 2017, 2016 and 2015, respectively\. American expects to record annual amortization expense for these intangible assets as follows (in millions):

|                     |      |
| ------------------- | ---- |
| 2018                | $41  |
| 2019                | 41   |
| 2020                | 41   |
| 2021                | 41   |
| 2022                | 41   |
| 2023 and thereafter | 115  |
| Total               | $320 |

*Indefinite\-Lived Intangible Assets*

Indefinite\-lived intangible assets include certain domestic airport slots at American’s hubs and international slots and route authorities\. Indefinite\-lived intangible assets are not amortized but instead are assessed for impairment annually on October 1^st^ or more frequently if events or circumstances indicate that the asset may be impaired\. As of December 31, 2017 and 2016, American had $1\.9 billion and $1\.8 billion, respectively, of indefinite\-lived intangible assets on its consolidated balance sheets\.

Indefinite\-lived intangible assets are assessed for impairment by initially performing a qualitative assessment to determine whether American believes it is more likely than not that an asset has been impaired\. If American believes impairment has occurred, American then evaluates for impairment by comparing the estimated fair value of assets to the carrying value\. An impairment charge is recognized if the asset’s estimated fair value is less than its carrying value\. Based upon American’s annual assessment, there was no indefinite\-lived intangible asset impairment in 2017\.

***(i) Loyalty Program***

American currently operates the loyalty program, AAdvantage\. This program awards mileage credits to passengers who fly on American, any **one**world airline or other partner airlines, or by using the services of other program participants, such as the Citi and Barclaycard US co\-branded credit cards, hotels and car rental companies\. Mileage credits can be redeemed for travel on American or other participating partner airlines\.

Through December 31, 2017, American used the incremental cost method to account for the portion of its loyalty program liability incurred when AAdvantage members earn mileage credits by flying on American, any **one**world airline or other partner airlines\. American has an obligation to provide future travel when these mileage credits are redeemed and therefore have recorded a liability for mileage credits outstanding\.

The incremental cost liability includes all mileage credits, even mileage credits for members whose account balances have not yet reached the minimum level required to redeem an award\. Mileage credits are subject to expiration\. The liability for outstanding mileage credits is valued based on the estimated incremental cost of carrying one additional passenger\. The estimated incremental cost primarily includes unit costs incurred for fuel, food and insurance as well as fees incurred when travel awards are redeemed on partner airlines\. In calculating the liability, American estimates how many mileage credits will never be redeemed for travel and excludes those mileage credits from the estimate of the liability\. Estimates are also made for the number of miles that will be used per award redemption and the number of travel awards that will be redeemed on partner airlines\. These costs and estimates are based on American’s historical program experience as well as consideration of enacted program changes, as applicable\. Changes in the liability resulting from members earning additional mileage credits or changes in estimates are recorded in the consolidated statements of operations as a part of passenger revenue\.

As of December 31, 2017 and 2016, the liability for outstanding mileage credits accounted for under the incremental cost method was $677 million and $669 million, respectively, and is included on the consolidated balance sheets within loyalty program liability\.

133


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

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

**Number** | **Description**                                                                                |
| 4\.110                        | [Amended and Restated Intercreditor Agreement (2016\-3), dated as of October 4, 2017, among Wilmington Trust Company, as Trustee of the American Airlines Pass Through Trust 2016\-3AA, as Trustee of the American Airlines Pass Through Trust 2016\-3A and as Trustee of the American Airlines Pass Through Trust 2016\-3B, KfW IPEX\-Bank GmbH, as Class AA Liquidity Provider, Class A Liquidity Provider and Class B Liquidity Provider, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4\.3 to American’s Current Report on Form 8\-K filed on October 5, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517304687/d466899dex43.htm) |
| 4\.111                        | [Note Purchase Agreement, dated as of October 3, 2016, among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust, National Association, as Escrow Agent, and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4\.9 to American’s Current Report on Form 8\-K filed on October 4, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516730454/d359659dex49.htm)                                                                                |
| 4\.112                        | [Form of Participation Agreement (Participation Agreement among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust Company, as Loan Trustee, and Wilmington Trust Company, in its individual capacity as set forth therein) (incorporated by reference to Exhibit B to Exhibit 4\.9 to American’s Current Report on Form 8\-K filed on October 4, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516730454/d359659dex49.htm)                                                                                |
| 4\.113                        | [Form of Indenture and Security Agreement (Indenture and Security Agreement between American Airlines, Inc\., and Wilmington Trust Company, as Loan Trustee) (incorporated by reference to Exhibit C to Exhibit 4\.9 to American’s Current Report on Form 8\-K filed on October 4, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516730454/d359659dex49.htm)                                                                                |
| 4\.114                        | [Form of Pass Through Trust Certificate, Series 2016\-3AA (incorporated by reference to Exhibit A to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on October 4, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516730454/d359659dex42.htm)                                                                                |
| 4\.115                        | [Form of Pass Through Trust Certificate, Series 2016\-3A (incorporated by reference to Exhibit A to Exhibit 4\.3 to American’s Current Report on Form 8\-K filed on October 4, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516730454/d359659dex43.htm)                                                                                |
| 4\.116                        | [Revolving Credit Agreement (2016\-3AA), dated as of October 3, 2016, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2016\-3AA, as Borrower, and KfW IPEX\-Bank GmbH, as Liquidity Provider (incorporated by reference to Exhibit 4\.14 to American’s Current Report on Form 8\-K filed on October 4, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516730454/d359659dex414.htm)                                                                                |
| 4\.117                        | [Revolving Credit Agreement (2016\-3A), dated as of October 3, 2016, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2016\-3A, as Borrower, and KfW IPEX\-Bank GmbH, as Liquidity Provider (incorporated by reference to Exhibit 4\.15 to American’s Current Report on Form 8\-K filed on October 4, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516730454/d359659dex415.htm)                                                                                |
| 4\.118                        | [Trust Supplement No\. 2017\-1AA, dated as of January 13, 2017, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on January 17, 2017 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517011067/d319419dex42.htm)                                                                                |
| 4\.119                        | [Trust Supplement No\. 2017\-1A, dated as of January 13, 2017, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014, (incorporated by reference to Exhibit 4\.3 to American’s Current Report on Form 8\-K filed on January 17, 2017 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517011067/d319419dex43.htm)                                                                                |
| 4\.120                        | [Trust Supplement No\. 2017\-1B, dated as of January 13, 2017, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.4 to American’s Current Report on Form 8\-K filed on January 17, 2017 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517011067/d319419dex44.htm)                                                                                |
| 4\.121                        | [Intercreditor Agreement (2017\-1), dated as of January 13, 2017, among Wilmington Trust Company, as Trustee of the American Airlines Pass Through Trust 2017\-1AA, as Trustee of the American Airlines Pass Through Trust 2017\-1A and as Trustee of the American Airlines Pass Through Trust 2017\-1B, Citibank N\.A\., as Class AA Liquidity Provider, Class A Liquidity Provider and Class B Liquidity Provider, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4\.5 to American’s Current Report on Form 8\-K filed on January 17, 2017 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517011067/d319419dex45.htm)                       |
| 4\.122                        | [Note Purchase Agreement, dated as of January 13, 2017, among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust, National Association, as Escrow Agent, and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4\.12 to American’s Current Report on Form 8\-K filed on January 17, 2017 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517011067/d319419dex412.htm)                                                                                |
| 4\.123                        | [Form of Participation Agreement (Participation Agreement among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust Company, as Loan Trustee, and Wilmington Trust Company, in its individual capacity as set forth therein) (incorporated by reference to Exhibit B to Exhibit 4\.12 to American’s Current Report on Form 8\-K filed on January 17, 2017 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517011067/d319419dex412.htm)                                                                                |

172


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

**PERFORMANCE GRAPH**

The following graph compares our cumulative total stockholder return since December 31, 2012 with the S&P 500 Index and the Dow Jones U\.S\. Airlines Index\. The graph assumes that the value of the investment in our common stock and each index (including reinvestment of dividends) was $100 on December 31, 2012\.

![alk10\-k123\_chartx57832a01\.jpg](https://www.example.com/alk10-k123_chartx57832a01.jpg)

 30


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

Alaska’s union contracts at December 31, 2017 were as follows:

|                                                                     |                                        |                         |                            |
| ------------------------------------------------------------------- | -------------------------------------- | ----------------------- | -------------------------- |
| **Union**                                                           | **Employee Group**                     | **Number of Employees** | **Contract Status**        |
| Air Line Pilots Association, International (ALPA)                   | Pilots                                 | 1,970                   | Amendable 4/1/2020         |
| Association of Flight Attendants (AFA)                              | Flight attendants                      | 4,392                   | Amendable 12/17/2019
 |
| International Association of Machinists and Aerospace Workers (IAM) | Ramp service and stock clerks          | 673                     | Amendable 7/19/2018        |
| IAM                                                                 | Clerical, office and passenger service | 3,733                   | Amendable 1/1/2019         |
| Aircraft Mechanics Fraternal Association (AMFA)                     | Mechanics, inspectors and cleaners     | 706                     | Amendable 10/17/2021       |
| Mexico Workers Association of Air Transport                         | Mexico airport personnel               | 106                     | Amendable 2/1/2018         |
| Transport Workers Union of America (TWU)                            | Dispatchers                            | 52                      | Amendable 3/24/2019        |

Virgin America's union contracts at December 31, 2017 were as follows:

|           |                                        |                         |                     |
| --------- | -------------------------------------- | ----------------------- | ------------------- |
| **Union** | **Employee Group**                     | **Number of Employees** | **Contract Status** |
| ALPA      | Pilots                                 | 858                     | Amendable 4/1/2020  |
| AFA       | Inflight teammates                     | 1,209                   | Not completed       |
| IAM       | Clerical, office and passenger service | 865                     | Amendable 1/1/2019  |
| TWU       | Dispatchers                            | 36                      | Not completed       |

Horizon’s union contracts at December 31, 2017 were as follows:

|                                              |                                                              |                         |                      |
| -------------------------------------------- | ------------------------------------------------------------ | ----------------------- | -------------------- |
| **Union**                                    | **Employee Group**                                           | **Number of Employees** | **Contract Status**  |
| International Brotherhood of Teamsters (IBT) | Pilots                                                       | 729                     | Amendable 12/14/2024 |
| AFA                                          | Flight attendants                                            | 660                     | Amendable 7/18/2019  |
| IBT                                          | Mechanics and related classifications                        | 283                     | Amendable 12/16/2020 |
| Unifor                                       | Station personnel in
Vancouver and Victoria, BC, Canada | 37                      | Amendable 2/14/2019  |
| TWU                                          | Dispatchers                                                  | 21                      | Amendable 8/26/2018  |

McGee Air Services union contract at December 31, 2017 was as follows:

|           |                    |                         |                     |
| --------- | ------------------ | ----------------------- | ------------------- |
| **Union** | **Employee Group** | **Number of Employees** | **Contract Status** |
| IAM       | Fleet and ramp     | 1,596                   | Amendable 7/19/2023 |

 15


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

Identifiable Intangible Assets\.  Our identifiable intangible assets, which are related to the airline segment, had a net carrying amount of  $4\.8 billion  at  December 31, 2018 , of which  $4\.7 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\.

We performed qualitative 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\. Our qualitative assessments include analyses and weighting of all relevant factors, which impact the fair value of our indefinite\-lived intangible assets\.

Long\-Lived Assets

Our flight equipment and other long\-lived assets have a recorded value of  $28\.3 billion  at  December 31, 2018 \. 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\.

See  Note 8  of the Notes to the Consolidated Financial Statements for information related to our impairment of the Endeavor CRJ\-200 fleet\.

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, 2018 , the unfunded benefit obligation for these plans recorded on our balance sheet was  $6\.4 billion \.  We had no minimum funding requirements in 2018\. However, during the first three months of 2018, we voluntarily contributed approximately  $500 million  to these plans\. We have no minimum funding requirements in 2019, but we plan to voluntarily contribute approximately  $500 million  to these plans\. The most critical assumptions impacting our defined benefit pension plan obligations and expenses 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  4\.33%  and  3\.69%  at  December 31, 2018  and  2017 , respectively\. Our weighted average discount rate for net periodic pension benefit cost in each of the past three years has varied from the rate selected on our measurement date, ranging from  4\.57%  to  3\.69%  between 2016 and 2018\.

Expected Long\-Term Rate of Return\.  Our expected long\-term rate of return on plan assets is based primarily on plan\-specific investment studies using historical market return and volatility data\. Modest excess return expectations versus some public market indices are incorporated into the return projections based on the actively managed structure of the investment programs and their records of achieving such returns historically\. We also expect to receive a premium for investing in less liquid private markets\. We review our rate of return on plan assets assumptions annually\. Our annual investment performance for one particular year does not, by itself, significantly influence our evaluation\. The investment strategy for our defined benefit pension plan assets is to earn a long\-term return that meets or exceeds our annualized return target while taking an acceptable level of risk and maintaining sufficient liquidity to pay current benefits and other cash obligations of the plan\. This is achieved by investing in a globally diversified mix of public and private equity, fixed income, real assets, hedge funds and other assets and instruments\. Our expected long\-term rate of return on assets for net periodic pension benefit cost for the year ended  December 31, 2018  was  8\.97% \.

 45


Annual Report of Southwest Airlines Co\. for year 2017

operating or cash flow losses associated with the use of the long\-lived asset\. If an asset is deemed to be impaired, an impairment loss is recorded for the excess of the asset book value in relation to its estimated fair value\.

***Aircraft and Engine Maintenance***

The cost of scheduled inspections and repairs and routine maintenance costs for all aircraft and engines are charged to Maintenance materials and repairs expense as incurred\. The Company has maintenance agreements related to certain of its aircraft engines with external service providers, including a "power\-by\-the\-hour" agreement associated with its Boeing 737\-700 fleet\. Under these agreements, which the Company has determined effectively transfer the risk and create an obligation associated with the maintenance on such engines to the counterparty, expense is recorded commensurate with each hour flown on an engine\. In situations where the payments to the counterparty do not sufficiently match the level of services received during the period, expense is recorded on a straight\-line basis over the term of the agreement based on the Company's best estimate of expected future aircraft utilization\. For its engine maintenance contracts that do not transfer risk to the service provider, the Company records expense on a time and materials basis when an engine repair event takes place\. Modifications that significantly enhance the operating performance or extend the useful lives of aircraft or engines are capitalized and amortized over the remaining life of the asset\.

***Goodwill and Intangible Assets***

The Company applies a fair value based impairment test to the carrying value of goodwill and indefinite\-lived intangible assets annually on October 1st, or more frequently if certain events or circumstances indicate that an impairment loss may have been incurred\. The Company assesses the value of goodwill and indefinite\-lived assets under either a qualitative or quantitative approach\. Under a qualitative approach, the Company considers various market factors, including applicable key assumptions listed below\. These factors are analyzed to determine if events and circumstances could reasonably have affected the fair value of goodwill and indefinite\-lived intangible assets\. If the Company determines that it is more likely than not that an indefinite\-lived intangible asset is impaired, the quantitative approach is used to assess the asset’s implied fair value and the amount of the impairment\. Under a quantitative approach, the implied fair value of the Company's identifiable assets and liabilities is calculated based on key assumptions\. If the Company assets' carrying value exceeds the fair value calculated using the quantitative approach, an impairment charge is recorded for the difference in fair value and carrying value\. During 2016, the Company recorded a $21 million impairment charge associated with leased slots at Newark Liberty International Airport as a result of the FAA announcement, in April 2016, that this airport was being changed to a Level 2 schedule\-facilitated airport from its previous designation as Level 3\. This impairment loss was reflected in Other Operating Expenses within the accompanying Consolidated Statement of Income\. The Company does not believe this FAA decision is indicative of a similar decision being made at the Company's other slot\-controlled airports, Washington Reagan and New York LaGuardia\.

The following table is a summary of the Company’s intangible assets, which are included as a component of Other assets in the Company's Consolidated Balance Sheet, as of December 31, 2017 and 2016:

|                                             |                                              |                                      |                                         |                                  |                                  |
| ------------------------------------------- | -------------------------------------------- | ------------------------------------ | --------------------------------------- | -------------------------------- | -------------------------------- |
|                                             |                                              | **Year ended December 31, 2017**     | **Year ended December 31, 2017**        | **Year ended December 31, 2016** | **Year ended December 31, 2016** |
| **(in millions)**                           | **Weighted\-average useful life (in years)** | **Gross carrying**

**amount** | **Accumulated**

**amortization** | **Gross carrying amount**        | **Accumulated Amortization**     |
| Customer relationships/marketing agreements | 10                                           | $27                                  | $23                                     | $38                              | $32                              |
| Owned domestic slots (a)                    | Indefinite                                   | 295                                  | n/a                                     | 295                              | n/a                              |
| Gate leasehold rights (a)                   | 15                                           | 180                                  | 66                                      | 180                              | 55                               |
| Total                                       | 14                                           | $502                                 | $89                                     | $513                             | $87                              |

77


Annual Report of ALASKA AIR GROUP, INC\. for year 2018

**OPERATING STATISTICS SUMMARY (unaudited)**

**Alaska Air Group, Inc\.**

Below are operating statistics we use to measure performance\. As the acquisition of Virgin America closed on December 14, 2016, Consolidated and Mainline amounts presented below include Virgin America results for the period December 14, 2016 through December 31, 2016 in the twelve months ended December 31, 2016\. Additionally, certain historical information has been adjusted to reflect the adoption of new accounting standards\. We often refer to unit revenues and adjusted unit costs, which are non\-GAAP measures\.

|                                                          |                                      |                                      |                                      |                                      |                                      |
| -------------------------------------------------------- | ------------------------------------ | ------------------------------------ | ------------------------------------ | ------------------------------------ | ------------------------------------ |
|                                                          | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** |
|                                                          | **2018**                             | **2017**                             | **Change**                           | **2016**                             | **Change**                           |
| **Consolidated Operating Statistics:** **^(a)^**         |                                      |                                      |                                      |                                      |                                      |
| Revenue passengers (000)                                 | **45,802**                           | 44,005                               | 4\.1%                                | 34,289                               | 28\.3%                               |
| RPMs (000,000) "traffic"                                 | **54,673**                           | 52,338                               | 4\.5%                                | 37,209                               | 40\.7%                               |
| ASMs (000,000) "capacity"                                | **65,335**                           | 62,072                               | 5\.3%                                | 44,135                               | 40\.6%                               |
| Load factor                                              | **83\.7%**                           | 84\.3%                               | (0\.6) pts                           | 84\.3%                               | —                                    |
| Yield ^(d)^                                              | **13\.96¢**                          | 13\.95¢                              | 0\.1%                                | 14\.49¢                              | (3\.7)%                              |
| RASM ^(d)^                                               | **12\.65¢**                          | 12\.72¢                              | (0\.6)%                              | 13\.43¢                              | (5\.3)%                              |
| CASM excluding fuel and special items ^(b)(d)^           | **8\.50¢**                           | 8\.25¢                               | 3\.0%                                | 8\.32¢                               | (0\.8)%                              |
| Economic fuel cost per gallon ^(b)^                      | **$2\.28**                           | $1\.82                               | 25\.3%                               | $1\.52                               | 19\.7%                               |
| Fuel gallons (000,000)                                   | **839**                              | 797                                  | 5\.3%                                | 554                                  | 43\.9%                               |
| ASM's per gallon                                         | **77\.9**                            | 77\.9                                | —%                                   | 79\.7                                | (2\.3)%                              |
| Average number of full\-time equivalent employees (FTEs) | **21,641**                           | 20,183                               | 7\.2%                                | 14,760                               | 36\.7%                               |
| **Mainline Operating Statistics:**                       |                                      |                                      |                                      |                                      |                                      |
| Revenue passengers (000)                                 | **35,603**                           | 34,510                               | 3\.2%                                | 24,838                               | 38\.9%                               |
| RPMs (000,000) "traffic"                                 | **49,781**                           | 48,236                               | 3\.2%                                | 33,489                               | 44\.0%                               |
| ASMs (000,000) "capacity"                                | **59,187**                           | 56,945                               | 3\.9%                                | 39,473                               | 44\.3%                               |
| Load factor                                              | **84\.1%**                           | 84\.7%                               | (0\.6) pts                           | 84\.8%                               | (0\.1) pts                           |
| Yield ^(d)^                                              | **13\.01¢**                          | 13\.02¢                              | (0\.1)%                              | 13\.18¢                              | (1\.2)%                              |
| RASM ^(d)^                                               | **11\.93¢**                          | 12\.00¢                              | (0\.6)%                              | 15\.01¢                              | (20\.1)%                             |
| CASM excluding fuel and special items ^(b)(d)^           | **7\.73¢**                           | 7\.50¢                               | 3\.1%                                | 7\.39¢                               | 1\.5%                                |
| Economic fuel cost per gallon ^(b)^                      | **$2\.27**                           | $1\.82                               | 24\.7%                               | $1\.52                               | 19\.7%                               |
| Fuel gallons (000,000)                                   | **727**                              | 706                                  | 3\.0%                                | 474                                  | 48\.9%                               |
| ASM's per gallon                                         | **81\.4**                            | 80\.7                                | 0\.9%                                | 83\.3                                | (3\.1)%                              |
| Average number of FTEs                                   | **16,353**                           | 15,653                               | 4\.5%                                | 11,447                               | 36\.7%                               |
| Aircraft utilization                                     | **11\.2**                            | 11\.2                                | —%                                   | 10\.5                                | 6\.7%                                |
| Average aircraft stage length                            | **1,298**                            | 1,301                                | (0\.2)%                              | 1,225                                | 6\.2%                                |
| Mainline operating fleet at period\-end                  | **233 a/c**                          | 221 a/c                              | 12 a/c                               | 218 a/c                              | 3 a/c                                |
| **Regional Operating Statistics:** **^(c)^**             |                                      |                                      |                                      |                                      |                                      |
| Revenue passengers (000)                                 | **10,199**                           | 9,495                                | 7\.4%                                | 9,452                                | 0\.5%                                |
| RPMs (000,000) "traffic"                                 | **4,892**                            | 4,101                                | 19\.3%                               | 3,720                                | 10\.2%                               |
| ASMs (000,000) "capacity"                                | **6,148**                            | 5,127                                | 19\.9%                               | 4,662                                | 10\.0%                               |
| Load factor                                              | **79\.6%**                           | 80\.0%                               | (0\.4) pts                           | 79\.8%                               | 0\.2 pts                             |
| Yield ^(d)^                                              | **23\.66¢**                          | 24\.96¢                              | (5\.2)%                              | 26\.26¢                              | (5\.0)%                              |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------- |
| ^(a)^ | Except for FTEs, data includes information related to third\-party regional capacity purchase flying arrangements\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------ |
| ^(b)^ | See reconciliation of this non\-GAAP measure to the most directly related GAAP measure in the accompanying pages\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------ |
| ^(c)^ | Data presented includes information related to flights operated by Horizon and third\-party carriers\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------ |
| ^(d)^ | Information has been adjusted to reflect the adoption of new accounting standards\.  |

 36


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

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

2\.  Special Items, Net

Special items, net on American’s consolidated statements of operations consisted of the following (in millions):

|                                                                          |                             |                             |                             |
| ------------------------------------------------------------------------ | --------------------------- | --------------------------- | --------------------------- |
|                                                                          | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                                          | **2019**                    | **2018**                    | **2017**                    |
| Fleet restructuring expenses  ^(1)^                                      | $271                        | $422                        | $232                        |
| Fleet impairment  ^(2)^                                                  | 213                         | —                           | —                           |
| Merger integration expenses  ^(3)^                                       | 191                         | 268                         | 273                         |
| Litigation reserve adjustments                                           | (53

)                | 45                          | —                           |
| Mark\-to\-market adjustments on bankruptcy obligations, net  ^(4)^       | (11

)                | (76

)                | 27                          |
| Severance expenses  ^(5)^                                                | 11                          | 58                          | —                           |
| Intangible asset impairment  ^(6)^                                       | —                           | 26                          | —                           |
| Labor contract expenses                                                  | —                           | 13                          | 46                          |
| Employee 2017 Tax Act bonus expense  ^(7)^                               | —                           | —                           | 123                         |
| Other operating charges, net                                             | 13                          | 31                          | 11                          |
| Mainline operating special items, net                                    | 635                         | 787                         | 712                         |
| Regional operating special items, net                                    | —                           | —                           | 3                           |
| Operating special items, net                                             | 635                         | 787                         | 715                         |
| Debt refinancing and extinguishment charges                              | 16                          | 13                          | 22                          |
| Mark\-to\-market adjustments on equity and other investments, net  ^(8)^ | (5

)                 | 104                         | —                           |
| Other nonoperating income, net                                           | —                           | (4

)                 | —                           |
| Nonoperating special items, net                                          | 11                          | 113                         | 22                          |
| Income tax special items  ^(9)^                                          | —                           | 18                          | —                           |
| Impact of the 2017 Tax Act  ^(10)^                                       | —                           | —                           | 924                         |
| Income tax special items, net                                            | —                           | 18                          | 924                         |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(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)^ | Fleet impairment principally includes a non\-cash write\-down of aircraft related to the planned retirement of American’s Embraer E190 fleet\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(3)^ | Merger integration expenses included costs associated with integration projects, principally American's technical operations, flight attendant, human resources and payroll systems\. |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------- |
| ^(4)^ | Bankruptcy obligations that will be settled in shares of AAG common stock are marked\-to\-market based on AAG’s stock price\. |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------- |
| ^(5)^ | Severance expenses primarily included costs associated with reductions of management and support staff team members\. |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(6)^ | 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\. |

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

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| ^(8)^ | Mark\-to\-market adjustments on equity and other investments, net primarily relates to net unrealized gains and losses associated with American’s equity investment in China Southern Airlines Company Limited (China Southern Airlines)\. |

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

130


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

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

***Plans with Accumulated Benefit Obligations Exceeding Fair Value of Plan Assets***

|                                               |                      |                      |                                                                  |                                                                  |
| --------------------------------------------- | -------------------- | -------------------- | ---------------------------------------------------------------- | ---------------------------------------------------------------- |
|                                               | **Pension Benefits** | **Pension Benefits** | **Retiree Medical and**

**Other Postretirement Benefits** | **Retiree Medical and**

**Other Postretirement Benefits** |
|                                               | **2017**             | **2016**             | **2017**                                                         | **2016**                                                         |
|                                               | **(In millions)**    | **(In millions)**    | **(In millions)**                                                | **(In millions)**                                                |
| Projected benefit obligation                  | $18,144              | $17,119              | $—                                                               | $—                                                               |
| Accumulated benefit obligation (ABO)          | 18,135               | 17,108               | —                                                                | —                                                                |
| Accumulated postretirement benefit obligation | —                    | —                    | 1,010                                                            | 990                                                              |
| Fair value of plan assets                     | 11,307               | 9,936                | 295                                                              | 266                                                              |
| ABO less fair value of plan assets            | 6,828                | 7,172                | —                                                                | —                                                                |

***Net Periodic Benefit Cost (Income)***

|                                    |                      |                      |                      |                                                                    |                                                                    |                                                                    |
| ---------------------------------- | -------------------- | -------------------- | -------------------- | ------------------------------------------------------------------ | ------------------------------------------------------------------ | ------------------------------------------------------------------ |
|                                    | **Pension Benefits** | **Pension Benefits** | **Pension Benefits** | **Retiree Medical and**

 **Other Postretirement Benefits**  | **Retiree Medical and**

 **Other Postretirement Benefits**  | **Retiree Medical and**

 **Other Postretirement Benefits**  |
|                                    | **2017**             | **2016**             | **2015**             | **2017**                                                           | **2016**                                                           | **2015**                                                           |
|                                    | **(In millions)**    | **(In millions)**    | **(In millions)**    | **(In millions)**                                                  | **(In millions)**                                                  | **(In millions)**                                                  |
| Defined benefit plans:             |                      |                      |                      |                                                                    |                                                                    |                                                                    |
| Service cost                       | $2                   | $2                   | $1                   | $4                                                                 | $3                                                                 | $3                                                                 |
| Interest cost                      | 717                  | 746                  | 733                  | 39                                                                 | 47                                                                 | 50                                                                 |
| Expected return on assets          | (786)                | (747)                | (848)                | (21)                                                               | (20)                                                               | (19)                                                               |
| Settlements                        | 1                    | —                    | 1                    | —                                                                  | —                                                                  | —                                                                  |
| Amortization of:                   |                      |                      |                      |                                                                    |                                                                    |                                                                    |
| Prior service cost (benefit)       | 28                   | 28                   | 28                   | (237)                                                              | (240)                                                              | (243)                                                              |
| Unrecognized net loss (gain)       | 144                  | 125                  | 111                  | (23)                                                               | (16)                                                               | (9)                                                                |
| Net periodic benefit cost (income) | 106                  | 154                  | 26                   | (238)                                                              | (226)                                                              | (218)                                                              |
| Defined contribution plan cost     | 844                  | 761                  | 657                  |  N/A                                                               | N/A                                                                | N/A                                                                |
| Total cost (income)                | $950                 | $915                 | $683                 | $(238)                                                             | $(226)                                                             | $(218)                                                             |

The estimated amount of unrecognized actuarial net loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $171 million\.

The estimated amount of unrecognized actuarial net gain and prior service benefit for the retiree medical and other postretirement benefits plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $258 million\.

153


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

DELTA AIR LINES, INC\.

Consolidated Statements of Cash Flows

|                                                                                |                                                                                |                                                                                |                                                                                |
| ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
|                                                                                | **Year Ended December 31,**                                                                                | **Year Ended December 31,**                                                                                | **Year Ended December 31,**                                                                                |
| **(in millions)**                                                                                | **2018**                                                                                | **2017**                                                                                | **2016**                                                                                |
| **Cash Flows From Operating Activities:**                                                                                |                                                                                |                                                                                |                                                                                |
| Net income                                                                                | $3,935                                                                                | $3,205                                                                                | $4,195                                                                                |
| Adjustments to reconcile net income to net cash provided by operating activities:                                                                                |                                                                                |                                                                                |                                                                                |
| Depreciation and amortization                                                                                | 2,329                                                                                | 2,222                                                                                | 1,886                                                                                |
| Deferred income taxes                                                                                | 1,364                                                                                | 2,242                                                                                | 2,118                                                                                |
| Pension, postretirement and postemployment payments greater than expense                                                                                | (790

)                                                                                | (3,302

)                                                                                | (717

)                                                                                |
| Changes in certain assets and liabilities:                                                                                |                                                                                |                                                                                |                                                                                |
| Receivables                                                                                | 108                                                                                | (428

)                                                                                | (134

)                                                                                |
| Fuel inventory                                                                                | 324                                                                                | (397

)                                                                                | (140

)                                                                                |
| Prepaid expenses and other current assets                                                                                | (440

)                                                                                | (57

)                                                                                | (26

)                                                                                |
| Air traffic liability                                                                                | 297                                                                                | 284                                                                                | 157                                                                                |
| Loyalty program deferred revenue                                                                                | 319                                                                                | 399                                                                                | 198                                                                                |
| Profit sharing                                                                                | 233                                                                                | (51

)                                                                                | (383

)                                                                                |
| Accounts payable and accrued liabilities                                                                                | (418

)                                                                                | 955                                                                                | 298                                                                                |
| Other, net                                                                                | (247

)                                                                                | (49

)                                                                                | (237

)                                                                                |
| Net cash provided by operating activities                                                                                | 7,014                                                                                | 5,023                                                                                | 7,215                                                                                |
| **Cash Flows From Investing Activities:**                                                                                |                                                                                |                                                                                |                                                                                |
| Property and equipment additions:                                                                                |                                                                                |                                                                                |                                                                                |
| Flight equipment, including advance payments                                                                                | (3,704

)                                                                                | (2,704

)                                                                                | (2,617

)                                                                                |
| Ground property and equipment, including technology                                                                                | (1,464

)                                                                                | (1,187

)                                                                                | (774

)                                                                                |
| Purchase of equity investments                                                                                | —                                                                                | (1,245

)                                                                                | —                                                                                |
| Purchase of short\-term investments                                                                                | (145

)                                                                                | (925

)                                                                                | (1,707

)                                                                                |
| Redemption of short\-term investments                                                                                | 766                                                                                | 584                                                                                | 2,686                                                                                |
| Other, net                                                                                | 154                                                                                | 211                                                                                | 257                                                                                |
| Net cash used in investing activities                                                                                | (4,393

)                                                                                | (5,266

)                                                                                | (2,155

)                                                                                |
| **Cash Flows From Financing Activities:**                                                                                |                                                                                |                                                                                |                                                                                |
| Payments on long\-term debt and finance lease obligations                                                                                | (3,052

)                                                                                | (1,258

)                                                                                | (1,709

)                                                                                |
| Repurchase of common stock                                                                                | (1,575

)                                                                                | (1,677

)                                                                                | (2,601

)                                                                                |
| Cash dividends                                                                                | (909

)                                                                                | (731

)                                                                                | (509

)                                                                                |
| Fuel card obligation                                                                                | 7                                                                                | 636                                                                                | 211                                                                                |
| Proceeds from long\-term obligations                                                                                | 3,745                                                                                | 2,454                                                                                | 450                                                                                |
| Other, net                                                                                | 58                                                                                | (154

)                                                                                | (102

)                                                                                |
| Net cash used in financing activities                                                                                | (1,726

)                                                                                | (730

)                                                                                | (4,260

)                                                                                |
| **Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash**                                                                                | 895                                                                                | (973

)                                                                                | 800                                                                                |
| Cash, cash equivalents and restricted cash at beginning of period                                                                                | 1,853                                                                                | 2,826                                                                                | 2,026                                                                                |
| Cash, cash equivalents and restricted cash at end of period                                                                                | $2,748                                                                                | $1,853                                                                                | $2,826                                                                                |
| **Supplemental Disclosure of Cash Paid for Interest**                                                                                | $376                                                                                | $390                                                                                | $385                                                                                |
| **Non\-Cash Transactions:**                                                                                |                                                                                |                                                                                |                                                                                |
| Treasury stock contributed to our qualified defined benefit pension plans                                                                                | $—                                                                                | $350                                                                                | $350                                                                                |
| Flight and ground equipment acquired under finance leases                                                                                | $100                                                                                | $261                                                                                | $86                                                                                |
| Flight and ground equipment acquired under operating leases                                                                                | $1,041                                                                                | $—                                                                                | $—                                                                                |
| The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets to the total of the same such amounts shown above: | The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets to the total of the same such amounts shown above: | The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets to the total of the same such amounts shown above: | The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets to the total of the same such amounts shown above: |
|                                                                                | **Year Ended December 31,**                                                                                | **Year Ended December 31,**                                                                                | **Year Ended December 31,**                                                                                |
| **(in millions)**                                                                                | **2018**                                                                                | **2017**                                                                                | **2016**                                                                                |
| **Current assets:**                                                                                |                                                                                |                                                                                |                                                                                |
| Cash and cash equivalents                                                                                | $1,565                                                                                | $1,814                                                                                | $2,762                                                                                |
| Restricted cash included in prepaid expenses and other                                                                                | 47                                                                                | 39                                                                                | 64                                                                                |
| **Noncurrent assets:**                                                                                |                                                                                |                                                                                |                                                                                |
| Cash restricted for airport construction                                                                                | 1,136                                                                                | —                                                                                | —                                                                                |
| Total cash, cash equivalents and restricted cash                                                                                | $2,748                                                                                | $1,853                                                                                | $2,826                                                                                |
| The accompanying notes are an integral part of these Consolidated Financial Statements\.                                                                                | The accompanying notes are an integral part of these Consolidated Financial Statements\.                                                                                | The accompanying notes are an integral part of these Consolidated Financial Statements\.                                                                                | The accompanying notes are an integral part of these Consolidated Financial Statements\.                                                                                |

 56