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

*Mainline Operating Expenses*

|                                    |                                              |                                              |                                              |                                              |
| ---------------------------------- | -------------------------------------------- | -------------------------------------------- | -------------------------------------------- | -------------------------------------------- |
|                                    | **Year Ended December 31,**                  | **Year Ended December 31,**                  | **Increase
(Decrease)**                 | **Percent
Increase
(Decrease)**    |
|                                    | **2017**                                     | **2016**                                     | **Increase
(Decrease)**                 | **Percent
Increase
(Decrease)**    |
|                                    | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** |
| Aircraft fuel and related taxes    | $6,128                                       | $5,071                                       | $1,057                                       | 20\.8                                        |
| Salaries, wages and benefits       | 11,816                                       | 10,890                                       | 926                                          | 8\.5                                         |
| Maintenance, materials and repairs | 1,959                                        | 1,834                                        | 125                                          | 6\.8                                         |
| Other rent and landing fees        | 1,806                                        | 1,772                                        | 34                                           | 1\.9                                         |
| Aircraft rent                      | 1,197                                        | 1,203                                        | (6)                                          | (0\.4)                                       |
| Selling expenses                   | 1,477                                        | 1,323                                        | 154                                          | 11\.6                                        |
| Depreciation and amortization      | 1,702                                        | 1,525                                        | 177                                          | 11\.6                                        |
| Special items, net                 | 712                                          | 709                                          | 3                                            | 0\.5                                         |
| Other                              | 4,806                                        | 4,525                                        | 281                                          | 6\.2                                         |
| Total mainline operating expenses  | $31,603                                      | $28,852                                      | $2,751                                       | 9\.5                                         |

Mainline operating expenses increased $2\.8 billion, or 9\.5%, in 2017 from 2016\. The increase in operating expenses was primarily driven by higher fuel costs and wage rates\. See detailed explanations below relating to changes in mainline CASM\.

*Mainline CASM*

We sometimes use financial measures that are derived from the consolidated financial statements but that are not presented in accordance with GAAP to understand and evaluate our current operating performance to allow for period\-to\-period comparisons\. We believe these non\-GAAP financial measures may also provide useful information to investors and others\. These non\-GAAP measures may not be comparable to similarly titled non\-GAAP measures of other companies, and should be considered in addition to, and not as a substitute for or superior to, any measure of performance, cash flow or liquidity prepared in accordance with GAAP\. We are providing a reconciliation of reported non\-GAAP financial measures to their comparable financial measures on a GAAP basis\.

The table below presents the reconciliation of mainline operating expenses (GAAP measure) to mainline operating costs excluding special items and fuel (non\-GAAP measure)\. Management uses mainline operating costs excluding special items and fuel to evaluate our current operating performance and for period\-to\-period comparisons\. The price of fuel, over which we have no control, impacts the comparability of period\-to\-period financial performance\. The adjustment to exclude aircraft fuel and special items allows management an additional tool to better understand and analyze our non\-fuel costs and core operating performance\.

51


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

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

*Disclosures related to periods prior to adoption of the New Lease Standard*

Operating lease rent expense, excluding landing fees, was approximately $3\.2 billion and $3\.1 billion in 2017 and 2016, respectively, which includes the lease of certain aircraft under capacity purchase agreements\. As of December 31, 2017, future minimum lease payment obligations under noncancellable operating leases, including payments for the lease of certain aircraft under capacity purchase agreements, as well as payments under capital lease obligations were as follows (in millions):

|                              |                       |                       |
| ---------------------------- | --------------------- | --------------------- |
|                              | **December 31, 2017** | **December 31, 2017** |
|                              | **Operating Leases**  | **Capital Leases**    |
| 2018                         | $2,555                | $126                  |
| 2019                         | 2,321                 | 123                   |
| 2020                         | 2,096                 | 120                   |
| 2021                         | 1,613                 | 118                   |
| 2022                         | 1,394                 | 122                   |
| 2023 and thereafter          | 3,952                 | 387                   |
| Total lease payments         | $13,931               | 996                   |
| Less: Imputed interest       |                       | (225)                 |
| Total lease obligations      |                       | 771                   |
| Less: Current obligations    |                       | (78)                  |
| Long\-term lease obligations |                       | $693                  |

**5\. Income Taxes**

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

|                                |                             |                             |                             |
| ------------------------------ | --------------------------- | --------------------------- | --------------------------- |
|                                | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                | **2018**                    | **2017**                    | **2016**                    |
| Current income tax provision:  |                             |                             |                             |
| State and Local                | $3                          | $14                         | $1                          |
| Foreign                        | 28                          | 10                          | 9                           |
| Current income tax provision   | 31                          | 24                          | 10                          |
| Deferred income tax provision: |                             |                             |                             |
| Federal                        | 453                         | 2,176                       | 1,507                       |
| State and Local                | 50                          | 70                          | 90                          |
| Deferred income tax provision  | 503                         | 2,246                       | 1,597                       |
| Total income tax provision     | $534                        | $2,270                      | $1,607                      |

153


Annual Report of Southwest Airlines Co\. for year 2017

**Item 9B\.** ***Other Information***

None\.

114


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

Each slot represents the authorization to land at or take off from the particular airport during a specified time period\. In addition to slot restrictions, operations at LGA and DCA are also limited based on a so\-called “perimeter rule” which generally limits the stage length of the flights that can be operated from those airports to 1,500 and 1,250 miles, respectively\.

Our ability to provide service can also be impaired at airports, such as ORD and LAX where the airport gate and other facilities are currently inadequate to accommodate all of the service that we would like to provide, or airports such as Dallas Love Field Airport where we have no access to gates at all\.

Existing law also permits domestic local airport authorities to implement procedures and impose restrictions designed to abate noise, provided such procedures and restrictions do not unreasonably interfere with interstate or foreign commerce or the national transportation system\. In some instances, these restrictions have caused curtailments in service or increases in operating costs\.

Airline Fares, Taxes and User Fees

Airlines are permitted to establish their own domestic fares without governmental regulation\. The DOT maintains authority over certain international fares, rates and charges, but only applies this authority on a limited basis\. In addition, international fares and rates are sometimes subject to the jurisdiction of the governments of the foreign countries which we serve\.

Airlines are obligated to collect a federal excise tax, commonly referred to as the “ticket tax,” on domestic and international air transportation, and to collect other taxes and charge other fees, such as foreign taxes, security fees and passenger facility charges\. Although these taxes and fees are not our operating expenses, they represent an additional cost to our customers\. These taxes and fees are subject to increase from time to time\.

DOT Passenger Protection Rules

The DOT regulates airline interactions with passengers through the ticketing process, at the airport and on board the aircraft\. Among other things, these regulations govern how our fares are displayed online, required customer disclosures, access by disabled passengers, handling of long onboard flight delays and reporting of mishandled bags\. In 2020, the DOT is expected to implement a number of new regulations that will impact us, including disability rules for accessible lavatories and refunds for checked bag fees in the event of certain delays in delivery\.

International

International air transportation is subject to extensive government regulation, including aviation agreements between the U\.S\. and other countries or governmental authorities, such as the EU\. Moreover, our alliances with international carriers may be subject to the jurisdiction and regulations of various foreign agencies\. The U\.S\. government has negotiated “open skies” agreements with many countries, which allow unrestricted route authority access between the U\.S\. and the foreign markets\. While the U\.S\. has worked to increase the number of countries with which open skies agreements are in effect, a number of markets important to us, including China, do not have open skies agreements\.

In addition, foreign countries impose passenger protection rules, which are analogous to, and often meet or exceed the requirements of, the DOT passenger protection rules discussed above\. In cases where these foreign requirements exceed the DOT rules, we may bear additional burdens and liabilities\. Further, various foreign airport authorities impose noise restrictions at their local airports\.

Security

Since shortly after the events of September 11, 2001, substantially all aspects of civil aviation security in the U\.S\. or affecting U\.S\. carriers have been controlled or regulated by the federal government through the Transportation Security Administration (TSA)\. Requirements include flight deck security; carriage of federal air marshals at no charge; enhanced security screening of passengers, baggage, cargo, mail, employees and vendors; fingerprint\-based background checks of all employees and vendor employees with access to secure areas of airports; and the provision of certain passenger data to the federal government and other international border security authorities, for security and immigration controls\. Funding for the TSA is provided by a combination of air carrier fees, passenger fees and taxpayer funds\. Customs and Border Protection, which, like the TSA, is part of the Department of Homeland Security (DHS), also promulgates requirements, performs services and collects fees that impact our provision of services\. Additionally, we have at times found it necessary or desirable to make significant expenditures to comply with security\-related requirements while seeking to reduce their impact on our customers, such as expenditures for automated security screening lines at airports\. Our international service further requires us to comply with the civil aviation security regimes imposed at the foreign airports we serve\.

12


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

***Regional***

As of December 31, 2018, the fleet of our wholly\-owned and third\-party regional carriers operating as American Eagle consisted of the following aircraft:

|                    |                                         |           |            |                                                                           |           |                                           |                                                                  |
| ------------------ | --------------------------------------- | --------- | ---------- | ------------------------------------------------------------------------- | --------- | ----------------------------------------- | ---------------------------------------------------------------- |
|                    | **Average Seating**

**Capacity** | **Owned** | **Leased** | **Owned or Leased**

**by Third Party**

**Regional Carrier** | **Total** | **Operating Regional**

**Carrier** | **Number of**

**Aircraft**

**Operated**  **^(1)^** |
| Bombardier CRJ 200 | 50                                      | 12        | 23         | —                                                                         | 35        | PSA                                       | 35                                                               |
| Bombardier CRJ 700 | 68                                      | 54        | 7          | 58                                                                        | 119       | SkyWest                                   | 50                                                               |
|                    |                                         |           |            |                                                                           |           | PSA                                       | 46                                                               |
|                    |                                         |           |            |                                                                           |           | Envoy                                     | 15                                                               |
|                    |                                         |           |            |                                                                           |           | ExpressJet  ^(2)^                         | 8                                                                |
|                    |                                         |           |            |                                                                           |           | Total                                     | 119                                                              |
| Bombardier CRJ 900 | 78                                      | 54        | —          | 64                                                                        | 118       | Mesa                                      | 64                                                               |
|                    |                                         |           |            |                                                                           |           | PSA                                       | 54                                                               |
|                    |                                         |           |            |                                                                           |           | Total                                     | 118                                                              |
| Embraer E175       | 76                                      | 69        | —          | 85                                                                        | 154       | Republic                                  | 85                                                               |
|                    |                                         |           |            |                                                                           |           | Envoy                                     | 49                                                               |
|                    |                                         |           |            |                                                                           |           | Compass                                   | 20                                                               |
|                    |                                         |           |            |                                                                           |           | Total                                     | 154                                                              |
| Embraer ERJ 140    | 44                                      | 51        | —          | —                                                                         | 51        | Envoy                                     | 51                                                               |
| Embraer ERJ 145    | 50                                      | 118       | —          | —                                                                         | 118       | Envoy                                     | 62                                                               |
|                    |                                         |           |            |                                                                           |           | Piedmont                                  | 56                                                               |
|                    |                                         |           |            |                                                                           |           | Total                                     | 118                                                              |
| Total              |                                         | 358       | 30         | 207                                                                       | 595       |                                           | 595                                                              |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Excluded from the total operating aircraft count above are  eight  owned Embraer ERJ 140s that are being held in temporary storage\.  |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------ |
| ^(2)^ | ExpressJet operated regional jet aircraft for us in 2018; however, this capacity purchase arrangement ended in January 2019\.  |

See Note 12 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 10 to American’s Consolidated Financial Statements in Part II, Item 8B for additional information on our capacity purchase agreements with third\-party regional carriers\.

37


Annual Report of Southwest Airlines Co\. for year 2017

**Southwest Airlines Co\.**

**Consolidated Statement of Income**

(in millions, except per share amounts)

|                                              |                             |                             |                             |
| -------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                              | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** |
|                                              | **2017**                    | **2016**                    | **2015**                    |
| **OPERATING REVENUES:**                      |                             |                             |                             |
| Passenger                                    | $19,141                     | $18,594                     | $18,299                     |
| Freight                                      | 173                         | 171                         | 179                         |
| Special revenue adjustment                   | —                           | —                           | 172                         |
| Other                                        | 1,857                       | 1,660                       | 1,170                       |
| Total operating revenues                     | 21,171                      | 20,425                      | 19,820                      |
| **OPERATING EXPENSES:**                      |                             |                             |                             |
| Salaries, wages, and benefits                | 7,319                       | 6,798                       | 6,383                       |
| Fuel and oil                                 | 3,940                       | 3,647                       | 3,616                       |
| Maintenance materials and repairs            | 1,001                       | 1,045                       | 1,005                       |
| Aircraft rentals                             | 198                         | 229                         | 238                         |
| Landing fees and other rentals               | 1,292                       | 1,211                       | 1,166                       |
| Depreciation and amortization                | 1,218                       | 1,221                       | 1,015                       |
| Acquisition and integration                  | —                           | —                           | 39                          |
| Other operating expenses                     | 2,688                       | 2,514                       | 2,242                       |
| Total operating expenses                     | 17,656                      | 16,665                      | 15,704                      |
| **OPERATING INCOME**                         | 3,515                       | 3,760                       | 4,116                       |
| **OTHER EXPENSES (INCOME):**                 |                             |                             |                             |
| Interest expense                             | 114                         | 122                         | 121                         |
| Capitalized interest                         | (49)                        | (47)                        | (31)                        |
| Interest income                              | (35)                        | (24)                        | (9)                         |
| Other (gains) losses, net                    | 234                         | 162                         | 556                         |
| Total other expenses (income)                | 264                         | 213                         | 637                         |
| **INCOME BEFORE INCOME TAXES**               | 3,251                       | 3,547                       | 3,479                       |
| **PROVISION FOR INCOME TAXES**               | (237)                       | 1,303                       | 1,298                       |
| **NET INCOME**                               | $3,488                      | $2,244                      | $2,181                      |
| **NET INCOME PER SHARE, BASIC**              | $5\.80                      | $3\.58                      | $3\.30                      |
| **NET INCOME PER SHARE, DILUTED**            | $5\.79                      | $3\.55                      | $3\.27                      |
| **Cash dividends declared per common share** | $\.4750                     | $\.3750                     | $\.2850                     |

See accompanying notes\.

72


Annual Report of Southwest Airlines Co\. for year 2018

revenue flights and qualifying purchases with Rapid Rewards Partners, Members also have the ability to purchase, gift, and transfer points, as well as the ability to donate points to selected charities\.

Southwest's Rapid Rewards loyalty program features tier and Companion Pass programs for the most active Members, including "A\-List" and "A\-List Preferred" status\. Both A\-List and A\-List Preferred Members enjoy benefits such as "Fly By^®^" priority check\-in and security lane access, where available, as well as dedicated phone lines, standby priority, and an earnings bonus on eligible revenue flights (25 percent for A\-List and 100 percent for A\-List Preferred)\.In addition, A\-List Preferred Members enjoy free inflight WiFi on equipped flights\. Members who attain A\-List or A\-List Preferred status receive priority boarding privileges for an entire year\. When these Customers purchase travel at least 36 hours prior to flight time, they receive the best boarding pass number available (generally, an "A" boarding pass)\. During the day of travel, if an A\-List or A\-List Preferred Member's plans change, they have free same\-day standby privileges, which allow them to fly on earlier flights between the same city pairs if space is available\. Members who fly 100 qualifying one\-way flights or earn 110,000 qualifying points in a calendar year automatically receive a Companion Pass, which provides for unlimited travel for the designated companion free of airline charges (does not include taxes and fees from $5\.60 one\-way)\. The Companion Pass is valid for the remainder of the calendar year in which status was earned and for the following full calendar year to any destination available on Southwest for a designated companion of the qualifying Member\. The Member and designated companion must travel together on the same flight\.

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

For the Company's 2018 consolidated results, Customers of Southwest redeemed approximately 10\.4 million flight awards, accounting for approximately 13\.8 percent of revenue passenger miles flown\. For the Company's 2017 consolidated results, Customers of Southwest redeemed approximately 9\.6 million flight awards, accounting for approximately 13\.8 percent of revenue passenger miles flown\. For the Company's 2016 consolidated results, Customers of Southwest redeemed approximately 8\.3 million flight awards, accounting for approximately 12\.7 percent of revenue passenger miles flown\. The Company's accounting policies with respect to its loyalty programs are discussed in more detail in Note 1 to the Consolidated Financial Statements\.

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

The Company offers a broad suite of digital platforms to support Customers' needs across their travel journey including Southwest\.com^®^, mobile\.southwest\.com, an iOS app, and an Android app\. The digital platforms comprise the primary storefront for the Company and are designed to allow Customers to quickly learn, shop, book, and manage their Southwest air travel\. The platforms also showcase and support booking for the Company’s ancillary products including EarlyBird, Business Select upgrades, vacation packages, rental car reservations, hotel reservations, ridesharing, and travel activities, as well as provide self\-service tools for frequently asked questions and contacting Southwest for support\. The Company also offers Swabiz\.com, a website tailored for business Customers, which offers businesses shared company credit cards, company activity reporting, and centralized traveler management\. These digital tools are designed to help make the Customer's experience personal, intuitive, and efficient while supporting the Company's unique and low\-cost focused distribution strategy\.

The platforms are powered by advanced marketing tools with algorithmic learning features for detailed insight generation, testing, monitoring, and targeting capabilities\. In addition, Southwest\.com and Swabiz\.com are available in a translated Spanish version, which provides Customers who prefer to transact in Spanish the same level of Customer Service provided by the English versions of the websites\. Both websites meet Web Content Accessibility Guidelines in order to provide an optimal experience for Customers with accessibility needs\.

The Company continues to invest in and improve these digital assets, with sustained investment in 2018\. Southwest\.com’s Air Booking, Air Manage, Low Fare Calendar, and Early Bird Booking experiences were updated with a modern and tablet\-friendly experience along with a brand new architecture to increase speed to market and shopping workflow effectiveness\. A new site search tool was added to help Customers find the right content, as well as better highlight Customer\-generated content from the Southwest Community and social media\. Rapid Rewards Enrollment forms were updated with a modern look and feel to ease the enrollment process\. Swabiz\.com received

8


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

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

|                                                                                |                                                                                |
| ------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| **Description**                                                                      | **Fair Value Methodology**                                                                                |
| Cash and cash equivalents                                                            | The carrying amounts approximate fair value because of the short\-term maturity of these assets\.                                                                                |
| Short\-term investments,

Equity securities, EETC and

Restricted cash | Fair value is based on (a) the trading prices of the investment or similar instruments, (b) an income approach, which uses valuation techniques to convert future amounts into a single present amount based on current market expectations about those future amounts when observable trading prices are not available, or (c) broker quotes obtained by third\-party valuation services\.                                                                                |
| Other investments measured at NAV                                                    | In accordance with the relevant accounting standards, certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy\. The fair value amounts presented in the table above are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position\. The investments measured using NAV are shares of mutual funds that invest in fixed\-income instruments including bonds, debt securities, and other similar instruments issued by various U\.S\. and non\-U\.S\. public\- or private\-sector entities\. The Company can redeem its shares at any time at NAV subject to a three\-day settlement period\.  |
| Long\-term debt                                                                      | Fair values were based on either market prices or the discounted amount of future cash flows using our current incremental rate of borrowing for similar liabilities or assets\.                                                                                |
| Synergy Term Loan and AVH Derivative Assets                                          | Fair values are calculated using a Monte Carlo simulation approach\. Unobservable inputs include expected volatility, expected dividend yield and control and acquisition premiums\.                                                                                |

**Investments in Regional Carriers**\. United holds investments in several regional carriers that fly for the Company as United Express under CPAs\. The combined carrying value of the investments was approximately $144 million as of the date of this report\. United accounts for each investment using the equity method\. Each investment and United's ownership stake is listed below\.

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Republic Airways Holdings Inc\. ("Republic")\. United holds a  19%  minority interest in Republic which the Company received in 2017 in consideration for its unsecured claim in Republic's bankruptcy case\. Republic does business as Republic Airways\.  |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| • | ManaAir, LLC ("ManaAir")\. In a series of transactions completed in January 2019, United obtained a  49\.9%  minority ownership stake in ManaAir, LLC ("ManaAir") and ManaAir purchased  100%  of the equity of ExpressJet Airlines, Inc\. |

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Champlain Enterprises LLC ("Champlain")\. United owns a  40%  minority ownership stake in Champlain\. Champlain does business as CommutAir\.  |

**Other Investments\.** United owns approximately 9% of the preferred shares of Fulcrum BioEnergy, Inc\. ("Fulcrum"), a company that is developing a process for transforming municipal solid waste into transportation fuels, including jet fuel and diesel\. United records its investment in Fulcrum at cost less impairment, adjusted for observable price changes in orderly transactions for an identical or similar investment of the same issuer\. As of December 31, 2018, the carrying value of United's investment was $48 million\.

77


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

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

NOTE 2 \- COMMON STOCKHOLDERS' EQUITY AND PREFERRED SECURITIES

In  2019 , UAL repurchased approximately   19\.2 million  shares of UAL common stock for   $1\.6 billion \. In December 2017, UAL's Board of Directors authorized a   $3\.0 billion  share repurchase program to acquire UAL's common stock\. In July 2019, UAL's Board of Directors authorized a new   $3\.0 billion  share repurchase program to acquire UAL's common stock\. As of  December 31, 2019 , the Company had approximately   $3\.1 billion  remaining to purchase shares under its share repurchase programs\. UAL may repurchase shares through the open market, privately negotiated transactions, block trades or accelerated share repurchase transactions from time to time in accordance with applicable securities laws\. UAL may repurchase shares of UAL common stock subject to prevailing market conditions, and may discontinue such repurchases at any time\. See Part II, Item 5\. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities, of this report for additional information\.

At  December 31, 2019 , approximately   8 million  shares of UAL's common stock were reserved for future issuance related to the issuance of equity\-based awards under the Company's incentive compensation plans\.

As of  December 31, 2019 , UAL had   two  shares of junior preferred stock (par value   $0\.01  per share) outstanding\. In addition, UAL is authorized to issue   250 million  shares of preferred stock (without par value) under UAL's amended and restated certificate of incorporation\.

NOTE 3 \- EARNINGS PER SHARE

The computations of UAL's basic and diluted earnings per share are set forth below for the years ended December 31 (in millions, except per share amounts):

|                                              |          |              |              |
| -------------------------------------------- | -------- | ------------ | ------------ |
|                                              | **2019** | **2018 (a)** | **2017 (a)** |
| Earnings available to common stockholders    | $3,009   | $2,122       | $2,143       |
| Basic weighted\-average shares outstanding   | 258\.8   | 275\.5       | 302\.7       |
| Effect of employee stock awards              | 1\.1     | 1\.2         | 0\.9         |
| Diluted weighted\-average shares outstanding | 259\.9   | 276\.7       | 303\.6       |
| Earnings per share, basic                    | $11\.63  | $7\.70       | $7\.08       |
| Earnings per share, diluted                  | $11\.58  | $7\.67       | $7\.06       |

(a) Amounts adjusted due to the adoption of Accounting Standards Update No\. 2016\-02,  Leases (Topic 842) \. See Note 1 of this report for additional information on the adjustments\.

The number of antidilutive securities excluded from the computation of diluted earnings per share amounts was not material\.

NOTE 4 \- SHARE\-BASED COMPENSATION PLANS

UAL maintains share\-based compensation plans for our management employees and our non\-employee directors\. These plans provide for grants of non\-qualified stock options, incentive stock options (within the meaning of Section 422 of the Internal Revenue Code of 1986), stock appreciation rights, restricted shares, RSUs, performance compensation awards, performance units, cash incentive awards, other equity\-based and equity\-related awards, and dividends and dividend equivalents\.

All awards are recorded as either equity or a liability in the Company's consolidated balance sheets\. The share\-based compensation expense is recorded in salaries and related costs\.

During  2019 , UAL granted share\-based compensation awards pursuant to the United Continental Holdings, Inc\. 2017 Incentive Compensation Plan\. These share\-based compensation awards included approximately   1\.2 million  RSUs consisting of   0\.9 million  time\-vested RSUs and   0\.3 million  performance\-based RSUs and approximately   307,000  stock options\. The time\-vested RSUs vest pro\-rata, a majority of which vest on February 28th of each year, over a  three \-year period from the date of grant\. The amount of performance\-based RSUs that vest will be based on the Company's relative improvement in pre\-tax margin compared to a group of airline industry peers for the   three years  ending December 31,  2021 \. The RSUs are generally equity awards settled in stock for domestic employees and liability awards settled in cash for international employees\. The cash payments are based on the  20 \-day average closing price of UAL common stock immediately prior to the vesting date\. The stock options have a  ten \-year term and vest annually over   six years , at variable rates, beginning on the third anniversary of UAL's 2020 Annual Meeting of Stockholders\.

63


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

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

***Impacts to*** ***2017*** ***Results***

The effects of the adoption of the New Revenue Standard and New Retirement Standard to American’s consolidated statement of operations for the twelve months ended December 31, 2017 were as follows (in millions):

|                                       |                 |                             |                                         |                                   |                             |               |
| ------------------------------------- | --------------- | --------------------------- | --------------------------------------- | --------------------------------- | --------------------------- | ------------- |
|                                       |                 | **New Revenue Standard**    | **New Revenue Standard**                | **New Revenue Standard**          | **New Retirement Standard** |               |
| **Year Ended  <br>December 31, 2017** | **As Reported** | **Deferred Revenue Method** | **Ancillary Revenue Reclassifications** | **Gross Versus Net Presentation** | **Reclassifications**       | **As Recast** |
| Operating revenues:                   |                 |                             |                                         |                                   |                             |               |
|  Passenger                            | $36,133         | $311                        | $2,648                                  | $39                               | $—                          | $39,131       |
|  Cargo                                | 800             | —                           | 42                                      | 48                                | —                           | 890           |
|  Other                                | 5,262           | —                           | (2,690)                                 | 17                                | —                           | 2,589         |
|  Total operating revenues             | 42,195          | 311                         | —                                       | 104                               | —                           | 42,610        |
|  Total operating expenses             | 38,163          | —                           | —                                       | 104                               | 138                         | 38,405        |
| Operating income                      | 4,032           | 311                         | —                                       | —                                 | (138)                       | 4,205         |
| Total nonoperating expense, net       | (788)           | —                           | —                                       | —                                 | 138                         | (650)         |
| Income before income taxes            | 3,244           | 311                         | —                                       | —                                 | —                           | 3,555         |
| Income tax provision  ^(1)^           | 1,322           | 948                         | —                                       | —                                 | —                           | 2,270         |
| Net income                            | $1,922          | $(637)                      | $—                                      | $—                                | $—                          | $1,285        |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | The adjustment to the  2017  income tax provision includes a  $924 million  special charge to reduce American’s deferred tax asset associated with loyalty program liabilities as a result of H\.R\. 1, the 2017 Tax Cuts and Jobs Act (the 2017 Tax Act), enacted in December 2017 that reduced the federal corporate income tax rate from 35% to 21%\. |

The effects of the adoption of the New Revenue Standard to American’s December 31, 2017 consolidated balance sheet were as follows (in millions):

|                                      |                 |                          |               |
| ------------------------------------ | --------------- | ------------------------ | ------------- |
|                                      | **As Reported** | **New Revenue Standard** | **As Recast** |
| Deferred tax asset                   | $682            | $1,389                   | $2,071        |
| Air traffic liability                | 3,978           | 64                       | 4,042         |
| Current loyalty program liability    | 2,791           | 330                      | 3,121         |
| Noncurrent loyalty program liability | —               | 5,701                    | 5,701         |
| Total stockholders’ equity (deficit) | 14,594          | (4,706)                  | 9,888         |

137


Annual Report of Southwest Airlines Co\. for year 2017

|                                                |                                            |                       |                       |                           |                           |
| ---------------------------------------------- | ------------------------------------------ | --------------------- | --------------------- | ------------------------- | ------------------------- |
|                                                |                                            | **Asset derivatives** | **Asset derivatives** | **Liability derivatives** | **Liability derivatives** |
|                                                | **Balance Sheet**                          | **Fair value at**     | **Fair value at**     | **Fair value at**         | **Fair value at**         |
| **(in millions)**                              | **location**                               | **12/31/2017**        | **12/31/2016**        | **12/31/2017**            | **12/31/2016**            |
| **Derivatives designated as hedges\***         |                                            |                       |                       |                           |                           |
| Fuel derivative contracts (gross)              | Prepaid expenses and other current assets  | $112                  | $7                    | $—                        | $44                       |
| Fuel derivative contracts (gross)              | Other assets                               | 136                   | 126                   | —                         | —                         |
| Fuel derivative contracts (gross)              | Accrued liabilities                        | —                     | 4                     | —                         | 412                       |
| Interest rate derivative contracts             | Other noncurrent liabilities               | —                     | —                     | 20                        | 35                        |
| **Total derivatives designated as hedges**     | **Total derivatives designated as hedges** | $248                  | $137                  | $20                       | $491                      |
| **Derivatives not designated as hedges\***     |                                            |                       |                       |                           |                           |
| Fuel derivative contracts (gross)              | Prepaid expenses and other current assets  | $35                   | $54                   | $35                       | $—                        |
| Fuel derivative contracts (gross)              | Other assets                               | —                     | 52                    | —                         | 52                        |
| Fuel derivative contracts (gross)              | Accrued liabilities                        | —                     | 201                   | —                         | 262                       |
| Interest rate derivative contracts             | Accrued liabilities                        | —                     | —                     | 1                         | —                         |
| Interest rate derivative contracts             | Other noncurrent liabilities

 | —                     | —                     | 1                         | —                         |
| **Total derivatives not designated as hedges** |                                            | $35                   | $307                  | $37                       | $314                      |
| **Total derivatives**                          |                                            | $283                  | $444                  | $57                       | $805                      |

\* Represents the position of each trade before consideration of offsetting positions with each counterparty and does not include the impact of cash collateral deposits provided to or received from counterparties\. See discussion of credit risk and collateral following in this Note\.

In addition, the Company also had the following amounts associated with fuel derivative instruments and hedging activities in its Consolidated Balance Sheet:

|                                                                                |                                                          |                  |                  |
| ------------------------------------------------------------------------------------------------ | -------------------------------------------------------- | ---------------- | ---------------- |
|                                                                                | **Balance Sheet**                                        | **December 31,** | **December 31,** |
| **(in millions)**                                                                                | **location**                                             | **2017**         | **2016**         |
| Cash collateral deposits held from counterparties for fuel contracts \- current

    | Offset against Prepaid expenses and other current assets | $15              | $4               |
| Cash collateral deposits held from counterparties for fuel contracts \- noncurrent

 | Offset against Other assets                              | —                | 6                |
| Cash collateral deposits provided to counterparties for fuel

 contracts \- current       | Offset against Accrued liabilities                       | —                | 311              |
| Due to third parties for fuel contracts                                                          | Accounts payable                                         | 29               | 75               |

All of the Company's fuel derivative instruments and interest rate swaps are subject to agreements that follow the netting guidance in the applicable accounting standards for derivatives and hedging\. The types of derivative instruments the Company has determined are subject to netting requirements in the accompanying Consolidated Balance Sheet are those in which the Company pays or receives cash for transactions with the same counterparty and in the same currency via one net payment or receipt\. For cash collateral held by the Company or provided to counterparties, the Company nets such amounts against the fair value of the Company's derivative portfolio by each counterparty\. The Company has elected to utilize netting for both its fuel derivative instruments and interest rate swap agreements and also classifies such amounts as either current or noncurrent, based on the net fair value position with each of the Company's counterparties in the Consolidated Balance Sheet\.

95


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

DELTA AIR LINES, INC\.

Consolidated Statements of Comprehensive Income

|                                              |                             |                             |                             |
| -------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                              | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
| **(in millions)**                            | **2018**                    | **2017**                    | **2016**                    |
| **Net Income**                               | $3,935                      | $3,205                      | $4,195                      |
|  Other comprehensive (loss) income:          |                             |                             |                             |
| Net change in derivative contracts           | 15                          | (29

)                | (37

)                |
| Net change in pension and other benefits     | (113

)               | (98

)                | (360

)               |
| Net change in investments                    | —                           | 142                         | 36                          |
|  **Total Other Comprehensive (Loss) Income** | (98

)                | 15                          | (361

)               |
| **Comprehensive Income**                     | $3,837                      | $3,220                      | $3,834                      |

The accompanying notes are an integral part of these Consolidated Financial Statements\.

 55


Annual Report of Southwest Airlines Co\. for year 2019

DISCLOSURE REGARDING FORWARD\-LOOKING INFORMATION

This Form 10\-K contains "forward\-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934\. Forward\-looking statements are based on, and include statements about, the Company’s estimates, expectations, beliefs, intentions, and strategies for the future, and the assumptions underlying these forward\-looking statements\. Specific forward\-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and include, without limitation, words such as "anticipates," "believes," "estimates," "expects," "intends," "may," "will," "would," "could," "plans," "goal," and similar expressions\. Although management believes these forward\-looking statements are reasonable as and when made, forward\-looking statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict\. Therefore, actual results may differ materially from what is expressed in or indicated by the Company's forward\-looking statements or from historical experience or the Company's present expectations\. Known material risk factors that could cause these differences are set forth below under "Risk Factors\." Additional risks or uncertainties (i) that are not currently known to the Company, (ii) that the Company currently deems to be immaterial, or (iii) that could apply to any company, could also materially adversely affect the Company's business, financial condition, or future results\.

Caution should be taken not to place undue reliance on the Company's forward\-looking statements, which represent the Company's views only as of the date this Form 10\-K is filed\. The Company undertakes no obligation to update publicly or revise any forward\-looking statement, whether as a result of new information, future events, or otherwise\.

Item 1A\.   Risk Factors

The Company is currently dependent on Boeing as the sole manufacturer of the Company's aircraft\. Further prolonged grounding by the FAA of the Boeing 737 MAX aircraft could materially and adversely affect the Company’s business plans, strategies, and results of  operations\.

The Boeing 737 MAX aircraft are crucial to the Company’s growth plans and fleet modernization initiatives\. On March 13, 2019, the FAA issued an emergency order for all U\.S\. airlines to ground the MAX aircraft, including the 34 MAX aircraft in the Company’s fleet\. The MAX aircraft remains grounded and, based on continued uncertainty around the timing of the MAX return to service, the Company has removed the MAX from its flight schedule through June 6, 2020, and will likely further extend MAX\-related flight schedule adjustments\. Further, MAX deliveries have remained suspended following the MAX groundings, and Boeing is not currently manufacturing new MAX aircraft\. The Company does not know whether, on what conditions, or when the MAX groundings will end\. Regulatory approval of MAX return to service is subject to Boeing's ongoing work with the FAA, who will determine the timing of MAX return to service\.

The MAX groundings adversely affected operating results for the year ended December 31, 2019, and could have a material, adverse effect on the Company's operating results in future periods\. A continued prolonged extension or permanent grounding of the MAX aircraft would require additional flight schedule adjustments and result in further delays in aircraft deliveries, as well as lower operating revenues, operating income, and net income due to a variety of factors, including, among others, (i) lost revenue due to flight cancellations and disruptions as a result of a smaller operating aircraft fleet, (ii) the lack of ability to make corresponding reductions in expenses because of the fixed nature of many expenses, and (iii) possible negative effects on Customer confidence and airline choice\.

Boeing no longer manufactures versions of the 737 other than the 737 MAX family of aircraft\. If the 737 MAX aircraft were to remain unavailable for the Company’s flight operations, the Company’s growth would be restricted unless and until it could procure and operate other types of aircraft from Boeing or another manufacturer, seller, or lessor, and the Company’s operations would be materially adversely affected\. In particular, if the Company’s growth were to be dependent upon the introduction of a new aircraft make and model to the Company’s fleet, the Company would need to, among other things, (i) develop and implement new maintenance, operating, and training programs, (ii) secure extensive regulatory approvals, and (iii) implement new technologies\. The requirements associated with operating a new aircraft make and model could take an extended period of time to fulfill and would likely impose substantial costs on the Company\. A shift away from a single fleet type could also add complexity to the Company’s operations, present operational and compliance risks, and materially increase the Company's costs\. Any of these events would have a

20


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

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

**UNITED CONTINENTAL HOLDINGS, INC\.**

**STATEMENTS OF CONSOLIDATED CASH FLOWS**

**(In millions)**

|                                                                                |                             |                             |                             |
|:-------------------------------------------------------------------------------------------------------- | ---------------------------:| ---------------------------:| ---------------------------:|
|                                                                                | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                                                |                   **2017**  |                   **2016**  |                   **2015**  |
|  Operating Activities:                                                                                |                             |                             |                             |
| Net income                                                                                |                     $2,131  |                     $2,263  |                     $7,340  |
| Adjustments to reconcile net income to net cash provided by operating activities \-                      |                             |                             |                             |
| Deferred income taxes                                                                                |                        945  |                      1,648  |                     (3,177) |
| Depreciation and amortization                                                                            |                      2,149  |                      1,977  |                      1,819  |
| Special charges,  non\-cash portion                                                                      |                         35  |                        391  |                        247  |
| Other operating activities                                                                               |                        142  |                        109  |                        115  |
| Changes in operating assets and liabilities \-                                                           |                             |                             |                             |
| Decrease in fuel hedge collateral                                                                        |                          —  |                         26  |                        551  |
| Decrease in fuel derivatives                                                                             |                          —  |                        (20) |                       (305) |
| Decrease in other liabilities                                                                            |                       (478) |                       (446) |                       (180) |
| Decrease in advanced purchase of miles                                                                   |                       (865) |                       (249) |                       (224) |
| Increase (decrease) in frequent flyer deferred revenue                                                   |                       (142) |                        (60) |                          6  |
| Increase in other assets                                                                                |                       (533) |                       (298) |                       (160) |
| Increase (decrease) in accounts payable                                                                  |                         66  |                        239  |                        (77) |
| Increase (decrease) in advance ticket sales                                                              |                        146  |                        (22) |                         52  |
| Increase in receivables                                                                                |                       (183) |                        (16) |                        (15) |
|  Net cash provided by operating activities                                                               |                      3,413  |                      5,542  |                      5,992  |
|  Investing Activities:                                                                                |                             |                             |                             |
| Capital expenditures                                                                                |                     (3,998) |                     (3,223) |                     (2,747) |
| Purchases of short\-term and other investments                                                           |                     (3,241) |                     (2,768) |                     (2,517) |
| Proceeds from sale of short\-term and other investments                                                  |                      3,177  |                      2,712  |                      2,707  |
| Proceeds from sale of property and equipment                                                             |                         12  |                         28  |                         86  |
| Other, net                                                                                |                        120  |                         13  |                       (136) |
|  Net cash used in investing activities                                                                   |                     (3,930) |                     (3,238) |                     (2,607) |
|  Financing Activities:                                                                                |                             |                             |                             |
| Proceeds from issuance of long\-term debt and airport construction financing                             |                      2,765  |                        808  |                      1,073  |
| Repurchases of common stock                                                                              |                     (1,844) |                     (2,614) |                     (1,233) |
| Payments of long\-term debt                                                                              |                       (901) |                     (1,215) |                     (2,178) |
| Principal payments under capital leases                                                                  |                       (124) |                       (136) |                       (123) |
| Capitalized financing costs                                                                              |                        (80) |                        (64) |                        (37) |
| Proceeds from the exercise of stock options                                                              |                          2  |                          6  |                         16  |
| Other, net                                                                                |                        (13) |                          2  |                        (13) |
|  Net cash used in financing activities                                                                   |                       (195) |                     (3,213) |                     (2,495) |
|  Net increase (decrease) in cash, cash equivalents and restricted cash                                   |                       (712) |                       (909) |                        890  |
|  Cash, cash equivalents and restricted cash at beginning of year                                         |                      2,303  |                      3,212  |                      2,322  |
|  Cash, cash equivalents and restricted cash at end of year                                               |                     $1,591  |                     $2,303  |                     $3,212  |
| Investing and Financing Activities Not Affecting Cash:                                                   |                             |                             |                             |
| Property and equipment acquired through the issuance of debt and capital leases                          |                       $935  |                       $386  |                       $866  |
| Equity interest in Republic Airways Holdings, Inc\. received in consideration for  <br>bankruptcy claims |                         92  |                          —  |                          —  |
| Airport construction financing                                                                           |                         42  |                         91  |                         17  |
| Operating lease conversions to capital lease                                                             |                          —  |                         12  |                        285  |
| Exchange of convertible notes for common stock                                                           |                          —  |                          —  |                        202  |
| Cash Paid During the Period for:                                                                         |                             |                             |                             |
| Interest                                                                                |                       $571  |                       $584  |                       $660  |
| Income taxes                                                                                |                         20  |                         14  |                         15  |

The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements\.

53


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

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

information is not available as Form 5500 is not final for the plan year\.

|                                                    |                                                                                |
| -------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- |
| Pension Fund                                       | IAM National Pension Fund                                                                                |
| EIN/ Pension Plan Number                           | 51\-6031295 \- 002                                                                                |
| Pension Protection Act Zone Status (2018 and 2017) | Green Zone\. Plans in the green zone are at least 80 percent funded\.                                      |
| FIP/RP Status Pending/Implemented                  | No                                                                                |
| United's Contributions                             | $52 million, $50 million and $41 million in the years ended December 31, 2018, 2017 and 2016, respectively |
| Surcharge Imposed                                  | No                                                                                |
| Expiration Date of Collective Bargaining Agreement | N/A                                                                                |

**Profit Sharing**

Substantially all employees participate in profit sharing based on a percentage of pre\-tax earnings, excluding special charges, profit sharing expense and share\-based compensation\. Profit sharing percentages range from 5% to 20% depending on the work group, and in some cases profit sharing percentages vary above and below certain pre\-tax margin thresholds\. Eligible U\.S\. co\-workers in each participating work group receive a profit sharing payout using a formula based on the ratio of each qualified co\-worker's annual eligible earnings to the eligible earnings of all qualified co\-workers in all domestic work groups\. Eligible non\-U\.S\. co\-workers receive profit sharing based on the calculation under the U\.S\. profit sharing plan for management and administrative employees\. The Company recorded profit sharing and related payroll tax expense of $334 million, $349 million and $628 million in 2018, 2017 and 2016, respectively\. Profit sharing expense is recorded as a component of Salaries and related costs in the Company's statements of consolidated operations\.

**NOTE 9 \- INVESTMENTS AND FAIR VALUE MEASUREMENTS**

***Fair Value Information\.*** Accounting standards require us to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs\. These inputs are described in Note 8 of this report\. The table below presents disclosures about the fair value of financial assets and liabilities measured at fair value on a recurring basis in the Company's financial statements as of December 31 (in millions):

|                                                                              |           |             |             |             |           |             |             |             |
| ---------------------------------------------------------------------------- | --------- | ----------- | ----------- | ----------- | --------- | ----------- | ----------- | ----------- |
|                                                                              | **2018**  | **2018**    | **2018**    | **2018**    | **2017**  | **2017**    | **2017**    | **2017**    |
|                                                                              | **Total** | **Level 1** | **Level 2** | **Level 3** | **Total** | **Level 1** | **Level 2** | **Level 3** |
| Cash and cash equivalents                                                    | $1,694    | $1,694      | $—          | $—          | $1,482    | $1,482      | $—          | $—          |
| Short\-term investments:                                                     |           |             |             |             |           |             |             |             |
| Corporate debt                                                               | 1,023     | —           | 1,023       | —           | 958       | —           | 958         | —           |
| Asset\-backed securities                                                     | 746       | —           | 746         | —           | 753       | —           | 753         | **—**       |
| U\.S\. government and agency notes                                           | 108       | —           | 108         | —           | 113       | —           | 113         | —           |
| Certificates of deposit placed through an account registry service ("CDARS") | 75        | —           | 75          | —           | 120       | —           | 120         | —           |
| Other fixed\-income securities                                               | 116       | —           | 116         | —           | 188       | —           | 188         | —           |
| Other investments measured at NAV                                            | 188       | —           | —           | —           | 184       | —           | —           | —           |
| Restricted cash                                                              | 105       | 105         | —           | —           | 109       | 109         | —           | —           |
| Long\-term investments:                                                      |   <br>    |             |             |             |           |             |             |             |
| Equity securities                                                            | 249       | 249         | —           | —           | 99        | 99          | —           | —           |
| Enhanced equipment trust certificates ("EETC")                               | 18        | —           | —           | 18          | 22        | —           | —           | 22          |
| Avianca Holdings S\.A\. ("AVH") Derivative Assets                            | 11        | —           | —           | 11          | —         | —           | —           | —           |

**Available\-for\-sale investment maturities** \- The short\-term investments shown in the table above are classified as available\-for\-sale, with the exception of investments measured at NAV\. As of December 31, 2018, asset\-backed securities have remaining maturities of less than one year to approximately 16 years, corporate debt securities have remaining maturities of less than one year to approximately three years and CDARS have maturities of less than one year\. U\.S\. government and other securities have maturities of less than one year to approximately two years\. The EETC securities mature in 2019\.

**Restricted cash** \- Restricted cash primarily includes cash collateral for letters of credit and collateral associated with obligations for facility leases and other insurance\-related obligations\.

**Equity securities** \- Equity securities represent United's investment in Azul\. In 2018, the Company invested $138 million in Azul thus increasing its preferred equity stake in Azul to approximately 8% (representing approximately 2% of the total capital

75


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

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

NOTE 16 \- SUBSEQUENT EVENTS

In  December 2019 , a novel strain of coronavirus ("COVID\-19") was reported in Wuhan, China\. The World Health Organization has declared COVID\-19 to constitute a "Public Health Emergency of International Concern\." On  January 30, 2020 , the U\.S\. Department of State issued a Level 4 "do not travel" advisory for China\. The U\.S\. government has also implemented enhanced screenings, quarantine requirements and travel restrictions in connection with the COVID\-19 outbreak\. The Company has suspended its flights between the United States and each of Beijing, Chengdu, Shanghai and Hong Kong through  April 24, 2020 \. These routes represented approximately   5%  of the Company's 2020 planned capacity and the Company's other trans\-Pacific routes represented an additional   10%  of the Company's 2020 planned capacity\. As of the date of this report, the Company is experiencing an approximately   100%  decline in near\-term demand to China and an approximately   75%  decline in near\-term demand on the rest of the Company's trans\-Pacific routes\. The extent of the impact of the COVID\-19 on the Company's operational and financial performance will depend on future developments, including the duration and spread of the outbreak and related travel advisories and restrictions and the impact of the COVID\-19 on overall demand for air travel, all of which are highly uncertain and cannot be predicted\. If traffic on the Company's trans\-Pacific routes were to remain at these levels for an extended period, and/or routes in other parts of the Company's network begin to see significant declines in demand, our results of operations for full year 2020 may be materially adversely affected\.

In  February 2020 , the Company announced that they had entered into a Third Amended and Restated Co\-Branded Card Marketing Services Agreement (as amended from time to time, the "Agreement") with Chase\. The Agreement, which replaces the Co\-Brand Agreement, also extends the term into  2029  and modifies certain other terms\. We will continue to account for the considerations received under the Agreement to the separately identifiable performance obligations using the estimated selling price allocation methodology explained in Note 1(d)\. In connection with the Agreement the Company, entered into an Amended and Restated Co\-Branded Card Strategic Alliance Agreement with Visa U\.S\.A\. Inc\.

89


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

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

The primary risk of the pass\-through trusts is credit risk (i\.e\. the risk that United, the issuer of the equipment notes, may be unable to make its principal and interest payments)\. The primary purpose of the pass\-through trust structure is to enhance the credit worthiness of United’s debt obligation through certain bankruptcy protection provisions, a liquidity facility (in certain of the EETC structures) and improved loan\-to\-value ratios for more senior debt classes\. These credit enhancements lower United’s total borrowing cost\. Pass\-through trusts are established to receive principal and interest payments on the equipment notes purchased by the pass\-through trusts from United and remit these proceeds to the pass\-through trusts’ certificate holders\.

United does not invest in or obtain a financial interest in the pass\-through trusts\. Rather, United has an obligation to make interest and principal payments on its equipment notes held by the pass\-through trusts\. United did not intend to have any voting or non\-voting equity interest in the pass\-through trusts or to absorb variability from the pass\-through trusts\. Based on this analysis, the Company determined that it is not required to consolidate the pass\-through trusts\.

**NOTE 13 \- COMMITMENTS AND CONTINGENCIES**

***Commitments\.*** As of December 31, 2017, United had firm commitments and options to purchase aircraft from The Boeing Company (“Boeing”) and Airbus presented in the table below:

|                                                                           |                                                                           |
|:-------------------------------------------------------------------------:| -------------------------------------------------------------------------:|
|                             **Aircraft Type**                             |                                  **Number of Firm  <br>Commitments (a)**  |
|                                Airbus A350                                |                                                                       45  |
|                              Boeing 737 MAX                               |                                                                      161  |
|                            Boeing  777\-300ER                             |                                                                        4  |
|                                Boeing 787                                 |                                                                       18  |
| (a) United also has options and purchase rights for additional aircraft\. | (a) United also has options and purchase rights for additional aircraft\. |

The aircraft listed in the table above are scheduled for delivery from 2018 through 2027\. In 2018, United expects to take delivery of 10 Boeing 737 MAX aircraft, seven Boeing 787 aircraft and four Boeing 777\-300ER aircraft\. To the extent the Company and the aircraft manufacturers with whom the Company has existing orders for new aircraft agree to modify the contracts governing those orders, the amount and timing of the Company’s future capital commitments could change\. Additionally, the Company has entered into a contract to purchase three used Boeing 767\-300ER aircraft from Hawaiian Airlines, Inc\. with expected delivery dates in the second half of 2018\.

The table below summarizes United’s commitments as of December 31, 2017, which primarily relate to the acquisition of aircraft and related spare engines, aircraft improvements and include other capital purchase commitments for the years ended December 31 (in billions)\. Any new firm aircraft orders, including through the exercise of purchase options and purchase rights, will increase the total future capital commitments of the Company\.

|            |          |
|:---------- | --------:|
| 2018       |  $ 3\.2  |
| 2019       |    2\.9  |
| 2020       |    2\.1  |
| 2021       |    2\.4  |
| 2022       |    1\.8  |
| After 2022 |    9\.8  |
|            |  $22\.2  |

In February 2018, the Company secured $935 million of EETC financing to finance certain aircraft deliveries in 2017 and the first half of 2018\. The Company has also secured backstop financing commitments from certain of its aircraft manufacturers for a limited number of its future aircraft deliveries, subject to certain customary

94


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

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

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

None\.

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

Evaluation of Disclosure Control and Procedures

UAL and United each maintain controls and procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted by UAL and United to the SEC is recorded, processed, summarized and reported, within the time periods specified by the SEC's rules and forms, and is accumulated and communicated to management including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure\. The management of UAL and United, including the Chief Executive Officer and Chief Financial Officer, performed an evaluation to conclude with reasonable assurance that UAL's and United's disclosure controls and procedures were designed and operating effectively to report the information each company is required to disclose in the reports they file with the SEC on a timely basis\. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer of UAL and United have concluded that as of  December 31, 2019 , disclosure controls and procedures were effective\.

Changes in Internal Control over Financial Reporting during the Quarter Ended  December 31, 2019

During the three months ended  December 31, 2019 , there was no change in UAL's or United's internal control over financial reporting that materially affected, or is reasonably likely to materially affect, their internal control over financial reporting\.

90


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

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

**Number** | **Description**                                                                                |
| 10\.57                        | [Trust Agreement Under Supplemental Executive Retirement Program for Officers of American Airlines, Inc\. Participating in the Super Saver Plus Plan, as amended and restated as of June 1, 2007 (incorporated by reference to Exhibit 10\.129 to AMR’s Annual Report on Form 10\-K for the year ended December 31, 2008 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/6201/000000620109000009/ex10129.htm) †         |
| 10\.58                        | [American Airlines Group Inc\. 2013 Incentive Award Plan (incorporated by reference to Exhibit 4\.1 of AAG’s Form S\-8 Registration Statement, filed on December 4, 2013)\.](http://www.sec.gov/Archives/edgar/data/6201/000119312513462268/d639480dex41.htm) †                                                                                |
| 10\.59                        | [First Amendment to the American Airlines Group Inc\. 2013 Incentive Award Plan (incorporated by reference to Exhibit 10\.64 to AAG’s Annual Report on Form 10\-K for the year ended December 31, 2017 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620118000009/ex106410k2017.htm) †                                                                                |
| 10\.60                        | [Form of American Airlines Group Inc\. 2013 Incentive Award Plan Restricted Stock Unit (Cash\-Settled) Award Grant Notice and Award Agreement (incorporated by reference to Exhibit 10\.125 to AAG’s Annual Report on Form 10\-K for the year ended December 31, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620114000004/d682697dex10125.htm) †                                                    |
| 10\.61                        | [Form of American Airlines Group Inc\. 2013 Incentive Award Plan Restricted Stock Unit (Stock\-Settled) Award Grant Notice and Award Agreement (incorporated by reference to Exhibit 10\.127 to AAG’s Annual Report on Form 10\-K for the year ended December 31, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620114000004/d682697dex10127.htm) †                                                   |
| 10\.62                        | [Form of American Airlines Group Inc\. 2013 Incentive Award Plan Restricted Stock Unit (Stock\-Settled) Award Grant Notice and Award Agreement for Director Grants (incorporated by reference to Exhibit 10\.129 to AAG’s Annual Report on Form 10\-K for the year ended December 31, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620114000004/d682697dex10129.htm) †                               |
| 10\.63                        | [Form of Indemnification Agreement (incorporated by reference to Exhibit 10\.9 to AAG’s Current Report on Form 8\-K filed on December 9, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513466973/d640718dex109.htm) †                                                                                |
| 10\.64                        | [US Airways Group, Inc\. 2011 Incentive Award Plan (incorporated by reference to Exhibit 4\.1 to US Airways Group’s Registration Statement on Form S\-8 filed on July 1, 2011 (Registration No\. 333\-175323))\.](http://www.sec.gov/Archives/edgar/data/701345/000095012311063744/p18922exv4w1.htm) †                                                                                |
| 10\.65                        | [Form of Stock Appreciation Right (Cash\-Settled) Award Grant Notice and Stock Appreciation Right (Cash\-Settled) Award Agreement under the US Airways Group, Inc\. 2011 Incentive Award Plan (incorporated by reference to Exhibit 4\.3 to US Airways Group’s Registration Statement on Form S\-8 filed on July 1, 2011 (Registration No\. 333\-175323))\.](http://www.sec.gov/Archives/edgar/data/701345/000095012311063744/p18922exv4w3.htm) † |
| 10\.66                        | [Form of Stock Appreciation Right (Stock\-Settled) Award Grant Notice and Stock Appreciation Right Award Agreement under the US Airways Group, Inc\. 2011 Incentive Award Plan (incorporated by reference to Exhibit 4\.4 to US Airways Group’s Registration Statement on Form S\-8 filed on July 1, 2011 (Registration No\. 333\-175323))\.](http://www.sec.gov/Archives/edgar/data/701345/000095012311063744/p18922exv4w4.htm) †                |
| 10\.67                        | [2014 Short\-Term Incentive Program Under 2013 Incentive Award Plan (incorporated by reference to Exhibit 10\.8 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2014 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620114000014/d759439dex108.htm) †                                                                                |
| 10\.68                        | [Form of Letter Agreement for Directors Travel Program (incorporated by reference to Exhibit 10\.106 to US Airways Group’s Annual Report on Form 10\-K for the year ended December 31, 2007 (Commission File No\. 1\-8444))\.](http://www.sec.gov/Archives/edgar/data/701345/000095015308000353/p75006exv10w106.htm) †                                                                                |
| 10\.69                        | [Amended and Restated Employment Agreement, dated as of November 28, 2007, among US Airways Group, US Airways, Inc\. and W\. Douglas Parker (incorporated by reference to Exhibit 10\.1 to US Airways Group’s Current Report on Form 8\-K filed on November 29, 2007 (Commission File No\. 1\-8444))\.](http://www.sec.gov/Archives/edgar/data/701345/000095015307002500/p74691exv10w1.htm) †                                                     |
| 10\.70                        | [Form of Letter Agreement, dated April 25, 2017, by and between American Airlines Group Inc\. and each of Robert D\. Isom, Jr\., Elise Eberwein, Stephen L\. Johnson and Derek J\. Kerr (incorporated by reference to Exhibit 10\.1 to AAG’s Current Report on Form 8\-K filed on May 1, 2017 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517150428/d369665dex101.htm) †                              |
| 10\.71                        | [Letter Agreement, dated as of April 28, 2016, between American Airlines Group Inc\. and W\. Douglas Parker (incorporated by reference to Exhibit 10\.1 to AAG’s Current Report on Form 8\-K filed on April 29, 2016 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516566426/d189148dex101.htm) †                                                                                |
| 14\.1                         | [Code of Ethics (incorporated by reference to Exhibit 14\.1 to AAG’s Current Report on Form 8\-K filed on December 9, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513466973/d640718dex141.htm)                                                                                |
| 21\.1                         | [Significant subsidiaries of AAG and American as of December 31, 2018\.](https://americanairlines.gcs-web.com/email-alerts/ex21110k2018.htm)                                                                                |
| 23\.1                         | [Consent of Independent Registered Public Accounting Firm – KPMG LLP\.](https://americanairlines.gcs-web.com/email-alerts/ex23110k2018.htm)                                                                                |
| 24\.1                         | [Powers of Attorney (included in signature page of this Annual Report on Form 10\-K)\.](https://americanairlines.gcs-web.com/email-alerts#s4A6DFCB156835EF5ABE737E47F0215FE)                                                                                |
| 31\.1                         | [Certification of AAG Chief Executive Officer pursuant to Rule 13a\-14(a)\.](https://americanairlines.gcs-web.com/email-alerts/ex31110k2018.htm)                                                                                |
| 31\.2                         | [Certification of AAG Chief Financial Officer pursuant to Rule 13a\-14(a)\.](https://americanairlines.gcs-web.com/email-alerts/ex31210k2018.htm)                                                                                |
| 31\.3                         | [Certification of American Chief Executive Officer pursuant to Rule 13a\-14(a)\.](https://americanairlines.gcs-web.com/email-alerts/ex31310k2018.htm)                                                                                |
| 31\.4                         | [Certification of American Chief Financial Officer pursuant to Rule 13a\-14(a)\.](https://americanairlines.gcs-web.com/email-alerts/ex31410k2018.htm)                                                                                |
| 32\.1                         | [Certification pursuant to Rule 13a\-14(b) and section 906 of the Sarbanes\-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code)\.](https://americanairlines.gcs-web.com/email-alerts/ex32110k2018.htm)                                                                                |

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