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

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

Assets measured at fair value on a recurring basis are summarized below (in millions):

|                                                    |                                                     |                                                     |                                                     |                                                     |
| -------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- |
|                                                    | **Fair Value Measurements as of December 31, 2018** | **Fair Value Measurements as of December 31, 2018** | **Fair Value Measurements as of December 31, 2018** | **Fair Value Measurements as of December 31, 2018** |
|                                                    | **Total**                                           | **Level 1**                                         | **Level 2**                                         | **Level 3**                                         |
| Short\-term investments  ^(1)^  ^(2)^ :            |                                                     |                                                     |                                                     |                                                     |
| Money market funds                                 | $14                                                 | $14                                                 | $—                                                  | $—                                                  |
| Corporate obligations                              | 1,658                                               | —                                                   | 1,658                                               | —                                                   |
| Bank notes/certificates of deposit/time deposits   | 2,435                                               | —                                                   | 2,435                                               | —                                                   |
| Repurchase agreements                              | 375                                                 | —                                                   | 375                                                 | —                                                   |
|                                                    | 4,482                                               | 14                                                  | 4,468                                               | —                                                   |
| Restricted cash and short\-term investments  ^(1)^ | 154                                                 | 12                                                  | 142                                                 | —                                                   |
| Long\-term investments  ^(3)^                      | 189                                                 | 189                                                 | —                                                   | —                                                   |
| Total                                              | $4,825                                              | $215                                                | $4,610                                              | $—                                                  |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Unrealized gains or losses on short\-term investments are recorded in accumulated other comprehensive loss at each measurement date\. |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | All short\-term investments are classified as available\-for\-sale and stated at fair value\. American’s short\-term investments mature in one year or less except for  $877 million  of bank notes/certificates of deposit/time deposits and  $101 million  of corporate obligations\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(3)^ | Long\-term investments primarily include American's equity investment in China Southern Airlines, in which American presently owns a  2\.2%  equity interest, and are classified in other assets on the consolidated balance sheets\. |

|                                                    |                                                     |                                                     |                                                     |                                                     |
| -------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- |
|                                                    | **Fair Value Measurements as of December 31, 2017** | **Fair Value Measurements as of December 31, 2017** | **Fair Value Measurements as of December 31, 2017** | **Fair Value Measurements as of December 31, 2017** |
|                                                    | **Total**                                           | **Level 1**                                         | **Level 2**                                         | **Level 3**                                         |
| Short\-term investments  ^(1)^  ^(2)^ :            |                                                     |                                                     |                                                     |                                                     |
| Money market funds                                 | $186                                                | $186                                                | $—                                                  | $—                                                  |
| Corporate obligations                              | 1,620                                               | —                                                   | 1,620                                               | —                                                   |
| Bank notes/certificates of deposit/time deposits   | 2,662                                               | —                                                   | 2,662                                               | —                                                   |
| Repurchase agreements                              | 300                                                 | —                                                   | 300                                                 | —                                                   |
|                                                    | 4,768                                               | 186                                                 | 4,582                                               | —                                                   |
| Restricted cash and short\-term investments  ^(1)^ | 318                                                 | 108                                                 | 210                                                 | —                                                   |
| Total                                              | $5,086                                              | $294                                                | $4,792                                              | $—                                                  |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Unrealized gains or losses on short\-term investments are recorded in accumulated other comprehensive loss at each measurement date\. |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | All short\-term investments are classified as available\-for\-sale and stated at fair value\. American’s short\-term investments mature in one year or less except for  $700 million  of bank notes/certificates of deposit/time deposits and  $341 million  of corporate obligations\. |

***Fair Value of Debt***

The fair value of American’s long\-term debt was estimated using quoted market prices or discounted cash flow analyses, based on American’s current estimated incremental borrowing rates for similar types of borrowing arrangements\. If American’s long\-term debt was measured at fair value, it would have been classified as Level 2 in the fair value hierarchy\.

157


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

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

|          |     |                                                                                |
| -------- | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
|  †10\.19 | UAL | [United Continental Holdings, Inc\. Performance\-Based Restricted Stock Unit Program (adopted pursuant to the United Continental Holdings, Inc\. 2008 Incentive Compensation Plan) (filed as Exhibit 10\.31 to UAL's Form 10\-K for the year ended December 31, 2010, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312511042335/dex1031.htm)                                                                                |
|  †10\.20 | UAL | [First Amendment to the United Continental Holdings, Inc\. Performance\-Based Restricted Stock Unit Program (adopted pursuant to the United Continental Holdings, Inc\. 2008 Incentive Compensation Plan) (effective with respect to performance periods beginning on or after January 1, 2012) (filed as Exhibit 10\.33 to UAL's Form 10\-K for the year ended December 31, 2011, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312512073010/d260625dex1033.htm) |
|  †10\.21 | UAL | [Second Amendment to the United Continental Holdings, Inc\. Performance\-Based Restricted Stock Unit Program (adopted pursuant to the United Continental Holdings, Inc\. 2008 Incentive Compensation Plan) (filed as Exhibit 10\.29 to UAL's Form 10\-K for the year ended December 31, 2012, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312513074391/d436512dex1029.htm)                                                                                |
|  †10\.22 | UAL | [Third Amendment to the United Continental Holdings, Inc\. Performance\-Based Restricted Stock Unit Program (adopted pursuant to the United Continental Holdings, Inc\. 2008 Incentive Compensation Plan) (filed as Exhibit 10\.1 to UAL's Form 10\-Q for the quarter ended March 31, 2015, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312515144255/d891332dex101.htm)                                                                                |
|  †10\.23 | UAL | [Fourth Amendment to the United Continental Holdings, Inc\. Performance\-Based Restricted Stock Unit Program (adopted pursuant to the United Continental Holdings, Inc\. 2008 Incentive Compensation Plan) (filed as Exhibit 10\.22 to UAL's Form 10\-K for the year ended December 31, 2015, Commission file number 1\-6033 and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312516468479/d13806dex1022.htm)                                                                                |
|  †10\.24 | UAL | [Form of Performance\-Based Restricted Stock Unit Award Notice pursuant to the United Continental Holdings, Inc\. Performance\-Based Restricted Stock Unit Program (ROIC awards) (filed as Exhibit 10\.23 to UAL's Form 10\-K for the year ended December 31, 2015, Commission file number 1\-6033 and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312516468479/d13806dex1023.htm)                                                                                |
|  †10\.25 | UAL | [Form of Performance\-Based Restricted Stock Unit Award Notice pursuant to the United Continental Holdings, Inc\. Performance\-Based Restricted Stock Unit Program (Relative Pre\-tax Margin awards) (for performance periods beginning on or after January 1, 2015) (filed as Exhibit 10\.2 to UAL's Form 10\-Q for the quarter ended March 31, 2015, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312515144255/d891332dex102.htm)                              |
|  †10\.26 | UAL | [United Continental Holdings, Inc\. Incentive Plan 2010, as amended and restated February 17, 2011 (previously named the Continental Airlines, Inc\. Incentive Plan 2010) (filed as Annex B to UAL's Definitive Proxy Statement filed April 26, 2013, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000104746913004972/a2214585zdef14a.htm#le45701_annex_b)                                                                                |
|  †10\.27 | UAL | [First Amendment to the United Continental Holdings, Inc\. Incentive Plan 2010, as amended and restated February 17, 2011 (filed as Annex B to UAL's 2013 Definitive Proxy Statement filed on April 26, 2013, Commission file number 1\-6033, incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000104746913004972/a2214585zdef14a.htm#le45701_annex_b)                                                                                |
|  †10\.28 | UAL | [United Air Lines, Inc\. Management Cash Direct & Cash Match Program (amended and restated effective January 1, 2016)](https://www.example.com/ual_12311810kex1028.htm)                                                                                |
|  †10\.29 | UAL | [United Continental Holdings, Inc\. Executive Severance Plan (effective October 1, 2014) (filed as Exhibit 10\.1 to UAL's Form 8\-K filed June 20, 2014, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312514243977/d743918dex101.htm)                                                                                |
|  †10\.30 | UAL | [United Continental Holdings, Inc\. 2017 Incentive Compensation Plan (filed as Exhibit 10\.1 to UAL's Form 8\-K filed on May 30, 2017, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312517187534/d378920dex101.htm)                                                                                |
|  †10\.31 | UAL | [Form of Restricted Stock Unit Award Notice pursuant to the United Continental Holdings, Inc\. 2017 Incentive Compensation Plan (filed as Exhibit 10\.6 to UAL's Form 10\-Q for the quarter ended June 30, 2017, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312517231250/d414345dex106.htm)                                                                                |
|  †10\.32 | UAL | [Form of Stock Option Award Notice pursuant to the United Continental Holdings, Inc\. 2017 Incentive Compensation Plan (filed as Exhibit 10\.7 to UAL's Form 10\-Q for the quarter ended June 30, 2017, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312517231250/d414345dex107.htm)                                                                                |
|  †10\.33 | UAL | [United Continental Holdings, Inc\. Performance\-Based RSU Program (adopted pursuant to the United Continental Holdings, Inc\. 2017 Incentive Compensation Plan) (filed as Exhibit 10\.8 to UAL's Form 10\-Q for the quarter ended June 30, 2017, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312517231250/d414345dex108.htm)                                                                                |

99


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

Equity Method Investments

We account for the investments listed below under the equity method of accounting\.

|                        |                        |                        |                    |                    |                    |                    |  |  |  |                   |                   |                |                |                |  |  |  |
|:---------------------- |:---------------------- |:---------------------- | ------------------:| ------------------:| ------------------:| ------------------:|:- |:- |:- | -----------------:| -----------------:|:--------------:|:--------------:|:--------------:|:- |:- |:- |
|                        |                        |                        | Ownership Interest | Ownership Interest | Ownership Interest | Ownership Interest |  |  |  |                   |    Carrying Value | Carrying Value | Carrying Value | Carrying Value |  |  |  |
| (in millions)          | (in millions)          | (in millions)          |  December 31, 2019 |  December 31, 2019 |  December 31, 2018 |  December 31, 2018 |  |  |  | December 31, 2019 | December 31, 2018 |
| Grupo Aeroméxico ^(1)^ | Grupo Aeroméxico ^(1)^ | Grupo Aeroméxico ^(1)^ |               51 % |               51 % |               51 % |               51 % |  |  |  |             $ 833 |             $ 897 |
| Virgin Atlantic ^(2)^  | Virgin Atlantic ^(2)^  | Virgin Atlantic ^(2)^  |               49 % |               49 % |               49 % |               49 % |  |  |  |               375 |               383 |
| AirCo                  | AirCo                  | AirCo                  |               49 % |               49 % |               49 % |               49 % |  |  |  |               142 |               109 |

^(1)^ Grupo Aeroméxico's corporate bylaws (as authorized by the Mexican Foreign Investment Commission) limit our voting interest to a maximum of 49%\. Therefore, we account for our investment under the equity method\. Due to Aeroméxico's share repurchase program, our equity stake in Grupo Aeroméxico has increased to a non\-controlling 51% interest\.

^(2)^ We have a non\-controlling equity stake in Virgin Atlantic Limited, the parent company of Virgin Atlantic Airways, and similar non\-controlling interests in certain affiliated Virgin Atlantic companies\.

Our portion of Grupo Aeroméxico's and Virgin Atlantic's financial results are recorded in miscellaneous, net in our income statement under non\-operating expense, and our share of AirCo's financial results is recorded in contracted services in our income statement as this entity is integral to the operations of our business\. We also have an investment in JFK IAT Member LLC which is accounted for under the equity method and is discussed further in Note 9, "Airport Redevelopment\."

Our equity method investments are recorded in other noncurrent assets on our balance sheet\. If an equity method investment experiences a loss in fair value that is determined to be other than temporary, we will reduce our basis in the investment to fair value and record the loss in gain/(loss) on investments\.

In September 2019, we announced our plan to enter into a strategic alliance with LATAM Airlines Group S\.A ("LATAM") as well as acquire up to a 20% interest through a tender offer\. In January 2020, we acquired 20% of the shares of LATAM for $1\.9 billion, or $16 per share\.

In addition, to support the establishment of the strategic alliance, we will invest $350 million, $200 million of which was disbursed in 2019\. As part of our planned strategic alliance with LATAM, we have also agreed to acquire four A350 aircraft from LATAM and plan to assume ten of LATAM's A350 purchase commitments from Airbus, with deliveries through 2025\.

In January 2020, we combined Delta Private Jets, our wholly owned subsidiary which provides private jet operations, with Wheels Up\. Upon closing, we received a 27% equity stake in Wheels Up, which will be accounted for under the equity method beginning in the March 2020 quarter\.

NOTE 5\. DERIVATIVES AND RISK MANAGEMENT

Changes in fuel prices, interest rates and foreign currency exchange rates impact our results of operations\. In an effort to manage our exposure to these risks, we may enter into derivative contracts and adjust our derivative portfolio as market conditions change\. We recognize derivative contracts at fair value on our balance sheets\.

Fuel Price Risk

Our derivative contracts to hedge the financial risk from changing fuel prices are primarily related to Monroe’s inventory\. During the years ended December 31, 2019, 2018 and 2017, fuel hedges did not have a significant impact in our income statement\.

Interest Rate Risk

Our exposure to market risk from adverse changes in interest rates is primarily associated with our debt obligations\. Market risk associated with our fixed and variable rate debt relates to the potential reduction in fair value and negative impact to future earnings, respectively, from an increase in interest rates\.

69


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

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

|          |                 |                                                                                |
| -------- | --------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
|  ^10\.54 | UAL
United | [Supplemental Agreement No\. 9, including exhibits and side letters, to Purchase Agreement No\. 03776, dated June 15, 2017, between The Boeing Company and United Airlines, Inc\. (filed as Exhibit 10\.4 to UAL's Form 10\-Q for the quarter ended June 30, 2017, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312517231250/d414345dex104.htm)                       |
|  ^10\.55 | UAL
United | [Supplemental Agreement No\. 10, including exhibits and side letters, to Purchase Agreement No\. 03776, dated as of May 15, 2018, between The Boeing Company and United Airlines, Inc\. (filed as Exhibit 10\.2 to UAL's Form 10\-Q for the quarter ended June 30, 2018, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000010051718000012/ual_06301810qex102.htm)            |
|  ^10\.56 | UAL
United | [Supplemental Agreement No\. 11, including exhibits and side letters, to Purchase Agreement No\. 03776, dated as of September 25, 2018, between The Boeing Company and United Airlines, Inc\. (filed as Exhibit 10\.1 to UAL's Form 10\-Q for the quarter ended September 30, 2018, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000010051718000028/ual_09301810qex101.htm) |
|  ^10\.57 | UAL
United | [Supplemental Agreement No\. 12, including exhibits and side letters, to Purchase Agreement No\. 03776, dated as of December 12, 2018, between The Boeing Company and United Airlines, Inc\. (filed as Exhibit 10\.152 to UAL's Form 10\-K for the year ended December 31, 2018, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000010051719000009/ual_12311810kex10152.htm)  |
|  ^10\.58 | UAL
United | [Letter Agreement No\. 6\-1162\-KKT\-080, dated July 12, 2012, among Boeing, United Continental Holdings, Inc\., United Air Lines, Inc\., and Continental Airlines, Inc\. (filed as Exhibit 10\.4 to UAL's Form 10\-Q for the quarter ended September 30, 2012, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312512435658/d408868dex104.htm)                          |
|  ^10\.59 | UAL
United | [Purchase Agreement No\. 3860, dated September 27, 2012, between Boeing and United Air Lines, Inc\. (filed as Exhibit 10\.6 to UAL's Form 10\-Q for the quarter ended September 30, 2012, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312512435658/d408868dex106.htm)                                                                                |
|  ^10\.60 | UAL
United | [Supplemental Agreement No\. 1 to Purchase Agreement No\. 3860, dated June 17, 2013 (filed as Exhibit 10\.6 to UAL's Form 10\-Q for the quarter ended June 30, 2013, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312513302696/d552832dex106.htm)                                                                                |
|  ^10\.61 | UAL
United | [Supplemental Agreement No\. 2 to Purchase Agreement No\. 3860, dated December 16, 2013 (filed as Exhibit 10\.1 to UAL's Form 10\-Q for the quarter ended June 30, 2014, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312514278970/d732259dex101.htm)                                                                                |
|  ^10\.62 | UAL
United | [Supplemental Agreement No\. 3 to Purchase Agreement No\. 3860, dated as of July 22, 2014 (filed as Exhibit 10\.3 to UAL's Form 10\-Q for the quarter ended September 30, 2014, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312514380216/d787177dex103.htm)                                                                                |
|  ^10\.63 | UAL
United | [Supplemental Agreement No\. 4 to Purchase Agreement No\. 3860, dated as of January 14, 2015 (filed as Exhibit 10\.6 to UAL's Form 10\-Q for the quarter ended March 31, 2015, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312515144255/d891332dex106.htm)                                                                                |
|  ^10\.64 | UAL
United | [Supplemental Agreement No\. 5 to Purchase Agreement No\. 3860, dated as of April 30, 2015 (filed as Exhibit 10\.8 to UAL's Form 10\-Q for the quarter ended June 30, 2015, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312515261239/d941677dex108.htm)                                                                                |
|  ^10\.65 | UAL
United | [Supplemental Agreement No\. 6 to Purchase Agreement No\. 3860, dated as of December 31, 2015 (filed as Exhibit 10\.178 to UAL's Form 10\-K for the year ended December 31, 2015, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312516468479/d13806dex10178.htm)                                                                                |
|  ^10\.66 | UAL
United | [Supplemental Agreement No\. 7 to Purchase Agreement No\. 3860, dated March 7, 2016, between The Boeing Company and United Airlines, Inc\. (filed as Exhibit 10\.5 to UAL's Form 10\-Q for the quarter ended March 31, 2016, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312516550432/d116267dex105.htm)                                                             |
|  ^10\.67 | UAL
United | [Letter Agreement to Purchase Agreement No\. 3860, dated May 5, 2016, between The Boeing Company and United Airlines, Inc\. (filed as Exhibit 10\.5 to UAL's Form 10\-Q for the quarter ended June 30, 2016, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312516651221/d188420dex105.htm)                                                                             |
|  ^10\.68 | UAL
United | [Supplemental Agreement No\. 8, including exhibits and side letters, to Purchase Agreement No\. 3860, Dated June 15, 2017, between The Boeing Company and United Airlines, Inc\. (filed as Exhibit 10\.5 to UAL's Form 10\-Q for the quarter ended June 30, 2017, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312517231250/d414345dex105.htm)                        |
|  ^10\.69 | UAL
United | [Letter Agreement No\. UAL\-LA\-1604287 to Purchase Agreement Nos\. 3776, 3784 and 3860, dated December 27, 2016, between The Boeing Company and United Airlines, Inc\. (filed as Exhibit 10\.194 to UAL's Form 10\-K for the year ended December 31, 2016, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312517054129/d300268dex10194.htm)                            |

100


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

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

Future Maturities

The following table summarizes scheduled maturities of our debt for the years succeeding  December 31, 2017 :

|                             |                |                                                                          |        |
| --------------------------- | -------------- | ------------------------------------------------------------------------ | ------ |
|

**(in millions)** | **Total Debt** | **Amortization of**

**Debt Discount and Debt Issuance Cost, net** |        |
| 2018                        | $2,183         | $

(42

)                                                    |        |
| 2019                        | 1,359          | (30

)                                                             |        |
| 2020                        | 1,983          | (8

)                                                              |        |
| 2021                        | 345            | (6

)                                                              |        |
| 2022                        | 2,009          | (7

)                                                              |        |
| Thereafter                  | 660            | (6

)                                                              |        |
| Total                       | $8,539         | $

(99

)                                                    | $8,440 |

Fair Value of Debt

Market risk associated with our fixed\- and variable\-rate long\-term debt relates to the potential reduction in fair value and negative impact to future earnings, respectively, from an increase in interest rates\. The fair value of debt, shown below, is principally based on reported market values, recently completed market transactions and estimates based on interest rates, maturities, credit risk and underlying collateral\. Long\-term debt is primarily classified as Level 2 within the fair value hierarchy\.

|                                                  |                  |                  |
| ------------------------------------------------ | ---------------- | ---------------- |
|                                                  | **December 31,** | **December 31,** |
| **(in millions)**                                | **2017**         | **2016**         |
| Total debt at par value                          | $8,539           | $7,112           |
| Unamortized discount and debt issuance cost, net | (99

)     | (104

)    |
| Net carrying amount                              | $8,440           | $7,008           |
| Fair value                                       | $8,700           | $7,300           |

NOTE 7 \. LEASE OBLIGATIONS

We lease aircraft, airport terminals, maintenance facilities, ticket offices and other property and equipment from third parties\. Rental expense for operating leases, which is recorded on a straight\-line basis over the life of the lease term, totaled   $1\.3 billion  for the years ended  December 31, 2017  and 2016 and   $1\.2 billion  for the year ended December 31, 2015\. Amounts due under capital leases are recorded as liabilities, while assets acquired under capital leases are recorded as property and equipment\. Amortization of assets recorded under capital leases is included in depreciation and amortization expense\. Our airport terminal leases include contingent rents, which vary based upon facility usage, enplanements, aircraft weight and other factors\. Many of our aircraft, facility and equipment leases include rental escalation clauses and/or renewal options\. Our leases do not include residual value guarantees and we are not the primary beneficiary in or have other forms of variable interest with the lessor of the leased assets\. As a result, we have not consolidated any of the entities that lease to us\.

 71


Annual Report of Southwest Airlines Co\. for year 2019

service providers\. If a third party vendor or service provider is unable to fulfill its commitments to the Company, the Company may be unable to replace that third party vendor or service provider in a short period of time, or at competitive terms, which could have a material adverse effect on the Company's results of operations\.

As discussed above under "Business \- Insurance," the Company carries insurance of types customary in the airline industry\. Although the Company has been able to purchase aviation, property, liability, and professional insurance via the commercial insurance marketplace, available commercial insurance could be more expensive in the future and/or have material differences in coverage than insurance that has historically been provided and may not be adequate to protect against the Company's risk of loss from future events, including acts of terrorism\. Further, available cyber\-security insurance with regards to data protection and business interruption could be more expensive in the future and/or have material differences in coverage than insurance that has historically been provided and may not be adequate to protect the Company's risk of loss\. With respect to any insurance claims, policy coverages and claims are subject to acceptance by the many insurers involved and may require arbitration and/or mediation to effectively settle the claims over prolonged periods of time\. In addition, an accident or other incident involving Southwest aircraft could result in costs in excess of its related insurance coverage, which costs could be substantial\. Any aircraft accident or other incident, even if fully insured, could also have a material adverse effect on the public's perception of the Company, which could harm its reputation and business\.

The Company cannot guarantee it will be able to maintain or improve upon its current level of low\-cost advantage over many of its airline competitors\. ULCCs, which have increased capacity in the Company's markets, have surpassed the Company's cost advantage\. When competitors grow their fleets and expand their networks, they are potentially able to better control costs per available seat mile\. In addition, like Southwest, some competitors have added a significant number of new and different aircraft to their fleets, which could potentially decrease their operating costs through better fuel efficiencies and lower maintenance costs\. Further, some of the Company's competitors have launched multi\-year cost savings efforts to meet specific financial and growth targets\. Common efforts include fleet transformation to gain fuel efficiencies, fleet simplification, and increasing the number of seats per trip through seat retrofits and the use of larger aircraft\.

As discussed below under "Management’s Discussion and Analysis of Financial Condition and Results of Operations," the Company experienced significant unit cost pressure in 2019 following the MAX groundings\.  Historically, except for changes in the price of fuel, changes in operating expenses for airlines have been largely driven by changes in capacity\. However, the Company's operating expenses are largely fixed once flight schedules are published; and the Company experienced lower than expected capacity during 2019 due to the MAX groundings\.  Throughout the duration of the MAX groundings, the Company has made schedule adjustments and canceled flights based on guidance from Boeing estimating the timing of MAX return to service\. Further changes to guidance relating to the expected duration of the MAX groundings could require the Company to make additional schedule adjustments and drive additional unit cost pressure and negatively affect fuel efficiency\. The Company offers no assurances that current estimations and timelines related to the MAX groundings are correct\.

The Company is increasingly dependent on technology to operate its business and continues to implement substantial changes to its information systems; any failure, disruption, breach, or delay in implementation of the Company's information systems could materially adversely affect its operations\.

The Company is increasingly dependent on the use of complex technology and systems to run its ongoing operations and support its strategic objectives\. These technologies and systems include, among others, the Company's website and reservation system, flight dispatch and tracking systems, flight simulators, check\-in kiosks, maintenance record keeping management systems, telecommunications systems, flight planning and scheduling systems, crew scheduling systems, and financial planning, management, and accounting systems\. The performance, reliability, and security of the Company's technology infrastructure and supporting systems are critical to the Company's operations and initiatives\.

Implementation and integration of complex systems and technology present significant challenges in terms of costs, human resources, and development of effective internal controls\. Implementation and integration require a balancing between the introduction of new capabilities and the managing of existing systems, and present the risk of operational or security inadequacy or interruption, which could materially affect the Company's ability to effectively operate its business and/or could negatively impact the Company's results of operations\.

23


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

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

The fair value of American’s retiree medical and other postretirement benefits plans assets at December 31, 2017 by asset category, were as follows (in millions):

|                          |                                                                                |                                                                              |                                                                                |                                                     |
| ------------------------ | --------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | --------------------------------------------------- |
|                          | **Fair Value Measurements as of December 31, 2017**                                                 | **Fair Value Measurements as of December 31, 2017**                          | **Fair Value Measurements as of December 31, 2017**                            | **Fair Value Measurements as of December 31, 2017** |
| **Asset Category**       | **Quoted Prices in**

**Active Markets for**

**Identical Assets**

**(Level 1)** | **Significant**

**Observable**

**Inputs**

**(Level 2)** | **Significant**

**Unobservable**

**Inputs**

**(Level 3)** | **Total**                                           |
| Money market fund        | $5                                                                                | $—                                                                           | $—                                                                             | $5                                                  |
| Mutual funds – AAL Class | —                                                                                | 290                                                                          | —                                                                              | 290                                                 |
| Total                    | $5                                                                                | $290                                                                         | $—                                                                             | $295                                                |

The fair value of American’s retiree medical and other postretirement benefits plans assets at December 31, 2016 by asset category, were as follows (in millions):

|                                    |                                                                                |                                                                              |                                                                                |                                                     |
| ---------------------------------- | --------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | --------------------------------------------------- |
|                                    | **Fair Value Measurements as of December 31, 2016**                                                 | **Fair Value Measurements as of December 31, 2016**                          | **Fair Value Measurements as of December 31, 2016**                            | **Fair Value Measurements as of December 31, 2016** |
| **Asset Category**                 | **Quoted Prices in**

**Active Markets for**

**Identical Assets**

**(Level 1)** | **Significant**

**Observable**

**Inputs**

**(Level 2)** | **Significant**

**Unobservable**

**Inputs**

**(Level 3)** | **Total**                                           |
| Money market fund                  | $5                                                                                | $—                                                                           | $—                                                                             | $5                                                  |
| Mutual funds – Institutional Class | 261                                                                                | —                                                                            | —                                                                              | 261                                                 |
| Total                              | $266                                                                                | $—                                                                           | $—                                                                             | $266                                                |

Investments in the retiree medical and other postretirement benefits plans’ mutual funds are valued by quoted prices on the active market, which is fair value and represents the net asset value of the shares of such funds as of the close of business at the end of the period\. At December 31, 2017, these funds were invested in an AAL Class mutual fund, in which trading is restricted only to American, resulting in a fair value classification of Level 2\. At December 31, 2016, these investments were part of an Institutional Class of mutual funds and were actively traded on the open market resulting in a fair value classification of Level 1\. Investments include approximately 30% and 27% of investments in non\-U\.S\. common stocks in 2017 and 2016, respectively\. Net asset value is based on the fair market value of the funds’ underlying assets and liabilities at the date of determination\.

***Profit Sharing Program***

American accrues 5% of its pre\-tax income excluding special items for its profit sharing program\. For the year ended December 31, 2017, American accrued $241 million for this program, which will be distributed to employees in the first quarter of 2018\.

159


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

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

**UNITED CONTINENTAL HOLDINGS, INC\.**

**CONSOLIDATED BALANCE SHEETS**

**(In millions, except shares)**

|                                                                                |                     |                     |
| ------------------------------------------------------------------------------------------- | ------------------- | ------------------- |
|                                                                                | **At December 31,** | **At December 31,** |
| **ASSETS**                                                                                | **2018**            | **2017 (a)**        |
| Current assets:                                                                             |                     |                     |
| Cash and cash equivalents                                                                   | $1,694              | $1,482              |
| Short\-term investments                                                                     | 2,256               | 2,316               |
| Receivables, less allowance for doubtful accounts (2018—$8; 2017—$7)                        | 1,346               | 1,340               |
| Aircraft fuel, spare parts and supplies, less obsolescence allowance (2018—$412; 2017—$354) | 985                 | 924                 |
| Prepaid expenses and other                                                                  | 913                 | 1,071               |
| Total current assets                                                                        | 7,194               | 7,133               |
| Operating property and equipment:                                                           |                     |                     |
| Owned—                                                                                |                     |                     |
| Flight equipment                                                                            | 31,607              | 28,692              |
| Other property and equipment                                                                | 7,919               | 6,946               |
| Total owned property and equipment                                                          | 39,526              | 35,638              |
| Less—Accumulated depreciation and amortization                                              | (12,760)            | (11,159)            |
| Total owned property and equipment, net                                                     | 26,766              | 24,479              |
| Purchase deposits for flight equipment                                                      | 1,177               | 1,344               |
| Capital leases—                                                                             |                     |                     |
| Flight equipment                                                                            | 1,029               | 1,151               |
| Other property and equipment                                                                | 11                  | 11                  |
| Total capital leases                                                                        | 1,040               | 1,162               |
| Less—Accumulated amortization                                                               | (654)               | (777)               |
| Total capital leases, net                                                                   | 386                 | 385                 |
| Total operating property and equipment, net                                                 | 28,329              | 26,208              |
| Other assets:                                                                               |                     |                     |
| Goodwill                                                                                | 4,523               | 4,523               |
| Intangibles, less accumulated amortization (2018—$1,380; 2017—$1,313)                       | 3,159               | 3,539               |
| Restricted cash                                                                             | 105                 | 91                  |
| Notes receivable, net                                                                       | 516                 | 46                  |
| Investments in affiliates and other, net                                                    | 966                 | 806                 |
| Total other assets                                                                          | 9,269               | 9,005               |
| Total assets                                                                                | $44,792             | $42,346             |

(continued on next page)

44


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

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

American attributes passenger revenue by geographic region based upon the origin and destination of each flight segment\.

**Passenger Revenue**

American recognizes all revenues generated from transportation on American and its regional flights operated under the brand name American Eagle, including associated baggage fees, ticketing change fees and other inflight services, as passenger revenue when transportation is provided\. Ticket and other related sales for transportation that has not yet been provided are initially deferred and recorded as air traffic liability on American’s consolidated balance sheets\. The air traffic liability principally represents tickets sold for future travel on American and partner airlines, as well as estimated future refunds and exchanges of tickets sold for past travel\.

The majority of tickets sold are nonrefundable\. A small percentage of tickets, some of which are partially used tickets, expire unused\. Due to complex pricing structures, refund and exchange policies, and interline agreements with other airlines, certain amounts are recognized in passenger revenue using estimates regarding both the timing of the revenue recognition and the amount of revenue to be recognized\. These estimates are generally based on the analysis of American’s historical data\. American has consistently applied this accounting method to estimate revenue from forfeited tickets at the date of travel\. Estimated future refunds and exchanges included in the air traffic liability are routinely evaluated based on subsequent activity to validate the accuracy of American’s estimates\. Any adjustments resulting from periodic evaluations of the estimated air traffic liability are included in passenger revenue during the period in which the evaluations are completed\.

Various taxes and fees assessed on the sale of tickets to end customers are collected by American as an agent and remitted to taxing authorities\. These taxes and fees have been presented on a net basis in the accompanying consolidated statements of operations and recorded as a liability until remitted to the appropriate taxing authority\.

**Loyalty Revenue**

American currently operates the loyalty program, AAdvantage\. This program awards mileage credits to passengers who fly on American, any **one**world airline or other partner airlines, or by using the services of other program participants, such as the Citi and Barclaycard US co\-branded credit cards, hotels and car rental companies\. Mileage credits can be redeemed for travel on American and other participating partner airlines, as well as other non\-air travel awards such as hotels and rental cars\. For mileage credits earned by AAdvantage loyalty program members, American applies the deferred revenue method in accordance with the New Revenue Standard\.

*Mileage credits earned through travel*

For mileage credits earned through travel, American applies a relative selling price approach whereby the total amount collected from each passenger ticket sale is allocated between the air transportation and the mileage credits earned\. The portion of each passenger ticket sale attributable to mileage credits earned is initially deferred and then recognized in passenger revenue when mileage credits are redeemed and transportation is provided\. The estimated selling price of mileage credits is determined using an equivalent ticket value approach, which uses historical data, including award redemption patterns by geographic region and class of service, as well as similar fares as those used to settle award redemptions\. The estimated selling price of miles is adjusted for an estimate of miles that will not be redeemed based on historical redemption patterns\.

*Mileage credits sold to co\-branded credit cards and other partners*

American sells mileage credits to participating airline partners and non\-airline business partners including American’s co\-branded credit card partners, under contracts with terms extending generally for one to nine years\. Consideration received from the sale of mileage credits is variable and payment terms typically are within 30 days subsequent to the month of mileage sale\. Sales of mileage credits to non\-airline business partners are comprised of two components, transportation and marketing\. American allocates the consideration received from these sales of mileage credits based on the relative selling price of each product or service delivered\.

American’s most significant partner agreements are its co\-branded credit card agreements with Citi and Barclaycard US that American entered into in 2016\. American identified the following revenue elements in these co\-branded credit card agreements: the transportation component; and the use of intellectual property, including the American brand and access to loyalty program member lists, which is the predominant element in the agreements, as well as advertising (collectively, the marketing component)\. Accordingly, American recognizes the marketing component in other revenue in the period of the mileage sale following the sales\-based royalty method\.

142


Annual Report of Southwest Airlines Co\. for year 2018

recognized through changes in fair value within AOCI for designated hedges, and are ultimately recorded as a component of Fuel and oil in the Consolidated Statement of Income during the period the contracts settle\.

The fair values of the derivative instruments, depending on the type of instrument, were determined by the use of present value methods or option value models with assumptions about commodity prices based on those observed in underlying markets or provided by third parties\. Included in the Company’s cumulative net unrealized losses from fuel hedges as of December 31, 2018, recorded in AOCI, were approximately $36 million in unrealized losses, net of taxes, which are expected to be realized in earnings during the twelve months subsequent to December 31, 2018\.

***Interest Rate Swaps***

The Company is party to certain interest rate swap agreements that are accounted for as either fair value hedges or cash flow hedges, as defined in the applicable accounting guidance for derivative instruments and hedging\. The New Hedging Standard also addresses targeted improvements to special hedge accounting for interest rate hedges\. Though the Company did not make any changes to the accounting for its current interest rate hedges as of the January 2018 adoption date, the New Hedging Standard provides the Company with more opportunities to achieve special hedge accounting for potential interest rate hedges in the future\. Several of the Company's interest rate swap agreements qualify for the "shortcut" method of accounting for hedges, which dictates that the hedges are assumed to be perfectly effective, and, thus, there is no ineffectiveness to be recorded in earnings\. For the Company’s interest rate swap agreements that do not qualify for the "shortcut" method of accounting, ineffectiveness is required to be measured at each reporting period\. The ineffectiveness associated with all of the Company’s interest rate swap agreements for all periods presented was not material\.

The fair values of the interest rate swap agreements, which are adjusted regularly, have been aggregated by counterparty for classification in the Consolidated Balance Sheet\. Agreements totaling a net liability of $14 million are fair value hedges, cash flow hedges, and interest rate derivatives not utilizing hedge accounting, and are classified as components of Accrued liabilities and Other noncurrent liabilities\. The corresponding adjustment related to the net liability associated with the Company’s cash flow hedges is to AOCI, fair value hedges is to the carrying value of the long\-term debt, and interest rate derivatives not utilizing hedge accounting is to Interest expense\. See Note 12\.

The Company has fixed\-to\-floating interest rate swap agreements in place associated with its $500 million2\.65 percent Notes due 2020 and its $300 million2\.75 percent Notes due 2019 that are accounted for as fair value hedges\. As a result of the fixed\-to\-floating interest rate swap agreements in place, the average floating rate recognized during 2018 was approximately 3\.58 percent on the $500 million Notes, and approximately 3\.40 percent on the $300 million Notes, based on actual and forward rates as of December 31, 2018\.

The Company has floating\-to\-fixed interest rate swap agreements associated with its $600 million floating\-rate term loan agreement due 2020 and its $332 million term loan agreement due 2019 that are accounted for as cash flow hedges\. These interest rate hedges have fixed the interest rate on the $600 million floating\-rate term loan agreement at 5\.223 percent until maturity, and for the $332 million term loan agreement at 6\.315 percent until maturity\.

There are also a number of interest rate swap agreements, which convert a portion of AirTran Holdings' floating\-rate debt to a fixed\-rate basis for the remaining life of the debt, thus reducing the impact of interest rate changes on future interest expense and cash flows\. Under these agreements, which expire between 2019 and 2020, AirTran Holdings pays fixed rates between 4\.35 percent and 5\.91 percent and receives either three\-month or six\-month LIBOR on the notional values\. The notional amount of outstanding debt related to interest rate swaps as of December 31, 2018, was $57 million\. The mark\-to\-market impact associated with these hedges for all periods presented was not material\.

***Credit Risk and Collateral***

Credit exposure related to fuel derivative instruments is represented by the fair value of contracts that are an asset to the Company at the reporting date\. At such times, these outstanding instruments expose the Company to credit loss in

103


Annual Report of Southwest Airlines Co\. for year 2018

bargaining agreements reached with multiple unionized workgroups\. Operating expenses per ASM for 2017, excluding Fuel and oil expense and special items (a non\-GAAP financial measure), increased 4\.3 percent year\-over\-year, primarily due to wage rate increases\. See Note Regarding Use of Non\-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non\-GAAP Financial Measures for additional detail regarding non\-GAAP financial measures\.

Salaries, wages, and benefits expense for 2017 increased by $519 million, or 7\.6 percent, compared with 2016\. Salaries, wages, and benefits expense per ASM for 2017 increased 3\.7 percent, compared with 2016\. On both a dollar and per ASM basis, the majority of the increases were the result of higher salaries and resulting Company contributions to the Company sponsored 401(k) plans, primarily driven by wage rate increases\. In addition, the Company announced a $1,000 per Employee bonus as a result of the 2017 tax reform, which comprised approximately $70 million of the increase in Salaries, wages, and benefits expense\. Salaries, wages, and benefits expense in 2016 included $356 million of accrued ratification bonuses, associated with collective\-bargaining agreements reached with multiple unionized workgroups\.

Fuel and oil expense for 2017 increased by $275 million, or 7\.2 percent, compared with 2016\. On a per ASM basis, Fuel and oil expense for 2017 increased 3\.5 percent, compared with 2016\. On both a dollar and per ASM basis, the increases were attributable to higher market jet fuel prices, partially offset by a decrease in net hedging losses recognized compared to 2016\. See Note Regarding Use of Non\-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non\-GAAP Financial Measures for additional detail regarding non\-GAAP financial measures\. The Company's average economic jet fuel price per gallon increased 3\.0 percent, year\-over\-year, to $2\.06 during 2017 from $2\.00 during 2016\. These figures include premium expense associated with the Company's fuel hedges, which on a per gallon basis equated to approximately $0\.07 and $0\.08 for 2017 and 2016, respectively\. The Company also improved its fuel efficiency during 2017, compared with 2016, when measured on the basis of ASMs generated per gallon of fuel\. Fuel gallons consumed increased 2\.5 percent, compared with 2016, while year\-over\-year capacity increased 3\.6 percent\. As a result of the Company's fuel hedging program, the Company recognized net losses totaling $416 million in Fuel and oil expense for 2017, compared with net losses totaling $820 million for 2016\. These totals include cash settlements realized from the settlement of fuel derivative contracts associated with the Company's economic fuel hedge totaling $572 million paid to counterparties for 2017, compared with $1\.0 billion paid to counterparties for 2016\. These cash settlement totals exclude gains and/or losses recognized from hedge ineffectiveness for both years and from derivatives that did not qualify for hedge accounting for both periods\. Those items are recorded as a component of Other (gains) losses, net\.

Maintenance materials and repairs expense for 2017 decreased by $44 million, or 4\.2 percent, compared with 2016\. On a per ASM basis, Maintenance materials and repairs expense for 2017 decreased 7\.1 percent, compared with 2016\. On both a dollar and per ASM basis, the majority of the decreases were attributable to a decrease in airframe maintenance expenses primarily as a result of the retirement of the Company's Classic fleet, partially offset by increases in Boeing 737\-700 engine maintenance due to increased utilization of that fleet to replace a portion of the retired Classic aircraft\.

Landing fees and airport rentals expense for 2017 increased by $81 million, or 6\.7 percent, compared with 2016\. On a per ASM basis, Landing fees and airport rentals expense for 2017 increased 2\.4 percent, compared with 2016\. On a dollar basis, approximately 50 percent of the increase was due to an increase in Landing fees as a result of the 2\.8 percent increase in Trips flown and a change in fleet mix to larger capacity aircraft\. Approximately 25 percent of the increase on a dollar basis was an increase in space rentals related to rate escalations and capital projects at many airports across the Company's network\. The remaining increase was due to growth in international markets which gives rise to additional fees\. The increase per ASM was primarily due to rate escalations at many airports across the Company's network\.

Depreciation and amortization expense for 2017 decreased by $3 million, or 0\.2 percent, compared with 2016\. On a per ASM basis, Depreciation and amortization expense decreased 3\.7 percent, compared with 2016\. On both a dollar and per ASM basis, the majority of the decreases were associated with a net decrease in depreciation expense related to the Company's flight equipment, as the decrease from the retirement of the Company's Classic fleet exceeded the additional depreciation from the addition of new 737 MAX 8 aircraft, new 737\-800 aircraft, and pre\-owned 737\-700 aircraft on capital leases\. These decreases were partially offset by the deployment of new technology assets\.

47


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

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

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

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

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

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S\-K (§ 229\.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10\-K or any amendment to this Form 10\-K\.

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

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

|                               |                           |                     |                          |                             |                           |
| ----------------------------- | ------------------------- | ------------------- | ------------------------ | --------------------------- | ------------------------- |
| American Airlines Group Inc\. | ☒ Large Accelerated Filer | ☐ Accelerated Filer | ☐ Non\-accelerated Filer | ☐ Smaller Reporting Company | ☐ Emerging Growth Company |
| American Airlines, Inc\.      | ☐ Large Accelerated Filer | ☐ Accelerated Filer | ☒ Non\-accelerated Filer | ☐ Smaller Reporting Company | ☐ Emerging Growth Company |

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

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

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

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court\.

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

As of February 16, 2018, there were 473,138,683 shares of American Airlines Group Inc\. common stock outstanding\. The aggregate market value of the voting stock held by non\-affiliates of the registrant as of June 30, 2017, was approximately $24 billion\.

As of February 16, 2018, there were 1,000 shares of American Airlines, Inc\. common stock outstanding, all of which were held by American Airlines Group Inc\.

**OMISSION OF CERTAIN INFORMATION**

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

**DOCUMENTS INCORPORATED BY REFERENCE**

Portions of the proxy statement related to American Airlines Group Inc\.’s 2018 Annual Meeting of Stockholders, which proxy statement will be filed under the Securities Exchange Act of 1934 within 120 days of the end of American Airlines Group Inc\.’s fiscal year ended December 31, 2017, are incorporated by reference into Part III of this Annual Report on Form 10\-K\.


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

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

The following table provides information relating to American’s amortizable intangible assets as of  December 31, 2019  and  2018  (in millions):

|                               |                  |                  |
| ----------------------------- | ---------------- | ---------------- |
|                               | **December 31,** | **December 31,** |
|                               | **2019**         | **2018**         |
| Domestic airport slots        | $365             | $365             |
| Customer relationships        | 300              | 300              |
| Marketing agreements          | 105              | 105              |
| Tradenames                    | 35               | 35               |
| Airport gate leasehold rights | 137              | 137              |
| Accumulated amortization      | (704

)    | (663

)    |
| Total                         | $238             | $279             |

Certain domestic airport slots and airport gate leasehold rights are amortized on a straight\-line basis over   25 years \. The customer relationships and marketing agreements were identified as intangible assets subject to amortization and are amortized on a straight\-line basis over approximately   nine years  and   30 years , respectively\. Tradenames are fully amortized\.

American recorded amortization expense related to these intangible assets of   $41 million  for both years ended  December 31, 2019  and  2018  and   $44 million  for  2017 \. American expects to record annual amortization expense for these intangible assets as follows (in millions):

|                     |      |
| ------------------- | ---- |
| 2020                | $41  |
| 2021                | 41   |
| 2022                | 41   |
| 2023                | 7    |
| 2024                | 7    |
| 2025 and thereafter | 101  |
| Total               | $238 |

Indefinite\-Lived Intangible Assets

Indefinite\-lived intangible assets include certain domestic airport slots and international slots and route authorities\. Indefinite\-lived intangible assets are not amortized but instead are assessed for impairment annually on October 1 or more frequently if events or circumstances indicate that the asset may be impaired\. As of  December 31, 2019  and  2018 , American had   $1\.8 billion  and   $1\.9 billion , respectively, of indefinite\-lived intangible assets on its consolidated balance sheets\.

Indefinite\-lived intangible assets are assessed for impairment by initially performing a qualitative assessment to determine whether American believes it is more likely than not that an asset has been impaired\. If American believes impairment has occurred, American then evaluates for impairment by comparing the estimated fair value of assets to the carrying value\. An impairment charge is recognized if the asset’s estimated fair value is less than its carrying value\. Based upon American’s annual assessment, there were   no  material indefinite\-lived intangible asset impairments in  2019 \.

125


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

to our competitors\. In recent years, the airline industry has experienced an increase in litigation over the application of state and local employment laws, particularly in California\.  Application of these laws may result in operational disruption, increased litigation risk, and impact on negotiated labor agreements\.

Almost all commercial service airports are owned and/or operated by units of local or state governments\. Airlines are largely dependent on these governmental entities to provide adequate airport facilities and capacity at an affordable cost\. Many airports have increased their rates and charges to air carriers to reflect higher costs of security, updates to infrastructure and other\. Additional laws, regulations, taxes, airport rates and airport charges may be occasionally proposed that could significantly increase the cost of airline operations or reduce the demand for air travel\. Although lawmakers may impose these additional fees and view them as “pass\-through” costs, we believe that a higher total ticket price will influence consumer purchase and travel decisions and may result in an overall decline in passenger traffic, which would harm our business\. Additionally, changes in laws and regulations at the local level may be difficult to track and maintain compliance\. Any instances of non\-compliance could result in additional fines and fees\.

The airline industry continues to face potential security concerns and related costs\.

Terrorist attacks, the fear of such attacks or other hostilities involving the U\.S\. could have a significant negative effect on the airline industry, including us, and could:

• significantly reduce passenger traffic and yields as a result of a dramatic drop in demand for air travel;

• significantly increase security and insurance costs;

• make war risk or other insurance unavailable or extremely expensive;

• increase fuel costs and the volatility of fuel prices;

• increase costs from airport shutdowns, flight cancellations and delays resulting from security breaches and perceived safety threats; and

• result in a grounding of commercial air traffic by the FAA\.

The occurrence of any of these events would harm our business, financial condition and results of operations\.

We rely on third\-party vendors for certain critical activities, which could expose us to disruptions in our operation or unexpected cost increases\.

We rely on outside vendors for a variety of services and functions critical to our business, including airframe and engine maintenance, regional flying, ground handling, fueling, computer reservation system hosting, telecommunication systems, information technology infrastructure and services, and deicing, among others\.

Even though we strive to formalize agreements with these vendors that define expected service levels, our use of outside vendors increases our exposure to several risks\. In the event that one or more vendors go into bankruptcy, ceases operation or fails to perform as promised, replacement services may not be readily available at competitive rates, or at all\. If one of our vendors fails to perform adequately, we may experience increased costs, delays, maintenance issues, safety issues or negative public perception of our airline\. Vendor bankruptcies, unionization, regulatory compliance issues or significant changes in the competitive marketplace among suppliers could adversely affect vendor services or force us to renegotiate existing agreements on less favorable terms\. These events could result in disruptions in our operations or increases in our cost structure\.

Operation of a multi\-aircraft type fleet may present standardization and training challenges\.

We strive for operational efficiency, which has historically been aided by our operation of a single aircraft type fleet at each operating company\.  With our acquisition of Virgin America, we added additional aircraft types to our mainline fleet\.  Certain procedures and training remain to be completed in order to ensure standardized operations for our crews and technicians as well as a seamless experience for our guests\.  Any failure to complete these procedures and training may create adverse impacts on guests, employees, and our ability to run an operationally efficient airline\.

21


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

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

At December 31, 2017, United’s scheduled future minimum lease payments under operating leases having initial or remaining noncancelable lease terms of more than one year, aircraft leases, including aircraft rent under CPAs and capital leases (substantially all of which are for aircraft) were as follows (in millions):

|                                             |                        |                                              |                                    |
|:------------------------------------------- | ----------------------:| --------------------------------------------:| ----------------------------------:|
|                                             | **Capital Leases (a)** | **Facility and Other
Operating Leases** | **Aircraft Operating
Leases** |
|  2018                                       |                  $200  |                                      $1,234  |                            $1,038  |
|  2019                                       |                   133  |                                       1,075  |                               855  |
|  2020                                       |                   113  |                                       1,169  |                               628  |
|  2021                                       |                   110  |                                         935  |                               510  |
|  2022                                       |                   105  |                                         797  |                               388  |
|  After 2022                                 |                 1,156  |                                       6,109  |                             1,513  |
|  Minimum lease payments                     |                $1,817  |                                     $11,319  |                            $4,932  |
| Imputed interest                            |                  (693) |                                              |                                    |
| Present value of minimum lease payments     |                 1,124  |                                              |                                    |
| Current portion                             |                  (128) |                                              |                                    |
| Long\-term obligations under capital leases |                  $996  |                                              |                                    |

(a) Includes airport construction projects managed by United in which United has construction risk, including project cost overruns\. The Company recorded an asset for project costs and a related liability equal to project costs funded by parties other than United\. As of December 31, 2017, United had an asset balance of $814 million recorded in operating property and equipment and $777 million recorded in current and long\-term obligations under capital leases for these airport construction projects\.

As of December 31, 2017, United’s aircraft capital lease minimum payments relate to leases of 31 mainline and 43 regional aircraft as well as to leases of nonaircraft assets\. Imputed interest rate ranges are 3\.5% to 20\.8%\.

Aircraft operating leases have initial terms of five to 26 years, with expiration dates ranging from 2018 through 2029\. Under the terms of most leases, United has the right to purchase the aircraft at the end of the lease term, in some cases, at fair market value, and in others, at fair market value or a percentage of cost\.

During 2015, the Company reached an agreement with AerCap Holdings N\.V\., a major aircraft leasing company, to lease used Airbus S\.A\.S (“Airbus”) A319s\. Eleven aircraft have been delivered since the inception of this agreement, and seven more aircraft are expected to be delivered between 2019 and 2020\. In addition, United has options for seven more A319 aircraft, subject to certain conditions\.

United is the lessee of real property under long\-term operating leases at a number of airports where we are also the guarantor of approximately $1\.4 billion of underlying debt and interest thereon as of December 31, 2017\. These leases are typically with municipalities or other governmental entities, which are excluded from the consolidation requirements concerning a variable interest entity (“VIE”)\. To the extent United’s leases and related guarantees are with a separate legal entity other than a governmental entity, United is not the primary beneficiary because the lease terms are consistent with market terms at the inception of the lease and the lease does not include a residual value guarantee, fixed\-price purchase option, or similar feature\. United has facility operating leases that extend to 2054\.

United’s nonaircraft rent expense was approximately $1\.3 billion, $1\.2 billion and $1\.3 billion for the years ended December 31, 2017, 2016 and 2015, respectively\.

In addition to nonaircraft rent and aircraft rent, which is separately presented in the consolidated statements of operations, United had aircraft rent related to regional aircraft operating leases, which is included as part of Regional capacity purchase expense in United’s consolidated statement of operations, of $458 million, $439 million and $461 million for the years ended December 31, 2017, 2016 and 2015, respectively\.

In connection with UAL Corporation’s and United Air Lines, Inc\.’s (predecessors to UAL and United) fresh\-start reporting requirements upon their exit from Chapter 11 bankruptcy protection in 2006 and the Company’s

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

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

Route Authority

Our flight operations are authorized by certificates of public convenience and necessity and also by exemptions and limited\-entry frequency awards issued by the DOT\. The requisite approvals of other governments for international operations are controlled by bilateral agreements (and a multilateral agreement in the case of the U\.S\. and the European Union) with, or permits or approvals issued by, foreign countries\. Because international air transportation is governed by bilateral or other agreements between the U\.S\. and the foreign country or countries involved, changes in U\.S\. or foreign government aviation policies could result in the alteration or termination of such agreements, diminish the value of our international route authorities or otherwise affect our international operations\. Bilateral agreements between the U\.S\. and various foreign countries served by us are subject to renegotiation from time to time\. The U\.S\. government has negotiated "Open Skies" agreements with many countries, which allow unrestricted access between the U\.S\. and the foreign markets\. These agreements include separate agreements with the European Union and Japan\.

Certain of our international route authorities are subject to periodic renewal requirements\. We request extension of these authorities when and as appropriate\. While the DOT usually renews temporary authorities on routes where the authorized carrier is providing a reasonable level of service, there is no assurance this practice will continue in general or with respect to a specific renewal\. Dormant route authorities may not be renewed in some cases, especially where another U\.S\. carrier indicates a willingness to provide service\.

Airport Access

Operations at three major domestic airports and certain foreign airports served by us are regulated by governmental entities through allocations of "slots" or similar regulatory mechanisms which limit the rights of carriers to conduct operations at those airports\. Each slot represents the authorization to land at or take off from the particular airport during a specified time period\.

In the U\.S\., the FAA currently regulates the allocation of slots, slot exemptions, operating authorizations, or similar capacity allocation mechanisms at Reagan National in Washington, D\.C\. and LaGuardia and JFK in the New York City area\. Our operations at these airports generally require the allocation of slots or analogous regulatory authorizations\. Similarly, our operations at Tokyo's Narita and Haneda airports, London's Heathrow airport and other international airports are regulated by local slot coordinators pursuant to the International Air Transport Association's Worldwide Scheduling Guidelines and applicable local law\. We currently have sufficient slots or analogous authorizations to operate our existing flights, and we have generally been able to obtain the rights to expand our operations and to change our schedules\. There is no assurance, however, that we will be able to do so in the future because, among other reasons, such allocations are subject to changes in governmental policies\.

Environmental Matters

Our operations are subject to a number of international, federal, state and local laws and regulations governing protection of the environment, including regulation of greenhouse gases and other air emissions, noise reduction, water discharges, aircraft drinking water, storage and use of petroleum and other regulated substances, and the management and disposal of hazardous waste, substances and materials\.

Emissions \. Greenhouse gas emissions by the aviation industry and their impact on climate change have become a particular focus in the international community and within the U\.S\. For several years, the European Union has required its member states to implement regulations to include aviation in its Emissions Trading Scheme ("ETS")\. Under these regulations, any airline with flights originating or landing in the European Union is subject to the ETS and, beginning in 2012, was required to purchase emissions allowances if the airline exceeds the number of free allowances allocated to it under the ETS\. The ETS was amended to apply only to flights within the European Economic Area from 2013 through 2016\. In 2017, the EU extended the exemption for foreign flights through 2023 given the International Civil Aviation Organization’s ("ICAO") adoption of a global market\-based program\.

 8


Annual Report of Southwest Airlines Co\. for year 2019

Operating revenues, approximately   $21\.8 billion , approximately   $21\.4 billion , and approximately   $20\.7 billion  in  2019 ,  2018 , and  2017 , respectively, were attributable to domestic operations\.

Loyalty Program

The Company records a liability for the relative fair value of providing free travel under its loyalty program for all points earned from flight activity or sold to companies participating in the Company’s Rapid Rewards loyalty program as business partners that are expected to be redeemed for future travel\. The loyalty liability represents performance obligations that will be satisfied when a Rapid Rewards loyalty member redeems points for travel or other goods and services\. Points earned from flight activity are valued at their relative standalone selling price by applying fair value based on historical redemption patterns\. Points earned from business partner activity, which primarily consist of points sold, along with related marketing services, to companies participating in the Rapid Rewards loyalty program, are valued using a relative fair value methodology based on the contractual rate which partners pay to Southwest to award Rapid Rewards points to the business partner’s customers\. For points that are expected to remain unused, the Company recognizes spoilage in proportion to the pattern of points used by the Customer, which approximates the average period over which the population of Rapid Reward Members redeem their points\. The Company records passenger revenue related to air transportation when the transportation is delivered\. The marketing elements are recognized as Other \- net revenue when earned\. The Company’s liability for loyalty benefits includes a portion that is expected to be redeemed during the following twelve months (classified as a component of Air traffic liability), and a portion that is not expected to be redeemed during the following twelve months (classified as Air traffic liability \- noncurrent)\. The Company continually updates this analysis and adjusts the split between current and non\-current liabilities as appropriate\. See Note  5  for further information\.

Advertising

Advertising costs are charged to expense as incurred\. Advertising and promotions expense for the years ended  December 31, 2019 ,  2018 , and  2017  was   $212 million ,   $215 million , and   $224 million , respectively, and is included as a component of Other operating expense in the accompanying Consolidated Statement of Income\.

Share\-based Employee Compensation

The Company has share\-based compensation plans covering certain Employees, including a plan that also covers the Company’s Board of Directors\. The Company accounts for share\-based compensation based on its grant date fair value\. See  Note 9  for further information\.

Financial Derivative Instruments

The Company accounts for financial derivative instruments at fair value and applies hedge accounting rules where appropriate\. The Company utilizes various derivative instruments, including jet fuel, crude oil, unleaded gasoline, and heating oil\-based derivatives, to attempt to reduce the risk of its exposure to jet fuel price increases\. These instruments are accounted for as cash flow hedges upon proper qualification\. The Company also has interest rate swap agreements to convert a portion of its fixed\-rate debt to floating rates and has swap agreements that convert certain floating\-rate debt to a fixed\-rate\. The Company has forward\-starting interest rate swap agreements, the primary objective of which is to hedge forecasted debt issuances and aircraft leases\. The majority of these interest rate hedges are appropriately designated as either fair value hedges or as cash flow hedges\.

Since the majority of the Company’s financial derivative instruments are not traded on a market exchange, the Company estimates their fair values\. Depending on the type of instrument, the values are determined by the use of present value methods or option value models with assumptions about commodity prices based on those observed in underlying markets\.

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