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

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

NOTE 7 \- PENSION AND OTHER POSTRETIREMENT PLANS

The following summarizes the significant pension and other postretirement plans of United:

Pension Plans\.  United maintains two primary defined benefit pension plans, one covering certain pilot employees and another covering certain U\.S\. non\-pilot employees\. Each of these plans provide benefits based on a combination of years of benefit accruals service and an employee's final average compensation\. Additional benefit accruals are frozen under the plan covering certain pilot employees and for management and administrative employees covered under the non\-pilot plan\. Benefit accruals for certain non\-pilot employees continue\. United maintains additional defined benefit pension plans, which cover certain international employees\.

Other Postretirement Plans\.  United maintains postretirement medical programs which provide medical benefits to certain retirees and eligible dependents, as well as life insurance benefits to certain retirees participating in the plan\. Benefits provided are subject to applicable contributions, co\-payments, deductibles and other limits as described in the specific plan documentation\. During 2019, United notified participants of a refresh to the plan options offered under its retiree medical benefit program\. Non\-HMO (health maintenance organization) medical plan options for post\-Medicare retirees were converted to fully\-insured Medicare Advantage plans\. The plan design changes impacted all current and future eligible post\-Medicare retirees, through updates in plan design and/or premium rate/contribution setting refinements\. Benefit levels were not reduced as a result of this change, and in many cases the refresh resulted in reduced retiree contributions\. As a result of this modification to its retiree medical plan options, the Company remeasured retiree medical benefit program liabilities using a discount rate of   3\.39% \. The projected benefit obligation of the retiree medical benefit program decreased by   $421 million  with an offset to Accumulated other comprehensive loss (  $597 million  in prior service credits related to the plan changes, partially offset by   $176 million  in actuarial losses related to the remeasurement), which will be amortized over the average years of future service to full eligibility for the participants in the retiree medical benefit program (approximately   seven years )\.

Actuarial assumption changes are reflected as a component of the net actuarial (gain)/loss during  2019  and  2018 \. The 2019 actuarial losses were mainly related to a decrease in the discount rate applied at  December 31, 2019  compared to  December 31, 2018 \. Actuarial gains/losses will be amortized over the average remaining service life of the covered active employees or the average life expectancy of inactive participants\.

The following tables set forth the reconciliation of the beginning and ending balances of the benefit obligation and plan assets, the funded status and the amounts recognized in these financial statements for the defined benefit and other postretirement plans (in millions):

|                                                   |                                  |                                  |
| ------------------------------------------------- | -------------------------------- | -------------------------------- |
|                                                   | **Pension Benefits**             | **Pension Benefits**             |
|                                                   | **Year Ended December 31, 2019** | **Year Ended December 31, 2018** |
| Accumulated benefit obligation:                   | $5,333                           | $4,448                           |
| Change in projected benefit obligation:           |                                  |                                  |
| Projected benefit obligation at beginning of year | $5,396                           | $5,852                           |
| Service cost                                      | 184                              | 228                              |
| Interest cost                                     | 226                              | 217                              |
| Actuarial (gain) loss                             | 784                              | (601

)                    |
| Gross benefits paid and settlements               | (200

)                    | (292

)                    |
| Other                                             | 8                                | (8

)                      |
| Projected benefit obligation at end of year       | $6,398                           | $5,396                           |
| Change in plan assets:                            |                                  |                                  |
| Fair value of plan assets at beginning of year    | $3,827                           | $3,932                           |
| Actual (loss) return on plan assets               | 684                              | (215

)                    |
| Employer contributions                            | 649                              | 413                              |
| Gross benefits paid and settlements               | (200

)                    | (292

)                    |
| Other                                             | 4                                | (11

)                     |
| Fair value of plan assets at end of year          | $4,964                           | $3,827                           |
| Funded status—Net amount recognized               | $

(1,434

)         | $

(1,569

)         |

68


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

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

**UNITED AIRLINES, INC\.**

**STATEMENTS OF CONSOLIDATED CASH FLOWS**

**(In millions)**

|                                                                                |                             |                             |                             |
| ----------------------------------------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                                                | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                                                | **2018**                    | **2017 (a)**                | **2016 (a)**                |
| Operating Activities:                                                               |                             |                             |                             |
| Net income                                                                          | $2,131                      | $2,163                      | $2,234                      |
| Adjustments to reconcile net income to net cash provided by operating activities \- |                             |                             |                             |
| Deferred income taxes                                                               | 515                         | 956                         | 1,633                       |
| Depreciation and amortization                                                       | 2,240                       | 2,149                       | 1,977                       |
| Special charges, non\-cash portion                                                  | 416                         | 35                          | 391                         |
| Other operating activities                                                          | 170                         | 140                         | 109                         |
| Changes in operating assets and liabilities \-                                      |                             |                             |                             |
| Increase in receivables                                                             | (29)                        | (183)                       | (16)                        |
| Increase in intercompany receivables                                                | (20)                        | (15)                        | (57)                        |
| (Increase) decrease in other assets                                                 | 29                          | (533)                       | (250)                       |
| Increase (decrease) in advance ticket sales                                         | 441                         | 145                         | (28)                        |
| Increase (decrease) in frequent flyer deferred revenue                              | 222                         | (107)                       | (55)                        |
| Increase in accounts payable                                                        | 130                         | 66                          | 239                         |
| Decrease in advanced purchase of miles                                              | —                           | (942)                       | (206)                       |
| Decrease in other liabilities                                                       | (82)                        | (475)                       | (436)                       |
| Net cash provided by operating activities                                           | 6,163                       | 3,399                       | 5,535                       |
| Investing Activities:                                                               |                             |                             |                             |
| Capital expenditures                                                                | (4,177)                     | (3,998)                     | (3,223)                     |
| Purchases of short\-term and other investments                                      | (2,552)                     | (3,241)                     | (2,768)                     |
| Proceeds from sale of short\-term and other investments                             | 2,616                       | 3,177                       | 2,712                       |
| Loans made to others                                                                | (466)                       | (30)                        | (56)                        |
| Investment in affiliates                                                            | (139)                       | (2)                         | (14)                        |
| Other, net                                                                          | 155                         | 164                         | 111                         |
| Net cash used in investing activities                                               | (4,563)                     | (3,930)                     | (3,238)                     |
| Financing Activities:                                                               |                             |                             |                             |
| Proceeds from issuance of long\-term debt and airport construction financing        | 1,740                       | 2,765                       | 808                         |
| Payments of long\-term debt                                                         | (1,727)                     | (901)                       | (1,215)                     |
| Dividend to UAL                                                                     | (1,235)                     | (1,844)                     | (2,614)                     |
| Principal payments under capital leases                                             | (134)                       | (124)                       | (136)                       |
| Capitalized financing costs                                                         | (37)                        | (80)                        | (64)                        |
| Other, net                                                                          | 1                           | 3                           | 15                          |
| Net cash used in financing activities                                               | (1,392)                     | (181)                       | (3,206)                     |
| Net increase (decrease) in cash, cash equivalents and restricted cash               | 208                         | (712)                       | (909)                       |
| Cash, cash equivalents and restricted cash at beginning of year                     | 1,585                       | 2,297                       | 3,206                       |
| Cash, cash equivalents and restricted cash at end of year                           | $1,793                      | $1,585                      | $2,297                      |
| Investing and Financing Activities Not Affecting Cash:                              |                             |                             |                             |
| Property and equipment acquired through the issuance of debt and capital leases     | $174                        | $935                        | $386                        |
| Debt associated with termination of a maintenance service agreement                 | 163                         | —                           | —                           |
| Investment in Republic Airways Holdings, Inc\. received from bankruptcy claims      | —                           | 92                          | —                           |
| Airport construction financing                                                      | 12                          | 42                          | 91                          |
| Operating lease conversions to capital lease                                        | 52                          | —                           | 12                          |
| Cash Paid During the Period for:                                                    |                             |                             |                             |
| Interest                                                                            | $651                        | $571                        | $584                        |
| Income taxes                                                                        | 19                          | 20                          | 14                          |

(a) Amounts adjusted due to the adoption of Accounting Standards Update No\. 2014\-09, *Revenue from Contracts with Customers (Topic 606)\.* See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information\.

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

52


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

*Operating Special Items, Net*

|                                                         |                              |                              |
| ------------------------------------------------------- | ---------------------------- | ---------------------------- |
|                                                         | **Year Ended December 31,**  | **Year Ended December 31,**  |
|                                                         | **2017**                     | **2016**                     |
|                                                         | **(In millions)**            | **(In millions)**            |
| Merger integration expenses  ^(1)^                      | $273                         | $514                         |
| Fleet restructuring expenses  ^(2)^                     | 232                          | 177                          |
| Employee 2017 Tax Act bonus expense  ^(3)^              | 123                          | —                            |
| Labor contract expenses  ^(4)^                          | 46                           | —                            |
| Mark\-to\-market adjustments for bankruptcy obligations | 27                           | 25                           |
| Other operating charges (credits), net                  | 11                           | (7)                          |
| Total mainline operating special items, net             | 712                          | 709                          |
| Regional operating special items, net                   | 22                           | 14                           |
| Total operating special items, net                      | $734                         | $723                         |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| ^(1)^ | Merger integration expenses included costs related to information technology, professional fees, re\-branding of aircraft and airport facilities and training, and in 2016, also included costs related to alignment of labor union contracts and the launch of re\-branded uniforms, both of which drove the $241 million year\-over\-year decrease in these expenses\. |

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

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(3)^ | Employee bonus expense included costs related to the $1,000 cash bonus and associated payroll taxes granted to mainline employees as of December 31, 2017 in recognition of the 2017 Tax Act\. |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(4)^ | Labor contract expenses primarily included one\-time charges to adjust the vacation accruals for pilots and flight attendants as a result of the mid\-contract pay rate adjustments effective in the second quarter of 2017\. |

*Regional Operating Expenses*

|                                   |                                              |                                              |                                              |                                              |
| --------------------------------- | -------------------------------------------- | -------------------------------------------- | -------------------------------------------- | -------------------------------------------- |
|                                   | **Year Ended December 31,**                  | **Year Ended December 31,**                  | **Increase
(Decrease)**                 | **Percent
Increase
(Decrease)**    |
|                                   | **2017**                                     | **2016**                                     | **Increase
(Decrease)**                 | **Percent
Increase
(Decrease)**    |
|                                   | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** |
| Aircraft fuel and related taxes   | $1,382                                       | $1,109                                       | $273                                         | 24\.6                                        |
| Other                             | 5,164                                        | 4,935                                        | 229                                          | 4\.6                                         |
| Total regional operating expenses | $6,546                                       | $6,044                                       | $502                                         | 8\.3                                         |

Regional operating expenses increased $502 million, or 8\.3%, in 2017 from 2016\. The year\-over\-year increase was due in part to a $273 million, or 24\.6%, increase in fuel costs\. The average price per gallon of fuel increased 21\.2% to $1\.79 in 2017 from $1\.48 in 2016, on a 2\.8% increase in consumption\. Additionally, other regional operating expenses increased $229 million, or 4\.6%, primarily driven by a 3\.2% increase in capacity, principally from our wholly\-owned regional carriers\. See Note 1(q) to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information on regional expenses\.

53


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

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

ITEM 3\. LEGAL PROCEEDINGS

First Bag Fee Antitrust Litigation

In 2009, a number of purported class action antitrust lawsuits were filed against Delta and AirTran Airways ("AirTran"), alleging that Delta and AirTran engaged in collusive behavior in violation of Section 1 of the Sherman Act in November 2008 based upon certain public statements made in October 2008 by AirTran's CEO at an analyst conference concerning fees for the first checked bag, Delta's imposition of a fee for the first checked bag on November 4, 2008 and AirTran's imposition of a similar fee on November 12, 2008\. The plaintiffs sought to assert claims on behalf of an alleged class consisting of passengers who paid the first bag fee after December 5, 2008 and seek injunctive relief and unspecified treble damages\. All of these cases have been consolidated for pre\-trial proceedings and remain pending in the Northern District of Georgia\.

On July 12, 2016, the Court issued an order granting the plaintiffs' motion for class certification\. On October 7, 2016, the U\.S\. Court of Appeals for the Eleventh Circuit granted the defendants' petition for interlocutory review of this order, and that appeal remains pending\.

On March 29, 2017, the District Court granted the defendants’ motions for summary judgment\. The plaintiffs have filed an appeal to the U\.S\. Court of Appeals, and that appeal remains pending\.

Capacity Antitrust Litigation

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

\*\*\*

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

ITEM 4\. MINE SAFETY DISCLOSURES

Not applicable\.

 22


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

***Fair Value of Other Financial Instruments***

The Company used the following methods and assumptions to determine the fair value of financial instruments that are not recognized at fair value on the consolidated balance sheets\.

*Cash and Cash Equivalents*: Carried at amortized costs which approximate fair value\.

*Debt*: Debt assumed in the acquisition of Virgin America was subject to a non\-recurring fair valuation adjustment as part of purchase price accounting\. The adjustment is amortized over the life of the associated debt\. All other fixed\-rate debt is carried at cost\. To estimate the fair value of all fixed\-rate as of December 31, 2018, the Company uses the income approach by discounting cash flows using borrowing rates for comparable debt over the weighted life of the outstanding debt\. The estimated fair value of the fixed\-rate debt is Level 3 as certain inputs used are unobservable\.

Fixed\-rate debt on the consolidated balance sheet and the estimated fair value of long\-term fixed\-rate debt (in millions):

|                                                                |                       |                       |
| -------------------------------------------------------------- | --------------------- | --------------------- |
|                                                                | **December 31, 2018** | **December 31, 2017** |
| Fixed rate debt at cost                                        | **$639**              | $956                  |
| Non\-recurring purchase price accounting fair value adjustment | **3**                 | 3                     |
| Total fixed rate debt                                          | **$642**              | $959                  |
| Estimated fair value                                           | **$641**              | $959                  |

**NOTE 6\. LONG\-TERM DEBT**

Long\-term debt obligations (in millions):

|                                               |            |          |
| --------------------------------------------- | ---------- | -------- |
|                                               | **2018**   | **2017** |
| Fixed\-rate notes payable due through 2028    | **$642**   | $959     |
| Variable\-rate notes payable due through 2028 | **1,473**  | 1,625    |
| Less debt issuance costs                      | **(12)**   | (15)     |
| **Total debt**                                | **2,103**  | 2,569    |
| Less current portion                          | **486**    | 307      |
| **Long\-term debt, less current portion**     | **$1,617** | $2,262   |
| Weighted\-average fixed\-interest rate        | **4\.1%**  | 4\.2%    |
| Weighted\-average variable\-interest rate     | **3\.9%**  | 2\.8%    |

During 2018, the Company's total debt decreased$466 million, primarily due to payments of $807 million in 2018, including the prepayment of $451 million of debt\. These reductions in debt were offset by the addition of secured debt financing from multiple lenders of $339 million\. All outstanding debt is secured by aircraft, spare engines or by interest in certain aircraft purchase deposits\.

The Company's variable\-rate debt bears interest at a floating rate per annum equal to a margin plus the three or six\-month LIBOR in effect at the commencement of each three or six\-month period, as applicable\. As of December 31, 2018, none of the Company's borrowings were restricted by financial covenants\.

 76


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

**AMERICAN AIRLINES, INC\.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In millions)**

|                                                                                |                  |                  |                  |
| --------------------------------------------------------------------------------- | ---------------- | ---------------- | ---------------- |
|                                                                                | **December 31,** | **December 31,** | **December 31,** |
|                                                                                | **2018**         | **2017**         | **2016**         |
| **Cash flows from operating activities:**                                         |                  |                  |                  |
| Net income                                                                        | $1,658           | $1,285           | $2,689           |
| Adjustments to reconcile net income to net cash provided by operating activities: |                  |                  |                  |
| Depreciation and amortization                                                     | 2,108            | 1,964            | 1,762            |
| Debt discount and lease amortization                                              | (97)             | (119)            | (124)            |
| Special items, non\-cash                                                          | 458              | 272              | 270              |
| Pension and postretirement                                                        | (302)            | (132)            | (70)             |
| Deferred income tax provision                                                     | 503              | 2,246            | 1,597            |
| Share\-based compensation                                                         | 86               | 90               | 100              |
| Other, net                                                                        | (62)             | (25)             | (16)             |
| **Changes in operating assets and liabilities:**                                  |                  |                  |                  |
| Decrease (increase) in accounts receivable                                        | 232              | (189)            | (169)            |
| Increase in other assets                                                          | (354)            | (405)            | (205)            |
| Increase (decrease) in accounts payable and accrued  liabilities                  | (171)            | 266              | 336              |
| Increase in air traffic liability                                                 | 297              | 65               | 158              |
| Increase in receivables from related parties, net                                 | (1,849)          | (1,994)          | (4,862)          |
| Increase (decrease) in loyalty program liability                                  | (283)            | (308)            | 417              |
| Contributions to pension plans                                                    | (472)            | (286)            | (32)             |
| Increase (decrease) in other liabilities                                          | 191              | 140              | (101)            |
| Net cash provided by operating activities                                         | 1,943            | 2,870            | 1,750            |
| **Cash flows from investing activities:**                                         |                  |                  |                  |
| Capital expenditures and aircraft purchase deposits                               | (3,677)          | (5,881)          | (5,657)          |
| Proceeds from sale of property and equipment and sale\-leaseback transactions     | 1,202            | 922              | 115              |
| Purchases of short\-term investments                                              | (3,412)          | (4,633)          | (6,241)          |
| Sales of short\-term investments                                                  | 3,705            | 5,915            | 6,092            |
| Proceeds from sale of investments                                                 | 207              | —                | —                |
| Decrease in restricted short\-term investments                                    | 72               | 309              | 53               |
| Purchase of equity investment                                                     | —                | (203)            | —                |
| Other investing activities                                                        | (7)              | —                | —                |
| Net cash used in investing activities                                             | (1,910)          | (3,571)          | (5,638)          |
| **Cash flows from financing activities:**                                         |                  |                  |                  |
| Proceeds from issuance of long\-term debt                                         | 2,354            | 3,058            | 7,701            |
| Payments on long\-term debt and finance leases                                    | (2,442)          | (2,332)          | (3,827)          |
| Deferred financing costs                                                          | (59)             | (85)             | (77)             |
| Other financing activities                                                        | —                | 27               | 33               |
| Net cash provided by (used in) financing  activities                              | (147)            | 668              | 3,830            |
| Net decrease in cash  and restricted cash                                         | (114)            | (33)             | (58)             |
| Cash and restricted cash at beginning of year                                     | 390              | 423              | 481              |
| Cash and restricted cash at end of year  ^(a)^                                    | $276             | $390             | $423             |

^(a)^ The following table provides a reconciliation of cash and restricted cash to amounts reported within the consolidated balance sheets:

|                                                                         |      |      |      |
| ----------------------------------------------------------------------- | ---- | ---- | ---- |
| Cash                                                                    | $265 | $287 | $310 |
| Restricted cash included in restricted cash and short\-term investments | 11   | 103  | 113  |
| Total cash and restricted cash                                          | $276 | $390 | $423 |

See accompanying notes to consolidated financial statements\.

133


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

As announced in September 2019, we are in the process of unwinding our commercial relationship with LATAM\. We do not expect this change to have a significant financial impact on our company\. After giving effect to this change, American remains the largest U\.S\. carrier to Latin America\.

Marketing Relationships

To improve access to each other’s markets, various U\.S\. and foreign air carriers, including American, have established marketing agreements with other airlines\. These marketing agreements generally provide enhanced customer choice by means of an expanded network with reciprocal loyalty program participation and joint sales cooperation\. As of  December 31, 2019 , American had codeshare and/or loyalty program relationships with Air Tahiti Nui, Alaska Airlines, British Airways, Cape Air, Cathay Dragon, Cathay Pacific, China Southern Airlines, EL AL, Etihad Airways, Fiji Airways, Finnair, Gulf Air, Hawaiian Airlines, Iberia, Interjet, Japan Airlines, Jetstar Group (includes Jetstar Airways and Jetstar Japan), Korean Air, LATAM (includes LATAM Airlines, LATAM Argentina, LATAM Brasil, LATAM Peru, LATAM Colombia and LATAM Ecuador), Malaysia Airlines, Qantas Airways, Qatar Airways, Royal Air Maroc, Royal Jordanian, S7 Airlines, Seaborne Airlines, SriLankan Airlines and Vueling Airlines\. In February 2020, American announced that it intends to enter into a codeshare relationship with the Brazilian airline, GOL Linhas Aéreas, which is expected to be implemented in  2020 , subject to the receipt of relevant government approvals\.

Recent Developments

On February 13, 2020, we announced our intention to enter into an expanded relationship with Alaska Airlines\. This arrangement, once finalized, will expand our existing codeshare relationship, including codeshare on certain of our international routes from Seattle\-Tacoma International Airport (SEA) and LAX, and will provide for reciprocal loyalty program benefits and shared lounge access\. In addition, we announced new nonstop international service from SEA to Bangalore, India and to LHR, expected to commence in October 2020 and March 2021, respectively\. The implementation of this expanded relationship and commencement of these new routes are subject to the negotiation and execution of definitive documentation and governmental review\.

Loyalty Program

Our loyalty program, AAdvantage ^®^ , was established to develop passenger loyalty by offering awards to travelers for their continued patronage\. AAdvantage was named Best Elite Program in the Americas for the eighth consecutive year in that category at the 2019 Freddie Awards, which are annual awards that recognize the world’s most outstanding frequent travel programs\. AAdvantage members earn mileage credits by flying on American, any  one world airline or other partner airlines, or by using the services of over 1,000 program participants, such as the Citi and Barclaycard US co\-branded credit cards, and certain hotels and car rental companies\. For every dollar spent, non\-status members earn five mileage credits, but Gold, Platinum, Platinum Pro and Executive Platinum status holders earn bonus mileage credits of seven, eight, nine and eleven mileage credits, respectively\.

All travel on eligible tickets counts toward qualification for elite status in the AAdvantage program\. Mileage credits can be redeemed for free or upgraded travel on American and participating airlines, membership to our Admirals Club ^®^  or for other non\-travel awards from our program participants\. Most travel awards are subject to capacity\-controlled seating\. A member’s mileage credit does not expire as long as that member has any type of qualifying activity at least once every 18 months\. Elite members can enjoy additional benefits of the AAdvantage program, including complimentary upgrades, checked bags, and Preferred and Main Cabin Extra seats, as well as priority check\-in, security, boarding and baggage delivery\. Additionally, our members earn bonus mileage credits when elite status is obtained\.

Under our agreements with AAdvantage members and program partners, we reserve the right to change the terms of the AAdvantage program at any time and without notice, and may end the program with six months’ notice\. Program rules, partners, special offers, awards and requisite mileage levels for awards are subject to change\.

During  2019 , our members redeemed approximately  14 million  awards, including travel redemptions for flights and upgrades on American and other air carriers, as well as redemption of car and hotel awards, club memberships and merchandise\. Approximately  8%  of our  2019  total revenue passenger miles flown were from award travel\.

See Part II, Item 7\. Management’s Discussion and Analysis of Financial Condition and Results of Operations – “ Critical Accounting Policies and Estimate s” for more information on our loyalty program\.

7


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

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

Other Legal Proceedings\.  The Company is involved in various other claims and legal actions involving passengers, customers, suppliers, employees and government agencies arising in the ordinary course of business\. Additionally, from time to time, the Company becomes aware of potential non\-compliance with applicable environmental regulations, which have either been identified by the Company (through internal compliance programs such as its environmental compliance audits) or through notice from a governmental entity\. In some instances, these matters could potentially become the subject of an administrative or judicial proceeding and could potentially involve monetary sanctions\. After considering a number of factors, including (but not limited to) the views of legal counsel, the nature of contingencies to which the Company is subject and prior experience, management believes that the ultimate disposition of these other claims and legal actions will not materially affect its consolidated financial position or results of operations\. However, the ultimate resolutions of these matters are inherently unpredictable\. As such, the Company's financial condition and results of operations could be adversely affected in any particular period by the unfavorable resolution of one or more of these matters\.

|              |                               |
| ------------ | ----------------------------- |
| **ITEM 4\.** | **MINE SAFETY DISCLOSURES\.** |

Not applicable\.

PART II

|              |                                                                                |
| ------------ | ------------------------------------------------------------------------------------------------------------------ |
| **ITEM 5\.** | **MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES\.** |

UAL's common stock is listed on the Nasdaq Global Select Market ("Nasdaq") under the symbol "UAL\." As of  February 18, 2020 , there were 5,073 holders of record of UAL common stock\.

The following graph shows the cumulative total stockholder return for UAL's common stock during the period from  December 31, 2014  to  December 31, 2019 \. The graph also shows the cumulative returns of the Standard and Poor's 500 Index ("SPX") and the NYSE Arca Airline Index ("XAL") of 14 investor\-owned airlines over the same five\-year period\. The comparison assumes $100 was invested on  December 31, 2014  in each of UAL common stock, the SPX and the XAL\.

![a2019performancev2\.jpg](https://www.example.com/a2019performancev2.jpg)

Note:  The stock price performance shown in the graph above should not be considered indicative of potential future stock price performance\. The foregoing performance graph is being furnished as part of this report solely in accordance with the requirement under Rule 14a\-3(b)(9) to furnish our stockholders with such information, and therefore, shall not be deemed to be filed or incorporated by reference into any filings by the Company under the Securities Act or the Exchange Act\.

25


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

**Reconciliation of GAAP to Non\-GAAP Financial Measures**

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

The following table presents the components of our total special items and the reconciliation of pre\-tax income and net income (GAAP measures) to pre\-tax income excluding special items and net income excluding special items (non\-GAAP measures)\. Management uses pre\-tax income excluding special items and net income excluding special items to evaluate our current operating performance and to allow for period\-to\-period comparisons\. As special items may vary from period\-to\-period in nature and amount, the adjustment to exclude special items allows management an additional tool to better understand our core operating performance\.

|                                                                   |                             |                             |                             |
| ----------------------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                                   | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                                   | **2017**                    | **2016**                    | **2015**                    |
|                                                                   | **(In millions)**           | **(In millions)**           | **(In millions)**           |
| **Components of Total Special Items, Net:**  **^(1)^**            |                             |                             |                             |
| Merger integration costs  ^(2)^                                   | $273                        | $514                        | $826                        |
| Fleet restructuring costs  ^(3)^                                  | 232                         | 177                         | 210                         |
| Employee 2017 Tax Act bonus expense  ^(4)^                        | 123                         | —                           | —                           |
| Labor contract expenses  ^(5)^                                    | 46                          | —                           | —                           |
| Mark\-to\-market adjustments for bankruptcy obligations           | 27                          | 25                          | (53)                        |
| Other operating charges (credits), net                            | 11                          | (7)                         | 68                          |
| Mainline operating special items, net                             | 712                         | 709                         | 1,051                       |
| Regional operating special items, net                             | 22                          | 14                          | 29                          |
| Operating special items, net                                      | 734                         | 723                         | 1,080                       |
| Debt refinancing and extinguishment charges                       | 22                          | 49                          | 24                          |
| Venezuela foreign currency losses                                 | —                           | —                           | 592                         |
| Other nonoperating charges (credits), net                         | —                           | —                           | (22)                        |
| Nonoperating special items, net                                   | 22                          | 49                          | 594                         |
| Pre\-tax special items, net                                       | 756                         | 772                         | 1,674                       |
| Impact of the 2017 Tax Act on deferred tax assets and liabilities | (7)                         | —                           | —                           |
| Release of deferred tax valuation allowance                       | —                           | —                           | (3,040)                     |
| Other tax charges                                                 | —                           | —                           | 25                          |
| Income tax special items, net                                     | (7)                         | —                           | (3,015)                     |
| Total special items, net                                          | $749                        | $772                        | $(1,341)                    |
| **Reconciliation of Pre\-Tax Income Excluding Special Items:**    |                             |                             |                             |
| Pre\-tax income – GAAP                                            | $3,084                      | $4,299                      | $4,616                      |
| Adjusted for: Pre\-tax special items, net                         | 756                         | 772                         | 1,674                       |
| Pre\-tax income excluding special items                           | $3,840                      | $5,071                      | $6,290                      |
| **Reconciliation of Net Income Excluding Special Items:**         |                             |                             |                             |
| Net income – GAAP                                                 | $1,919                      | $2,676                      | $7,610                      |
| Adjusted for: Total special items, net                            | 749                         | 772                         | (1,341)                     |
| Adjusted for: Net tax effect of special items  ^(6)^              | (269)                       | (275)                       | —                           |
| Net income excluding special items                                | $2,399                      | $3,173                      | $6,269                      |

42


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

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

In  2019 , American recorded an income tax provision of   $633 million , with an effective rate of approximately   24% , which was substantially non\-cash as American utilized its NOLs as described above\. Substantially all of American’s income before income taxes is attributable to the United States\.

American is part of the AAG consolidated income tax return\. American files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates\. American’s 2016 through 2018 tax years are still subject to examination by the Internal Revenue Service\. Various state and foreign jurisdiction tax years remain open to examination and American is under examination, in administrative appeals, or engaged in tax litigation in certain jurisdictions\. American believes that the effect of any assessments will not be material to its consolidated financial statements\.

The amount of, and changes to, American’s uncertain tax positions were not material in any of the years presented\. American accrues interest and penalties related to unrecognized tax benefits in interest expense and operating expense, respectively\.

The 2017 Tax Act was enacted on December 22, 2017 and is the most comprehensive tax change in more than 30 years\. American completed its evaluation of the 2017 Tax Act and American reflected the impact of its effects, including the impact of a lower corporate income tax rate (21% vs\. 35%) on its deferred tax assets and liabilities and the one\-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred\. For the year ended December 31 2017, American recognized a special income tax provision of   $924 million  to reflect these impacts of the 2017 Tax Act\.

6\. Risk Management

American’s economic prospects are heavily dependent upon two variables it cannot control: the health of the economy and the price of fuel\.

Due to the discretionary nature of business and leisure travel spending and the highly competitive nature of the airline industry, American’s revenues are heavily influenced by the condition of the U\.S\. economy and economies in other regions of the world\. Unfavorable conditions in these broader economies have resulted, and may result in the future, in decreased passenger demand for air travel, changes in booking practices and related reactions by American’s competitors, all of which in turn have had, and may have in the future, a negative effect on American’s business\. In addition, during challenging economic times, actions by its competitors to increase their revenues can have an adverse impact on American’s revenues\.

American’s operating results are materially impacted by changes in the availability, price volatility and cost of aircraft fuel, which represents one of the largest single cost items in American’s business\. Aircraft fuel prices have in the past, and may in the future, experience substantial volatility\. Because of the amount of fuel needed to operate American’s business, even a relatively small increase or decrease in the price of aircraft fuel can have a material effect on American’s operating results and liquidity\.

These additional factors could impact American’s results of operations, financial performance and liquidity:

(a) Credit Risk

Most of American’s receivables relate to tickets sold to individual passengers through the use of major credit cards or to tickets sold by other airlines and used by passengers on American\. These receivables are short\-term, mostly settled within seven days after sale\. Bad debt losses, which have been minimal in the past, have been considered in establishing allowances for doubtful accounts\. American does not believe it is subject to any significant concentration of credit risk\.

(b) Interest Rate Risk

American has exposure to market risk associated with changes in interest rates related primarily to its variable\-rate debt obligations\. Interest rates on   $9\.6 billion  principal amount of long\-term debt as of  December 31, 2019  are subject to adjustment to reflect changes in floating interest rates\. The weighted average effective interest rate on American’s variable\-rate debt was   3\.6%  at  December 31, 2019 \. American currently does not have an interest rate hedge program to hedge its exposure to floating interest rates on its variable\-rate debt obligations\.

(c) Foreign Currency Risk

American is exposed to the effect of foreign exchange rate fluctuations on the U\.S\. dollar value of foreign currency\-denominated transactions\. American’s largest exposure comes from the British pound, Euro, Canadian dollar and various Latin American currencies, primarily the Brazilian real\. American does not currently have a foreign currency hedge program\.

139


Annual Report of Southwest Airlines Co\. for year 2017

2004, Director of Investor Relations from December 1994 to March 2002, Manager of Investor Relations from September 1994 to December 1994, and Manager of Financial Reporting from September 1991 to September 1994\.

*Andrew M\. Watterson* has served as the Company's Executive Vice President & Chief Revenue Officer since July 2017\. Mr\. Watterson also served as Senior Vice President & Chief Revenue Officer from January 2017 to July 2017, Senior Vice President of Network & Revenue from January 2016 to January 2017, and as Vice President of Network Planning & Performance from October 2013 to January 2016\. Prior to becoming an officer of the Company, Mr\. Watterson served as Vice President of Planning and Revenue Management at Hawaiian Airlines from May 2011 to October 2013\.

*Gregory D\. Wells* has served as the Company's Executive Vice President Daily Operations since January 2017\. Mr\. Wells also served as Senior Vice President Operational Performance from October 2013 to January 2017, Senior Vice President Operations from September 2006 to October 2013, Senior Vice President Ground Operations from November 2005 to September 2006, Vice President Ground Operations from September 2004 to November 2005, Vice President Safety, Security, and Flight Dispatch from October 2001 to September 2004, Director Flight Dispatch from February 1999 to October 2001, Senior Director Ground Operations from August 1998 to February 1999, and Director Ground Operations from August 1996 to August 1998\. Prior to August 1996, Mr\. Wells had various other operational experience with the Company including as Station Manager in both San Jose and Phoenix\. Mr\. Wells has over 35 years of experience with the Company\.

*Mark R\. Shaw* has served as the Company's Senior Vice President, General Counsel, & Corporate Secretary since July 2015\. Mr\. Shaw also served as Vice President, General Counsel, & Corporate Secretary from February 2013 to July 2015 and as Associate General Counsel \- Corporate & Transactions from February 2008 to February 2013\. Mr\. Shaw joined the Company in 2000 as an Attorney in the General Counsel Department\.

33


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

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

DELTA AIR LINES, INC\.

Consolidated Statements of Operations

|                                                                                |                                                                                |                                                                                |                                                                                |
| ---------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- |
|                                                                                | **Year Ended December 31,**                                                              | **Year Ended December 31,**                                                              | **Year Ended December 31,**                                                              |
| **(in millions, except per share data)**                                                 | **2017**                                                                                | **2016**                                                                                | **2015**                                                                                |
| **Operating Revenue:**                                                                   |                                                                                |                                                                                |                                                                                |
| Passenger:                                                                               |                                                                                |                                                                                |                                                                                |
| Mainline                                                                                | $29,105                                                                                | $28,105                                                                                | $28,898                                                                                |
| Regional carriers                                                                        | 5,714                                                                                | 5,672                                                                                | 5,884                                                                                |
|  Total passenger revenue                                                                 | 34,819                                                                                | 33,777                                                                                | 34,782                                                                                |
| Cargo                                                                                | 729                                                                                | 668                                                                                | 813                                                                                |
| Other                                                                                | 5,696                                                                                | 5,194                                                                                | 5,109                                                                                |
|  Total operating revenue                                                                 | 41,244                                                                                | 39,639                                                                                | 40,704                                                                                |
| **Operating Expense:**                                                                   |                                                                                |                                                                                |                                                                                |
| Salaries and related costs                                                               | 10,436                                                                                | 10,034                                                                                | 8,776                                                                                |
| Aircraft fuel and related taxes                                                          | 5,733                                                                                | 5,133                                                                                | 6,544                                                                                |
| Regional carriers expense                                                                | 4,503                                                                                | 4,311                                                                                | 4,241                                                                                |
| Depreciation and amortization                                                            | 2,235                                                                                | 1,902                                                                                | 1,835                                                                                |
| Contracted services                                                                      | 2,184                                                                                | 1,991                                                                                | 1,848                                                                                |
| Aircraft maintenance materials and outside repairs                                       | 1,992                                                                                | 1,823                                                                                | 1,848                                                                                |
| Passenger commissions and other selling expenses                                         | 1,787                                                                                | 1,710                                                                                | 1,672                                                                                |
| Landing fees and other rents                                                             | 1,528                                                                                | 1,490                                                                                | 1,493                                                                                |
| Passenger service                                                                        | 1,067                                                                                | 907                                                                                | 872                                                                                |
| Profit sharing                                                                           | 1,065                                                                                | 1,115                                                                                | 1,490                                                                                |
| Aircraft rent                                                                            | 351                                                                                | 285                                                                                | 250                                                                                |
| Other                                                                                | 2,249                                                                                | 1,986                                                                                | 2,033                                                                                |
| Total operating expense                                                                  | 35,130                                                                                | 32,687                                                                                | 32,902                                                                                |
| **Operating Income**                                                                     | 6,114                                                                                | 6,952                                                                                | 7,802                                                                                |
| **Non\-Operating Expense:**                                                              |                                                                                |                                                                                |                                                                                |
| Interest expense, net                                                                    | (396

)                                                                            | (388

)                                                                            | (481

)                                                                            |
| Miscellaneous, net                                                                       | (17

)                                                                             | 72                                                                                | (164

)                                                                            |
| Total non\-operating expense, net                                                        | (413

)                                                                            | (316

)                                                                            | (645

)                                                                            |
| **Income Before Income Taxes**                                                           | 5,701                                                                                | 6,636                                                                                | 7,157                                                                                |
| **Income Tax Provision**                                                                 | (2,124

)                                                                          | (2,263

)                                                                          | (2,631

)                                                                          |
| **Net Income**                                                                           | $3,577                                                                                | $4,373                                                                                | $4,526                                                                                |
| **Basic Earnings Per Share**                                                             | $4\.97                                                                                | $5\.82                                                                                | $5\.68                                                                                |
| **Diluted Earnings Per Share**                                                           | $4\.95                                                                                | $5\.79                                                                                | $5\.63                                                                                |
| **Cash Dividends Declared Per Share**                                                    | $1\.02                                                                                | $0\.68                                                                                | $0\.45                                                                                |
| The accompanying notes are an integral part of these Consolidated Financial Statements\. | The accompanying notes are an integral part of these Consolidated Financial Statements\. | The accompanying notes are an integral part of these Consolidated Financial Statements\. | The accompanying notes are an integral part of these Consolidated Financial Statements\. |

 51


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

|   |                                                                |
| - | -------------------------------------------------------------- |
| • | international or domestic conflicts or terrorist activity; and |

|   |                                        |
| - | -------------------------------------- |
| • | other changes in business conditions\. |

Due to our concentration of flights along the West Coast and Alaska, we believe a large portion of our operation is more susceptible to air traffic control delays than our competition\. Additionally, due to our concentration of flights in the Pacific Northwest and Alaska, we believe a large portion of our operation is more susceptible to adverse weather conditions\. A general reduction in airline passenger traffic as a result of any of the above\-mentioned factors could harm our business, financial condition and results of operations\.

***Changes in government regulation imposing additional requirements and restrictions on our operations could increase our operating costs and result in service delays and disruptions\.***

Airlines are subject to extensive regulatory and legal requirements, both domestically and internationally, that involve significant compliance costs\. In the last several years, Congress has passed laws, and the U\.S\. DOT, the TSA and the FAA have issued regulations that have required significant expenditures relating to maintenance of aircraft, operation of airlines and broadening of consumer protections\.

Similarly, there are a number of legislative and regulatory initiatives and reforms at the federal, state and local levels\. These initiatives include increasingly stringent laws to protect the environment, minimum wage requirements, mandatory paid sick or family leave, and health care mandates\. These laws could affect our relationship with our workforce and the vendors that serve our airlines and cause our expenses to increase without an ability to pass through these costs\. New initiatives with employer\-funded costs, specifically those impacting Washington State, could disproportionately increase our cost structure as compared to our competitors\.

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\.

 20


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

Our total revenue per available seat mile (TRASM) was 15\.79 cents in 2018, a 2\.4% increase as compared to 15\.42 cents in 2017\.

***Fuel***

Our mainline and regional fuel expense totaled $9\.9 billion in 2018, which was $2\.4 billion, or 31\.8%, higher as compared to 2017\. This increase was driven primarily by a 29\.0% increase in the average price per gallon of fuel to $2\.23 in 2018 from $1\.73 in 2017\.

As of December 31, 2018, we did not have any fuel hedging contracts outstanding to hedge our fuel consumption\. As such, and assuming we do not enter into any future transactions to hedge our fuel consumption, we will continue to be fully exposed to fluctuations in fuel prices\. Our current policy is not to enter into transactions to hedge our fuel consumption, although we review that policy from time to time based on market conditions and other factors\.

***Other Costs***

We remain committed to actively managing our cost structure, which we believe is necessary in an industry whose economic prospects are heavily dependent upon two variables we cannot control: the health of the economy and the price of fuel\.

Our 2018 total cost per available seat mile (CASM) was 14\.85 cents, an increase of 6\.9%, from 13\.88 cents in 2017\. The increase was primarily driven by an increase in fuel costs as described above\.

Our 2018 CASM excluding special items and fuel was 11\.06 cents, an increase of 1\.4%, from 10\.90 cents in 2017\. The increase was primarily driven by higher salaries, wages and benefits\.

For a reconciliation of CASM excluding special items and fuel, see Part II, Item 6\. Selected Consolidated Financial Data – *“Reconciliation of GAAP to Non\-GAAP Financial Measures\.”*

***Liquidity***

As of December 31, 2018, we had approximately $7\.6 billion in total available liquidity, consisting of $4\.8 billion in unrestricted cash and short\-term investments and $2\.8 billion in undrawn revolving credit facilities\. We also had restricted cash and short\-term investments of $154 million\.

During 2018, we completed the following financing transactions:

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------- |
| • | Refinanced a $1\.8 billion term loan facility at a lower interest rate and extended the maturity from 2020 to 2025; |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| • | Raised $1\.9 billion in proceeds from aircraft and pre\-delivery purchase deposit debt financing, of which approximately $513 million was used to repay existing indebtedness; |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------- |
| • | Raised approximately  $1\.1 billion  in proceeds from aircraft sale\-leaseback transactions; |

|   |                                                                  |
| - | ---------------------------------------------------------------- |
| • | Raised an incremental $500 million on a term loan facility; and  |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Increased our revolving credit facility commitments by $343 million, extended their maturities from 2022 to 2023 and improved their undrawn economics\. |

See Note 5 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 3 to American’s Consolidated Financial Statements in Part II, Item 8B for additional information on our debt obligations\.

Additionally, we returned $986 million to our stockholders in 2018, consisting of $186 million in dividend payments and the repurchase of $800 million of AAG common stock, or 16\.6 million shares at a weighted average cost per share of $48\.15\.

50


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

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

***Other Legal Proceedings***

The Company is involved in various other claims and legal actions involving passengers, customers, suppliers, employees and government agencies arising in the ordinary course of business\. Additionally, from time to time, the Company becomes aware of potential non\-compliance with applicable environmental regulations, which have either been identified by the Company (through internal compliance programs such as its environmental compliance audits) or through notice from a governmental entity\. In some instances, these matters could potentially become the subject of an administrative or judicial proceeding and could potentially involve monetary sanctions\. After considering a number of factors, including (but not limited to) the views of legal counsel, the nature of contingencies to which the Company is subject and prior experience, management believes that the ultimate disposition of these other claims and legal actions will not materially affect its consolidated financial position or results of operations\. However, the ultimate resolutions of these matters are inherently unpredictable\. As such, the Company's financial condition and results of operations could be adversely affected in any particular period by the unfavorable resolution of one or more of these matters\.

|              |                               |
| ------------ | ----------------------------- |
| **ITEM 4\.** | **MINE SAFETY DISCLOSURES\.** |

Not applicable\.

**PART II**

|              |                                                                                |
| ------------ | ------------------------------------------------------------------------------------------------------------------ |
| **ITEM 5\.** | **MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES\.** |

Since September 7, 2018, UAL's common stock has traded on the Nasdaq Global Select Market ("Nasdaq") under the symbol "UAL\." Previously, UAL's common stock was traded on the New York Stock Exchange ("NYSE")\. As of February 22, 2019, there were 5,615 holders of record of UAL common stock\.

The following graph shows the cumulative total stockholder return for UAL's common stock during the period from December 31, 2013 to December 31, 2018\. The graph also shows the cumulative returns of the Standard and Poor's 500 Index ("SPX") and the NYSE Arca Airline Index ("XAL") of 15 investor\-owned airlines over the same five\-year period\. The comparison assumes $100 was invested on December 31, 2013 in each of UAL common stock, the SPX and the XAL\.

![ualperformancechart2018\.jpg](https://www.example.com/ualperformancechart2018.jpg)

*Note:* The stock price performance shown in the graph above should not be considered indicative of potential future stock price performance\. The foregoing performance graph is being furnished as part of this report solely in accordance with the requirement under Rule 14a\-3(b)(9) to furnish our stockholders with such information, and therefore, shall not be deemed to be filed or incorporated by reference into any filings by the Company under the Securities Act or the Exchange Act\.

21


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

***Environmental Matters***

*Environmental Regulation*

The airline industry is subject to various laws and government regulations concerning environmental matters in the U\.S\. and other countries\. U\.S\. federal laws that have a particular impact on our operations include the Airport Noise and Capacity Act of 1990, the Clean Air Act, the Resource Conservation and Recovery Act, the Clean Water Act, the Safe Drinking Water Act and the Comprehensive Environmental Response, Compensation and Liability Act (Superfund Act)\. The U\.S\. Environmental Protection Agency (EPA) and other federal agencies have been authorized to promulgate regulations that have an impact on our operations\. In addition to these federal activities, various states have been delegated certain authorities under the aforementioned federal statutes\. Many state and local governments have adopted environmental laws and regulations which are similar to or stricter than federal requirements\.

Revised underground storage tank regulations issued by the EPA in 2015 have affected certain airport fuel hydrant systems, with modifications of such systems needed in order to comply with applicable portions of the revised regulations\. In addition, related to the EPA and state regulations pertaining to stormwater management, several U\.S\. airport authorities are actively engaged in efforts to limit discharges of deicing fluid into the environment, often by requiring airlines to participate in the building or reconfiguring of airport deicing facilities\.

The environmental laws to which we are subject include those related to responsibility for potential soil and groundwater contamination\. We are conducting investigation and remediation activities to address soil and groundwater conditions at several sites, including airports and maintenance bases\. We presently anticipate that the ongoing costs of such activities will not have a material impact on our operations\. In addition, we have been named as a potentially responsible party (PRP) at certain Superfund sites\. Our alleged volumetric contributions at such sites are relatively small in comparison to total contributions of all PRPs\. Accordingly, we presently anticipate that any future payments of costs at such sites will not have a material impact on our operations\.

*Aircraft Emissions and Climate Change Requirements*

Many aspects of our operations are subject to increasingly stringent environmental regulations and concerns about climate change and greenhouse gas (GHG) emissions\. For example, the EU has established the Emissions Trading System (ETS) to regulate GHG emissions in the EU\. The EU adopted a directive in 2008 under which each EU member state is required to extend the ETS to aviation operations\. However, the EU ETS has never fully been imposed, in large part due to the global effort to moderate international aviation emissions solely through the International Civil Aviation Organization (ICAO)\. The EU has extended its stay on the extra\-territorial application of the EU ETS as applied to international flights to/from the European Economic Area (EEA) through year\-end 2023, contingent on successful implementation of CORSIA\. Thereafter, the EU will assess CORSIA implementation and decide the future status of the EU ETS as applied to international aviation to/from the EEA\. The U\.S\. enacted legislation in November 2012 intended to encourage an international solution through ICAO, but which also authorizes the U\.S\. Secretary of Transportation to prohibit U\.S\. airlines from participating in the ETS\.

In 2016, ICAO passed a resolution adopting the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which is a global, market\-based emissions offset program intended to encourage carbon\-neutral growth beyond 2020\. CORSIA applies to international aviation, and does not directly impact domestic U\.S\. flights\. CORSIA was supported by the board of Airlines for America (the principal U\.S\. airline trade association, of which we are a member), the International Air Transport Association (IATA) (the principal international airline trade association), and by American and many other U\.S\. and foreign airlines\. In March 2017, ICAO also adopted new aircraft certification standards to reduce carbon dioxide emissions from aircraft, which will apply to new aircraft type designs commencing in 2020, and to aircraft type designs already in production as of 2023\. On June 27, 2018, ICAO adopted standards pertaining to the collection and sharing of information on international aviation emissions beginning in 2019\. Airline operators must prepare GHG monitoring plans by February 2019\. CORSIA will increase operating costs for American and most other airlines, including other U\.S\. airlines that operate internationally, but the implementation of a global program, as compared to regional emission reduction schemes, should ensure that resulting increases in operating costs will be more evenly applied to American and its competitors since there will be a common global regulatory regime\. CORSIA is expected to be implemented in phases, with information collection and sharing beginning in 2019, a pilot phase beginning in 2021, and the first phase beginning in 2024\. Certain details still need to be developed and the impact of CORSIA cannot be fully predicted\.

In 2019, the EPA could finalize a rule implementing aircraft engine GHG emission standards developed initially through ICAO\. It is anticipated that the EPA rule will closely align with recent ICAO carbon dioxide emission standards\. The new standards, which were supported by the airline industry and manufacturers, would apply to new type aircraft certified beginning in 2020, and would be phased in for newly manufactured existing aircraft type designs starting in 2023\.

13


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

federal NOL Carryforwards to be utilized without regard to the annual limitation generally imposed by Section 382\. If the special rules are determined not to apply, our ability to utilize such federal NOL Carryforwards may be subject to limitation\. Substantially all of our remaining federal NOL Carryforwards attributable to US Airways Group and its subsidiaries are subject to limitation under Section 382 as a result of the Merger; however, our ability to utilize such NOL Carryforwards is not anticipated to be effectively constrained as a result of such limitation\. Similar limitations may apply for state income tax purposes\.

Notwithstanding the foregoing, an ownership change subsequent to our emergence from bankruptcy may severely limit or effectively eliminate our ability to utilize our NOL Carryforwards and other tax attributes\. To reduce the risk of a potential adverse effect on our ability to utilize our NOL Carryforwards, our Certificate of Incorporation contains transfer restrictions applicable to certain substantial stockholders\. These restrictions may adversely affect the ability of certain holders of AAG common stock to dispose of or acquire shares of AAG common stock\. Although the purpose of these transfer restrictions is to prevent an ownership change from occurring, no assurance can be given that an ownership change will not occur even with these restrictions in place\. See also “ Certain provisions of AAG’s Certificate of Incorporation and Bylaws make it difficult for stockholders to change the composition of our Board of Directors and may discourage takeover attempts that some of our stockholders might consider beneficial \. ”

Our ability to use our NOL Carryforwards also will depend on the amount of taxable income generated in future periods\. The NOL Carryforwards may expire before we can generate sufficient taxable income to use them\.

The commercial relationships that we have with other airlines, including any related equity investment, may not produce the returns or results we expect\.

An important part of our strategy to expand our network has been to expand our commercial relationships with other airlines, such as by entering into global alliance, joint business and codeshare relationships, and, in one recent instance involving China Southern Airlines Company Limited (China Southern Airlines), by making a significant equity investment in another airline in connection with initiating such a commercial relationship\. We may explore similar non\-controlling investments in, and joint ventures and strategic alliances with, other carriers as part of our global business strategy\. We face competition in forming and maintaining these commercial relationships since there are a limited number of potential arrangements and other airlines are looking to enter into similar relationships, and our inability to form or maintain these relationships or inability to form as many of these relationships as our competitors may have an adverse effect on our business\. Any such existing or future investment could involve significant challenges and risks, including that we may not realize a satisfactory return on our investment or that they may not generate the expected revenue synergies\. These events could have a material adverse effect on our business, results of operations and financial condition\.

If our financial condition worsens, provisions in our credit card processing and other commercial agreements may adversely affect our liquidity\.

We have agreements with companies that process customer credit card transactions for the sale of air travel and other services\. These agreements allow these credit card processing companies, under certain conditions (including, with respect to certain agreements, our failure to maintain certain levels of liquidity), to hold an amount of our cash (a holdback) equal to some or all of the advance ticket sales that have been processed by that credit card processor, but for which we have not yet provided the air transportation\. These credit card processing companies are not currently entitled to maintain any holdbacks pursuant to these requirements\. These holdback requirements can be modified at the discretion of the credit card processing companies upon the occurrence of specific events, including material adverse changes in our financial condition\. The imposition of holdback requirements, up to and including 100% of relevant advanced ticket sales, would materially reduce our liquidity\. Likewise, other of our commercial agreements contain provisions that allow other entities to impose less\-favorable terms, including the acceleration of amounts due, in the event of material adverse changes in our financial condition\.

We have a significant amount of goodwill, which is assessed for impairment at least annually\. In addition, we may never realize the full value of our intangible assets or long\-lived assets, causing us to record material impairment charges\.

Goodwill and indefinite\-lived intangible assets are not amortized, but are assessed for impairment at least annually, or more frequently if conditions indicate that an impairment may have occurred\. In accordance with applicable accounting standards, we first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test\. In addition, we are required to assess certain of our other long\-lived assets for impairment if conditions indicate that an impairment may have occurred\.

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

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

**6\. Leases**

We lease certain aircraft and engines, including aircraft under capacity purchase agreements\. As of December 31, 2018, we had 660 leased aircraft, with remaining terms ranging from less than one year to 12 years\.

At each airport where we conduct flight operations, we have agreements, generally with a governmental unit or authority, for the use of passenger, operations and baggage handling space as well as runways and taxiways\. These agreements, particularly in the U\.S\., often contain provisions for periodic adjustments to rates and charges applicable under such agreements\. These rates and charges also vary with our level of operations and the operations of the airport\. Additionally, at our hub locations and in certain other cities we serve, we lease administrative offices, catering, cargo, training, maintenance and other facilities\.

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

|                               |                                       |
| ----------------------------- | ------------------------------------- |
|                               | **Year Ended  <br>December 31, 2018** |
| Operating lease cost          | $1,907                                |
| Finance lease cost:           |                                       |
| Amortization of assets        | 78                                    |
| Interest on lease liabilities | 48                                    |
| Variable lease cost           | 2,353                                 |
| Total net lease cost          | $4,386                                |

Included in the table above is $226 million of operating lease cost under our capacity purchase agreement with Republic\. We hold a 25% equity interest in Republic Holdings, the parent company of Republic\.

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