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

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

airport access by limiting the number of departure and arrival slots at high density traffic airports, which could affect the Company's ownership and transfer rights, and local airport authorities may have the ability to control access to certain facilities or the cost of access to their facilities, which could have an adverse effect on the Company's business\. The FAA historically has taken actions with respect to airlines' slot holdings that airlines have challenged; if the FAA were to take actions that adversely affect the Company's slot holdings, the Company could incur substantial costs to preserve its slots or may lose slots\. If slots are eliminated at an airport, or if the number of hours of operation governed by slots is reduced at an airport, the lack of controls on takeoffs and landings could result in greater congestion both at the affected airport or in the regional airspace (e\.g\., the New York City metropolitan region airspace) and could significantly impact the Company's operations\. Further, the Company's operating costs at airports, including the Company's major hubs, may increase significantly because of capital improvements at such airports that the Company may be required to fund, directly or indirectly\. Such costs could be imposed by the relevant airport authority without the Company's approval and may have a material adverse effect on the Company's financial condition\.

The ability of carriers to operate flights on international routes between the United States and other countries is highly regulated\. Applicable arrangements between the United States and foreign governments may be amended from time to time, government policies with respect to airport operations may be revised, and the availability of appropriate slots or facilities may change\. The Company currently operates a number of flights on international routes under government arrangements, regulations or policies that designate the number of carriers permitted to operate on such routes, the capacity of the carriers providing services on such routes, the airports at which carriers may operate international flights, or the number of carriers allowed access to particular airports\. Any limitations, additions or modifications to such arrangements, regulations or policies could have a material adverse effect on the Company's financial condition and operating results\. Additionally, a change in law, regulation or policy for any of the Company's international routes, such as Open Skies, could have a material adverse impact on the Company's financial condition and operating results and could result in the impairment of material amounts of related tangible and intangible assets\. In addition, competition from revenue\-sharing JBAs and other alliance arrangements by and among other airlines could impair the value of the Company's business and assets on the Open Skies routes\. The Company's plans to enter into or expand U\.S\. antitrust immunized alliances and JBAs on various international routes are subject to receipt of approvals from applicable U\.S\. federal authorities and obtaining other applicable foreign government clearances or satisfying the necessary applicable regulatory requirements\. There can be no assurance that such approvals and clearances will be granted or will continue in effect upon further regulatory review or that changes in regulatory requirements or standards can be satisfied\.

See Part I, Item 1, Business—Industry Regulation, of this report for additional information on government regulation impacting the Company\.

***We are subject to many forms of environmental regulation and liability and risks associated with climate change, and may incur substantial costs as a result\.***

Many aspects of the Company's operations are subject to increasingly stringent federal, state, local and international laws protecting the environment, including those relating to emissions to the air, water discharges, safe drinking water and the use and management of hazardous materials and wastes\. Compliance with existing and future environmental laws and regulations can require significant expenditures and violations can lead to significant fines and penalties\. In addition, from time to time we are identified as a responsible party for environmental investigation and remediation costs under applicable environmental laws due to the disposal of hazardous substances generated by our operations\. We could also be subject to environmental liability claims from various parties, including airport authorities, related to our operations at our leased premises or the off\-site disposal of waste generated at our facilities\.

We may incur substantial costs as a result of changes in weather patterns due to climate change\. Increases in the frequency, severity or duration of severe weather events such as thunderstorms, hurricanes, flooding, typhoons, tornados and other severe weather events could result in increases in delays and cancellations, turbulence\-related injuries and fuel consumption to avoid such weather, any of which could result in significant loss of revenue and higher costs\.

To address climate change risks, CORSIA has been developed by ICAO, a UN specialized agency\. CORSIA is intended to create a single global market\-based measure to achieve carbon\-neutral growth for international aviation after 2020 through airline purchases of carbon offset credits\. Certain CORSIA program details remain to be developed and could potentially be affected by political developments in participating countries or the results of the pilot phase of the program, and thus the impact of CORSIA cannot be fully predicted\. However, CORSIA is expected to increase operating costs for airlines that operate internationally\.

In addition to CORSIA, the EPA had begun preliminary work to adopt its own aircraft engine GHG emission standards which were expected to be aligned with recent ICAO carbon dioxide emission standards\. The timing of any U\.S\. EPA aircraft engine GHG emission standards is currently unknown, but some jurisdictions in which United operates have adopted or are considering GHG emission reduction initiatives, which could impact various aspects of the Company's business\. The precise

16


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

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

Supplemental balance sheet information related to leases was as follows (in millions, except lease term and discount rate):

|                                                   |                       |
| ------------------------------------------------- | --------------------- |
|                                                   | **December 31, 2018** |
| Operating leases:                                 |                       |
| Operating lease ROU assets                        | $9,151                |
| Current operating lease liabilities               | $1,654                |
| Noncurrent operating lease liabilities            | 7,902                 |
| Total operating lease liabilities                 | $9,556                |
| Finance leases:                                   |                       |
| Property and equipment, at cost                   | $936                  |
| Accumulated amortization                          | (391)                 |
| Property and equipment, net                       | $545                  |
| Current obligations of finance leases             | $81                   |
| Finance leases, net of current obligations        | 613                   |
| Total finance lease liabilities                   | $694                  |
| Weighted average remaining lease term (in years): |                       |
| Operating leases                                  | 7\.6                  |
| Finance leases                                    | 7\.4                  |
| Weighted average discount rate:                   |                       |
| Operating leases                                  | 4\.6%                 |
| Finance leases                                    | 6\.5%                 |

Supplemental cash flow and other information related to leases was as follows (in millions):

|                                                                         |                                       |
| ----------------------------------------------------------------------- | ------------------------------------- |
|                                                                         | **Year Ended  <br>December 31, 2018** |
| Cash paid for amounts included in the measurement of lease liabilities: |                                       |
| Operating cash flows from operating leases                              | $1,931                                |
| Operating cash flows from finance leases                                | 48                                    |
| Financing cash flows from finance leases                                | 78                                    |
| ROU assets obtained in exchange for lease liabilities:                  |                                       |
| Operating leases                                                        | 1,292                                 |
| Gain on sale leaseback transactions, net                                | 59                                    |

105


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

Part I

ITEM 1\. BUSINESS

General

We are the leading U\.S\. global airline serving 200 million customers every year\. We connect customers across our expansive global network to more than 300 destinations in over 50 countries\. We are the world’s largest airline by total revenues and the most profitable with five consecutive years of $5 billion or more in pre\-tax income\.

We are committed to industry\-leading safety and reliability and are consistently among the industry’s best performers\. Our employees provide world\-class travel experiences for our customers and give back to the communities where they live, work and serve\. Our people and service are our strongest competitive advantage creating significant customer satisfaction improvements\. Other key competitive advantages include operational reliability, our global network, customer loyalty and our investment grade balance sheet\.

We have diversified revenue streams beyond the basic sale of an airline ticket in order to reduce the impact of cyclicality on our results\. Our growing partnership with American Express provides a co\-brand revenue stream tied to broader consumer spending\. Our focus in recent years on premium products and customer segmentation has enhanced our revenue growth and reduced reliance on the most price sensitive customer segment\. We also maintain complementary portfolio businesses, such as our Maintenance, Repair and Overhaul (“MRO”) division, where we are well positioned for significant organic growth through contractual agreements with jet engine manufacturers\.

We are incorporated under the laws of the State of Delaware\. Our principal executive offices are located at Hartsfield\- Jackson Atlanta International Airport in Atlanta, Georgia\. Our telephone number is (404) 715\-2600 and our internet address is www\.delta\.com\. Information contained on our website is not part of, and is not incorporated by reference in, this Form 10\-K\.

The Delta Brand

We have the world’s most valuable airline brand, one that is mentioned not just among the best global airlines, but also alongside top consumer brands\. Over the last decade, we significantly improved the quality and reliability of our operations\. As a result, customer satisfaction scores have more than tripled\. With operational excellence and best\-in\-class service, we are earning our customers' trust and preference\. Our continued investment in operations, product, service, airports and technology are reshaping customer perception of our brand and driving increased customer loyalty\.

Our Global Network and Fleet

We offer more than 5,000 daily departures and as many as 15,000 affiliated departures including the premier SkyTeam alliance, of which Delta is a founding member\. We generate over 70% of our passenger revenue from our domestic network, centered around high\-margin core hubs in Atlanta, Minneapolis\-St\. Paul, Detroit and Salt Lake City\. These core hub positions complement strong coastal hub positions in Boston, Los Angeles, New York\-LaGuardia, New York\-JFK and Seattle\. We have agreements with domestic regional carriers that operate as Delta Connection^®^  to feed traffic to our domestic hubs\.

We serve the Transatlantic, Transpacific and Latin America markets directly on Delta and through joint ventures with global airline partners\. Internationally, we have significant hubs and market presence in Amsterdam, London\-Heathrow, Mexico City, Paris\-Charles de Gaulle and Seoul\-Incheon\. We will become the largest U\.S\. carrier to Tokyo\-Haneda in 2020 as we consolidate operations in Tokyo, the preferred airport for the local and corporate markets\.

Through innovative alliances with Aeroméxico, Air France\-KLM, China Eastern, Korean Air, Virgin Atlantic and Virgin Australia and alliances pending regulatory approval with LATAM Airlines and WestJet, we are bringing more choice to customers worldwide\. Our strategic relationships with these international airlines are an important part of our business as they improve our access to markets around the world and enable us to provide customers a more seamless global travel experience across our alliance network\. We and our alliance partners collectively serve over 140 countries and more than 900 destinations around the world, extending our network reach to cover approximately 98% of global gross domestic product\. The most significant of these arrangements are commercial joint ventures that include joint sales and marketing coordination, co\-location of airport facilities and other commercial cooperation arrangements\. In some cases, we have reinforced strategic alliances through equity investments where we have opportunity to create deep relationships and maximize commercial cooperation\.

2


Annual Report of Southwest Airlines Co\. for year 2019

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *Marketing Royalties*  \- As part of its Agreement with Chase, Southwest provides certain deliverables, including use of the Southwest Airlines’ brand, access to Rapid Rewards Member lists, advertising elements, and the Company’s resource team\. These performance obligations are satisfied each month that the Agreement is active\. |

As of the years ended  December 31, 2019  and  2018 , the components of Air traffic liability, including contract liabilities based on tickets sold, unused funds available to the Customer, and loyalty points available for redemption, net of expected spoilage, within the Consolidated Balance Sheet were as follows:

|                                                                            |                       |                       |
| -------------------------------------------------------------------------- | --------------------- | --------------------- |
|                                                                            | **Balance as of**     | **Balance as of**     |
| **(in millions)**                                                          | **December 31, 2019** | **December 31, 2018** |
| Air traffic liability \- passenger travel and ancillary passenger services | $2,125                | $2,059                |
| Air traffic liability \- loyalty program                                   | 3,385                 | 3,011                 |
|  **Total Air traffic liability**                                           | $5,510                | $5,070                |

The balance in Air traffic liability – passenger travel and ancillary passenger services also includes unused funds that are available for use by Customers and are not currently associated with a ticket, but represent funds effectively refunded and made available for use to purchase a ticket for a flight that occurs prior to their expiration\. These funds are typically created as a result of a prior ticket cancellation or exchange\. These performance obligations are expected to have a duration of twelve months or less; therefore, the Company has elected to not disclose the amount of the remaining transaction price and its expected timing of recognition for passenger tickets\. Recognition of revenue associated with the Company’s loyalty liability can be difficult to predict, as the number of award seats available to members is not currently restricted and they could choose to redeem their points at any time that a seat is available\. The performance obligations classified as a current liability related to the Company’s loyalty program were estimated based on expected redemptions utilizing historical redemption patterns, and forecasted flight availability, fares, and coefficients\. The entire balance classified as Air traffic liability – noncurrent relates to loyalty points that were estimated to be redeemed in periods beyond 12 months following the representative balance sheet date\. The Company expects the majority of loyalty points to be redeemed within two years\.Rollforwards of the Company's Air traffic liability \- loyalty program for the  years ended December 31, 2019 and 2018  were as follows (in millions):

|                                                               |                             |                             |
| ------------------------------------------------------------- | --------------------------- | --------------------------- |
|                                                               | **Year ended December 31,** | **Year ended December 31,** |
|                                                               | **2019**                    | **2018**                    |
| Air traffic liability \- loyalty program \- beginning balance | $3,011                      | $2,667                      |
|  Amounts deferred associated with points awarded              | 2,941                       | 2,717                       |
|  Revenue recognized from points redeemed \- Passenger         | (2,487

)             | (2,307

)             |
|  Revenue recognized from points redeemed \- Other             | (80

)                | (66

)                |
| Air traffic liability \- loyalty program \- ending balance    | $3,385                      | $3,011                      |

Air traffic liability includes consideration received for ticket and loyalty related performance obligations which have not been satisfied as of a given date\. Rollforwards of the amounts included in Air traffic liability as of  December 31, 2019  and  2018  were as follows (in millions):

|                                                                                |                           |
| ------------------------------------------------------------------------------------------------- | ------------------------- |
|                                                                                | **Air traffic liability** |
| Balance at December 31, 2018                                                                      | $5,070                    |
|  Current period sales (passenger travel, ancillary services, flight loyalty, and partner loyalty) | 21,296                    |
|  Revenue from amounts included in contract liability opening balances                             | (3,816

)           |
|  Revenue from current period sales                                                                | (17,040

)          |
| Balance at December 31, 2019                                                                      | $5,510                    |

83


Annual Report of Southwest Airlines Co\. for year 2019

Non\-GAAP Return on Invested Capital (ROIC) (in millions) (unaudited)

|                                                             |                       |     |                       |     |                       |     |
| ----------------------------------------------------------- | --------------------- | --- | --------------------- | --- | --------------------- | --- |
|                                                             | **Year Ended**        |     | **Year Ended**        |     | **Year Ended**        |     |
|                                                             | **December 31, 2019** |     | **December 31, 2018** |     | **December 31, 2017** |     |
| **Operating income, as reported**                           | $2,957                |     | $3,206                |     | $3,407                |     |
| Net impact from fuel contracts                              | —                     |     | (14)                  |     | (156)                 |     |
| Lease termination expense                                   | —                     |     | —                     |     | 33                    |     |
| Boeing 737\-300 aircraft grounding charge                   | —                     |     | —                     |     | 63                    |     |
| Gain on sale of retired Boeing 737\-300 aircraft            | —                     |     | (25)                  |     | —                     |     |
| **Operating income, non\-GAAP**                             | 2,957                 |     | 3,167                 |     | 3,347                 |     |
| Net adjustment for aircraft leases (a)                      | 120                   |     | 99                    |     | 110                   |     |
| **Adjusted operating income, non\-GAAP (A)**                | $3,077                |     | $3,266                |     | $3,457                |     |
| **Non\-GAAP tax rate (B)**                                  | 22\.2%                | (d) | 22\.1%                | (e) | 36\.1%                | (f) |
| **Net operating profit after\-tax, NOPAT (A\* (1\-B) = C)** | $2,394                |     | $2,545                |     | $2,210                |     |
| Debt, including finance leases (b)                          | $3,070                |     | $3,521                |     | $3,259                |     |
| Equity (b)                                                  | 9,869                 |     | 9,853                 |     | 8,194                 |     |
| Net present value of aircraft operating leases (b)          | 512                   |     | 584                   |     | 785                   |     |
| **Average invested capital**                                | $13,451               |     | $13,958               |     | $12,238               |     |
| Equity adjustment for hedge accounting (c)                  | 2                     |     | (144)                 |     | 296                   |     |
| **Adjusted average invested capital (D)**                   | $13,453               |     | $13,814               |     | $12,534               |     |
| **Non\-GAAP ROIC, pre\-tax (A/D)**                          | 22\.9%                |     | 23\.6%                |     | 27\.6%                |     |
| **Non\-GAAP ROIC, after\-tax (C/D)**                        | 17\.8%                |     | 18\.4%                |     | 17\.6%                |     |

(a) Net adjustment related to presumption that all aircraft in fleet are owned (i\.e\., the impact of eliminating aircraft rent expense and replacing with estimated depreciation expense for those same aircraft)\. The Company makes this adjustment to enhance comparability to other entities that have different capital structures by utilizing alternative financing decisions\.

(b) Calculated as an average of the five most recent quarter end balances or remaining obligations\. The Net present value of aircraft operating leases represents the assumption that all aircraft in the Company’s fleet are owned, as it reflects the remaining contractual commitments discounted at the Company's estimated incremental borrowing rate as of the time each individual lease was signed\.

(c) The Equity adjustment for hedge accounting in the denominator adjusts for the cumulative impacts, in AOCI and Retained earnings, of gains and/or losses associated with hedge accounting related to fuel hedge derivatives that will settle in future periods\. The current period impact of these gains and/or losses is reflected in the Net impact from fuel contracts in the numerator\.

(d) The GAAP annual tax rate as of  December 31, 2019 , was  22\.2  percent, and the annual Non\-GAAP tax rate was also  22\.2  percent\. See Note Regarding Use of Non\-GAAP Financial Measures for additional information\.

(e) The GAAP annual tax rate as of  December 31, 2018 , was  22\.1 percent , and the annual Non\-GAAP tax rate was also  22\.1 percent \. See Note Regarding Use of Non\-GAAP Financial Measures for additional information\.

(f) The GAAP annual tax rate as of  December 31, 2017 , was a  2\.8 percent  tax benefit due to the significant impact the Tax Cuts and Jobs Act legislation enacted in December 2017 had on corporate tax rates, and the annual Non\-GAAP tax rate was  36\.1 percent \. See Note Regarding Use of Non\-GAAP Financial Measures for additional information\.

49


Annual Report of Southwest Airlines Co\. for year 2018

|                                         |                       |                                                                                |                                                               |                                                           |
| --------------------------------------- | --------------------- | ------------------------------------------------------------------------------ | ------------------------------------------------------------- | --------------------------------------------------------- |
|                                         |                       | **Fair value measurements at reporting date using:**                           | **Fair value measurements at reporting date using:**          | **Fair value measurements at reporting date using:**      |
|                                         |                       | **Quoted prices in**

**active markets**

**for identical assets** | **Significant**

**other observable**

**inputs** | **Significant**

**unobservable**

**inputs** |
| **Description**                         | **December 31, 2017** | **(Level 1)**                                                                  | **(Level 2)**                                                 | **(Level 3)**                                             |
| **Assets**                              | (in millions)         | (in millions)                                                                  | (in millions)                                                 | (in millions)                                             |
| Cash equivalents                        |                       |                                                                                |                                                               |                                                           |
| Cash equivalents (a)                    | $1,133                | $1,133                                                                         | $—                                                            | $—                                                        |
| Commercial paper                        | 350                   | —                                                                              | 350                                                           | —                                                         |
| Certificates of deposit                 | 12                    | —                                                                              | 12                                                            | —                                                         |
| Short\-term investments:                |                       |                                                                                |                                                               |                                                           |
| Treasury bills                          | 1,491                 | 1,491                                                                          | —                                                             | —                                                         |
| Certificates of deposit                 | 287                   | —                                                                              | 287                                                           | —                                                         |
| Fuel derivatives:                       |                       |                                                                                |                                                               |                                                           |
| Option contracts (b)                    | 283                   | —                                                                              | —                                                             | 283                                                       |
| Other available\-for\-sale securities   | 107                   | 107                                                                            | —                                                             | —                                                         |
| **Total assets**                        | $3,663                | $2,731                                                                         | $649                                                          | $283                                                      |
| **Liabilities**                         |                       |                                                                                |                                                               |                                                           |
| Fuel derivatives:                       |                       |                                                                                |                                                               |                                                           |
| Option contracts (b)                    | (35)                  | —                                                                              | —                                                             | (35)                                                      |
| Interest rate derivatives (see Note 10) | (22)                  | —                                                                              | (22)                                                          | —                                                         |
| **Total liabilities**                   | $(57)                 | $—                                                                             | $(22)                                                         | $(35)                                                     |

(a) Cash equivalents are primarily composed of money market investments\.

(b) In the Consolidated Balance Sheet amounts are presented as a net asset\. See Note 10\.

The Company had no transfers of assets or liabilities between any of the above levels during the years ended December 31, 2018 or 2017\. The Company did not have any assets or liabilities measured at fair value on a nonrecurring basis as of December 31, 2018 or 2017\. The following tables present the Company’s activity for items measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for 2018 and 2017:

|                                                                              |                                                                             |                                                                             |
| ---------------------------------------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------------------------------------------- |
| **Fair value measurements using significant unobservable inputs (Level 3)**  | **Fair value measurements using significant unobservable inputs (Level 3)** | **Fair value measurements using significant unobservable inputs (Level 3)** |
|                                                                              | **Fuel**                                                                    |                                                                             |
| (in millions)                                                                | **derivatives**                                                             |                                                                             |
| Balance at December 31, 2017                                                 | $248                                                                        |                                                                             |
| Total losses (realized or unrealized) included in other comprehensive income | (1)                                                                         |                                                                             |
| Purchases                                                                    | 66                                                                          | (a)                                                                         |
| Sales                                                                        | (4)                                                                         | (a)                                                                         |
| Settlements                                                                  | (171)                                                                       |                                                                             |
| Balance at December 31, 2018                                                 | $138                                                                        |                                                                             |

(a) The purchase and sale of fuel derivatives are recorded gross based on the structure of the derivative instrument and

 whether a contract with multiple derivatives is purchased as a single instrument or separate instruments\.

107


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

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

***Balance Sheet Position***

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

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

**Other Postretirement Benefits** |
|                      | **2017**             | **2016**             | **2017**                                                          | **2016**                                                          |
|                      | **(In millions)**    | **(In millions)**    | **(In millions)**                                                 | **(In millions)**                                                 |
| As of December 31,   |                      |                      |                                                                   |                                                                   |
| Current liability    | $10                  | $7                   | $89                                                               | $97                                                               |
| Noncurrent liability | 6,870                | 7,214                | 627                                                               | 628                                                               |
| Total liabilities    | $6,880               | $7,221               | $716                                                              | $725                                                              |

|                                                               |        |        |        |          |
| ------------------------------------------------------------- | ------ | ------ | ------ | -------- |
| Net actuarial loss (gain)                                     | $5,351 | $5,484 | $(388) | $(430)   |
| Prior service cost (benefit)                                  | 160    | 188    | (600)  | (837)    |
| Total accumulated other comprehensive loss (income), pre\-tax | $5,511 | $5,672 | $(988) | $(1,267) |

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

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

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

**Other Postretirement Benefits** |
|                                               | **2017**             | **2016**             | **2017**                                                          | **2016**                                                          |
|                                               | **(In millions)**    | **(In millions)**    | **(In millions)**                                                 | **(In millions)**                                                 |
| Projected benefit obligation                  | $18,245              | $17,209              | $—                                                                | $—                                                                |
| Accumulated benefit obligation (ABO)          | 18,235               | 17,197               | —                                                                 | —                                                                 |
| Accumulated postretirement benefit obligation | —                    | —                    | 1,011                                                             | 990                                                               |
| Fair value of plan assets                     | 11,364               | 9,986                | 295                                                               | 266                                                               |
| ABO less fair value of plan assets            | 6,871                | 7,211                | —                                                                 | —                                                                 |

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

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

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

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

**Other Postretirement Benefits** |
|                                    | **2017**             | **2016**             | **2015**             | **2017**                                                         | **2016**                                                         | **2015**                                                         |
|                                    | **(In millions)**    | **(In millions)**    | **(In millions)**    | **(In millions)**                                                | **(In millions)**                                                | **(In millions)**                                                |
| Defined benefit plans:             |                      |                      |                      |                                                                  |                                                                  |                                                                  |
| Service cost                       | $2                   | $2                   | $2                   | $4                                                               | $3                                                               | $3                                                               |
| Interest cost                      | 721                  | 749                  | 737                  | 39                                                               | 47                                                               | 50                                                               |
| Expected return on assets          | (790)                | (750)                | (851)                | (21)                                                             | (20)                                                             | (19)                                                             |
| Settlements                        | 1                    | —                    | 1                    | —                                                                | —                                                                | —                                                                |
| Amortization of:                   |                      |                      |                      |                                                                  |                                                                  |                                                                  |
| Prior service cost (benefit)       | 28                   | 28                   | 28                   | (237)                                                            | (240)                                                            | (243)                                                            |
| Unrecognized net loss (gain)       | 144                  | 126                  | 112                  | (23)                                                             | (17)                                                             | (9)                                                              |
| Net periodic benefit cost (income) | 106                  | 155                  | 29                   | (238)                                                            | (227)                                                            | (218)                                                            |
| Defined contribution plan cost     | 851                  | 766                  | 662                  | N/A                                                              | N/A                                                              | N/A                                                              |
| Total cost (income)                | $957                 | $921                 | $691                 | $(238)                                                           | $(227)                                                           | $(218)                                                           |

The estimated amount of unrecognized actuarial net loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $172 million\.

108


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

One of our leadership principles is to "give back" and we are proud of the efforts and voluntarism of our employees across the system\.

We continued to generate strong profits in 2017, marking our 14th consecutive annual profit on an adjusted basis\. Our liquidity and capital position remain strong, positioning us among those of high\-quality industrial companies\. Due to our strong financial health and outlook, we are one of only three U\.S\. airlines with investment grade credit ratings\. With the cash generated by our continued success, we have been able to invest in our business to achieve profitable growth and to enhance the guest experience\.

As we look to the future, we will build on our success by executing our strategic plan in the following areas:

*Be Safe and On time*

We have an unwavering commitment to run a safe operation, and we will not compromise this commitment in the pursuit of other initiatives\. Alaska and Horizon were the first U\.S\. major airlines to receive FAA validation and acceptance of our Safety Management System (SMS) in 2016\. In 2017, Virgin America adopted SMS, ensuring a consistent safety process across our carriers\. Additionally, all Virgin America employees received training for the Alaska Air Group SMS, our "Ready, Safe, Go" principles, and our mobile safety reporting system\. Once again, in 2017, 100% of our Alaska and Horizon aircraft technicians completed the requirements for the FAA's "Diamond Certificate of Excellence" award\. This is the 16th consecutive year Alaska Airlines has received the award and the 16th time in the last 18 years Horizon has received this award\. We also believe that maintaining safe operations, through adherence to well\-defined processes, and ensuring every Air Group employee is aware of their individual contribution to our operation, is critical to ensuring on\-time performance\. The rigor we apply to running a safe operation has resulted in Alaska consistently being one of the top airlines in North America for on\-time performance\.

*Focus on People*

Our business is fundamentally a people business, and our success depends on our nearly 23,000 employees\. Engaged employees deliver higher productivity, superior execution and better customer service\. In merging Alaska Airlines and Virgin America employees and labor groups, we kept a vigilant focus on creating an unbeatable culture\. In January 2017, we rolled out "Momentum" training for all Virgin America employees to help bridge the two airlines and blend our cultures\. We implemented Culture Champion initiatives to help employees build relationships across airlines, allowing them to share concerns and feedback directly with executive leadership\. Similarly, our "QX Factor" program brought new energy to the Horizon employee experience\. Our people programs and integration plan are focused on ensuring employees feel valued, informed and engaged in meaningful ways as we build our future\.

Aligning our employees' goals with Air Group's goals is important in achieving success\. All permanent employees of our airlines participate in our Performance\-Based Pay (PBP) and Operational Performance Rewards (OPR) programs, which encourage employees to work together to achieve metrics related to safety, profitability, on\-time performance, low costs, customer loyalty, and customer satisfaction\. Over the last five years, our incentive programs have paid out on average more than one month's pay, for most employees\.

*Build a deep emotional connection for our brand*

To be the go\-to airline for people on the West Coast, we must be recognized for creating an airline that people love\. In 2017, we built upon the strong brand connection we have with our guests in our Pacific Northwest markets and the state of Alaska by broadening our focus to include California\. We rolled out fresh, modern marketing campaigns showcasing benefits such as our network growth, low fares, our Buy One Get One companion fare credit card promotional offer, and unique onboard experience elements\. We are enthusiastic about our plans for continued investment in key products that will provide meaningful improvements to our guests, such as Gogo satellite internet which we will begin installing in early 2018\. Additionally, we partnered with key sponsors in the Bay Area, including sports franchises such as the San Francisco Giants and the San Jose Sharks, as well as noted professional athletes including Kevin Durant of the Golden State Warriors\.

We continue to invest in key products that will provide meaningful improvements to our guests and further drive an emotional connection to our brand\. This includes Free Chat and Free Movies and the launch of Gogo satellite service, already mentioned above\. We’ve rolled out new digital products to improve the guest experience, including a new inflight entertainment portal and the beta launch of First Class meal pre\-select\. We’ve nearly completed retrofits of our Boeing fleet to include Premium Class, while adding larger overhead bins to many of our aircraft\. Expanding our airport lounge portfolio, we’ve opened a third lounge at Sea\-Tac airport and plan to open a lounge at JFK in 2018\. Finally, guests can also look forward to an integrated onboard food and beverage program in 2018, which will emphasize fresh and local West Coast products on our aircraft\.

 5


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

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

**NOTE 10 \- DEBT**

|                                                                                |                     |                     |
| -------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | ------------------- |
| **(In millions)**                                                                                | **At December 31,** | **At December 31,** |
|                                                                                | **2018**            | **2017**            |
| Secured                                                                                |                     |                     |
| Notes payable, fixed interest rates of 0\.0% to 9\.52% (weighted average rate of 4\.18% as of December 31, 2018), payable through 2030 | $8,811              | $8,661              |
| Notes payable, floating interest rates of the London interbank offered rate ("LIBOR") plus 1\.05% to 1\.75%, payable through 2030      | 2,051               | 1,880               |
| Term loan, LIBOR plus 1\.75%, or alternative rate based on certain market rates plus 0\.75%, due 2024                                  | 1,474               | 1,489               |
| Unsecured                                                                                |                     |                     |
| 6\.375% Senior Notes due 2018 (a)                                                                                | —                   | 300                 |
| 6% Senior Notes due 2020 (a)                                                                                | 300                 | 300                 |
| 4\.25% Senior Notes due 2022 (a)                                                                                | 400                 | 400                 |
| 5% Senior Notes due 2024 (a)                                                                                | 300                 | 300                 |
| Other                                                                                | 300                 | 101                 |
|                                                                                | 13,636              | 13,431              |
| Less: unamortized debt discount, premiums and debt issuance costs                                                                      | (191)               | (163)               |
|  Less: current portion of long\-term debt                                                                                | (1,230)             | (1,565)             |
| Long\-term debt, net                                                                                | $12,215             | $11,703             |

(a) UAL is the issuer of this debt\. United is a guarantor\.

The table below presents the Company's contractual principal payments (not including debt discount or debt issuance costs) at December 31, 2018 under then\-outstanding long\-term debt agreements in each of the next five calendar years (in millions):

|            |         |
| ---------- | ------- |
| 2019       | $1,230  |
| 2020       | 1,310   |
| 2021       | 1,300   |
| 2022       | 1,653   |
| 2023       | 703     |
| After 2023 | 7,440   |
|            | $13,636 |

*Secured debt*

***Credit and Guaranty Agreement\.*** On March 29, 2017, United and UAL, as borrower and guarantor, respectively, entered into an Amended and Restated Credit and Guaranty Agreement (as amended, the "Credit Agreement")\. The Credit Agreement consists of a $1\.5 billion term loan due April 1, 2024 and a $2\.0 billion revolving credit facility available for drawing until April 1, 2022\. The obligations of United under the amended Credit Agreement are secured by liens on certain international route authorities, certain take\-off and landing rights and related assets of United\.

Term loan borrowings under the Credit Agreement bear interest at a variable rate equal to LIBOR plus a margin of 1\.75% per annum, or another rate based on certain market interest rates, plus a margin of 0\.75% per annum\. The principal amount of the term loan must be repaid in consecutive quarterly installments of 0\.25% of the original principal amount thereof, commencing on June 30, 2017, with any unpaid balance due on April 1, 2024\. United may prepay all or a portion of the loan from time to time, at par plus accrued and unpaid interest\.

As of December 31, 2018, United had its entire capacity of $2\.0 billion available under the revolving credit facility of the Company's Credit Agreement\. United pays a commitment fee equal to 0\.75% per annum on the undrawn amount available under the revolving credit facility\. If drawn, revolving loans under the Credit Agreement bear interest at a variable rate equal to LIBOR plus a margin of 2\.25% per annum, or another rate based on certain market interest rates, plus a margin of 1\.25% per annum\.

As of December 31, 2018, United had cash collateralized $73 million of letters of credit, which generally have evergreen clauses and are expected to be renewed on an annual basis\. As of December 31, 2018, United also had $418 million of surety bonds securing various obligations with expiration dates through2022\.

78


Annual Report of Southwest Airlines Co\. for year 2018

able to reduce fares because they have been able to lower their operating costs as a result of reorganization within and outside of bankruptcy\. Further, some of the Company's competitors have continued to grow and modernize their fleets and expand their networks, potentially enabling them to better control costs per available seat mile (the average cost to fly an aircraft seat (empty or full) one mile), which in turn may enable them to lower their fares\.

The Company believes its low\-cost operating structure continues to provide it with an advantage over many of its airline competitors by enabling it to continue to charge low fares\. However, ULCCs, which have increased capacity in the Company's markets, have surpassed the Company's cost advantage with larger aircraft, increased seat density, and lower wages\. The Company believes it continues to have a competitive advantage through its differentiation of Southwest from many of its competitors by not charging additional fees for items such as first and second checked bags for each ticketed Customer, flight changes, seat selection, snacks, curb\-side check\-in, and telephone reservations; nevertheless, it has become increasingly difficult for the Company to improve upon its industry cost position absent using techniques favored by competitors\.

**Routes, Loyalty Programs, and Schedules**

The Company also competes with other airlines based on markets served, loyalty opportunities, and flight schedules\. Some major airlines have more extensive route structures than Southwest, including more extensive international networks\. In addition, many competitors have entered into significant commercial relationships with other airlines, such as global alliances, code\-sharing, and capacity purchase agreements, which increase the airlines' opportunities to expand their route offerings\. An alliance or code\-sharing agreement enables an airline to offer flights that are operated by another airline and also allows the airline’s customers to book travel that includes segments on different airlines through a single reservation or ticket\. As a result, depending on the nature of the specific alliance or code\-sharing arrangement, a participating airline may be able to, among other things, (i) offer its customers access to more destinations than it would be able to serve on its own, (ii) gain exposure in markets it does not otherwise serve, and (iii) increase the perceived frequency of its flights on certain routes\. Alliance and code\-sharing arrangements not only provide additional route flexibility for participating airlines, they can also allow these airlines to offer their customers more opportunities to earn and redeem loyalty miles or points\. A capacity purchase agreement enables an airline to expand its route structure by paying another airline (e\.g\., a regional airline with smaller aircraft) to operate flights on its behalf in markets that it does not, or cannot, serve itself\. The Company continues to evaluate and implement initiatives to better enable itself to offer additional itineraries\.

The Company's anticipated new routes to Hawaii in 2019 are expected to be subject to significant competition\. West Coast to Hawaii capacity increased in 2018, and is expected to continue to increase in 2019 with Southwest flights from California to Hawaii\. Certain other major airlines have more experience with Hawaiian operations and have more extensive Hawaiian route structures and schedules than Southwest\. Further, the longer stage length of the Company's Hawaiian routes, as compared with the Company's average stage length of its other routes, could put pressure on the Company's revenues per available seat mile\.

**Customer Service, Operational Reliability, and Amenities**

Southwest also competes with other airlines with respect to customer service, operational reliability (such as ontime performance), and passenger amenities\. According to statistics published by the DOT, Southwest consistently ranks at or near the top among domestic carriers in Customer Satisfaction for having the lowest Customer complaint ratio\. However, carriers are increasingly focusing on operational reliability as an opportunity to win and retain Customers\. In addition, some airlines have more seating options and associated passenger amenities than does Southwest, including first\-class, business class, and other premium seating and related amenities\. New and different types of aircraft flown by competitors could have operational attributes and passenger amenities that could be considered more favorable than those associated with the Company's existing fleet\.

**Other Forms of Competition**

The airline industry is subject to varying degrees of competition from other forms of transportation, including surface transportation by automobiles, buses, and trains\. Inconveniences and delays associated with air travel security measures can increase surface competition\. In addition, surface competition can be significant during economic downturns when consumers cut back on discretionary spending and fewer choose to fly, or when gasoline prices are lower, making surface transportation a less expensive option\. Because of the relatively high percentage of short\-haul travel provided

18


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

Operating Expense

|                                                    |                             |                             |                                    |                                      |
| -------------------------------------------------- | --------------------------- | --------------------------- | ---------------------------------- | ------------------------------------ |
|                                                    | **Year Ended December 31,** | **Year Ended December 31,** | **Increase**

**(Decrease)** | **% Increase**

**(Decrease)** |
| **(in millions)**                                  | **2017**                    | **2016**                    | **Increase**

**(Decrease)** | **% Increase**

**(Decrease)** |
| Salaries and related costs                         | $10,058                     | $9,394                      | $664                               | 7\.1 %                               |
| Aircraft fuel and related taxes                    | 6,756                       | 5,985                       | 771                                | 12\.9 %                              |
| Regional carriers expense, excluding fuel          | 3,466                       | 3,447                       | 19                                 | 0\.6 %                               |
| Depreciation and amortization                      | 2,222                       | 1,886                       | 336                                | 17\.8 %                              |
| Contracted services                                | 2,108                       | 1,918                       | 190                                | 9\.9 %                               |
| Passenger commissions and other selling expenses   | 1,827                       | 1,751                       | 76                                 | 4\.3 %                               |
| Aircraft maintenance materials and outside repairs | 1,591                       | 1,434                       | 157                                | 10\.9 %                              |
| Landing fees and other rents                       | 1,501                       | 1,472                       | 29                                 | 2\.0 %                               |
| Ancillary businesses and refinery                  | 1,495                       | 1,182                       | 313                                | 26\.5 %                              |
| Passenger service                                  | 1,123                       | 964                         | 159                                | 16\.5 %                              |
| Profit sharing                                     | 1,065                       | 1,115                       | (50)                               | (4\.5)%                              |
| Aircraft rent                                      | 351                         | 285                         | 66                                 | 23\.2 %                              |
| Other                                              | 1,609                       | 1,621                       | (12)                               | (0\.7)%                              |
| Total operating expense                            | $35,172                     | $32,454                     | $2,718                             | 8\.4 %                               |

Salaries and Related Costs\.  The increase in salaries and related costs is primarily due to pay rate increases for eligible employees\.

Aircraft Fuel and Related Taxes\.  Fuel expense increased  $771 million  compared to the prior year due to a 22% increase in the market price per gallon of fuel, partially offset by reduced fuel hedge losses compared to the prior year and profits generated within our refinery segment\.

The table below shows the impact of hedging and the refinery on fuel expense and average price per gallon, adjusted (non\-GAAP financial measures):

|                                           |                             |                             |                                    |                              |                              |                                    |
| ----------------------------------------- | --------------------------- | --------------------------- | ---------------------------------- | ---------------------------- | ---------------------------- | ---------------------------------- |
|                                           |                             |                             |                                    | **Average Price Per Gallon** | **Average Price Per Gallon** | **Average Price Per Gallon**       |
|                                           | **Year Ended December 31,** | **Year Ended December 31,** | **Increase**

**(Decrease)** | **Year Ended December 31,**  | **Year Ended December 31,**  | **Increase**

**(Decrease)** |
| **(in millions, except per gallon data)** | **2017**                    | **2016**                    | **Increase**

**(Decrease)** | **2017**                     | **2016**                     | **Increase**

**(Decrease)** |
| Fuel purchase cost ^(1)^                  | $6,833                      | $5,579                      | $1,254                             | $1\.70                       | $1\.39                       | $0\.31                             |
| Fuel hedge impact ^(2)^                   | 33                          | 281                         | (248)                              | 0\.01                        | 0\.07                        | (0\.06)                            |
| Refinery segment impact ^(2)^             | (110)                       | 125                         | (235)                              | (0\.03)                      | 0\.03                        | (0\.06)                            |
| Total fuel expense                        | $6,756                      | $5,985                      | $771                               | $1\.68                       | $1\.49                       | $0\.19                             |
| MTM adjustments and settlements ^(3)^     | 259                         | 450                         | (191)                              | 0\.06                        | 0\.11                        | (0\.05)                            |
| Total fuel expense, adjusted              | $7,015                      | $6,435                      | $580                               | $1\.74                       | $1\.60                       | $0\.14                             |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------- |
| ^(1)^ | Market price for jet fuel at airport locations, including related taxes and transportation costs\. |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | Includes the impact of pricing arrangements between the airline and refinery segments with respect to the refinery's inventory price risk\. For additional information regarding the refinery segment, see "Refinery Segment" below\.  |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(3)^ | MTM adjustments and settlements include the effects of the derivative transactions discussed in  Note 5  of the Notes to the Consolidated Financial Statements\. For additional information and the reason for adjusting fuel expense, see "Supplemental Information" below\. |

Depreciation and Amortization\.  The increase in depreciation expense primarily results from new aircraft deliveries, including B\-737\-900ER, A321\-200, A330\-300 and A350\-900 aircraft, fleet modifications and accelerated depreciation due to the planned retirement of our MD\-88 fleet and two B\-767\-300ER aircraft\.

Contracted Services\.  The increase in contracted services expense predominantly relates to additional contract labor expenses associated with investments in our technology infrastructure and other activities to improve the customer experience\.

 34


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

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

The following table presents repurchases of UAL common stock made in the fourth quarter of 2018:

|               |                                              |                                         |                                                                                |                                                                                |
| ------------- | -------------------------------------------- | --------------------------------------- | ---------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- |
| **Period**    | **Total number of shares purchased (a) (b)** | **Average price paid per share (b)(c)** | **Total number of shares purchased as part of publicly announced plans or programs (a)** | **Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions) (a)** |
| October 2018  | 572,349                                      | $85\.76                                 | 572,349                                                                                | $1,941                                                                                |
| November 2018 | 927,969                                      | 91\.76                                  | 927,969                                                                                | 1,856                                                                                |
| December 2018 | 1,228,339                                    | 85\.87                                  | 1,228,339                                                                                | 1,750                                                                                |
| Total         | 2,728,657                                    |                                         | 2,728,657                                                                                |                                                                                |

(a) In 2018, UAL repurchased approximately 17\.5 million shares of UAL common stock for $1\.2 billion\. In December 2017, UAL's Board of Directors authorized a $3\.0 billion share repurchase program to acquire UAL's common stock\. As of December 31, 2018, the Company had approximately $1\.8 billion remaining to purchase shares under its share repurchase program\. UAL may repurchase shares through the open market, privately negotiated transactions, block trades or accelerated share repurchase transactions from time to time in accordance with applicable securities laws\.

(b) The table does not include shares withheld from employees to satisfy certain tax obligations due upon the vesting of restricted stock\. The United Continental Holdings, Inc\. 2017 Incentive Compensation Plan and the United Continental Holdings, Inc\. 2008 Incentive Compensation Plan, each provide for the withholding of shares to satisfy tax obligations due upon the vesting of restricted stock\. However, these plans do not specify a maximum number of shares that may be withheld for this purpose\. A total of 1,368 shares were withheld under the plans in the fourth quarter of 2018 at an average price of $91\.79 per share\. These shares of common stock withheld to satisfy tax withholding obligations may be deemed to be "issuer purchases" of shares that are required to be disclosed pursuant to this Item\.

(c) Average price paid per share is calculated on a settlement basis and excludes commission\.

|              |                                |
| ------------ | ------------------------------ |
| **ITEM 6\.** | **SELECTED FINANCIAL DATA\.**  |

UAL's consolidated financial statements and statistical data are provided in the tables below:

|                                                                    |                             |                             |                             |                             |                             |
| ------------------------------------------------------------------ | --------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                                    | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                                    | **2018**                    | **2017 (a)**                | **2016 (a)**                | **2015**                    | **2014**                    |
| **Income Statement Data (in millions, except per share amounts):** |                             |                             |                             |                             |                             |
| Operating revenue                                                  | $41,303                     | $37,784                     | $36,558                     | $37,864                     | $38,901                     |
| Operating expense                                                  | 38,011                      | 34,113                      | 32,214                      | 32,698                      | 36,528                      |
| Operating income                                                   | 3,292                       | 3,671                       | 4,344                       | 5,166                       | 2,373                       |
| Net income                                                         | 2,129                       | 2,144                       | 2,234                       | 7,340                       | 1,132                       |
| Basic earnings per share                                           | 7\.73                       | 7\.08                       | 6\.77                       | 19\.52                      | 3\.05                       |
| Diluted earnings per share                                         | 7\.70                       | 7\.06                       | 6\.76                       | 19\.47                      | 2\.93                       |
| **Balance Sheet Data at December 31 (in millions):**               |                             |                             |                             |                             |                             |
| Unrestricted cash, cash equivalents and short\-term investments    | $3,950                      | $3,798                      | $4,428                      | $5,196                      | $4,384                      |
| Total assets                                                       | 44,792                      | 42,346                      | 40,208                      | 40,861                      | 36,595                      |
| Debt and capital lease obligations                                 | 14,728                      | 14,392                      | 11,705                      | 11,759                      | 11,947                      |

(a) Amounts adjusted due to the adoption of Accounting Standards Update No\. 2014\-09, *Revenue from Contracts with Customers (Topic 606)* andAccounting Standards Update No\. 2017\-07, *Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost\.* See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information\.

22


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

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

Pursuant to a capacity purchase agreement between American and AAG’s wholly\-owned regional airlines operating as American Eagle, American purchases all of the capacity from these carriers and recognizes passenger revenue from flights operated by American Eagle\. In 2018, 2017 and 2016, American recognized expense of approximately $1\.8 billion, $1\.7 billion and $1\.5 billion, respectively, related to wholly\-owned regional airline capacity purchase agreements\.

173


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

New York\-LaGuardia Airport

As part of the terminal redevelopment project at LaGuardia Airport, we are partnering with the Port Authority to replace Terminals C and D with a new state\-of\-the\-art terminal facility consisting of 37 gates across four concourses connected to a central headhouse\. The terminal will feature a new, larger Delta Sky Club, wider concourses, more gate seating and 30 percent more concessions space than the existing terminals\. The facility will also offer direct access between the parking garage and terminal and improved roadways and drop\-off/pick\-up areas\. The design of the new terminal will integrate sustainable technologies and improvements in energy efficiency\. Construction will be phased to limit passenger inconvenience and is expected to be completed by 2026\.

In connection with the redevelopment, during 2017, we entered into an amended and restated terminal lease with the Port Authority with a term through 2050\. Pursuant to the lease agreement we will (1) fund (through debt issuance and existing cash) and undertake the design, management and construction of the terminal and certain off\-premises supporting facilities, (2) receive a Port Authority contribution of $600 million to facilitate construction of the terminal and other supporting infrastructure, (3) be responsible for all operations and maintenance during the term of the lease and (4) have preferential rights to all gates in the terminal subject to Port Authority requirements with respect to accommodation of designated carriers\. We currently expect our net project cost to be approximately $3\.3 billion and we bear the risks of project construction, including any potential cost over\-runs\. Using funding provided by cash flows from operations and/or financing arrangements, we spent approximately $562 million on this project during 2019\. See Note 7, "Debt," for additional information on the debt related to this redevelopment project, NYTDC Special Facilities Revenue Bonds, Series 2018\.

As we are funding the majority of the LaGuardia redevelopment project, we account for the related assets as leasehold improvements\. We entered into loan agreements to fund a portion of the construction, which are recorded on our balance sheet as debt with the proceeds reflected as restricted cash\.

80


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

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

**Schedule II**

**Valuation and Qualifying Accounts**

**For the Years Ended December 31, 2017, 2016 and 2015**

|                                                         |                                                      |                                                                        |                             |           |                                                |
|:------------------------------------------------------- | ----------------------------------------------------:| ----------------------------------------------------------------------:| ---------------------------:| ---------:| ----------------------------------------------:|
| **(In millions)**  **Description**                      | **Balance at**
**Beginning of**
**Period** | **Additions**
**Charged to**
**Costs and**
**Expenses** | **Deductions**
**(a)** | **Other** | **Balance at**
**End of**
**Period** |
| **Allowance for doubtful accounts—UAL and United:**     |                                                      |                                                                        |                             |           |                                                |
| 2017                                                    |                                                 $10  |                                                                   $20  |                        $23  |       $—  |                                            $7  |
| 2016                                                    |                                                  18  |                                                                    18  |                         26  |        —  |                                            10  |
| 2015                                                    |                                                  22  |                                                                    25  |                         29  |        —  |                                            18  |
| **Obsolescence allowance—spare parts—UAL and United:**  |                                                      |                                                                        |                             |           |                                                |
| 2017                                                    |                                                $295  |                                                                   $75  |                        $17  |       $1  |                                          $354  |
| 2016                                                    |                                                 235  |                                                                    61  |                         16  |       15  |                                           295  |
| 2015                                                    |                                                 169  |                                                                    38  |                          —  |       28  |                                           235  |
| **Valuation allowance for deferred tax assets—UAL:**    |                                                      |                                                                        |                             |           |                                                |
| 2017                                                    |                                                 $68  |                                                                   $11  |                        $27  |      $11  |                                           $63  |
| 2016                                                    |                                                  48  |                                                                    47  |                         27  |        —  |                                            68  |
| 2015                                                    |                                               4,751  |                                                                     —  |                      4,703  |        —  |                                            48  |
| **Valuation allowance for deferred tax assets—United:** |                                                      |                                                                        |                             |           |                                                |
| 2017                                                    |                                                 $68  |                                                                   $11  |                        $27  |      $11  |                                           $63  |
| 2016                                                    |                                                  48  |                                                                    47  |                         27  |        —  |                                            68  |
| 2015                                                    |                                               4,721  |                                                                     —  |                      4,673  |        —  |                                            48  |

(a) Deduction from reserve for purpose for which reserve was created\.

135


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

NOTE 15\. SEGMENTS

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker and is used in resource allocation and performance assessments\. Our chief operating decision maker is considered to be our executive leadership team\. Our executive leadership team regularly reviews discrete information for our two operating segments, which are determined by the products and services provided: our airline segment and our refinery segment\.

Airline Segment

Our airline segment is managed as a single business unit that provides scheduled air transportation for passengers and cargo throughout the U\.S\. and around the world and includes our loyalty program, as well as other ancillary airline services\. This allows us to benefit from an integrated revenue pricing and route network\. Our flight equipment forms one fleet, which is deployed through a single route scheduling system\. When making resource allocation decisions, our chief operating decision maker evaluates flight profitability data, which considers aircraft type and route economics, but gives no weight to the financial impact of the resource allocation decision on an individual carrier basis\. Our objective in making resource allocation decisions is to optimize our consolidated financial results\.

Refinery Segment

In 2012, our wholly owned subsidiaries, Monroe Energy, LLC, and MIPC, LLC (collectively, "Monroe"), acquired the Trainer oil refinery and related assets located near Philadelphia, Pennsylvania, as part of our strategy to mitigate the cost of the refining margin reflected in the price of jet fuel\. The acquisition included pipelines and terminal assets that allow the refinery to supply jet fuel to our airline operations throughout the Northeastern U\.S\., including our New York hubs at LaGuardia and JFK\.

Our refinery segment operates for the benefit of the airline segment by providing jet fuel to the airline segment from its own production and through jet fuel obtained through agreements with third parties\. The refinery's production consists of jet fuel as well as non\-jet fuel products\. We use several counterparties to exchange the non\-jet fuel products produced by the refinery for jet fuel consumed in our airline operations\. The gross fair value of the products exchanged under these agreements during the years ended December 31, 2019, 2018 and 2017 was $4\.0 billion, $3\.6 billion and $3\.2 billion, respectively\.

93


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

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

**Number** | **Description**                                                                                |
| 4\.78                         | [Form of Participation Agreement (Participation Agreement between American Airlines, Inc\. (as successor in interest to US Airways, Inc\.), as Owner, and Wilmington Trust Company, as Indenture Trustee and Subordination Agent) (incorporated by reference to Exhibit B to Exhibit 4\.12 to US Airways Group’s Current Report on Form 8\-K filed on December 13, 2012 (Commission File No\. 1\-08444))\.](http://www.sec.gov/Archives/edgar/data/701345/000119312512501957/d452985dex412.htm)                                                                                |
| 4\.79                         | [Form of Indenture (Trust Indenture and Security Agreement between American Airlines, Inc\. (as successor in interest to US Airways, Inc\.), as Owner, and Wilmington Trust Company, as Indenture Trustee) (incorporated by reference to Exhibit C to Exhibit 4\.12 to US Airways Group’s Current Report on Form 8\-K filed on December 13, 2012 (Commission File No\. 1\-08444))\.](http://www.sec.gov/Archives/edgar/data/701345/000119312512501957/d452985dex412.htm)                                                                                |
| 4\.80                         | [Amended and Restated Guarantee, dated as of March 31, 2014, from American Airlines Group Inc\. (as successor in interest to US Airways Group, Inc\.) relating to obligations of US Airways under the equipment notes relating to its Series 2012\-2 Pass Through Certificates (incorporated by reference to Exhibit 10\.4 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2014 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620114000011/d715288dex104.htm)                                                                                |
| 4\.81                         | [Form of Assumption Agreement, dated as of December 30, 2015, by American Airlines, Inc\. for the benefit of Wilmington Trust Company, as Indenture Trustee, to (i) each Participation Agreement between, among others, American Airlines, Inc\. (as successor in interest to US Airways, Inc\.) and Wilmington Trust Company, as Indenture Trustee, entered into pursuant to the 2010\-1, 2011\-1, 2012\-1, 2012\-2 and 2013\-1 EETC note purchase agreements and (ii) each Trust Indenture and Security Agreement, between, among others, American Airlines, Inc\. (as successor in interest to US Airways, Inc\.), and Wilmington Trust Company, as Indenture Trustee entered into pursuant to the 2010\-1, 2011\-1, 2012\-1, 2012\-2 and 2013\-1 EETC note purchase agreements (incorporated by reference to Exhibit 10\.3 to AAG’s Current Report on Form 8\-K filed on December 31, 2015 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515418305/d110614dex103.htm) |
| 4\.82                         | [Trust Supplement No\. 2016\-1AA, dated as of January 19, 2016, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on January 21, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516433815/d126794dex42.htm)                                                                                |
| 4\.83                         | [Trust Supplement No\. 2016\-1A, dated as of January 19, 2016, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.3 to American’s Current Report on Form 8\-K filed on January 21, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516433815/d126794dex43.htm)                                                                                |
| 4\.84                         | [Trust Supplement No\. 2016\-1B, dated as of January 19, 2016, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.4 to American’s Current Report on Form 8\-K filed on January 21, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516433815/d126794dex44.htm)                                                                                |
| 4\.85                         | [Intercreditor Agreement (2016\-1), dated as of January 19, 2016, among Wilmington Trust Company, as Trustee of the American Airlines Pass Through Trust 2016\-1AA, as Trustee of the American Airlines Pass Through Trust 2016\-1A and as Trustee of the American Airlines Pass Through Trust 2016\-1B, KfW IPEX\-Bank GmbH, as Class AA Liquidity Provider, Class A Liquidity Provider and Class B Liquidity Provider, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to exhibit 4\.5 to American’s Current Report on Form 8\-K filed on January 21, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516433815/d126794dex45.htm)                                                                                |
| 4\.86                         | [Note Purchase Agreement, dated as of January 19, 2016, among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on January 21, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516433815/d126794dex46.htm)                                                                                |
| 4\.87                         | [Form of Participation Agreement (Participation Agreement among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust Company, as Loan Trustee, and Wilmington Trust Company, in its individual capacity as set forth therein) (incorporated by reference to Exhibit B to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on January 21, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516433815/d126794dex46.htm)                                                                                |
| 4\.88                         | [Form of Indenture and Security Agreement (Indenture and Security Agreement between American Airlines, Inc\., and Wilmington Trust Company, as Loan Trustee) (incorporated by reference to Exhibit C to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on January 21, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516433815/d126794dex46.htm)                                                                                |
| 4\.89                         | [Form of Pass Through Trust Certificate, Series 2016\-1AA (incorporated by reference to Exhibit A to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on January 21, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516433815/d126794dex42.htm)                                                                                |
| 4\.90                         | [Form of Pass Through Trust Certificate, Series 2016\-1A (incorporated by reference to Exhibit A to Exhibit 4\.3 to American’s Current Report on Form 8\-K filed on January 21, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516433815/d126794dex43.htm)                                                                                |
| 4\.91                         | [Form of Pass Through Trust Certificate, Series 2016\-1B (incorporated by reference to Exhibit A to Exhibit 4\.4 to American’s Current Report on Form 8\-K filed on January 21, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516433815/d126794dex44.htm)                                                                                |

186