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

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

Specifically, American is required to meet certain collateral coverage tests on an annual basis for four credit facilities, as described below:

|                                                        |                                                                                |                                                                                |                                                                       |                                                                                |
| ------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- |
|                                                        | **2013 Credit Facilities**                                                                                | **2014 Credit Facilities**                                                                                | **April 2016 Credit**

**Facilities**                           | **December 2016**

**Credit Facilities**                                                                                |
| Frequency of Appraisals

of Appraised Collateral | Annual                                                                                | Annual                                                                                | Annual                                                                | Annual                                                                                |
| LTV Requirement                                        | 1\.6x Collateral valuation to amount of debt outstanding (62\.5% LTV)                                                                                | 1\.6x Collateral valuation to amount of debt outstanding (62\.5% LTV)                                                                                | 1\.6x Collateral valuation to amount of debt outstanding (62\.5% LTV) | 1\.6x Collateral valuation to amount of debt outstanding (62\.5% LTV)                                                                                |
| LTV as of Last

Measurement Date                 | 33\.9%                                                                                | 23\.1%                                                                                | 42\.7%                                                                | 59\.0%                                                                                |
| Collateral Description                                 | Generally, certain slots, route authorities, and airport gate leasehold rights used by American to operate all services between the U\.S\. and South America | Generally, certain slots, route authorities and airport gate leasehold rights used by American to operate certain services between the U\.S\. and London Heathrow | Generally, certain spare parts                                        | Generally, certain Ronald Reagan Washington National Airport (DCA) slots, certain La Guardia Airport (LGA) slots, certain simulators and certain leasehold rights |

At December 31, 2017, American was in compliance with the applicable collateral coverage tests as of the most recent measurement dates\.

**4\. Income Taxes**

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

|                                          |                             |                             |                             |
| ---------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                          | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                          | **2017**                    | **2016**                    | **2015**                    |
| Current income tax provision:            |                             |                             |                             |
| Federal                                  | $—                          | $—                          | $—                          |
| State and Local                          | 24                          | 10                          | 15                          |
| Current income tax provision             | 24                          | 10                          | 15                          |
| Deferred income tax provision (benefit): |                             |                             |                             |
| Federal                                  | 1,235                       | 1,559                       | (3,407)                     |
| State and Local                          | 63                          | 93                          | (60)                        |
| Deferred income tax provision (benefit)  | 1,298                       | 1,652                       | (3,467)                     |
| Total income tax provision (benefit)     | $1,322                      | $1,662                      | $(3,452)                    |

145


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

Investing Activities

Capital Expenditures\.  Our capital expenditures were $4\.9 billion in 2019 and $5\.2 billion in 2018\. Our capital expenditures are primarily related to the purchase of aircraft, fleet modifications and technology enhancements\.

As part of a multi\-year initiative, we are investing in aircraft intended to provide more premium products, improved customer experience, greater fuel efficiency and better operating economics\. We have committed to future aircraft purchases that will require significant capital investment and have obtained, but are under no obligation to use, long\-term financing commitments for a substantial portion of the purchase price of a significant number of these aircraft\. We expect that we will invest approximately $4\.5 billion in 2020 primarily for aircraft, including deliveries and advance deposit payments, as well as aircraft modifications, the majority of which relate to cabin enhancements throughout our fleet\. We expect that the investments in 2020 will be funded principally through cash flows from operations\.

In October 2019, the Office of the U\.S\. Trade Representative announced a 10% tariff on new aircraft imported from Europe\. We are evaluating the impact of this announcement on our future Airbus deliveries\.

Equity Investments\.  During 2019, we acquired 10% of the outstanding shares of Hanjin\-KAL, the largest shareholder of Korean Air for $170 million\.

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

In addition, to support the establishment of the strategic alliance, we will invest $350 million, $200 million of which was disbursed in 2019\. An additional $50 million is scheduled to be disbursed during 2020\. As part of our planned strategic alliance with LATAM, we have also agreed to acquire four A350 aircraft from LATAM and plan to assume ten of LATAM's A350 purchase commitments from Airbus, with deliveries through 2025\.

This alliance is expected to generate new growth opportunities, building upon Delta's and LATAM's global footprint and joint ventures, including Delta's existing partnership with Aeroméxico\. We have sold our GOL ownership stake and are winding down our commercial agreements with GOL to facilitate the formation of our strategic alliance with LATAM\.

See Note 4 of the Notes to the Consolidated Financial Statements for more information on our equity investments\.

Los Angeles International Airport ("LAX") Construction\.  We executed a modified lease agreement during 2016 with the City of Los Angeles ("the City") which owns and operates LAX, and announced plans to modernize, upgrade and connect Terminals 2 and 3 at LAX\. Under the lease agreement, we have relocated certain airlines and other tenants from Terminals 2 and 3 to Terminals 5 and 6 and undertaken various initial projects to enable operations from Terminals 2 and 3 during the project\. We are now designing and constructing the redevelopment of Terminal 3 and enhancement of Terminal 2, which also includes rebuilding the ticketing and arrival halls and security checkpoint, construction of core infrastructure to support the City's planned airport people mover, ramp improvements and construction of a secure connector to the north side of the Tom Bradley International Terminal\. Construction is expected to be completed by 2024\.

Under the lease agreement and subsequent project component approvals by the City's Board of Airport Commissioners, the City has appropriated to date approximately $1\.6 billion to purchase completed project assets\. The lease allows for a maximum reimbursement by the City of $1\.8 billion\. Costs we incur in excess of such maximum will not be reimbursed by the City\.

A substantial majority of the project costs are being funded through the Regional Airports Improvement Corporation ("RAIC"), a California public benefit corporation, using an $800 million revolving credit facility provided by a group of lenders\. The credit facility was executed during 2017 and amended in 2019 and we have guaranteed the obligations of the RAIC under the credit facility\. Loans made under the credit facility are being repaid with the proceeds from the City’s purchase of completed project assets\. Using funding provided by cash flows from operations and/or the credit facility, we spent approximately $176 million on this project during 2019 and expect to spend approximately $240 million during 2020\.

38


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

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

Airlines also compete for market share by increasing or decreasing their capacity, including route systems and the number of markets served\. Several of the Company’s domestic and international competitors have increased their international capacity by including service to some destinations that the Company currently serves, causing overlap in destinations served and therefore increasing competition for those destinations\. This increased competition in both domestic and international markets may have a material adverse effect on the Company’s results of operations, financial condition or liquidity\.

***Terrorist attacks or international hostilities, or the fear of terrorist attacks or hostilities, even if not made directly on the airline industry, could negatively affect the Company and the airline industry\.***

The terrorist attacks on September 11, 2001 involving commercial aircraft severely and adversely impacted the Company’s financial condition and results of operations, as well as the prospects for the airline industry\. Among the effects experienced from the September 11, 2001 terrorist attacks were substantial flight disruption costs caused by the FAA\-imposed temporary grounding of the U\.S\. airline industry’s fleet, significantly increased security costs and associated passenger inconvenience, increased insurance costs, substantially higher ticket refunds and significantly decreased traffic and passenger revenue\.

Additional terrorist attacks, even if not made directly on the airline industry, or the fear of or the precautions taken in anticipation of such attacks (including elevated national threat warnings, travel restrictions or selective cancellation or redirection of flights) could materially and adversely affect the Company and the airline industry\. Wars and other international hostilities could also have a material adverse impact on the Company’s financial condition, liquidity and results of operations\. The Company’s financial resources may not be sufficient to absorb the adverse effects of any future terrorist attacks or other international hostilities\.

***Increasing privacy and data security obligations or a significant data breach may adversely affect the Company’s business\.***

The Company is subject to increasing legislative, regulatory and customer focus on privacy issues and data security\. Also, a number of the Company’s commercial partners, including credit card companies, have imposed data security standards that the Company must meet and these standards continue to evolve\. The Company will continue its efforts to meet its privacy and data security obligations; however, it is possible that certain new obligations may be difficult to meet and could increase the Company’s costs\. Additionally, the Company must manage evolving cybersecurity risks\. The loss, disclosure, misappropriation of or access to customers’, employees’ or business partners’ information or the Company’s failure to meet its obligations could result in legal claims or proceedings, liability or regulatory penalties\. A significant data breach or the Company’s failure to meet its obligations may adversely affect the Company’s reputation, business, results of operations and financial condition\.

***The Company relies heavily on technology and automated systems to operate its business and any significant failure or disruption of the technology or these systems could materially harm its business\.***

The Company depends on automated systems and technology to operate its business, including computerized airline reservation systems, flight operations systems, revenue management systems, accounting systems, telecommunication systems and commercial websites, including www\.united\.com\. United’s website and other automated systems must be able to accommodate a high volume of traffic, maintain secure information and deliver important flight and schedule information, as well as process critical financial transactions\. These systems could suffer substantial or repeated disruptions due to various events, some of which are beyond the Company’s control, including natural disasters, power failures, terrorist attacks, equipment or software failures, computer viruses or cyber security attacks\. Substantial or repeated systems failures or disruptions, including failures or disruptions related to the Company’s complex integration of systems, could reduce the attractiveness of the Company’s services versus those of its competitors, materially impair its ability to market its services and operate its flights, result in the unauthorized release of confidential or otherwise protected information, result in increased costs, lost revenue and the loss or compromise of important data, and may adversely affect the Company’s business, results of operations and financial condition\.

11


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

certified a class of approximately 1,800 flight attendants in November 2016\. The Company believes the claims in this case are without factual and legal merit\.

In July 2018, the Court granted in part Plaintiffs' motion for summary judgment, finding Virgin America, and Alaska Airlines, as a successor\-in\-interest to Virgin America, responsible for various damages and penalties sought by the class members\. On February 4, 2019, the Court entered final judgment against Virgin America and Alaska Airlines in the amount of approximately $78 million\. It did not award behavioral relief from Alaska Airlines\.

The Company will then seek an appellate court ruling that the California laws on which the judgment is based are invalid as applied to national airlines pursuant to the U\.S\. Constitution and federal law and for other employment law and improper class certification reasons\. The Company remains confident that a higher court will respect the federal preemption principles that were enacted to shield inter\-state common carriers from a patchwork of state and local wage and hour regulations such as those at issue in this case and agree with the Company's other bases for appeal\. For these reasons, no loss has been accrued\.

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

Not applicable\.

**PART II**

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

As of December 31, 2018, there were 130,813,476 shares of common stock of Alaska Air Group, Inc\. issued, 123,194,430 shares outstanding, and 2,087 shareholders of record\. In 2018, we paid quarterly dividends of $0\.32 per share in March, June, September and December\. Our common stock is listed on the New York Stock Exchange (symbol: ALK)\.

**SALES OF NON\-REGISTERED SECURITIES**

None\.

**PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS**

|                                              |                                                 |                                             |                                                                                |                                                                                |
| -------------------------------------------- | ----------------------------------------------- | ------------------------------------------- | ----------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------- |
|                                              | **Total Number of**

**Shares Purchased** | **Average Price**

**Paid per Share** | **Total Number of Shares (or units) Purchased as Part of Publicly Announced Plans or Programs** | **Maximum remaining**

**dollar value of shares**

**that can be purchased**

**under the plan**

**(in millions)** |
| October 1, 2018 \- October 31, 2018  ^(a)^   | 72,448                                          | $63\.48                                     | 72,448                                                                                |                                                                                |
| November 1, 2018 \- November 30, 2018  ^(a)^ | 68,185                                          | 67\.80                                      | 68,185                                                                                |                                                                                |
| December 1, 2018 \- December 31, 2018  ^(a)^ | 52,611                                          | 64\.22                                      | 52,611                                                                                |                                                                                |
| Total                                        | 193,244                                         | $65\.21                                     | 193,244                                                                                | $562                                                                                |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------- |
| ^(a)^ | Purchased pursuant to the $1 billion repurchase plan authorized by the Board of Directors in August 2015\. |

 27


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

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

|               |                                |
| ------------- | ------------------------------ |
|  **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,** |
|                                                                    |                    **2017** |                    **2016** |                    **2015** |                    **2014** |                    **2013** |
| **Income Statement Data (in millions, except per share amounts):** |                             |                             |                             |                             |                             |
| Operating revenue                                                  |                   $ 37,736  |                   $ 36,556  |                   $ 37,864  |                   $ 38,901  |                   $ 38,279  |
| Operating expense                                                  |                     34,238  |                     32,218  |                     32,698  |                     36,528  |                     37,030  |
| Operating income                                                   |                      3,498  |                      4,338  |                      5,166  |                      2,373  |                      1,249  |
| Net income                                                         |                      2,131  |                      2,263  |                      7,340  |                      1,132  |                        571  |
| Basic earnings per share                                           |                      7\.04  |                      6\.86  |                     19\.52  |                      3\.05  |                      1\.64  |
| Diluted earnings per share                                         |                      7\.02  |                      6\.85  |                     19\.47  |                      2\.93  |                      1\.53  |
| **Balance Sheet Data at December 31 (in millions):**               |                             |                             |                             |                             |                             |
| Unrestricted cash, cash equivalents and short\-term investments    |                     $3,798  |                     $4,428  |                     $5,196  |                     $4,384  |                     $5,121  |
| Total assets                                                       |                     42,326  |                     40,140  |                     40,861  |                     36,595  |                     36,021  |
| Debt and capital lease obligations                                 |                     14,392  |                     11,705  |                     11,759  |                     11,947  |                     12,293  |

26


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

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

Assumptions

The following actuarial assumptions were used to determine our benefit obligations and net periodic benefit cost (income) for the periods presented:

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

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

**Other Postretirement Benefits** |
|                                | **2019**             | **2018**             | **2019**                                                         | **2018**                                                         |
| Benefit obligations:           |                      |                      |                                                                  |                                                                  |
| Weighted average discount rate | 3\.4%                | 4\.4%                | 3\.3%                                                            | 4\.3%                                                            |

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

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

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

**Other Postretirement Benefits** |
|                                                                           | **2019**             | **2018**             | **2017**             | **2019**                                                         | **2018**                                                         | **2017**                                                         |
| Net periodic benefit cost (income):                                       |                      |                      |                      |                                                                  |                                                                  |                                                                  |
| Weighted average discount rate                                            | 4\.4%                | 3\.8%                | 4\.3%                | 4\.3%                                                            | 3\.6%                                                            | 4\.1%                                                            |
| Weighted average expected rate of return on plan assets                   | 8\.0%                | 8\.0%                | 8\.0%                | 8\.0%                                                            | 8\.0%                                                            | 8\.0%                                                            |
| Weighted average health care cost trend rate assumed for next year  ^(1)^ | N/A                  | N/A                  | N/A                  | 3\.7%                                                            | 3\.9%                                                            | 4\.2%                                                            |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | The weighted average health care cost trend rate at  December 31, 2019  is assumed to decline gradually to   3\.3%  by 2027 and remain level thereafter\. |

As of  December 31, 2019 , our estimate of the long\-term rate of return on plan assets was   8\.0%  based on the target asset allocation\. Expected returns on long duration bonds are based on yields to maturity of the bonds held at year\-end\. Expected returns on other assets are based on a combination of long\-term historical returns, actual returns on plan assets achieved over the last ten years, current and expected market conditions, and expected value to be generated through active management and securities lending programs\.

A one percentage point change in the assumed health care cost trend rates would have the following approximate effects on our retiree medical and other postretirement benefits plans (in millions):

|                                                                   |                 |                      |
| ----------------------------------------------------------------- | --------------- | -------------------- |
|                                                                   | **1% Increase** | **1% Decrease**      |
| Increase (decrease) on 2019 service and interest cost             | $1              | $

(1

) |
| Increase (decrease) on benefit obligation as of December 31, 2019 | 40              | (40

)         |

Minimum Contributions

We are required to make minimum contributions to our defined benefit pension plans under the minimum funding requirements of the Employee Retirement Income Security Act of 1974 (ERISA) and various other laws for U\.S\. based plans as well as underfunding rules specific to countries where we maintain defined benefit plans\. Based on current funding assumptions, we have minimum required contributions of   $196 million  for  2020  including contributions to defined benefit plans for our wholly\-owned regional subsidiaries\. Our funding obligations will depend on the performance of our investments held in trust by the pension plans, interest rates for determining liabilities, the amount of and timing of any supplemental contributions and our actuarial experience\.

Benefit Payments

The following benefit payments, which reflect expected future service as appropriate, are expected to be paid (approximately, in millions):

|                                                   |          |          |          |          |          |                |
| ------------------------------------------------- | -------- | -------- | -------- | -------- | -------- | -------------- |
|                                                   | **2020** | **2021** | **2022** | **2023** | **2024** | **2025\-2029** |
| Pension benefits                                  | $753     | $792     | $832     | $874     | $914     | $5,045         |
| Retiree medical and other postretirement benefits | 80       | 71       | 66       | 64       | 61       | 265            |

101


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

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

Our fourth quarter 2016 results include $273 million of total net special items that principally included $121 million of Merger integration expenses, $104 million of fleet restructuring expenses and a $47 million net charge resulting from fair value adjustments to bankruptcy obligations\.

**17\. Subsequent Event**

*Dividend Declaration*

In January 2018, we announced that our Board of Directors declared a $0\.10 per share dividend for stockholders of record on February 6, 2018, and payable on February 20, 2018\. Any future dividends that may be declared and paid from time to time will be subject to market and economic conditions, applicable legal requirements and other relevant factors\. We are not obligated to continue a dividend for any fixed period, and payment of dividends may be suspended at any time at our discretion\.

124


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

Interline loyalty

Alaska has interline arrangements with certain airlines whereby its members may earn and redeem Mileage Plan™ credits on those airlines, and members of a partner airline’s loyalty program may earn and redeem frequent flyer program credits on flights operated by Alaska and its regional partners\. When a Mileage Plan™ member earns credits on a partner airline, the partner airline remits a contractually\-agreed upon fee to the Company which is deferred until credits are redeemed\. When a Mileage Plan™ member redeems credits on a partner airline, the Company pays a contractually agreed upon fee to the other airline, which is netted against the revenue recognized associated with the award travel\. When a member of a partner airline redeems frequent flyer credits on Alaska, the partner airline remits a contractually\-agreed upon amount to the Company, recognized as Passenger revenue upon travel\. If the partner airline’s member earns frequent flyer program credits on an Alaska flight, the Company remits a contractually\-agreed upon fee to the partner airline and records a commission expense\.

Mileage Plan revenue included in the consolidated statements of operations (in millions):

|                            |                            |                            |                                  |                                  |                                  |                                  |                                  |                                  |                                  |                                  |                                  |  |  |  |  |  |  |  |  |  |  |  |  |
|:-------------------------- |:-------------------------- |:-------------------------- | --------------------------------:|:--------------------------------:|:--------------------------------:|:--------------------------------:| --------------------------------:|:--------------------------------:|:--------------------------------:|:--------------------------------:| --------------------------------:|:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |
|                            |                            |                            | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, |  |  |  |  |  |  |  |  |  |  |  |  |
|                            |                            |                            |                             2019 |                                  |                                  |                                  |                             2018 |                                  |                                  |                                  |                             2017 |
| Passenger revenue          | Passenger revenue          | Passenger revenue          |                            $ 704 |                                  |                                  |                                  |                            $ 619 |                                  |                                  |                                  |                            $ 541 |
| Mileage Plan other revenue | Mileage Plan other revenue | Mileage Plan other revenue |                              465 |                                  |                                  |                                  |                              434 |                                  |                                  |                                  |                              418 |
| Total Mileage Plan revenue | Total Mileage Plan revenue | Total Mileage Plan revenue |                          $ 1,169 |                                  |                                  |                                  |                          $ 1,053 |                                  |                                  |                                  |                            $ 959 |

Mileage Plan other revenue is primarily brand and marketing revenue from our affinity card products\.

Cargo and Other

The Company provides freight and mail services (cargo)\. The majority of cargo services are provided to commercial businesses and the United States Postal Service\. The Company satisfies cargo service performance obligations and recognizes revenue when the shipment arrives at its final destination, or is transferred to a third\-party carrier for delivery\.

The Company also earns other revenue for lounge memberships, hotel and car commissions, and certain other immaterial items not intrinsically tied to providing air travel to passengers\. Revenue is recognized when these services are rendered and recorded as Cargo and other revenue\. The transaction price for Cargo and other revenue is the price paid by the customer\.

Cargo and other revenue included in the consolidated statements of operations (in millions):

|                               |                               |                               |                                  |                                  |                                  |                                  |                                  |                                  |                                  |                                  |                                  |  |  |  |  |  |  |  |  |  |  |  |  |
|:----------------------------- |:----------------------------- |:----------------------------- | --------------------------------:|:--------------------------------:|:--------------------------------:|:--------------------------------:| --------------------------------:|:--------------------------------:|:--------------------------------:|:--------------------------------:| --------------------------------:|:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |
|                               |                               |                               | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, |  |  |  |  |  |  |  |  |  |  |  |  |
|                               |                               |                               |                             2019 |                                  |                                  |                                  |                             2018 |                                  |                                  |                                  |                             2017 |
| Cargo revenue                 | Cargo revenue                 | Cargo revenue                 |                            $ 133 |                                  |                                  |                                  |                            $ 129 |                                  |                                  |                                  |                            $ 115 |
| Other revenue                 | Other revenue                 | Other revenue                 |                               88 |                                  |                                  |                                  |                               70 |                                  |                                  |                                  |                               60 |
| Total Cargo and other revenue | Total Cargo and other revenue | Total Cargo and other revenue |                            $ 221 |                                  |                                  |                                  |                            $ 199 |                                  |                                  |                                  |                            $ 175 |

Air Traffic Liability and Deferred Revenue

Passenger ticket and ancillary services liabilities

Air traffic liability included on the consolidated balance sheets represents the remaining obligation associated with passenger tickets and ancillary services\. The air traffic liability balance fluctuates with seasonal travel patterns\. The Company recognized Passenger revenue of $577 million and $583 million from the 2018 and 2017 year\-end air traffic liability balance during the twelve months ended December 31, 2019 and 2018\.

Mileage Plan^tm^  liabilities

The total deferred revenue liability included on the consolidated balance sheets represents the remaining transaction price that has been allocated to Mileage Plan^TM^  performance obligations not yet satisfied by the Company\. In general, the current amounts will be recognized as revenue within 12 months and the long\-term amounts will be recognized as revenue over a period of approximately three to four years\. This period of time represents the average time that members have historically taken to earn and redeem miles\.

62


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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of

Delta Air Lines, Inc\.

Opinion on Internal Control over Financial Reporting

We have audited Delta Air Lines, Inc\.’s internal control over financial reporting as of  December 31, 2018 , based on criteria established in Internal Control\-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria)\. In our opinion, Delta Air Lines, Inc\. (the Company) maintained, in all material respects, effective internal control over financial reporting as of  December 31, 2018 , based on  the COSO criteria \.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of  December 31, 2018  and  2017 ,  and the related consolidated statements of operations, comprehensive income, cash flows and stockholders’ equity for each of the three years in the period ended  December 31, 2018 , and the related notes and our report dated  February 15, 2019  expressed an unqualified opinion thereon\.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting\. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit\. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U\.S\. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB\.

We conducted our audit in accordance with the standards of the PCAOB\. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects\.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances\. We believe that our audit provides a reasonable basis for our opinion\.

Definition and Limitation of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles\. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements\.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements\. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate\.

|                   |                       |
| ----------------- | --------------------- |
| Atlanta, Georgia  | /s/ Ernst & Young LLP |
| February 15, 2019 |                       |

 99


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

In 2018, the Company adopted the full retrospective method under ASC 606 "Revenue Contracts with Customers\." The tax deferred assets and liabilities from 2017 were adjusted to reflect the retrospective adjustments of ASC 606\. The retrospective adjustments increased other\-net deferred tax liabilities $45 million and increased deferred tax assets $129 million, for a net deferred tax change of $84 million\.

At December 31, 2018, the Company had federal NOLs of approximately $243 million that expire beginning in 2032 and continuing through 2036, and state NOLs of approximately $189 million that expire beginning in 2029 and continuing through 2036\.

Virgin America experienced multiple “ownership changes” as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), the most recent being its acquisition by the Company\. Section 382 of the Code imposes an annual limitation on the utilization of pre\-ownership change NOLs\. Any unused annual limitation may, subject to certain limits, be carried over to later years\. The combined Company’s ability to use the NOLs will also depend on the amount of taxable income generated in future periods\.

Valuation allowances are provided to reduce the related deferred income tax assets to an amount which will, more likely than not, be realized\. The Company has determined it is more likely than not that a portion of the capital loss carryforward will not be realized and, therefore, has provided a valuation allowance of $2 million for that portion\. The Company reassesses the need for a valuation allowance each reporting period\.

***Components of Income Tax Expense***

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

|                                             |          |          |          |
| ------------------------------------------- | -------- | -------- | -------- |
|                                             | **2018** | **2017** | **2016** |
| Current income tax expense:                 |          |          |          |
| Federal                                     | **$(5)** | $127     | $392     |
| State                                       | **9**    | 35       | 48       |
| Total current income tax expense            | **4**    | 162      | 440      |
| Deferred income tax expense (benefit):      |          |          |          |
| Federal                                     | **125**  | (3)      | 67       |
| State                                       | **19**   | 40       | 12       |
| Total deferred income tax expense (benefit) | **144**  | 37       | 79       |
| Income tax expense                          | **$148** | $199     | $519     |

***Income Tax Rate Reconciliation***

Income tax expense reconciles to the amount computed by applying the 2018 U\.S\. federal rate of 21% to income before income tax and for deferred taxes as follows (in millions):

|                          |            |          |          |
| ------------------------ | ---------- | -------- | -------- |
|                          | **2018**   | **2017** | **2016** |
| Income before income tax | **$585**   | $1,159   | $1,316   |
| Expected tax expense     | **123**    | 406      | 461      |
| Nondeductible expenses   | **9**      | 5        | 20       |
| State income taxes       | **21**     | 28       | 27       |
| State income sourcing    | **—**      | 9        | 12       |
| Tax law changes          | **(7)**    | (237)    | —        |
| Other—net                | **2**      | (12)     | (1)      |
| Actual tax expense       | **$148**   | $199     | $519     |
| Effective tax rate       | **25\.3%** | 17\.2%   | 39\.4%   |

 78


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

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

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

|                                                   |                                       |                                       |
|:------------------------------------------------- | -------------------------------------:| -------------------------------------:|
|                                                   |                  **Pension Benefits** |                  **Pension Benefits** |
|                                                   | **Year Ended
December 31, 2017** | **Year Ended
December 31, 2016** |
| Accumulated benefit obligation:                   |                               $4,739  |                               $4,158  |
| Change in projected benefit obligation:           |                                       |                                       |
| Projected benefit obligation at beginning of year |                               $5,253  |                               $4,473  |
| Service cost                                      |                                  195  |                                  112  |
| Interest cost                                     |                                  220  |                                  200  |
| Actuarial loss                                    |                                  525  |                                  738  |
| Gross benefits paid and settlements               |                                 (366) |                                 (243) |
| Other                                             |                                   25  |                                  (27) |
| Projected benefit obligation at end of year       |                               $5,852  |                               $5,253  |
| Change in plan assets:                            |                                       |                                       |
| Fair value of plan assets at beginning of year    |                               $3,355  |                               $2,975  |
| Actual return on plan assets                      |                                  510  |                                  230  |
| Employer contributions                            |                                  419  |                                  421  |
| Gross benefits paid and settlements               |                                 (366) |                                 (243) |
| Other                                             |                                   14  |                                  (28) |
| Fair value of plan assets at end of year          |                               $3,932  |                               $3,355  |
| Funded status—Net amount recognized               |                              $(1,920) |                              $(1,898) |

|                                                                        |                       |                       |
|:---------------------------------------------------------------------- | ---------------------:| ---------------------:|
|                                                                        |  **Pension Benefits** |  **Pension Benefits** |
|                                                                        | **December 31, 2017** | **December 31, 2016** |
| Amounts recognized in the consolidated balance sheets consist of:      |                       |                       |
| Noncurrent asset                                                       |                   $9  |                   $2  |
| Current liability                                                      |                   (8) |                   (8) |
| Noncurrent liability                                                   |               (1,921) |               (1,892) |
| Total liability                                                        |              $(1,920) |              $(1,898) |
| Amounts recognized in accumulated other comprehensive loss consist of: |                       |                       |
| Net actuarial loss                                                     |              $(1,610) |              $(1,482) |
| Prior service cost                                                     |                   (1) |                   (1) |
| Total accumulated other comprehensive loss                             |              $(1,611) |              $(1,483) |

78


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

***Variable Incentive Pay***

Variable incentive pay expense increased to $135 million in 2017 from $127 million in 2016\. On a Combined Comparative basis, variable incentive pay decreased $24 million, or 15%, due to lower achievement against performance\-based pay metrics as compared to the prior year\.

***Aircraft Maintenance***

Aircraft maintenance costs increased by $121 million, or 45%, compared to 2016\. On a Combined Comparative basis, aircraft maintenance costs increased $41 million, or 12%\. Maintenance costs increased primarily due to timing of scheduled maintenance events in 2017, as well as a power\-by\-the\-hour maintenance agreement for our B737\-800 aricraft that began during the fourth quarter of 2017\.

***Aircraft Rent***

Aircraft rent expense increased$160 million, or 140%, compared to 2016\. On a Combined Comparative basis, aircraft rent expense decreased$10 million, or 4%, primarily due to the resetting of straight\-line aircraft rent resulting from purchase price accounting for leases held by Virgin America\.

***Landing Fees and Other Rentals***

Landing fees and other rental expenses increased$140 million, or 44%, compared to 2016\. On a Combined Comparative basis, landing fees and other rental expenses increased $33 million, or 8%, primarily due to increased flying in 2017 as we increased capacity by 7% and entered into 44 new markets\.

***Contracted Services***

Contracted services increased$67 million, or 27%, when compared to 2016\. On a Combined Comparative basis, contracted services increased$7 million, or 2%, primarily due to increased flying at stations where we use vendors to assist us\. Additionally, wage rates for our vendor employees have increased due to higher minimum wage laws in many locations we serve\. These cost increases were partially offset by insourcing some of the ground services at many airports to McGee Air Services, whose costs are now included in other financial statement line items, particularly wages and benefits\.

***Selling Expenses***

Selling expenses increased by $120 million, or 48%, compared to 2016\. On a Combined Comparative basis, selling expenses decreased$3 million, or 1%\. The 2016 Pre\-Acquisition Virgin America balances were not adjusted to reflect the new revenue recognition standard\. Had the standard been applied, Virgin America's selling expenses would have decreased in 2016, resulting in a Combined Comparative year over year increase in selling expenses, mostly due to increased promotional and advertising activities\.

***Depreciation and Amortization***

Depreciation and amortization expenses increased by $9 million, or 2%, compared to 2016\. On a Combined Comparative basis, depreciation and amortization expense decreased$28 million, or 7%, primarily due to a change in the estimated useful lives of certain B737 operating aircraft and related parts from 20 years to 25 years, which was effective October 1, 2016, partially offset by the addition of 14 B737\-900ERs and 10 E175s to our fleet during 2017\.

***Food and Beverage Service***

Food and beverage service expenses increased by $69 million, or 55%, compared to 2016\. On a Combined Comparative basis, food and beverage service expenses increased$20 million, or 11%, due to the increased number of passengers, premium class offerings and enhancements to our onboard menu offerings to provide higher quality food and beverage products\.

***Third\-Party Regional Carrier Expense***

Third\-party regional carrier expense, which represents payments made to SkyWest and PenAir under our CPAs, increased$26 million, or 27%, in 2017 compared to 2016\. The increase was primarily due to the addition of eight E175 aircraft operated by SkyWest in 2017\.

 46


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

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

The following information relates to all pension plans with an accumulated benefit obligation and a projected benefit obligation in excess of plan assets at December 31 (in millions):

|                                |          |          |
| ------------------------------ | -------- | -------- |
|                                | **2018** | **2017** |
| Projected benefit obligation   | $5,196   | $5,637   |
| Accumulated benefit obligation | 4,286    | 4,567    |
| Fair value of plan assets      | 3,614    | 3,709    |

Net periodic benefit cost for the years ended December 31 included the following components (in millions):

|                                                    |                      |                                   |                      |                                   |                      |                                   |
| -------------------------------------------------- | -------------------- | --------------------------------- | -------------------- | --------------------------------- | -------------------- | --------------------------------- |
|                                                    | **2018**             | **2018**                          | **2017**             | **2017**                          | **2016**             | **2016**                          |
|                                                    | **Pension Benefits** | **Other Postretirement Benefits** | **Pension Benefits** | **Other Postretirement Benefits** | **Pension Benefits** | **Other Postretirement Benefits** |
| Service cost                                       | $228                 | $12                               | $195                 | $13                               | $112                 | $19                               |
| Interest cost                                      | 217                  | 61                                | 220                  | 66                                | 200                  | 86                                |
| Expected return on plan assets                     | (292)                | (2)                               | (243)                | (2)                               | (216)                | (2)                               |
| Curtailment gain                                   | —                    | —                                 | —                    | —                                 | —                    | (107)                             |
| Amortization of unrecognized actuarial (gain) loss | 130                  | (32)                              | 128                  | (33)                              | 76                   | (19)                              |
| Amortization of prior service credits              | —                    | (37)                              | —                    | (37)                              | —                    | (31)                              |
| Other                                              | 1                    | —                                 | 5                    | —                                 | 5                    | —                                 |
| Net periodic benefit cost (credit)                 | $284                 | $2                                | $305                 | $7                                | $177                 | $(54)                             |

Service cost is recorded in Salaries and related costs on the statement of consolidated operations\. All other components of net periodic benefit costs are recorded in Miscellaneous, net on the statement of consolidated operations\.

See Note 14 of this report for additional information related to the curtailment gain recorded in 2016\.

The assumptions used for the benefit plans were as follows:

|                                                                                |                                   |                                   |
| ------------------------------------------------------------------------------------- | --------------------------------- | --------------------------------- |
|                                                                                | **Pension Benefits**              | **Pension Benefits**              |
| **Assumptions used to determine benefit obligations**                                 | **2018**                          | **2017**                          |
| Discount rate                                                                         | 4\.20%                            | 3\.65%                            |
| Rate of compensation increase                                                         | 3\.89%                            | 3\.89%                            |
| **Assumptions used to determine net expense**                                         |                                   |                                   |
| Discount rate                                                                         | 3\.65%                            | 4\.19%                            |
| Expected return on plan assets                                                        | 7\.31%                            | 7\.02%                            |
| Rate of compensation increase                                                         | 3\.89%                            | 3\.54%                            |
|                                                                                | **Other Postretirement Benefits** | **Other Postretirement Benefits** |
| **Assumptions used to determine benefit obligations**                                 | **2018**                          | **2017**                          |
| Discount rate                                                                         | 4\.30%                            | 3\.63%                            |
| **Assumptions used to determine net expense**                                         |                                   |                                   |
| Discount rate                                                                         | 3\.63%                            | 4\.07%                            |
| Expected return on plan assets                                                        | 3\.00%                            | 3\.00%                            |
| Health care cost trend rate assumed for next year                                     | 6\.00%                            | 6\.25%                            |
| Rate to which the cost trend rate is assumed to decline (ultimate trend rate in 2023) | 5\.00%                            | 5\.00%                            |

The Company used the Society of Actuaries' 2014 mortality tables, modified to reflect the Social Security Administration

Trustee's Report on current projections regarding expected longevity improvements\.

The Company selected the 2018 discount rate for substantially all of its plans by using a hypothetical portfolio of high quality bonds at December 31, 2018, that would provide the necessary cash flows to match projected benefit payments\.

72


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

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

As of December 31, 2018, American’s minimum fixed obligations under its capacity purchase agreements with third\-party regional carriers are as follows (approximately, in millions):

|                                                                                |          |          |          |          |          |                         |           |
| ------------------------------------------------------------------------------------------------------- | -------- | -------- | -------- | -------- | -------- | ----------------------- | --------- |
|                                                                                | **2019** | **2020** | **2021** | **2022** | **2023** | **2024 and Thereafter** | **Total** |
| Minimum fixed obligations under capacity purchase agreements with third\-party regional carriers  ^(1)^ | $1,101   | $930     | $765     | $618     | $487     | $1,043                  | $4,944    |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Represents minimum payments under capacity purchase agreements with third\-party regional carriers, which are estimates of costs based on assumed minimum levels of flying under the capacity purchase agreements and American’s actual payments could differ materially\. Excludes payments for the lease of certain aircraft under capacity purchase agreements, which are reflected in the operating lease obligations in Note 4\.  |

***(c) Airport Redevelopment***

*Los Angeles International Airport (LAX)*

In 2018, American executed a lease agreement with Los Angeles World Airports (LAWA), which owns and operates LAX, in connection with a $1\.6 billion modernization project related to LAX Terminals 4 and 5\. Construction will occur in a phased approach, which started in October 2018 and is expected to be completed in 2028\. The modernization project will include a unified departure hall to combine the entranceway of Terminals 4 and 5, reconfigured ticket counter and check\-in areas with seamless access to security screening areas, 16 security screening lanes with automated technology and upgraded amenities at gate areas\. The project will also include renovated break rooms, multi\-use meeting rooms and team gathering spaces throughout the terminals to support American’s team members at LAX\.

American is managing this project and has legal title to the assets during their construction\. As each phase is completed, the assets will be sold and transferred to LAWA, including the site improvements and non\-proprietary improvements\. As American controls the assets during construction, they are recognized on its balance sheet until legal title has transferred\. For 2018, American incurred approximately $7 million in costs relating to the LAX modernization project, which are included within operating property and equipment on its consolidated balance sheet as of December 31, 2018\.

***(d) Off\-Balance Sheet Arrangements***

*Aircraft*

American currently operates 389 owned aircraft and 88 leased aircraft which were financed with EETCs issued by pass\-through trusts\. These trusts are off\-balance sheet entities, the primary purpose of which is to finance the acquisition of flight equipment\. Rather than finance each aircraft separately when such aircraft is purchased, delivered or refinanced, these trusts allow American to raise the financing for a number of aircraft at one time and, if applicable, place such funds in escrow pending a future purchase, delivery or refinancing of the relevant aircraft\. The trusts were also structured to provide for certain credit enhancements, such as liquidity facilities to cover certain interest payments, that reduce the risks to the purchasers of the trust certificates and, as a result, reduce the cost of aircraft financing to American\.

Each trust covers a set number of aircraft scheduled to be delivered or refinanced upon the issuance of the EETC or within a specific period of time thereafter\. At the time of each covered aircraft financing, the relevant trust used the proceeds of the issuance of the EETC (which may have been available at the time of issuance thereof or held in escrow until financing of the applicable aircraft following its delivery) to purchase equipment notes relating to the financed aircraft\. The equipment notes are issued, at American’s election, in connection with a mortgage financing of the aircraft or, in certain cases, by a separate owner trust in connection with a leveraged lease financing of the aircraft\. In the case of a leveraged lease financing, the owner trust then leases the aircraft to American\. In both cases, the equipment notes are secured by a security interest in the aircraft\. The pass\-through trust certificates are not direct obligations of, nor are they guaranteed by, AAG or American\. However, in the case of mortgage financings, the equipment notes issued to the trusts are direct obligations of American and, in certain instances, have been guaranteed by AAG\. As of December 31, 2018, $11\.6 billion associated with these mortgage financings is reflected as debt in the accompanying consolidated balance sheet\.

With respect to leveraged leases, American evaluated whether the leases had characteristics of a variable interest entity\. American concluded the leasing entities met the criteria for variable interest entities\. American generally is not the primary beneficiary of the leasing entities if the lease terms are consistent with market terms at the inception of the lease and do not include a residual value guarantee, fixed\-price purchase option or similar feature that obligates American to absorb decreases

167


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

At the majority of the airports we serve, we lease ticket counters, gates, cargo and baggage space, ground equipment, office space and other support areas\. Airport leases contain provisions for periodic adjustments of lease rates\. We are typically responsible for maintenance, insurance and other facility\-related expenses and services under these agreements\. We also lease operations, training, administrative, and data center facilities in Burlingame, CA; Portland, OR; Quincy, WA; and Spokane, WA, line maintenance stations in Boise, ID; San Jose, CA; Redmond, OR; Seattle, WA; Kent, WA; and Spokane, WA, and call center facilities in Phoenix, AZ, Boise, ID, and Kent, WA, and a multi\-bay hangar in Portland, OR\.

|                            |                            |                            |
| -------------------------- | -------------------------- | -------------------------- |
| ITEM 3\. LEGAL PROCEEDINGS | ITEM 3\. LEGAL PROCEEDINGS | ITEM 3\. LEGAL PROCEEDINGS |

We are a party to routine litigation matters incidental to our business\. Management believes the ultimate disposition of these matters is not likely to materially affect our financial position or results of operations\. This forward\-looking statement is based on management’s current understanding of the relevant law and facts, and it is subject to various contingencies, including the potential costs and risks associated with litigation and the actions of judges and juries\.

In 2015, three flight attendants filed a class action lawsuit seeking to represent all Virgin America flight attendants for damages based on alleged violations of California and City of San Francisco wage and hour laws\. The court certified a class of approximately 1,800 flight attendants in November 2016\. The Company believes the claims in this case are without factual and legal merit\.

In July 2018, the Court granted in part Plaintiffs' motion for summary judgment, finding Virgin America, and Alaska Airlines, as a successor\-in\-interest to Virgin America, responsible for various damages and penalties sought by the class members\. On February 4, 2019, the Court entered final judgment against Virgin America and Alaska Airlines in the amount of approximately $78 million\. It did not award injunctive relief against Alaska Airlines\.

The Company is seeking an appellate court ruling that the California laws on which the judgment is based are invalid as applied to national airlines pursuant to the U\.S\. Constitution and federal law and for other employment law and improper class certification reasons\. The Company remains confident that a higher court will respect the federal preemption principles that were enacted to shield inter\-state common carriers from a patchwork of state and local wage and hour regulations such as those at issue in this case and agree with the Company's other bases for appeal\. For these reasons, no loss has been accrued\.

The Company is involved in other litigation around the application of state and local employment laws, like many air carriers\. Our defenses are similar to those identified above, including that the state and local laws are preempted by federal law and are unconstitutional because they impede interstate commerce\. None of these additional disputes are material\.

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

Not applicable\.

PART II

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

As of December 31, 2019, there were 131,812,173 shares of common stock of Alaska Air Group, Inc\. issued, 123,000,307 shares outstanding, and 2,131 shareholders of record\. In 2019, we paid quarterly dividends of 0\.35 per share in March, June, September and December\. Our common stock is listed on the New York Stock Exchange (symbol: ALK)\.

SALES OF NON\-REGISTERED SECURITIES

None\.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

27


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

**PART III**

**ITEM 10\. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**

Except as stated below, the information required by this Item will be set forth in the Proxy Statement under the captions “Proposal 1 – Election of Directors,” “Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Information About the Board of Directors and Corporate Governance” and is incorporated by reference into this Annual Report on Form 10\-K\.

American Airlines Group and American have adopted Standards of Business Conduct (the Ethics Standards) within the meaning of Item 406(b) of Regulation S\-K\. The Ethics Standards apply to all officers and employees of American Airlines Group Inc\. and its subsidiaries, including American\. The Ethics Standards are available on our website at *www\.aa\.com*\. If we make substantive amendments to the Ethics Standards or grant any waiver, including any implicit waiver, to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, we will disclose the nature of such amendment or waiver on our website or in a Current Report on Form 8\-K in accordance with applicable rules and regulations\.

**ITEM 11\. EXECUTIVE COMPENSATION**

The information required by this Item will be set forth in the Proxy Statement under the captions “Risk Assessment with Respect to Compensation Practices,” “Director Compensation,” “Compensation Discussion and Analysis,” “Executive Compensation” and “Compensation Committee Report” and is incorporated by reference into this Annual Report on Form 10\-K\.

**ITEM 12\. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

Except as stated below, the information required by this Item will be set forth in the Proxy Statement under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” and is incorporated by reference into this Annual Report on Form 10\-K\.

**ITEM 13\. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**

The information required by this Item will be set forth in the Proxy Statement under the captions “Certain Relationships and Related Party Transactions” and “Information About the Board of Directors and Corporate Governance” and is incorporated by reference into this Annual Report on Form 10\-K\.

**ITEM 14\. PRINCIPAL ACCOUNTANT FEES AND SERVICES**

The information required by this Item will be set forth in the Proxy Statement under the caption “Proposal 2 – Ratification of Appointment of Independent Registered Public Accounting Firm” and is incorporated by reference into this Annual Report on Form 10\-K\.

174


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

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

The New Revenue Standard and the New Retirement Standard had the same impact on the financial statements of United as they had on the financial statements of UAL\. The tables below present the impact of the adoption of the New Revenue Standard and the New Retirement Standard on select accounts and captions of UAL's statements of consolidated operations for the twelve months ended December 31, 2017 and 2016 (in millions, except per share amounts) and the impact on UAL's balance sheet accounts and captions as of December 31, 2017 (in millions):

|                                                                            |                                                                            |                                                                            |                                                                            |                                                                            |                                                                            |                                                                            |                                                                            |                                                                            |
| -------------------------------------------------------------------------- | -------------------------------------------------------------------------- | -------------------------------------------------------------------------- | -------------------------------------------------------------------------- | -------------------------------------------------------------------------- | -------------------------------------------------------------------------- | -------------------------------------------------------------------------- | -------------------------------------------------------------------------- | -------------------------------------------------------------------------- |
| **Statements of Consolidated Operations for the Years Ended December 31,** | **Statements of Consolidated Operations for the Years Ended December 31,** | **Statements of Consolidated Operations for the Years Ended December 31,** | **Statements of Consolidated Operations for the Years Ended December 31,** | **Statements of Consolidated Operations for the Years Ended December 31,** | **Statements of Consolidated Operations for the Years Ended December 31,** | **Statements of Consolidated Operations for the Years Ended December 31,** | **Statements of Consolidated Operations for the Years Ended December 31,** | **Statements of Consolidated Operations for the Years Ended December 31,** |
|                                                                            | **As Previously Reported**                                                 | **As Previously Reported**                                                 | **New Revenue Standard Adjustments**                                       | **New Revenue Standard Adjustments**                                       | **New Retirement Standard Adjustments**                                    | **New Retirement Standard Adjustments**                                    | **As Adjusted**                                                            | **As Adjusted**                                                            |
|                                                                            | **2017**                                                                   | **2016**                                                                   | **2017**                                                                   | **2016**                                                                   | **2017**                                                                   | **2016**                                                                   | **2017**                                                                   | **2016**                                                                   |
| Operating revenue:                                                         |                                                                            |                                                                            |                                                                            |                                                                            |                                                                            |                                                                            |                                                                            |                                                                            |
| Passenger revenue                                                          | $32,404                                                                    | $31,457                                                                    | $2,056                                                                     | $1,972                                                                     | $—                                                                         | $—                                                                         | $34,460                                                                    | $33,429                                                                    |
| Cargo                                                                      | 1,035                                                                      | 876                                                                        | 79                                                                         | 58                                                                         | —                                                                          | —                                                                          | 1,114                                                                      | 934                                                                        |
| Other operating revenue                                                    | 4,297                                                                      | 4,223                                                                      | (2,087)                                                                    | (2,028)                                                                    | —                                                                          | —                                                                          | 2,210                                                                      | 2,195                                                                      |
| Total operating revenue                                                    | 37,736                                                                     | 36,556                                                                     | 48                                                                         | 2                                                                          | —                                                                          | —                                                                          | 37,784                                                                     | 36,558                                                                     |
| Operating expenses                                                         | 34,238                                                                     | 32,218                                                                     | (21)                                                                       | (12)                                                                       | (104)                                                                      | 8                                                                          | 34,113                                                                     | 32,214                                                                     |
| Operating income                                                           | 3,498                                                                      | 4,338                                                                      | 69                                                                         | 14                                                                         | 104                                                                        | (8)                                                                        | 3,671                                                                      | 4,344                                                                      |
| Nonoperating expense, net                                                  | (499)                                                                      | (519)                                                                      | (28)                                                                       | (60)                                                                       | (104)                                                                      | 8                                                                          | (631)                                                                      | (571)                                                                      |
| Income before income taxes                                                 | 2,999                                                                      | 3,819                                                                      | 41                                                                         | (46)                                                                       | —                                                                          | —                                                                          | 3,040                                                                      | 3,773                                                                      |
| Income tax expense                                                         | 868                                                                        | 1,556                                                                      | 28                                                                         | (17)                                                                       | —                                                                          | —                                                                          | 896                                                                        | 1,539                                                                      |
| Net income                                                                 | $2,131                                                                     | $2,263                                                                     | $13                                                                        | $(29)                                                                      | $—                                                                         | $—                                                                         | $2,144                                                                     | $2,234                                                                     |
| Earnings per share, basic                                                  | $7\.04                                                                     | $6\.86                                                                     | $0\.04                                                                     | $(0\.09)                                                                   | $—                                                                         | $—                                                                         | $7\.08                                                                     | $6\.77                                                                     |
| Earnings per share, diluted                                                | $7\.02                                                                     | $6\.85                                                                     | $0\.04                                                                     | $(0\.09)                                                                   | $—                                                                         | $—                                                                         | $7\.06                                                                     | $6\.76                                                                     |

|                                                                      |                                                                      |                                                                      |                                                                      |
| -------------------------------------------------------------------- | -------------------------------------------------------------------- | -------------------------------------------------------------------- | -------------------------------------------------------------------- |
| **Consolidated Balance Sheet as of December 31, 2017**

 | **Consolidated Balance Sheet as of December 31, 2017**

 | **Consolidated Balance Sheet as of December 31, 2017**

 | **Consolidated Balance Sheet as of December 31, 2017**

 |
|                                                                      | **As Previously Reported**                                           | **New Revenue Standard Adjustments**                                 | **As Adjusted**                                                      |
| Current assets:                                                      |                                                                      |                                                                      |                                                                      |
| Prepaid expenses and other                                           | $1,051                                                               | $20                                                                  | $1,071                                                               |
| Current liabilities:                                                 |                                                                      |                                                                      |                                                                      |
| Advance ticket sales                                                 | 3,876                                                                | 64                                                                   | 3,940                                                                |
| Frequent flyer deferred revenue                                      | 2,176                                                                | 16                                                                   | 2,192                                                                |
| Other                                                                | 569                                                                  | 7                                                                    | 576                                                                  |
| Other liabilities and deferred credits:                              |                                                                      |                                                                      |                                                                      |
| Frequent flyer deferred revenue                                      | 2,565                                                                | 26                                                                   | 2,591                                                                |
| Deferred income taxes                                                | 225                                                                  | (21)                                                                 | 204                                                                  |
| Stockholders' equity:                                                |                                                                      |                                                                      |                                                                      |
| Retained earnings                                                    | $4,621                                                               | $(72)                                                                | $4,549                                                               |

The Company adopted Accounting Standards Update No\. 2016\-01, *Financial Instruments—Overall* (Subtopic 825\-10) effective January 1, 2018\. This standard made several changes, including the elimination of the available\-for\-sale classification of equity investments, and requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in earnings\. The Company reclassified to retained earnings $6 million of unrealized loss, net of tax, on the Company's investment in Azul, S\.A\. ("Azul") which was previously classified as an available\-for\-sale security\. See Notes 6 and 9 to the financial statements included in this Part II, Item 8 for additional information\.

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