Annual Report of Southwest Airlines Co\. for year 2019

were approximately  $3\.4 billion , including  $2\.3 billion  classified within Air traffic liability and  $1\.1 million  classified as Air traffic liability – noncurrent\.

In order to determine the value of each loyalty point, certain assumptions must be made at the time of measurement, which include the following:

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *Allocation of Passenger Revenue*  \- Revenues from Passengers, related to travel, who also earn Rapid Rewards Points have been allocated between flight (recognized as revenue when transportation is provided) and Rapid Rewards Points (deferred until points are redeemed) based on each obligation’s relative standalone selling price\. The Company utilizes historical earning patterns to assist in this allocation\. |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *Fair Value of Rapid Rewards Points*  \- Determined from the base fare value of tickets which were purchased using prior point redemptions for travel and other products and services, which the Company believes to be indicative of the fair value of points as perceived by Customers and representative of the value of each point at the time of redemption\. The Company’s booking site allows a Customer to toggle between fares utilizing either cash or point redemptions, which provides the Customer with an approximation of the equivalent value of their points\. The value can differ, however, based on demand, the amount of time prior to the flight, and other factors\. The fare mix during the period measured represents a constraint, which could result in the assumptions above changing at the measurement date, as fare classes can have different coefficients used to determine the total loyalty points needed to purchase an award ticket\. The mixture of these fare classes and changes in the coefficients used by the Company could cause the fair value per point to increase or decrease\. |

The majority of the points sold to business partners are through the Southwest co\-branded credit card agreement ("Agreement") with Chase Bank USA, N\.A\. Consideration received as part of this Agreement is subject to Accounting Standards Codification 606, Revenue From Contracts With Customers\. The Agreement has the following multiple elements: travel points to be awarded, use of the Southwest Airlines’ brand and access to Rapid Rewards Member lists, advertising elements, and the Company’s resource team\. These elements are combined into two performance obligations, transportation and marketing, and consideration from the Agreement is allocated based on the relative selling price of each performance obligation\.

Significant management judgment was used to estimate the selling price of each of the performance obligations in the Agreement at inception\. The objective is to determine the price at which the Company would transact a sale if the product or service was sold on a stand\-alone basis\. The Company determines the best estimate of selling price by considering multiple inputs and methods including, but not limited to, the estimated selling price of comparable travel, discounted cash flows, brand value, published selling prices, number of points awarded, and the number of points redeemed\. The Company estimates the selling prices and volumes over the term of the Agreement in order to determine the allocation of proceeds to each of the multiple performance obligations\. The Company records revenue related to air transportation when the transportation is delivered and revenue related to marketing elements when the performance obligation is satisfied\. A one percent increase or decrease in the Company's estimate of the standalone selling prices, implemented as of January 1, 2019, resulting in an allocation of proceeds to air transportation would have changed the Company's Operating revenues by approximately  $7 million  for the  year ended December 31, 2019 \.

Under its current program, Southwest estimates the portion of loyalty points that will not be redeemed\. In estimating the spoilage, the Company takes into account the Member’s past behavior, as well as several factors related to the Member’s account that are expected to be indicative of the likelihood of future point redemption\. These factors are typically representative of a Member’s level of engagement in the loyalty program\. They include, but are not limited to, tenure with the program, points accrued in the program, and points redeemed in the program\. The Company believes it has obtained sufficient historical behavioral data to develop a predictive statistical model to analyze the amount of spoilage expected for all loyalty points\. The Company updates this model at least annually, and applies the new spoilage rates effective October 1st each year, or more frequently if required by changes in the business\. Changes in the spoilage rates applied annually in recent years have not had a material impact on Passenger revenues\. For the  year ended December 31, 2019 , based on actual redemptions of points sold to business partners and earned through flights, a hypothetical one percentage point change in the estimated spoilage rate would have resulted in a change to Passenger revenue of approximately  $124 million  (an increase in spoilage would have resulted in an increase in revenue and a

59


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

Segment Reporting

Segment results are prepared based on our internal accounting methods described below, with reconciliations to consolidated amounts in accordance with GAAP\. Our segments are not designed to measure operating income or loss directly related to the products and services included in each segment on a stand\-alone basis\.

|                                |                                |                                |          |           |  |  |  |                           |           |           |           |               |
|:------------------------------ |:------------------------------ |:------------------------------ | --------:| ---------:|:- |:- |:- | -------------------------:|:--------- |:--------- |:--------- | -------------:|
| (in millions)                  | (in millions)                  | (in millions)                  | Airline  | Refinery  |  |  |  | Intersegment Sales/Other  |           |           |           | Consolidated  |
| Year Ended December 31, 2019   | Year Ended December 31, 2019   | Year Ended December 31, 2019   |          |           |  |  |  |                           |           |           |           |               |
| Operating revenue:             | Operating revenue:             | Operating revenue:             | $ 46,910 |   $ 5,558 |  |  |  |                           |           |           |           |      $ 47,007 |
| Sales to airline segment       | Sales to airline segment       | Sales to airline segment       |          |           |  |  |  |                 $ (1,103) |
^(1)^ |
^(1)^ |
^(1)^ |               |
| Exchanged products             | Exchanged products             | Exchanged products             |          |           |  |  |  |                   (3,963) |
^(2)^ |
^(2)^ |
^(2)^ |               |
| Sales of refined products      | Sales of refined products      | Sales of refined products      |          |           |  |  |  |                     (395) |
^(3)^ |
^(3)^ |
^(3)^ |               |
| Operating income               | Operating income               | Operating income               |    6,542 |        76 |  |  |  |                           |           |           |           |         6,618 |
| Interest expense (income), net | Interest expense (income), net | Interest expense (income), net |      327 |      (26) |  |  |  |                           |           |           |           |           301 |
| Depreciation and amortization  | Depreciation and amortization  | Depreciation and amortization  |    2,581 |        99 |  |  |  |                      (99) |
^(4)^ |
^(4)^ |
^(4)^ |         2,581 |
| Total assets, end of period    | Total assets, end of period    | Total assets, end of period    |   62,793 |     1,739 |  |  |  |                           |           |           |           |        64,532 |
| Capital expenditures           | Capital expenditures           | Capital expenditures           |    4,880 |        56 |  |  |  |                           |           |           |           |         4,936 |
| Year Ended December 31, 2018   | Year Ended December 31, 2018   | Year Ended December 31, 2018   |          |           |  |  |  |                           |           |           |           |               |
| Operating revenue:             | Operating revenue:             | Operating revenue:             | $ 43,890 |   $ 5,458 |  |  |  |                           |           |           |           |      $ 44,438 |
| Sales to airline segment       | Sales to airline segment       | Sales to airline segment       |          |           |  |  |  |                   $ (962) |
^(1)^ |
^(1)^ |
^(1)^ |               |
| Exchanged products             | Exchanged products             | Exchanged products             |          |           |  |  |  |                   (3,596) |
^(2)^ |
^(2)^ |
^(2)^ |               |
| Sales of refined products      | Sales of refined products      | Sales of refined products      |          |           |  |  |  |                     (352) |
^(3)^ |
^(3)^ |
^(3)^ |               |
| Operating income               | Operating income               | Operating income               |    5,206 |        58 |  |  |  |                           |           |           |           |         5,264 |
| Interest expense (income), net | Interest expense (income), net | Interest expense (income), net |      334 |      (23) |  |  |  |                           |           |           |           |           311 |
| Depreciation and amortization  | Depreciation and amortization  | Depreciation and amortization  |    2,329 |        67 |  |  |  |                      (67) |
^(4)^ |
^(4)^ |
^(4)^ |         2,329 |
| Total assets, end of period    | Total assets, end of period    | Total assets, end of period    |   58,561 |     1,705 |  |  |  |                           |           |           |           |        60,266 |
| Capital expenditures           | Capital expenditures           | Capital expenditures           |    5,005 |       163 |  |  |  |                           |           |           |           |         5,168 |
| Year Ended December 31, 2017   | Year Ended December 31, 2017   | Year Ended December 31, 2017   |          |           |  |  |  |                           |           |           |           |               |
| Operating revenue:             | Operating revenue:             | Operating revenue:             | $ 40,636 |   $ 5,039 |  |  |  |                           |           |           |           |      $ 41,138 |
| Sales to airline segment       | Sales to airline segment       | Sales to airline segment       |          |           |  |  |  |                   $ (886) |
^(1)^ |
^(1)^ |
^(1)^ |               |
| Exchanged products             | Exchanged products             | Exchanged products             |          |           |  |  |  |                   (3,240) |
^(2)^ |
^(2)^ |
^(2)^ |               |
| Sales of refined products      | Sales of refined products      | Sales of refined products      |          |           |  |  |  |                     (411) |
^(3)^ |
^(3)^ |
^(3)^ |               |
| Operating income               | Operating income               | Operating income               |    5,856 |       110 |  |  |  |                           |           |           |           |         5,966 |
| Interest expense (income), net | Interest expense (income), net | Interest expense (income), net |      403 |       (7) |  |  |  |                           |           |           |           |           396 |
| Depreciation and amortization  | Depreciation and amortization  | Depreciation and amortization  |    2,222 |        47 |  |  |  |                      (47) |
^(4)^ |
^(4)^ |
^(4)^ |         2,222 |
| Total assets, end of period    | Total assets, end of period    | Total assets, end of period    |   51,544 |     2,127 |  |  |  |                           |           |           |           |        53,671 |
| Capital expenditures           | Capital expenditures           | Capital expenditures           |    3,743 |       148 |  |  |  |                           |           |           |           |         3,891 |

^(1)^ Represents transfers, valued on a market price basis, from the refinery to the airline segment for use in airline operations\. We determine market price by reference to the market index for the primary delivery location, which is New York Harbor, for jet fuel from the refinery\.

^(2)^ Represents value of products delivered under our exchange agreements, as discussed above, determined on a market price basis\.

^(3)^ These sales were at or near cost; accordingly, the margin on these sales is de minimis\.

^(4)^ Refinery segment operating results, including depreciation and amortization, are included within aircraft fuel and related taxes in our income statement\.

94


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

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

fueling operations, and catering services, among other vital functions and services\. The Company does not directly control these third\-party service providers, although it does enter into agreements with most of them that define expected service performance\. Any of these third\-party service providers, however, may materially fail to meet their service performance commitments to the Company, may suffer disruptions to their systems that could impact their services, or the agreements with such providers may be terminated\. For example, flight reservations booked by customers and travel agencies via third\-party GDSs may be adversely affected by disruptions in the business relationships between the Company and GDS operators\. Such disruptions, including a failure to agree upon acceptable contract terms when contracts expire or otherwise become subject to renegotiation, may cause the Company’s flight information to be limited or unavailable for display, significantly increase fees for both the Company and GDS users and impair the Company’s relationships with its customers and travel agencies\. The failure of any of the Company’s third\-party service providers to perform their service obligations adequately, or other interruptions of services, may reduce the Company’s revenues and increase its expenses, prevent the Company from operating its flights and providing other services to its customers or result in adverse publicity or harm to its brand\. In addition, the Company’s business and financial performance could be materially harmed if its customers believe that its services are unreliable or unsatisfactory\.

***Orders for new aircraft typically must be placed years in advance of scheduled deliveries, and changes in the Company’s route network over time may make aircraft on order less economic for the Company, but any modification or termination of such orders could result in material liability for the Company\.***

The Company’s orders for new aircraft are typically made years in advance of actual delivery of such aircraft, and the financial commitment required for purchases of new aircraft is substantial\. At December 31, 2017, the Company had firm commitments to purchase 228 new aircraft from The Boeing Company (“Boeing”) and Airbus S\.A\.S (“Airbus”), as well as related agreements with engine manufacturers, maintenance providers and others\. At December 31, 2017, the Company’s commitments relating to the acquisition of aircraft and related spare engines, aircraft improvements and other related obligations aggregated to a total of $22\.2 billion\.

Subsequent to the Company placing an order for new aircraft, the Company’s route network may change, such that the aircraft on order become less economic to operate flights in the Company’s network\. As a result, the Company’s preference for a particular aircraft that it has ordered, often years in advance, may be decreased or eliminated\. If the Company were to seek to modify or terminate its existing aircraft order commitments, it may be responsible for material obligations to its counterparties arising from any such change\. However, the Company expects that any such change that it makes would be in the long\-term best economic interest of the Company\.

***The Company could experience adverse publicity, harm to its brand, reduced travel demand and potential tort liability as a result of an accident, catastrophe, or incident involving its aircraft or its operations, the aircraft or operations of its regional carriers or the aircraft or operations of its codeshare partners, which may result in a material adverse effect on the Company’s results of operations or financial position\.***

An accident, catastrophe, or incident involving an aircraft that the Company operates, or an aircraft that is operated by a codeshare partner or one of the Company’s regional carriers, or an incident involving the Company’s operations, could have a material adverse effect on the Company if such accident, catastrophe, or incident created a public perception that the Company’s operations, or the operations of its codeshare partners or regional carriers, are not safe or reliable, or are less safe or reliable than other airlines\. Such public perception could, in turn, result in adverse publicity for the Company, cause harm to the Company’s brand and reduce travel demand on the Company’s flights, or the flights of its codeshare partners or regional carriers\.

In addition, any such accident, catastrophe, or incident could expose the Company to significant tort liability\. Although the Company currently maintains liability insurance in amounts and of the type the Company believes to be consistent with industry practice to cover damages arising from any such accident or catastrophe, and the Company’s codeshare partners and regional carriers carry similar insurance and generally indemnify the Company for their operations, if the Company’s liability exceeds the applicable policy limits or the ability of

13


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

***Accomplishments and Highlights***

***Recognition and Awards \- Alaska***

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------- |
| • | Ranked "Highest in Customer Satisfaction Among Traditional Carriers" in 2017 by J\.D\. Power for the tenth year in a row\. |

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------------------------------------- |
| • | Ranked first in the U\.S\. News & World Report's list of Best Travel Rewards Programs for the third consecutive year\. |

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------------------------------------------- |
| • | Won the "Best Rewards Program" for Mileage Plan™ for carriers in the "Americas" region in the sixth annual FlyerTalk Award\. |

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------- |
| • | Mileage Plan™ ranked Best Airline Elite Status Program in the U\.S\. by The Points Guy\. |

|   |                                                                                |
| - | ----------------------------------------------------------------------------------- |
| • | Ranked among Forbes' 2017 "America's Best Employers" for the third year in a row\.  |

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Received 16th Diamond Award of Excellence from the Federal Aviation Administration, recognizing both Alaska and Horizon's aircraft technicians for their commitment to training\. |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------- |
| • | Ranked by AirlineRatings\.com as one of only two U\.S\. airlines in the Top 20 safest airlines in the world\. |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------- |
| • | Rated "Best Airline Staff in North America" and "Best Regional Airline in North America" by Skytrax World Airline Awards\. |

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Awarded TripAdvisor's 2017 Travelers' Choice Award for second\-best midsize and low\-cost airlines in North America and one of the top 10 best airlines in the world\. |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Recognized by the Puget Sound Business Journal as the 2017 Board Diversity Champion, as well as by the Women Corporate Directors Global Institute for diversity among our Directors\. |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Ranked as the top U\.S\. airline in the Dow Jones Sustainability Index (DJSI), receiving perfect scores for “efficiency” and “reliability\.” |

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Recognized as No\. 1 in fuel efficiency for U\.S\. airlines by the International Council on Clean Transportation for the 7th consecutive year\. |

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------- |
| • | Named one of the overall five\-star major regional airlines at the Passenger Choice Awards during the APEX EXPO\. |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Ranked fifth of most engaged companies in the U\.S\. by Forbes Insights, which measured social media engagement, net promoter scores, and year\-over\-year sales growth\. |

***Recognition and Awards \- Virgin America***

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------------- |
| • | Rated Best U\.S\. Airline by Conde Nast Traveler in their "Annual Readers' Choice Awards" for the tenth year in a row\. |

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------------------- |
| • | Rated Best Domestic Airline in Travel \+ Leisure "World's Best Awards" for the tenth year in a row\. |

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Received a five\-star rating for low\-cost carrier, and received a top honor with a Passenger Choice Award for “Best Seat Comfort” during the APEX EXPO\. |

***Our People and Communities***

|   |                                                                    |
| - | ------------------------------------------------------------------ |
| • | Awarded  $135 million  in incentive pay to employees for  2017 \.  |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Awarded employees a $1,000 bonus in January 2018 in connection with the passing of the Tax Cuts and Jobs Act, amounting to approximately $25 million\.  |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Donated over  $14 million  and contributed more than  32,000  volunteer hours to support nonprofits in our local communities, focusing on youth and education, medical (research/transportation) and community outreach\. |

***Shareholder Return***

In 2017, we paid cash dividends of $148 million and repurchased approximately 981 thousand shares of our common stock for $75 million under the $1 billion share repurchase program authorized by our Board of Directors in August 2015\. As of December 31, 2017, the Company has repurchased approximately 5 million shares for $388 million under this program\.

 34


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

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(h)^ | Includes minimum pension contributions based on actuarially determined estimates and is based on estimated payments through 2028\. The total AAG expected pension contribution of  $807 million  in  2019  assumes a supplemental contribution of  $21 million  in addition to the  $786 million  minimum required contribution\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------ |
| ^(i)^ | Includes purchase commitments for jet fuel, construction projects and information technology support\. |

**Capital Raising Activity and Other Possible Actions**

In light of our significant financial commitments related to, among other things, new aircraft, the servicing and amortization of existing debt and equipment leasing arrangements, and future pension funding obligations, we and our subsidiaries will regularly consider, and enter into negotiations related to, capital raising activity, which may include the entry into leasing transactions and future issuances of secured or unsecured debt obligations or additional equity securities in public or private offerings or otherwise\. The cash available from operations and these sources, however, may not be sufficient to cover cash contractual obligations because economic factors may reduce the amount of cash generated by operations or increase costs\. For instance, an economic downturn or general global instability caused by military actions, terrorism, disease outbreaks, natural disasters or other causes could reduce the demand for air travel, which would reduce the amount of cash generated by operations\. An increase in costs, either due to an increase in borrowing costs caused by a reduction in credit ratings or a general increase in interest rates, or due to an increase in the cost of fuel, maintenance, or aircraft, aircraft engines or parts, could decrease the amount of cash available to cover cash contractual obligations\. Moreover, certain of our financing arrangements contain significant minimum cash balance requirements\. As a result, we cannot use all of our available cash to fund operations, capital expenditures and cash obligations without violating these requirements\. See Note 5 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 3 to American’s Consolidated Financial Statements in Part II, Item 8B for information regarding our financing arrangements\.

In the past, we have from time to time refinanced, redeemed or repurchased our debt and taken other steps to reduce or otherwise manage the aggregate amount and cost of our debt or lease obligations or otherwise improve our balance sheet\. Going forward, depending on market conditions, our cash position and other considerations, we may continue to take such actions\.

Our Board of Directors has from time to time authorized programs to repurchase shares of our common stock, one of which is currently in effect, and may authorize additional share repurchase programs in the future\.

**OTHER INFORMATION**

**Basis of Presentation**

See Note 1 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 1 to American’s Consolidated Financial Statements in Part II, Item 8B for information regarding the basis of presentation\.

**Critical Accounting Policies and Estimates**

The preparation of financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements\. We believe our estimates and assumptions are reasonable; however, actual results could differ from those estimates\. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and could potentially result in materially different results under different assumptions and conditions\. We have identified the following critical accounting policies that impact the preparation of our consolidated financial statements\. See the “*Basis of Presentation and Summary of Significant Accounting Policies*” included in Note 1 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 1 to American’s Consolidated Financial Statements in Part II, Item 8B for additional discussion of the application of these estimates and other accounting policies\.

***Passenger Revenue***

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

The majority of tickets sold are nonrefundable\. A small percentage of tickets, some of which are partially used tickets, expire unused\. Due to complex pricing structures, refund and exchange policies, and interline agreements with other airlines,

71


Annual Report of Southwest Airlines Co\. for year 2017

In addition, the standard eliminates the current build\-to\-suit lease accounting guidance and could result in derecognition of build\-to\-suit assets and liabilities that remained on the balance sheet after the end of the construction period\. The underlying leases for these facilities will be subject to evaluation under the new standard\.

The Company anticipates utilizing the modified retrospective transition approach to adopt the standard, which requires application of the new guidance for all periods presented with an option to use certain practical expedients\. The Company continues to assess early adoption of this ASU as of an interim period in 2018, and will continue to provide updates to its plans in future periods\.

On May 28, 2014, the FASB issued ASU No\. 2014\-09, Revenue from Contracts with Customers\. Following the FASB's finalization of a one year deferral of this standard, the ASU is now effective for fiscal years, and interim periods within those years, beginning after December 15, 2017\. The Company will adopt the ASU in first quarter 2018\. The most significant impact of this ASU on the Company's accounting will be the elimination of the incremental cost method for frequent flyer accounting, which will require the Company to re\-value its liabilities associated with Customer flight points with a relative fair value approach, resulting in a significant increase in the liabilities\. The Company's liabilities associated with these flight points were $59 million at December 31, 2017, and the Company currently estimates that applying a relative fair value would increase the liabilities by approximately $1\.0 billion to $1\.2 billion\. The adoption of the new standard is also expected to result in different income statement classification for certain types of revenues which are currently classified as Other revenues, but under the new ASU would be included in Passenger revenues, and certain expenses, which are currently classified as Other operating expenses, but under the new ASU would be offset against Passenger revenues\. Based on the Company's full year 2017 and 2016 results, the amounts to be reclassified from Other revenues to Passenger revenues would have been $638 million and $610 million, respectively\. For full year 2017 and 2016, the amounts to be reclassified from Other operating expenses to be offset against Passenger revenues would have been approximately $40 million in each year\. The estimated impact of this ASU is expected to be a less than one percent reduction to Operating revenues for both full year 2017 and 2016, and it will not impact any of the Company's existing debt covenants\. The Company will adopt the standard as of January 1, 2018, utilizing the full retrospective method of adoption allowed by the standard, in order to provide for comparative results in all periods presented\. The Company is in the process of completing its analysis of information necessary to recast prior period results, however it does not believe there are any remaining significant implementation topics associated with the adoption of this ASU that have not yet been addressed\.

**3****\. NET INCOME PER SHARE**

The following table sets forth the computation of basic and diluted net income per share (in millions except per share amounts):

|                                                                               |                             |                             |                             |
| ----------------------------------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                                               | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** |
|                                                                               | **2017**                    | **2016**                    | **2015**                    |
| **NUMERATOR:**                                                                |                             |                             |                             |
| Net income                                                                    | $3,488                      | $2,244                      | $2,181                      |
| Incremental income effect of

 interest on 5\.25% convertible notes    | —                           | 2                           | 4                           |
| Net income after assumed conversion                                           | $3,488                      | $2,246                      | $2,185                      |
| **DENOMINATOR:**                                                              |                             |                             |                             |
| Weighted\-average shares outstanding, basic                                   | 601                         | 627                         | 661                         |
| Dilutive effect of Employee stock options and

 restricted stock units | 2                           | 1                           | 2                           |
| Dilutive effect of 5\.25% convertible notes                                   | —                           | 5                           | 6                           |
| Adjusted weighted\-average shares outstanding, diluted                        | 603                         | 633                         | 669                         |
| **NET INCOME PER SHARE:**                                                     |                             |                             |                             |
| Basic                                                                         | $5\.80                      | $3\.58                      | $3\.30                      |
| Diluted                                                                       | $5\.79                      | $3\.55                      | $3\.27                      |

**4****\. COMMITMENTS AND CONTINGENCIES**

***Commitments***

The Company has contractual obligations and commitments primarily with regard to future purchases of aircraft, repayment of debt (see Note 6), and lease arrangements (see Note 7)\. During the year endedDecember 31, 2017, the Company purchased 13 new 737 MAX 8 aircraft and 39 new 737\-800 aircraft from Boeing and acquired 18 used 737\-700 aircraft from third parties under capital leases\. The Company has firm orders in place for 197 737 MAX 8 aircraft, 30 737 MAX 7 aircraft, and 26 737\-800 aircraft, as well as options for 155 737 MAX 8 aircraft as of December 31, 2017, which are outlined in Part I, Item 2\. The Company's capital commitments associated with these firm orders and additional aircraft are as follows: $874 million in 2018, $666 million in 2019, $1\.1 billion in 2020, $1\.3 billion in 2021, $877 million in 2022, and $5\.2 billion thereafter\.

**Fort Lauderdale\-Hollywood International Airport**

In December 2013, the Company entered into an agreement with Broward County, Florida, which owns and operates Fort Lauderdale\-Hollywood International Airport, to oversee and manage the design and construction of the airport's Terminal 1 Modernization Project\. Pursuant to an addendum entered into during 2016, the cost of the project is not to exceed $333 million\. In addition to significant improvements to the existing Terminal 1, the project includes the design and construction of a new five\-gate Concourse A with an international processing facility\. Funding for the project has come directly from Broward County aviation sources, but flows through the Company in its capacity as manager of the project\. Major construction on the project began during third quarter 2015\. Construction of Concourse A was completed during second quarter 2017, and construction on Terminal 1 is expected to be completed by mid\-2018\. The Company has determined that due to its agreed upon role in overseeing and managing the project, it is considered the owner of the project for accounting purposes\. As such, during construction the Company records expenditures as Assets

83


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

Nonoperating Results

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

**(Decrease)**           | **Percent**

**Increase**

**(Decrease)** |
|                                 | **2019**                                     | **2018**                                     | **Increase**

**(Decrease)**           | **Percent**

**Increase**

**(Decrease)** |
|                                 | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)**          |
| Interest income                 | $127                                         | $118                                         | $9                                           | 7\.1                                                  |
| Interest expense, net           | (1,095)                                      | (1,056)                                      | (39)                                         | 3\.7                                                  |
| Other income, net               | 159                                          | 166                                          | (7)                                          | (3\.8)                                                |
| Total nonoperating expense, net | $(809)                                       | $(772)                                       | $(37)                                        | 4\.8                                                  |

Interest expense, net increased  $39 million , or  3\.7 % in  2019  as compared to  2018 , primarily due to lower capitalized interest\.

In  2019 , other nonoperating income, net principally included  $183 million  of non\-service related pension and other postretirement benefit plan income\. This income was offset in part by  $32 million  of net foreign currency losses principally associated with losses from Latin American currencies\.

In  2018 , other nonoperating income, net principally included  $308 million  of non\-service related pension and other postretirement benefit plan income\. This income was offset in part by a  $104 million  net special charge for mark\-to\-market unrealized losses primarily associated with our equity investment in China Southern Airlines and  $55 million  of net foreign currency losses from Latin American currencies\.

The decrease in non\-service related pension and other postretirement benefit plan income in  2019  as compared to  2018  is principally due to a decrease in the expected return on pension plan assets\.

Income Taxes

In  2019 , we recorded an income tax provision of  $570 million  at an effective rate of approximately  25% , which was substantially non\-cash due to utilization of our net operating losses (NOLs)\. Substantially all of our income before income taxes is attributable to the United States\. At  December 31, 2019 , we had approximately  $9\.1 billion  of federal NOLs and  $3\.0 billion  of state NOLs, substantially all of which we expect to be available in  2020  to reduce future federal and state taxable income\.

In  2018 , we recorded an income tax provision of  $472 million  at an effective rate of approximately  25% , which was substantially non\-cash\. This provision included an  $18 million  special income tax charge related to an international income tax matter\.

See Note 7 to AAG’s Consolidated Financial Statements in Part II, Item 8A for additional information on income taxes\.

American’s Results of Operations

For a comparison of the  2018  to  2017  reporting periods, see Part II, Item 7\. Management’s Discussion and Analysis of Financial Condition and Results of Operations – “ American’s Results of Operations  –  2018 Compared to 2017”  of American’s 2018 Form 10\-K\.

Results of Operations –  2019  Compared to  2018

Operating Revenues

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

**(Decrease)**           | **Percent**

**Increase**

**(Decrease)** |
|                          | **2019**                                     | **2018**                                     | **Increase**

**(Decrease)**           | **Percent**

**Increase**

**(Decrease)** |
|                          | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)**          |
| Passenger                | $42,010                                      | $40,676                                      | $1,334                                       | 3\.3                                                  |
| Cargo                    | 863                                          | 1,013                                        | (150)                                        | (14\.8)                                               |
| Other                    | 2,888                                        | 2,841                                        | 47                                           | 1\.7                                                  |
| Total operating revenues | $45,761                                      | $44,530                                      | $1,231                                       | 2\.8                                                  |

56


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

Ancillary Businesses and Refinery\.  Ancillary businesses and refinery includes aircraft maintenance provided to third parties, our vacation wholesale operations, our private jet operations and refinery sales to third parties\. Third\-party refinery production sales are at or near cost; accordingly, the margin on these sales is de minimis\. See Note 15, "Segments," for more information on revenue recognition within our refinery segment\.

In January 2020, we combined Delta Private Jets, our wholly owned subsidiary which provides private jet operations, with Wheels Up\. Upon closing, we received an equity stake in Wheels Up and Delta Private Jets will no longer be reflected in ancillary businesses and refinery\. See Note 4, "Investments," for more information on this transaction\.

In 2018, we sold DAL Global Services, LLC ("DGS"), which provides aviation\-related, ground support equipment maintenance and professional security services, to AirCo Aviation Services, LLC ("AirCo"), a subsidiary of Argenbright Holdings, LLC\. Accordingly, DGS is no longer reflected within ancillary businesses and refinery in 2019\.

Miscellaneous\.  Miscellaneous revenue is primarily composed of lounge access and codeshare revenues\.

Accounts Receivable

Accounts receivable primarily consist of amounts due from credit card companies from the sale of passenger tickets, ancillary businesses and refinery sales, and other companies for the purchase of miles under the loyalty program\. We provide an allowance for uncollectible accounts equal to the estimated losses expected to be incurred based on historical chargebacks, write\-offs, bankruptcies and other specific analyses\. Bad debt expense was not material in any period presented\.

Passenger Taxes and Fees

We are required to charge certain taxes and fees on our passenger tickets, including U\.S\. federal transportation taxes, federal security charges, airport passenger facility charges and foreign arrival and departure taxes\. These taxes and fees are assessments on the customer for which we act as a collection agent\. Because we are not entitled to retain these taxes and fees, we do not include such amounts in passenger revenue\. We record a liability when the amounts are collected and reduce the liability when payments are made to the applicable government agency or operating carrier (i\.e\., for codeshare\-related fees)\.

NOTE 3\. FAIR VALUE MEASUREMENTS

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants\. Fair value is a market\-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability\.

• Level 1\.  Observable inputs such as quoted prices in active markets;

• Level 2 \. Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

• Level 3 \. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions\.

Assets and liabilities measured at fair value are based on the valuation techniques identified in the tables below\. The valuation techniques are as follows:

(a) Market Approach \. Prices and other relevant information generated by observable transactions involving identical or comparable assets or liabilities; and

(b) Income Approach\.  Techniques to convert future amounts to a single present value amount based on market expectations (including present value techniques and option\-pricing models)\.

66


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

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

|          |                 |                                                                                |
| -------- | --------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| †10\.34  | UAL             | [First Amendment to the United Continental Holdings, Inc\. Performance\-Based RSU Program (adopted pursuant to the United Continental Holdings, Inc\. 2017 Incentive Compensation Plan) ](https://www.example.com/ual_12311810kex1034.htm)                                                                                |
|  †10\.35 | UAL             | [Form of Performance\-Based RSU Award Notice pursuant to the United Continental Holdings, Inc\. Performance\-Based RSU Program (Relative Pre\-tax Margin awards) (stock settled form of award)](https://www.example.com/ual_12311810kex1035.htm)                                                                                |
|  †10\.36 | UAL             | [Form of Performance\-Based RSU Award Notice pursuant to the United Continental Holdings, Inc\. Performance\-Based RSU Program (Relative Pre\-tax Margin awards) (filed as Exhibit 10\.9 to UAL's Form 10\-Q for the quarter ended June 30, 2017, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312517231250/d414345dex109.htm)                                                         |
| †10\.37  | UAL             | [United Continental Holdings, Inc\. Annual Incentive Program (cash settled form of award) (adopted pursuant to the United Continental Holdings, Inc\. 2017 Incentive Compensation Plan) (filed as Exhibit 10\.63 to UAL's Form 10\-K for the year ended December 31, 2017, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312518054235/d471340dex1063.htm)                               |
|  †10\.38 | UAL             | [Form of Annual Incentive Plan Award Notice pursuant to the United Continental Holdings, Inc\. Annual Incentive Program (adopted pursuant to the United Continental Holdings, Inc\. 2017 Incentive Compensation Plan) (filed as Exhibit 10\.64 to UAL's Form 10\-K for the year ended December 31, 2017, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312518054235/d471340dex1064.htm) |
|  †10\.39 | UAL             | [Description of Compensation and Benefits for United Continental Holdings, Inc\. Non\-Employee Directors ](https://www.example.com/ual_12311810kex1039.htm)                                                                                |
|  †10\.40 | UAL             | [United Continental Holdings, Inc\. 2006 Director Equity Incentive Plan (as amended and restated, effective February 20, 2014, filed as Annex A to UAL's Definitive Proxy Statement filed April 25, 2014, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000104746914004198/a2219797zdef14a.htm#lc42701_annex_a)                                                                               |
|  †10\.41 | UAL             | [First Amendment to the United Continental Holdings, Inc\. 2006 Director Equity Incentive Plan (as amended and restated on February 20, 2014) (filed as Exhibit 10\.3 to UAL's Form 10\-Q for the quarter ended March 31, 2017, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312517127429/d334701dex103.htm)                                                                           |
| †10\.42  | UAL             | [Form of Share Unit Award Notice pursuant to the United Continental Holdings, Inc\. 2006 Director Equity Incentive Plan (for awards granted on or after June 2011) (filed as Exhibit 10\.9 to UAL's Form 10\-Q for the quarter ended June 30, 2014, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312514278970/d732259dex109.htm)                                                       |
| †10\.43  | UAL
United | [Amended and Restated A350\-900 Purchase Agreement, dated September 1, 2017, including letter agreements related thereto, between Airbus S\.A\.S\. and United Airlines, Inc\. (filed as Exhibit 10\.1 to UAL's Form 10\-Q for the quarter ended September 30, 2017, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312517313831/d437791dex101.htm)                                       |
| †10\.44  | UAL
United | [Purchase Agreement No\. 1951, including exhibits and side letters thereto, dated July 23, 1996, by and among Continental and Boeing (filed as Exhibit 10\.8 to Continental's Form 10\-Q for the quarter ended June 30, 1996, Commission file number 1\-10323, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/0000319687-96-000025.txt)                                                                                |
| ^10\.45  | UAL
United | [Supplemental Agreement No\. 1 to Purchase Agreement No\. 1951, dated October 10, 1996 (filed as Exhibit 10\.14(a) to Continental's Form 10\-K for the year ended December 31, 1996, Commission file number 1\-10323, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/0000319687-97-000002.txt)                                                                                |
| ^10\.46  | UAL
United | [Supplemental Agreement No\. 2 to Purchase Agreement No\. 1951, dated March 5, 1997 (filed as Exhibit 10\.3 to Continental's Form 10\-Q for the quarter ended March 31, 1997, Commission file number 1\-10323 and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/0000319687-97-000019.txt)                                                                                |
| ^10\.47  | UAL
United | [Supplemental Agreement No\. 3, including exhibit and side letter, to Purchase Agreement No\. 1951, dated July 17, 1997 (filed as Exhibit 10\.14(c) to Continental's Form 10\-K for the year ended December 31, 1997, Commission file number 1\-10323, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/0000319687-98-000003.txt)                                                                                |
| ^10\.48  | UAL
United | [Supplemental Agreement No\. 4, including exhibits and side letters, to Purchase Agreement No\. 1951, dated October 10, 1997 (filed as Exhibit 10\.14(d) to Continental's Form 10\-K for the year ended December 31, 1997, Commission file number 1\-10323, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/0000319687-98-000003.txt)                                                                                |
| ^10\.49  | UAL
United | [Supplemental Agreement No\. 5, including exhibits and side letters, to Purchase Agreement No\. 1951, dated October 10, 1997 (filed as Exhibit 10\.1 to Continental's Form 10\-Q for the quarter ended June 30, 1998, Commission file number 1\-10323, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/0000319687-98-000010.txt)                                                                                |

100


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

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

impacted by the following significant items (in millions):

|                                                                                |                   |                   |                   |                   |
| --------------------------------------------------------------------------------------------------------- | ----------------- | ----------------- | ----------------- | ----------------- |
|                                                                                | **Quarter Ended** | **Quarter Ended** | **Quarter Ended** | **Quarter Ended** |
|                                                                                | **March 31**      | **June 30**       | **September 30**  | **December 31**   |
| **2018**                                                                                |                   |                   |                   |                   |
| Operating:                                                                                |                   |                   |                   |                   |
| Impairment of assets                                                                                | $23               | $111              | $11               | $232              |
| Termination of an engine maintenance service agreement                                                    | —                 | —                 | —                 | 64                |
| Severance and benefit costs                                                                               | 14                | 11                | 9                 | 7                 |
| (Gains) losses on sale of assets and other special charges                                                | 3                 | 7                 | (3)               | (2)               |
| Total operating special charges                                                                           | 40                | 129               | 17                | 301               |
| Nonoperating:                                                                                |                   |                   |                   |                   |
| Nonoperating mark\-to\-market ("MTM") (gains) losses on financial instruments                             | (45)              | 135               | (29)              | (56)              |
| Total special charges and MTM (gains) losses on financial instruments                                     | (5)               | 264               | (12)              | 245               |
| Income taxes:                                                                                |                   |                   |                   |                   |
| Income tax expense (benefit) related to special charges and MTM gains and losses on financial instruments | 1                 | (59)              | 3                 | (55)              |
| Income tax adjustments                                                                                | —                 | —                 | —                 | (5)               |
| Total special charges and MTM (gains) losses on financial instruments, net of tax                         | $(4)              | $205              | $(9)              | $185              |
| **2017 (a)**                                                                                |                   |                   |                   |                   |
| Operating:                                                                                |                   |                   |                   |                   |
| Severance and benefit costs                                                                               | $37               | $41               | $23               | $15               |
| Impairment of assets                                                                                | —                 | —                 | 15                | 10                |
| (Gains) losses on sale of assets and other special charges                                                | 14                | 3                 | 12                | 6                 |
| Total operating special charges                                                                           | 51                | 44                | 50                | 31                |
| Income taxes:                                                                                |
            |
            |
            |
            |
| Income tax benefit related to special charges                                                             | (18)              | (16)              | (18)              | (11)              |
| Income tax adjustments                                                                                | —                 | —                 | —                 | (179)             |
| Total operating special charges, net of income taxes and income tax adjustments                           | $33               | $28               | $32               | $(159)            |

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

See Note 14 of this report for additional information related to these items\.

89


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

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

11\. Accumulated Other Comprehensive Loss

The components of AOCI are as follows (in millions):

|                                                            |                                                                                |                                           |                                                         |       |                          |
| ---------------------------------------------------------- | --------------------------------------------------------------------------------------- | ----------------------------------------- | ------------------------------------------------------- | ----- | ------------------------ |
|                                                            | **Pension,
Retiree
Medical and
Other
Postretirement
Benefits** | **Unrealized Gain (Loss) on Investments** | **Income Tax
Benefit
(Provision)**  **^(1)^** |       | **Total**                |
| Balance at December 31, 2017                               | $

(4,523

)                                                                | $

(1

)                      | $

(1,252

)                                |       | $

(5,776

) |
| Other comprehensive income (loss) before reclassifications | (62

)                                                                            | (4

)                               | 15                                                      |       | (51

)             |
| Amounts reclassified from AOCI                             | (88

)                                                                            | —                                         | 19                                                      | ^(2)^ | (69

)             |
| Net current\-period other comprehensive income (loss)      | (150

)                                                                           | (4

)                               | 34                                                      |       | (120

)            |
| Balance at December 31, 2018                               | (4,673

)                                                                         | (5

)                               | (1,218

)                                         |       | (5,896

)          |
| Other comprehensive income (loss) before reclassifications | (476

)                                                                           | 3                                         | 107                                                     |       | (366

)            |
| Amounts reclassified from AOCI                             | (89

)                                                                            | —                                         | 20                                                      | ^(2)^ | (69

)             |
| Net current\-period other comprehensive income (loss)      | (565

)                                                                           | 3                                         | 127                                                     |       | (435

)            |
| Balance at December 31, 2019                               | $

(5,238

)                                                                | $

(2

)                      | $

(1,091

)                                |       | $

(6,331

) |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Relates principally to pension, retiree medical and other postretirement benefits obligations that will not be recognized in net income until the obligations are fully extinguished\. |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | Relates to pension, retiree medical and other postretirement benefits obligations and is recognized within the income tax provision on our consolidated statements of operations\. |

Reclassifications out of AOCI for the years ended  December 31, 2019  and  2018  are as follows (in millions):

|                                                                             |                                    |                                    |                                                                                |
| --------------------------------------------------------------------------- | ---------------------------------- | ---------------------------------- | ------------------------------------------------------------------------------ |
|                                                                             | **Amounts reclassified from AOCI** | **Amounts reclassified from AOCI** | **Affected line items on the
consolidated statements of
operations** |
|                                                                             | **Year Ended December 31,**        | **Year Ended December 31,**        | **Affected line items on the
consolidated statements of
operations** |
| **AOCI Components**                                                         | **2019**                           | **2018**                           | **Affected line items on the
consolidated statements of
operations** |
| Amortization of pension, retiree medical and other postretirement benefits: |                                    |                                    |                                                                                |
| Prior service benefit                                                       | $

(162

)             | $

(161

)             | Nonoperating other income, net                                                 |
| Actuarial loss                                                              | 93                                 | 92                                 | Nonoperating other income, net                                                 |
| Total reclassifications for the period, net of tax                          | $

(69

)              | $

(69

)              |                                                                                |

Amounts allocated to other comprehensive income for income taxes as further described in Note 7 will remain in AOCI until we cease all related activities, such as termination of the pension plan\.

12\. Commitments, Contingencies and Guarantees

(a) Aircraft, Engine and Other Purchase Commitments

Under all of our aircraft and engine purchase agreements, our total future commitments as of  December 31, 2019  are expected to be as follows (approximately, in millions):

|                                                              |          |          |          |          |          |                         |           |
| ------------------------------------------------------------ | -------- | -------- | -------- | -------- | -------- | ----------------------- | --------- |
|                                                              | **2020** | **2021** | **2022** | **2023** | **2024** | **2025 and Thereafter** | **Total** |
| Payments for aircraft commitments and certain engines  ^(1)^ | $1,629   | $750     | $1,599   | $1,543   | $2,574   | $4,855                  | $12,950   |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | These amounts are net of purchase deposits currently held by the manufacturers\. We have granted a security interest in certain of our purchase deposits with Boeing\. Our purchase deposits held by all manufacturers totaled   $1\.7 billion  as of  December 31, 2019 \. |

107


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

|          |                                                                                |
| -------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 101\.INS | XBRL Instance Document \- The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document\. |

|          |                                         |
| -------- | --------------------------------------- |
| 101\.SCH | XBRL Taxonomy Extension Schema Document |

|          |                                                       |
| -------- | ----------------------------------------------------- |
| 101\.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |

|          |                                                      |
| -------- | ---------------------------------------------------- |
| 101\.DEF | XBRL Taxonomy Extension Definition Linkbase Document |

|          |                                                  |
| -------- | ------------------------------------------------ |
| 101\.LAB | XBRL Taxonomy Extension Labels Linkbase Document |

|          |                                                        |
| -------- | ------------------------------------------------------ |
| 101\.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |

\_\_\_\_\_\_\_\_\_\_\_\_

|    |                              |
| -- | ---------------------------- |
| \* | Incorporated by reference\.  |

|      |                                                                                |
| ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| \*\* | Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to requests for confidential treatment\. |

ITEM 16\. FORM 10\-K SUMMARY

Not applicable\.

 105


Annual Report of Southwest Airlines Co\. for year 2017

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

|                                                    |                       |                       |                       |
| -------------------------------------------------- | --------------------- | --------------------- | --------------------- |
|                                                    | **Year Ended**        | **Year Ended**        | **Year Ended**        |
|                                                    | **December 31, 2017** | **December 31, 2016** | **December 31, 2015** |
| **Operating income, as reported**                  | $3,515                | $3,760                | $4,116                |
| Special revenue adjustment (a)                     | —                     | —                     | (172)                 |
| Contract ratification bonuses                      | —                     | 356                   | 334                   |
| Net impact from fuel contracts                     | (156)                 | (202)                 | (323)                 |
| Acquisition and integration costs                  | —                     | —                     | 39                    |
| Litigation settlement                              | —                     | —                     | (37)                  |
| Asset impairment                                   | —                     | 21                    | —                     |
| Lease termination expense                          | 33                    | 22                    | —                     |
| Aircraft grounding charge                          | 63                    | —                     | —                     |
| **Operating income, non\-GAAP**                    | 3,455                 | 3,957                 | 3,957                 |
| Net adjustment for aircraft leases (b)             | 109                   | 111                   | 114                   |
| Adjustment for fuel hedge accounting (c)           | (135)                 | (152)                 | (124)                 |
| **Adjusted Operating income, non\-GAAP (A)**       | $3,429                | $3,916                | $3,947                |
| Debt, including capital leases (d)                 | $3,259                | $3,304                | $2,782                |
| Equity (d)                                         | 8,881                 | 7,833                 | 7,032                 |
| Net present value of aircraft operating leases (d) | 785                   | 1,015                 | 1,223                 |
| **Average invested capital**                       | $12,925               | $12,152               | $11,037               |
| Equity adjustment for hedge accounting (c)         | 296                   | 886                   | 1,027                 |
| **Adjusted average invested capital (B)**          | $13,221               | $13,038               | $12,064               |
| **Non\-GAAP ROIC, pre\-tax (A/B)**                 | 25\.9%                | 30\.0%                | 32\.7%                |

(a) The adjustment related to the execution of the Agreement with Chase and the resulting required change in accounting methodology\. See Note 1 to the Consolidated Financial Statements for further information\.

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

(c) The Adjustment for fuel hedge accounting in the numerator is due to the Company’s accounting policy decision to classify fuel hedge accounting premiums below the Operating income line, and thus is adjusting Operating income to reflect such policy decision\. The Equity adjustment for hedge accounting in the denominator adjusts for the cumulative impacts, in Accumulated other comprehensive income and Retained earnings, of gains and/or losses associated with hedge accounting related to fuel hedge derivatives that will settle in future periods\. The current period impact of these gains and/or losses are reflected in the Net impact from fuel contracts in the numerator\.

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

52


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

***Cash Provided by Financing Activities***

Cash used in financing activities was $592 million during 2017, compared to cash provided by financing activities of $1\.5 billion in 2016\. During the year, we made debt payments of $397 million, repurchased $75 million of our common stock and paid cash dividends of $148 million\. In 2016, we secured debt proceeds of $2 billion for the acquisition of Virgin America, made debt payments of $249 million, stock repurchases of $193 million and made cash dividend payments of $136 million\. In 2015, we made debt payments of $116 million, stock repurchases of $505 million and cash dividend payments of $102 million\.

We plan to meet our future capital and operating commitments through our cash and investments on hand, internally generated cash from operations, along with additional debt financing if necessary\.

***Bank Lines of Credit***

We have three credit facilities with availability totaling $475 million, including one $250 million credit facility, one $150 million credit facility, and one $75 million credit facility\. We have secured letters of credit against the $75 million facility but have no plans to borrow using either of the two remaining facilities\.

**CONTRACTUAL OBLIGATIONS AND COMMITMENTS**

***Aircraft Purchase and Lease Commitments***

As of December 31, 2017, we have firm orders to purchase or lease 85 aircraft\. We also have cancelable purchase commitments for 30 Airbus A320neo aircraft with deliveries from 2020 through 2022\. We could incur a loss of pre\-delivery payments and credits of up to $15 million as a cancellation fee\. We also have options to acquire up to 37 additional B737 aircraft with deliveries from 2020 through 2024 and 30 E175 aircraft with deliveries from 2020 to 2022\. In addition to the 23 E175 aircraft currently operated by SkyWest in our regional fleet, we have firm orders to lease 12 E175 aircraft with deliveries in 2018, and options in future periods to add regional capacity by having SkyWest operate up to eight more E175 aircraft\.

We expect capital expenditures to be approximately $1 billion in 2018 and approximately $750 million in 2019 and 2020\. We currently expect delivery of eight owned Mainline jet aircraft and 13 owned regional jet aircraft in 2018\.

The following table summarizes our expected fleet count by year, as of February 14, 2018:

|                            |                        |                        |                                      |                                      |                                      |                                      |
| -------------------------- | ---------------------- | ---------------------- | ------------------------------------ | ------------------------------------ | ------------------------------------ | ------------------------------------ |
|                            | **Actual Fleet Count** | **Actual Fleet Count** | **Contractual Deliveries** **^(a)^** | **Contractual Deliveries** **^(a)^** | **Contractual Deliveries** **^(a)^** | **Contractual Deliveries** **^(a)^** |
| **Aircraft**               | **Dec 31, 2016**       | **Dec 31, 2017**       | **2018 Changes**                     | **Dec 31, 2018**                     | **2019 Changes**                     | **Dec 31, 2019**                     |
| B737 Freighters            | 6                      | 3                      | —                                    | 3                                    | —                                    | 3                                    |
| B737 Passenger Aircraft    | 149                    | 151                    | 8                                    | 159                                  | 13                                   | 172                                  |
| Airbus Passenger Aircraft  | 63                     | 67                     | 4                                    | 71                                   | 1                                    | 72                                   |
| **Total Mainline Fleet**   | 218                    | 221                    | 12                                   | 233                                  | 14                                   | 247                                  |
| Q400 ^(b)^                 | 52                     | 50                     | (13)                                 | 37                                   | (10)                                 | 27                                   |
| E175 ^(b)^                 | 15                     | 33                     | 25                                   | 58                                   | 10                                   | 68                                   |
| **Total Regional Fleet**   | 67                     | 83                     | 12                                   | 95                                   | —                                    | 95                                   |
| **Total**                  | 285                    | 304                    | 24                                   | 328                                  | 14                                   | 342                                  |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(a)^ | The expected fleet counts at  December 31, 2018  and  2019  are subject to change\.  We intend to reduce the capital investment spend driven by fleet counts above, specifically in 2018, 2019 and 2020, which may require deferral of certain aircraft deliveries\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------ |
| ^(b)^ | Aircraft are either owned or leased by Horizon or operated under capacity purchase agreement with a third party\.  |

For future firm orders and option exercises, we may finance the aircraft through cash from operations, long\-term debt, or lease arrangements\.

 53


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

***Certain provisions of AAG’s Certificate of Incorporation and Bylaws make it difficult for stockholders to change the composition of our Board of Directors and may discourage takeover attempts that some of our stockholders might consider beneficial\.***

Certain provisions of our Certificate of Incorporation and Second Amended and Restated Bylaws (Bylaws) may have the effect of delaying or preventing changes in control if our Board of Directors determines that such changes in control are not in our best interest and the best interest of our stockholders\. These provisions include, among other things, the following:

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------- |
| • | advance notice procedures for stockholder proposals to be considered at stockholders’ meetings; |

|   |                                                                       |
| - | --------------------------------------------------------------------- |
| • | the ability of our Board of Directors to fill vacancies on the board; |

|   |                                                                      |
| - | -------------------------------------------------------------------- |
| • | a prohibition against stockholders taking action by written consent; |

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | a prohibition against stockholders calling special meetings of stockholders (although our Board of Directors has approved, subject to stockholder approval at the annual meeting, amendments to our Certificate of Incorporation and Bylaws that contemplate the ability of holders of at least 20% of our outstanding shares to call a special meeting, subject to the procedures to be provided for in the amended Bylaws); |

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | a requirement that holders of at least 80% of the voting power of the shares entitled to vote in the election of directors approve any amendment of our Bylaws submitted to stockholders for approval; and |

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------- |
| • | super\-majority voting requirements to modify or amend specified provisions of our Certificate of Incorporation\. |

These provisions are not intended to prevent a takeover, but are intended to protect and maximize the value of the interests of our stockholders\. While these provisions have the effect of encouraging persons seeking to acquire control of our company to negotiate with our Board of Directors, they could enable our Board of Directors to prevent a transaction that some, or a majority, of our stockholders might believe to be in their best interest and, in that case, may prevent or discourage attempts to remove and replace incumbent directors\. In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which prohibits business combinations with interested stockholders\. Interested stockholders do not include stockholders whose acquisition of our securities is approved by the Board of Directors prior to the investment under Section 203\.

***AAG’s Certificate of Incorporation and Bylaws include provisions that limit voting and acquisition and disposition of our equity interests\.***

Our Certificate of Incorporation and Bylaws include certain provisions that limit voting and ownership and disposition of our equity interests\. These restrictions may adversely affect the ability of certain holders of AAG common stock and our other equity interests to vote such interests and adversely affect the ability of persons to acquire shares of AAG common stock and our other equity interests\.

**ITEM 1B\. UNRESOLVED STAFF COMMENTS**

We had no unresolved Securities and Exchange Commission staff comments that were issued 180 days or more preceding December 31, 2017\.

32


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

Based on our assessment and those criteria, AAG’s and American’s management concludes that AAG and American, respectively, maintained effective internal control over financial reporting as of  December 31, 2019 \.

AAG’s and American’s independent registered public accounting firm has issued an attestation report on the effectiveness of AAG’s and American’s internal control over financial reporting\. That report has been included herein\.

159