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

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

**Number** | **Description**                                                                                |
| 4\.164                        | [Form of Participation Agreement (Participation Agreement among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust Company, as Loan Trustee, and Wilmington Trust Company, in its individual capacity as set forth therein) (incorporated by reference to Exhibit B to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on October 6, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517305920/d463889dex46.htm#ex4_6)                                                                                |
| 4\.165                        | [Form of First Amendment to Participation Agreement (First Amendment to Participation Agreement among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust Company, as Loan Trustee, and Wilmington Trust Company, in its individual capacity as set forth therein) (incorporated by reference to Exhibit D to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on October 6, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517305920/d463889dex46.htm#ex4_6b)                                                                                |
| 4\.166                        | [Form of Indenture and Security Agreement (Indenture and Security Agreement between American Airlines, Inc\., and Wilmington Trust Company, as Loan Trustee) (incorporated by reference to Exhibit C to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on October 6, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517305920/d463889dex46.htm#ex4_6a)                                                                                |
| 4\.167                        | [Form of Pass Through Trust Certificate, Series 2017\-2B (incorporated by reference to Exhibit A to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on October 6, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517305920/d463889dex42.htm#ex4_2toc463889_35)                                                                                |
| 4\.168                        | [Revolving Credit Agreement (2017\-2B), dated as of October 5, 2017, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2017\-2B, as Borrower, and National Australia Bank Limited, as Liquidity Provider (incorporated by reference to Exhibit 4\.12 to American’s Current Report on Form 8\-K filed on October 6, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517305920/d463889dex412.htm)                                                                                |
| 4\.169                        | [Trust Supplement No\. 2012\-2C(R), dated as of May 15, 2018, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.2 to American Airlines, Inc\.’s Current Report on Form 8\-K filed on May 16, 2018 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312518165266/d589456dex42.htm)                                                                                |
| 4\.170                        | [Form of Amendment No\. 2 to Intercreditor Agreement (2012\-2C(R)) among Wilmington Trust Company, not in its individual capacity but solely as Trustee of the American Airlines, Inc\. Pass Through Trust 2012\-2C(R), American Airlines, Inc\. and Wilmington Trust Company, not in its individual capacity but solely as Subordination Agent and Trustee (incorporated by reference to Exhibit C to Exhibit 4\.6 to American Airlines, Inc\.’s Current Report on Form 8\-K filed on May 16, 2018 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312518165266/d589456dex46.htm)                                                                                |
| 4\.171                        | [Note Purchase Agreement, dated as of May 15, 2018, among American Airlines, Inc\., Wilmington Trust Company, not in its individual capacity, but solely as Pass Through Trustee under the Class C(R) Pass Through Trust Agreement, as Subordination Agent and as Indenture Trustee, Wilmington Trust, National Association, as Escrow Agent, and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4\.6 to American Airlines, Inc\.’s Current Report on Form 8\-K filed on May 16, 2018 (Commission File No\. 1\- 2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312518165266/d589456dex46.htm)                                                                                |
| 4\.172                        | [Form of Amendment to Participation Agreement (Amendment to Participation Agreement among American Airlines, Inc\., Wilmington Trust Company, not in its individual capacity, but solely as Subordination Agent and as Indenture Trustee, and Wilmington Trust Company, not in its individual capacity, but solely as Pass Through Trustee under each of the Pass Through Trust Agreements) (incorporated by reference to Exhibit A to Exhibit 4\.6 to American Airlines, Inc\.’s Current Report on Form 8\-K filed on May 16, 2018 (Commission File No\. 1\- 2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312518165266/d589456dex46.htm)                                                                                |
| 4\.173                        | [Form of Amendment to Trust Indenture and Security Agreement (Amendment to Trust Indenture and Security Agreement between American Airlines, Inc\., Wilmington Trust Company, not in its individual capacity, but solely as Indenture Trustee, and Wilmington Trust, National Association, as Securities Intermediary) (incorporated by reference to Exhibit B to Exhibit 4\.6 to American Airlines, Inc\.’s Current Report on Form 8\-K filed on May 16, 2018 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312518165266/d589456dex46.htm)                                                                                |
| 4\.174                        | [Form of Pass Through Trust Certificate, Series 2012\-2C(R) (incorporated by reference to Exhibit A to Exhibit 4\.2 to American Airlines, Inc\.’s Current Report on Form 8\-K filed on May 16, 2018 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312518165266/d589456dex42.htm)                                                                                |
| 10\.1                         | [Amended and Restated Credit and Guaranty Agreement, dated as of December 15, 2016, amending the Loan Agreement, dated as of May 23, 2013, among American Airlines, Inc\. (as successor in interest to US Airways, Inc\., as borrower), as the borrower, American Airlines Group Inc\., as parent and guarantor (as successor in interest to US Airways Group, Inc\., as parent and guarantor), the lenders from time to time party thereto, Citibank N\.A\., as administrative agent and collateral agent (as successor in interest to Citicorp North America Inc\., as administrative agent and collateral agent), and certain other parties thereto\. (incorporated by reference to Exhibit 10\.1 to AAG’s Annual Report on Form 10\-K for the year ended December 31, 2016 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517051216/d286458dex101.htm) |

192


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

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

In addition to the aircraft presented in the tables above, United owns or leases the following aircraft listed below as of December 31, 2017:

|   |                                                                          |
| - | ------------------------------------------------------------------------ |
| • | One owned Boeing  767\-200, which is being subleased to another airline; |

|   |                                                                             |
| - | --------------------------------------------------------------------------- |
| • | 12 owned and three leased Boeing 747s, which are permanently grounded; and  |

|   |                                                              |
| - | ------------------------------------------------------------ |
| • | 11 owned Embraer ERJ 145s, which are temporarily grounded\.  |

Firm Order and Option Aircraft

As of December 31, 2017, United had firm commitments and options to purchase aircraft from Boeing and Airbus presented in the table below:

|                                                                            |                                                                            |
|:--------------------------------------------------------------------------:| --------------------------------------------------------------------------:|
|                             **Aircraft Type**                              |                                    **Number of Firm  <br>Commitments (a)** |
|                                 Airbus A350                                |                                                                        45  |
|                               Boeing 737 MAX                               |                                                                       161  |
|                             Boeing  777\-300ER                             |                                                                         4  |
|                                 Boeing 787                                 |                                                                        18  |
|  (a) United also has options and purchase rights for additional aircraft\. |  (a) United also has options and purchase rights for additional aircraft\. |

The aircraft listed in the table above are scheduled for delivery from 2018 through 2027\. In 2018, United expects to take delivery of 10 Boeing 737 MAX aircraft, seven Boeing 787 aircraft and four Boeing 777\-300ER aircraft\. To the extent the Company and the aircraft manufacturers with whom the Company has existing orders for new aircraft agree to modify the contracts governing those orders, the amount and timing of the Company’s future capital commitments could change\. Additionally, the Company has entered into a contract to purchase three used Boeing 767\-300ER aircraft from Hawaiian Airlines, Inc\. with expected delivery dates in the second half of 2018\. See Notes 10 and 13 to the financial statements included in Part II, Item 8 of this report for additional information\.

**Facilities**

United’s principal facilities relate to leases of airport facilities, gates, hangar sites, terminal buildings and other facilities in the municipalities it serves\. United has major terminal facility leases at SFO, Washington Dulles, Chicago O’Hare, LAX, Denver, Newark, Houston Bush, Cleveland Hopkins International Airport and Guam with expiration dates ranging from 2018 through 2054\. Substantially all of these facilities are leased on a net\-rental basis, resulting in the Company’s responsibility for maintenance, insurance and other facility\-related expenses and services\.

United also maintains administrative offices, catering, cargo, training facilities, maintenance facilities and other facilities to support operations in the cities served\. United also has multiple leases, which expire from 2018 through 2029, for its principal executive office and operations center in downtown Chicago and administrative offices in downtown Houston\.

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

On June 30, 2015, UAL received a Civil Investigative Demand (“CID”) from the Antitrust Division of the DOJ seeking documents and information from the Company in connection with a DOJ investigation related to statements and decisions about airline capacity\. The Company is working with the DOJ and has completed its response to the CID\. The Company is not able to predict what action, if any, might be taken in the future by the DOJ or other governmental authorities as a result of the investigation\. Beginning on July 1, 2015, subsequent to the announcement of the CID, UAL and United were named as defendants in multiple class action lawsuits that asserted claims under the Sherman Antitrust Act, which have been consolidated in the United States District Court for the District of Columbia\. The complaints generally allege collusion among U\.S\. airlines on capacity impacting airfares and seek treble damages\. The Company intends to vigorously defend against the class action lawsuits\.

22


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

Additionally, the table below presents the reconciliation of total operating costs (GAAP measure) to total operating costs excluding special items and fuel (non\-GAAP measure)\. Management uses total operating costs excluding special items and fuel to evaluate our current operating performance and for period\-to\-period comparisons\. The price of fuel, over which we have no control, impacts the comparability of period\-to\-period financial performance\. The adjustment to exclude aircraft fuel and special items allows management an additional tool to understand and analyze our non\-fuel costs and core operating performance\. Amounts may not recalculate due to rounding\.

|                                                                                |                             |                             |                             |
| --------------------------------------------------------------------------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                                                | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                                                | **2018**                    | **2017**                    | **2016**                    |
| **Reconciliation of Total Operating Costs per Available Seat**  <br>**Mile (CASM) Excluding Special Items and Fuel:** |                             |                             |                             |
| **(In millions)**                                                                                |                             |                             |                             |
| Total operating expenses \- GAAP                                                                                | $41,885                     | $38,391                     | $35,082                     |
| Special items  ^(1)^ :                                                                                |                             |                             |                             |
| Special items, net                                                                                | (787)                       | (712)                       | (709)                       |
| Regional operating special items, net                                                                                | (6)                         | (22)                        | (14)                        |
| Fuel:                                                                                |                             |                             |                             |
| Aircraft fuel and related taxes \- mainline                                                                           | (8,053)                     | (6,128)                     | (5,071)                     |
| Aircraft fuel and related taxes \- regional                                                                           | (1,843)                     | (1,382)                     | (1,109)                     |
| Total operating expenses, excluding special items and fuel                                                            | $31,196                     | $30,147                     | $28,179                     |
| **(In millions)**                                                                                |                             |                             |                             |
| Total Available Seat Miles (ASM)                                                                                | 282,054                     | 276,493                     | 273,410                     |
| **(In cents)**                                                                                |                             |                             |                             |
| Total operating CASM                                                                                | 14\.85                      | 13\.88                      | 12\.83                      |
| Special items per ASM  ^(1)^ :                                                                                |                             |                             |                             |
| Special items, net                                                                                | (0\.28)                     | (0\.26)                     | (0\.26)                     |
| Regional operating special items, net                                                                                | —                           | (0\.01)                     | (0\.01)                     |
| Fuel per ASM:                                                                                |                             |                             |                             |
| Aircraft fuel and related taxes \- mainline                                                                           | (2\.86)                     | (2\.22)                     | (1\.85)                     |
| Aircraft fuel and related taxes \- regional                                                                           | (0\.65)                     | (0\.50)                     | (0\.41)                     |
| Total CASM, excluding special items and fuel                                                                          | 11\.06                      | 10\.90                      | 10\.31                      |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | See Note 2 to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information on special items\. |

46


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

Southwest Airlines and JetBlue Airways, and so\-called ultra\-low\-cost carriers, such as Allegiant Air, Frontier Airlines and Spirit Airlines, compete in many of the markets in which we operate and competition from these carriers is increasing\.

In addition to price competition, airlines compete for market share by increasing the size of their route system and the number of markets they serve\. The American Eagle regional carriers increase the number of markets we serve by flying to lower demand markets and providing connections at our hubs\. Many of our competitors also own or have agreements with regional airlines that provide similar services at their hubs and other locations\. We also compete on the basis of scheduling (frequency and flight times), availability of nonstop flights, on\-time performance, type of equipment, cabin configuration, amenities provided to passengers, loyalty programs, the automation of travel agent reservation systems, onboard products, markets served and other services\. We compete with both major network airlines and low\-cost carriers throughout our network\.

***International***

In addition to our extensive domestic service, we provide international service to Canada, Central and South America, Asia, Europe, Australia and New Zealand\. In providing international air transportation, we compete with U\.S\. airlines, foreign investor\-owned airlines and foreign state\-owned or state\-affiliated airlines\. Competition is increasing from foreign state\-owned and state\-affiliated airlines in the Gulf region, including Emirates, Etihad Airways and Qatar Airways\. These carriers have large numbers of international widebody aircraft in service and on order and are increasing service to the U\.S\. from locations both in and outside the Middle East\. We believe these carriers benefit from significant government subsidies, which has allowed them to grow quickly, reinvest in their product and expand their global presence\. Additionally, competition is also increasing from low cost airlines executing international long\-haul expansion strategies, including, for example, Icelandair, Norwegian Air Shuttle and Wow Air\. In order to increase our ability to compete for international air transportation service, which is subject to extensive government regulation, U\.S\. and foreign carriers have entered into marketing relationships, alliances, cooperation agreements and JBAs to exchange traffic between each other’s flights and route networks\. See “*Ticket Distribution and Marketing Agreements*” above for further discussion\.

**Employees and Labor Relations**

The airline business is labor intensive\. In 2017, salaries, wages and benefits were our largest expense and represented approximately 35% of our total operating expenses\. As of December 31, 2017, we had approximately 126,600 active full\-time equivalent employees, approximately 85% of whom were represented by various labor unions responsible for negotiating the CBAs covering them\.

Labor relations in the air transportation industry are regulated under the Railway Labor Act (RLA), which vests in the National Mediation Board (NMB) certain functions with respect to disputes between airlines and labor unions relating to union representation and collective bargaining agreements (CBAs)\. When an RLA CBA becomes amendable, if either party to the agreement wishes to modify its terms, it must notify the other party in the manner prescribed under the RLA and as agreed by the parties\. Under the RLA, the parties must meet for direct negotiations, and, if no agreement is reached during direct negotiations between the parties, either party may request that the NMB appoint a federal mediator\. The RLA prescribes no timetable for the direct negotiation and mediation processes, and it is not unusual for those processes to last for many months or even several years\. If no agreement is reached in mediation, the NMB in its discretion may declare that an impasse exists and proffer binding arbitration to the parties\. Either party may decline to submit to arbitration, and if arbitration is rejected by either party, a 30\-day “cooling off” period commences\. During or after that period, a Presidential Emergency Board (PEB) may be established, which examines the parties’ positions and recommends a solution\. The PEB process lasts for 30 days and is followed by another 30\-day “cooling off” period\. At the end of a “cooling off” period, unless an agreement is reached or action is taken by Congress, the labor organization may exercise “self\-help,” such as a strike, and the airline may resort to its own “self\-help,” including the imposition of any or all of its proposed amendments to the CBA and the hiring of new employees to replace any striking workers\.

None of the unions representing our employees presently may lawfully engage in concerted refusals to work, such as strikes, slow\-downs, sick\-outs or other similar activity, against us\. Nonetheless, there is a risk that disgruntled employees, either with or without union involvement, could engage in one or more concerted refusals to work that could individually or collectively harm the operation of our airline and impair our financial performance\.

The following table shows our domestic airline employee groups that are represented by unions:

8


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

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 1\. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

***Organization and Basis of Presentation***

The consolidated financial statements include the accounts of Air Group, or the Company, and its primary subsidiaries, Alaska (including Virgin America) and Horizon\. Our consolidated financial statements also include McGee Air Services, a ground services subsidiary of Alaska\. The Company conducts substantially all of its operations through these subsidiaries\. All significant intercompany balances and transactions have been eliminated\. These financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and their preparation requires the use of management’s estimates\. Actual results may differ from these estimates\.

Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year\.

***Cash and Cash Equivalents***

Cash equivalents consist of highly liquid investments with original maturities of three months or less, such as money market funds, commercial paper and certificates of deposit\. They are carried at cost, which approximates market value\. The Company reduces cash balances when funds are disbursed\. Due to the time delay in funds clearing the banks, the Company normally maintains a negative balance in its cash disbursement accounts, which is reported as a current liability\. The amount of the negative cash balance was $5 million and $10 million at December 31, 2018 and 2017 respectively, and is included in accounts payable, with the change in the balance during the year included in other financing activities in the consolidated statements of cash flows\.

The Company's restricted cash balances are not material and are classified as Other noncurrent assets\. Restricted cash balances are primarily used to guarantee various letters of credit, self\-insurance programs or other contractual rights\. They consist of highly liquid securities with original maturities of three months or less\. They are carried at cost, which approximates fair value\.

***Marketable Securities***

Investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short\-term investments\. Investments with maturities beyond one year may be classified as short\-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations\. All cash equivalents and short\-term investments are classified as available\-for\-sale and realized gains and losses are recorded using the specific identification method\. Changes in market value, excluding other\-than\-temporary impairments, are reflected in accumulated other comprehensive loss (AOCL)\.

Investments are considered to be impaired when a decline in fair value is judged to be other\-than\-temporary\. The Company uses a systematic methodology that considers available quantitative and qualitative evidence in evaluating potential impairment\. If the cost of an investment exceeds its fair value, management evaluates, among other factors, general market conditions, credit quality of debt instrument issuers, the duration and extent to which the fair value is less than cost, the Company's intent and ability to hold, or plans to sell, the investment\. Once a decline in fair value is determined to be other\-than\-temporary, an impairment charge is recorded to Other—net in the consolidated statements of operations and a new cost basis in the investment is established\.

***Inventories and Supplies—net***

Expendable aircraft parts, materials and supplies are stated at average cost and are included in Inventories and supplies***—***net\. An obsolescence allowance for expendable parts is accrued based on estimated lives of the corresponding fleet type and salvage values\. The allowance for expendable inventories was $39 million and $38 million at December 31, 2018 and 2017, respectively\. Inventory and supplies***—***net also includes fuel inventory of $24 million and $23 million at December 31, 2018 and 2017, respectively\. Repairable and rotable aircraft parts inventories are included in flight equipment\.

 62


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

**AMERICAN AIRLINES GROUP INC\.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(In millions, except shares and per share amounts)**

|                                                         |                             |                             |                             |
| ------------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                         | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                         | **2018**                    | **2017**                    | **2016**                    |
| **Operating revenues:**                                 |                             |                             |                             |
| Passenger                                               | $40,676                     | $39,131                     | $37,045                     |
| Cargo                                                   | 1,013                       | 890                         | 785                         |
| Other                                                   | 2,852                       | 2,601                       | 2,312                       |
| Total operating revenues                                | 44,541                      | 42,622                      | 40,142                      |
| **Operating expenses:**                                 |                             |                             |                             |
| Aircraft fuel and related taxes                         | 8,053                       | 6,128                       | 5,071                       |
| Salaries, wages and benefits                            | 12,251                      | 11,954                      | 10,967                      |
| Regional expenses                                       | 7,133                       | 6,546                       | 6,044                       |
| Maintenance, materials and repairs                      | 2,050                       | 1,959                       | 1,834                       |
| Other rent and landing fees                             | 1,900                       | 1,806                       | 1,772                       |
| Aircraft rent                                           | 1,264                       | 1,197                       | 1,203                       |
| Selling expenses                                        | 1,520                       | 1,477                       | 1,323                       |
| Depreciation and amortization                           | 1,839                       | 1,702                       | 1,525                       |
| Special items, net                                      | 787                         | 712                         | 709                         |
| Other                                                   | 5,088                       | 4,910                       | 4,634                       |
| Total operating expenses                                | 41,885                      | 38,391                      | 35,082                      |
| **Operating income**                                    | 2,656                       | 4,231                       | 5,060                       |
| **Nonoperating income (expense):**                      |                             |                             |                             |
| Interest income                                         | 118                         | 94                          | 63                          |
| Interest expense, net                                   | (1,056)                     | (1,053)                     | (991)                       |
| Other income, net                                       | 166                         | 123                         | 20                          |
| Total nonoperating expense, net                         | (772)                       | (836)                       | (908)                       |
| **Income before income taxes**                          | 1,884                       | 3,395                       | 4,152                       |
| Income tax provision                                    | 472                         | 2,113                       | 1,568                       |
| **Net income**                                          | $1,412                      | $1,282                      | $2,584                      |
| **Earnings per common share:**                          |                             |                             |                             |
| Basic                                                   | $3\.04                      | $2\.62                      | $4\.68                      |
| Diluted                                                 | $3\.03                      | $2\.61                      | $4\.65                      |
| **Weighted average shares outstanding (in thousands):** |                             |                             |                             |
| Basic                                                   | 464,236                     | 489,164                     | 552,308                     |
| Diluted                                                 | 465,660                     | 491,692                     | 556,099                     |
| **Cash dividends declared per common share**            | $0\.40                      | $0\.40                      | $0\.40                      |

See accompanying notes to consolidated financial statements\.

81


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

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

The Company used the Society of Actuaries' PRI\-2012 Private Retirement Plans Mortality Tables projected generationally using the Society of Actuaries' MP\-2019 projection scale, modified to reflect the Social Security Administration Trustee's Report on current projections regarding expected longevity improvements\.

The Company selected the  2019  discount rate for substantially all of its plans by using a hypothetical portfolio of high\-quality bonds at  December 31, 2019 , that would provide the necessary cash flows to match projected benefit payments\.

We develop our expected long\-term rate of return assumption for our defined benefit plans based on historical experience and by evaluating input from the trustee managing the plans' assets\.   Our expected long\-term rate of return on plan assets for these plans is based on a target allocation of assets, which is based on our goal of earning the highest rate of return while maintaining risk at acceptable levels\. The plans strive to have assets sufficiently diversified so that adverse or unexpected results from one security class will not have an unduly detrimental impact on the entire portfolio\. Plan fiduciaries regularly review our actual asset allocation and the pension plans' investments are periodically rebalanced to our targeted allocation when considered appropriate\. United's plan assets are allocated within the following guidelines:

|                          |                       |                                                   |
| ------------------------ | --------------------- | ------------------------------------------------- |
|                          |  **Percent of Total** | **Expected Long\-Term**

**Rate of Return** |
| Equity securities        | 30\-45%               | 10%                                               |
| Fixed\-income securities | 35\-50                | 5                                                 |
| Alternatives             | 15\-25                | 7                                                 |

A 50 basis points decrease in the expected long\-term rate of return on plan assets would have increased estimated 2019 pension expense by approximately   $20 million \.

Fair Value Information\.  Accounting standards require us to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs\. These inputs are prioritized as follows:

|         |                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |
| ------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| Level 1 | Unadjusted quoted prices in active markets for assets or liabilities identical to those to be reported at fair value                                                                    | Unadjusted quoted prices in active markets for assets or liabilities identical to those to be reported at fair value                                                                    | Unadjusted quoted prices in active markets for assets or liabilities identical to those to be reported at fair value                                                                    | Unadjusted quoted prices in active markets for assets or liabilities identical to those to be reported at fair value                                                                    | Unadjusted quoted prices in active markets for assets or liabilities identical to those to be reported at fair value                                                                    | Unadjusted quoted prices in active markets for assets or liabilities identical to those to be reported at fair value                                                                    | Unadjusted quoted prices in active markets for assets or liabilities identical to those to be reported at fair value                                                                    |
| Level 2 | Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market\-corroborated inputs                                         | Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market\-corroborated inputs                                         | Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market\-corroborated inputs                                         | Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market\-corroborated inputs                                         | Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market\-corroborated inputs                                         | Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market\-corroborated inputs                                         | Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market\-corroborated inputs                                         |
| Level 3 | Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants would price the assets or liabilities | Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants would price the assets or liabilities | Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants would price the assets or liabilities | Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants would price the assets or liabilities | Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants would price the assets or liabilities | Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants would price the assets or liabilities | Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants would price the assets or liabilities |

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 market transactions involving identical or comparable assets and liabilities; and

(b)  Income approach\.  Techniques to convert future amounts to a single current value based on market expectations (including present value techniques, option\-pricing and excess earnings models)\.

The following tables present information about United's pension and other postretirement plan assets at  December 31,  (in millions):

71


Annual Report of Southwest Airlines Co\. for year 2018

net of taxes\. The adoption and resulting reclassification had no impact on the Company's Net income, earnings per share, or cash flows\. As a result of the adoption of the New Hedging Standard, however, the Company incurred no gains or losses due to ineffectiveness in Other (gains) losses, net, in the Consolidated Statement of Income, during 2018\. See Note 10 for further information and for further details on gains or losses recorded due to ineffectiveness during 2017\.

On March 10, 2017, the FASB issued the New Retirement Standard\. The New Retirement Standard requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other Employee compensation costs arising from services rendered during the period\. The other components of net benefit cost, including amortization of prior service cost/credit, and settlement and curtailment effects, are to be included in nonoperating expenses\. As required by the New Retirement Standard, the Company adopted this guidance retrospectively as of January 1, 2018, using a practical expedient which permitted the Company to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements\. As such, the Company reclassified $14 million and $12 million of Salaries, wages, and benefits expense to Other (gains) and losses under the New Retirement Standard in the accompanying Consolidated Statement of Income for the years ended December 31, 2017 and 2016, respectively\. The adoption and resulting reclassification had no impact on the Company's Net income, earnings per share, or cash flows\.

On February 25, 2016, the FASB issued ASU No\. 2016\-02, Leases (the "New Lease Standard")\. The New Lease Standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted\. The New Lease Standard requires lessees to recognize a right\-of\-use asset and a lease liability on the balance sheet for all leases (with the exception of short\-term leases) at the lease commencement date and recognize expenses on the income statement in a similar manner to the current guidance in ASC 840, Leases ("ASC 840")\. The lease liability will be measured as the present value of the unpaid lease payments and the right\-of\-use asset will be derived from the calculation of the lease liability\. Lease payments will include fixed and in\-substance fixed payments, variable payments based on an index or rate, reasonably certain purchase options, termination penalties, fees paid by the lessee to the owners of a special\-purpose entity for restructuring the transaction, and probable amounts the lessee will owe under a residual value guarantee\. Lease payments will not include variable lease payments other than those that depend on an index or rate, any guarantee by the lessee of the lessor’s debt, or any amount allocated to non\-lease components\.

The Company established a project team to evaluate and implement the New Lease Standard\. The Company currently believes the most significant impact of the New Lease Standard on its accounting will be the balance sheet impact of its aircraft operating leases, which will significantly increase assets and liabilities\. As of December 31, 2018, the Company had 51 leased aircraft under operating leases in its active fleet and also had another 73 aircraft under operating leases that are being subleased to another airline\. The Company also has operating leases related to terminal operations space and other real estate leases\. Although the real estate leases will also have a substantial impact to the balance sheet, the Company does not expect the leases related to terminal operations space to have a significant impact since variable lease payments, other than those based on an index or rate, are excluded from the measurement of the lease liability\. The Company also does not expect the adoption of the New Lease Standard to impact any of its existing debt covenants\.

In addition, the New Lease Standard eliminates the current build\-to\-suit lease accounting guidance and is expected to result in derecognition of build\-to\-suit assets and liabilities that remained on the balance sheet after the end of the construction period, including the related deferred taxes\. See Note 4 for further information on the Company’s build\-to\-suit projects\. However, given the Company's guarantee associated with the bonds issued to fund the Dallas Love Field Modernization Program (the "LFMP"), the Company believes that the remaining debt service amounts as of the adoption date would be considered a minimum rental payment under the New Lease Standard, and therefore will be recorded as a lease liability on the balance sheet and will be reduced through future debt service payments made in 2019 and beyond\. The underlying leases for all of these facilities will be subject to evaluation under the New Lease Standard\.

79


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

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

The following tables summarize our minimum rental commitments under capital leases and noncancelable operating leases (including certain aircraft flown by regional carriers) with initial or remaining terms in excess of one year for the years succeeding  December 31, 2017 :

Capital Leases

|                                                        |              |
| ------------------------------------------------------ | ------------ |
| **(in millions)**                                      | **Total**    |
| 2018                                                   | $116         |
| 2019                                                   | 92           |
| 2020                                                   | 65           |
| 2021                                                   | 41           |
| 2022                                                   | 24           |
| Thereafter                                             | 126          |
| Total minimum lease payments                           | 464          |
| Less: amount of lease payments representing interest   | (70

) |
| Present value of future minimum capital lease payments | 394          |
| Less: current obligations under capital leases         | (97

) |
| Long\-term capital lease obligations                   | $297         |

Operating Leases

|                              |                                    |                                                        |           |
| ---------------------------- | ---------------------------------- | ------------------------------------------------------ | --------- |
| **(in millions)**            | **Delta Lease Payments** **^(1)^** | **Contract Carrier Aircraft Lease Payments** **^(2)^** | **Total** |
| 2018                         | $1,469                             | $266                                                   | $1,735    |
| 2019                         | 1,322                              | 267                                                    | 1,589     |
| 2020                         | 1,189                              | 241                                                    | 1,430     |
| 2021                         | 983                                | 173                                                    | 1,156     |
| 2022                         | 883                                | 153                                                    | 1,036     |
| Thereafter                   | 8,819                              | 471                                                    | 9,290     |
| Total minimum lease payments | $14,665                            | $1,571                                                 | $16,236   |

|       |                                                                |
| ----- | -------------------------------------------------------------- |
| ^(1)^ | Includes payments accounted for as construction obligations\.  |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | Represents the minimum lease obligations under our contract carrier agreements with Compass Airlines, LLC, ExpressJet Airlines, Inc\., GoJet Airlines, LLC, Republic Airline, Inc\. and SkyWest Airlines, Inc\. |

NOTE 8 \. AIRPORT REDEVELOPMENT

New York\-JFK Airport

In 2015, we completed our redevelopment project at New York\-JFK's Terminal 4 to facilitate convenient connections for our passengers and improve coordination with our SkyTeam alliance partners\. Terminal 4 is operated by JFK International Air Terminal LLC ("IAT"), a private party, under its lease with the Port Authority of New York and New Jersey ("Port Authority")\. In December 2010, we entered into a   33 \-year agreement with IAT ("Sublease") to sublease space in Terminal 4\. Also, in 2010, the Port Authority issued approximately   $800 million  principal amount of special project bonds to fund the majority of the project\.

We managed the project and bore the construction risk, including cost overruns\. We recorded an asset for project costs (e\.g\., design, permitting, labor and other general construction costs), regardless of funding source, and a construction obligation equal to project costs funded by parties other than us\. Our rental payments reduce the construction obligation and result in the recording of interest expense, calculated using the effective interest method\. As of December 31, 2017, we have recorded   $691 million  as property and equipment and   $744 million  as the related construction obligation\.

 72


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

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

|                                                                                |             |          |          |
| --------------------------------------------------------------------------------- | ----------- | -------- | -------- |
| **Year Ended December 31**  ***(in millions)***                                   | **2017**    | **2016** | **2015** |
| **Cash flows from operating activities:**                                         |             |          |          |
| Net income                                                                        | **$1,034**  | $814     | $848     |
| Adjustments to reconcile net income to net cash provided by operating activities: |             |          |          |
| Depreciation and amortization                                                     | **372**     | 363      | 320      |
| Stock\-based compensation and other                                               | **55**      | 26       | 25       |
| Changes in certain assets and liabilities:                                        |             |          |          |
| Changes in deferred tax provision                                                 | **19**      | 94       | 56       |
| (Increase) decrease in accounts receivable                                        | **(39)**    | (46)     | 47       |
| Increase (decrease) in air traffic liability                                      | **88**      | 9        | 38       |
| Increase (decrease) in deferred revenue                                           | **63**      | 83       | 57       |
| Changes in pension and other postretirement benefits                              | **17**      | 23       | 36       |
| Other—net                                                                         | **(19)**    | 20       | 157      |
| Net cash provided by operating activities                                         | **1,590**   | 1,386    | 1,584    |
| **Cash flows from investing activities:**                                         |             |          |          |
| Property and equipment additions:                                                 |             |          |          |
| Aircraft and aircraft purchase deposits                                           | **(804)**   | (528)    | (681)    |
| Other flight equipment                                                            | **(96)**    | (53)     | (79)     |
| Other property and equipment                                                      | **(126)**   | (97)     | (71)     |
| Total property and equipment additions                                            | **(1,026)** | (678)    | (831)    |
| Acquisition of Virgin America, net of cash acquired                               | **—**       | (1,951)  | —        |
| Purchases of marketable securities                                                | **(1,569)** | (960)    | (1,327)  |
| Sales and maturities of marketable securities                                     | **1,388**   | 962      | 1,175    |
| Proceeds from disposition of assets and changes in restricted deposits            | **75**      | 5        | 53       |
| Net cash used in investing activities                                             | **(1,132)** | (2,622)  | (930)    |
| **Cash flows from financing activities:**                                         |             |          |          |
| Proceeds from issuance of long\-term debt, net of issuance costs                  | **—**       | 2,044    | —        |
| Long\-term debt payments                                                          | **(397)**   | (249)    | (116)    |
| Common stock repurchases                                                          | **(75)**    | (193)    | (505)    |
| Cash dividend paid                                                                | **(148)**   | (136)    | (102)    |
| Other financing activities                                                        | **28**      | 25       | 35       |
| **Net cash provided by (used in) financing activities**                           | **(592)**   | 1,491    | (688)    |
| Net increase (decrease) in cash and cash equivalents                              | **(134)**   | 255      | (34)     |
| Cash and cash equivalents at beginning of year                                    | **328**     | 73       | 107      |
| **Cash and cash equivalents at end of year**                                      | **$194**    | $328     | $73      |
| **Supplemental disclosure:**                                                      |             |          |          |
| Cash paid during the year for:                                                    |             |          |          |
| Interest, net of amount capitalized                                               | **$84**     | $24      | $8       |
| Income taxes, net of refunds received                                             | **177**     | 459      | 349      |

See accompanying notes to consolidated financial statements\.

 67


Annual Report of Southwest Airlines Co\. for year 2019

Southwest Airlines Co\.

Consolidated Statement of Cash Flows

(in millions)

|                                                                                |                             |                             |                             |
| --------------------------------------------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                                                | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** |
|                                                                                | **2019**                    | **2018**                    | **2017**                    |
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                                               |                             |                             |                             |
| Net income                                                                              | $2,300                      | $2,465                      | $3,357                      |
| Adjustments to reconcile net income to cash provided by (used in) operating activities: |                             |                             |                             |
| Depreciation and amortization                                                           | 1,219                       | 1,201                       | 1,218                       |
| Boeing 737\-300 aircraft grounding charge                                               | —                           | —                           | 63                          |
| Unrealized/realized gains on fuel derivative instruments                                | —                           | (14

)                | (50

)                |
| Deferred income taxes                                                                   | (55

)                | 301                         | (1,066

)             |
| Changes in certain assets and liabilities:                                              |                             |                             |                             |
| Accounts and other receivables                                                          | (94

)                | 117                         | (102

)               |
| Other assets                                                                            | 239                         | (227

)               | (262

)               |
| Accounts payable and accrued liabilities                                                | 298                         | 545                         | 233                         |
| Air traffic liability                                                                   | 440                         | 506                         | 343                         |
| Other liabilities                                                                       | (277

)               | —                           | —                           |
| Cash collateral received from (provided to) derivative counterparties                   | 25                          | (15

)                | 316                         |
| Other, net                                                                              | (108

)               | 14                          | (121

)               |
| Net cash provided by operating activities                                               | 3,987                       | 4,893                       | 3,929                       |
| **CASH FLOWS FROM INVESTING ACTIVITIES:**                                               |                             |                             |                             |
| Capital expenditures                                                                    | (1,027

)             | (1,922

)             | (2,123

)             |
| Supplier proceeds                                                                       | 400                         | —                           | —                           |
| Assets constructed for others                                                           | —                           | (54

)                | (126

)               |
| Purchases of short\-term investments                                                    | (2,122

)             | (2,409

)             | (2,380

)             |
| Proceeds from sales of short\-term and other investments                                | 2,446                       | 2,342                       | 2,221                       |
| Other, net                                                                              | —                           | 5                           | —                           |
| Net cash used in investing activities                                                   | (303

)               | (2,038

)             | (2,408

)             |
| **CASH FLOWS FROM FINANCING ACTIVITIES:**                                               |                             |                             |                             |
| Proceeds from issuance of long\-term debt                                               | —                           | —                           | 600                         |
| Proceeds from Employee stock plans                                                      | 40                          | 35                          | 29                          |
| Reimbursement for assets constructed for others                                         | —                           | 170                         | 126                         |
| Payments of long\-term debt and finance lease obligations                               | (615

)               | (342

)               | (592

)               |
| Payments of cash dividends                                                              | (372

)               | (332

)               | (274

)               |
| Repayment of construction obligation                                                    | —                           | (30

)                | (10

)                |
| Repurchase of common stock                                                              | (2,000

)             | (2,000

)             | (1,600

)             |
| Other, net                                                                              | (43

)                | 3                           | 15                          |
| Net cash used in financing activities                                                   | (2,990

)             | (2,496

)             | (1,706

)             |
| **NET CHANGE IN CASH AND CASH EQUIVALENTS**                                             | 694                         | 359                         | (185

)               |
| **CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD**                                    | 1,854                       | 1,495                       | 1,680                       |
| **CASH AND CASH EQUIVALENTS AT END OF PERIOD**                                          | $2,548                      | $1,854                      | $1,495                      |
| **CASH PAYMENTS FOR:**                                                                  |                             |                             |                             |
| Interest, net of amount capitalized                                                     | $88                         | $107                        | $81                         |
| Income taxes                                                                            | $779                        | $327                        | $992                        |
| **SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:**                                    |                             |                             |                             |
| Flight equipment under finance leases                                                   | $1                          | $32                         | $233                        |
| Assets constructed for others                                                           | $65                         | $171                        | $197                        |
| Supplier receivables                                                                    | $428                        | $—                          | $—                          |

See accompanying notes\.

68


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

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

fluctuates with seasonal travel patterns\. The contract duration of passenger tickets is one year\. Accordingly, any revenue associated with tickets sold for future travel will be recognized within twelve months\. For 2018, $3\.1 billion of revenue was recognized in passenger revenue that was included in American’s air traffic liability at December 31, 2017\.

With respect to contract receivables, reflected as accounts receivable, net on the accompanying consolidated balance sheet, these primarily include receivables for tickets sold to individual passengers through the use of major credit cards\. These receivables are short\-term, mostly settled within seven days after sale\. Bad debt losses, which have been minimal in the past, have been considered in establishing allowances for doubtful accounts\.

***(l) Maintenance, Materials and Repairs***

Maintenance and repair costs for owned and leased flight equipment are charged to operating expense as incurred, except costs incurred for maintenance and repair under flight hour maintenance contract agreements, which are accrued based on contractual terms when an obligation exists\.

***(m) Selling Expenses***

Selling expenses include credit card fees, commissions, computerized reservations systems fees and advertising\. Advertising costs are expensed as incurred\. Advertising expense was $128 million, $135 million and $116 million for the years ended December 31, 2018, 2017 and 2016, respectively\.

***(n) Share\-based Compensation***

American accounts for its share\-based compensation expense based on the fair value of the stock award at the time of grant, which is recognized ratably over the vesting period of the stock award\. Certain awards have performance conditions that must be achieved prior to vesting and are expensed based on the expected achievement at each reporting period\. The fair value of stock appreciation rights is estimated using a Black\-Scholes option pricing model\. The fair value of restricted stock units is based on the market price of the underlying shares of AAG common stock on the date of grant\. See Note 13 for further discussion of share\-based compensation\.

***(o) Foreign Currency Gains and Losses***

Foreign currency gains and losses are recorded as part of other income, net within total nonoperating expense, net in American’s consolidated statements of operations\. Foreign currency losses for 2018 and 2017 were $54 millionand $4 million, respectively, and for 2016, foreign currency gains were $1 million\.

***(p) Other Operating Expenses***

Other operating expenses includes costs associated with ground and cargo handling, crew travel, aircraft food and catering, passenger accommodation, airport security, international navigation fees and certain general and administrative expenses\.

144


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

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

NOTE 16 \. EARNINGS PER SHARE

We calculate basic earnings per share by dividing the net income by the weighted average number of common shares outstanding, excluding restricted shares\. We calculate diluted earnings per share by dividing net income by the weighted average number of common shares outstanding plus the dilutive effect of outstanding share\-based awards, including stock options and restricted stock awards\. Antidilutive common stock equivalents excluded from the diluted earnings per share calculation are not material\. The following table shows our computation of basic and diluted earnings per share:

|                                             |                             |                             |                             |
| ------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                             | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
| **(in millions, except per share data)**    | **2017**                    | **2016**                    | **2015**                    |
| Net income                                  | $3,577                      | $4,373                      | $4,526                      |
| Basic weighted average shares outstanding   | 720                         | 751                         | 797                         |
| Dilutive effect of share\-based awards      | 3                           | 4                           | 7                           |
| Diluted weighted average shares outstanding | 723                         | 755                         | 804                         |
| Basic earnings per share                    | $4\.97                      | $5\.82                      | $5\.68                      |
| Diluted earnings per share                  | $4\.95                      | $5\.79                      | $5\.63                      |

NOTE 17 \. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table summarizes our unaudited results of operations on a quarterly basis\. The quarterly earnings per share amounts for a year will not add to the earnings per share for that year due to the weighting of shares used in calculating per share data\.

|                                          |                         |                         |                         |                         |
| ---------------------------------------- | ----------------------- | ----------------------- | ----------------------- | ----------------------- |
|                                          | **Three Months Ended,** | **Three Months Ended,** | **Three Months Ended,** | **Three Months Ended,** |
| **(in millions, except per share data)** | **March 31**            | **June 30**             | **September 30**        | **December 31**         |
| **2017**                                 |                         |                         |                         |                         |
| Operating revenue                        | $9,148                  | $10,791                 | $11,060                 | $10,245                 |
| Operating income                         | 1,053                   | 2,028                   | 1,839                   | 1,193                   |
| Net income                               | 603                     | 1,224                   | 1,178                   | 572                     |
| Basic earnings per share                 | $0\.83                  | $1\.68                  | $1\.64                  | $0\.81                  |
| Diluted earnings per share               | $0\.82                  | $1\.68                  | $1\.64                  | $0\.80                  |
| **2016**                                 |                         |                         |                         |                         |
| Operating revenue                        | $9,251                  | $10,447                 | $10,483                 | $9,458                  |
| Operating income                         | 1,540                   | 2,423                   | 1,969                   | 1,020                   |
| Net income                               | 946                     | 1,546                   | 1,259                   | 622                     |
| Basic earnings per share                 | $1\.22                  | $2\.04                  | $1\.70                  | $0\.85                  |
| Diluted earnings per share               | $1\.21                  | $2\.03                  | $1\.69                  | $0\.84                  |

 88


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

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

UNITED AIRLINES, INC\.

STATEMENTS OF CONSOLIDATED STOCKHOLDER'S EQUITY

(In millions)

|                                              |                                                       |                                                        |                                                                                |                                          |                 |
| -------------------------------------------- | ----------------------------------------------------- | ------------------------------------------------------ | ---------------------------------------------------------------------------------- | ---------------------------------------- | --------------- |
|                                              | **Additional**

**Capital**

**Invested** | **Retained Earnings (Accumulated**

**Deficit)** | **Accumulated**

**Other**

**Comprehensive**

**Income (Loss)** | **Receivable from Related Parties, Net** | **Total**       |
| Balance at December 31, 2016                 | $3,573                                                | $5,851                                                 | $

(829

)                                                             | $

(75

)                    | $8,520          |
| Net income (a)                               | —                                                     | 2,161                                                  | —                                                                                | —                                        | 2,161           |
| Other comprehensive loss                     | —                                                     | —                                                      | (200

)                                                                      | —                                        | (200

)   |
| Dividend to UAL                              | (1,844

)                                       | —                                                      | —                                                                                | —                                        | (1,844

) |
| Stock\-settled share\-based compensation     | 56                                                    | —                                                      | —                                                                                | —                                        | 56              |
| UAL contribution related to stock plans      | 2                                                     | —                                                      | —                                                                                | —                                        | 2               |
| Excess tax benefits from share\-based awards | —                                                     | 14                                                     | —                                                                                | —                                        | 14              |
| Reclassification of stranded tax effects     | —                                                     | 118                                                    | (118

)                                                                      | —                                        | —               |
| Other (a)                                    | —                                                     | 57                                                     | —                                                                                | (15

)                             | 42              |
| Balance at December 31, 2017                 | 1,787                                                 | 8,201                                                  | (1,147

)                                                                    | (90

)                             | 8,751           |
| Net income (a)                               | —                                                     | 2,123                                                  | —                                                                                | —                                        | 2,123           |
| Other comprehensive loss                     | —                                                     | —                                                      | 338                                                                                | —                                        | 338             |
| Dividend to UAL                              | (1,249

)                                       | —                                                      | —                                                                                | —                                        | (1,249

) |
| Stock\-settled share\-based compensation     | 60                                                    | —                                                      | —                                                                                | —                                        | 60              |
| Other                                        | —                                                     | (5

)                                            | 6                                                                                | (20

)                             | (19

)    |
| Balance at December 31, 2018                 | 598                                                   | 10,319                                                 | (803

)                                                                      | (110

)                            | 10,004          |
| Net income                                   | —                                                     | 3,011                                                  | —                                                                                | —                                        | 3,011           |
| Other comprehensive loss                     | —                                                     | —                                                      | 85                                                                                | —                                        | 85              |
| Dividend to UAL                              | (664

)                                         | (977

)                                          | —                                                                                | —                                        | (1,641

) |
| Stock\-settled share\-based compensation     | 66                                                    | —                                                      | —                                                                                | —                                        | 66              |
| Other                                        | —                                                     | —                                                      | —                                                                                | (33

)                             | (33

)    |
| Balance at December 31, 2019                 | $—                                                    | $12,353                                                | $

(718

)                                                             | $

(143

)                   | $11,492         |

(a) Amounts adjusted due to the adoption of Accounting Standards Update No\. 2016\-02,  Leases (Topic 842) \. See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information\.

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

54


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

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

**Number** | **Description**                                                                                |
| 32\.2                         | [Certification pursuant to Rule 13a\-14(b) and section 906 of the Sarbanes\-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code)\.](https://americanairlines.gcs-web.com/email-alerts/ex32210k2018.htm) |
| 101\.1                        | Interactive data files pursuant to Rule 405 of Regulation S\-T\.                                                                                |

|      |                                                                                |                                                                                |                                                                                |                                                                                |
| ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| \#   | Pursuant to Item 601(b)(2) of Regulation S\-K promulgated by the Securities and Exchange Commission, certain exhibits and schedules to this agreement have been omitted\. Such exhibits and schedules are described in the referenced agreement\. AAG and American hereby agree to furnish to the Securities and Exchange Commission, upon its request, any or all of such omitted exhibits or schedules\. | Pursuant to Item 601(b)(2) of Regulation S\-K promulgated by the Securities and Exchange Commission, certain exhibits and schedules to this agreement have been omitted\. Such exhibits and schedules are described in the referenced agreement\. AAG and American hereby agree to furnish to the Securities and Exchange Commission, upon its request, any or all of such omitted exhibits or schedules\. | Pursuant to Item 601(b)(2) of Regulation S\-K promulgated by the Securities and Exchange Commission, certain exhibits and schedules to this agreement have been omitted\. Such exhibits and schedules are described in the referenced agreement\. AAG and American hereby agree to furnish to the Securities and Exchange Commission, upon its request, any or all of such omitted exhibits or schedules\. | Pursuant to Item 601(b)(2) of Regulation S\-K promulgated by the Securities and Exchange Commission, certain exhibits and schedules to this agreement have been omitted\. Such exhibits and schedules are described in the referenced agreement\. AAG and American hereby agree to furnish to the Securities and Exchange Commission, upon its request, any or all of such omitted exhibits or schedules\. |
| \*   | Confidential treatment has been granted with respect to certain portions of this agreement\.                                                                                | Confidential treatment has been granted with respect to certain portions of this agreement\.                                                                                | Confidential treatment has been granted with respect to certain portions of this agreement\.                                                                                | Confidential treatment has been granted with respect to certain portions of this agreement\.                                                                                |
| \*\* | Confidential treatment has been requested with respect to certain portions of this agreement\.                                                                                | Confidential treatment has been requested with respect to certain portions of this agreement\.                                                                                | Confidential treatment has been requested with respect to certain portions of this agreement\.                                                                                | Confidential treatment has been requested with respect to certain portions of this agreement\.                                                                                |
| †    | Management contract or compensatory plan or arrangement\.                                                                                | Management contract or compensatory plan or arrangement\.                                                                                | Management contract or compensatory plan or arrangement\.                                                                                | Management contract or compensatory plan or arrangement\.                                                                                |

198


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

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

**2\. Special Items, Net**

Special items, net on the consolidated statements of operations consisted of the following (in millions):

|                                                                   |                             |                             |                             |
| ----------------------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                                   | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                                   | **2017**                    | **2016**                    | **2015**                    |
| Merger integration expenses  ^(1)^                                | $273                        | $514                        | $826                        |
| Fleet restructuring expenses  ^(2)^                               | 232                         | 177                         | 210                         |
| Employee 2017 Tax Act bonus expense  ^(3)^                        | 123                         | —                           | —                           |
| Labor contract expenses  ^(4)^                                    | 46                          | —                           | —                           |
| Mark\-to\-market adjustments for bankruptcy obligations           | 27                          | 25                          | (53)                        |
| Other operating charges (credits), net                            | 11                          | (7)                         | 68                          |
| Mainline operating special items, net                             | 712                         | 709                         | 1,051                       |
| Regional operating special items, net                             | 22                          | 14                          | 29                          |
| Operating special items, net                                      | 734                         | 723                         | 1,080                       |
| Debt refinancing and extinguishment charges                       | 22                          | 49                          | 24                          |
| Venezuela foreign currency losses                                 | —                           | —                           | 592                         |
| Other nonoperating charges (credits), net                         | —                           | —                           | (22)                        |
| Nonoperating special items, net                                   | 22                          | 49                          | 594                         |
| Impact of the 2017 Tax Act on deferred tax assets and liabilities | (7)                         | —                           | —                           |
| Release of deferred tax valuation allowance                       | —                           | —                           | (3,040)                     |
| Other tax charges                                                 | —                           | —                           | 25                          |
| Income tax special items, net                                     | (7)                         | —                           | (3,015)                     |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Merger integration expenses included costs related to information technology, professional fees, re\-branding of aircraft and airport facilities and training, and in 2016, also included costs related to alignment of labor union contracts, the launch of re\-branded uniforms, relocation and severance, and in 2015, also included share\-based compensation related to awards granted in connection with the Merger that fully vested in December 2015\. |

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

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

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

94