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

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

|                                                                    |                             |                             |                             |
| ------------------------------------------------------------------ | --------------------------- | --------------------------- | --------------------------- |
|                                                                    | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                                    | **2018**                    | **2017**                    | **2016**                    |
|                                                                    | **(In millions)**           | **(In millions)**           | **(In millions)**           |
| **Components of Total Special Items, Net:**  **^(1)^**             |                             |                             |                             |
| Fleet restructuring expenses  ^(2)^                                | $422                        | $232                        | $177                        |
| Merger integration expenses  ^(3)^                                 | 268                         | 273                         | 514                         |
| Severance expenses  ^(4)^                                          | 58                          | —                           | —                           |
| Litigation settlement  ^(5)^                                       | 45                          | —                           | —                           |
| Intangible asset impairment  ^(6)^                                 | 26                          | —                           | —                           |
| Labor contract expenses                                            | 13                          | 46                          | —                           |
| Mark\-to\-market adjustments on bankruptcy obligations, net  ^(7)^ | (76)                        | 27                          | 25                          |
| Employee 2017 Tax Act bonus expense  ^(8)^                         | —                           | 123                         | —                           |
| Other operating charges (credits), net                             | 31                          | 11                          | (7)                         |
| Mainline operating special items, net                              | 787                         | 712                         | 709                         |
| Regional operating special items, net                              | 6                           | 22                          | 14                          |
| Operating special items, net                                       | 793                         | 734                         | 723                         |
| Mark\-to\-market adjustments on equity investments, net  ^(9)^     | 104                         | —                           | —                           |
| Debt refinancing and extinguishment charges                        | 13                          | 22                          | 49                          |
| Other nonoperating credits, net                                    | (4)                         | —                           | —                           |
| Nonoperating special items, net                                    | 113                         | 22                          | 49                          |
| Pre\-tax special items, net                                        | 906                         | 756                         | 772                         |
| Income tax special items  ^(10)^                                   | 18                          | —                           | —                           |
| Impact of the 2017 Tax Act  ^(11)^                                 | —                           | 823                         | —                           |
| Income tax special items, net                                      | 18                          | 823                         | —                           |
| Total special items, net                                           | $924                        | $1,579                      | $772                        |
| **Reconciliation of Pre\-Tax Income Excluding Special Items:**     |                             |                             |                             |
| Pre\-tax income – GAAP                                             | $1,884                      | $3,395                      | $4,152                      |
| Adjusted for: Pre\-tax special items, net                          | 906                         | 756                         | 772                         |
| Pre\-tax income excluding special items                            | $2,790                      | $4,151                      | $4,924                      |
| **Reconciliation of Net Income Excluding Special Items:**          |                             |                             |                             |
| Net income – GAAP                                                  | $1,412                      | $1,282                      | $2,584                      |
| Adjusted for: Total special items, net                             | 924                         | 1,579                       | 772                         |
| Adjusted for: Net tax effect of special items                      | (219)                       | (269)                       | (275)                       |
| Net income excluding special items                                 | $2,117                      | $2,592                      | $3,081                      |

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

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | Fleet restructuring expenses principally included accelerated depreciation and rent expense for aircraft and related equipment grounded or expected to be grounded earlier than planned\. |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(3)^ | Merger integration expenses included costs associated with integration projects, principally our flight attendant, human resources and payroll, and technical operations systems\. |

44


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

The Company disaggregates revenue by segment in Note 13\. The level of detail within the Company’s statements of operations, segment disclosures, and in this footnote depict the nature, amount, timing and uncertainty of revenue and how cash flows are affected by economic and other factors\.

Passenger Ticket and Ancillary Services Revenue

The primary performance obligation on a typical passenger ticket is to provide air travel to the passenger\. Ticket revenue is collected in advance of travel and recorded as Air Traffic Liability (ATL) on the consolidated balance sheets\. The Company satisfies its performance obligation and recognizes ticket revenue for each flight segment when the transportation is provided\.

Ancillary passenger revenues relate to items such as checked\-bag fees, ticket change fees, and on\-board food and beverage sales, all of which are provided at time of flight\. As such, the obligation to perform these services is satisfied at the time of travel and is recorded with ticket revenue in Passenger revenue\.

Revenue is also recognized for tickets that are expected to expire unused, a concept referred to as “passenger ticket breakage\.” Passenger ticket breakage is recorded at the flight date using estimates made at the time of sale based on the Company’s historical experience of expired tickets, and other facts such as program changes and modifications\.

In addition to selling tickets on its own marketed flights, Alaska has interline agreements with partner airlines under which it sells multi\-city tickets with one or more segments of the trip flown by a partner airline, or it operates a connecting flight sold by a partner airline\. Each segment in a connecting flight represents a separate performance obligation\. Revenue on segments sold and operated by the Company is recognized as Passenger revenue in the gross amount of the allocated ticket price when the travel occurs, while the commission paid to the partner airline is recognized as a selling expense when the related transportation is provided\. Revenue on segments operated by a partner airline is deferred for the full amount of the consideration received at the time the ticket is sold and, once the segment has been flown the Company records the net amount, after compensating the partner airline, as Cargo and other revenue\.

A portion of revenue from the Mileage Plan™ program is recorded in Passenger revenue\. As members are awarded mileage credits on flown tickets, these credits become a distinct performance obligation to the Company\. The Company allocates the transaction price to each performance obligation identified in a passenger ticket contract on a relative standalone selling price basis\. The standalone selling price for loyalty mileage credits issued is discussed in the  Loyalty  Mileage Credits  section of this Note below\. The amount allocated to the mileage credits is deferred on the balance sheet\. Once a member travels using a travel award redeemed with mileage credits on one of the Company's airline carriers, the revenue associated with those mileage credits is recorded as Passenger revenue\.

Taxes collected from passengers, including transportation excise taxes, airport and security fees and other fees, are recorded on a net basis within passenger revenue in the consolidated statements of operations\.

Passenger revenue recognized in the consolidated statements of operations (in millions):

|                                                                               |                                                                               |                                                                               |                                  |                                  |                                  |                                  |                                  |                                  |                                  |                                  |                                  |  |  |  |  |  |  |  |  |  |  |  |  |
|:----------------------------------------------------------------------------- |:----------------------------------------------------------------------------- |:----------------------------------------------------------------------------- | --------------------------------:|:--------------------------------:|:--------------------------------:|:--------------------------------:| --------------------------------:|:--------------------------------:|:--------------------------------:|:--------------------------------:| --------------------------------:|:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |
|                                                                               |                                                                               |                                                                               | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                                               |                                                                               |                                                                               |                             2019 |                                  |                                  |                                  |                             2018 |                                  |                                  |                                  |                             2017 |
| Passenger ticket revenue, including ticket breakage and net of taxes and fees | Passenger ticket revenue, including ticket breakage and net of taxes and fees | Passenger ticket revenue, including ticket breakage and net of taxes and fees |                          $ 6,824 |                                  |                                  |                                  |                          $ 6,482 |                                  |                                  |                                  |                          $ 6,246 |
| Passenger ancillary revenue                                                   | Passenger ancillary revenue                                                   | Passenger ancillary revenue                                                   |                              567 |                                  |                                  |                                  |                              530 |                                  |                                  |                                  |                              514 |
| Mileage Plan passenger revenue                                                | Mileage Plan passenger revenue                                                | Mileage Plan passenger revenue                                                |                              704 |                                  |                                  |                                  |                              619 |                                  |                                  |                                  |                              541 |
| Total passenger revenue                                                       | Total passenger revenue                                                       | Total passenger revenue                                                       |                          $ 8,095 |                                  |                                  |                                  |                          $ 7,631 |                                  |                                  |                                  |                          $ 7,301 |

As passenger tickets and related ancillary services are primarily sold via credit cards, certain amounts due from credit card processors are recorded as airline traffic receivables\. These credit card receivables and receivables from our affinity credit card partner represent the majority of the receivables balance on the consolidated balance sheets\.

For performance obligations with performance periods of less than one year, GAAP provides a practical expedient that allows the Company not to disclose the transaction price allocated to remaining performance obligations and the timing of related revenue recognition\. As passenger tickets expire one year from ticketing, if unused or not exchanged, the Company elected to apply this practical expedient\.

60


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

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

Enhanced Commercial Agreements with Foreign Carriers\.  We have a strategic equity investment in GOL Linhas Aéreas Inteligentes, S\.A\., the parent company of Gol Linhas Aéreas (a Brazilian air carrier), and an exclusive commercial cooperation relationship with GOL, which includes reciprocal codesharing and frequent flyer program participation, airport lounge access arrangements and joint sales cooperation\.

We also own shares of China Eastern and entered into a joint marketing agreement with China Eastern in 2015 to expand our commercial cooperation and better connect the networks of the two airlines\.

SkyTeam \. In addition to our marketing alliance agreements with individual foreign airlines, we are a member of the SkyTeam global airline alliance\. The other members of SkyTeam are Aeroflot, Aerolíneas Argentinas, Aeroméxico, Air Europa, Air France, Alitalia, China Airlines, China Eastern, China Southern, CSA Czech Airlines, Garuda Indonesia, Kenya Airways, KLM, Korean Air, Middle East Airlines, Saudi Arabian Airlines, Tarom, Vietnam Airlines and Xiamen Airlines\. Through alliance arrangements with other SkyTeam carriers, Delta is able to link its network with the route networks of the other member airlines, providing opportunities for increased connecting traffic while offering enhanced customer service through reciprocal codesharing and frequent flyer arrangements, airport lounge access programs and coordinated cargo operations\.

Regional Carriers

We have air service agreements with domestic regional air carriers that feed traffic to our route system by serving passengers primarily in small and medium\-sized cities\. These arrangements enable us to better match capacity with demand in these markets\. Approximately  16%  of our passenger revenue in 2017 was related to flying by these regional air carriers\.

Through our regional carrier program, Delta Connection, we have contractual arrangements with regional carriers to operate aircraft using our "DL" designator code\. We have contractual arrangements with:

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------- |
| • | ExpressJet Airlines, Inc\. and SkyWest Airlines, Inc\., both subsidiaries of SkyWest, Inc\.; |

|   |                                                                                |
| - | --------------------------------------------------------------------------------------- |
| • | Republic Airline, Inc\. ("Republic"), a subsidiary of Republic Airways Holdings, Inc\.; |

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------------------------------------------------- |
| • | Compass Airlines, LLC ("Compass") and GoJet Airlines, LLC, both subsidiaries of Trans States Holdings, Inc\. ("Trans States"); and |

|   |                                                                   |
| - | ----------------------------------------------------------------- |
| • | Endeavor Air, Inc\., which is a wholly owned subsidiary of ours\. |

Our contractual agreements with regional carriers primarily are capacity purchase arrangements, under which we control the scheduling, pricing, reservations, ticketing and seat inventories for the regional carriers' flights operating under our "DL" designator code\. We are entitled to all ticket, cargo, mail, in\-flight and ancillary revenues associated with these flights\. We pay those airlines an amount, as defined in the applicable agreement, which is based on a determination of their cost of operating those flights and other factors intended to approximate market rates for those services\. These capacity purchase agreements are long\-term agreements, usually with initial terms of at least 10 years, which grant us the option to extend the initial term\. Certain of these agreements provide us the right to terminate the entire agreement, or in some cases remove some of the aircraft from the scope of the agreement, for convenience at certain future dates\.

SkyWest Airlines operates some flights for us under a revenue proration agreement\. This proration agreement establishes a fixed dollar or percentage division of revenues for tickets sold to passengers traveling on connecting flight itineraries\.

 3


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

Since 2007, we have repurchased 60 million shares of common stock for $1\.6 billion for an average price of approximately $26\.72 per share\. In 2017, we increased our quarterly dividend 9% from $0\.275 per share to $0\.300 per share, and, subsequent to December 31, 2017, we announced a 7% increase to $0\.32 per share for 2018\. Overall, we returned $223 million to shareholders during 2017\. We expect to continue to return capital to shareholders in 2018, primarily in the form of dividends\.

***Outlook***

In 2018 and beyond, we are focused on successfully completing the integration of Virgin America with Alaska\. In January 2018 Alaska and Virgin America received a Single Operating Certificate (SOC), our most significant integration milestone to date\. The integration milestones achieved thus far will help to ease our transition to a single Passenger Service System (PSS) on April 25, 2018\. This will allow us to provide one reservation system, one website and one inventory of flights to our guests, which will help unlock many of the revenue synergies expected from the acquisition\. In conjunction with PSS, at all gates, ticketing and check\-in areas, guests will be greeted with Alaska branding\.

We will continue to make investments to enhance our onboard guest experience\. Some of the more notable projects underway include adding satellite connectivity to our entire Boeing and Airbus fleets to offer high\-speed satellite Wi\-Fi, further upgrades to our onboard menu offerings, updating and expanding airport lounges in the JFK and Seattle airports, and investment in our Seattle hub airport to open a state\-of\-the\-art 20\-gate North Terminal facility\.

In 2018, we expect to continue to experience cost pressure, due in large part to pilot wage increases, which became effective in the fourth quarter of 2017, and a new maintenance cost\-per\-hour agreement that will result in higher maintenance costs in 2018, but will help to reduce the volatility of maintenance expense over the next several years\. We also expect to continue to incur further costs associated with the ongoing integration of Virgin America\. For the first quarter of 2018, we expect unit revenues (RASM) to decline 3\.5% \- 4\.5% and unit costs, excluding fuel and special items (CASM, ex fuel) to increase approximately 6%\. In addition, we expect the price per gallon of jet fuel to increase approximately 21% from the prior\-year period\. Based on these current estimates, we are likely to report a loss in the first quarter although we expect our unit costs and unit revenues to improve throughout 2018\.

Our priority throughout the integration process is to run two great airlines and to maintain safe and compliant operations, while providing a great experience for our guests\. We are particularly focused on merging the Alaska and Virgin America cultures and brands that our guests respect and trust\. We intend to minimize any disruption to our guests during our integration efforts by being transparent about our progress and how the changes may affect them\. Employee engagement throughout the integration will remain a top priority as well, ensuring that employees remain engaged, informed and excited about the new Company's future\. Additionally, we will remain focused on capturing the value and synergies created by combining these two great airlines\.

We expect to grow our combined network capacity in 2018 by approximately 7\.5%, compared to a 7\.1% combined growth in 2017\. Current schedules indicate competitive capacity will be roughly 6 points higher in the first quarter of 2018\. We believe that our product, our operation, our engaged employees, our award\-winning service, and our competitive Mileage Plan™, combined with our strong balance sheet, give us the ability to compete vigorously in our markets\.

 35


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

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

Our fourth quarter  2018  results include   $195 million  of total pre\-tax net special items that principally included   $94 million  of fleet restructuring expenses,   $81 million  of merger integration expenses,   $37 million  of severance costs associated with reductions of management and support staff team members,   $22 million  of mark\-to\-market net unrealized losses associated with certain equity investments, offset in part by a   $37 million  net credit resulting from mark\-to\-market adjustments on bankruptcy obligations\.

18\. Subsequent Events

Dividend Declaration

In  January 2020 , we announced that our Board of Directors declared a   $0\.10  per share cash dividend for stockholders of record on  February 5, 2020 , and payable on  February 19, 2020 \.  Any future dividends that may be declared and paid from time to time will be subject to market and economic conditions, applicable legal requirements and other relevant factors\. We are not obligated to continue a dividend for any fixed period, and the payment of dividends may be suspended or discontinued at any time at our discretion and without prior notice\.

2014 Credit Facilities Refinancing

In January 2020, American and AAG entered into the Eighth Amendment (the Eighth Amendment) to Amended and Restated Credit and Guaranty Agreement, amending the 2014 Credit Agreement, pursuant to which American refinanced the 2014 Term Loan Facility, increasing the total aggregate principal outstanding to   $1\.22 billion , reducing LIBOR margin from   2\.00%  to   1\.75% , with a LIBOR floor of   0% , and reducing the base rate margin from   1\.00%  to   0\.75% \. In addition, the maturity date for the 2014 Term Loan Facility was extended to January 2027 from October 2021\. The 2014 Revolving Facility remains unchanged and, as of January 29, 2020, the effective date of the Eighth Amendment, there were no borrowings or letters of credit outstanding thereunder\.

114


Annual Report of Southwest Airlines Co\. for year 2019

(e) The Company's current hedge positions contain a combination of instruments based in West Texas Intermediate and Brent crude oil; however, the economic fuel price per gallon sensitivities provided assume the relationship between Brent crude oil and refined products based on market prices as of  January 17, 2020 \.

Maintenance materials and repairs expense for  2019  increase d by $ 116 million , or  10\.5  percent, compared with  2018 \. On a per ASM basis, Maintenance materials and repairs expense  increase d  13\.0  percent, compared with  2018 \. On both a dollar and per ASM basis, the majority of the increases were due to the timing and scope of regular airframe maintenance checks\. The Company currently expects Maintenance materials and repairs expense per ASM for  first quarter 2020  to increase, compared with  first quarter 2019 \.

Landing fees and airport rentals expense for  2019  increase d by $ 29 million , or  2\.2  percent, compared with  2018 \. On a per ASM basis, Landing fees and airport rentals expense  increase d  4\.8 percent , compared with  2018 \. On both a dollar and per ASM basis, the majority of the increases were due to an increase in space rental rates and usage at various stations throughout the network, partially offset by higher settlements and credits from various airports received in  2019 \. The Company currently expects Landing fees and airport rentals expense per ASM for  first quarter 2020  to increase, compared with  first quarter 2019 \.

Depreciation and amortization expense for  2019  increase d by $ 18 million , or  1\.5  percent, compared with  2018 \. On a per ASM basis, Depreciation and amortization expense  increase d  4\.0 percent , compared with  2018 \. On both a dollar and per ASM basis, the majority of the increases were associated with the deployment of new technology assets\. Based on the application of  2019  Boeing settlement proceeds against the cost basis of owned 737 MAX aircraft in the Company's fleet, the Company estimates an approximate  $5 million  benefit to depreciation expense for 2020\. See Note  16  to the Consolidated Financial Statements for further information\. The Company currently expects Depreciation and amortization expense per ASM for  first quarter 2020  to increase, compared with  first quarter 2019 \.

Other operating expenses for  2019  increase d by $ 174 million , or  6\.1  percent, compared with  2018 \. On a per ASM basis, Other operating expenses  increase d  7\.3 percent , compared with  2018 \. On both a dollar and per ASM basis, the increases in Other operating expenses were partially due to a $25 million gain recognized during first quarter 2018 from the sale of 39 Boeing 737\-300 aircraft and a number of spare engines to a third party, which reduced Other operating expenses for first quarter 2018\. This gain on sale of retired Boeing 737\-300 aircraft was considered a special item and thus excluded from the Company's non\-GAAP results\. See Note Regarding Use of Non\-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non\-GAAP Financial Measures for additional detail regarding non\-GAAP financial measures\. Excluding this item, approximately  40 percent  of the increases were due to technology project\-related expenses, approximately  20 percent  of the increases were due to insurance recoveries from the impacts of irregular operations, which were received in first quarter 2018 and reduced Other operating expenses for first quarter 2018, and the biggest portion of the remainder was due to expenses related to the grounding of the MAX aircraft, such as additional compensation issued to inconvenienced Passengers associated with flight cancellations\. The Company currently expects Other operating expenses per ASM for  first quarter 2020  to increase, compared with  first quarter 2019 \.

Other

Other expenses (income) include interest expense, capitalized interest, interest income, and other gains and losses\. Total other expenses (income) for  2019   decrease d by  $42 million  primarily due to higher interest income as a result of higher interest rates, and lower interest expense as a result of lower debt balances\.

Income Taxes

The Company's effective tax rate was  22\.2  percent for  2019 , compared with  22\.1  percent for  2018 \. The Company currently projects the first quarter and full year  2020  effective tax rate to be in the 23 to 24 percent range based on currently forecasted financial results\.

46


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

Finally, the potential physical effects of climate change, such as increased frequency and severity of storms, floods, fires, sea\-level rise and other climate\-related events, could affect our operations, infrastructure and financial results\. Operational impacts, such as the canceling of flights, could result in loss of revenue\. We could incur significant costs to improve the climate resiliency of our infrastructure and otherwise prepare for, respond to, and mitigate such physical effects of climate change\. We are not able to accurately predict the materiality of any potential losses or costs associated with the physical effects of climate change\.

We are subject to many forms of environmental and noise regulation and may incur substantial costs as a result\.

We are subject to a number of increasingly stringent federal, state, local and foreign laws, regulations and ordinances relating to the protection of the environment and noise reduction, including those relating to emissions to the air, discharges to surface and subsurface waters, safe drinking water, and the management of hazardous substances, oils and waste materials\. Compliance with environmental laws and regulations can require significant expenditures, and violations can lead to significant fines and penalties\.

We are also subject to other environmental laws and regulations, including those that require us to investigate and remediate soil or groundwater to meet certain remediation standards\. Under federal law, generators of waste materials, and current and former owners or operators of facilities, can be subject to liability for investigation and remediation costs at locations that have been identified as requiring response actions\. Liability under these laws may be strict, joint and several, meaning that we could be liable for the costs of cleaning up environmental contamination regardless of fault or the amount of waste directly attributable to us\. We have liability for investigation and remediation costs at various sites, although such costs currently are not expected to have a material adverse effect on our business\.

We have various leases and agreements with respect to real property, tanks and pipelines with airports and other operators\. Under these leases and agreements, we have agreed to indemnify the lessor or operator against environmental liabilities associated with the real property or operations described under the agreement, even in certain cases where we are not the party responsible for the initial event that caused the environmental damage\. We also participate in leases with other airlines in fuel consortiums and fuel committees at airports, and such indemnities are generally joint and several among the participating airlines\.

Governmental authorities in several U\.S\. and foreign cities are also considering, or have already implemented, aircraft noise reduction programs, including the imposition of nighttime curfews and limitations on daytime take offs and landings\. We have been able to accommodate local noise restrictions imposed to date, but our operations could be adversely affected if locally\-imposed regulations become more restrictive or widespread\.

We depend on a limited number of suppliers for aircraft, aircraft engines and parts\.

We depend on a limited number of suppliers for aircraft, aircraft engines and many aircraft and engine parts\. For example, under our current fleet plan, by the end of 2020 all of our mainline aircraft will have been manufactured by either Airbus or Boeing and all of our regional aircraft will have been manufactured by either Bombardier or Embraer\. Further, our supplier base continues to consolidate as evidenced by the recent acquisition of Rockwell Collins by United Technologies, the recent transactions involving Airbus and Bombardier and the pending transactions involving Boeing and Embraer, and Bombardier and Mitsubishi\. Due to the limited number of these suppliers, we are vulnerable to any problems associated with the performance of their obligation to supply key aircraft, parts and engines, including design defects, mechanical problems, contractual performance by suppliers, adverse perception by the public that would result in customer avoidance of any of our aircraft or any action by the FAA or any other regulatory authority resulting in an inability to operate our aircraft, even temporarily\. In particular, in March 2019, the FAA ordered the grounding of all Boeing 737 MAX aircraft, which remains in place as of the date of this report\.

Delays in scheduled aircraft deliveries or other loss of anticipated fleet capacity, and failure of new aircraft to perform as expected, may adversely impact our business, results of operations and financial condition\.

The success of our business depends on, among other things, effectively managing the number and types of aircraft we operate\. If, for any reason, we are unable to accept or secure deliveries of new aircraft on contractually scheduled delivery dates, this could have negative impacts on our business, results of operations and financial condition\. Our failure to integrate newly purchased aircraft into our fleet as planned might require us to seek extensions of the terms for some leased aircraft or otherwise delay the exit of certain aircraft from our fleet\. Such unanticipated extensions or delays may require us to operate existing aircraft beyond the point at which it is economically optimal to retire them, resulting in increased maintenance costs, or reductions to our schedule, thereby reducing revenues\. If new aircraft orders are not filled on a timely basis, we could face higher financing and operating costs than planned\. In addition, if the aircraft we

26


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

affect our ability to attract and retain customers, increase usage of our loyalty program and maximize the revenue generated by our loyalty program\.

***Evolving data security and privacy requirements could increase our costs, and any significant data security incident could disrupt our operations, harm our reputation, expose us to legal risks and otherwise materially adversely affect our business, results of operations and financial condition\.***

Our business requires the secure processing and storage of sensitive information relating to our customers, employees, business partners and others\. However, like any global enterprise operating in today’s digital business environment, we are subject to threats to the security of our networks and data, including threats potentially involving criminal hackers, hacktivists, state\-sponsored actors, corporate espionage, employee malfeasance, and human or technological error\. These threats continue to increase as the frequency, intensity and sophistication of attempted attacks and intrusions increase around the world\. We have been the target of cybersecurity attacks in the past and expect that we will continue to be in the future\.

Furthermore, in response to these threats there has been heightened legislative and regulatory focus on data privacy and security in the U\.S\., the EU and elsewhere, particularly with respect to critical infrastructure providers, including those in the transportation sector\. As a result, we must comply with a growing and fast\-evolving set of legal requirements in this area, including substantive cybersecurity standards as well as requirements for notifying regulators and affected individuals in the event of a data security incident\. This regulatory environment is increasingly challenging and may present material obligations and risks to our business, including significantly expanded compliance burdens, costs and enforcement risks\. For example, in May 2018, the EU’s new General Data Protection Regulation, commonly referred to as GPDR, will come into effect, which will impose a host of new data privacy and security requirements, imposing significant costs on us and carrying substantial penalties for non\-compliance\.

In addition, many of our commercial partners, including credit card companies, have imposed data security standards that we must meet\. In particular, we are required by the Payment Card Industry Security Standards Council, founded by the credit card companies, to comply with their highest level of data security standards\. While we continue our efforts to meet these standards, new and revised standards may be imposed that may be difficult for us to meet and could increase our costs\.

A significant cybersecurity incident could result in a range of potentially material negative consequences for us, including unauthorized access to, disclosure, modification, misuse, loss or destruction of company systems or data; theft of sensitive, regulated or confidential data, such as personal identifying information or our intellectual property; the loss of functionality of critical systems through ransomware, denial of service or other attacks; and business delays, service or system disruptions, damage to equipment and injury to persons or property\. The costs and operational consequences of responding to and remediating an incident may be substantial\. Further, we could be exposed to litigation, regulatory enforcement or other legal action as a result of an incident, carrying the potential for damages, fines, sanctions or other penalties, as well injunctive relief requiring costly compliance measures\. A cybersecurity incident could also impact our brand, harm our reputation and adversely impact our relationship with our customers, employees and stockholders\. Failure to appropriately address these issues could also give rise to potentially material legal risks and liabilities\.

***Our high level of debt and other obligations may limit our ability to fund general corporate requirements and obtain additional financing, may limit our flexibility in responding to competitive developments and cause our business to be vulnerable to adverse economic and industry conditions\.***

We have significant amounts of indebtedness and other obligations, including pension obligations, obligations to make future payments on flight equipment and property leases, and substantial non\-cancelable obligations under aircraft and related spare engine purchase agreements\. Moreover, currently a substantial portion of our assets are pledged to secure our indebtedness\. Our substantial indebtedness and other obligations could have important consequences\. For example, they:

|   |                                                                                |
| - | ------------------------------------------------------------------------------------ |
| • | may make it more difficult for us to satisfy our obligations under our indebtedness; |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | may limit our ability to obtain additional funding for working capital, capital expenditures, acquisitions, investments, integration costs, and general corporate purposes, and adversely affect the terms on which such funding can be obtained; |

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness and other obligations, thereby reducing the funds available for other purposes; |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | make us more vulnerable to economic downturns, industry conditions and catastrophic external events, particularly relative to competitors with lower relative levels of financial leverage; |

17


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

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

NOTE 11 \. INCOME TAXES

Income Tax Provision

Our income tax provision consisted of the following:

|                                  |                             |                             |                             |
| -------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                  | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
| **(in millions)**                | **2017**                    | **2016**                    | **2015**                    |
| Current tax (provision) benefit: |
                      |
                      |
                      |
| Federal                          | $

(4

)        | $—                          | $

(23

)       |
| State and local                  | 5                           | (28

)                | (25

)                |
| International                    | (54

)                | (12

)                | (2

)                 |
| Deferred tax provision:          |
                      |
                      |
                      |
| Federal                          | (1,911

)             | (2,080

)             | (2,409

)             |
| State and local                  | (160

)               | (143

)               | (172

)               |
| Income tax provision             | $

(2,124

)    | $

(2,263

)    | $

(2,631

)    |

The following table presents the principal reasons for the difference between the effective tax rate and the U\.S\. federal statutory income tax rate:

|                                          |                             |                             |                             |
| ---------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                          | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                          | **2017**                    | **2016**                    | **2015**                    |
| U\.S\. federal statutory income tax rate | 35\.0 %                     | 35\.0 %                     | 35\.0 %                     |
| State taxes, net of federal benefit      | 1\.8                        | 1\.8                        | 1\.8                        |
| Decrease in valuation allowance          | —                           | —                           | (0\.2

)              |
| Foreign tax rate differential            | (2\.2

)              | (2\.0

)              | —                           |
| Tax Cuts and Jobs Act adjustment         | 2\.6                        | —                           | —                           |
| Other                                    | —                           | (0\.7

)              | 0\.2                        |
| Effective income tax rate                | 37\.2 %                     | 34\.1 %                     | 36\.8 %                     |

Following the enactment of the Tax Cuts and Jobs Act of 2017, we recorded a provisional tax expense estimate of   $150 million  resulting in a   2\.6%  increase in our effective tax rate\. The provisional estimate includes recognition of tax expense related to certain of our undistributed foreign earnings and tax expense to decrease our federal net deferred tax asset to a  21%  statutory tax rate\. We are evaluating our share of undistributed earnings from certain of our foreign investments and will reflect the impact, if any, in 2018 when such impact is finalized\.

As a result of the Tax Cuts and Jobs Act of 2017, we assessed tax on   $732 million  of foreign earnings which would have otherwise been indefinitely reinvested outside the U\.S\. At December 31, 2016, we had   $379 million  of undistributed foreign earnings\.

 82


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

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

(substantially all of which are for aircraft) were as follows (in millions):

|                                             |                        |                                         |                               |
| ------------------------------------------- | ---------------------- | --------------------------------------- | ----------------------------- |
|                                             | **Capital Leases (b)** | **Facility and Other Operating Leases** | **Aircraft Operating Leases** |
| 2019                                        | $308                   | $1,330                                  | $845                          |
| 2020                                        | 170                    | 1,351                                   | 682                           |
| 2021                                        | 147                    | 1,107                                   | 583                           |
| 2022                                        | 123                    | 970                                     | 407                           |
| 2023                                        | 104                    | 953                                     | 379                           |
| After 2023                                  | 1,268                  | 7,029                                   | 1,160                         |
| Minimum lease payments (a)                  | $2,120                 | $12,740                                 | $4,056                        |
| Imputed interest                            | (837)                  |                                         |                               |
| Present value of minimum lease payments     | 1,283                  |                                         |                               |
| Current portion                             | (149)                  |                                         |                               |
| Long\-term obligations under capital leases | $1,134                 |                                         |                               |

(a) Includes fair value lease and deferred financing fee balances, which are being amortized over the terms of their respective leases\.

(b) Includes airport construction projects managed by United in which United has construction risk, including project cost overruns\. The Company recorded an asset for project costs and a related liability equal to project costs funded by parties other than United\. As of December 31, 2018, United had an asset balance of $886 million recorded in operating property and equipment and $920 million recorded in current and long\-term obligations under capital leases for these airport construction projects\.

As of December 31, 2018, United's aircraft capital lease minimum payments relate to leases of 28 mainline and 90 regional aircraft as well as to leases of nonaircraft assets\. Imputed interest rate ranges are 3\.5% to 115\.1%\.

Aircraft operating leases have initial terms of five to 26 years, with expiration dates ranging from 2019 through 2029\. Under the terms of most leases, United has the right to purchase the aircraft at the end of the lease term, in some cases, at fair market value, and in others, at fair market value or a percentage of cost\.

United is the lessee of real property under long\-term operating leases at a number of airports where we are also the guarantor of approximately $1\.3 billion of underlying debt and interest thereon as of December 31, 2018\. These leases are typically with municipalities or other governmental entities, which are excluded from the consolidation requirements concerning a variable interest entity ("VIE")\. To the extent United's leases and related guarantees are with a separate legal entity other than a governmental entity, United is not the primary beneficiary because the lease terms are consistent with market terms at the inception of the lease and the lease does not include a residual value guarantee, fixed\-price purchase option, or similar feature\. United has facility operating leases that extend to 2055\.

United's nonaircraft rent expense was approximately $1\.3 billion, $1\.3 billion and $1\.2 billion for the years ended December 31, 2018, 2017 and 2016, respectively\.

In addition to nonaircraft rent and aircraft rent, which is separately presented in the consolidated statements of operations, United had aircraft rent related to regional aircraft operating leases, which is included as part of Regional capacity purchase expense in United's consolidated statement of operations, of $505 million, $458 million and $439 million for the years ended December 31, 2018, 2017 and 2016, respectively\.

In connection with UAL Corporation's and United Air Lines, Inc\.'s (predecessors to UAL and United) fresh\-start reporting requirements upon their exit from Chapter 11 bankruptcy protection in 2006 and the Company's acquisition accounting adjustments related to the Company's merger transaction in 2010, lease valuation adjustments for operating leases were initially recorded in the consolidated balance sheet, representing the net present value of the differences between contractual lease rates and the fair market lease rates for similar leased assets at the time\. An asset (liability) results when the contractual lease rates are more (less) favorable than market lease terms at the valuation date\. The lease valuation adjustment is amortized on a straight\-line basis as an increase (decrease) to rent expense over the individual applicable remaining lease terms, resulting in recognition of rent expense as if United had entered into the leases at market rates\. The related remaining lease terms, primarily related to aircraft which make up the majority of the fair value lease adjustment balance, are one to six years for United\. The lease valuation adjustments are classified within other noncurrent liabilities and the net accretion amounts are $60 million, $79 million and $82 million for the years ended December 31, 2018, 2017 and 2016, respectively\.

**Regional CPAs**

United has contractual relationships with various regional carriers to provide regional aircraft service branded as United Express\.Under these CPAs, the Company pays the regional carriers contractually agreed fees (carrier costs) for operating these

81


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

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

On October 13, 2015, United received a CID from the Civil Division of the DOJ\. The CID requested documents and oral testimony from United in connection with an industry\-wide DOJ investigation related to delivery scan and other data purportedly required for payment for the carriage of mail under United’s International Commercial Air Contracts with the U\.S\. Postal Service\. The Company has been responding to the DOJ’s request and cooperating in the investigation since that time\. On November 8, 2016, the DOJ Criminal Division met with representatives from the Company and advised they are conducting an industry\-wide investigation into the same matter\. The Company is also cooperating with the government in this aspect of their investigation and, on December 21, 2016, representatives from the Company met with both the Civil and Criminal Divisions to provide additional information\. The Company cannot predict what action, if any, might be taken in the future by the DOJ or other governmental authorities as a result of these investigations\.

***Other Legal Proceedings***

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

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

Not applicable\.

23


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

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

Pursuant to the Sixth Amendment to the 2014 Credit Agreement, adjustments to the 2014 Revolving Facility were made, including increasing the total aggregate commitments under the 2014 Revolving Facility by approximately $543 million, extending the maturity date for the revolver loans thereunder from October 2022 to October 2023 and reducing the LIBOR margin from 2\.25% to 2\.00% and the base rate margin from 1\.25% to 1\.00% for certain of the lenders of the revolver loans thereunder\. In addition to the slots, gates and routes (SGR) between airports in the United States and LHR previously pledged as collateral for the 2014 Credit Facilities, SGR between airports in the United States and other countries in the European Union were added as collateral under the 2014 Credit Facilities pursuant to the Sixth Amendment to the 2014 Credit Agreement\. As of December 31, 2018, there were no borrowings or letters of credit outstanding under the 2014 Revolving Facility\.

*April 2016 Credit Facilities*

In December 2018, American and AAG entered into a Fourth Amendment (the Fourth Amendment to the April 2016 Credit Agreement) to the Credit and Guaranty Agreement, amending the Credit and Guaranty Agreement dated as of April 29, 2016 (as previously amended, the April 2016 Credit Agreement, and the revolving credit facility established thereunder, the April 2016 Revolving Facility, the term loan facility established thereunder, the 2016 Term Loan Facility and the 2016 April Revolving Facility together with the 2016 Term Loan Facility, the April 2016 Credit Facilities)\. Pursuant to the Fourth Amendment to the April 2016 Credit Agreement, adjustments to the April 2016 Revolving Facility were made, including extending the maturity date from October 2022 to October 2023 for the revolver loans established thereunder and reducing the LIBOR margin from 2\.25% to 2\.00% and the base rate margin from 1\.25% to 1\.00% for certain of the lenders of the revolver loans thereunder\. As of December 31, 2018, there were no borrowings or letters of credit outstanding under the April 2016 Revolving Facility\.

*December 2016 Credit Facilities*

In November 2017, American and AAG entered into the First Amendment to the Amended and Restated Credit and Guaranty Agreement, amending the Amended and Restated Credit and Guaranty Agreement, dated as of December 15, 2016, pursuant to which American refinanced the $1\.3 billion term loan facility due December 2023 established thereunder (the December 2016 Term Loan Facility, and together with a revolving credit facility that may be established thereunder in the future, the December 2016 Credit Facilities), to reduce the LIBOR margin from 2\.50% to 2\.00% and the base rate margin from 1\.50% to 1\.00%\.

Certain details of American’s 2013 Credit Facilities, 2014 Credit Facilities, April 2016 Credit Facilities and December 2016 Credit Facilities (collectively referred to as the Credit Facilities) are shown in the table below as of December 31, 2018:

|                                                                          |                                |                                  |                            |                                  |                                  |                                        |                                     |
| ------------------------------------------------------------------------ | ------------------------------ | -------------------------------- | -------------------------- | -------------------------------- | -------------------------------- | -------------------------------------- | ----------------------------------- |
|                                                                          | **2013 Credit Facilities**     | **2013 Credit Facilities**       | **2014 Credit Facilities** | **2014 Credit Facilities**       | **April 2016 Credit Facilities** | **April 2016 Credit Facilities**       | **December 2016 Credit Facilities** |
|                                                                          | **2013 Replacement Term Loan** | **2013
Revolving Facility** | **2014 Term
Loan**    | **2014
Revolving Facility** | **April 2016
Term Loan**    | **April 2016
Revolving Facility** | **December 2016 Term Loan**         |
| Aggregate principal issued or credit facility availability (in millions) | $1,900                         | $1,000                           | $1,250                     | $1,543                           | $1,000                           | $300                                   | $1,250                              |
| Principal outstanding or drawn (in millions)                             | $1,825                         | $—                               | $1,215                     | $—                               | $980                             | $—                                     | $1,225                              |
| Maturity date                                                            | June 2025                      | October 2023                     | October 2021               | October 2023                     | April 2023                       | October 2023                           | December 2023                       |
| LIBOR margin                                                             | 1\.75%                         | 2\.00%                           | 2\.00%                     | 2\.00%                           | 2\.00%                           | 2\.00%                                 | 2\.00%                              |

The term loans under each of the Credit Facilities are repayable in annual installments in an amount equal to 1\.00% of the aggregate principal amount issued, with any unpaid balance due on the respective maturity dates\. Voluntary prepayments may be made by American at any time\.

The 2013 Revolving Facility, 2014 Revolving Facility and April 2016 Revolving Facility provide that American may from time to time borrow, repay and reborrow loans thereunder\. The 2013 Revolving Facility and 2014 Revolving Facility have the ability to issue letters of credit thereunder in an aggregate amount outstanding at any time up to $100 million and $200 million, respectively\. The 2013 Revolving Facility, 2014 Revolving Facility and April 2016 Revolving Facility are each subject to an undrawn annual fee of 0\.63%\. As of December 31, 2018, there were no borrowings or letters of credit outstanding under the 2013 Revolving Facility, 2014 Revolving Facility or April 2016 Revolving Facility\. The December 2016 Credit Facilities provide for a revolving credit facility that may be established thereunder in the future\.

148


Annual Report of Southwest Airlines Co\. for year 2017

|                                                                                |                             |                             |             |
| ------------------------------------------------------------------------------------------------ | --------------------------- | --------------------------- | ----------- |
|                                                                                | **Year ended December 31,** | **Year ended December 31,** | **Percent** |
|                                                                                | **2017**                    | **2016**                    | **Change**  |
| **Net income per share, diluted, as reported**                                                   | $5\.79                      | $3\.55                      |             |
| Deduct: Net impact to net income above from fuel contracts divided by

 dilutive shares    | (0\.08)                     | (0\.31)                     |             |
| Add: Impact of special items                                                                     | 0\.16                       | 0\.63                       |             |
| Deduct: Net income tax impact of fuel and special items, excluding Tax reform

 impact (b) | (0\.03)                     | (0\.12)                     |             |
| Deduct: Tax reform impact (c)                                                                    | (2\.34)                     | —                           |             |
| **Net income per share, diluted, excluding special items**                                       | $3\.50                      | $3\.75                      | (6\.7)%     |
| **Operating expenses per ASM (cents)**                                                           | 11\.48¢                     | 11\.22¢                     |             |
| Deduct: Fuel expense divided by ASMs                                                             | (2\.56)                     | (2\.46)                     |             |
| Deduct: Impact of special items                                                                  | (0\.07)                     | (0\.27)                     |             |
| **Operating expenses per ASM, excluding Fuel and oil and special items (cents)**                 | 8\.85¢                      | 8\.49¢                      | 4\.2 %      |

(a) As a result of prior hedge ineffectiveness and/or contracts marked to market through earnings\.

(b) Tax amounts for each individual special item are calculated at the Company's effective rate for the applicable period and totaled in this line item\.

(c) Adjustment related to the Tax Cuts and Jobs Act legislation enacted in December 2017, which resulted in a re\-measurement of the Company's deferred tax assets and liabilities at the new federal corporate tax rate of 21 percent\.

51


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

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

***EETCs\.*** As of December 31, 2018, United had $8\.8 billion principal amount of equipment notes outstanding issued under EETC financings included in notes payable in the table of outstanding debt above\.Generally, the structure of these EETC financings consists of pass\-through trusts created by United to issue pass\-through certificates, which represent fractional undivided interests in the respective pass\-through trusts and are not obligations of United\. The proceeds of the issuance of the pass\-through certificates are used to purchase equipment notes which are issued by United and secured by its aircraft\. The payment obligations under the equipment notes are those of United\. Proceeds received from the sale of pass\-through certificates are initially held by a depositary in escrow for the benefit of the certificate holders until United issues equipment notes to the trust, which purchases such notes with a portion of the escrowed funds\. These escrowed funds are not guaranteed by United and are not reported as debt on United's consolidated balance sheet because the proceeds held by the depositary are not United's assets\.

In February 2018, May 2018 and February 2019, United created separate EETC pass\-through trusts, each of which issued pass\-through certificates\. The proceeds of the issuance of the pass\-through certificates are used to purchase equipment notes issued by United and secured by its aircraft\. The Company records the debt obligation upon issuance of the equipment notes rather than upon the initial issuance of the pass\-through certificates\. Certain details of the pass\-through trusts with proceeds received from issuance of debt in 2018 are as follows (in millions, except stated interest rate):

|               |           |               |                                      |                          |                                                      |                                                         |                                                                               |
| ------------- | --------- | ------------- | ------------------------------------ | ------------------------ | ---------------------------------------------------- | ------------------------------------------------------- | ----------------------------------------------------------------------------- |
| **EETC Date** | **Class** | **Principal** | **Final expected distribution date** | **Stated interest rate** | **Total debt recorded  <br>as of December 31, 2018** | **Proceeds received from issuance of debt during 2018** | **Remaining proceeds from issuance of debt to be received in future periods** |
| February 2019 | AA        | $717          | August 2031                          | 4\.15%                   | $—                                                   | $—                                                      | $717                                                                          |
| February 2019 | A         | 296           | August 2031                          | 4\.55%                   | —                                                    | —                                                       | 296                                                                           |
| May 2018      | B         | 226           | March 2026                           | 4\.60%                   | 226                                                  | 226                                                     | —                                                                             |
| February 2018 | AA        | 677           | March 2030                           | 3\.50%                   | 677                                                  | 677                                                     | —                                                                             |
| February 2018 | A         | 258           | March 2030                           | 3\.70%                   | 258                                                  | 258                                                     | —                                                                             |
|               |           | $2,174        |                                      |                          | $1,161                                               | $1,161                                                  | $1,013                                                                        |

In 2018, United borrowed approximately $424 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2018\. The notes evidencing these borrowings, which are secured by the related aircraft, mature in 2030 and have interest rates comprised of LIBOR plus a specified margin\.

*Unsecured debt*

***4\.25% Senior Notes due 2022\.*** In September 2017, UAL issued $400 million aggregate principal amount of 4\.25% Senior Notes due October 1, 2022 (the "4\.25% Senior Notes due 2022")\. These notes are fully and unconditionally guaranteed and recorded by United on its balance sheet as debt\. The indenture for the 4\.25% Senior Notes due 2022 requires UAL to offer to repurchase the notes for cash if certain changes of control of UAL occur at a purchase price equal to 101% of the principal amount of notes repurchased plus accrued and unpaid interest\.

***5% Senior Notes due 2024\.*** In January 2017, UAL issued $300 million aggregate principal amount of 5% Senior Notes due February 1, 2024 (the "5% Senior Notes due 2024")\. These notes are fully and unconditionally guaranteed and recorded by United on its balance sheet as debt\. The indenture for the 5% Senior Notes due 2024 requires UAL to offer to repurchase the notes for cash if certain changes of control of UAL occur at a purchase price equal to 101% of the principal amount of notes repurchased plus accrued and unpaid interest\.

79


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

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

**3\. Debt**

Long\-term debt and capital lease obligations included in the consolidated balance sheets consisted of (in millions):

|                                                                                |                  |                  |
| --------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------- | ---------------- |
|                                                                                | **December 31,** | **December 31,** |
|                                                                                | **2017**         | **2016**         |
| *Secured*                                                                                |                  |                  |
| 2013 Credit Facilities, variable interest rate of 3\.55%, installments through 2020  ^(a)^                                                                      | $1,825           | $1,843           |
| 2014 Credit Facilities, variable interest rate of 3\.43%, installments through 2021  ^(a)^                                                                      | 728              | 735              |
| April 2016 Credit Facilities, variable interest rate of 3\.57%, installments through 2023  ^(a)^                                                                | 990              | 1,000            |
| December 2016 Credit Facilities, variable interest rate of 3\.48%, installments through 2023  ^(a)^                                                             | 1,238            | 1,250            |
| Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 3\.00% to 9\.75%, averaging 4\.30%, maturing from 2018 to 2029  ^(b)^ | 11,881           | 10,912           |
| Equipment loans and other notes payable, fixed and variable interest rates ranging from 2\.34% to 8\.48%, averaging 3\.29%, maturing from 2018 to 2029  ^(c)^   | 5,259            | 5,343            |
| Special facility revenue bonds, fixed interest rates ranging from 5\.00% to 5\.50%, maturing from 2018 to 2035                                                  | 828              | 862              |
| Other secured obligations, fixed interest rates ranging from 3\.81% to 12\.24%, maturing from 2018 to 2028                                                      | 772              | 848              |
| Total long\-term debt and capital lease obligations                                                                                | 23,521           | 22,793           |
| Less: Total unamortized debt discount, premium and issuance costs                                                                                | 227              | 216              |
| Less: Current maturities                                                                                | 2,058            | 1,859            |
| Long\-term debt and capital lease obligations, net of current maturities                                                                                | $21,236          | $20,718          |

The table below shows the maximum availability under revolving credit facilities, all of which were undrawn, as of December 31, 2017 (in millions):

|                               |        |
| ----------------------------- | ------ |
| 2013 Revolving Facility       | $1,200 |
| 2014 Revolving Facility       | 1,000  |
| April 2016 Revolving Facility | 300    |
| Total                         | $2,500 |

Secured financings are collateralized by assets, primarily aircraft, engines, simulators, aircraft spare parts, airport gate leasehold rights, route authorities and airport slots\. At December 31, 2017, American was operating 33 aircraft under capital leases\. Leases can generally be renewed at rates based on fair market value at the end of the lease term for a number of additional years\.

At December 31, 2017, the maturities of long\-term debt and capital lease obligations are as follows (in millions):

|                     |         |
| ------------------- | ------- |
| 2018                | $2,098  |
| 2019                | 2,118   |
| 2020                | 3,563   |
| 2021                | 2,854   |
| 2022                | 1,286   |
| 2023 and thereafter | 11,602  |
| Total               | $23,521 |

140


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

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

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

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

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

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

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

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

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

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

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

ITEM 16\. FORM 10\-K SUMMARY

Not applicable\.

 96


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

***Share Repurchase Programs***

Since July 2014, our Board of Directors has approved six share repurchase programs aggregating $11\.0 billion of authority\. As of December 31, 2017, $450 million remained unused under a repurchase program that expires on December 31, 2018\. Share repurchases under our repurchase programs may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades or accelerated share repurchase transactions\. Any such repurchases will be made from time to time subject to market and economic conditions, applicable legal requirements and other relevant factors\. We are not obligated to repurchase any specific number of shares and our repurchase of common stock may be limited, suspended or discontinued at any time at our discretion\.

During the year ended December 31, 2017, we repurchased 33\.9 million shares of AAG common stock for $1\.6 billion at a weighted average cost per share of $45\.68\. Since the inception of our share repurchase programs in July 2014 through December 31, 2017, we have repurchased 262\.3 million shares of AAG common stock for $10\.6 billion at a weighted average cost per share of $40\.22\.

***Cash Dividends***

Our Board of Directors declared the following cash dividends during 2017:

|                |               |                                      |                   |                                  |
| -------------- | ------------- | ------------------------------------ | ----------------- | -------------------------------- |
| **Period**     | **Per share** | **For stockholders of record as of** | **Payable on**    | **Total**

**(millions)** |
| First Quarter  | $0\.10        | February 13, 2017                    | February 27, 2017 | $51                              |
| Second Quarter | 0\.10         | May 16, 2017                         | May 30, 2017      | 50                               |
| Third Quarter  | 0\.10         | August 14, 2017                      | August 28, 2017   | 49                               |
| Fourth Quarter | 0\.10         | November 13, 2017                    | November 27, 2017 | 48                               |
| Total          | $0\.40        |                                      |                   | $198                             |

In January 2018, we announced that our Board of Directors declared a $0\.10 per share dividend for stockholders of record on February 6, 2018, and payable on February 20, 2018\.

Any future dividends that may be declared and paid from time to time will be subject to market and economic conditions, applicable legal requirements and other relevant factors\. We are not obligated to continue a dividend for any fixed period, and the payment of dividends may be suspended at any time at our discretion\.

***Sources and Uses of Cash***

***AAG***

*2017* *Compared to* *2016*

*Operating Activities*

Our net cash provided by operating activities was $4\.7 billion and $6\.5 billion in 2017 and 2016, respectively, a year\-over\-year decrease of $1\.8 billion\. This decrease in operating cash flows from 2017 to 2016 was primarily due to lower profitability in 2017 driven by higher fuel costs and wage rates, which were offset in part by higher revenues\.

*Investing Activities*

Our net cash used in investing activities was $3\.6 billion and $5\.7 billion in 2017 and 2016, respectively\.

Our principal investing activities in 2017 included expenditures of $6\.0 billion for property and equipment, including 20 Airbus A321 aircraft, 20 Boeing 737\-800 aircraft, 16 Embraer E175 aircraft, 13 Boeing 787 Family aircraft and four Boeing 737\-8 MAX aircraft\. We also made a $203 million equity investment in China Southern Airlines\. These cash outflows were offset in part by $1\.3 billion in net sales of short\-term investments, $947 million of net proceeds from the sale of property and equipment, primarily representing cash proceeds from aircraft sale\-leaseback transactions, and a $319 million decrease in restricted cash and short\-term investments\.

Our principal investing activities in 2016 included expenditures of $5\.7 billion for property and equipment, including 25 Airbus A321 aircraft, 24 Embraer E175 aircraft, 20 Boeing 737\-800 aircraft, 18 Bombardier CRJ 900 aircraft, eight Boeing 787 aircraft and two Boeing 777 aircraft\.

66


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

of critical systems through ransomware, denial of service or other attacks; and business delays, service or system disruptions, damage to equipment and injury to persons or property\. The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are constantly evolving and may be difficult to anticipate or to detect for long periods of time\. The constantly changing nature of the threats means that we may not be able to prevent all data security breaches or misuse of data\. Similarly, we depend on the ability of our key commercial partners, including our regional carriers, distribution partners and technology vendors, to conduct their businesses in a manner that complies with applicable security standards and assures their ability to perform on a timely basis\.

In addition, the costs and operational consequences of defending against, preparing for, responding to and remediating an incident of cybersecurity breach may be substantial\. As cybersecurity threats become more frequent, intense and sophisticated, costs of proactive defense measures may increase\. Further, we could be exposed to litigation, regulatory enforcement or other legal action as a result of an incident, carrying the potential for damages, fines, sanctions or other penalties, as well as injunctive relief requiring costly compliance measures\. A cybersecurity incident could also impact our brand, harm our reputation and adversely impact our relationship with our customers, employees and stockholders\. Failure to appropriately address these issues could also give rise to potentially material legal risks and liabilities\.

***Our high level of debt and other obligations may limit our ability to fund general corporate requirements and obtain additional financing, may limit our flexibility in responding to competitive developments and cause our business to be vulnerable to adverse economic and industry conditions\.***

We have significant amounts of indebtedness and other obligations, including pension obligations, obligations to make future payments on flight equipment and property leases related to airport and other facilities, and substantial non\-cancelable obligations under aircraft and related spare engine purchase agreements\. Moreover, currently a substantial portion of our assets are pledged to secure our indebtedness\. Our substantial indebtedness and other obligations, which are generally greater than the indebtedness and other obligations of our competitors, could have important consequences\. For example, they:

|   |                                                                                |
| - | ------------------------------------------------------------------------------------ |
| • | may make it more difficult for us to satisfy our obligations under our indebtedness; |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | may limit our ability to obtain additional funding for working capital, capital expenditures, acquisitions, investments, integration costs, and general corporate purposes, and adversely affect the terms on which such funding can be obtained; |

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness and other obligations, thereby reducing the funds available for other purposes; |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | make us more vulnerable to economic downturns, industry conditions and catastrophic external events, particularly relative to competitors with lower relative levels of financial leverage; |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| • | contain covenants requiring us to maintain an aggregate of at least $2\.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities; |

|   |                                                               |
| - | ------------------------------------------------------------- |
| • | contain restrictive covenants that could, among other things: |

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| - | ----------------------------------------------------------------------------------------------------------------------------------------------- |
| • | limit our ability to merge, consolidate, sell assets, incur additional indebtedness, issue preferred stock, make investments and pay dividends; |

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| - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | significantly constrain our ability to respond, or respond quickly, to unexpected disruptions in our own operations, the U\.S\. or global economies, or the businesses in which we operate, or to take advantage of opportunities that would improve our business, operations, or competitive position versus other airlines; |

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| - | ----------------------------------------------------------------------------------------------------------------------------------------------- |
| • | limit our ability to withstand competitive pressures and reduce our flexibility in responding to changing business and economic conditions; and |

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| - | ------------------------------------------------------ |
| • | result in an event of default under our indebtedness\. |

Further, a substantial portion of our long\-term indebtedness bears interest at fluctuating interest rates, primarily based on the London interbank offered rate (LIBOR) for deposits of U\.S\. dollars\. LIBOR tends to fluctuate based on general short\-term interest rates, rates set by the U\.S\. Federal Reserve and other central banks, the supply of and demand for credit in the London interbank market and general economic conditions\. We have not hedged our interest rate exposure with respect to our floating rate debt\. Accordingly, our interest expense for any particular period will fluctuate based on LIBOR and other

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