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

|           |                                                                                |
| --------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 31\.1†    | [Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes\-Oxley Act of 2002](https://www.example.com/alk10-k123118ex311.htm)                                                                   |
| 31\.2†    | [Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes\-Oxley Act of 2002](https://www.example.com/alk10-k123118ex312.htm)                                                                   |
| 32\.1†    | [Certification of Chief Executive Officer Pursuant to 18 U\.S\.C\. Section 1350, as adopted pursuant to Section 906 of the Sarbanes\-Oxley Act of 2002](https://www.example.com/alk10-k123118ex321.htm)                 |
| 32\.2†    | [Certification of Chief Financial Officer Pursuant to 18 U\.S\.C\. Section 1350, as adopted pursuant to Section 906 of the Sarbanes\-Oxley Act of 2002](https://www.example.com/alk10-k123118ex322.htm)                 |
| 101\.INS† | XBRL Instance 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 Label Linkbase Document                                                                                |
| 101\.PRE† | XBRL Taxonomy Extension Presentation Linkbase Document                                                                                |
| †         | Filed herewith                                                                                |
| \*        | Indicates management contract or compensatory plan or arrangement\.                                                                                |
| \#        | Pursuant to 17 CFR 240\.24b\-2, confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a Confidential Treatment Application filed with the Commission\. |
| ^         | Filed by Virgin America Inc\., File Number 333\-197660                                                                                |

 100


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

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

**United Continental Holdings, Inc\. and Subsidiary Companies**

**United Airlines, Inc\. and Subsidiary Companies**

 **Annual Report on Form 10\-K**

**For the Year Ended December 31, 2017**

|           |                                                                                |            |
|:--------- |:--------------------------------------------------------------------------------------------------------------------------------------------------:| ----------:|
|           |                                                                                |  **Page**  |
|           |                                                                     **PART I**                                                                     |            |
| Item 1\.  |                                                   [Business](https://www.example.com#tx471340_1)                                                   |          3 |
| Item 1A\. |                                                 [Risk Factors](https://www.example.com#tx471340_2)                                                 |         10 |
| Item 1B\. |                                          [Unresolved Staff Comments](https://www.example.com#tx471340_3)                                           |         20 |
| Item 2\.  |                                                  [Properties](https://www.example.com#tx471340_4)                                                  |         21 |
| Item 3\.  |                                              [Legal Proceedings](https://www.example.com#tx471340_5)                                               |         22 |
| Item 4\.  |                                           [Mine Safety Disclosures](https://www.example.com#tx471340_6)                                            |         23 |
|           |                                                                    **PART II**                                                                     |            |
| Item 5\.  | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](https://www.example.com#tx471340_7) |         24 |
| Item 6\.  |                                           [Selected Financial Data](https://www.example.com#tx471340_8)                                            |         26 |
| Item 7\.  |            [Management’s Discussion and Analysis of Financial Condition and Results of Operations](https://www.example.com#tx471340_9)             |         28 |
| Item 7A\. |                         [Quantitative and Qualitative Disclosures about Market Risk](https://www.example.com#tx471340_10)                          |         45 |
| Item 8\.  |                                 [Financial Statements and Supplementary Data](https://www.example.com#tx471340_11)                                 |         47 |
|           |                             [Combined Notes to Consolidated Financial Statements](https://www.example.com#tx471340_12)                             |         61 |
| Item 9\.  |            [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](https://www.example.com#tx471340_13)             |        102 |
| Item 9A\. |                                           [Controls and Procedures](https://www.example.com#tx471340_14)                                           |        102 |
| Item 9B\. |                                              [Other Information](https://www.example.com#tx471340_15)                                              |        105 |
|           |                                                                    **PART III**                                                                    |            |
| Item 10\. |                           [Directors, Executive Officers and Corporate Governance](https://www.example.com#tx471340_16)                            |        105 |
| Item 11\. |                                           [Executive Compensation](https://www.example.com#tx471340_17)                                            |        106 |
| Item 12\. |       [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](https://www.example.com#tx471340_18)        |        106 |
| Item 13\. |                  [Certain Relationships and Related Transactions, and Director Independence](https://www.example.com#tx471340_19)                  |        107 |
| Item 14\. |                                   [Principal Accountant Fees and Services](https://www.example.com#tx471340_20)                                    |        107 |
|           |                                                                    **PART IV**                                                                     |            |
| Item 15\. |                                 [Exhibits and Financial Statement Schedules](https://www.example.com#tx471340_21)                                  |        108 |
| Item 16\. |                                             [Form  10\-K Summary](https://www.example.com#tx471340_22)                                             |        132 |


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

Results of Operations \-  2018  Compared to  2017

Operating Revenue

|                                               |                             |                             |              |                |
| --------------------------------------------- | --------------------------- | --------------------------- | ------------ | -------------- |
|                                               | **Year Ended December 31,** | **Year Ended December 31,** | **Increase** | **% Increase** |
| **(in millions)**                             | **2018**                    | **2017**                    | **Increase** | **% Increase** |
| Ticket \- Main cabin                          | $21,196                     | $20,380                     | $816         | 4\.0%          |
| Ticket \- Business cabin and premium products | 13,754                      | 12,087                      | 1,667        | 13\.8%         |
| Loyalty travel awards                         | 2,651                       | 2,403                       | 248          | 10\.3%         |
| Travel\-related services                      | 2,154                       | 2,077                       | 77           | 3\.7%          |
| Total passenger revenue                       | $39,755                     | $36,947                     | $2,808       | 7\.6%          |
| Cargo                                         | 865                         | 744                         | 121          | 16\.3%         |
| Other                                         | 3,818                       | 3,447                       | 371          | 10\.8%         |
| Total operating revenue                       | $44,438                     | $41,138                     | $3,300       | 8\.0%          |
| TRASM (cents)                                 | 16\.87¢                     | 16\.18¢                     | 0\.69¢       | 4\.3%          |
| Third\-party refinery sales ^(1)^             | (0\.21)                     | (0\.20)                     | (0\.01)      | NM             |
| TRASM, adjusted (cents)                       | 16\.66¢                     | 15\.98¢                     | 0\.68¢       | 4\.3%          |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | For additional information on adjusting for third\-party refinery sales, see "Supplemental Information" below\. |

Passenger Revenue

Ticket and Loyalty Travel Awards Revenue

Ticket, including both main cabin and business cabin and premium products, and loyalty travel awards revenue  increased  $2\.5 billion  and  $248 million , respectively, compared to the year ended  December 31, 2017 , consistent with the discussion of passenger revenue by geographic region, below\. Business cabin and premium products ticket revenue includes revenues from fare products other than main cabin, including Delta One, Delta Premium Select, First Class and Comfort\+\. The growth in this ticket revenue primarily results from an increased number of premium seats driven by new aircraft deliveries, the continued expansion of our branded fare products and strength in business demand\.

Passenger Revenue by Geographic Region

|                         |                                  |                                                                      |                                                                      |                                                                      |                                                                      |                                                                      |                                                                      |                                                                      |
| ----------------------- | -------------------------------- | -------------------------------------------------------------------- | -------------------------------------------------------------------- | -------------------------------------------------------------------- | -------------------------------------------------------------------- | -------------------------------------------------------------------- | -------------------------------------------------------------------- | -------------------------------------------------------------------- |
|                         |                                  | **Increase (Decrease)**

**vs\. Year Ended December 31, 2017** | **Increase (Decrease)**

**vs\. Year Ended December 31, 2017** | **Increase (Decrease)**

**vs\. Year Ended December 31, 2017** | **Increase (Decrease)**

**vs\. Year Ended December 31, 2017** | **Increase (Decrease)**

**vs\. Year Ended December 31, 2017** | **Increase (Decrease)**

**vs\. Year Ended December 31, 2017** | **Increase (Decrease)**

**vs\. Year Ended December 31, 2017** |
| **(in millions)**       | **Year Ended December 31, 2018** | **Passenger Revenue**                                                | **RPMs**  **(Traffic)**                                              | **ASMs (Capacity)**                                                  | **Passenger Mile Yield**                                             | **PRASM**                                                            | **Load Factor**                                                      | **Load Factor**                                                      |
| Domestic                | $28,159                          | 8\.0%                                                                | 4\.9 %                                                               | 5\.2 %                                                               | 2\.9%                                                                | 2\.6%                                                                | (0\.2)                                                               | pts                                                                  |
| Atlantic                | 6,165                            | 11\.4%                                                               | 3\.9 %                                                               | 2\.7 %                                                               | 7\.2%                                                                | 8\.4%                                                                | 1\.0                                                                 | pt                                                                   |
| Latin America           | 2,888                            | 0\.9%                                                                | (1\.7)%                                                              | (0\.5)%                                                              | 2\.6%                                                                | 1\.4%                                                                | (1\.0)                                                               | pt                                                                   |
| Pacific                 | 2,543                            | 3\.0%                                                                | (1\.8)%                                                              | (1\.4)%                                                              | 4\.9%                                                                | 4\.5%                                                                | (0\.3)                                                               | pts                                                                  |
| Total passenger revenue | $39,755                          | 7\.6%                                                                | 3\.5 %                                                               | 3\.6 %                                                               | 4\.0%                                                                | 3\.9%                                                                | (0\.1)                                                               | pts                                                                  |

Passenger revenue  increased  $2\.8 billion , or  7\.6% , compared to the prior year\. PRASM  increased  3\.9%  and passenger mile yield  increased  4\.0%  on  3\.6%  higher  capacity\. Load factor was slightly  lower  than the prior year period at  85\.5% \.

Unit revenues of the domestic region  increased  2\.6% , resulting from our commercial initiatives, including branded fares, strong demand and fare increases implemented throughout 2018 in response to higher fuel prices\. Our domestic operations have generated year\-over\-year unit revenue and business yield growth throughout 2018\. During the September 2018 quarter, we signed a definitive agreement with WestJet that, after regulatory approval, will create a U\.S\.\-Canada trans\-border joint venture, providing enhanced offerings and more choice for customers\.

 28


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

Critical Accounting Policies and Estimates

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

Passenger Revenue

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

The majority of tickets sold are nonrefundable\. A small percentage of tickets, some of which are partially used tickets, expire unused\. Due to complex pricing structures, refund and exchange policies, and interline agreements with other airlines, certain amounts are recognized in passenger revenue using estimates regarding both the timing of the revenue recognition and the amount of revenue to be recognized\. These estimates are generally based on the analysis of our historical data\. We have consistently applied this accounting method to estimate revenue from unused tickets at the date of travel\. Estimated future refunds and exchanges included in the air traffic liability are routinely evaluated based on subsequent activity to validate the accuracy of our estimates\. Any adjustments resulting from periodic evaluations of the estimated air traffic liability are included in passenger revenue during the period in which the evaluations are completed\.

Various taxes and fees assessed on the sale of tickets to end customers are collected by us as an agent and remitted to taxing authorities\. These taxes and fees have been presented on a net basis in the accompanying consolidated statements of operations and recorded as a liability until remitted to the appropriate taxing authority\.

Loyalty Revenue

We currently operate the loyalty program, AAdvantage\. This program awards mileage credits to passengers who fly on American, any  one world airline or other partner airlines, or by using the services of other program participants, such as the Citi and Barclaycard US co\-branded credit cards, and certain hotels and car rental companies\. Mileage credits can be redeemed for travel on American and other participating partner airlines, as well as other non\-air travel awards such as hotels and rental cars\. For mileage credits earned by AAdvantage loyalty program members, we apply the deferred revenue method\.

Mileage credits earned through travel

For mileage credits earned through travel, we apply a relative selling price approach whereby the total amount collected from each passenger ticket sale is allocated between the air transportation and the mileage credits earned\. The portion of each passenger ticket sale attributable to mileage credits earned is initially deferred and then recognized in passenger revenue when mileage credits are redeemed and transportation is provided\. The estimated selling price of mileage credits is determined using an equivalent ticket value approach, which uses historical data, including award redemption patterns by geographic region and class of service, as well as similar fares as those used to settle award redemptions\. The estimated selling price of miles is adjusted for an estimate of miles that will not be redeemed based on historical redemption patterns\. For the year ended  December 31, 2019 , a hypothetical  10%  increase in the estimated selling price of miles would have decreased revenues by approximately  $135 million  as a result of additional amounts deferred from passenger ticket sales to be recognized in future periods\.

65


Annual Report of Southwest Airlines Co\. for year 2017

fiscal year 2018 in early 2018\. This legislation will fund the federal government \- including the DOT, the FAA, the Transportation Security Administration (the "TSA"), and CBP \- through October 1, 2018\. Passage of this legislation could result in an increase in the maximum PFC and/or new mandates on the DOT to begin or complete rulemakings related to airline consumer protection\. By the summer of 2018, the House and Senate Appropriations Committees will start to work on the federal fiscal year 2019 appropriations bills, which could address many of the same issues and may be completed by the end of calendar year 2018\.

**Operational, Safety, and Health Regulation**

The FAA has the authority to regulate safety aspects of civil aviation operations\. Specifically, the Company and its third\-party service providers are subject to the jurisdiction of the FAA with respect to aircraft maintenance and operations, including equipment, ground facilities, dispatch, communications, flight training personnel, and other matters affecting air safety\. The FAA, acting through its own powers or through the appropriate U\.S\. Attorney, has the power to bring proceedings for the imposition and collection of fines for violation of the FAA regulations\.

The FAA requires airlines to obtain and maintain an Air Carrier Operating Certificate, as well as other certificates, approvals, and authorities\. These certificates, approvals, and authorities are subject to suspension or revocation for cause\.

The FAA has rules in effect with respect to flight, duty, and rest regulations\. Among other things, the rules require a ten hour minimum rest period prior to a pilot’s flight duty period; mandate that a pilot must have an opportunity for eight hours of uninterrupted sleep within the rest period; and impose pilot "flight time" and "duty time" limitations based upon report times, the number of scheduled flight segments, and other operational factors\. The rules affect the Company’s staffing flexibility, which could impact the Company’s operational performance, costs, and Customer Experience\.

In addition to its role as safety regulator, the FAA also operates the nation’s air traffic control system and has continued its lengthy and ongoing effort to implement a multi\-faceted, air traffic control modernization program called "NextGen\." The Air Traffic Organization ("ATO") is the operational arm of the FAA\. The ATO is responsible for providing safe and efficient air navigation services to all of the United States and large portions of the Atlantic and Pacific Oceans and the Gulf of Mexico\. The Company is subject to any operational changes imposed by the FAA/ATO as they relate to the "NextGen" program, as well as the day\-to\-day management of the air traffic control system\.

The FAA reauthorization bill and annual appropriations legislation discussed above under "Aviation Taxes and Fees" could include provisions impacting future FAA safety\-related activities and ATO operations in 2018 and beyond\. For instance, a key issue for congressional consideration in the FAA reauthorization process is whether to create a private, not\-for\-profit corporation to replace the ATO in its day\-to\-day management of the air traffic control system and its implementation of the NextGen modernization program\. Under the legislation, the FAA would retain its authority to regulate aviation safety\. Regardless of the outcome of this legislative effort, it is not expected to impact air traffic control operations or the NextGen program in 2018 as any reform measure is expected to take several years to implement\.

During 2017, the Company announced plans to begin selling tickets in 2018 for service to Hawaii, subject to requisite governmental approvals, including authorization from the FAA for ETOPS, a regulatory requirement to operate between the U\.S\. mainland and the Hawaiian Islands\. In January 2018, the Company submitted a formal request, along with supporting application materials, to the FAA for authorization to conduct ETOPS using Boeing 737\-800 aircraft\.

The Company is subject to various other federal, state, and local laws and regulations relating to occupational safety and health, including Occupational Safety and Health Administration and Food and Drug Administration regulations\.

**Security Regulation**

Pursuant to the Aviation and Transportation Security Act ("ATSA"), the Transportation Security Administration, a division of the U\.S\. Department of Homeland Security, is responsible for certain civil aviation security matters\. ATSA and subsequent TSA regulations and procedures implementing ATSA address, among other things, (i) flight deck security; (ii) the use of federal air marshals onboard flights; (iii) airport perimeter access security; (iv) airline crew security training; (v) security screening of passengers, baggage, cargo, mail, employees, and vendors; (vi) training and qualifications of security screening personnel; (vii) provision of passenger data to CBP; and (viii) background checks\.

13


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

**CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS**

|                                                                                |            |          |          |
| ---------------------------------------------------------------------------------- | ---------- | -------- | -------- |
| **Year Ended December 31**  ***(in millions)***                                    | **2017**   | **2016** | **2015** |
| **Net Income**                                                                     | **$1,034** | $814     | $848     |
| **Other Comprehensive Income (Loss):**                                             |            |          |          |
| Related to marketable securities:                                                  |            |          |          |
| Unrealized holding gains (losses) arising during the period                        | **(4)**    | 1        | (6)      |
| Reclassification of (gains) losses into Other\-net nonoperating income (expense)   | **1**      | (1)      | 1        |
| Income tax benefit (expense)                                                       | **1**      | —        | 2        |
| Total                                                                              | **(2)**    | —        | (3)      |
| Related to employee benefit plans:                                                 |            |          |          |
| Actuarial gains (losses) related to pension and other postretirement benefit plans | **(123)**  | (43)     | 10       |
| Reclassification of net pension expense into Wages and benefits                    | **22**     | 20       | 14       |
| Income tax benefit (expense)                                                       | **24**     | 12       | (14)     |
| Total                                                                              | **(77)**   | (11)     | 10       |
| Related to interest rate derivative instruments:                                   |            |          |          |
| Unrealized holding gains (losses) arising during the period                        | **1**      | 8        | (5)      |
| Reclassification of losses into Aircraft rent                                      | **5**      | 6        | 6        |
| Income tax benefit (expense)                                                       | **(2)**    | (5)      | (1)      |
| Total                                                                              | **4**      | 9        | —        |
| **Other Comprehensive Income (Loss)**                                              | **(75)**   | (2)      | 7        |
| **Comprehensive Income**                                                           | **$959**   | $812     | $855     |

See accompanying notes to consolidated financial statements\.

 65


Annual Report of Southwest Airlines Co\. for year 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on February 5, 2019, on behalf of the registrant and in the capacities indicated\.

|                            |                                                                                |
| -------------------------- | --------------------------------------------------------------------------------------------- |
| **Signature**              | **Title**                                                                                |
| /s/ GARY C\. KELLY         | Chairman of the Board & Chief Executive Officer (Principal Executive Officer)                 |
| **Gary C\. Kelly**         |                                                                                |
| /s/ TAMMY ROMO             | Executive Vice President & Chief Financial Officer (Principal Financial & Accounting Officer) |
| **Tammy Romo**             |                                                                                |
| /s/ RON RICKS              | Vice Chairman of the Board                                                                    |
| **Ron Ricks**              |                                                                                |
| /s/ DAVID W\. BIEGLER      | Director                                                                                |
| **David W\. Biegler**      |                                                                                |
| /s/ J\. VERONICA BIGGINS   | Director                                                                                |
| **J\. Veronica Biggins**   |                                                                                |
|                            | Director                                                                                |
| **Douglas H\. Brooks**     |                                                                                |
| /s/ WILLIAM H\. CUNNINGHAM | Director                                                                                |
| **William H\. Cunningham** |                                                                                |
| /s/ JOHN G\. DENISON       | Director                                                                                |
| **John G\. Denison**       |                                                                                |
| /s/ THOMAS W\. GILLIGAN    | Director                                                                                |
| **Thomas W\. Gilligan**    |                                                                                |
| /s/ GRACE D\. LIEBLEIN     | Director                                                                                |
| **Grace D\. Lieblein**     |                                                                                |
| /s/ NANCY B\. LOEFFLER     | Director                                                                                |
| **Nancy B\. Loeffler**     |                                                                                |
| /s/ JOHN T\. MONTFORD      | Director                                                                                |
| **John T\. Montford**      |                                                                                |

130


Annual Report of Southwest Airlines Co\. for year 2019

PART I

|              |                 |
| ------------ | --------------- |
| **Item 1\.** | ***Business***  |

Company Overview

Southwest Airlines Co\. (the "Company" or "Southwest") operates Southwest Airlines, a major passenger airline that provides scheduled air transportation in the United States and near\-international markets\. Southwest commenced service on June 18, 1971, with three Boeing 737 aircraft serving three Texas cities: Dallas, Houston, and San Antonio\. At December 31, 2019, Southwest had a total of 747 Boeing 737 aircraft in its fleet and served 101 destinations in 40 states, the District of Columbia, the Commonwealth of Puerto Rico, and ten near\-international countries: Mexico, Jamaica, The Bahamas, Aruba, Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and Turks and Caicos\.

In 2019, the Company began service to four destinations in Hawaii after receiving approval from the Federal Aviation Administration ("FAA") for Extended Operations ("ETOPS"), a regulatory requirement to operate between the U\.S\. mainland and the Hawaiian Islands\. These destinations included Honolulu on the Island of Oahu, Kahului on Maui, Kona on Hawaii, and Lihue on Kauai\. The Company added a fifth Hawaiian destination, Hilo on Hawaii, on January 19, 2020\. The Company has also announced its decision to begin serving Cozumel International Airport, subject to requisite government approvals, with service scheduled to begin March 7, 2020\.

During first quarter 2019, the Company ceased service at Benito Juárez Mexico City International Airport\. Further, in fourth quarter 2019, the Company ceased service at Newark Liberty International Airport, in order to consolidate its New York City presence at New York LaGuardia Airport\.

On March 13, 2019, the FAA issued an emergency order for all U\.S\. airlines to ground the Boeing 737 MAX aircraft, including the 34 MAX 8 aircraft in the Company’s fleet at that time (the "MAX groundings")\. As discussed below under "Company Operations" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations," the MAX groundings adversely affected the Company's operations and financial results for the year ended December 31, 2019\. The MAX aircraft remains grounded and, based on continued uncertainty around the timing of the MAX return to service, the Company has removed the MAX from its flight schedule through June 6, 2020\.

Based on the most recent data available from the U\.S\. Department of Transportation (the "DOT"), as of September 30, 2019, Southwest was the largest domestic air carrier in the United States, as measured by the number of domestic originating passengers boarded\.

Industry

The airline industry has historically been an extremely volatile industry subject to numerous challenges\. Among other things, it has been cyclical, energy intensive, labor intensive, capital intensive, technology intensive, highly regulated, heavily taxed, and extremely competitive\. The airline industry has also been particularly susceptible to detrimental events such as economic recessions, jet fuel price volatility, unscheduled maintenance disruptions, U\.S\. government shutdowns, acts of terrorism, poor weather, and natural disasters\.

The MAX groundings and the uncertainty of the timing of the MAX aircraft's return to service caused air carriers with the MAX aircraft in their fleets, including Southwest, to remove the aircraft from their flight schedules through 2019, reducing available seat miles (also referred to as "capacity," an available seat mile is one seat, empty or full, flown one mile and is a measure of space available to carry passengers in a given period)\. This, in turn, led to slower aggregate industry growth\. MAX\-impacted carriers also experienced lost revenues and unforecasted expenses as a result of the MAX groundings\. As discussed further below under "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Company's capacity declined 1\.6 percent year\-over\-year for 2019\. It remains uncertain how long MAX\-impacted carriers will be unable to fly the MAX\.

The U\.S\. airline industry continued to benefit from modest (although declining) economic growth during 2019, despite a very competitive domestic fare environment\. The airline industry also experienced a relatively stable and moderate fuel environment in 2019, as compared with recent years, with year\-over\-year fuel prices lower throughout most of 2019\.

3


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

***ASU 2016\-01: Financial Instruments \- Overall (Subtopic 825\-10)***

This ASU makes several modifications to Subtopic 825\-10, including the elimination of the available\-for\-sale classification of equity investments, and it requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income\. This standard is applied prospectively as of the beginning of the year of adoption\. The adoption of this standard is not expected to have a material impact on our consolidated financial statements\.

***ASU 2016\-18: Statement of Cash Flows (Topic 230): Restricted Cash***

This ASU requires that the change in total cash, cash at beginning of period and cash at end of period on the statement of cash flows include restricted cash and restricted cash equivalents and also requires companies who report cash and restricted cash separately on the balance sheet to reconcile those amounts to the statement of cash flows\. This standard is required to be applied retrospectively, which results in the recast of each prior reporting period statement of cash flows presented\. The adoption of this standard is not expected to have a material impact on our consolidated financial statements\.

***Impacts to*** ***2017*** ***Results***

The expected effects of adoption of the New Revenue Standard and New Retirement Standard to our statement of operations for the twelve months ended December 31, 2017 are as follows:

|                                   |             |                         |                      |                         |           |
| --------------------------------- | ----------- | ----------------------- | -------------------- | ----------------------- | --------- |
|                                   |             | New Revenue Standard    | New Revenue Standard | New Retirement Standard |           |
|                                   | As Reported | Deferred Revenue Method | Reclassifications    | Reclassifications       | As Recast |
| Operating revenues:               |             |                         |                      |                         |           |
|  Passenger                        | $36,133     | $311                    | $2,687               | $—                      | $39,131   |
|  Cargo                            | 800         | —                       | 90                   | —                       | 890       |
|  Other                            | 5,274       | —                       | (2,673)              | —                       | 2,601     |
|  Total operating revenues         | 42,207      | 311                     | 104                  | —                       | 42,622    |
|  Total operating expenses         | 38,149      | —                       | 104                  | 138                     | 38,391    |
| Operating income                  | 4,058       | 311                     | —                    | (138)                   | 4,231     |
|  Total nonoperating expense, net  | (974)       | —                       | —                    | 138                     | (836)     |
| Income before income taxes        | 3,084       | 311                     | —                    | —                       | 3,395     |
| Income tax provision  ^(1)^       | 1,165       | 948                     | —                    | —                       | 2,113     |
| Net income                        | $1,919      | $(637)                  | $—                   | $—                      | $1,282    |
| Diluted earnings per common share | $3\.90      |                         |                      |                         | $2\.61    |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| ^(1)^ | The adjustment to the  2017  income tax provision includes an  $830 million  special charge to reduce our deferred tax asset associated with loyalty program liabilities as a result of the 2017 Tax Act enacted in December  2017  that reduced the federal corporate income tax rate from  35%  to  21% \. |

The expected effects of adoption of the New Revenue Standard to our December 31, 2017 balance sheet are as follows:

|                                      |             |                      |           |
| ------------------------------------ | ----------- | -------------------- | --------- |
|                                      | As Reported | New Revenue Standard | As Recast |
| Deferred tax asset                   | $427        | $1,389               | $1,816    |
| Air traffic liability                | 3,978       | 64                   | 4,042     |
| Current loyalty program liability    | 2,791       | 384                  | 3,175     |
| Noncurrent loyalty program liability | —           | 5,647                | 5,647     |
| Total stockholders’ equity (deficit) | 3,926       | (4,706)              | (780)     |

77


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

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

DELTA AIR LINES, INC\.

Consolidated Balance Sheets

|                                                                                |                                                                                |                                                                                |
| ---------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- |
|                                                                                | **December 31,**                                                                         | **December 31,**                                                                         |
| **(in millions, except share data)**                                                                                | **2017**                                                                                | **2016**                                                                                |
| **ASSETS**                                                                                | **ASSETS**                                                                               | **ASSETS**                                                                               |
| **Current Assets:**                                                                                |                                                                                |                                                                                |
| Cash and cash equivalents                                                                                | $1,814                                                                                | $2,762                                                                                |
| Short\-term investments                                                                                | 825                                                                                | 487                                                                                |
| Accounts receivable, net of an allowance for uncollectible accounts of $12 and $15 at December 31, 2017 and 2016, respectively                             | 2,377                                                                                | 2,064                                                                                |
| Fuel inventory                                                                                | 916                                                                                | 519                                                                                |
| Expendable parts and supplies inventories, net of an allowance for obsolescence of $113 and $110 at December 31, 2017 and 2016, respectively               | 413                                                                                | 372                                                                                |
| Prepaid expenses and other                                                                                | 1,499                                                                                | 1,247                                                                                |
| Total current assets                                                                                | 7,844                                                                                | 7,451                                                                                |
| **Property and Equipment, Net:**                                                                                |                                                                                |                                                                                |
| Property and equipment, net of accumulated depreciation and amortization of $14,097 and $12,456 at December 31, 2017 and 2016, respectively                | 26,563                                                                                | 24,375                                                                                |
| **Other Assets:**                                                                                |                                                                                |                                                                                |
| Goodwill                                                                                | 9,794                                                                                | 9,794                                                                                |
| Identifiable intangibles, net of accumulated amortization of $845 and $828 at December 31, 2017 and 2016, respectively                                     | 4,847                                                                                | 4,844                                                                                |
| Deferred income taxes, net                                                                                | 935                                                                                | 3,064                                                                                |
| Other noncurrent assets                                                                                | 3,309                                                                                | 1,733                                                                                |
| Total other assets                                                                                | 18,885                                                                                | 19,435                                                                                |
| Total assets                                                                                | $53,292                                                                                | $51,261                                                                                |
| **LIABILITIES AND STOCKHOLDERS' EQUITY**                                                                                | **LIABILITIES AND STOCKHOLDERS' EQUITY**                                                 | **LIABILITIES AND STOCKHOLDERS' EQUITY**                                                 |
| **Current Liabilities:**                                                                                |                                                                                |                                                                                |
| Current maturities of long\-term debt and capital leases                                                                                | $2,242                                                                                | $1,131                                                                                |
| Air traffic liability                                                                                | 4,888                                                                                | 4,626                                                                                |
| Accounts payable                                                                                | 3,674                                                                                | 2,572                                                                                |
| Accrued salaries and related benefits                                                                                | 3,022                                                                                | 2,924                                                                                |
| Frequent flyer deferred revenue                                                                                | 1,822                                                                                | 1,648                                                                                |
| Fuel card obligation                                                                                | 1,067                                                                                | 431                                                                                |
| Other accrued liabilities                                                                                | 1,858                                                                                | 1,907                                                                                |
| Total current liabilities                                                                                | 18,573                                                                                | 15,239                                                                                |
| **Noncurrent Liabilities:**                                                                                |                                                                                |                                                                                |
| Long\-term debt and capital leases                                                                                | 6,592                                                                                | 6,201                                                                                |
| Pension, postretirement and related benefits                                                                                | 9,810                                                                                | 13,378                                                                                |
| Frequent flyer deferred revenue                                                                                | 2,296                                                                                | 2,278                                                                                |
| Other noncurrent liabilities                                                                                | 2,111                                                                                | 1,878                                                                                |
| Total noncurrent liabilities                                                                                | 20,809                                                                                | 23,735                                                                                |
| **Commitments and Contingencies**                                                                                |
                                                                                |
                                                                                |
| **Stockholders' Equity:**                                                                                |                                                                                |                                                                                |
| Common stock at $0\.0001 par value; 1,500,000,000 shares authorized, 714,674,160 and 744,886,938 shares issued at December 31, 2017 and 2016, respectively | —                                                                                | —                                                                                |
| Additional paid\-in capital                                                                                | 12,053                                                                                | 12,294                                                                                |
| Retained earnings                                                                                | 9,636                                                                                | 7,903                                                                                |
| Accumulated other comprehensive loss                                                                                | (7,621

)                                                                          | (7,636

)                                                                          |
| Treasury stock, at cost, 7,476,181 and 14,149,229 shares at December 31, 2017 and 2016, respectively                                                       | (158

)                                                                            | (274

)                                                                            |
| Total stockholders' equity                                                                                | 13,910                                                                                | 12,287                                                                                |
| Total liabilities and stockholders' equity                                                                                | $53,292                                                                                | $51,261                                                                                |
| The accompanying notes are an integral part of these Consolidated Financial Statements\.                                                                   | The accompanying notes are an integral part of these Consolidated Financial Statements\. | The accompanying notes are an integral part of these Consolidated Financial Statements\. |

 50


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

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

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(g)^ | Investment includes  45%  in an emerging market 103\-12 Investment Trust with investments in emerging country equity securities,  37%  in a collective interest trust investing primarily in short\-term securities,  12%  in Canadian segregated balanced value, income growth and diversified pooled funds and  6%  in a common/collective trust investing in securities of smaller companies located outside the U\.S\., including developing markets\. For some trusts, requests for withdrawals must meet specific requirements with advance notice of redemption preferred\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| ^(h)^ | Certain investments that are measured using net asset value per share (or its equivalent) as a practical expedient for fair value have not been classified in the fair value hierarchy\. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the notes to the consolidated financial statements\. |

|                                                                                |                                                                                |                                                                              |                                                                                |                                                     |
| -------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | --------------------------------------------------- |
|                                                                                | **Fair Value Measurements as of December 31, 2017**                                                            | **Fair Value Measurements as of December 31, 2017**                          | **Fair Value Measurements as of December 31, 2017**                            | **Fair Value Measurements as of December 31, 2017** |
| **Asset Category**                                                                           | **Quoted Prices in**

**Active Markets**

**for Identical**

**Assets**

**(Level 1)** | **Significant**

**Observable**

**Inputs**

**(Level 2)** | **Significant**

**Unobservable**

**Inputs**

**(Level 3)** | **Total**                                           |
| Cash and cash equivalents                                                                    | $28                                                                                | $—                                                                           | $—                                                                             | $28                                                 |
| Equity securities:                                                                           |                                                                                |                                                                              |                                                                                |                                                     |
| International markets  ^(a) (b)^                                                             | 3,837                                                                                | —                                                                            | —                                                                              | 3,837                                               |
| Large\-cap companies  ^(b)^                                                                  | 2,451                                                                                | —                                                                            | —                                                                              | 2,451                                               |
| Mid\-cap companies  ^(b)^                                                                    | 744                                                                                | —                                                                            | —                                                                              | 744                                                 |
| Small\-cap companies  ^(b)^                                                                  | 125                                                                                | —                                                                            | —                                                                              | 125                                                 |
| Mutual funds  ^(c)^                                                                          | 55                                                                                | —                                                                            | —                                                                              | 55                                                  |
| Fixed income:                                                                                |                                                                                |                                                                              |                                                                                |                                                     |
| Corporate bonds  ^(d)^                                                                       | —                                                                                | 2,344                                                                        | —                                                                              | 2,344                                               |
| Government securities  ^(e)^                                                                 | —                                                                                | 238                                                                          | —                                                                              | 238                                                 |
| U\.S\. municipal securities                                                                  | —                                                                                | 39                                                                           | —                                                                              | 39                                                  |
| Alternative instruments:                                                                     |                                                                                |                                                                              |                                                                                |                                                     |
| Private market partnerships  ^(f)^                                                           | —                                                                                | —                                                                            | 14                                                                             | 14                                                  |
| Private market partnerships measured at net asset value  ^(f) (h)^                           | —                                                                                | —                                                                            | —                                                                              | 879                                                 |
| Common/collective trusts  ^(g)^                                                              | —                                                                                | 315                                                                          | —                                                                              | 315                                                 |
| Common/collective trusts and 103\-12 Investment Trust measured at net asset value  ^(g) (h)^ | —                                                                                | —                                                                            | —                                                                              | 283                                                 |
| Insurance group annuity contracts                                                            | —                                                                                | —                                                                            | 2                                                                              | 2                                                   |
| Dividend and interest receivable                                                             | 44                                                                                | —                                                                            | —                                                                              | 44                                                  |
| Due to/from brokers for sale of securities – net                                             | 3                                                                                | —                                                                            | —                                                                              | 3                                                   |
| Other liabilities – net                                                                      | (6)                                                                                | —                                                                            | —                                                                              | (6)                                                 |
| Total                                                                                | $7,281                                                                                | $2,936                                                                       | $16                                                                            | $11,395                                             |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(a)^ | Holdings are diversified as follows:  17%  United Kingdom,  11%  Japan,  9%  France,  6%  Switzerland,  16%  emerging markets and the remaining  41%  with no concentration greater than 5% in any one country\. |

|       |                                                                              |
| ----- | ---------------------------------------------------------------------------- |
| ^(b)^ | There are no significant concentrations of holdings by company or industry\. |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(c)^ | Investment includes mutual funds invested  39%  in equity securities of large\-cap, mid\-cap and small\-cap U\.S\. companies,  34%  in U\.S\. treasuries and corporate bonds and  27%  in equity securities of international companies\. |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(d)^ | Includes approximately  76%  investments in corporate debt with a S&P rating lower than A and  24%  investments in corporate debt with a S&P rating A or higher\. Holdings include  85%  U\.S\. companies,  12%  international companies and  3%  emerging market companies\. |

117


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

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

On March 13, 2019, a directive from the Federal Aviation Administration (FAA) grounded all U\.S\.\-registered Boeing 737 MAX aircraft\. We currently have   76  Boeing 737 MAX Family aircraft on order and we have not taken delivery of any Boeing 737 MAX Family aircraft since the grounding\. The extent of the delay to the scheduled deliveries of the Boeing 737 MAX aircraft is expected to be impacted by the length of time the FAA order remains in place, Boeing's production rate and the pace at which Boeing can deliver aircraft following the lifting of the FAA order, among other factors\. Due to uncertainty surrounding the timing of delivery of certain aircraft, the amounts in the table represent our current best estimate, including with respect to the delivery of Boeing 737 MAX aircraft; however, the actual delivery schedule may differ from the table above, potentially materially\.

The amounts in the table exclude   22  787\-8 aircraft to be delivered in 2020 and 2021 for which Boeing has committed to provide sale\-leaseback financing (in the form of operating leases)\. See Note 6 for information regarding this operating lease commitment\.

Additionally, we have purchase commitments related to aircraft fuel, construction projects and information technology support as follows (approximately):   $3\.5 billion  in  2020 ,   $3\.5 billion  in  2021 ,   $1\.3 billion  in  2022 ,   $130 million  in  2023 ,   $81 million  in  2024  and   $77 million  in  2025 and thereafter \.

(b) Capacity Purchase Agreements with Third\-Party Regional Carriers

American has capacity purchase agreements with third\-party regional carriers\. The capacity purchase agreements provide that all revenues, including passenger, in\-flight, ancillary, mail and freight revenues, go to American\. American controls marketing, scheduling, ticketing, pricing and seat inventories\. In return, American agrees to pay predetermined fees to these airlines for operating an agreed\-upon number of aircraft, without regard to the number of passengers on board\. In addition, these agreements provide that American either reimburses or pays   100%  of certain variable costs, such as airport landing fees, fuel and passenger liability insurance\.

As of  December 31, 2019 , American’s capacity purchase agreements with third\-party regional carriers had expiration dates ranging from  2020  to  2032 , with rights of American to extend the respective terms of certain agreements\.

As of  December 31, 2019 , American’s minimum obligations under its capacity purchase agreements with third\-party regional carriers are as follows (approximately, in millions):

|                                                                                |          |          |          |          |          |                         |           |
| ------------------------------------------------------------------------------------------------- | -------- | -------- | -------- | -------- | -------- | ----------------------- | --------- |
|                                                                                | **2020** | **2021** | **2022** | **2023** | **2024** | **2025 and Thereafter** | **Total** |
| Minimum obligations under capacity purchase agreements with third\-party regional carriers  ^(1)^ | $1,115   | $1,185   | $1,126   | $1,077   | $1,077   | $3,402                  | $8,982    |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Represents minimum payments under capacity purchase agreements with third\-party regional carriers, which are estimates of costs based on assumed minimum levels of flying under the capacity purchase agreements and American’s actual payments could differ materially\. Excludes payments for the lease of certain aircraft under capacity purchase agreements, which are reflected in the operating lease obligations in Note 6\.  |

(c) Airport Redevelopment

Los Angeles International Airport (LAX)

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

We are managing this project and have legal title to the assets during their construction\. As each phase is completed, the assets will be sold and transferred to LAWA, including the site improvements and non\-proprietary improvements\. As we control the assets during construction, they are recognized on our balance sheet until legal title has transferred\. For  2019 , we incurred approximately   $98 million  in costs relating to the LAX modernization project, which are included within operating property and equipment on our consolidated balance sheet as of  December 31, 2019 \.

108


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

previously reflected in Contracted Services expense\. Additionally, the increase in wages is driven by higher wage rates for many work groups, including on average a 24% increase for our Mainline pilots and a 10% increase for our Mainline flight attendants, whose new contract rates became effective in the fourth quarter of 2017 and the first quarter of 2018, respectively\.

Costs associated with our defined contribution plans increased$23 million, or 22%, due to FTE growth, increased participation throughout all labor groups and higher contribution rates for Mainline pilots and flight attendants as a result of new contract rates effective in the fourth quarter of 2017 and first quarter of 2018, respectively\.

Medical and other benefits expense increased$29 million, or 13%, primarily due to FTE growth and rising medical costs\.

We expect wages and benefits expense to be higher in 2019 compared to 2018 on an approximate 2% \- 3% increase in FTEs\. Our guidance does not include the impact of any future agreements we may reach with aircraft technicians or the IAM labor group\.

***Variable Incentive Pay***

Variable incentive pay expense increased to $147 million in 2018 from $135 million in 2017 due to a higher wage base upon which achievement percentage is applied as compared to the prior year, as well as a higher number of months where we achieved our monthly OPR goals\.

***Aircraft Maintenance***

Aircraft maintenance costs increased by $44 million, or 11%, compared to 2017\. Maintenance costs increased primarily due to a power\-by\-the\-hour engine maintenance arrangement on our B737\-800 aircraft which was entered into, and became effective, in the fourth quarter of 2017\. Although the agreement results in increased expense earlier in the engine life cycle of B737\-800 aircraft, it allows for much more predictable expense patterns over the fleet life\. The remaining increase was due to higher volumes of scheduled and unscheduled maintenance events as compared to the prior period\.

We expect aircraft maintenance expense to increase 2% \- 4% in 2019 due to increased volume of maintenance checks and airframe and engine component costs in 2019 as compared to 2018, due to our larger fleet\. We expect these costs to be higher in the first half of 2019, and then to decline as we proceed through the year\.

***Aircraft Rent***

Aircraft rent expense increased$41 million, or 15%, compared to 2017, primarily due to the the addition of four A321neos to our Mainline fleet and nine E175s added to our CPA agreement with SkyWest in 2018\.

We expect aircraft rent to increase in 2019 at a greater rate than our forecasted capacity growth due to the full year impact of these aircraft, as well as two additional A321neo deliveries in 2019\.

***Landing Fees and Other Rentals***

Landing fees and other rental expenses increased$39 million, or 8%, compared to 2017, primarily driven by our 5% increase in capacity and rate increases at many of our hub airports\.

We expect landing fees and other rental expense to grow 7% to 10% in 2019 as we continue to add capacity to our network\. We also expect to see rate increases at many airports we serve, specifically our hubs, as significant capital programs are undertaken\.

***Selling Expenses***

Selling expenses decreased by $42 million, or 11%, compared to 2017\. This decrease was primarily due to lower credit card commissions and decreased promotional and advertising activities, notably those related to Virgin America\.

We expect selling expense to decrease in 2019, due primarily to a continued improvement in our credit card rates, decreased spending on advertising and distribution, as well as aggressive targets set to reduce our vendor costs\.

 39


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

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

London interbank offered rates ("LIBOR") as a benchmark for establishing the rate\. As announced in July 2017, LIBOR is expected to be phased out by the end of 2021\. Uncertainty as to the nature of alternative reference rates and as to potential changes or other reforms to LIBOR may adversely impact the availability and cost of borrowings\.

See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of this report for additional information regarding the Company's liquidity\.

***Agreements governing our debt include financial and other covenants\. Failure to comply with these covenants could result in events of default\.***

Our financing agreements include various financial and other covenants\. Certain of these covenants require UAL or United, as applicable, to maintain minimum liquidity and/or minimum collateral coverage ratios\. UAL's or United's ability to comply with these covenants may be affected by events beyond its control, including the overall industry revenue environment, the level of fuel costs and the appraised value of the collateral\. In addition, our financing agreements contain other negative covenants customary for such financings\. These covenants are subject to important exceptions and qualifications\. If we fail to comply with these covenants and are unable to remedy or obtain a waiver or amendment, an event of default would result\.

If an event of default were to occur, the lenders could, among other things, declare outstanding amounts due and payable\. In addition, an event of default or declaration of acceleration under one financing agreement could also result in an event of default under other of our financing agreements due to cross\-default and cross\-acceleration provisions\. The acceleration of significant amounts of debt could require us to renegotiate, repay or refinance the obligations under our financing arrangements\.

***The Company may never realize the full value of its intangible assets or its long\-lived assets causing it to record impairments that may negatively affect its financial condition and operating results\.***

In accordance with applicable accounting standards, the Company is required to test its indefinite\-lived intangible assets for impairment on an annual basis, or more frequently where there is an indication of impairment\. In addition, the Company is required to test certain of its other assets for impairment where there is any indication that an asset may be impaired\.

The Company may be required to recognize losses in the future due to, among other factors, extreme fuel price volatility, tight credit markets, government regulatory changes, decline in the fair values of certain tangible or intangible assets, such as aircraft, route authorities, airport slots and frequent flyer database, unfavorable trends in historical or forecasted results of operations and cash flows and an uncertain economic environment, as well as other uncertainties\. The Company can provide no assurance that a material impairment loss of tangible or intangible assets will not occur in a future period\. The value of the Company's aircraft could be impacted in future periods by changes in supply and demand for these aircraft\. Such changes in supply and demand for certain aircraft types could result from grounding of aircraft by the Company or other carriers\. An impairment loss could have a material adverse effect on the Company's financial condition and operating results\.

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

None\.

18


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

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

Long\-Lived Assets

Our flight equipment and other long\-lived assets have a recorded value of  $26\.6 billion  at  December 31, 2017 \. This value is based on various factors, including the assets' estimated useful lives and salvage values\.  We review flight equipment and other long\-lived assets used in operations for impairment losses when events and circumstances indicate the assets may be impaired\. Factors which could be indicators of impairment include, but are not limited to, (1) a decision to permanently remove flight equipment or other long\-lived assets from operations, (2) significant changes in the estimated useful life, (3) significant changes in projected cash flows, (4) permanent and significant declines in fleet fair values and (5) changes to the regulatory environment\. For long\-lived assets held for sale, we discontinue depreciation and record impairment losses when the carrying amount of these assets is greater than the fair value less the cost to sell\.

To determine whether impairments exist for aircraft used in operations, we group assets at the fleet\-type level (the lowest level for which there are identifiable cash flows) and then estimate future cash flows based on projections of capacity, passenger mile yield, fuel costs, labor costs and other relevant factors\. If an impairment occurs, the impairment loss recognized is the amount by which the fleet's carrying amount exceeds its estimated fair value\. We estimate aircraft fair values using published sources, appraisals and bids received from third parties, as available\.

Defined Benefit Pension Plans

We sponsor defined benefit pension plans for eligible employees and retirees\. These plans are closed to new entrants and frozen for future benefit accruals\.  As of  December 31, 2017 , the unfunded benefit obligation for these plans recorded on our Consolidated Balance Sheet was  $7\.0 billion \. During  2017 , we contributed $3\.5 billion to these plans\. We have no minimum funding requirements in 2018\. However, in January 2018, we voluntarily contributed approximately  $500 million  to these plans\. The most critical assumptions impacting our defined benefit pension plan obligations and expenses are the discount rate, the expected long\-term rate of return on plan assets and life expectancy\.

Weighted Average Discount Rate\.  We determine our weighted average discount rate on our measurement date primarily by reference to annualized rates earned on high\-quality fixed income investments and yield\-to\-maturity analysis specific to our estimated future benefit payments\. We used a weighted average discount rate to value the obligations of  3\.69%  and  4\.20%  at  December 31, 2017  and  2016 , respectively\. Our weighted average discount rate for net periodic pension benefit cost in each of the past three years has varied from the rate selected on our measurement date, ranging from  4\.13%  to  4\.57%  between 2015 and 2017\.

Expected Long\-Term Rate of Return\.  Our expected long\-term rate of return on plan assets is based primarily on plan\-specific investment studies using historical market return and volatility data\.  Modest excess return expectations versus some public market indices are incorporated into the return projections based on the actively managed structure of the investment programs and their records of achieving such returns historically\. We also expect to receive a premium for investing in less liquid private markets\.  We review our rate of return on plan assets assumptions annually\.  Our annual investment performance for one particular year does not, by itself, significantly influence our evaluation\.  The investment strategy for our defined benefit pension plan assets is to earn a long\-term return that meets or exceeds our annualized return target while taking an acceptable level of risk and maintaining sufficient liquidity to pay current benefits and other cash obligations of the plan\. This is achieved by investing in a globally diversified mix of public and private equity, fixed income, real assets, hedge funds and other assets and instruments\.  Our expected long\-term rate of return on assets for net periodic pension benefit cost for the year ended  December 31, 2017  was  8\.96% \.

The impact of a 0\.50% change in these assumptions is shown in the table below:

|                                                                 |                                                |                                                |                                                                                |                                                                                |
| --------------------------------------------------------------- | ---------------------------------------------- | ---------------------------------------------- | ---------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- |
| **Change in Assumption**                                        |  **Effect on 2018**

**Pension Expense** |  **Effect on 2018**

**Pension Expense** | **Effect on Accrued**

**Pension Liability at**

**December 31, 2017** | **Effect on Accrued**

**Pension Liability at**

**December 31, 2017** |
| 0\.50% decrease in weighted average discount rate               | $(9                                            | ) million                                      | $1\.4                                                                              |  billion                                                                           |
| 0\.50% increase in weighted average discount rate               | $5                                             |  million                                       | $(1\.2                                                                             | ) billion                                                                          |
| 0\.50% decrease in expected long\-term rate of return on assets | $73                                            |  million                                       | $—                                                                                |
                                                                             |
| 0\.50% increase in expected long\-term rate of return on assets | $(73                                           | ) million                                      | $—                                                                                |
                                                                             |

 42