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

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

at net asset value which is determined by the issuer at the end of each month and is based on the aggregate fair value of trust assets less liabilities, divided by the number of units outstanding\. No changes in valuation techniques or inputs occurred during the year\.

***Benefit Plan Assets Measured at Fair Value on a Recurring Basis***

The fair value of American’s pension plan assets at December 31, 2017 and 2016, by asset category, are as follows (in millions):

|                                                                                |                                                                                |                                                                              |                                                                                |                                                     |
| -------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | --------------------------------------------------- |
|                                                                                | **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                                                 |
| Fixed income:                                                                                |                                                                                |                                                                              |                                                                                |                                                     |
| Corporate bonds  ^(c)^                                                                       | —                                                                                | 2,344                                                                        | —                                                                              | 2,344                                               |
| Government securities  ^(d)^                                                                 | —                                                                                | 238                                                                          | —                                                                              | 238                                                 |
| U\.S\. municipal securities                                                                  | —                                                                                | 39                                                                           | —                                                                              | 39                                                  |
| Alternative instruments:                                                                     |                                                                                |                                                                              |                                                                                |                                                     |
| Private equity partnerships  ^(e)^                                                           | —                                                                                | —                                                                            | 14                                                                             | 14                                                  |
| Private equity partnerships measured at net asset value  ^(e) (g)^                           | —                                                                                | —                                                                            | —                                                                              | 879                                                 |
| Common/collective trusts  ^(f)^                                                              | —                                                                                | 315                                                                          | —                                                                              | 315                                                 |
| Common/collective trusts and 103\-12 Investment Trust measured at net asset value  ^(f) (g)^ | —                                                                                | —                                                                            | —                                                                              | 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                                                                                | $7,226                                                                                | $2,936                                                                       | $16                                                                            | $11,340                                             |

|      |                                                                                |
| ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^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)^ | 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\. |

|      |                                                                                |
| ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^d)^ | Includes approximately  27%  investments in U\.S\. domestic government securities,  43%  in emerging market government securities and  30%  in international government securities\. There are no significant foreign currency risks within this classification\. |

156


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

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

NOTE 12 \- VARIABLE INTEREST ENTITIES ("VIE")

Variable interests are contractual, ownership or other monetary interests in an entity that change with fluctuations in the fair value of the entity's net assets exclusive of variable interests\. A VIE can arise from items such as lease agreements, loan arrangements, guarantees or service contracts\. An entity is a VIE if (a) the entity lacks sufficient equity or (b) the entity's equity holders lack power or the obligation and right as equity holders to absorb the entity's expected losses or to receive its expected residual returns\.

If an entity is determined to be a VIE, the entity must be consolidated by the primary beneficiary\. The primary beneficiary is the holder of the variable interests that has the power to direct the activities of a VIE that (i) most significantly impact the VIE's economic performance and (ii) has the obligation to absorb losses of or the right to receive benefits from the VIE that could potentially be significant to the VIE\. Therefore, the Company must identify which activities most significantly impact the VIE's economic performance and determine whether it, or another party, has the power to direct those activities\.

Aircraft Leases \. We are the lessee in a number of operating leases covering the majority of our leased aircraft\. The lessors are trusts established specifically to purchase, finance and lease aircraft to us\. These leasing entities meet the criteria for VIEs\. We are generally not the primary beneficiary of the leasing entities if the lease terms are consistent with market terms at the inception of the lease and do not include a residual value guarantee, fixed\-price purchase option or similar feature that obligates us to absorb decreases in value or entitles us to participate in increases in the value of the aircraft\. This is the case for many of our operating leases; however, leases of   six  mainline jet aircraft contain a fixed\-price purchase option that allow United to purchase the aircraft at predetermined prices on specified dates during the lease term\. Additionally, leases covering   60  leased regional jet aircraft contain an option to purchase the aircraft at the end of the lease term at prices that, depending on market conditions, could be below fair value\. United has not consolidated the related trusts because, even taking into consideration these purchase options, United is still not the primary beneficiary\. United's maximum exposure under these leases is the remaining lease payments, which are reflected in future lease commitments in Note 11 of this report\.

Airport Leases \. United is the lessee of real property under long\-term operating leases at a number of airports where we are also the guarantor of approximately   $1\.9 billion  of tax\-exempt special facilities revenue bonds and interest thereon as of December 31, 2019\. These leases are typically with municipalities or other governmental entities, which are excluded from the consolidation requirements concerning a VIE\. To the extent United's leases and related guarantees are with a separate legal entity other than a governmental entity, United is not the primary beneficiary because the lease terms are consistent with market terms at the inception of the lease and the lease does not include a residual value guarantee, fixed\-price purchase option, or similar feature\. See Note 13 of this report for more information regarding United's guarantee of the tax\-exempt special facilities revenue bonds\.

EETCs\.  United evaluated whether the pass\-through trusts formed for its EETC financings, treated as either debt or aircraft operating leases, are VIEs required to be consolidated by United under applicable accounting guidance, and determined that the pass\-through trusts are VIEs\. Based on United's analysis as described below, United determined that it does not have a variable interest in the pass\-through trusts\.

The primary risk of the pass\-through trusts is credit risk (i\.e\. the risk that United, the issuer of the equipment notes, may be unable to make its principal and interest payments)\. The primary purpose of the pass\-through trust structure is to enhance the credit worthiness of United's debt obligation through certain bankruptcy protection provisions, a liquidity facility (in certain of the EETC structures) and improved loan\-to\-value ratios for more senior debt classes\. These credit enhancements lower United's total borrowing cost\. Pass\-through trusts are established to receive principal and interest payments on the equipment notes purchased by the pass\-through trusts from United and remit these proceeds to the pass\-through trusts' certificate holders\.

United does not invest in or obtain a financial interest in the pass\-through trusts\. Rather, United has an obligation to make interest and principal payments on its equipment notes held by the pass\-through trusts\. United does not intend to have any voting or non\-voting equity interest in the pass\-through trusts or to absorb variability from the pass\-through trusts\. Based on this analysis, the Company determined that it is not required to consolidate the pass\-through trusts\.

BRW\.  Synergy's wholly\-owned affiliate, BRW, is a special purpose entity created to be the borrower of the BRW Term Loan\. BRW is also the owner of the collateral that secures the BRW Term Loan\. BRW is a VIE and United holds variable interests in BRW including the BRW Term Loan\. However, United is not the primary beneficiary of BRW because it does not hold BRW equity and does not have management rights at BRW and therefore does not have the power to direct the activities that most significantly impact BRW's economic performance\. In connection with the delivery by United of a notice of default to BRW, Kingsland was granted, in accordance with the agreements related to the BRW Term Loan Agreement, authority to manage BRW\.

82


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

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

|          |                 |                                                                                |
| -------- | --------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^10\.50  | UAL
United | [Supplemental Agreement No\. 6, including exhibits and side letters, to Purchase Agreement No\. 1951, dated July 30, 1998 (filed as Exhibit 10\.1 to Continental's Form 10\-Q for the quarter ended September 30, 1998, Commission file number 1\-10323, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/0000319687-98-000014.txt)       |
| ^10\.51  | UAL
United | [Supplemental Agreement No\. 7, including side letters, to Purchase Agreement No\. 1951, dated November 12, 1998 (filed as Exhibit 10\.24(g) to Continental's Form 10\-K for the year ended December 31, 1998, Commission file number 1\-10323, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/0000319687-99-000003.txt)                |
|  ^10\.52 | UAL
United | [Supplemental Agreement No\. 8, including side letters, to Purchase Agreement No\. 1951, dated December 7, 1998 (filed as Exhibit 10\.24(h) to Continental's Form 10\-K for the year ended December 31, 1998, Commission file number 1\-10323, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/0000319687-99-000003.txt)                 |
|  ^10\.53 | UAL
United | [Letter Agreement No\. 6\-1162\-GOC\-131R1 to Purchase Agreement No\. 1951, dated March 26, 1998 (filed as Exhibit 10\.1 to Continental's Form 10\-Q for the quarter ended March 31, 1998, Commission file number 1\-10323, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/0000319687-98-000004.txt)                                    |
|  ^10\.54 | UAL
United | [Supplemental Agreement No\. 9, including side letters, to Purchase Agreement No\. 1951, dated February 18, 1999 (filed as Exhibit 10\.4 to Continental's Form 10\-Q for the quarter ended March 31, 1999, Commission file number 1\-10323, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/0000319687-99-000006.txt)                    |
|  ^10\.55 | UAL
United | [Supplemental Agreement No\. 10, including side letters, to Purchase Agreement No\. 1951, dated March 19, 1999 (filed as Exhibit 10\.4(a) to Continental's Form 10\-Q for the quarter ended March 31, 1999, Commission file number 1\-10323, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/0000319687-99-000006.txt)                   |
|  ^10\.56 | UAL
United | [Supplemental Agreement No\. 11, including side letters, to Purchase Agreement No\. 1951, dated March 14, 1999 (filed as Exhibit 10\.7 to Continental's Form 10\-Q for the quarter ended June 30, 1999, Commission file number 1\-10323, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/000031968799000010/0000319687-99-000010.txt)    |
|  ^10\.57 | UAL
United | [Supplemental Agreement No\. 12, including side letters, to Purchase Agreement No\. 1951, dated July 2, 1999 (filed as Exhibit 10\.8 to Continental's Form 10\-Q for the quarter ended September 30, 1999, Commission file number 1\-10323, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/000031968799000012/0000319687-99-000012.txt) |
|  ^10\.58 | UAL
United | [Supplemental Agreement No\. 13 to Purchase Agreement No\. 1951, dated October 13, 1999 (filed as Exhibit 10\.25(n) to Continental's Form 10\-K for the year ended December 31, 1999, Commission file number 1\-10323, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/000031968700000007/0000319687-00-000007.txt)                      |
|  ^10\.59 | UAL
United | [Supplemental Agreement No\. 14 to Purchase Agreement No\. 1951, dated December 13, 1999 (filed as Exhibit 10\.25(o) to Continental's Form 10\-K for the year ended December 31, 1999, Commission file number 1\-10323, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/000031968700000007/0000319687-00-000007.txt)                     |
|  ^10\.60 | UAL
United | [Supplemental Agreement No\. 15, including side letters, to Purchase Agreement No\. 1951, dated January 13, 2000 (filed as Exhibit 10\.1 to Continental's Form 10\-Q for the quarter ended March 31, 2000, Commission file number 1\-10323, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/000031968700000010/0000319687-00-000010.txt) |
|  ^10\.61 | UAL
United | [Supplemental Agreement No\. 16, including side letters, to Purchase Agreement No\. 1951, dated March 17, 2000 (filed as Exhibit 10\.2 to Continental's Form 10\-Q for the quarter ended March 31, 2000, Commission file number 1\-10323, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/000031968700000010/0000319687-00-000010.txt)   |
|  ^10\.62 | UAL
United | [Supplemental Agreement No\. 17, including side letters, to Purchase Agreement No\. 1951, dated May 16, 2000 (filed as Exhibit 10\.2 to Continental's Form 10\-Q for the quarter ended June 30, 2000, Commission file number 1\-10323, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/000031968700000022/0000319687-00-000022-0003.htm) |
|  ^10\.63 | UAL
United | [Supplemental Agreement No\. 18, including side letters, to Purchase Agreement No\. 1951, dated September 11, 2000 (filed as Exhibit 10\.6 to Continental's Form 10\-Q for the quarter ended September 30, 2000, Commission file number 1\-10323, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/000031968700500009/exhibit-106.htm)    |
|  ^10\.64 | UAL
United | [Supplemental Agreement No\. 19, including side letters, to Purchase Agreement No\. 1951, dated October 31, 2000 (filed as Exhibit 10\.20(t) to Continental's Form 10\-K for the year ended December 31, 2000, Commission file number 1\-10323, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/000031968701500005/exhibit1020t.htm)     |
|  ^10\.65 | UAL
United | [Supplemental Agreement No\. 20, including side letters, to Purchase Agreement No\. 1951, dated December 21, 2000 (filed as Exhibit 10\.20(u) to Continental's Form 10\-K for the year ended December 31, 2000, Commission file number 1\-10323, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/000031968701500005/exhibit1020u.htm)    |
|  ^10\.66 | UAL
United | [Supplemental Agreement No\. 21, including side letters, to Purchase Agreement No\. 1951, dated March 30, 2001 (filed as Exhibit 10\.1 to Continental's Form 10\-Q for the quarter ended March 31, 2001, Commission file number 1\-10323, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/319687/000031968701500009/exhibit101.htm)             |

101


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

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

*Airport Access\.* Historically, access to foreign markets has been tightly controlled through bilateral agreements between the U\.S\. and each foreign country involved\. These agreements regulate the markets served, the number of carriers allowed to serve each market and the frequency of carriers’ flights\. Since the early 1990s, the U\.S\. has pursued a policy of “Open Skies” (meaning all U\.S\.\-flag carriers have access to the destination), under which the U\.S\. government has negotiated a number of bilateral agreements allowing unrestricted access between U\.S\. and foreign markets\. Currently, there are more than 100 Open Skies agreements in effect\. However, even with Open Skies, many of the airports that the Company serves in Europe, Asia and Latin America maintain slot controls\. A large number of these slot controls exist due to congestion, environmental and noise protection and reduced capacity due to runway and air traffic control (“ATC”) construction work, among other reasons\. London Heathrow International Airport, Frankfurt Rhein\-Main Airport, Shanghai Pudong International Airport, Beijing Capital International Airport, Sao Paulo Guarulhos International Airport and Tokyo Haneda International Airport are among the most restrictive foreign airports due to slot and capacity limitations\.

The Company’s ability to serve some foreign markets and expand into certain others is limited by the absence of aviation agreements between the U\.S\. government and the relevant foreign governments\. Shifts in U\.S\. or foreign government aviation policies may lead to the alteration or termination of air service agreements\. Depending on the nature of any such change, the value of the Company’s international route authorities and slot rights may be materially enhanced or diminished\. Similarly, foreign governments control their airspace and can restrict our ability to overfly their territory, enhancing or diminishing the value of the Company’s existing international route authorities and slot rights\.

***Environmental Regulation***

The airline industry is subject to increasingly stringent federal, state, local and international environmental requirements, including those regulating emissions to air, water discharges, safe drinking water and the use and management of hazardous substances and wastes\.

*Climate Change*\. There is an increasing global regulatory focus on greenhouse gas (“GHG”) emissions and their potential impacts relating to climate change\. Initiatives to regulate GHG emissions from aviation had previously been adopted by the European Union (“EU”) in 2009, but applicability to flights arriving or departing from airports outside the EU have been postponed several times\. In December 2017, the European Parliament voted to extend exemptions for extra\-EU flights until December 2023 in order to align the extension date with the completion of the pilot phase of the International Civil Aviation Organization’s (“ICAO”) Carbon Offsetting and Reduction Scheme for International Aviation (“CORSIA”)\. CORSIA, which was adopted in October 2016, is intended to create a single global market\-based measure to achieve carbon\-neutral growth for international aviation after 2020, which will be achieved through airline purchases of carbon offset credits\. Certain CORSIA program details remain to be developed and could potentially be affected by political developments in participating countries or the results of the pilot phase of the program, and thus the impact of CORSIA cannot be fully predicted\. However, CORSIA is expected to increase operating costs for airlines that operate internationally\. In 2016, ICAO also adopted a carbon dioxide (“CO2”) emission standard for aircraft\. The U\.S\. Environmental Protection Agency has commenced the procedural steps necessary to adopt its own standard, in consultation with the ICAO\. While the precise timing and final form of these various programs and requirements continue to evolve, the Company is taking various actions that are expected to help to reduce its CO2 emissions over time such as fleet renewal, aircraft retrofits and the commercialization of aviation alternative fuels\.

*Other Regulations*\. Our operations are subject to a variety of other environmental laws and regulations both in the United States and internationally\. These include noise\-related restrictions on aircraft types and operating times and state and local air quality initiatives which have, or could in the future, result in curtailments in services, increased operating costs, limits on expansion, or further emission reduction requirements\. Certain airports and/or governments, both domestically and internationally, either have or are seeking to establish environmental fees and other requirements applicable to carbon emissions, local air quality pollutants and/or noise\. The implementation of state plans to achieve national standards for ozone is expected to result in restrictions on mobile sources such as cars, trucks and airport ground support equipment in some locations\.

8


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

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized\.

|                         |                                   |                                      |
| ----------------------- | --------------------------------- | ------------------------------------ |
|                         | **American Airlines Group Inc\.** | **American Airlines Group Inc\.**    |
| Date: February 19, 2020 | By:                               | /s/ W\. Douglas Parker               |
|                         |                                   | W\. Douglas Parker                   |
|                         |                                   | Chairman and Chief Executive Officer |
|                         |                                   | (Principal Executive Officer)        |

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized\.

|                         |                              |                                      |
| ----------------------- | ---------------------------- | ------------------------------------ |
|                         | **American Airlines, Inc\.** | **American Airlines, Inc\.**         |
| Date: February 19, 2020 | By:                          | /s/ W\. Douglas Parker               |
|                         |                              | W\. Douglas Parker                   |
|                         |                              | Chairman and Chief Executive Officer |
|                         |                              | (Principal Executive Officer)        |

185


Annual Report of Southwest Airlines Co\. for year 2017

**Southwest Airlines Co\.**

**Consolidated Statement of Comprehensive Income**

(in millions)

|                                                                                |                             |                             |                             |
| --------------------------------------------------------------------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                                                | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** |
|                                                                                | **2017**                    | **2016**                    | **2015**                    |
| **NET INCOME**                                                                                | $3,488                      | $2,244                      | $2,181                      |
| Unrealized gain (loss) on fuel derivative instruments, net of

 deferred taxes of $185, $432, and ($181) | 317                         | 735                         | (308)                       |
| Unrealized gain on interest rate derivative instruments, net of

 deferred taxes of $4, $5, and $6        | 7                           | 7                           | 9                           |
| Unrealized gain (loss) on defined benefit plan items, net of deferred

 taxes of $2, ($13), and ($7)      | 3                           | (23)                        | (12)                        |
| Other, net of deferred taxes of $5, $5, and $\-                                                                 | 8                           | 9                           | (2)                         |
| **OTHER COMPREHENSIVE INCOME (LOSS)**                                                                           | $335                        | $728                        | $(313)                      |
| **COMPREHENSIVE INCOME**                                                                                | $3,823                      | $2,972                      | $1,868                      |

See accompanying notes\.

**Southwest Airlines Co\.**

**Consolidated Statement of Stockholders' Equity**

(in millions, except per share amounts)

|                                                                        |                                                  |                                                          |                                                  |                                                                                |                                                  |                                                  |
| ---------------------------------------------------------------------- | ------------------------------------------------ | -------------------------------------------------------- | ------------------------------------------------ | ---------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------------------ |
|                                                                        | **Year ended December 31, 2017, 2016, and 2015** | **Year ended December 31, 2017, 2016, and 2015**         | **Year ended December 31, 2017, 2016, and 2015** | **Year ended December 31, 2017, 2016, and 2015**                                   | **Year ended December 31, 2017, 2016, and 2015** | **Year ended December 31, 2017, 2016, and 2015** |
|                                                                        | **Common**

**Stock**                      | **Capital in**

**excess of**

**par value** | **Retained**

**earnings**                 | **Accumulated**

**other**

**comprehensive**

**income (loss)** | **Treasury**

**stock**                    | **Total**                                        |
| Balance at December 31, 2014                                           | $808                                             | $1,315                                                   | $7,416                                           | $(738)                                                                             | (2,026)                                          | $6,775                                           |
| Repurchase of common stock                                             | —                                                | —                                                        | —                                                | —                                                                                | (1,180)                                          | (1,180)                                          |
| Issuance of common and treasury stock pursuant to Employee stock plans | —                                                | 6                                                        | —                                                | —                                                                                | 24                                               | 30                                               |
| Net tax benefit (expense) of options exercised                         | —                                                | 24                                                       | —                                                | —                                                                                | —                                                | 24                                               |
| Share\-based compensation                                              | —                                                | 29                                                       | —                                                | —                                                                                | —                                                | 29                                               |
| Cash dividends, $\.2850 per share                                      | —                                                | —                                                        | (188)                                            | —                                                                                | —                                                | (188)                                            |
| Comprehensive income                                                   | —                                                | —                                                        | 2,181                                            | (313)                                                                              | —                                                | 1,868                                            |
| Balance at December 31, 2015                                           | $808                                             | $1,374                                                   | $9,409                                           | $(1,051)                                                                           | $(3,182)                                         | $7,358                                           |
| Repurchase of common stock                                             | —                                                | —                                                        | —                                                | —                                                                                | (1,750)                                          | (1,750)                                          |
| Issuance of common and treasury stock pursuant to Employee stock plans | —                                                | 8                                                        | —                                                | —                                                                                | 12                                               | 20                                               |
| Conversion of 5\.25% senior notes to common stock

        | —                                                | (5)                                                      | —                                                | —                                                                                | 48                                               | 43                                               |
| Share\-based compensation                                              | —                                                | 33                                                       | —                                                | —                                                                                | —                                                | 33                                               |
| Cash dividends, $\.3750 per share                                      | —                                                | —                                                        | (235)                                            | —                                                                                | —                                                | (235)                                            |
| Comprehensive income                                                   | —                                                | —                                                        | 2,244                                            | 728                                                                                | —                                                | 2,972                                            |
| Balance at December 31, 2016                                           | $808                                             | $1,410                                                   | $11,418                                          | $(323)                                                                             | $(4,872)                                         | $8,441                                           |
| Repurchase of common stock                                             | —                                                | —                                                        | —                                                | —                                                                                | (1,600)                                          | (1,600)                                          |
| Issuance of common and treasury stock pursuant to Employee stock plans | —                                                | 4                                                        | —                                                | —                                                                                | 10                                               | 14                                               |
| Share\-based compensation                                              | —                                                | 37                                                       | —                                                | —                                                                                | —                                                | 37                                               |
| Cash dividends, $\.4750 per share                                      | —                                                | —                                                        | (285)                                            | —                                                                                | —                                                | (285)                                            |
| Comprehensive income                                                   | —                                                | —                                                        | 3,488                                            | 335                                                                                | —                                                | 3,823                                            |
| Balance at December 31, 2017                                           | $808                                             | $1,451                                                   | $14,621                                          | $12                                                                                | $(6,462)                                         | $10,430                                          |

See accompanying notes\.

73


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

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

Employee strikes and other labor\-related disruptions may adversely affect our  operations\.

Our business is labor intensive, utilizing large numbers of pilots, flight attendants, aircraft maintenance technicians, ground support personnel and other personnel\. As of  December 31, 2017 , approximately  19%  of our workforce, primarily pilots, was unionized\. Relations between air carriers and labor unions in the United States are governed by the Railway Labor Act, which provides that a collective bargaining agreement between an airline and a labor union does not expire, but instead becomes amendable as of a stated date\. The Railway Labor Act generally prohibits strikes or other types of self help actions both before and after a collective bargaining agreement becomes amendable, unless and until the collective bargaining processes required by the Railway Labor Act have been exhausted\. Monroe's relations with unions representing its employees are governed by the NLRA, which generally allows self help after a collective bargaining agreement expires\.

If we or our subsidiaries are unable to reach agreement with any of our unionized work groups on future negotiations regarding the terms of their collective bargaining agreements or if additional segments of our workforce become unionized, we may be subject to work interruptions or stoppages, subject to the requirements of the Railway Labor Act or the NLRA, as the case may be\. Strikes or labor disputes with our unionized employees may adversely affect our ability to conduct business\. Likewise, if third\-party regional carriers with whom we have contract carrier agreements are unable to reach agreement with their unionized work groups in current or future negotiations regarding the terms of their collective bargaining agreements, those carriers may be subject to work interruptions or stoppages, subject to the requirements of the Railway Labor Act, which could have a negative impact on our operations\.

Our results can fluctuate due to the effects of weather, natural disasters and seasonality\.

Our results of operations are impacted by severe weather, natural disasters and seasonality\. Severe weather conditions and natural disasters (or other environmental events) can significantly disrupt service and create air traffic control problems\. These events decrease revenue and can also increase costs\. In addition, increases in the frequency, severity or duration of thunderstorms, hurricanes, typhoons or other severe weather events, including from changes in the global climate, could result in increases in delays and cancellations, turbulence\-related injuries and fuel consumption to avoid such weather, any of which could result in loss of revenue and higher costs\. In addition, demand for air travel is typically higher in the June and September quarters, particularly in international markets, because there is more vacation travel during these periods than during the remainder of the year\. The seasonal shifting of demand causes our financial results to vary on a seasonal basis\. Because of fluctuations in our results from weather, natural disasters and seasonality, operating results for a historical period are not necessarily indicative of operating results for a future period and operating results for an interim period are not necessarily indicative of operating results for an entire year\.

An extended disruption in services provided by third parties, including third\-party regional  carriers, could have a material adverse effect on our results of operations\.

We utilize the services of third parties in a number of areas in support of our operations that are integral to our business, including third\-party carriers in the Delta Connection program\. While we have agreements with these providers that define expected service performance, we do not have direct control over their operations\. In particular, some third\-party regional carriers are facing a shortage of qualified pilots due to government mandated increases in flight experience required for pilots working for airlines\. If this shortage becomes more widespread, third\-party regional carriers may not be able to comply with their obligations to us\. To the extent that a significant disruption in services occurs because third party providers, including regional carriers, are unable to perform their obligations over an extended period of time, our revenue may be reduced or our expenses may be increased resulting in a material adverse effect on our results of operations\.

 15


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

Employee Benefit Plans

|                                            |                                            |                                            |                                                                                |                                                                                |                                                                                |
| ------------------------------------------ | ------------------------------------------ | ------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| *Description of the Matter*                | *Description of the Matter*                | *Description of the Matter*                | At December 31, 2019 the fair value of the Company’s benefit plan investments totaled $16\.3 billion, of which $9\.9 billion do not have a readily determinable fair value and are measured at net asset value per share (“NAV assets”) as a practical expedient\. Management determines the fair value of NAV assets by applying the methodologies described in Note 10 to the consolidated financial statements\. The Company’s expected long\-term rate of return on assets for net periodic benefit for the year ended December 31, 2019 was 8\.97%\. The expected return on plan assets provided net periodic benefit of $1\.2 billion for the year ended December 31, 2019\. As disclosed in Note 10 to the consolidated financial statements, the expected long\-term rate of return on plan assets is reviewed annually and is based primarily on plan\-specific investment studies using historical market return and volatility data\.                          | At December 31, 2019 the fair value of the Company’s benefit plan investments totaled $16\.3 billion, of which $9\.9 billion do not have a readily determinable fair value and are measured at net asset value per share (“NAV assets”) as a practical expedient\. Management determines the fair value of NAV assets by applying the methodologies described in Note 10 to the consolidated financial statements\. The Company’s expected long\-term rate of return on assets for net periodic benefit for the year ended December 31, 2019 was 8\.97%\. The expected return on plan assets provided net periodic benefit of $1\.2 billion for the year ended December 31, 2019\. As disclosed in Note 10 to the consolidated financial statements, the expected long\-term rate of return on plan assets is reviewed annually and is based primarily on plan\-specific investment studies using historical market return and volatility data\.                          | At December 31, 2019 the fair value of the Company’s benefit plan investments totaled $16\.3 billion, of which $9\.9 billion do not have a readily determinable fair value and are measured at net asset value per share (“NAV assets”) as a practical expedient\. Management determines the fair value of NAV assets by applying the methodologies described in Note 10 to the consolidated financial statements\. The Company’s expected long\-term rate of return on assets for net periodic benefit for the year ended December 31, 2019 was 8\.97%\. The expected return on plan assets provided net periodic benefit of $1\.2 billion for the year ended December 31, 2019\. As disclosed in Note 10 to the consolidated financial statements, the expected long\-term rate of return on plan assets is reviewed annually and is based primarily on plan\-specific investment studies using historical market return and volatility data\.                          |
|                                            |                                            |                                            | Auditing the fair value of the Company’s NAV assets required significant judgment in estimating the fair value of the NAV assets, primarily resulting from the lag in the availability of data provided by the investment fund managers and the use of corroborating data from public markets to estimate fair value\. Auditing the expected long\-term rate of return on plan assets required significant judgment due to the subjective nature of certain assumptions\. In particular, the Company incorporated excess return expectations compared to historical market return and volatility data based on the Company’s investment strategy\. Net periodic benefit is sensitive to the expected long\-term rate of return on plan assets, which is affected by expectations about future market and economic conditions\.                                                                                | Auditing the fair value of the Company’s NAV assets required significant judgment in estimating the fair value of the NAV assets, primarily resulting from the lag in the availability of data provided by the investment fund managers and the use of corroborating data from public markets to estimate fair value\. Auditing the expected long\-term rate of return on plan assets required significant judgment due to the subjective nature of certain assumptions\. In particular, the Company incorporated excess return expectations compared to historical market return and volatility data based on the Company’s investment strategy\. Net periodic benefit is sensitive to the expected long\-term rate of return on plan assets, which is affected by expectations about future market and economic conditions\.                                                                                | Auditing the fair value of the Company’s NAV assets required significant judgment in estimating the fair value of the NAV assets, primarily resulting from the lag in the availability of data provided by the investment fund managers and the use of corroborating data from public markets to estimate fair value\. Auditing the expected long\-term rate of return on plan assets required significant judgment due to the subjective nature of certain assumptions\. In particular, the Company incorporated excess return expectations compared to historical market return and volatility data based on the Company’s investment strategy\. Net periodic benefit is sensitive to the expected long\-term rate of return on plan assets, which is affected by expectations about future market and economic conditions\.                                                                                |
| *How We Addressed the Matter in Our Audit* | *How We Addressed the Matter in Our Audit* | *How We Addressed the Matter in Our Audit* | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s accounting for its employee benefit plans, including controls over management’s assessment of the significant inputs and estimates included in the fair value measurements of NAV assets and management’s review of the significant assumptions and the inputs used in estimating the expected long\-term rate of return on plan assets\.                                                                                | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s accounting for its employee benefit plans, including controls over management’s assessment of the significant inputs and estimates included in the fair value measurements of NAV assets and management’s review of the significant assumptions and the inputs used in estimating the expected long\-term rate of return on plan assets\.                                                                                | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s accounting for its employee benefit plans, including controls over management’s assessment of the significant inputs and estimates included in the fair value measurements of NAV assets and management’s review of the significant assumptions and the inputs used in estimating the expected long\-term rate of return on plan assets\.                                                                                |
|                                            |                                            |                                            | To test the fair value of plan assets measured at NAV, our audit procedures included, among others, evaluating the valuation methodologies used by the Company and comparing significant inputs and underlying data used in the Company's valuations to information available from third\-party sources and market data\. Additionally, we performed sensitivity analyses to evaluate the changes to the Company’s net periodic benefit that would result from changes in the fair value measurement, and compared the Company’s asset performance results to applicable third\-party benchmarks and assessed management’s historical accuracy of estimating fair value by performing retrospective review procedures comparing the Company’s estimates of fair value as of the prior year to the final fair value NAV in the investment’s audited financial statements made available during the current year\.                                                          | To test the fair value of plan assets measured at NAV, our audit procedures included, among others, evaluating the valuation methodologies used by the Company and comparing significant inputs and underlying data used in the Company's valuations to information available from third\-party sources and market data\. Additionally, we performed sensitivity analyses to evaluate the changes to the Company’s net periodic benefit that would result from changes in the fair value measurement, and compared the Company’s asset performance results to applicable third\-party benchmarks and assessed management’s historical accuracy of estimating fair value by performing retrospective review procedures comparing the Company’s estimates of fair value as of the prior year to the final fair value NAV in the investment’s audited financial statements made available during the current year\.                                                          | To test the fair value of plan assets measured at NAV, our audit procedures included, among others, evaluating the valuation methodologies used by the Company and comparing significant inputs and underlying data used in the Company's valuations to information available from third\-party sources and market data\. Additionally, we performed sensitivity analyses to evaluate the changes to the Company’s net periodic benefit that would result from changes in the fair value measurement, and compared the Company’s asset performance results to applicable third\-party benchmarks and assessed management’s historical accuracy of estimating fair value by performing retrospective review procedures comparing the Company’s estimates of fair value as of the prior year to the final fair value NAV in the investment’s audited financial statements made available during the current year\.                                                          |
|                                            |                                            |                                            | To test the expected long\-term rate of return on plan assets, our audit procedures included, among others, evaluating the methodology used, testing the significant assumptions used in the determination of the expected return and testing the underlying data used by the Company\. We involved an actuarial specialist to assist in evaluating the appropriateness of the Company’s estimate, including independently calculating a range of expected long\-term rates of return based on the Company’s current investment portfolio and strategy, and assessed whether management’s assumption was consistent with a range of returns for a portfolio of comparative investments\. Additionally, we tested the completeness and accuracy of the data used by management and performing sensitivity analyses to evaluate the changes to the Company’s net periodic benefit that would result from changes in the expected long\-term rate of return on plan assets\. | To test the expected long\-term rate of return on plan assets, our audit procedures included, among others, evaluating the methodology used, testing the significant assumptions used in the determination of the expected return and testing the underlying data used by the Company\. We involved an actuarial specialist to assist in evaluating the appropriateness of the Company’s estimate, including independently calculating a range of expected long\-term rates of return based on the Company’s current investment portfolio and strategy, and assessed whether management’s assumption was consistent with a range of returns for a portfolio of comparative investments\. Additionally, we tested the completeness and accuracy of the data used by management and performing sensitivity analyses to evaluate the changes to the Company’s net periodic benefit that would result from changes in the expected long\-term rate of return on plan assets\. | To test the expected long\-term rate of return on plan assets, our audit procedures included, among others, evaluating the methodology used, testing the significant assumptions used in the determination of the expected return and testing the underlying data used by the Company\. We involved an actuarial specialist to assist in evaluating the appropriateness of the Company’s estimate, including independently calculating a range of expected long\-term rates of return based on the Company’s current investment portfolio and strategy, and assessed whether management’s assumption was consistent with a range of returns for a portfolio of comparative investments\. Additionally, we tested the completeness and accuracy of the data used by management and performing sensitivity analyses to evaluate the changes to the Company’s net periodic benefit that would result from changes in the expected long\-term rate of return on plan assets\. |

|                                                      |                                                      |                                                      |                       |                       |                       |
| ---------------------------------------------------- | ---------------------------------------------------- | ---------------------------------------------------- | --------------------- | --------------------- | --------------------- |
|                                                      |                                                      |                                                      | /s/ Ernst & Young LLP | /s/ Ernst & Young LLP | /s/ Ernst & Young LLP |
| We have served as the Company's auditor since 2006\. | We have served as the Company's auditor since 2006\. | We have served as the Company's auditor since 2006\. |                       |                       |                       |
| Atlanta, Georgia                                     | Atlanta, Georgia                                     | Atlanta, Georgia                                     |                       |                       |                       |
| February 12, 2020                                    | February 12, 2020                                    | February 12, 2020                                    |                       |                       |                       |

52


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

December 31, 2018, our current liabilities exceeded our current assets by approximately $6\.0 billion\. However, approximately $6\.7 billion of our current liabilities are related to our advance ticket sales and frequent flyer deferred revenue, both of which largely represent revenue to be recognized for travel in the near future and not cash outlays\. The deficit in working capital does not have an adverse impact to our cash flows, liquidity or operations\.

For 2019, the Company expects approximately $4\.7 billion of gross capital expenditures\. See Note 13 to the financial statements included in Part II, Item 8 of this report for additional information on commitments\.

As of December 31, 2018, a substantial portion of the Company's assets, principally aircraft, route authorities and airport slots, was pledged under various loan and other agreements\. Collateral pledged under these loans continues to be sufficient to satisfy the loan covenants\. We must sustain our profitability and/or access the capital markets to meet our significant long\-term debt and capital lease obligations and future commitments for capital expenditures, including the acquisition of aircraft and related spare engines\. See Note 10 to the financial statements included in Part II, Item 8 of this report for additional information on assets provided as collateral by the Company\.

The following is a discussion of the Company's sources and uses of cash from 2016 through 2018\.

***Operating Activities***

*2018* *Compared to* *2017*

Cash flow provided by operations for the year ended December 31, 2018 was $6\.2 billion compared to $3\.4 billion in the same period in 2017\. The following were significant working capital items in 2018:

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *MileagePlus sales\.*  In 2018, we received $1\.3 billion more for MileagePlus miles sales to our partners as compared to  *2017* , mainly due to our domestic co\-branded credit card partner fully utilizing the $0\.9 billion remaining balance in its pre\-purchased miles in 2017\. |

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *Advance ticket sales and deferred revenue\.*  Our 2018 traffic growth and yield improvements contributed to a $0\.7 billion increase in advance ticket sales and frequent flyer deferred revenue\. |

*2017 Compared to 2016*

Cash flow provided by operations for the year ended December 31, 2017 was $3\.4 billion compared to $5\.5 billion in the same period in 2016, the decrease resulting from lower operating income and reduced cash flows from certain changes in working capital items\. Excluding the non\-cash impairment of the Newark slots, operating income for 2017 was approximately $1\.2 billion lower than 2016\. Working capital changes reduced cash flow from operations by an additional $1\.2 billion year\-over\-year in 2017 as compared to 2016\. The following were significant working capital items in 2017:

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------- |
| • | $0\.9 billion decrease in advanced purchase of miles due to increased utilization of pre\-purchased miles\. |

|   |                                                                   |
| - | ----------------------------------------------------------------- |
| • | $0\.4 billion increase in prepayments for maintenance contracts\. |

***Investing Activities***

*2018* *Compared to* *2017*

The Company's capital expenditures were $4\.2 billion and $4\.0 billion in 2018and 2017, respectively\. The Company's capital expenditures for both years were primarily attributable to the purchase of aircraft, aircraft improvements, facility and fleet\-related costs and the purchase of information technology assets\.

On November 29, 2018, United, as lender, entered into a Term Loan Agreement (the "Synergy Loan Agreement") with affiliates of Synergy Aerospace Corporation ("Synergy"), as borrower and guarantor, respectively, and on November 30, 2018, pursuant to the Synergy Loan Agreement, United provided a secured $456 million term loan to Synergy\. Synergy is the majority shareholder of Avianca Holdings S\.A\. ("AVH"), the parent company of Avianca\. The loan was made in conjunction with a revenue\-sharing joint business agreement among United, Avianca and Copa Airlines as described in Part 1, Item 1 of this report\. For additional information regarding the Synergy Loan Agreement and related agreements, see Notes 9 and 13 to the financial statements included in Part II, Item 8 of this report\.

In April 2018, through a wholly\-owned subsidiary, the Company invested $138 million in Azul Linhas Aéreas Brasileiras S\.A\. ("Azul") thus increasing its preferred equity stake in Azul to approximately 8% (representing approximately 2% of the total capital stock of Azul)\.

30


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

**ITEM 3\. LEGAL PROCEEDINGS**

*Chapter 11 Cases\.* On November 29, 2011, AMR, American, and certain of AMR’s other direct and indirect domestic subsidiaries (the Debtors) filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court)\. On October 21, 2013, the Bankruptcy Court entered an order approving and confirming the Debtors’ fourth amended joint plan of reorganization (as amended, the Plan)\. On the Effective Date, December 9, 2013, the Debtors consummated their reorganization pursuant to the Plan and completed the Merger\.

Pursuant to rulings of the Bankruptcy Court, the Plan established the Disputed Claims Reserve to hold shares of AAG common stock reserved for issuance to disputed claimholders at the Effective Date that ultimately become holders of allowed claims\. As of December 31, 2017, there were approximately 24\.5 million shares of AAG common stock remaining in the Disputed Claims Reserve\. As disputed claims are resolved, the claimants will receive distributions of shares from the Disputed Claims Reserve on the same basis as if such distributions had been made on or about the Effective Date\. However, we are not required to distribute additional shares above the limits contemplated by the Plan, even if the shares remaining for distribution are not sufficient to fully pay any additional allowed unsecured claims\. To the extent that any of the reserved shares remain undistributed upon resolution of all remaining disputed claims, such shares will not be returned to us but rather will be distributed to former AMR stockholders\.

There is also pending in the Bankruptcy Court an adversary proceeding relating to an action brought by American to seek a determination that certain non\-pension, postemployment benefits are not vested benefits and thus may be modified or terminated without liability to American\. On April 18, 2014, the Bankruptcy Court granted American’s motion for summary judgment with respect to certain non\-union employees, concluding that their benefits were not vested and could be terminated\. The summary judgment motion was denied with respect to all other retirees\. The Bankruptcy Court has not yet scheduled a trial on the merits concerning whether those retirees’ benefits are vested, and American cannot predict whether it will receive relief from obligations to provide benefits to any of those retirees\. Our financial statements presently reflect these retirement programs without giving effect to any modification or termination of benefits that may ultimately be implemented based upon the outcome of this proceeding\.

*DOJ Antitrust Civil Investigative Demand\.* In June 2015, we received a Civil Investigative Demand (CID) from the DOJ as part of an investigation into whether there have been illegal agreements or coordination of air passenger capacity\. The CID seeks documents and other information from us, and other airlines have announced that they have received similar requests\. We are cooperating fully with the DOJ investigation\.

*Private Party Antitrust Action*\. Subsequent to announcement of the delivery of CIDs by the DOJ, we, along with Delta Air Lines, Inc\., Southwest Airlines Co\., United Airlines, Inc\. and, in the case of litigation filed in Canada, Air Canada, have been named as defendants in approximately 100 putative class action lawsuits alleging unlawful agreements with respect to air passenger capacity, although Southwest has entered into a settlement with the plaintiffs that is pending approval by the court\. The U\.S\. lawsuits have been consolidated in the Federal District Court for the District of Columbia\. On October 28, 2016, the Court denied a motion by the airline defendants to dismiss all claims in the class actions\. These lawsuits are in their relatively early stages and we intend to defend these matters vigorously\.

*Private Party Antitrust Action Related to the Merger*\. On July 2, 2013, a lawsuit captioned Carolyn Fjord, et al\., v\. US Airways Group, Inc\., et al\., was filed in the United States District Court for the Northern District of California\. The complaint named as defendants US Airways Group and US Airways, alleged that the effect of the Merger may be to create a monopoly in violation of Section 7 of the Clayton Antitrust Act, and sought injunctive relief and/or divestiture\. On August 6, 2013, the plaintiffs re\-filed their complaint in the Bankruptcy Court, adding AMR and American as defendants\. On November 27, 2013, the Bankruptcy Court denied plaintiffs’ motion to preliminarily enjoin the Merger\. On May 12, 2017, defendants filed a motion for summary judgment\. On June 23, 2017, plaintiffs filed an opposition to defendants’ motion and cross\-motion for summary judgment\. Briefing of the parties’ respective motions concluded on September 1, 2017; a hearing date has not yet been set\. We believe this lawsuit is without merit and intend to vigorously defend against the allegations\.

*DOJ Investigation Related to the United States Postal Service*\. In April 2015, the DOJ informed us of an inquiry regarding American’s 2009 and 2011 contracts with the United States Postal Service for the international transportation of mail by air\. In October 2015, we received a CID from the DOJ seeking certain information relating to these contracts and the DOJ has also sought information concerning certain of the airlines that transport mail on a codeshare basis\. The DOJ has indicated it is investigating potential violations of the False Claims Act or other statutes\. We are cooperating fully with the DOJ with regard to its investigation\.

36


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

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

Benefit Plan Assets Measured at Fair Value on a Recurring Basis

The fair value of American’s pension plan assets at  December 31, 2019  and  2018 , by asset category, were as follows (in millions):

|                                                                                |                                                                                |                                                                              |                                                                                |                                                     |
| --------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | --------------------------------------------------- |
|                                                                                | **Fair Value Measurements as of December 31, 2019**                                                   | **Fair Value Measurements as of December 31, 2019**                          | **Fair Value Measurements as of December 31, 2019**                            | **Fair Value Measurements as of December 31, 2019** |
| **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                                                                     | $20                                                                                | $—                                                                           | $—                                                                             | $20                                                 |
| Equity securities:                                                                            |                                                                                |                                                                              |                                                                                |                                                     |
| International markets  ^(a), (b)^                                                             | 2,769                                                                                | —                                                                            | —                                                                              | 2,769                                               |
| Large\-cap companies  ^(b)^                                                                   | 2,312                                                                                | —                                                                            | —                                                                              | 2,312                                               |
| Mid\-cap companies  ^(b)^                                                                     | 543                                                                                | —                                                                            | —                                                                              | 543                                                 |
| Small\-cap companies  ^(b)^                                                                   | 97                                                                                | —                                                                            | —                                                                              | 97                                                  |
| Fixed income:                                                                                |                                                                                |                                                                              |                                                                                |                                                     |
| Corporate debt  ^(c)^                                                                         | —                                                                                | 2,804                                                                        | —                                                                              | 2,804                                               |
| Government securities  ^(d)^                                                                  | —                                                                                | 923                                                                          | —                                                                              | 923                                                 |
| U\.S\. municipal securities                                                                   | —                                                                                | 51                                                                           | —                                                                              | 51                                                  |
| Mortgage backed securities                                                                    | —                                                                                | 4                                                                            | —                                                                              | 4                                                   |
| Alternative instruments:                                                                      |                                                                                |                                                                              |                                                                                |                                                     |
| Private market partnerships  ^(e)^                                                            | —                                                                                | —                                                                            | 10                                                                             | 10                                                  |
| Private market partnerships measured at net asset value  ^(e), (f)^                           | —                                                                                | —                                                                            | —                                                                              | 1,464                                               |
| Common/collective trusts  ^(g)^                                                               | —                                                                                | 358                                                                          | —                                                                              | 358                                                 |
| Common/collective trusts and 103\-12 Investment Trust measured at net asset value  ^(f), (g)^ | —                                                                                | —                                                                            | —                                                                              | 1,423                                               |
| Insurance group annuity contracts                                                             | —                                                                                | —                                                                            | 2                                                                              | 2                                                   |
| Dividend and interest receivable                                                              | 53                                                                                | —                                                                            | —                                                                              | 53                                                  |
| Due to/from brokers for sale of securities – net                                              | (4

)                                                                                | —                                                                            | —                                                                              | (4

)                                         |
| Total                                                                                | $5,790                                                                                | $4,140                                                                       | $12                                                                            | $12,829                                             |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(a)^ | Holdings are diversified as follows:   14%  United Kingdom,   8%  Switzerland,   8%  Ireland,   7%  Japan,   7%  France,   6%  South Korea,   6%  Canada,   18%  emerging markets and the remaining   26%  with no concentration greater than 5% in any one country\. |

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

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(c)^ | 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   86%  U\.S\. companies,   11%  international companies and   3%  emerging market companies\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(d)^ | Includes approximately   79%  investments in U\.S\. domestic government securities,   13%  in emerging market government securities and   8%  in international government securities\. There are no significant foreign currency risks within this classification\. |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(e)^ | Includes limited partnerships that invest primarily in domestic private equity and private income opportunities\. The pension plan’s master trust does not have the right to redeem its limited partnership investment at its net asset value, but rather receives distributions as the underlying assets are liquidated\. It is estimated that the underlying assets of these funds will be gradually liquidated over the next  one  to   ten years \. Additionally, the pension plan’s master trust has future funding commitments of approximately   $1\.4 billion  over the next   ten years \.  |

146