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

**Selected Consolidated Financial Data of American**

The selected consolidated financial data presented below under the captions “Consolidated Statements of Operations data” and “Consolidated Balance Sheet data” for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 are derived from American’s audited consolidated financial statements\. On December 30, 2015, US Airways merged with and into American, with American as the surviving corporation\. For financial reporting purposes, this transaction constituted a transfer of assets between entities under common control and is reflected in American’s consolidated financial statements as though the transaction had occurred on December 9, 2013, when a subsidiary of AMR merged with and into US Airways Group, which represents the earliest date that American and US Airways were under common control\. Therefore, American’s consolidated financial data provided in the tables below includes the results of US Airways beginning on December 9, 2013\. In addition, American emerged from bankruptcy on December 9, 2013\. Accordingly, American’s consolidated financial information for periods prior to December 9, 2013 is not directly comparable to consolidated financial information for periods subsequent to December 9, 2013\.

|                                                                     |                             |                             |                             |                             |                             |
| ------------------------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                                     | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                                     | **2017**                    | **2016**                    | **2015**                    | **2014**                    | **2013**                    |
|                                                                     | **(In millions)**           | **(In millions)**           | **(In millions)**           | **(In millions)**           | **(In millions)**           |
| **Consolidated Statements of Operations data:**                     |                             |                             |                             |                             |                             |
| Total operating revenues                                            | $42,195                     | $40,163                     | $40,938                     | $42,676                     | $26,701                     |
| Total operating expenses                                            | 38,163                      | 34,859                      | 34,749                      | 38,410                      | 25,341                      |
| Operating income                                                    | 4,032                       | 5,304                       | 6,189                       | 4,266                       | 1,360                       |
| Bankruptcy reorganization items, net                                | —                           | —                           | —                           | —                           | (2,640)                     |
| Net income (loss)                                                   | 1,922                       | 2,781                       | 8,120                       | 2,948                       | (1,717)                     |
| **Consolidated Balance Sheet data**

**(at end of period):** |                             |                             |                             |                             |                             |
| Total assets                                                        | $60,012                     | $58,092                     | $50,439                     | $42,787                     | $41,699                     |
| Long\-term debt and capital leases, net of current maturities       | 21,236                      | 20,718                      | 16,592                      | 14,804                      | 14,718                      |
| Pension and postretirement benefits  ^(1)^                          | 7,452                       | 7,800                       | 7,410                       | 7,522                       | 5,802                       |
| Stockholder’s equity (deficit)                                      | 14,594                      | 12,649                      | 9,698                       | 1,406                       | (4,398)                     |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Substantially all defined benefit pension plans were frozen effective November 1, 2012\. See Note 7 to American’s consolidated financial statements in Part II, Item 8B for further information on pension and postretirement benefits\. |

44


Annual Report of Southwest Airlines Co\. for year 2018

The Company owns two additional headquarters buildings, located across the street from the Company's main headquarters building, on land owned by the Company including (a) the energy\-efficient, modern building, called TOPS, which houses certain operational and training functions, including its 24\-hour operations and (b) the Wings Complex, completed in 2018, consisting of a Leadership Education and Aircrew Development (LEAD) Center (housing the Company's 15 Boeing 737 flight simulators and classroom space for Pilot training), an additional office building, and a parking garage\.

As of December 31, 2018, the Company operated seven Customer Support and Services call centers\. The centers located in Atlanta, San Antonio, Chicago, Albuquerque, and Oklahoma City occupy leased space\. The Company owns its Houston and Phoenix centers\.

The Company performs substantially all line maintenance on its aircraft and provides ground support services at most of the airports it serves\. However, the Company has arrangements with certain aircraft maintenance firms for major component inspections and repairs for its airframes and engines, which comprise the majority of the Company's annual aircraft maintenance costs\.

**Item 3\.** ***Legal Proceedings***

A complaint alleging violations of federal antitrust laws and seeking certification as a class action was filed against Delta Air Lines, Inc\. and AirTran Holdings, Inc\. and its subsidiary AirTran Airways, Inc\. (collectively with AirTran Holdings, Inc\., "AirTran") in the United States District Court for the Northern District of Georgia in Atlanta on May 22, 2009\. The complaint alleged, among other things, that AirTran attempted to monopolize air travel in violation of Section 2 of the Sherman Act, and conspired with Delta in imposing $15\-per\-bag fees for the first item of checked luggage in violation of Section 1 of the Sherman Act\. The initial complaint sought treble damages on behalf of a putative class of persons or entities in the United States who directly paid Delta and/or AirTran such fees on domestic flights beginning December 5, 2008\. After the filing of the May 2009 complaint, various other nearly identical complaints also seeking certification as class actions were filed in federal district courts in Atlanta, Georgia; Orlando, Florida; and Las Vegas, Nevada\. All of the cases were consolidated before a single federal district court judge in Atlanta\. A Consolidated Amended Complaint was filed in the consolidated action on February 1, 2010, which broadened the allegations to add claims that Delta and AirTran conspired to reduce capacity on competitive routes and to raise prices in violation of Section 1 of the Sherman Act\. In addition to treble damages for the amount of first baggage fees paid to AirTran and to Delta, the Consolidated Amended Complaint sought injunctive relief against a broad range of alleged anticompetitive activities, as well as attorneys' fees\. On August 2, 2010, the Court dismissed plaintiffs' claims that AirTran and Delta had violated Section 2 of the Sherman Act; the Court let stand the claims of a conspiracy with respect to the imposition of a first bag fee and the airlines' capacity and pricing decisions\. On July 12, 2016, the Court granted plaintiffs' motion to certify a class of all persons who paid first bag fees to AirTran or Delta from December 8, 2008 to November 1, 2014 (the date on which AirTran stopped charging first bag fees)\. Defendants appealed that decision\. On March 29, 2017, the Court granted defendants’ motion for summary judgment and dismissed all claims against AirTran\. On March 9, 2018, the Court of Appeals affirmed the district court’s order granting summary judgment to AirTran and Delta, and on June 8, 2018, the Court of Appeals denied plaintiffs' petition for rehearing and rehearing en banc\. On November 5, 2018, the plaintiffs petitioned the Supreme Court for a writ of certiorari, which the Supreme Court denied on January 7, 2019\. AirTran denies all allegations of wrongdoing, including those in the Consolidated Amended Complaint\.

Also, on June 30, 2015, the U\.S\. Department of Justice ("DOJ") issued a Civil Investigative Demand ("CID") to the Company\. The CID seeks information and documents about the Company’s capacity from January 2010 to the date of the CID, including public statements and communications with third parties about capacity\. In June 2015, the Company also received a letter from the Connecticut Attorney General requesting information about capacity\. The Company is cooperating fully with the DOJ CID and the state inquiry\.

Further, on July 1, 2015, a complaint was filed in the United States District Court for the Southern District of New York on behalf of putative classes of consumers alleging collusion among the Company, American Airlines, Delta Air Lines, and United Airlines to limit capacity and maintain higher fares in violation of Section 1 of the Sherman Act\. Since then, a number of similar class action complaints were filed in the United States District Courts for the Central District of California, the Northern District of California, the District of Columbia, the Middle District of Florida, the Southern District of Florida, the Northern District of Georgia, the Northern District of Illinois, the Southern District

30


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

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

**PART II**

|               |                                                                                |
| ------------- | ------------------------------------------------------------------------------------------------------------------- |
|  **ITEM 5\.** | **MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES\.**  |

UAL’s common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “UAL\.” The following table sets forth the ranges of high and low sales prices per share of UAL common stock during the last two fiscal years, as reported by the NYSE:

|             |            |            |            |            |
|:----------- | ----------:| ----------:| ----------:| ----------:|
|             |    **UAL** |    **UAL** |    **UAL** |    **UAL** |
|             |   **2017** |   **2017** |   **2016** |   **2016** |
|             |   **High** |    **Low** |   **High** |    **Low** |
| 1st quarter |  $ 76\.75  |  $ 64\.16  |  $ 61\.41  |  $ 42\.17  |
| 2nd quarter |    83\.04  |    67\.55  |    58\.90  |    37\.41  |
| 3rd quarter |    81\.39  |    57\.34  |    54\.53  |    37\.64  |
| 4th quarter |    69\.62  |    56\.51  |    76\.80  |    51\.34  |

As of February 14, 2018, there were 7,534 holders of record of UAL common stock\.

UAL did not pay any dividends in 2017 or 2016\. Under debt agreements and certain indentures, UAL’s ability to pay dividends on or repurchase UAL’s common stock is subject to limits on the amount of such payments and to certain conditions, including that no default or event of default exists under those instruments and that after giving effect to the making of any such payments, UAL would be in compliance with a minimum fixed charge coverage ratio\. Any future determination regarding dividend or distribution payments will be at the discretion of the UAL Board of Directors, subject to the foregoing limits and applicable limitations under Delaware law\.

United paid dividends of $1\.8 billion and $2\.6 billion to UAL in 2017 and 2016, respectively\.

The following graph shows the cumulative total stockholder return for UAL’s common stock during the period from December 31, 2012 to December 31, 2017\. The graph also shows the cumulative returns of the Standard and Poor’s 500 Index (“SPX”) and the NYSE Arca Airline Index (“XAL”) of 15 investor\-owned airlines over the same five\-year period\. The comparison assumes $100 was invested on December 31, 2012 in UAL common stock, the SPX and the XAL\.

![LOGO](https://www.example.com/g471340g19i24.jpg)

24


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

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

The reconciliation of United’s defined benefit plan assets measured at fair value using unobservable inputs (Level 3) for the years ended December 31, 2017 and 2016 is as follows (in millions):

|                                                   |          |          |
|:------------------------------------------------- | --------:| --------:|
|                                                   | **2017** | **2016** |
| Balance at beginning of year                      |   $ 287  |   $ 208  |
| Actual return on plan assets:                     |          |          |
| Sold during the year                              |       7  |       4  |
| Held at year end                                  |      16  |       3  |
| Purchases, sales, issuances and settlements (net) |      73  |      72  |
| Balance at end of year                            |   $ 383  |   $ 287  |

Funding requirements for tax\-qualified defined benefit pension plans are determined by government regulations\. United’s contributions reflected above have satisfied its required contributions through the 2017 calendar year\. In 2018, employer anticipated contributions to all of United’s pension and postretirement plans are at least $420 million and approximately $109 million, respectively\.

The estimated future benefit payments, net of expected participant contributions, in United’s pension plans and other postretirement benefit plans as of December 31, 2017 are as follows (in millions):

|                   |               |                                     |                                                       |
|:----------------- | -------------:| -----------------------------------:| -----------------------------------------------------:|
|                   |  **Pension**  | **Other**
 **Postretirement**  |  **Other Postretirement—**
**subsidy receipts** |
| 2018              |         $305  |                               $113  |                                                   $6  |
| 2019              |          326  |                                118  |                                                    6  |
| 2020              |          331  |                                121  |                                                    6  |
| 2021              |          357  |                                124  |                                                    7  |
| 2022              |          369  |                                126  |                                                    7  |
| Years 2023 – 2027 |        1,912  |                                646  |                                                   43  |

**Defined Contribution Plans**

Depending upon the employee group, employer contributions consist of matching contributions and/or non\-elective employer contributions\. United’s employer contribution percentages vary from 1% to 16% of eligible earnings depending on the terms of each plan\. United recorded contributions to its defined contribution plans of $656 million, $592 million and $522 million in the years ended December 31, 2017, 2016 and 2015, respectively\.

83


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

In addition to domestic or foreign airlines that we compete with on most of our routes, we compete with ground transportation in our short\-haul markets\. To some extent, our airlines also compete with technology, such as video conferencing and internet\-based meeting tools that have changed the need for, or frequency of, face\-to\-face business meetings\.

**TICKET DISTRIBUTION**

Our tickets are distributed through three primary channels:

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *Direct to customer:*  It is less expensive for us to sell through our direct channel at alaskaair\.com\. We believe direct sales through this channel is preferable from a branding and customer\-relationship standpoint in that we can establish ongoing communication with the guest and tailor offers accordingly\. As a result, we continue to take steps to drive more business to our website\.  |

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *Traditional and online travel agencies:*  Both traditional and online travel agencies typically use Global Distribution Systems (GDS) to obtain their fare and inventory data from airlines\. Bookings made through these agencies result in a fee that is charged to the airline\. Many of our large corporate customers require us to use these agencies\. Some of our competitors do not use this distribution channel and, as a result, have lower ticket distribution costs\. |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *Reservation call centers:*  Our call centers are located in Phoenix, AZ, Kent, WA, and Boise, ID\. We generally charge a $15 fee for booking reservations through the call centers\.  |

Our sales by channel are as follows:

|                          |          |          |                     |          |          |
| ------------------------ | -------- | -------- | ------------------- | -------- | -------- |
|                          | **2018** | **2017** | **2016**  **^(a)^** | **2015** | **2014** |
| Direct to customer       | 63%      | 62%      | 61%                 | 60%      | 57%      |
| Traditional agencies     | 22%      | 22%      | 23%                 | 23%      | 25%      |
| Online travel agencies   | 11%      | 11%      | 11%                 | 11%      | 12%      |
| Reservation call centers | 4%       | 5%       | 5%                  | 6%       | 6%       |
| Total                    | 100%     | 100%     | 100%                | 100%     | 100%     |

|     |                                                                                |
| --- | ------------------------------------------------------------------------------------------------- |
| (a) | Includes results for Virgin America for the period December 14, 2016 through December 31, 2016\.  |

**SEASONALITY AND OTHER FACTORS**

Our results of operations for any interim period are not necessarily indicative of those for the entire year because our business is subject to seasonal fluctuations\. Our profitability is generally lowest during the first and fourth quarters due principally to fewer departures and passengers\. Profitability typically increases in the second quarter and then reaches its highest level during the third quarter as a result of vacation travel\. However, we have significantly moderated the impact of seasonality of our operations through continued growth from the West Coast to leisure destinations, like Hawaii and Costa Rica, and expansion to leisure and business destinations in the mid\-continental and eastern U\.S\.

In addition to passenger loads, factors that could cause our quarterly operating results to vary include:

|   |                                               |
| - | --------------------------------------------- |
| • | pricing initiatives by us or our competitors, |

• changes in fuel costs,

|   |                                                   |
| - | ------------------------------------------------- |
| • | increases in competition at our primary airports, |

|   |                                                                            |
| - | -------------------------------------------------------------------------- |
| • | general economic conditions and resulting changes in passenger demand, and |

|   |                                                                         |
| - | ----------------------------------------------------------------------- |
| • | increases or decreases in passenger and volume\-driven variable costs\. |

Many of the markets we serve experience inclement weather conditions in the winter, causing increased costs associated with deicing aircraft, canceling flights and accommodating displaced passengers\. Due to our geographic area of operations, we can be more susceptible to adverse weather conditions, particularly in the state of Alaska and the Pacific Northwest, than some of our competitors who may be better able to spread the impact of weather\-related risks over larger route systems\. We also are

 13


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

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

Certain information regarding the 2019\-1 Aircraft EETC equipment notes and remaining escrowed proceeds, as of  December 31, 2019 , is set forth in the table below\.

|                               |                            |                            |                            |
| ----------------------------- | -------------------------- | -------------------------- | -------------------------- |
|                               | **2019\-1 Aircraft EETCs** | **2019\-1 Aircraft EETCs** | **2019\-1 Aircraft EETCs** |
|                               | **Series AA**              | **Series A**               | **Series B**               |
| Aggregate principal issued    | $579 million               | $289 million               | $229 million               |
| Remaining escrowed proceeds   | $155 million               | $77 million                | $61 million                |
| Fixed interest rate per annum | 3\.15%                     | 3\.50%                     | 3\.85%                     |
| Maturity date                 | February 2032              | February 2032              | February 2028              |

2019\-1 Engine EETCs

In June  2019 , American created pass\-through trusts which issued   $650 million  in aggregate face amount of 2019\-1 Engine EETCs (the 2019\-1 Engine EETCs), with maturities from June 2022 to June 2026\. All of the proceeds received by such pass\-through trusts from the sale of the 2019\-1 Engine EETCs have been used to acquire equipment notes issued by American to the pass\-through trusts\. The pass\-through trust certificates represent the right to payment under the equipment notes that are full\-recourse obligations of American and such equipment notes are secured by spare aircraft engines currently owned and operated by American\.

(c) Equipment Loans and Other Notes Payable Issued in  2019

In  2019 , American entered into agreements under which it borrowed   $1\.7 billion  in connection with the financing or refinancing, as the case may be, of certain aircraft and other flight equipment, of which   $643 million  was used to repay existing indebtedness\. Debt incurred under these agreements matures in  2023  through  2031  and bears interest at variable rates (comprised of LIBOR plus an applicable margin) averaging   3\.37%  at  December 31, 2019 \.

(d) Senior Notes

In May 2019, AAG issued   $750 million  aggregate principal amount of   5\.000%  senior notes due 2022 (the   5\.000%  senior notes)\. These notes bear interest at a rate of   5\.000%  per annum, payable semi\-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2019\. The   5\.000%  senior notes mature on June 1, 2022\.

The details of our   4\.625%  and   5\.000%  senior notes are shown in the table below as of  December 31, 2019 :

|                                            |                                                  |                                                |
| ------------------------------------------ | ------------------------------------------------ | ---------------------------------------------- |
|                                            | **4\.625% Senior Notes**                         | **5\.000% Senior Notes**                       |
| Aggregate principal issued and outstanding | $500 million                                     | $750 million                                   |
| Maturity date                              | March 2020                                       | June 2022                                      |
| Fixed interest rate per annum              | 4\.625%                                          | 5\.000%                                        |
| Interest payments                          | Semi\-annually in arrears in March and September | Semi\-annually in arrears in June and December |

The   4\.625%  and   5\.000%  senior notes are senior unsecured obligations of AAG\. These senior notes are fully and unconditionally guaranteed by American\. The indentures for these senior notes contain covenants and events of default generally customary for similar financings\. In addition, if we experience specific kinds of changes of control, we must offer to repurchase these senior notes in whole or in part at a price of   101%  of the principal amount plus accrued and unpaid interest, if any, to (but not including) the repurchase date\. Upon the occurrence of certain events of default, these senior notes may be accelerated and become due and payable\.

Guarantees

As of  December 31, 2019 , AAG had issued guarantees covering approximately   $725 million  of American’s special facility revenue bonds (and interest thereon) and   $8\.1 billion  of American’s secured debt (and interest thereon), including the Credit Facilities and certain EETC financings\.

90


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

***The airline industry may undergo further restructuring, consolidation, or the creation or modification of alliances or joint ventures, any of which could have a material adverse effect on our business, financial condition and results of operations\.***

We continue to face strong competition from other carriers due to restructuring, consolidation, and the creation and modification of alliances and joint ventures\. Since deregulation, both the U\.S\. and international airline industries have experienced consolidation through a number of mergers and acquisitions\. Carriers may also improve their competitive positions through airline alliances, slot swaps/acquisitions and/or joint ventures\. Certain airline joint ventures further competition by allowing airlines to coordinate routes, pool revenues and costs, and enjoy other mutual benefits, achieving many of the benefits of consolidation\.

***Our concentration in certain markets could cause us to be disproportionately impacted by adverse changes in circumstances in those locations\.***

Our strategy includes being the premier carrier for people living on the West Coast\. This results in a high concentration of our business in key West Coast markets\. A significant portion of our flights occur to and from our Seattle, Portland, and Bay Area hubs\. In 2018, passengers to and from Seattle, Portland, and the Bay Area accounted for 82% of our total guests\.

We believe that concentrating our service offerings in this way allows us to maximize our investment in personnel, aircraft and ground facilities, as well as to gain greater advantage from sales and marketing efforts in those regions\. As a result, we remain highly dependent on our key markets\. Our business could be harmed by any circumstances causing a reduction in demand for air transportation in our key markets\. An increase in competition in our key markets could also cause us to reduce fares or take other competitive measures that, if sustained, could harm our business, financial condition and results of operations\.

***We are dependent on a limited number of suppliers for aircraft and parts\.***

Alaska is dependent on Boeing and Airbus as its sole suppliers for aircraft and many aircraft parts\. Horizon is similarly dependent on Bombardier and Embraer\. Additionally, each carrier is dependent on sole suppliers for aircraft engines for each aircraft type\. As a result, we are more vulnerable to issues associated with the supply of those aircraft and parts including design defects, mechanical problems, contractual performance by the manufacturers, or adverse perception by the public that would result in customer avoidance or in actions by the FAA\. Should we be unable to resolve known issues with certain of our aircraft or engine suppliers, it may result in the inability to operate our aircraft for extended periods\. Additionally, further consolidation amongst aircraft and aircraft parts manufacturers could further limit the number of suppliers\. This could result in an inability to operate our aircraft or instability in the foreign countries in which the aircraft and its parts are manufactured\.

***We rely on partner airlines for codeshare and frequent flyer marketing arrangements\.***

Our airlines are parties to marketing agreements with a number of domestic and international air carriers, or “partners\." These agreements provide that certain flight segments operated by us are held out as partner “codeshare” flights and that certain partner flights are held out for sale as Alaska codeshare flights\. In addition, the agreements generally provide that members of Alaska’s Mileage Plan™ program can earn credit on or redeem credit for partner flights and vice versa\. We receive revenue from flights sold under codeshare and from interline arrangements\. In addition, we believe that the frequent flyer arrangements are an important part of our frequent flyer program\. The loss of a significant partner through bankruptcy, consolidation, or otherwise, could have a negative effect on our revenues or the attractiveness of our Mileage Plan™ program, which we believe is a source of competitive advantage\.

We routinely engage in analysis and discussions regarding our own strategic position, including alliances, codeshare arrangements, interline arrangements, and frequent flyer program enhancements, and may have future discussions with other airlines regarding similar activities\. If other airlines participate in consolidation or reorganization, those airlines may significantly improve their cost structures or revenue generation capabilities, thereby potentially making them stronger competitors of ours and potentially impairing our ability to realize expected benefits from our own strategic relationships\.

 22


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

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

9\. Accumulated Other Comprehensive Loss

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

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

(4,508

)                                                                | $

(1

)                      | $

(1,364

)                                |       | $

(5,873

) |
| Other comprehensive income (loss) before reclassifications | (61

)                                                                            | (4

)                               | 15                                                      |       | (50

)             |
| Amounts reclassified from AOCI                             | (89

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

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

)                                                                           | (4

)                               | 35                                                      |       | (119

)            |
| Balance at December 31, 2018                               | (4,658

)                                                                         | (5

)                               | (1,329

)                                         |       | (5,992

)          |
| Other comprehensive income (loss) before reclassifications | (471

)                                                                           | 3                                         | 106                                                     |       | (362

)            |
| Amounts reclassified from AOCI                             | (89

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

)             |
| Net current\-period other comprehensive income (loss)      | (560

)                                                                           | 3                                         | 126                                                     |       | (431

)            |
| Balance at December 31, 2019                               | $

(5,218

)                                                                | $

(2

)                      | $

(1,203

)                                |       | $

(6,423

) |

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

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

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

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

(162

)             | $

(161

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

(69

)              | $

(69

)              |                                                                                |

Amounts allocated to other comprehensive income for income taxes as further described in Note 5 will remain in AOCI until American ceases all related activities, such as termination of the pension plan\.

10\. Commitments, Contingencies and Guarantees

(a) Aircraft, Engine and Other Purchase Commitments

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

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

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

150


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

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

NOTE 6 \- INCOME TAXES

The income tax provision (benefit) differed from amounts computed at the statutory federal income tax rate and consisted of the following significant components (in millions) :

|                                                       |              |              |                       |
| ----------------------------------------------------- | ------------ | ------------ | --------------------- |
| **UAL**                                               | **2019**     | **2018 (a)** | **2017 (a)**          |
| Income tax provision at statutory rate                | $822         | $556         | $1,058                |
| State income taxes, net of federal income tax benefit | 50           | 29           | 30                    |
| Foreign tax rate differential                         | (90

) | (84

) | (43

)          |
| Global intangible low\-taxed income                   | 90           | 4            | —                     |
| Foreign income taxes                                  | 1            | 2            | 3                     |
| Nondeductible employee meals                          | 12           | 12           | 17                    |
| Impact of Tax Act                                     | —            | (5

)  | (189

)         |
| State rate change                                     | —            | 3            | 12                    |
| Valuation allowance                                   | (4

)  | (3

)  | (16

)          |
| Other, net                                            | 24           | 12           | 8                     |
|                                                       | $905         | $526         | $880                  |
| Current                                               | $23          | $14          | $

(77

) |
| Deferred                                              | 882          | 512          | 957                   |
|                                                       | $905         | $526         | $880                  |
| **United**                                            | **2019**     | **2018 (a)** | **2017 (a)**          |
| Income tax provision at statutory rate                | $822         | $557         | $1,059                |
| State income taxes, net of federal income tax         | 50           | 29           | 30                    |
| Foreign tax rate differential                         | (90

) | (84

) | (43

)          |
| Global intangible low\-taxed income                   | 90           | 4            | —                     |
| Foreign income taxes                                  | 1            | 2            | 3                     |
| Nondeductible employee meals                          | 12           | 12           | 17                    |
| Impact of Tax Act                                     | —            | (5

)  | (206

)         |
| State rate change                                     | —            | 3            | 12                    |
| Valuation allowance                                   | (4

)  | (3

)  | (16

)          |
| Other, net                                            | 24           | 12           | 8                     |
|                                                       | $905         | $527         | $864                  |
| Current                                               | $23          | $14          | $

(77

) |
| Deferred                                              | 882          | 513          | 941                   |
|                                                       | $905         | $527         | $864                  |

(a) Amounts adjusted due to the adoption of Accounting Standards Update No\. 2016\-02,  Leases (Topic 842) \. See Note 1 of this report for additional information on the adjustments\.

The Company's effective tax rate for the year ended  December 31, 2019  differed from the federal statutory rate of 21% due to a blend of federal, state and foreign taxes as well as the impact of certain nondeductible items\.

On December 22, 2017, Congress enacted the Tax Act, which made significant changes to U\.S\. federal income tax laws, including reducing the corporate rate from 35% to 21% effective January 1, 2018\. The Tax Act included a Global Intangible Low\-Taxed Income ("GILTI") provision which introduced a new tax on foreign income in excess of a deemed return on tangible business property of foreign subsidiaries\. The GILTI provisions of the Tax Act became effective for the Company during 2018 and we elected to account for it in the period incurred (the "period cost method")\. The increase in the GILTI for the year ended  December 31, 2019  is due to a full\-year inclusion in  2019  as compared to a partial\-year inclusion in  2018 \.

66


Annual Report of Southwest Airlines Co\. for year 2017

|                                                                                |                                     |                                                                                |                          |
| -------------------------------------------------------------------------------------------------- | ----------------------------------- | ----------------------------------------------------------------------------------- | ------------------------ |
| **Employee Group**                                                                                | **Approximate Number of Employees** | **Representatives**                                                                 | **Status of Agreement**  |
| Southwest Pilots                                                                                | 8,600                               | Southwest Airlines Pilots' Association ("SWAPA")                                    | Amendable September 2020 |
| Southwest Flight Attendants                                                                        | 14,500                              | Transportation Workers of America, AFL\-CIO, Local 556 ("TWU 556")                  | Amendable November 2018  |
| Southwest Ramp, Operations, Provisioning, Freight Agents                                           | 12,800                              | Transportation Workers of America, AFL\-CIO, Local 555 ("TWU 555")                  | Amendable February 2021  |
| Southwest Customer Service Agents, Customer Representatives, and Source of Support Representatives | 7,400                               | International Association of Machinists and Aerospace Workers, AFL\-CIO ("IAM 142") | Amendable December 2018  |
| Southwest Material Specialists (formerly known as Stock Clerks)                                    | 300                                 | International Brotherhood of Teamsters, Local 19 ("IBT 19")                         | In negotiations          |
| Southwest Mechanics                                                                                | 2,400                               | Aircraft Mechanics Fraternal Association ("AMFA")                                   | In negotiations          |
| Southwest Aircraft Appearance Technicians                                                          | 200                                 | AMFA                                                                                | Amendable November 2020  |
| Southwest Facilities Maintenance Technicians                                                       | 40                                  | AMFA                                                                                | Amendable November 2022  |
| Southwest Dispatchers                                                                              | 350                                 | Transportation Workers of America, AFL\-CIO, Local 550 ("TWU 550")                  | Amendable June 2019      |
| Southwest Flight Simulator Technicians                                                             | 50                                  | International Brotherhood of Teamsters ("IBT")                                      | Amendable May 2019       |
| Southwest Flight Crew Training Instructors                                                         | 120                                 | Transportation Workers of America, AFL\-CIO, Local 557 ("TWU 557")                  | Amendable January 2020   |
| Southwest Meteorologists                                                                           | 10                                  | TWU 550                                                                             | Amendable June 2019      |

**Additional Information About the Company**

The Company was incorporated in Texas in 1967\. The following documents are available free of charge through the Company's website, www\.southwest\.com: the Company’s annual report on Form 10\-K, quarterly reports on Form 10\-Q, current reports on Form 8\-K, and any amendments to those reports that are filed with or furnished to the Securities and Exchange Commission ("SEC") pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934\. These materials are made available through the Company's website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC\. In addition to its reports filed or furnished with the SEC, the Company publicly discloses material information from time to time in its press releases, at annual meetings of Shareholders, in publicly accessible conferences and Investor presentations, and through its website (principally in its Press Room and Investor Relations pages)\. References to the Company's website in this Form 10\-K are provided as a convenience and do not constitute, and should not be deemed, an incorporation by reference of the information contained on, or available through, the website, and such information should not be considered part of this Form 10\-K\.

20


Annual Report of Southwest Airlines Co\. for year 2019

of Public Convenience & Necessity is unlimited in duration, and the Company’s certificate generally permits it to operate among any points within the United States and its territories and possessions\. Additional DOT authority, in the form of a certificate or exemption from certificate requirements, is required for a U\.S\. airline to serve foreign destinations either with its own aircraft or via code\-sharing with another airline\. Exemptions granted by the DOT to serve international markets are generally limited in duration and are subject to periodic renewal requirements\. The DOT also has jurisdiction over international tariffs and pricing in certain markets\. The DOT may revoke a certificate or exemption, in whole or in part, for failure to comply with federal aviation statutes, regulations, orders, or the terms of the certificate or exemption itself\.

The DOT's consumer protection and enforcement authority is derived primarily from a federal statutory prohibition on "unfair or deceptive practices or unfair methods of competition" by air carriers\. DOT activity under this statute concerns matters such as false or deceptive practices and unfair competition by air carriers, deceptive airline advertising (concerning, e\.g\., fares, ontime performance, schedules, and code\-sharing), and violations of rules concerning denied boarding compensation, ticket refunds, and baggage liability requirements\. The DOT is also charged with prohibiting discrimination by airlines against consumers on the basis of (i) disability; and (ii) race, religion, national origin, sex, or ancestry\.

Under the above\-described authority, the DOT has also adopted so\-called "Passenger Protection Rules," which address a wide variety of matters, including flight delays on the tarmac, chronically delayed flights, denied boarding compensation, and advertising of airfares, among others\. For example, under the Tarmac Delay Rule, air carriers must not allow an aircraft to remain on the tarmac for more than 3 hours (for domestic delays) or more than 4 hours (for international delays), without allowing passengers to deplane\. There are certain exceptions for safety and security\-related reasons, or if air traffic control advises the pilot\-in\-command that returning to the gate or permitting passengers to disembark elsewhere would significantly disrupt airport operations\.

The Passenger Protection Rules also subject airlines to potential DOT enforcement action for unfair and deceptive practices in the event of chronically delayed domestic flights (defined as domestic flights that operate at least ten times a month and arrive more than 30 minutes late more than 50 percent of the time during that month)\. In addition, airlines are required to (i) display ontime performance on their websites; (ii) adopt customer service plans, publish those plans on their website, and audit their own compliance with their plans; (iii) designate an employee to monitor the performance of their flights; (iv) provide information to passengers on how to file complaints; and (v) respond in a timely and substantive fashion to consumer complaints\.

The Passenger Protection Rules also require airlines to (i) pay up to four times the passenger's one\-way fare to their final destination that day in compensation to each passenger denied boarding involuntarily from an oversold flight; (ii) refund any checked bag fee for permanently lost luggage; (iii) prominently disclose all potential fees for optional ancillary services on their websites; and (iv) refund passenger fees paid for ancillary services if a flight cancels or oversells and a passenger is unable to take advantage of such services\. The FAA Reauthorization Act of 2018, passed by Congress on October 3, 2018, and signed into law on October 5, 2018 (the "Reauthorization Act"), directs the DOT to revise regulations to clarify there is not a maximum level of compensation an air carrier may pay to a passenger who is involuntary denied boarding as a result of an oversold flight\.

The Passenger Protection Rules also require that (i) advertised fares include all government\-mandated taxes and fees; (ii) passengers be allowed to either hold a reservation for up to 24 hours without making a payment or cancel a paid reservation without penalty for 24 hours after the reservation is made, as long as the reservation is made at least seven days in advance of travel; (iii) fares may not increase after purchase; (iv) baggage fees must be disclosed to the  passenger at the time of booking; (v) the same baggage allowances and fees must apply throughout a passenger’s trip; (vi) baggage fees must be disclosed on e\-ticket confirmations; and (vii) passengers must be promptly notified in the event of delays of more than 30 minutes or if there is a cancellation or diversion of their flight\.

The DOT has expressed its intent to aggressively investigate alleged violations of its consumer protection rules\. Airlines that violate certain aviation economic regulations and statutes are subject to potential fines of up to $34,174 per occurrence\.

The DOT is currently seeking comments on a proposed rule that would include modifications to the aircraft lavatory and on\-board wheelchair requirements to accommodate passengers with disabilities\. The DOT is also expected to seek comments on a separate advanced proposed rule involving accessible lavatories\. The advanced proposed rule would

10


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

Expanding Our Global Network

In 2019, international revenues grew 2\.7% on a 3\.3% increase in capacity\. We continued to make significant progress in expanding our global reach by acquiring an equity stake in Hanjin\-KAL, the largest shareholder of Korean Air, and announcing plans to enter into a strategic alliance with LATAM and completing a tender offer to acquire a 20% equity stake which closed in January 2020\. Effective in January 2020, we combined our separate transatlantic joint venture agreements with Air France\-KLM and Virgin Atlantic into a single three\-party transatlantic joint venture\. In addition, we continue to make progress on our joint venture agreement with WestJet with respect to trans\-border routes between the U\.S\. and Canada\. This agreement remains subject to required regulatory approvals\.

Investing for the Future

Our $8\.4 billion of cash flows from operations helped fund $4\.9 billion in capital expenditures for the business\. As part of our multi\-year fleet transformation, we took delivery of 88 new aircraft, including A321\-200s, B\-737\-900ERs, A350\-900s, A330\-900s, A220\-100s and CRJ\-900s\. These deliveries allowed for the retirement of older, less fuel efficient aircraft, including the announced retirement of our MD\-90 fleet by the end of 2022\. We also made significant investments in cabin interior refurbishments, Sky Clubs and technology\.

The non\-GAAP financial measures free cash flow, TRASM, adjusted and CASM\-Ex used above, are defined and reconciled in "Supplemental Information" below\.

30


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

Lease Position as of December 31, 2018

The table below presents the lease\-related assets and liabilities recorded on the balance sheet\.

|                                        |                                                          |                       |
| -------------------------------------- | -------------------------------------------------------- | --------------------- |
| **(in millions)**                      | **Classification on the Balance Sheet**                  | **December 31, 2018** |
| **Assets**                             |                                                          |                       |
| Operating lease assets                 | Operating lease right\-of\-use assets                    | $5,994                |
| Finance lease assets                   | Property and equipment, net                              | 490                   |
| Total lease assets                     |                                                          | $6,484                |
| **Liabilities**                        |                                                          |                       |
| Current                                |                                                          |                       |
| Operating                              | Current maturities of operating leases                   | $955                  |
| Finance                                | Current maturities of long\-term debt and finance leases | 109                   |
| Noncurrent                             |                                                          |                       |
| Operating                              | Noncurrent operating leases                              | 5,801                 |
| Finance                                | Long\-term debt and finance leases                       | 294                   |
| Total lease liabilities                |                                                          | $7,159                |
| Weighted\-average remaining lease term |                                                          |                       |
| Operating leases                       |                                                          | 12 years              |
| Finance leases                         |                                                          | 7 years               |
| Weighted\-average discount rate        |                                                          |                       |
| Operating leases ^(1)^                 |                                                          | 3\.69%                |
| Finance leases                         |                                                          | 5\.23%                |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2018\.  |

Lease Costs

The table below presents certain information related to the lease costs for finance and operating leases during 2018\.

|                               |                       |
| ----------------------------- | --------------------- |
|                               | **Year Ended**        |
| **(in millions)**             | **December 31, 2018** |
| Finance lease cost            |                       |
| Amortization of leased assets | $100                  |
| Interest of lease liabilities | 22                    |
| Operating lease cost ^(1)^    | 994                   |
| Short\-term lease cost ^(1)^  | 458                   |
| Variable lease cost ^(1)^     | 1,427                 |
| Total lease cost              | $3,001                |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Expenses are classified within aircraft rent, landing fees and other rents and regional carriers expense, excluding fuel on the income statement\.  |

$150 million ,   $18 million  and   $48 million  of the operating, short\-term and variable lease costs, respectively, are attributable to our regional carriers\.

 79


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

See Part I, Item 1A\. Risk Factors – “ We cannot guarantee that we will continue to repurchase our common stock or pay dividends on our common stock or that our capital deployment program will enhance long\-term stockholder value\. Our capital deployment program could increase the volatility of the price of our common stock and diminish our cash reserves \. ”

Ownership Restrictions

AAG’s Certificate of Incorporation and Bylaws provide that, consistent with the requirements of Subtitle VII of Title 49 of the United States Code, as amended (the Aviation Act), any persons or entities who are not a “citizen of the United States” (as defined under the Aviation Act and administrative interpretations issued by the DOT, its predecessors and successors, from time to time), including any agent, trustee or representative of such persons or entities (a non\-citizen), shall not, in the aggregate, own (beneficially or of record) and/or control more than (a) 24\.9% of the aggregate votes of all of our outstanding equity securities or (b) 49\.0% of our outstanding equity securities\. Our Certificate of Incorporation and Bylaws further specify that it is the duty of each stockholder who is a non\-citizen to register his, her or its equity securities on our foreign stock record and provide for remedies applicable to stockholders that exceed the voting and ownership caps described above\.

In addition, to reduce the risk of a potential adverse effect on our ability to use our NOL Carryforwards and certain other tax attributes for federal income tax purposes, our Certificate of Incorporation contains certain restrictions on the acquisition and disposition of our common stock by substantial stockholders (generally holders of more than 4\.75%)\.

See Part I, Item 1A\. Risk Factors –  “AAG’s Certificate of Incorporation and Bylaws include provisions that limit voting and acquisition and disposition of our equity interests\.”  Also see AAG’s Certification of Incorporation and Bylaws, which are filed as Exhibits 3\.1, 3\.2 and 3\.3 hereto, for the full text of the foregoing restrictions and AAG’s Description of the Registrants’ Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, which is filed as Exhibit 4\.1 hereto, for a more detailed description\.

44


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

Maturities of Lease Liabilities

Future minimum lease payments under non\-cancellable leases as of December 31, 2019 (in millions):

|                        |                        |                        |          |  |  |  |              |  |  |  |                                 |  |  |  |                                 |
|:---------------------- |:---------------------- |:---------------------- | --------:|:- |:- |:- | ------------:|:- |:- |:- | -------------------------------:|:- |:- |:- | -------------------------------:|
|                        |                        |                        | Aircraft |  |  |  | CPA Aircraft |  |  |  | Airport and Terminal Facilities |  |  |  | Corporate Real Estate and Other |
| 2020                   | 2020                   | 2020                   |    $ 245 |  |  |  |         $ 79 |  |  |  |                             $ 3 |  |  |  |                             $ 8 |
| 2021                   | 2021                   | 2021                   |      216 |  |  |  |           79 |  |  |  |                               2 |  |  |  |                               6 |
| 2022                   | 2022                   | 2022                   |      190 |  |  |  |           79 |  |  |  |                               2 |  |  |  |                               5 |
| 2023                   | 2023                   | 2023                   |      133 |  |  |  |           79 |  |  |  |                               2 |  |  |  |                               5 |
| 2024                   | 2024                   | 2024                   |       81 |  |  |  |           79 |  |  |  |                               2 |  |  |  |                               5 |
| Thereafter             | Thereafter             | Thereafter             |      331 |  |  |  |          329 |  |  |  |                              11 |  |  |  |                              74 |
| Total Lease Payments   | Total Lease Payments   | Total Lease Payments   |  $ 1,196 |  |  |  |        $ 724 |  |  |  |                            $ 22 |  |  |  |                           $ 103 |
| Less: Imputed interest | Less: Imputed interest | Less: Imputed interest |    (151) |  |  |  |        (128) |  |  |  |                             (4) |  |  |  |                            (54) |
| Total                  | Total                  | Total                  |  $ 1,045 |  |  |  |        $ 596 |  |  |  |                            $ 18 |  |  |  |                            $ 49 |

Disclosures for Periods Prior to Adoption of Topic 842

As of December 31, 2018, the Company had commitments for aircraft and facility leases\. Aircraft lease commitments include future obligations for the Company's operating airlines – Alaska and Horizon – as well as aircraft leases operated by third parties\. At December 31, 2018, Alaska had lease contracts for 10 B737 aircraft, 61 Airbus aircraft, 32 E175 aircraft with SkyWest, and Horizon had lease contracts for nine Bombardier Q400 aircraft\.

Facility lease commitments primarily include airport and terminal facilities and building leases\. Total rent expense for aircraft and facility leases was $619 million and $552 million in 2018 and 2017\.

Future minimum lease payments under noncancelable operating leases were as follows as of December 31, 2018 (in millions):

|            |            |            |                 |  |  |  |                 |
|:---------- |:---------- |:---------- | ---------------:|:- |:- |:- | ---------------:|
|            |            |            | Aircraft Leases |  |  |  | Facility Leases |
| 2019       | 2019       | 2019       |           $ 350 |  |  |  |           $ 133 |
| 2020       | 2020       | 2020       |             320 |  |  |  |             124 |
| 2021       | 2021       | 2021       |             286 |  |  |  |             113 |
| 2022       | 2022       | 2022       |             262 |  |  |  |              94 |
| 2023       | 2023       | 2023       |             208 |  |  |  |              26 |
| Thereafter | Thereafter | Thereafter |             847 |  |  |  |             122 |
| Total      | Total      | Total      |         $ 2,273 |  |  |  |           $ 612 |

NOTE 7\. INCOME TAXES

Deferred Income Taxes

Deferred income taxes reflect the impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and such amounts for tax purposes\. The Company has a net deferred tax liability, primarily due to differences in depreciation rates for federal income tax purposes and for financial reporting purposes\.

70


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

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

NOTE 14 \- SPECIAL CHARGES AND UNREALIZED (GAINS) LOSSES ON INVESTMENTS

Special charges and unrealized gains and losses on investments in the statements of consolidated operations consisted of the following for the years ended December 31 (in millions):

|                                                                                |               |               |                       |
| ------------------------------------------------------------------------------------------------------------------ | ------------- | ------------- | --------------------- |
| Operating:                                                                                | **2019**      | **2018**      | **2017**              |
| Impairment of assets                                                                                | $171          | $377          | $25                   |
| Severance and benefit costs                                                                                | 16            | 41            | 116                   |
| Termination of an engine maintenance service agreement                                                             | —             | 64            | —                     |
| (Gains) losses on sale of assets and other special charges                                                         | 59            | 5             | 35                    |
| Total operating special charges                                                                                | 246           | 487           | 176                   |
| Nonoperating unrealized (gains) losses on investments                                                              | (153

) | 5             | —                     |
| Total special charges and unrealized (gains) losses on investments                                                 | 93            | 492           | 176                   |
| Income tax benefit                                                                                | (21

)  | (110

) | (63

)          |
| Income tax adjustments (Note 6)                                                                                | —             | (5

)   | (189

)         |
| Total special charges and unrealized (gains) losses on investments, net of income taxes and income tax adjustments | $72           | $377          | $

(76

) |

2019

The Company conducted its annual impairment review of intangible assets in the fourth quarter of 2019, which consisted of a comparison of the book value of specific assets to the fair value of those assets\. Due to a decrease in demand for the Hong Kong market and the resulting decrease in unit revenue, the Company determined that the value of its Hong Kong routes had been fully impaired\. Accordingly, in the fourth quarter of 2019, the Company recorded a special non\-cash impairment charge of   $90 million  associated with its Hong Kong routes\. Notwithstanding the impairment, the collateral pledged under the Company's term loan continues to be sufficient to satisfy the loan covenants\. The Company determined the fair value of the Hong Kong routes using a variation of the income approach known as the excess earnings method, which discounts an asset's projected future net cash flows to determine the current fair value\. Assumptions used in the discounted cash flow methodology include a discount rate, which is based upon the Company's current weighted average cost of capital plus an asset\-specific risk factor, and a projection of sales, expenses, gross margin, tax rates and contributory asset charges for several future years and a terminal growth rate\. The assumptions used for future projections are determined based upon the Company's asset\-specific forecasts along with the Company's strategic plan\. These assumptions are inherently uncertain as they relate to future events and circumstances\. Actual results will be influenced by the competitive environment, fuel costs and other expenses, and potentially other unforeseen events or circumstances that could have a material negative impact on future results\.

During  2019 , the Company recorded a   $43 million  impairment primarily for surplus Boeing 767 aircraft engines removed from operations, an   $18 million  charge primarily for the write\-off of unexercised aircraft purchase options, and   $20 million  in other aircraft impairments\.

During  2019 , the Company recorded   $14 million  of management severance and   $2 million  of severance and benefit costs related to a voluntary early\-out program for its technicians and related employees represented by the IBT\. In the first quarter of 2017, approximately   1,000  technicians and related employees elected to voluntarily separate from the Company and received a severance payment, with a maximum value of   $100,000  per participant, based on years of service, with retirement dates through early 2019\.

During  2019 , the Company recorded charges of   $25 million  related to contract terminations,   $18 million  for the settlement of certain legal matters,   $14 million  for costs related to the transition of fleet types within a regional carrier contract and   $2 million  of other charges\.

During  2019 , the Company recorded gains of   $140 million  for the change in market value of certain of its equity investments, primarily Azul, and   $13 million  for the change in fair value of the AVH Derivative Assets\.

2018

During 2018, the Company recorded a special non\-cash impairment charge of   $206 million  associated with its Hong Kong routes as a result of its annual intangible assets impairment review\. The Company determined the fair value of the Hong Kong routes using a variation of the income approach as described above for the 2019 Hong Kong impairment\.

In May 2018, the Brazil–United States open skies agreement was ratified, which provides air carriers with unrestricted access between the United States and Brazil\. The Company determined that the approval of the open skies agreement impaired the entire value of its Brazil route authorities because the agreement removes all limitations or reciprocity requirements for flights

86


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

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

***ASU 2017\-07: Compensation \- Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (the New Retirement Standard)***

The New Retirement Standard requires all components of our net periodic benefit cost (income), with the exception of service cost, previously reported within operating expenses as salaries, wages and benefits, to be reclassified and reported within nonoperating income (expense)\. The New Retirement Standard is required to be applied retrospectively, which results in the recast of each prior reporting period presented\. The adoption of the New Retirement Standard has no impact on pre\-tax income or net income reported\. See recast 2017 statement of operations data presented below for the expected effects of adoption\.

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

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

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

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

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

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

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

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

92


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

**AMERICAN AIRLINES GROUP INC\.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

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

|                                                         |                             |                             |                             |
| ------------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                         | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                         | **2017**                    | **2016**                    | **2015**                    |
| **Operating revenues:**                                 |                             |                             |                             |
| Mainline passenger                                      | $29,238                     | $27,909                     | $29,037                     |
| Regional passenger                                      | 6,895                       | 6,670                       | 6,475                       |
| Cargo                                                   | 800                         | 700                         | 760                         |
| Other                                                   | 5,274                       | 4,901                       | 4,718                       |
| Total operating revenues                                | 42,207                      | 40,180                      | 40,990                      |
| **Operating expenses:**                                 |                             |                             |                             |
| Aircraft fuel and related taxes                         | 6,128                       | 5,071                       | 6,226                       |
| Salaries, wages and benefits                            | 11,816                      | 10,890                      | 9,524                       |
| Regional expenses                                       | 6,546                       | 6,044                       | 5,983                       |
| Maintenance, materials and repairs                      | 1,959                       | 1,834                       | 1,889                       |
| Other rent and landing fees                             | 1,806                       | 1,772                       | 1,731                       |
| Aircraft rent                                           | 1,197                       | 1,203                       | 1,250                       |
| Selling expenses                                        | 1,477                       | 1,323                       | 1,394                       |
| Depreciation and amortization                           | 1,702                       | 1,525                       | 1,364                       |
| Special items, net                                      | 712                         | 709                         | 1,051                       |
| Other                                                   | 4,806                       | 4,525                       | 4,374                       |
| Total operating expenses                                | 38,149                      | 34,896                      | 34,786                      |
| **Operating income**                                    | 4,058                       | 5,284                       | 6,204                       |
| **Nonoperating income (expense):**                      |                             |                             |                             |
| Interest income                                         | 94                          | 63                          | 39                          |
| Interest expense, net                                   | (1,053)                     | (991)                       | (880)                       |
| Other, net                                              | (15)                        | (57)                        | (747)                       |
| Total nonoperating expense, net                         | (974)                       | (985)                       | (1,588)                     |
| **Income before income taxes**                          | 3,084                       | 4,299                       | 4,616                       |
| Income tax provision (benefit)                          | 1,165                       | 1,623                       | (2,994)                     |
| **Net income**                                          | $1,919                      | $2,676                      | $7,610                      |
| **Earnings per common share:**                          |                             |                             |                             |
| Basic                                                   | $3\.92                      | $4\.85                      | $11\.39                     |
| Diluted                                                 | $3\.90                      | $4\.81                      | $11\.07                     |
| **Weighted average shares outstanding (in thousands):** |                             |                             |                             |
| Basic                                                   | 489,164                     | 552,308                     | 668,393                     |
| Diluted                                                 | 491,692                     | 556,099                     | 687,355                     |
| **Cash dividends declared per common share**            | $0\.40                      | $0\.40                      | $0\.40                      |

See accompanying notes to consolidated financial statements\.

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