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

ITEM 8\. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                |                                                                                |                                                                                |                                     |                                     |                                     |
|:------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |:------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |:------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |:-----------------------------------:|:-----------------------------------:|:-----------------------------------:|
|                                                                                |                                                                                |                                                                                |                Page                 |                Page                 |                Page                 |
| [Report of Independent Registered Public Accounting Firm](http://ir.delta.com/.#i_0_148)                                                                                | [Report of Independent Registered Public Accounting Firm](http://ir.delta.com/.#i_0_148)                                                                                | [Report of Independent Registered Public Accounting Firm](http://ir.delta.com/.#i_0_148)                                                                                | [50](http://ir.delta.com/.#i_0_148) | [50](http://ir.delta.com/.#i_0_148) | [50](http://ir.delta.com/.#i_0_148) |
| [Consolidated Balance Sheets \- December 31, 201](http://ir.delta.com/.#i_0_151)[9](http://ir.delta.com/.#i_0_151)[ and 201](http://ir.delta.com/.#i_0_151)8                                                                                | [Consolidated Balance Sheets \- December 31, 201](http://ir.delta.com/.#i_0_151)[9](http://ir.delta.com/.#i_0_151)[ and 201](http://ir.delta.com/.#i_0_151)8                                                                                | [Consolidated Balance Sheets \- December 31, 201](http://ir.delta.com/.#i_0_151)[9](http://ir.delta.com/.#i_0_151)[ and 201](http://ir.delta.com/.#i_0_151)8                                                                                | [53](http://ir.delta.com/.#i_0_151) | [53](http://ir.delta.com/.#i_0_151) | [53](http://ir.delta.com/.#i_0_151) |
| [Consolidated Statements of Operations for the years ended December 31, 201](http://ir.delta.com/.#i_0_157)[9](http://ir.delta.com/.#i_0_157)[, 201](http://ir.delta.com/.#i_0_157)[8](http://ir.delta.com/.#i_0_157)[ and 201](http://ir.delta.com/.#i_0_157)7           | [Consolidated Statements of Operations for the years ended December 31, 201](http://ir.delta.com/.#i_0_157)[9](http://ir.delta.com/.#i_0_157)[, 201](http://ir.delta.com/.#i_0_157)[8](http://ir.delta.com/.#i_0_157)[ and 201](http://ir.delta.com/.#i_0_157)7           | [Consolidated Statements of Operations for the years ended December 31, 201](http://ir.delta.com/.#i_0_157)[9](http://ir.delta.com/.#i_0_157)[, 201](http://ir.delta.com/.#i_0_157)[8](http://ir.delta.com/.#i_0_157)[ and 201](http://ir.delta.com/.#i_0_157)7           | [54](http://ir.delta.com/.#i_0_157) | [54](http://ir.delta.com/.#i_0_157) | [54](http://ir.delta.com/.#i_0_157) |
| [Consolidated Statements of Comprehensive Income for the years ended December 31, 201](http://ir.delta.com/.#i_0_160)[9](http://ir.delta.com/.#i_0_160)[, 201](http://ir.delta.com/.#i_0_160)[8](http://ir.delta.com/.#i_0_160)[ and 201](http://ir.delta.com/.#i_0_160)7 | [Consolidated Statements of Comprehensive Income for the years ended December 31, 201](http://ir.delta.com/.#i_0_160)[9](http://ir.delta.com/.#i_0_160)[, 201](http://ir.delta.com/.#i_0_160)[8](http://ir.delta.com/.#i_0_160)[ and 201](http://ir.delta.com/.#i_0_160)7 | [Consolidated Statements of Comprehensive Income for the years ended December 31, 201](http://ir.delta.com/.#i_0_160)[9](http://ir.delta.com/.#i_0_160)[, 201](http://ir.delta.com/.#i_0_160)[8](http://ir.delta.com/.#i_0_160)[ and 201](http://ir.delta.com/.#i_0_160)7 | [55](http://ir.delta.com/.#i_0_160) | [55](http://ir.delta.com/.#i_0_160) | [55](http://ir.delta.com/.#i_0_160) |
| [Consolidated Statements of Cash Flows for the years ended December 31, 201](http://ir.delta.com/.#i_0_163)[9](http://ir.delta.com/.#i_0_163)[, 201](http://ir.delta.com/.#i_0_163)[8](http://ir.delta.com/.#i_0_163)[ and 201](http://ir.delta.com/.#i_0_163)7           | [Consolidated Statements of Cash Flows for the years ended December 31, 201](http://ir.delta.com/.#i_0_163)[9](http://ir.delta.com/.#i_0_163)[, 201](http://ir.delta.com/.#i_0_163)[8](http://ir.delta.com/.#i_0_163)[ and 201](http://ir.delta.com/.#i_0_163)7           | [Consolidated Statements of Cash Flows for the years ended December 31, 201](http://ir.delta.com/.#i_0_163)[9](http://ir.delta.com/.#i_0_163)[, 201](http://ir.delta.com/.#i_0_163)[8](http://ir.delta.com/.#i_0_163)[ and 201](http://ir.delta.com/.#i_0_163)7           | [56](http://ir.delta.com/.#i_0_163) | [56](http://ir.delta.com/.#i_0_163) | [56](http://ir.delta.com/.#i_0_163) |
| [Consolidated Statements of Stockholders' Equity for the years ended December 31, 201](http://ir.delta.com/.#i_0_166)[9](http://ir.delta.com/.#i_0_166)[, 201](http://ir.delta.com/.#i_0_166)[8](http://ir.delta.com/.#i_0_166)[ and 201](http://ir.delta.com/.#i_0_166)7 | [Consolidated Statements of Stockholders' Equity for the years ended December 31, 201](http://ir.delta.com/.#i_0_166)[9](http://ir.delta.com/.#i_0_166)[, 201](http://ir.delta.com/.#i_0_166)[8](http://ir.delta.com/.#i_0_166)[ and 201](http://ir.delta.com/.#i_0_166)7 | [Consolidated Statements of Stockholders' Equity for the years ended December 31, 201](http://ir.delta.com/.#i_0_166)[9](http://ir.delta.com/.#i_0_166)[, 201](http://ir.delta.com/.#i_0_166)[8](http://ir.delta.com/.#i_0_166)[ and 201](http://ir.delta.com/.#i_0_166)7 | [57](http://ir.delta.com/.#i_0_166) | [57](http://ir.delta.com/.#i_0_166) | [57](http://ir.delta.com/.#i_0_166) |
| [Notes to the Consolidated Financial Statements](http://ir.delta.com/.#i_0_172)                                                                                | [Notes to the Consolidated Financial Statements](http://ir.delta.com/.#i_0_172)                                                                                | [Notes to the Consolidated Financial Statements](http://ir.delta.com/.#i_0_172)                                                                                | [58](http://ir.delta.com/.#i_0_172) | [58](http://ir.delta.com/.#i_0_172) | [58](http://ir.delta.com/.#i_0_172) |
| [Note 1 \- Summary of Significant Accounting Policies](http://ir.delta.com/.#i_0_175)                                                                                | [Note 1 \- Summary of Significant Accounting Policies](http://ir.delta.com/.#i_0_175)                                                                                | [Note 1 \- Summary of Significant Accounting Policies](http://ir.delta.com/.#i_0_175)                                                                                | [58](http://ir.delta.com/.#i_0_175) | [58](http://ir.delta.com/.#i_0_175) | [58](http://ir.delta.com/.#i_0_175) |
| [Note 2 \- Revenue Recognition](http://ir.delta.com/.#i_0_181)                                                                                | [Note 2 \- Revenue Recognition](http://ir.delta.com/.#i_0_181)                                                                                | [Note 2 \- Revenue Recognition](http://ir.delta.com/.#i_0_181)                                                                                | [63](http://ir.delta.com/.#i_0_181) | [63](http://ir.delta.com/.#i_0_181) | [63](http://ir.delta.com/.#i_0_181) |
| [Note 3 \- Fair Value Measurements](http://ir.delta.com/.#i_0_187)                                                                                | [Note 3 \- Fair Value Measurements](http://ir.delta.com/.#i_0_187)                                                                                | [Note 3 \- Fair Value Measurements](http://ir.delta.com/.#i_0_187)                                                                                | [66](http://ir.delta.com/.#i_0_187) | [66](http://ir.delta.com/.#i_0_187) | [66](http://ir.delta.com/.#i_0_187) |
| [Note 4 \- Investments](http://ir.delta.com/.#i_0_193)                                                                                | [Note 4 \- Investments](http://ir.delta.com/.#i_0_193)                                                                                | [Note 4 \- Investments](http://ir.delta.com/.#i_0_193)                                                                                | [68](http://ir.delta.com/.#i_0_193) | [68](http://ir.delta.com/.#i_0_193) | [68](http://ir.delta.com/.#i_0_193) |
| [Note 5 \- Derivatives and Risk Management](http://ir.delta.com/.#i_0_199)                                                                                | [Note 5 \- Derivatives and Risk Management](http://ir.delta.com/.#i_0_199)                                                                                | [Note 5 \- Derivatives and Risk Management](http://ir.delta.com/.#i_0_199)                                                                                | [69](http://ir.delta.com/.#i_0_199) | [69](http://ir.delta.com/.#i_0_199) | [69](http://ir.delta.com/.#i_0_199) |
| [Note 6 \- Intangible Assets](http://ir.delta.com/.#i_0_205)                                                                                | [Note 6 \- Intangible Assets](http://ir.delta.com/.#i_0_205)                                                                                | [Note 6 \- Intangible Assets](http://ir.delta.com/.#i_0_205)                                                                                | [73](http://ir.delta.com/.#i_0_205) | [73](http://ir.delta.com/.#i_0_205) | [73](http://ir.delta.com/.#i_0_205) |
| [N](http://ir.delta.com/.#i_0_211)[ote 7 \- Debt](http://ir.delta.com/.#i_0_211)                                                                                | [N](http://ir.delta.com/.#i_0_211)[ote 7 \- Debt](http://ir.delta.com/.#i_0_211)                                                                                | [N](http://ir.delta.com/.#i_0_211)[ote 7 \- Debt](http://ir.delta.com/.#i_0_211)                                                                                | [74](http://ir.delta.com/.#i_0_211) | [74](http://ir.delta.com/.#i_0_211) | [74](http://ir.delta.com/.#i_0_211) |
| [Note 8 \- Leases](http://ir.delta.com/.#i_0_217)                                                                                | [Note 8 \- Leases](http://ir.delta.com/.#i_0_217)                                                                                | [Note 8 \- Leases](http://ir.delta.com/.#i_0_217)                                                                                | [75](http://ir.delta.com/.#i_0_217) | [75](http://ir.delta.com/.#i_0_217) | [75](http://ir.delta.com/.#i_0_217) |
| [Note 9 \- Airport Redevelopment](http://ir.delta.com/.#i_0_223)                                                                                | [Note 9 \- Airport Redevelopment](http://ir.delta.com/.#i_0_223)                                                                                | [Note 9 \- Airport Redevelopment](http://ir.delta.com/.#i_0_223)                                                                                | [79](http://ir.delta.com/.#i_0_223) | [79](http://ir.delta.com/.#i_0_223) | [79](http://ir.delta.com/.#i_0_223) |
| [Note 10 \- Employee Benefit Plans](http://ir.delta.com/.#i_0_229)                                                                                | [Note 10 \- Employee Benefit Plans](http://ir.delta.com/.#i_0_229)                                                                                | [Note 10 \- Employee Benefit Plans](http://ir.delta.com/.#i_0_229)                                                                                | [81](http://ir.delta.com/.#i_0_229) | [81](http://ir.delta.com/.#i_0_229) | [81](http://ir.delta.com/.#i_0_229) |
| [Note 11 \- Commitments and Contingencies](http://ir.delta.com/.#i_0_235)                                                                                | [Note 11 \- Commitments and Contingencies](http://ir.delta.com/.#i_0_235)                                                                                | [Note 11 \- Commitments and Contingencies](http://ir.delta.com/.#i_0_235)                                                                                | [86](http://ir.delta.com/.#i_0_235) | [86](http://ir.delta.com/.#i_0_235) | [86](http://ir.delta.com/.#i_0_235) |
| [Note 12 \- Income Taxes](http://ir.delta.com/.#i_0_241)                                                                                | [Note 12 \- Income Taxes](http://ir.delta.com/.#i_0_241)                                                                                | [Note 12 \- Income Taxes](http://ir.delta.com/.#i_0_241)                                                                                | [89](http://ir.delta.com/.#i_0_241) | [89](http://ir.delta.com/.#i_0_241) | [89](http://ir.delta.com/.#i_0_241) |
| [Note 13 \- Equity and Equity Compensation](http://ir.delta.com/.#i_0_247)                                                                                | [Note 13 \- Equity and Equity Compensation](http://ir.delta.com/.#i_0_247)                                                                                | [Note 13 \- Equity and Equity Compensation](http://ir.delta.com/.#i_0_247)                                                                                | [91](http://ir.delta.com/.#i_0_247) | [91](http://ir.delta.com/.#i_0_247) | [91](http://ir.delta.com/.#i_0_247) |
| [Note 14 \- Accumulated Other Comprehensive Loss](http://ir.delta.com/.#i_0_253)                                                                                | [Note 14 \- Accumulated Other Comprehensive Loss](http://ir.delta.com/.#i_0_253)                                                                                | [Note 14 \- Accumulated Other Comprehensive Loss](http://ir.delta.com/.#i_0_253)                                                                                | [92](http://ir.delta.com/.#i_0_253) | [92](http://ir.delta.com/.#i_0_253) | [92](http://ir.delta.com/.#i_0_253) |
| [Note 15 \- Segments](http://ir.delta.com/.#i_0_259)                                                                                | [Note 15 \- Segments](http://ir.delta.com/.#i_0_259)                                                                                | [Note 15 \- Segments](http://ir.delta.com/.#i_0_259)                                                                                | [93](http://ir.delta.com/.#i_0_259) | [93](http://ir.delta.com/.#i_0_259) | [93](http://ir.delta.com/.#i_0_259) |
| [Note 1](http://ir.delta.com/.#i_0_268)[6](http://ir.delta.com/.#i_0_268)[ \- Earnings Per Share](http://ir.delta.com/.#i_0_268)                                                                                | [Note 1](http://ir.delta.com/.#i_0_268)[6](http://ir.delta.com/.#i_0_268)[ \- Earnings Per Share](http://ir.delta.com/.#i_0_268)                                                                                | [Note 1](http://ir.delta.com/.#i_0_268)[6](http://ir.delta.com/.#i_0_268)[ \- Earnings Per Share](http://ir.delta.com/.#i_0_268)                                                                                | [95](http://ir.delta.com/.#i_0_268) | [95](http://ir.delta.com/.#i_0_268) | [95](http://ir.delta.com/.#i_0_268) |
| [Note 1](http://ir.delta.com/.#i_0_271)[7](http://ir.delta.com/.#i_0_271)[ \- Quarterly Financial Data (Unaudited)](http://ir.delta.com/.#i_0_271)                                                                                | [Note 1](http://ir.delta.com/.#i_0_271)[7](http://ir.delta.com/.#i_0_271)[ \- Quarterly Financial Data (Unaudited)](http://ir.delta.com/.#i_0_271)                                                                                | [Note 1](http://ir.delta.com/.#i_0_271)[7](http://ir.delta.com/.#i_0_271)[ \- Quarterly Financial Data (Unaudited)](http://ir.delta.com/.#i_0_271)                                                                                | [95](http://ir.delta.com/.#i_0_271) | [95](http://ir.delta.com/.#i_0_271) | [95](http://ir.delta.com/.#i_0_271) |

49


Annual Report of Southwest Airlines Co\. for year 2018

2004, Director of Investor Relations from December 1994 to March 2002, Manager of Investor Relations from September 1994 to December 1994, and Manager of Financial Reporting from September 1991 to September 1994\.

*Mark R\. Shaw* has served as the Company's Executive Vice President & Chief Legal & Regulatory Officer since November 2018\. Mr\. Shaw also served as Executive Vice President, Chief Legal & Regulatory Officer, & Corporate Secretary from August 2018 to November 2018, Senior Vice President, General Counsel, & Corporate Secretary from July 2015 to August 2018, Vice President, General Counsel, & Corporate Secretary from February 2013 to July 2015, and as Associate General Counsel \- Corporate & Transactions from February 2008 to February 2013\. Mr\. Shaw joined the Company in 2000 as an Attorney in the General Counsel Department\.

*Andrew M\. Watterson* has served as the Company's Executive Vice President & Chief Revenue Officer since July 2017\. Mr\. Watterson also served as Senior Vice President & Chief Revenue Officer from January 2017 to July 2017, Senior Vice President of Network & Revenue from January 2016 to January 2017, and as Vice President of Network Planning & Performance from October 2013 to January 2016\. Prior to becoming an officer of the Company, Mr\. Watterson served as Vice President of Planning and Revenue Management at Hawaiian Airlines from May 2011 to October 2013\.

*Gregory D\. Wells* has served as the Company's Executive Vice President Daily Operations since January 2017\. Mr\. Wells also served as Senior Vice President Operational Performance from October 2013 to January 2017, Senior Vice President Operations from September 2006 to October 2013, Senior Vice President Ground Operations from November 2005 to September 2006, Vice President Ground Operations from September 2004 to November 2005, Vice President Safety, Security, and Flight Dispatch from October 2001 to September 2004, Director Flight Dispatch from February 1999 to October 2001, Senior Director Ground Operations from August 1998 to February 1999, and Director Ground Operations from August 1996 to August 1998\. Prior to August 1996, Mr\. Wells had various other operational experience with the Company including as Station Manager in both San Jose and Phoenix\. Mr\. Wells has over 36 years of experience with the Company\.

33


Annual Report of Southwest Airlines Co\. for year 2017

The Company's expansion of its operations into non\-U\.S\. jurisdictions also expands the scope of the laws to which the Company is subject, both domestically and internationally\. In addition, operations in non\-U\.S\. jurisdictions are in many cases subject to the laws of those jurisdictions rather than U\.S\. laws\. Laws in some jurisdictions differ in significant respects from those in the United States, and these differences can affect the Company's ability to react to changes in its business, and its rights or ability to enforce rights may be different than would be expected under U\.S\. laws\. Furthermore, enforcement of laws in some jurisdictions can be inconsistent and unpredictable, which can affect both the Company's ability to enforce its rights and to undertake activities that it believes are beneficial to its business\. As a result, the Company's ability to generate revenue and its expenses in non\-U\.S\. jurisdictions may differ from what would be expected if U\.S\. laws governed these operations\. Although the Company has policies and procedures in place that are designed to promote compliance with the laws of the jurisdictions in which it operates, a violation by the Company's Employees, contractors, or agents or other intermediaries, could nonetheless occur\. Any violation (or alleged or perceived violation), even if prohibited by the Company's policies, could have an adverse effect on the Company's reputation and/or its results of operations\.

As discussed above under “Regulation – Operational, Safety, and Health Regulation,” in January 2018, the Company submitted a formal application to the FAA for authorization to conduct ETOPS using Boeing 737\-800 aircraft, in connection with the Company’s plans to begin service to Hawaii\. If the Company receives FAA authorization and commences ETOPS, the Company will be subject to additional, ongoing, ETOPS\-specific regulatory and procedural requirements, which could add operational and compliance risks to the Company’s business, including costs associated therewith\.

***The Company is currently subject to pending litigation, and if judgment were to be rendered against the Company in the litigation, such judgment could adversely affect the Company's operating results\.***

As discussed below under "Legal Proceedings," the Company and its AirTran subsidiary are subject to pending litigation\.

Regardless of merit, these litigation matters and any potential future claims against the Company or AirTran may be both time consuming and disruptive to the Company's operations and cause significant expense and diversion of management attention\. Should the Company or AirTran fail to prevail in these or other matters, the Company may be faced with significant monetary damages or injunctive relief that could materially adversely affect its business and might materially affect its financial condition and operating results\.

**Item 1B\.** ***Unresolved Staff Comments***

None\.

27


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

We perform, at least quarterly, an assessment of the effectiveness of our derivative contracts designated as hedges, including assessing the possibility of counterparty default\. If we determine that a derivative is no longer expected to be highly effective, we discontinue hedge accounting prospectively and recognize subsequent changes in the fair value of the hedge in earnings\. We believe our derivative contracts that continue to be designated as hedges, consisting of interest rate and foreign currency exchange contracts, will continue to be highly effective in offsetting changes in fair value or cash flow, respectively, attributable to the hedged risk\.

 Cash flows associated with purchasing and settling hedge contracts generally are classified as operating cash flows\. However, if a hedge contract includes a significant financing element at inception, cash flows associated with the hedge contract are recorded as financing cash flows\.

Hedge Margin\.  The hedge margin we receive from counterparties is recorded in cash, with the offsetting obligation in accounts payable\. The hedge margin we provide to counterparties is recorded in prepaid expenses and other\. We do not offset margin funded to counterparties or margin funded to us by counterparties against fair value amounts recorded for our hedge contracts\.

Long\-Lived Assets

The following table summarizes our property and equipment:

|                                                      |                                                      |                                                      |                                                |                                                |                                                |              |              |  |  |  |
|:---------------------------------------------------- |:---------------------------------------------------- |:---------------------------------------------------- |:----------------------------------------------:|:----------------------------------------------:|:----------------------------------------------:| ------------:| ------------:|:- |:- |:- |
|                                                      |                                                      |                                                      |                                                |                                                |                                                | December 31, | December 31, |  |  |  |
| (in millions, except for estimated useful life)      | (in millions, except for estimated useful life)      | (in millions, except for estimated useful life)      |             Estimated Useful Life              |             Estimated Useful Life              |             Estimated Useful Life              |         2019 |         2018 |
| Flight equipment                                     | Flight equipment                                     | Flight equipment                                     |                  20\-34 years                  |                  20\-34 years                  |                  20\-34 years                  |     $ 36,713 |     $ 33,898 |
| Ground property and equipment                        | Ground property and equipment                        | Ground property and equipment                        |                  3\-40 years                   |                  3\-40 years                   |                  3\-40 years                   |        5,721 |        4,667 |
| Information technology\-related assets               | Information technology\-related assets               | Information technology\-related assets               |                  3\-15 years                   |                  3\-15 years                   |                  3\-15 years                   |        3,276 |        3,361 |
| Flight and ground equipment under finance leases     | Flight and ground equipment under finance leases     | Flight and ground equipment under finance leases     | Shorter of lease term or estimated useful life | Shorter of lease term or estimated useful life | Shorter of lease term or estimated useful life |        1,608 |        1,055 |
| Advance payments for equipment                       | Advance payments for equipment                       | Advance payments for equipment                       |                                                |                                                |                                                |        1,019 |        1,177 |
| Less: accumulated depreciation and amortization^(1)^ | Less: accumulated depreciation and amortization^(1)^ | Less: accumulated depreciation and amortization^(1)^ |                                                |                                                |                                                |     (17,027) |     (15,823) |
| Total property and equipment, net                    | Total property and equipment, net                    | Total property and equipment, net                    |                                                |                                                |                                                |     $ 31,310 |     $ 28,335 |

^(1)^ Includes accumulated amortization for flight and ground equipment under finance leases in the amount of $546 million and $566 million at December 31, 2019 and 2018, respectively\.

We record property and equipment at cost and depreciate or amortize these assets on a straight\-line basis to their estimated residual values over their estimated useful lives\. The estimated useful life for leasehold improvements is the shorter of lease term or estimated useful life\. Depreciation and amortization expense related to our property and equipment was $2\.6 billion, $2\.3 billion and $2\.2 billion for the years ended December 31, 2019, 2018 and 2017, respectively\. Residual values for owned aircraft, engines, spare parts and simulators are generally 5% to 10% of cost\.

We capitalize certain internal and external costs incurred to develop and implement software and amortize those costs over an estimated useful life of  three to  ten years\. Included in the depreciation and amortization expense discussed above, we recorded $239 million, $205 million and $187 million for amortization of capitalized software for the years ended December 31, 2019, 2018 and 2017, respectively\. The net book value of these assets, which are included in information technology\-related assets above, totaled $1\.1 billion and $819 million at December 31, 2019 and 2018, respectively\.

Our tangible assets consist primarily of flight equipment, which is mobile across geographic markets\. Accordingly, assets are not allocated to specific geographic regions\.

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

60


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

Future Fuel Hedge Positions

All of our future oil positions are call options, which are designed to effectively cap the cost of the crude oil component of our jet fuel purchases\. With call options, we are hedged against volatile crude oil price increases; and, during a period of decline in crude oil prices, we only forfeit cash previously paid for hedge premiums\. Our crude oil positions are as follows:

|                     |                     |                     |                                             |                                             |  |  |  |                                              |                                              |                                              |  |  |  |                                 |                                 |                                 |
|:------------------- |:------------------- |:------------------- |:-------------------------------------------:|:-------------------------------------------:|:- |:- |:- |:--------------------------------------------:|:--------------------------------------------:|:--------------------------------------------:|:- |:- |:- |:-------------------------------:|:-------------------------------:|:-------------------------------:|
|                     |                     |                     | Approximate % of Expected Fuel Requirements | Approximate % of Expected Fuel Requirements |  |  |  | Weighted\-Average Crude Oil Price per Barrel | Weighted\-Average Crude Oil Price per Barrel | Weighted\-Average Crude Oil Price per Barrel |  |  |  | Average Premium Cost per Barrel | Average Premium Cost per Barrel | Average Premium Cost per Barrel |
| First Quarter 2020  | First Quarter 2020  | First Quarter 2020  |                    50%                      |                    50%                      |  |  |  |                     $70                      |                     $70                      |                     $70                      |  |  |  |               $2                |               $2                |               $2                |
| Second Quarter 2020 | Second Quarter 2020 | Second Quarter 2020 |                    50%                      |                    50%                      |  |  |  |                     $67                      |                     $67                      |                     $67                      |  |  |  |               $2                |               $2                |               $2                |
| Third Quarter 2020  | Third Quarter 2020  | Third Quarter 2020  |                    40%                      |                    40%                      |  |  |  |                     $67                      |                     $67                      |                     $67                      |  |  |  |               $2                |               $2                |               $2                |
| Fourth Quarter 2020 | Fourth Quarter 2020 | Fourth Quarter 2020 |                    30%                      |                    30%                      |  |  |  |                     $65                      |                     $65                      |                     $65                      |  |  |  |               $2                |               $2                |               $2                |
|  Full Year 2020     |  Full Year 2020     |  Full Year 2020     |                    42%                      |                    42%                      |  |  |  |                     $68                      |                     $68                      |                     $68                      |  |  |  |               $2                |               $2                |               $2                |
| First Quarter 2021  | First Quarter 2021  | First Quarter 2021  |                    20%                      |                    20%                      |  |  |  |                     $63                      |                     $63                      |                     $63                      |  |  |  |               $2                |               $2                |               $2                |
| Second Quarter 2021 | Second Quarter 2021 | Second Quarter 2021 |                    10%                      |                    10%                      |  |  |  |                     $64                      |                     $64                      |                     $64                      |  |  |  |               $2                |               $2                |               $2                |
|  Full Year 2021     |  Full Year 2021     |  Full Year 2021     |                     7%                      |                     7%                      |  |  |  |                     $63                      |                     $63                      |                     $63                      |  |  |  |               $2                |               $2                |               $2                |

Contractual Obligations

The following table provides a summary of our obligations as of December 31, 2019\. For agreements with variable terms, amounts included reflect our minimum obligations\.

|                                         |                                         |                                         |         |  |  |  |         |  |  |  |         |  |  |  |       |  |  |  |       |  |  |  |         |  |  |  |         |
|:--------------------------------------- |:--------------------------------------- |:--------------------------------------- | -------:|:- |:- |:- | -------:|:- |:- |:- | -------:|:- |:- |:- | -----:|:- |:- |:- | -----:|:- |:- |:- | -------:|:- |:- |:- | -------:|
| *(in millions)*                         | *(in millions)*                         | *(in millions)*                         |    2020 |  |  |  |    2021 |  |  |  |    2022 |  |  |  |  2023 |  |  |  |  2024 |  |  |  |  Beyond |  |  |  |   Total |
| Current and long\-term debt obligations | Current and long\-term debt obligations | Current and long\-term debt obligations |   $235  |  |  |  |   $281  |  |  |  |   $243  |  |  |  | $173  |  |  |  | $153  |  |  |  |   $420  |  |  |  | $1,505  |
| Aircraft leases commitments             | Aircraft leases commitments             | Aircraft leases commitments             |    324  |  |  |  |    295  |  |  |  |    269  |  |  |  |  212  |  |  |  |  160  |  |  |  |    660  |  |  |  |  1,920  |
| Facility lease commitments              | Facility lease commitments              | Facility lease commitments              |     11  |  |  |  |      8  |  |  |  |      7  |  |  |  |    7  |  |  |  |    7  |  |  |  |     85  |  |  |  |    125  |
| Aircraft maintenance deposits           | Aircraft maintenance deposits           | Aircraft maintenance deposits           |     73  |  |  |  |     62  |  |  |  |     51  |  |  |  |   26  |  |  |  |    6  |  |  |  |      2  |  |  |  |    220  |
| Aircraft purchase commitments           | Aircraft purchase commitments           | Aircraft purchase commitments           |    531  |  |  |  |    487  |  |  |  |    347  |  |  |  |  206  |  |  |  |   31  |  |  |  |     26  |  |  |  |  1,628  |
| Interest obligations^(a)^               | Interest obligations^(a)^               | Interest obligations^(a)^               |     43  |  |  |  |     36  |  |  |  |     27  |  |  |  |   21  |  |  |  |   16  |  |  |  |     25  |  |  |  |    168  |
| Other obligations^(b)^                  | Other obligations^(b)^                  | Other obligations^(b)^                  |    152  |  |  |  |    173  |  |  |  |    181  |  |  |  |  186  |  |  |  |  192  |  |  |  |    885  |  |  |  |  1,769  |
| Total                                   | Total                                   | Total                                   | $1,369  |  |  |  | $1,342  |  |  |  | $1,125  |  |  |  | $831  |  |  |  | $565  |  |  |  | $2,103  |  |  |  | $7,335  |

^(a)^ For variable\-rate debt, future obligations are shown above using interest rates forecast as of December 31, 2019\.

^(b)^ Primarily comprised of non\-aircraft lease costs associated with capacity purchase agreements\.

Defined Benefit Pensions

The table above excludes contributions to our various pension plans, for which there are no minimum required contributions given the funded status of the plans\. The unfunded liability for our qualified defined\-benefit pension plans was $363 million at December 31, 2019, compared to a $367 million unfunded position at December 31, 2018\. This results in an 86% funded status on a projected benefit obligation basis compared to 84% funded as of December 31, 2018\. We made a voluntary contribution of$65 million to the plans in 2019\.

Credit Card Agreements

We have agreements with a number of credit card companies to process the sale of tickets and other services\. Under these agreements, there are material adverse change clauses that, if triggered, could result in the credit card companies holding back a reserve from our credit card receivables\. Under one such agreement, we could be required to maintain a reserve if our credit rating is downgraded to or below a rating specified by the agreement or our cash and marketable securities balance fell below $500 million\. Under another such agreement, we could be required to maintain a reserve if our cash and marketable securities balance fell below $500 million\. We are not currently required to maintain any reserve under these agreements, but if we were, our financial position and liquidity could be materially harmed\.

44


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

NOTE 4\. FAIR VALUE MEASUREMENTS

Fair Value of Financial Instruments on a Recurring Basis

As of December 31, 2019, the total cost basis for marketable securities was $1\.3 billion\. There were no significant differences between the cost basis and fair value of any individual class of marketable securities\.

Fair values of financial instruments on the consolidated balance sheet (in millions):

|                                         |                                         |                                         |                   |                   |                   |                   |                   |                   |                   |  |  |  |         |  |  |         |  |  |                   |                   |                   |                   |                   |                   |                   |                   |                   |                   |                   |                   |                   |  |  |  |  |  |  |  |  |  |  |  |  |
|:--------------------------------------- |:--------------------------------------- |:--------------------------------------- | -----------------:| -----------------:| -----------------:| -----------------:| -----------------:| -----------------:| -----------------:|:- |:- |:- | -------:| -:| -:| -------:| -:| -:| -----------------:|:-----------------:|:-----------------:|:-----------------:|:-----------------:|:-----------------:|:-----------------:|:-----------------:|:-----------------:|:-----------------:|:-----------------:|:-----------------:|:-----------------:|:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |
|                                         |                                         |                                         | December 31, 2019 | December 31, 2019 | December 31, 2019 | December 31, 2019 | December 31, 2019 | December 31, 2019 | December 31, 2019 |  |  |  |         |  |  |         |  |  | December 31, 2018 | December 31, 2018 | December 31, 2018 | December 31, 2018 | December 31, 2018 | December 31, 2018 | December 31, 2018 | December 31, 2018 | December 31, 2018 | December 31, 2018 | December 31, 2018 | December 31, 2018 | December 31, 2018 |  |  |  |  |  |  |  |  |  |  |  |  |
|                                         |                                         |                                         |           Level 1 |                   |                   |           Level 2 |                   |                   |             Total |  |  |  | Level 1 |  |  | Level 2 |  |  |             Total |
| Assets                                  | Assets                                  | Assets                                  |                   |                   |                   |                   |                   |                   |                   |  |  |  |         |  |  |         |  |  |                   |
| Marketable securities                   | Marketable securities                   | Marketable securities                   |                   |                   |                   |                   |                   |                   |                   |  |  |  |         |  |  |         |  |  |                   |
| U\.S\. government and agency securities | U\.S\. government and agency securities | U\.S\. government and agency securities |             $ 330 |                   |                   |               $ — |                   |                   |             $ 330 |  |  |  |   $ 293 |  |  |     $ — |  |  |             $ 293 |
| Equity mutual funds                     | Equity mutual funds                     | Equity mutual funds                     |                 6 |                   |                   |                 — |                   |                   |                 6 |  |  |  |       — |  |  |       — |  |  |                 — |
| Foreign government bonds                | Foreign government bonds                | Foreign government bonds                |                 — |                   |                   |                31 |                   |                   |                31 |  |  |  |       — |  |  |      26 |  |  |                26 |
| Asset\-backed securities                | Asset\-backed securities                | Asset\-backed securities                |                 — |                   |                   |               211 |                   |                   |               211 |  |  |  |       — |  |  |     190 |  |  |               190 |
| Mortgage\-backed securities             | Mortgage\-backed securities             | Mortgage\-backed securities             |                 — |                   |                   |               176 |                   |                   |               176 |  |  |  |       — |  |  |      92 |  |  |                92 |
| Corporate notes and bonds               | Corporate notes and bonds               | Corporate notes and bonds               |                 — |                   |                   |               523 |                   |                   |               523 |  |  |  |       — |  |  |     520 |  |  |               520 |
| Municipal securities                    | Municipal securities                    | Municipal securities                    |                 — |                   |                   |                23 |                   |                   |                23 |  |  |  |       — |  |  |      10 |  |  |                10 |
| Total Marketable securities             | Total Marketable securities             | Total Marketable securities             |               336 |                   |                   |               964 |                   |                   |             1,300 |  |  |  |     293 |  |  |     838 |  |  |             1,131 |
| Derivative instruments                  | Derivative instruments                  | Derivative instruments                  |                   |                   |                   |                   |                   |                   |                   |  |  |  |         |  |  |         |  |  |                   |
| Fuel hedge contracts \- call options    | Fuel hedge contracts \- call options    | Fuel hedge contracts \- call options    |                 — |                   |                   |                11 |                   |                   |                11 |  |  |  |       — |  |  |       4 |  |  |                 4 |
| Interest rate swap agreements           | Interest rate swap agreements           | Interest rate swap agreements           |                 — |                   |                   |                 3 |                   |                   |                 3 |  |  |  |       — |  |  |      10 |  |  |                10 |
| Total Assets                            | Total Assets                            | Total Assets                            |             $ 336 |                   |                   |             $ 978 |                   |                   |           $ 1,314 |  |  |  |   $ 293 |  |  |   $ 852 |  |  |           $ 1,145 |
| Liabilities                             | Liabilities                             | Liabilities                             |                   |                   |                   |                   |                   |                   |                   |  |  |  |         |  |  |         |  |  |                   |
| Derivative instruments                  | Derivative instruments                  | Derivative instruments                  |                   |                   |                   |                   |                   |                   |                   |  |  |  |         |  |  |         |  |  |                   |
| Interest rate swap agreements           | Interest rate swap agreements           | Interest rate swap agreements           |                 — |                   |                   |              (10) |                   |                   |              (10) |  |  |  |       — |  |  |     (7) |  |  |               (7) |
| Total Liabilities                       | Total Liabilities                       | Total Liabilities                       |               $ — |                   |                   |            $ (10) |                   |                   |            $ (10) |  |  |  |     $ — |  |  |   $ (7) |  |  |             $ (7) |

The Company uses the market and income approach to determine the fair value of marketable securities\. U\.S\. government securities and equity mutual funds are Level 1 as the fair value is based on quoted prices in active markets\. The remaining marketable securities instruments are Level 2 as the fair value is based on standard valuation models that calculate values from observable inputs such as quoted interest rates, yield curves, credit ratings of the security and other observable market information\.

The Company uses the market and income approaches to determine the fair value of derivative instruments\. The fair value for fuel hedge call options is determined utilizing an option pricing model that uses inputs that are readily available in active markets or can be derived from information available in active markets\. In addition, the fair value considers exposure to credit losses in the event of non\-performance by counterparties\. Interest rate swap agreements are Level 2 as the fair value of these contracts is determined based on the difference between the fixed interest rate in the agreements and the observable LIBOR\-based interest forward rates at period end, multiplied by the total notional value\.

Activity and Maturities for Marketable Securities

Unrealized losses from marketable securities are primarily attributable to changes in interest rates\. Management does not believe any remaining losses represent other\-than\-temporary impairments based on the Company's evaluation of available evidence as of December 31, 2019\.

Proceeds from sales of marketable securities were $1\.7 billion, $1\.1 billion and $1\.4 billion in 2019, 2018, and 2017\.

65


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

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

|      |                                                                                |
| ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^f)^ | Includes limited partnerships that invest primarily in U\.S\. ( 94% ) and European ( 6% ) buyout opportunities of a range of privately held companies\. 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  $903 million  over the next ten years\. |

|      |                                                                                |
| ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^g)^ | Investment includes  42%  in a collective interest trust investing primarily in short\-term securities,  40%  in an emerging market 103\-12 Investment Trust with investments in emerging country equity securities,  10%  in Canadian segregated balanced value, income growth and diversified pooled funds and  8%  in a common/collective trust investing in securities of smaller companies located outside the U\.S\., including developing markets\. For some trusts, requests for withdrawals must meet specific requirements with advance notice of redemption preferred\. |

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

|                                                                                |                                                                                |                                                                              |                                                                                |                                                     |
| -------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | --------------------------------------------------- |
|                                                                                | **Fair Value Measurements as of December 31, 2016**                                                            | **Fair Value Measurements as of December 31, 2016**                          | **Fair Value Measurements as of December 31, 2016**                            | **Fair Value Measurements as of December 31, 2016** |
| **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                                                                    | $573                                                                                | $—                                                                           | $—                                                                             | $573                                                |
| Equity securities:                                                                           |                                                                                |                                                                              |                                                                                |                                                     |
| International markets  ^(a) (b)^                                                             | 3,232                                                                                | —                                                                            | —                                                                              | 3,232                                               |
| Large\-cap companies  ^(b)^                                                                  | 2,253                                                                                | —                                                                            | —                                                                              | 2,253                                               |
| Mid\-cap companies  ^(b)^                                                                    | 371                                                                                | —                                                                            | —                                                                              | 371                                                 |
| Small\-cap companies  ^(b)^                                                                  | 6                                                                                | —                                                                            | —                                                                              | 6                                                   |
| Mutual funds  ^(c)^                                                                          | 49                                                                                | —                                                                            | —                                                                              | 49                                                  |
| Fixed income:                                                                                |                                                                                |                                                                              |                                                                                |                                                     |
| Corporate bonds  ^(d)^                                                                       | —                                                                                | 2,337                                                                        | —                                                                              | 2,337                                               |
| Government securities  ^(e)^                                                                 | —                                                                                | 150                                                                          | —                                                                              | 150                                                 |
| U\.S\. municipal securities                                                                  | —                                                                                | 37                                                                           | —                                                                              | 37                                                  |
| Alternative instruments:                                                                     |                                                                                |                                                                              |                                                                                |                                                     |
| Private equity partnerships  ^(f)^                                                           | —                                                                                | —                                                                            | 21                                                                             | 21                                                  |
| Private equity partnerships measured at net asset value  ^(f) (h)^                           | —                                                                                | —                                                                            | —                                                                              | 703                                                 |
| Common/collective trusts  ^(g)^                                                              | —                                                                                | 32                                                                           | —                                                                              | 32                                                  |
| Common/collective trusts and 103\-12 Investment Trust measured at net asset value  ^(g) (h)^ | —                                                                                | —                                                                            | —                                                                              | 227                                                 |
| Insurance group annuity contracts                                                            | —                                                                                | —                                                                            | 2                                                                              | 2                                                   |
| Dividend and interest receivable                                                             | 40                                                                                | —                                                                            | —                                                                              | 40                                                  |
| Due to/from brokers for sale of securities – net                                             | (9)                                                                                | —                                                                            | —                                                                              | (9)                                                 |
| Other liabilities – net                                                                      | (7)                                                                                | —                                                                            | —                                                                              | (7)                                                 |
| Total                                                                                | $6,508                                                                                | $2,556                                                                       | $23                                                                            | $10,017                                             |

|      |                                                                                |
| ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^a)^ | Holdings are diversified as follows:  15%  United Kingdom,  12%  Japan,  10%  France,  7%  Switzerland,  6%  Netherlands,  17%  other emerging markets and the remaining  33%  with no concentration greater than 5% in any one country\. |

112


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

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

assumptions as of December 31, 2017, our future payments through the end of the terms of our CPAs are presented in the table below (in billions):

|            |           |
|:---------- | ---------:|
| 2018       |    $2\.0  |
| 2019       |     1\.8  |
| 2020       |     1\.6  |
| 2021       |     1\.5  |
| 2022       |     1\.4  |
| After 2022 |     3\.2  |
|            |  $ 11\.5  |

The actual amounts we pay to our regional operators under CPAs could differ materially from these estimates\. For example, a 10% increase or decrease in scheduled block hours for all of United’s regional operators (whether as a result of changes in average daily utilization or otherwise) in 2018 would result in a corresponding change in annual cash obligations under the CPAs of approximately $147 million\.

**NOTE 12 \- VARIABLE INTEREST ENTITIES**

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\. Therefore, if the equity owners as a group do not have the power to direct the entity’s activities that most significantly impact its economic performance, the entity is a VIE\.

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\.

The Company’s evaluation of its association with VIEs is described below:

***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 38 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 158 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\.

***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\.

93


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

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(d)^ | Includes  $11\.9 billion  of future principal payments and  $2\.3 billion  of future interest payments as of  December 31, 2019 , related to EETCs associated with mortgage financings of certain aircraft and spare engines\.  |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(e)^ | See Part I, Item 2\. Properties –  *“Aircraft and Engine Purchase Commitments”*  for additional information about the firm commitment aircraft delivery schedule, in particular the footnotes to the table thereunder as to potential changes to such delivery schedule\. Due to uncertainty surrounding the timing of delivery of certain aircraft, the amounts in the table represent our current best estimate, including with respect to the delivery of Boeing 737 MAX aircraft; however, the actual delivery schedule may differ from the table above, potentially materially\. Additionally, the amounts in the table exclude 22 787\-8 aircraft to be delivered in 2020 and 2021 for which Boeing has committed to provide sale\-leaseback financing (in the form of operating leases)\. This financing is reflected in the operating lease commitments line above\.  |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(f)^ | Represents minimum payments under capacity purchase agreements with third\-party regional carriers\. These commitments are estimates of costs based on assumed minimum levels of flying under the capacity purchase agreements and our actual payments could differ materially\. Rental payments under operating leases for certain aircraft flown under these capacity purchase agreements are reflected in the operating lease commitments line above\. |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------- |
| ^(g)^ | Includes minimum pension contributions based on actuarially determined estimates and is based on estimated payments through 2029\. |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------- |
| ^(h)^ | Includes purchase commitments for aircraft fuel, construction projects and information technology support\. |

Capital Raising Activity and Other Possible Actions

In light of our significant financial commitments related to, among other things, new flight equipment, the servicing and amortization of existing debt and equipment leasing arrangements, and future pension funding obligations, we and our subsidiaries will regularly consider, and enter into negotiations related to, capital raising activity, which may include the entry into leasing transactions and future issuances of secured or unsecured debt obligations or additional equity securities in public or private offerings or otherwise\. The cash available from operations and these sources, however, may not be sufficient to cover cash contractual obligations because economic factors may reduce the amount of cash generated by operations or increase costs\. For instance, an economic downturn or general global instability caused by military actions, terrorism, disease outbreaks, natural disasters or other causes could reduce the demand for air travel, which would reduce the amount of cash generated by operations\. An increase in costs, either due to an increase in borrowing costs caused by a reduction in credit ratings or a general increase in interest rates, or due to an increase in the cost of fuel, maintenance, aircraft, aircraft engines or parts, could decrease the amount of cash available to cover cash contractual obligations\. Moreover, certain of our financing arrangements contain significant minimum cash balance requirements\. As a result, we cannot use all of our available cash to fund operations, capital expenditures and cash obligations without violating these requirements\. See Note 5 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 3 to American’s Consolidated Financial Statements in Part II, Item 8B for information regarding our financing arrangements\.

In the past, we have from time to time refinanced, redeemed or repurchased our debt and taken other steps to reduce or otherwise manage the aggregate amount and cost of our debt or lease obligations or otherwise improve our balance sheet\. Going forward, depending on market conditions, our cash position and other considerations, we may continue to take such actions\.

Our Board of Directors has from time to time authorized programs to repurchase shares of our common stock, one of which is currently in effect, and may authorize additional share repurchase programs in the future\.

OTHER INFORMATION

Basis of Presentation

See Note 1 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 1 to American’s Consolidated Financial Statements in Part II, Item 8B for information regarding the basis of presentation\.

64


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

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**SIGNATURES**

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

|                                                                            |                                                                            |
| -------------------------------------------------------------------------- | -------------------------------------------------------------------------- |
|  UNITED CONTINENTAL HOLDINGS, INC\.  UNITED AIRLINES, INC\.  (Registrants) |  UNITED CONTINENTAL HOLDINGS, INC\.  UNITED AIRLINES, INC\.  (Registrants) |
|  By:                                                                       |  /s/ Andrew C\. Levy                                                       |
|                                                                            |  Andrew C\. Levy                                                           |
|                                                                            |  Executive Vice President and Chief Financial  Officer                     |

Date: February 22, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of United Continental Holdings, Inc\. and in the capacities and on the date indicated\.

|                                       |                                                                                |
| ------------------------------------- | ---------------------------------------------------------------------------------- |
| Signature                             | Capacity                                                                           |
|  /s/ Oscar Munoz  Oscar Munoz         | Chief Executive Officer, Director (Principal Executive Officer)                    |
|  /s/ Andrew C\. Levy  Andrew C\. Levy | Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
|  /s/ Chris Kenny  Chris Kenny         | Vice President and Controller (Principal Accounting Officer)                       |
|  /s/ Carolyn Corvi  Carolyn Corvi     | Director                                                                           |
|  /s/ Jane C\. Garvey  Jane C\. Garvey | Director                                                                           |
|  /s/ Barney Harford  Barney Harford   | Director                                                                           |
|  /s/ Todd M\. Insler  Todd M\. Insler | Director                                                                           |
|  /s/ Walter Isaacson  Walter Isaacson | Director                                                                           |

133


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

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

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

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(g)^ | Investment includes   36%  in a common/collective trust investing in securities of larger companies within the U\.S\.,   29%  in a common/collective trust investing in securities of smaller companies located outside the U\.S\.,   16%  in a collective interest trust investing primarily in short\-term securities,   15%  in an emerging market 103\-12 Investment Trust with investments in emerging country equity securities and   4%  in Canadian segregated balanced value, income growth and diversified pooled funds\. For some trusts, requests for withdrawals must meet specific requirements with advance notice of redemption preferred\. |

|                                                                                |                                                                                |                                                                              |                                                                                |                                                     |
| --------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | --------------------------------------------------- |
|                                                                                | **Fair Value Measurements as of December 31, 2018**                                                   | **Fair Value Measurements as of December 31, 2018**                          | **Fair Value Measurements as of December 31, 2018**                            | **Fair Value Measurements as of December 31, 2018** |
| **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                                                                     | $23                                                                                | $—                                                                           | $—                                                                             | $23                                                 |
| Equity securities:                                                                            |                                                                                |                                                                              |                                                                                |                                                     |
| International markets  ^(a), (b)^                                                             | 3,181                                                                                | —                                                                            | —                                                                              | 3,181                                               |
| Large\-cap companies  ^(b)^                                                                   | 2,021                                                                                | —                                                                            | —                                                                              | 2,021                                               |
| Mid\-cap companies  ^(b)^                                                                     | 583                                                                                | —                                                                            | —                                                                              | 583                                                 |
| Small\-cap companies  ^(b)^                                                                   | 122                                                                                | —                                                                            | —                                                                              | 122                                                 |
| Fixed income:                                                                                |                                                                                |                                                                              |                                                                                |                                                     |
| Corporate debt  ^(c)^                                                                         | —                                                                                | 2,116                                                                        | —                                                                              | 2,116                                               |
| Government securities  ^(d)^                                                                  | —                                                                                | 228                                                                          | —                                                                              | 228                                                 |
| U\.S\. municipal securities                                                                   | —                                                                                | 40                                                                           | —                                                                              | 40                                                  |
| Alternative instruments:                                                                      |                                                                                |                                                                              |                                                                                |                                                     |
| Private market partnerships  ^(e)^                                                            | —                                                                                | —                                                                            | 7                                                                              | 7                                                   |
| Private market partnerships measured at net asset value  ^(e), (f)^                           | —                                                                                | —                                                                            | —                                                                              | 1,188                                               |
| Common/collective trusts  ^(g)^                                                               | —                                                                                | 218                                                                          | —                                                                              | 218                                                 |
| Common/collective trusts and 103\-12 Investment Trust measured at net asset value  ^(f), (g)^ | —                                                                                | —                                                                            | —                                                                              | 227                                                 |
| Insurance group annuity contracts                                                             | —                                                                                | —                                                                            | 2                                                                              | 2                                                   |
| Dividend and interest receivable                                                              | 47                                                                                | —                                                                            | —                                                                              | 47                                                  |
| Due to/from brokers for sale of securities – net                                              | 5                                                                                | —                                                                            | —                                                                              | 5                                                   |
| Other liabilities – net                                                                       | (7

)                                                                                | —                                                                            | —                                                                              | (7

)                                         |
| Total                                                                                | $5,975                                                                                | $2,602                                                                       | $9                                                                             | $10,001                                             |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(a)^ | Holdings are diversified as follows:   17%  United Kingdom,   10%  Japan,   8%  France,   7%  Switzerland,   6%  Ireland,   17%  emerging markets and the remaining   35%  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   77%  investments in corporate debt with a S&P rating lower than A and   23%  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   32%  investments in U\.S\. domestic government securities,   37%  in emerging market government securities and   31%  in international government securities\. There are no significant foreign currency risks within this classification\. |

147


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

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

|               |                     |
| ------------- | ------------------- |
| **ITEM 1A\.** | **RISK FACTORS\.**  |

The following risk factors should be read carefully when evaluating the Company's business and the forward\-looking statements contained in this report and other statements the Company or its representatives make from time to time\. Any of the following risks could materially and adversely affect the Company's business, operating results, financial condition and the actual outcome of matters as to which forward\-looking statements are made in this report\.

If we do not successfully execute our strategic operating plan, or if our strategic operating plan is unsuccessful, our business, operating results and financial condition could be materially and adversely affected\.

We have announced several strategic plans in recent years, including several revenue\-generating initiatives and plans to optimize our revenue, such as our plans to add capacity, including international expansion and new or increased service to mid\-size airports, and initiatives and plans to optimize and control our costs\. We also continue to explore opportunities to enhance our segmentation, including the introduction of Polaris, Basic Economy and United Premium Plus, and are implementing many programs and policies to improve the customer experience at all points in air travel\. In developing our strategic operating plan, we make certain assumptions, including, but not limited to, those related to customer demand, competition, market consolidation, the availability of aircraft and the global economy\. Actual economic, market and other conditions may be different from our assumptions\. In 2019, our capacity growth was lower than planned due to the grounding of Boeing 737 MAX aircraft, among other factors, which adversely impacted our ability to execute our strategic operating plans\. If we do not successfully execute our strategic operating plan, or if actual results vary significantly from our assumptions, our business, operating results and financial condition could be materially and adversely impacted\.

Unfavorable economic and political conditions, in the United States and globally, may have a material adverse effect on our business, operating results and financial condition\.

The Company's business and operating results are significantly impacted by U\.S\. and global economic and political conditions\. The airline industry is highly cyclical, and the level of demand for air travel is correlated to the strength of the U\.S\. and global economies\. Robust demand for the Company's air transportation services depends largely on favorable economic conditions, including the strength of the domestic and foreign economies, low unemployment levels, strong consumer confidence levels and the availability of consumer and business credit\. Air transportation is often a discretionary purchase that leisure travelers may limit or eliminate during difficult economic times\. Short\-haul travelers, in particular, have the option to replace air travel with surface travel\. In addition, during periods of unfavorable economic conditions, business travelers historically have reduced the volume of their travel, either due to cost\-saving initiatives, the replacement of travel with alternatives such as videoconferencing, or as a result of decreased business activity requiring travel\. During such periods, the Company's business and operating results may be adversely affected due to significant declines in industry passenger demand, particularly with respect to the Company's business and premium cabin travelers, and a reduction in fare levels\.

As a global business with operations outside of the United States from which it derives significant operating revenues, volatile conditions in certain international regions may have a negative impact on the Company's operating results and its ability to achieve its business objectives\. The Company's international operations are a vital part of its worldwide airline network\. Political disruptions and instability in certain regions can negatively impact the demand and network availability for air travel\. Additionally, any deterioration in global trade relations, such as increased tariffs or other trade barriers, could result in a decrease in the demand for international air travel\.

Stagnant or weakening global economic conditions either in the United States or in other geographic regions may have a material adverse effect on the Company's revenues, operating results and liquidity\.

The global airline industry is highly competitive and susceptible to price discounting and changes in capacity, which could have a material adverse effect on our business, operating results and financial condition\.

The airline industry is highly competitive, marked by significant competition with respect to routes, fares, schedules (both timing and frequency), services, products, customer service and frequent flyer programs\. Consolidation in the airline industry, the rise of well\-funded government sponsored international carriers, changes in international alliances and the creation of immunized JBAs have altered and are expected to continue to alter the competitive landscape in the industry, resulting in the formation of airlines and alliances with increased financial resources, more extensive global networks and services and competitive cost structures\.

Airlines also compete by increasing or decreasing their capacity, including route systems and the number of destinations served\. Several of the Company's domestic and international competitors have increased their international capacity by including service to some destinations that the Company currently serves, causing overlap in destinations served, and therefore, increasing competition for those destinations\. This increased competition in both domestic and international markets may have

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