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

**CONSOLIDATED STATEMENTS OF OPERATIONS**

|                                                                            |              |          |          |
| -------------------------------------------------------------------------- | ------------ | -------- | -------- |
| **Year Ended December 31**  ***(in millions, except per\-share amounts)*** | **2017**     | **2016** | **2015** |
| **Operating Revenues**                                                     |              |          |          |
| Passenger                                                                  |              |          |          |
| Mainline                                                                   | **$5,858**   | $4,098   | $3,939   |
| Regional                                                                   | **960**      | 908      | 854      |
| Total passenger revenue                                                    | **6,818**    | 5,006    | 4,793    |
| Freight and mail                                                           | **114**      | 108      | 108      |
| Other—net                                                                  | **1,001**    | 817      | 697      |
| **Total Operating Revenues**                                               | **7,933**    | 5,931    | 5,598    |
| **Operating Expenses**                                                     |              |          |          |
| Wages and benefits                                                         | **1,924**    | 1,382    | 1,254    |
| Variable incentive pay                                                     | **135**      | 127      | 120      |
| Aircraft fuel, including hedging gains and losses                          | **1,447**    | 831      | 954      |
| Aircraft maintenance                                                       | **391**      | 270      | 253      |
| Aircraft rent                                                              | **274**      | 114      | 105      |
| Landing fees and other rentals                                             | **460**      | 320      | 296      |
| Contracted services                                                        | **314**      | 247      | 214      |
| Selling expense                                                            | **357**      | 225      | 211      |
| Depreciation and amortization                                              | **372**      | 363      | 320      |
| Food and beverage service                                                  | **195**      | 126      | 113      |
| Third\-party regional carrier expense                                      | **121**      | 95       | 72       |
| Other                                                                      | **565**      | 365      | 356      |
| Special items—merger\-related costs and other                              | **118**      | 117      | 32       |
| **Total Operating Expenses**                                               | **6,673**    | 4,582    | 4,300    |
| **Operating Income**                                                       | **1,260**    | 1,349    | 1,298    |
| **Nonoperating Income (Expense)**                                          |              |          |          |
| Interest income                                                            | **34**       | 27       | 21       |
| Interest expense                                                           | **(103)**    | (55)     | (42)     |
| Interest capitalized                                                       | **17**       | 25       | 34       |
| Other—net                                                                  | **(1)**      | (1)      | 1        |
|                                                                            | **(53)**     | (4)      | 14       |
| **Income Before Income Tax**                                               | **1,207**    | 1,345    | 1,312    |
| Income tax expense                                                         | **453**      | 514      | 490      |
| Special income tax expense (benefit)                                       | **(280)**    | 17       | (26)     |
| **Total Income Tax Expense**                                               | **$173**     | $531     | $464     |
| **Net Income**                                                             | **$1,034**   | $814     | $848     |
| **Basic Earnings Per Share**                                               | **$8\.39**   | $6\.59   | $6\.61   |
| **Diluted Earnings Per Share**                                             | **$8\.35**   | $6\.54   | $6\.56   |
| Shares used for computation:                                               |              |          |          |
| Basic                                                                      | **123\.211** | 123\.557 | 128\.373 |
| Diluted                                                                    | **123\.854** | 124\.389 | 129\.372 |
| Cash dividend declared per share                                           | **$1\.20**   | $1\.10   | $0\.80   |

See accompanying notes to consolidated financial statements\.

 64


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

Results of Operations

Operating Revenue

|                                               |                                               |                                               |                         |                         |         |                          |                          |                            |                            |                            |  |  |  |
|:--------------------------------------------- |:--------------------------------------------- |:--------------------------------------------- | -----------------------:| -----------------------:| -------:| ------------------------:| ------------------------:|:--------------------------:|:--------------------------:|:--------------------------:|:- |:- |:- |
|                                               |                                               |                                               | Year Ended December 31, | Year Ended December 31, |         | Increase
(Decrease) | Increase
(Decrease) | % Increase
(Decrease) | % Increase
(Decrease) | % Increase
(Decrease) |
| (in millions)                                 | (in millions)                                 | (in millions)                                 |                    2019 |                    2018 |         | Increase
(Decrease) | Increase
(Decrease) | % Increase
(Decrease) | % Increase
(Decrease) | % Increase
(Decrease) |  |  |  |
| Ticket \- Main cabin                          | Ticket \- Main cabin                          | Ticket \- Main cabin                          |                $21,919  |                $21,196  |   $723  |                   3\.4 % |                   3\.4 % |
| Ticket \- Business cabin and premium products | Ticket \- Business cabin and premium products | Ticket \- Business cabin and premium products |                 14,989  |                 13,754  |  1,235  |                   9\.0 % |                   9\.0 % |
| Loyalty travel awards                         | Loyalty travel awards                         | Loyalty travel awards                         |                  2,900  |                  2,651  |    249  |                   9\.4 % |                   9\.4 % |
| Travel\-related services                      | Travel\-related services                      | Travel\-related services                      |                  2,469  |                  2,154  |    315  |                  14\.6 % |                  14\.6 % |
| Total passenger revenue                       | Total passenger revenue                       | Total passenger revenue                       |                $42,277  |                $39,755  | $2,522  |                   6\.3 % |                   6\.3 % |
| Cargo                                         | Cargo                                         | Cargo                                         |                    753  |                    865  |   (112) |                 (12\.9)% |                 (12\.9)% |
| Other                                         | Other                                         | Other                                         |                  3,977  |                  3,818  |    159  |                   4\.2 % |                   4\.2 % |
| Total operating revenue                       | Total operating revenue                       | Total operating revenue                       |                $47,007  |                $44,438  | $2,569  |                   5\.8 % |                   5\.8 % |
| TRASM (cents)                                 | TRASM (cents)                                 | TRASM (cents)                                 |                17\.07 ¢ |                16\.87 ¢ | 0\.20 ¢ |                   1\.2 % |                   1\.2 % |
| Third\-party refinery sales^(1)^              | Third\-party refinery sales^(1)^              | Third\-party refinery sales^(1)^              |                 (0\.04) |                 (0\.21) |  0\.17  |                      NM  |                      NM  |
| DGS sale adjustment^(1)^                      | DGS sale adjustment^(1)^                      | DGS sale adjustment^(1)^                      |                      —  |                 (0\.09) |  0\.09  |                      NM  |                      NM  |
| TRASM, adjusted (cents)                       | TRASM, adjusted (cents)                       | TRASM, adjusted (cents)                       |                17\.03 ¢ |                16\.57 ¢ | 0\.46 ¢ |                   2\.8 % |                   2\.8 % |

^(1)^ For additional information on adjustments to TRASM, see "Supplemental Information" below\.

Passenger Revenue

Ticket revenues, including both main cabin and business cabin and premium products increased $2\.0 billion compared to the year ended December 31, 2018\. Business cabin and premium products ticket revenue includes revenues from fare products other than main cabin, including Delta One, Delta Premium Select, First Class and Comfort\+\. The growth in ticket revenue was driven by strength in the Delta brand and products, capitalizing on healthy industry business and leisure demand\. We continue to take delivery of new aircraft that include more premium seats, while also generating higher paid load factor for premium products\.

Loyalty travel awards revenue increased $249 million compared to the year ended December 31, 2018 due to growth in mileage redemptions\. Travel\-related services increased $315 million compared to the year ended December 31, 2018 primarily due to increases in checked baggage and ticket change revenues\.

Passenger Revenue by Geographic Region

|                         |                         |                         |                              |                                                       |                                                       |                                                       |                                                       |                                                       |                                                       |                                                       |                                                       |                                                       |                                                       |                                                       |                                                       |                                                       |                                                       |                                                       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|:----------------------- |:----------------------- |:----------------------- | ----------------------------:| -----------------------------------------------------:| -----------------------------------------------------:| -----------------------------------------------------:| -----------------------------------------------------:| -----------------------------------------------------:| -----------------------------------------------------:| -----------------------------------------------------:| -----------------------------------------------------:| -----------------------------------------------------:| -----------------------------------------------------:| -----------------------------------------------------:| -----------------------------------------------------:|:-----------------------------------------------------:|:-----------------------------------------------------:|:-----------------------------------------------------:|:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |
|                         |                         |                         |                              | Increase (Decrease) vs\. Year Ended December 31, 2018 | Increase (Decrease) vs\. Year Ended December 31, 2018 | Increase (Decrease) vs\. Year Ended December 31, 2018 | Increase (Decrease) vs\. Year Ended December 31, 2018 | Increase (Decrease) vs\. Year Ended December 31, 2018 | Increase (Decrease) vs\. Year Ended December 31, 2018 | Increase (Decrease) vs\. Year Ended December 31, 2018 | Increase (Decrease) vs\. Year Ended December 31, 2018 | Increase (Decrease) vs\. Year Ended December 31, 2018 | Increase (Decrease) vs\. Year Ended December 31, 2018 | Increase (Decrease) vs\. Year Ended December 31, 2018 | Increase (Decrease) vs\. Year Ended December 31, 2018 | Increase (Decrease) vs\. Year Ended December 31, 2018 | Increase (Decrease) vs\. Year Ended December 31, 2018 | Increase (Decrease) vs\. Year Ended December 31, 2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| (in millions)           | (in millions)           | (in millions)           | Year Ended December 31, 2019 |                                     Passenger Revenue |                                     Passenger Revenue |                                        RPMs (Traffic) |                                        RPMs (Traffic) |                                       ASMs (Capacity) |                                       ASMs (Capacity) |                                  Passenger Mile Yield |                                  Passenger Mile Yield |                                                 PRASM |                                                 PRASM |                                           Load Factor |                                           Load Factor |                      Load Factor                      |                      Load Factor                      |                      Load Factor                      |  |  |  |
| Domestic                | Domestic                | Domestic                |                     $30,367  |                                                7\.8 % |                                                7\.8 % |                                                6\.8 % |                                                6\.8 % |                                                5\.3 % |                                                5\.3 % |                                                1\.0 % |                                                1\.0 % |                                                2\.4 % |                                                2\.4 % |                                                 1\.2  |                                                 1\.2  |                          pts                          |                          pts                          |                          pts                          |
| Atlantic                | Atlantic                | Atlantic                |                       6,381  |                                                3\.5 % |                                                3\.5 % |                                                4\.8 % |                                                4\.8 % |                                                4\.4 % |                                                4\.4 % |                                               (1\.3)% |                                               (1\.3)% |                                               (0\.9)% |                                               (0\.9)% |                                                 0\.4  |                                                 0\.4  |                          pts                          |                          pts                          |                          pts                          |
| Latin America           | Latin America           | Latin America           |                       3,002  |                                                4\.0 % |                                                4\.0 % |                                               (0\.1)% |                                               (0\.1)% |                                               (0\.9)% |                                               (0\.9)% |                                                4\.0 % |                                                4\.0 % |                                                4\.9 % |                                                4\.9 % |                                                 0\.7  |                                                 0\.7  |                          pts                          |                          pts                          |                          pts                          |
| Pacific                 | Pacific                 | Pacific                 |                       2,527  |                                               (0\.6)% |                                               (0\.6)% |                                                3\.5 % |                                                3\.5 % |                                                5\.0 % |                                                5\.0 % |                                               (4\.0)% |                                               (4\.0)% |                                               (5\.3)% |                                               (5\.3)% |                                                (1\.2) |                                                (1\.2) |                          pts                          |                          pts                          |                          pts                          |
| Total passenger revenue | Total passenger revenue | Total passenger revenue |                     $42,277  |                                                6\.3 % |                                                6\.3 % |                                                5\.5 % |                                                5\.5 % |                                                4\.6 % |                                                4\.6 % |                                                0\.8 % |                                                0\.8 % |                                                1\.7 % |                                                1\.7 % |                                                 0\.8  |                                                 0\.8  |                          pts                          |                          pts                          |                          pts                          |

Passenger revenue increased $2\.5 billion, or 6\.3%, compared to the prior year\. PRASM increased 1\.7% and passenger mile yield increased 0\.8% on 4\.6% higher capacity\. Load factor increased 0\.8 pts from the prior year to 86\.3%\.

Domestic unit revenue increased 2\.4%, resulting from our commercial initiatives, including our premium products, as well as high load factors driven by a combination of strong demand and limited industry capacity growth\.

31


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

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

As of December 31, 2017, there were approximately 0\.5 million outstanding stock option awards, 0\.1 million of which were exercisable, with weighted\-average exercise prices of $51\.67 and $34\.74, respectively, intrinsic values of $8 million and $5 million, respectively, and weighted\-average remaining contractual lives (in years) of 6\.3 and 3\.7, respectively\.

**NOTE 6 \- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)**

The tables below present the components of the Company’s AOCI, net of tax (in millions):

|                                                                  |                                                                             |      |                                          |                                |                         |      |           |
|:---------------------------------------------------------------- | ---------------------------------------------------------------------------:|:---- | ----------------------------------------:| ------------------------------:| -----------------------:|:---- | ---------:|
|                                                                  | **Pension and**
**Other**
**Postretirement**
**Liabilities** |      | **Fuel
Derivatives
Contracts** | **Investments
and Other** | **Deferred
Taxes** |      | **Total** |
| Balance at December 31, 2014                                     |                                                                      $(472) |      |                                   $(499) |                            $8  |                  $(116) |      |  $(1,079) |
| Other comprehensive income (loss) before reclassifications       |                                                                         78  | (a)  |                                    (320) |                            (5) |                     88  |      |     (159) |
| Amounts reclassified from accumulated other comprehensive income |                                                                         31  |      |                                     604  |                             —  |                   (228) |      |      407  |
| Net other comprehensive income (loss)                            |                                                                        109  |      |                                     284  |                            (5) |                   (140) |      |      248  |
| Balance at December 31, 2015                                     |                                                                      $(363) |      |                                   $(215) |                            $3  |                  $(256) |      |    $(831) |
| Other comprehensive income (loss) before reclassifications       |                                                                       (517) | (a)  |                                      (4) |                             —  |                    187  |      |     (334) |
| Amounts reclassified from accumulated other comprehensive income |                                                                         26  |      |                                     217  |                            (2) |                     95  |      |      336  |
| Net other comprehensive income (loss)                            |                                                                       (491) |      |                                     213  |                            (2) |                    282  |      |        2  |
| Balance at December 31, 2016                                     |                                                                      $(854) |      |                                     $(2) |                            $1  |                    $26  |      |    $(829) |
| Other comprehensive income (loss) before reclassifications       |                                                                       (306) | (a)  |                                       —  |                            (7) |                     74  |      |     (239) |
| Amounts reclassified from accumulated other comprehensive income |                                                                         58  |      |                                       2  |                             —  |                    (21) |      |       39  |
| Reclassification of stranded tax effects                         |                                                                          —  |      |                                       —  |                             —  |                   (118) | (b)  |     (118) |
| Net other comprehensive income (loss)                            |                                                                       (248) |      |                                       2  |                            (7) |                    (65) |      |     (318) |
| Balance at December 31, 2017                                     |                                                                    $(1,102) |      |                                      $—  |                           $(6) |                   $(39) | (c)  |  $(1,147) |

73


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

We seek to minimize the impact of carbon emissions from our operations through reductions in our fuel consumption and other efforts, and have realized reductions in our carbon emission levels since 2005\. We have reduced the fuel needs of our aircraft fleet through the retirement of older aircraft and replacement with newer, more fuel efficient aircraft\. In addition, we have implemented fuel saving procedures in our flight and ground support operations that further reduce carbon emissions\. We are also supporting efforts to develop alternative fuels and efforts to modernize the air traffic control system in the U\.S\. as part of our efforts to reduce our emissions and minimize our impact on the environment\.

Noise \. The Airport Noise and Capacity Act of 1990 recognizes the rights of operators of airports with noise problems to implement local noise abatement programs so long as such programs do not interfere unreasonably with interstate or foreign commerce or the national air transportation system\. This statute generally provides that local noise restrictions on Stage 3 aircraft first effective after October 1, 1990, require FAA approval\. While we have had sufficient scheduling flexibility to accommodate local noise restrictions in the past, our operations could be adversely impacted if locally\-imposed regulations become more restrictive or widespread\. In addition, foreign governments may allow airports to enact similar restrictions, which could adversely impact our international operations or require significant expenditure in order for our aircraft to comply with the restrictions\.

Refinery Matters \. Monroe's operation of the Trainer refinery is subject to numerous environmental laws and extensive regulations, including those relating to the discharge of materials into the environment, waste management, pollution prevention measures and greenhouse gas and other air emissions\.

Under the Energy Independence and Security Act of 2005 and 2007, the Renewable Fuel Standard ("RFS") was created, setting up specific targets of renewable fuel to be used in the U\.S\. economy by mandating the blending of renewable fuels into gasoline and on\-road diesel ("Transportation Fuels")\. Renewable Identification Numbers ("RINs") are assigned to renewable fuels produced or imported into the U\.S\. that are blended into Transportation Fuels to demonstrate compliance with this obligation\. A refiner may meet its obligation under RFS by blending the necessary volumes of renewable fuels with Transportation Fuels or by purchasing RINs in the open market or through a combination of blending and purchasing RINs\. Because Monroe blends only a small amount of renewable fuels, it must purchase the majority of its RINs requirement in the secondary market\. Market prices for RINs have been volatile, marked by periods of sharp increases and decreases primarily in response to predictions about what the EPA and/or the U\.S\. Congress will do with respect to compliance obligations\.

Other Environmental Matters \. We are subject to certain environmental laws and contractual obligations governing the management and release of regulated substances, which may require the investigation and remediation of affected sites\. Soil and/or ground water impacts have been identified at certain of our current or former leaseholds at several domestic airports\. To address these impacts, we have a program in place to investigate and, if appropriate, remediate these sites\. Although the ultimate outcome of these matters cannot be predicted with certainty, we believe that the resolution of these matters will not have a material adverse effect on our Consolidated Financial Statements\.

Civil Reserve Air Fleet Program

We participate in the Civil Reserve Air Fleet program (the "CRAF Program"), which permits the U\.S\. military to use the aircraft and crew resources of participating U\.S\. airlines during airlift emergencies, national emergencies or times of war\. We have agreed to make available under the CRAF Program a portion of our international aircraft during the contract period ending September 30, 2020\. The CRAF Program has only been activated twice since it was created in 1951\.

Employee Matters

Railway Labor Act

Our relations with labor unions representing our airline employees in the U\.S\. are governed by the Railway Labor Act\. Under the Railway Labor Act, a labor union seeking to represent an unrepresented craft or class of employees is required to file with the National Mediation Board ("NMB") an application alleging a representation dispute, along with authorization cards signed by at least 50% of the employees in that craft or class\. The NMB then investigates the dispute and, if it finds the labor union has obtained a sufficient number of authorization cards, conducts an election to determine whether to certify the labor union as the collective bargaining representative of that craft or class\. A labor union will be certified as the representative of the employees in a craft or class if more than 50% of votes cast are for representation\. A certified labor union would commence negotiations toward a collective bargaining agreement with the employer\.

10


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

Debt Issuances

In 2016, United completed two EETC offerings for a total principal amount of $2\.0 billion\. Of the $2\.0 billion, United received and recorded $708 million of proceeds as debt as of December 31, 2016 to finance the purchase of 17 aircraft\. In 2016, United borrowed approximately $369 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2016\.

Debt and Capital Lease Principal Payments

During the year ended December 31, 2016, the Company made debt and capital lease principal payments of $1\.4 billion\.

For additional information regarding these Liquidity and Capital Resource matters, see Notes 3, 10, 11 and 12to the financial statements included in Part II, Item 8 of this report\. For information regarding non\-cash investing and financing activities, see the Company's statements of consolidated cash flows\.

***Credit Ratings\.*** As of the filing date of this report, UAL and United had the following corporate credit ratings:

|                                                                                |                                                                                |                                                                                |                                                                                |
| -------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- |
|                                                                                | S&P                                                                                | Moody's                                                                                | Fitch                                                                                |
| UAL                                                                                | BB                                                                                | Ba2                                                                                | BB                                                                                |
| United                                                                                | BB                                                                                | \*                                                                                | BB                                                                                |
| \*The credit agency does not issue corporate credit ratings for subsidiary entities\.  | \*The credit agency does not issue corporate credit ratings for subsidiary entities\.  | \*The credit agency does not issue corporate credit ratings for subsidiary entities\.  | \*The credit agency does not issue corporate credit ratings for subsidiary entities\.  |

These credit ratings are below investment grade levels\. Downgrades from these rating levels, among other things, could restrict the availability, or increase the cost, of future financing for the Company\.

**Other Liquidity Matters**

Below is a summary of additional liquidity matters\. See the indicated notes to our consolidated financial statements included in Part II, Item 8 of this report for additional details related to these and other matters affecting our liquidity and commitments\.

|                                         |         |
| --------------------------------------- | ------- |
| Pension and other postretirement plans  | Note 8  |
| Long\-term debt and debt covenants      | Note 10 |
| Leases and capacity purchase agreements | Note 11 |
| Commitments and contingencies           | Note 13 |

***Contractual Obligations\.*** The Company's business is capital intensive, requiring significant amounts of capital to fund the acquisition of assets, particularly aircraft\. In the past, the Company has funded the acquisition of aircraft with cash, by using EETC financing, by entering into capital or operating leases, or through other financings\. The Company also often enters into long\-term lease commitments with airports to ensure access to terminal, cargo, maintenance and other required facilities\.

The table below provides a summary of the Company's material contractual obligations as of December 31, 2018 (in billions):

|                                                    |          |          |          |          |          |                |           |
| -------------------------------------------------- | -------- | -------- | -------- | -------- | -------- | -------------- | --------- |
|                                                    | **2019** | **2020** | **2021** | **2022** | **2023** | **After 2023** | **Total** |
| Long\-term debt (a)                                | $1\.2    | $1\.3    | $1\.3    | $1\.7    | $0\.7    | $7\.4          | $13\.6    |
| Capital lease obligations—principal portion        | 0\.2     | 0\.1     | 0\.1     | 0\.1     | —        | 0\.9           | 1\.3      |
| Total debt and capital lease obligations           | 1\.4     | 1\.4     | 1\.4     | 1\.8     | 0\.7     | 8\.3           | 14\.9     |
| Interest on debt and capital lease obligations (b) | 0\.7     | 0\.6     | 0\.5     | 0\.4     | 0\.4     | 1\.1           | 3\.6      |
| Aircraft operating lease obligations               | 0\.8     | 0\.7     | 0\.6     | 0\.4     | 0\.4     | 1\.2           | 4\.1      |
| Regional CPAs (c)                                  | 2\.2     | 2\.0     | 1\.8     | 1\.4     | 0\.8     | 3\.1           | 11\.3     |
| Other operating lease obligations                  | 1\.3     | 1\.4     | 1\.1     | 1\.0     | 1\.0     | 7\.0           | 12\.8     |
| Postretirement obligations (d)                     | 0\.1     | 0\.1     | 0\.1     | 0\.1     | 0\.1     | 0\.5           | 1\.0      |
| Pension obligations (e)                            | —        | —        | —        | 0\.3     | 0\.2     | 0\.5           | 1\.0      |
| Capital purchase obligations (f)                   | 4\.2     | 5\.3     | 3\.5     | 2\.8     | 1\.9     | 7\.0           | 24\.7     |
| Total contractual obligations                      | $10\.7   | $11\.5   | $9\.0    | $8\.2    | $5\.5    | $28\.7         | $73\.4    |

32


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

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

Cargo revenue decreased $61 million, or 6\.5%, in 2016 as compared to 2015 due to lower freight yields and lower mail volumes year\-over\-year, partially offset by an increase in freight volumes\. Freight yields were negatively impacted as air freighter competitors increased capacity in response to lower fuel prices\. Another contributing factor to the year\-over\-year decrease was a U\.S\. West Coast port labor dispute that resulted in an increase in air freight results in the first quarter of 2015\. The labor dispute was resolved during the first quarter of 2015\.

***Operating Expense***

The table below includes data related to the Company’s operating expense for the years ended December 31 (in millions, except percentage changes):

|                                                    |           |           |                              |              |
|:-------------------------------------------------- | ---------:| ---------:| ----------------------------:| ------------:|
|                                                    |  **2016** |  **2015** | **Increase
(Decrease)** | **% Change** |
| Salaries and related costs                         |  $10,275  |   $9,713  |                        $562  |        5\.8  |
| Aircraft fuel                                      |    5,813  |    7,522  |                      (1,709) |      (22\.7) |
| Regional capacity purchase                         |    2,197  |    2,290  |                         (93) |       (4\.1) |
| Landing fees and other rent                        |    2,165  |    2,203  |                         (38) |       (1\.7) |
| Depreciation and amortization                      |    1,977  |    1,819  |                         158  |        8\.7  |
| Aircraft maintenance materials and outside repairs |    1,749  |    1,651  |                          98  |        5\.9  |
| Distribution expenses                              |    1,303  |    1,342  |                         (39) |       (2\.9) |
| Aircraft rent                                      |      680  |      754  |                         (74) |       (9\.8) |
| Special charges                                    |      638  |      326  |                         312  |          NM  |
| Other operating expenses                           |    5,421  |    5,078  |                         343  |        6\.8  |
| Total operating expenses                           |  $32,218  |  $32,698  |                       $(480) |       (1\.5) |

Salaries and related costs increased $562 million, or 5\.8%, in 2016 as compared to 2015 primarily due to higher pay rates and benefit expenses driven by new and extended collective bargaining agreements, an increase in employee incentive expenses due to improvements in operational performance and a 2\.2% increase in average full\-time equivalent employees, partially offset by a reduction in profit sharing expense in 2016 as compared to 2015, a reduction in medical and dental costs and the results of certain costs savings initiatives in 2016\.

The decrease in aircraft fuel expense was primarily attributable to decreased fuel prices and a reduction in fuel hedge losses, partially offset by the impact of a 1\.4% increase in capacity\. 2016 fuel expense includes the benefit of a $20 million fuel tax refund\. The table below presents the significant changes in aircraft fuel cost per gallon for the years ended December 31 (in millions, except percentage changes):

|                                                                |                   |                   |                       |                              |                              |                              |
|:-------------------------------------------------------------- | -----------------:| -----------------:| ---------------------:| ----------------------------:| ----------------------------:| ----------------------------:|
|                                                                | **(In millions)** | **(In millions)** | **%**
**Change** | **Average price per gallon** | **Average price per gallon** | **Average price per gallon** |
|                                                                |          **2016** |          **2015** | **%**
**Change** |                     **2016** |                     **2015** |        **%**
**Change** |
| Total aircraft fuel purchase cost excluding fuel hedge impacts |          $ 5,596  |          $ 6,918  |               (19\.1) |                     $ 1\.43  |                     $ 1\.78  |                      (19\.7) |
| Hedge losses reported in fuel expense                          |              217  |              604  |                   NM  |                       0\.06  |                       0\.16  |                          NM  |
| Fuel expense                                                   |            5,813  |            7,522  |               (22\.7) |                       1\.49  |                       1\.94  |                      (23\.2) |
| Total fuel consumption (gallons)                               |            3,904  |            3,886  |                 0\.5  |                              |                              |                              |

Depreciation and amortization increased $158 million, or 8\.7%, in 2016 as compared to 2015 primarily due to additions of new aircraft, conversions of operating leases to capital leases, aircraft improvements, accelerated depreciation of certain assets related to several fleet types and increases in information technology assets\.

33


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

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

**15\. Quarterly Financial Data (Unaudited)**

Unaudited summarized financial data by quarter for 2018 and 2017 (in millions):

|                     |                   |                    |                   |                    |
| ------------------- | ----------------- | ------------------ | ----------------- | ------------------ |
|                     | **First Quarter** | **Second Quarter** | **Third Quarter** | **Fourth Quarter** |
| **2018**  **^(1)^** |                   |                    |                   |                    |
| Operating revenues  | $10,398           | $11,640            | $11,556           | $10,936            |
| Operating expenses  | 9,986             | 10,626             | 10,850            | 10,344             |
| Operating income    | 412               | 1,014              | 706               | 592                |
| Net income          | 209               | 609                | 433               | 407                |
| **2017**            |                   |                    |                   |                    |
| Operating revenues  | $9,817            | $11,224            | $10,962           | $10,607            |
| Operating expenses  | 9,077             | 9,633              | 9,713             | 9,982              |
| Operating income    | 740               | 1,591              | 1,249             | 625                |
| Net income (loss)   | 369               | 888                | 686               | (658)              |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | In the fourth quarter of 2018, American adopted the New Lease Standard as of January 1, 2018\. In accordance with the New Lease Standard, prior 2018 periods have been recast to reflect the effects of this adoption\. See Note 1(b) and Note 4 for further discussion of the New Lease Standard\.  |

American’s fourth quarter 2018 results include $220 million of total net special items that principally included $146 million of fleet restructuring expenses, $81 million of merger integration expenses, $37 million of severance costs associated with reductions of management and support staff team members, $22 million of mark\-to\-market net unrealized losses associated with certain equity investments, offset in part by a $37 million net credit resulting from mark\-to\-market adjustments on bankruptcy obligations and a $22 million income tax credit as a result of the reversal of the valuation allowance previously recognized in the first quarter of 2018 related to American’s estimated refund for AMT credits, which is no longer subject to sequestration\.

American’s fourth quarter 2017 results include $1\.2 billion of total net special items that principally included a $123 million charge for the $1,000 cash bonus and associated payroll taxes granted to mainline employees as of December 31, 2017 in recognition of the 2017 Tax Act, $81 million of merger integration expenses, $58 million of fleet restructuring expenses, a $20 million net charge resulting from mark\-to\-market adjustments on bankruptcy obligations and a $924 million special non\-cash charge to reflect the impact of lower corporate income tax rates on the Company’s deferred tax asset and liabilities due to the 2017 Tax Act, which reduced the federal corporate income tax rate from 35% to 21%\.

**16\. Transactions with Related Parties**

The following represents the net receivables (payables) to related parties (in millions):

|                                         |                  |                  |
| --------------------------------------- | ---------------- | ---------------- |
|                                         | **December 31,** | **December 31,** |
|                                         | **2018**         | **2017**         |
| AAG  ^(1)^                              | $12,808          | $10,968          |
| AAG’s wholly\-owned subsidiaries  ^(2)^ | (2,142)          | (2,146)          |
| Total                                   | $10,666          | $8,822           |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | The increase in American’s net related party receivable from AAG is primarily due to American providing the cash funding for AAG’s share repurchase and dividend programs\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | The net payable to AAG’s wholly\-owned subsidiaries consists primarily of amounts due under regional capacity purchase agreements with AAG’s wholly\-owned regional airlines operating under the brand name of American Eagle\. |

172


Annual Report of Southwest Airlines Co\. for year 2019

CBP with its inspection and processing duties; however, the Company is not able to predict the impact, if any, that various CBP measures or the lack of CBP resources will have on Company revenues and costs, either in the short\-term or the long\-term\.

International flying requires the Company to modify certain processes, as the airport environment is dramatically different in certain international locations with respect to, among other things, common\-use ticket counters and gate areas, local operating requirements, and cultural preferences\. Certain international routes served by the Company are also subject to specific aircraft equipage requirements and unique consumer behavior\. Route\-specific equipage requirements and unique consumer behavior, together or individually, may (i) restrict the Company's flexibility when scheduling and routing aircraft and crews, (ii) require the Company to modify its policies or procedures, and (iii) impact the Company's operational performance, costs, and Customer Experience\. In addition, international flying exposes the Company to certain foreign currency risks to the extent the Company chooses to, or is required to, transact in currencies other than the U\.S\. dollar\. To the extent the Company seeks to serve additional international destinations in the future, or to renew its authority to serve certain routes, it may be required to obtain necessary authority from the DOT and/or approvals from the FAA, as well as any applicable foreign government entity\.

The Company's operations in non\-U\.S\. jurisdictions may subject the Company to the laws of those jurisdictions rather than, or in addition to, 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\.

In first quarter 2019, the Company began service to Hawaii after receiving approval from the FAA for ETOPS, a regulatory requirement to operate between the U\.S\. mainland and the Hawaiian Islands\. The Company is subject to additional, ongoing, ETOPS\-specific regulatory and procedural requirements, which present 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 is subject to pending litigation\.

Regardless of merit, these litigation matters and any potential future claims against the Company may be both time consuming and disruptive to the Company's operations and cause significant expense and diversion of management attention\. Should the Company 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\.

The Company’s reputation and brand could be harmed if it were to experience significant negative publicity, including through social media\.

The Company operates in a public\-facing industry with significant exposure to social media\. Negative publicity, whether or not justified, can spread rapidly through social media\. To the extent that the Company is unable to respond timely and appropriately to negative publicity, the Company’s reputation and brand can be harmed\. Damage to the Company’s overall reputation and brand could have a negative impact on its financial results\.

Item 1B\.  Unresolved Staff Comments

None\.

28


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

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

September 1, 2017; a hearing date has not yet been set\. We believe this lawsuit is without merit and intend to vigorously defend against the allegations\.

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

*General*\. In addition to the specifically identified legal proceedings, we and our subsidiaries are also engaged in other legal proceedings from time to time\. Legal proceedings can be complex and take many months, or even years, to reach resolution, with the final outcome depending on a number of variables, some of which are not within our control\. Therefore, although we will vigorously defend ourselves in each of the actions described above and such other legal proceedings, their ultimate resolution and potential financial and other impacts on us are uncertain but could be material\. See Part I, Item 1A\. Risk Factors –*“We may be a party to litigation in the normal course of business or otherwise, which could affect our financial position and liquidity”* for unaudited additional discussion\.

***(f) Guarantees and Indemnifications***

We are party to many routine contracts in which we provide general indemnities in the normal course of business to third parties for various risks\. We are not able to estimate the potential amount of any liability resulting from the indemnities\. These indemnities are discussed in the following paragraphs\.

In our aircraft financing agreements, we generally indemnify the financing parties, trustees acting on their behalf and other relevant parties against liabilities (including certain taxes) resulting from the financing, manufacture, design, ownership, operation and maintenance of the aircraft regardless of whether these liabilities (or taxes) relate to the negligence of the indemnified parties\.

Our loan agreements and other LIBOR\-based financing transactions (including certain leveraged aircraft leases) generally obligate us to reimburse the applicable lender for incremental costs due to a change in law that imposes (i) any reserve or special deposit requirement against assets of, deposits with or credit extended by such lender related to the loan, (ii) any tax, duty or other charge with respect to the loan (except standard income tax) or (iii) capital adequacy requirements\. In addition, our loan agreements and other financing arrangements typically contain a withholding tax provision that requires us to pay additional amounts to the applicable lender or other financing party, generally if withholding taxes are imposed on such lender or other financing party as a result of a change in the applicable tax law\.

In certain transactions, including certain aircraft financing leases and loans, the lessors, lenders and/or other parties have rights to terminate the transaction based on changes in foreign tax law, illegality or certain other events or circumstances\. In such a case, we may be required to make a lump sum payment to terminate the relevant transaction\.

We have general indemnity clauses in many of our airport and other real estate leases where we as lessee indemnify the lessor (and related parties) against liabilities related to our use of the leased property\. Generally, these indemnifications cover liabilities resulting from the negligence of the indemnified parties, but not liabilities resulting from the gross negligence or willful misconduct of the indemnified parties\. In addition, we provide environmental indemnities in many of these leases for contamination related to our use of the leased property\.

Under certain contracts with third parties, we indemnify the third\-party against legal liability arising out of an action by the third\-party, or certain other parties\. The terms of these contracts vary and the potential exposure under these indemnities cannot be determined\. We have liability insurance protecting us for some of the obligations we have undertaken under these indemnities\.

American is required to make principal and interest payments for certain special facility revenue bonds issued by municipalities primarily to build or improve airport facilities and purchase equipment, which are leased to American\. The payment of principal and interest of certain special facility revenue bonds is guaranteed by AAG\. As of December 31, 2017, the remaining lease payments through 2035 guaranteeing the principal and interest on these bonds are $589 million, which are accounted for as operating leases\.

119


Annual Report of Southwest Airlines Co\. for year 2019

Reconciliation of Reported Amounts to Non\-GAAP Financial Measures  (excluding special items) (unaudited) (in millions, except per share amounts and per ASM amounts)

|                                                                                |                             |                             |             |
| -------------------------------------------------------------------------------------------------------------------- | --------------------------- | --------------------------- | ----------- |
|                                                                                | **Year ended December 31,** | **Year ended December 31,** | **Percent** |
|                                                                                | **2019**                    | **2018**                    | **Change**  |
| **Fuel and oil expense, unhedged**                                                                                | $4,299                      | $4,649                      |             |
| Add: Premium cost of fuel contracts                                                                                | 95                          | 135                         |             |
| Deduct: Fuel hedge gains included in Fuel and oil expense, net                                                       | (47)                        | (168)                       |             |
| **Fuel and oil expense, as reported**                                                                                | $4,347                      | $4,616                      |             |
| Add: Contracts settling in the current period, but for which the impact has been recognized in a prior period (a)    | —                           | 14                          |             |
| **Fuel and oil expense, excluding special items (economic)**                                                         | $4,347                      | $4,630                      | (6\.1)%     |
| **Total operating expenses, as reported**                                                                            | $19,471                     | $18,759                     |             |
| Add: Contracts settling in the current period, but for which the impact has been recognized in a prior period (a)    | —                           | 14                          |             |
| Add: Gain on sale of retired Boeing 737\-300 aircraft                                                                | —                           | 25                          |             |
| **Total operating expenses, excluding special items**                                                                | $19,471                     | $18,798                     | 3\.6 %      |
| **Operating income, as reported**                                                                                | $2,957                      | $3,206                      |             |
| Deduct: Contracts settling in the current period, but for which the impact has been recognized in a prior period (a) | —                           | (14)                        |             |
| Deduct: Gain on sale of retired Boeing 737\-300 aircraft                                                             | —                           | (25)                        |             |
| **Operating income, excluding special items**                                                                        | $2,957                      | $3,167                      | (6\.6)%     |
| **Net income, as reported**                                                                                | $2,300                      | $2,465                      |             |
| Deduct: Contracts settling in the current period, but for which the impact has been recognized in a prior period (a) | —                           | (14)                        |             |
| Deduct: Gain on sale of retired Boeing 737\-300 aircraft                                                             | —                           | (25)                        |             |
| Add: Net income tax impact of special items (b)                                                                      | —                           | 9                           |             |
| **Net income, excluding special items**                                                                              | $2,300                      | $2,435                      | (5\.5)%     |
| **Net income per share, diluted, as reported**                                                                       | $4\.27                      | $4\.29                      |             |
| Deduct: Impact from fuel contracts                                                                                | —                           | (0\.02)                     |             |
| Deduct: Impact of special items                                                                                | —                           | (0\.04)                     |             |
| Add: Net income tax impact of special items (b)                                                                      | —                           | 0\.01                       |             |
| **Net income per share, diluted, excluding special items**                                                           | $4\.27                      | $4\.24                      | 0\.7 %      |
| **Operating expenses per ASM (cents)**                                                                               | 12\.38¢                     | 11\.74¢                     |             |
| Deduct: Fuel and oil expense divided by ASMs                                                                         | (2\.76)                     | (2\.89)                     |             |
| Add: Impact of special items                                                                                | —                           | 0\.02                       |             |
| Deduct: Profitsharing expense divided by ASMs                                                                        | (0\.43)                     | (0\.34)                     |             |
| **Operating expenses per ASM, excluding Fuel and oil expense, special items, and profitsharing (cents)**             | 9\.19¢                      | 8\.53¢                      | 7\.7 %      |

(a) As a result of prior hedge ineffectiveness\.

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

48


Annual Report of Southwest Airlines Co\. for year 2019

party lessors\. The Company recorded the fair value of the aircraft acquired off operating leases, as well as any associated remaining obligations to the balance sheet as debt; and

|     |                                                                                |
| --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 3\. | An Aircraft grounding charge recorded in third quarter 2017, as a result of the Company grounding its remaining Classic aircraft on September 29, 2017\. The loss was a result of the remaining net lease payments due and certain lease return requirements that could have to be performed on these leased aircraft prior to their return to the lessors as of the cease\-use date\. The Company had not budgeted for the lease return requirements, as they were subject to negotiation with third party lessors\. |

Because management believes special items can distort the trends associated with the Company’s ongoing performance as an airline, the Company believes that evaluation of its financial performance can be enhanced by a supplemental presentation of results that exclude the impact of special items in order to enhance consistency and comparativeness with results in prior periods that do not include such items and as a basis for evaluating operating results in future periods\. The following measures are often provided, excluding special items, and utilized by the Company’s management, analysts, and investors to enhance comparability of year\-over\-year results, as well as to industry trends: Total operating expenses, non\-GAAP; Operating income, non\-GAAP; Net income, non\-GAAP; Net income per share, diluted, non\-GAAP; Operating expenses per ASM, non\-GAAP, excluding Fuel and oil expense and profitsharing; Adjusted operating income, non\-GAAP; and Income tax rate, non\-GAAP\.

The Company has also provided its calculation of return on invested capital, which is a measure of financial performance used by management to evaluate its investment returns on capital\. Return on invested capital is not a substitute for financial results as reported in accordance with GAAP, and should not be utilized in place of such GAAP results\. Although return on invested capital is not a measure defined by GAAP, it is calculated by the Company, in part, using non\-GAAP financial measures\. Those non\-GAAP financial measures are utilized for the same reasons as those noted above for Net income, non\-GAAP and Operating income, non\-GAAP\. The comparable GAAP measures include charges or benefits that are deemed "special items" that the Company believes make its results difficult to compare to prior periods, anticipated future periods, or industry trends, and the Company’s profitability targets and estimates, both internally and externally, are based on non\-GAAP results since in the vast majority of cases the "special items" cannot be reliably predicted or estimated\. The Company believes non\-GAAP return on invested capital is a meaningful measure because it quantifies the Company's effectiveness in generating returns relative to the capital it has invested in its business\. Although return on invested capital is commonly used as a measure of capital efficiency, definitions of return on invested capital differ; therefore, the Company is providing an explanation of its calculation for non\-GAAP return on invested capital in the accompanying reconciliation, in order to allow investors to compare and contrast its calculation to the calculations provided by other companies\.

Liquidity and Capital Resources

Net cash provided by operating activities for  2019  and  2018  was  $4\.0 billion  and  $4\.9 billion , respectively\. Operating cash inflows are primarily derived from providing air transportation to Customers\. The vast majority of tickets are purchased prior to the day on which travel is provided and, in some cases, several months before the anticipated travel date\. Operating cash outflows are related to the recurring expenses of airline operations\. The operating cash flows for  2019  and  2018  were impacted primarily by the Company's results of operations, as adjusted for non\-cash items as well as changes in the Air traffic liability and Accrued liabilities balances\. Operating cash flows also can be significantly impacted by the Company’s fuel and interest rate hedge positions and the corresponding cash collateral requirements associated with those positions\. The Company has the ability to post aircraft in lieu of cash collateral in certain situations\. See  Note 10  to the Consolidated Financial Statements for further information\. During  2019 , the Company had net cash inflows of  $25 million  in cash collateral from derivative counterparties\. During  2018 , the Company had net cash outflows of  $15 million  in cash collateral to derivative counterparties\. Cash flows associated with entering into new fuel derivatives, which are also classified as Other, net, operating cash flows, were net outflows of  $131 million  in  2019  and  $63 million  in  2018 \. Net cash provided by operating activities is primarily used to finance capital expenditures, repay debt, fund stock repurchases, pay dividends, and provide working capital\.

Net cash used in investing activities for  2019  and  2018  was  $303 million  and  $2\.0 billion , respectively\. Investing activities in  2019  and  2018  included Capital expenditures, Supplier proceeds, and changes in the balance of the

Company's short\-term and noncurrent investments\. During  2019 , Capital expenditures were  $1\.0 billion , the majority of which included ongoing technology projects, airport and other facility construction projects, and progress payments related to new aircraft to be delivered to the Company\. This was below initial expectations for 2019 due to the MAX grounding and resulting delay in Boeing deliveries\. The Company received  $400 million  of Supplier proceeds, which the Company considers an offset to its annual 2019 aircraft capital expenditures\. See Note  16  to the Consolidated Financial Statements for further information\. During  2018 , Capital expenditures were  $1\.9 billion , the majority of which were payments for new aircraft delivered to the Company\. During  2019 , the Company's purchases and sales of short\-term and noncurrent investments resulted in net cash inflows of  $324 million , as compared with net cash outflows of  $67 million  for  2018 \. Boeing currently has 27 MAX 8 aircraft produced and in storage for the Company\. Assuming these aircraft and no others are delivered in 2020, the Company currently estimates its annual 2020 capital expenditures to be in the range of $1\.4 billion to $1\.5 billion, including progress payments for future deliveries, and considering supplier proceeds to be received in 2020\. These expected proceeds are included in Accounts and other receivables on the Company's Consolidated Balance Sheet as of December 31, 2019, and the Company considers them to be a reduction to its annual 2020 aircraft capital expenditures\.

Net cash used in financing activities for  2019  and  2018  was  $3\.0 billion  and  $2\.5 billion , respectively\. During  2019 , the Company repaid  $615 million  in debt and finance lease obligations, compared with  $342 million  during  2018 \. During 2018, the Company received a reimbursement from the City of Houston for $116 million for the investment and updates made at Houston William P\. Hobby Airport\. The Company repurchased  $2\.0 billion  of its outstanding common stock through authorized share repurchases during both  2019  and  2018 \. The Company also paid  $372 million  in dividends to Shareholders during  2019 , compared with  $332 million  in  2018 \. Although the Company currently intends to continue paying dividends on a quarterly basis for the foreseeable future, the Company's Board of Directors may change the timing, amount, and payment of dividends on the basis of results of operations, financial condition, cash requirements, future prospects, and other factors deemed relevant by the Board of Directors\.

The Company's  2017  results are included in the Company's Annual Report on Form 10\-K for the fiscal year ended  December 31, 2018 , under Part II Item 7, Liquidity and Capital Resources\.

The Company is a "well\-known seasoned issuer" and has an effective shelf registration statement registering an indeterminate amount of debt and equity securities for future sales\. The Company currently intends to use the proceeds from any future securities sales off this shelf registration statement for general corporate purposes\.

The Company has access to a  $1\.0 billion  unsecured revolving credit facility expiring in  August 2022 \. The revolving credit agreement has an accordion feature that would allow the Company, subject to, among other things, the procurement of incremental commitments, to increase the size of the facility to $1\.5 billion\. Interest on the facility is based on the Company's credit ratings at the time of borrowing\. At the Company's current ratings, the interest cost would be LIBOR plus a spread of  100\.0 basis points \. The facility contains a financial covenant requiring a minimum coverage ratio of adjusted pre\-tax income to fixed obligations, as defined\. As of  December 31, 2019 , the Company was in compliance with this covenant and there were  no  amounts outstanding under the revolving credit facility\.

51


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

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

AVH\.  United concluded that AVH is a VIE and that United holds a variable interest through the AVH Convertible Loan and a call option on BRW's AVH shares\. However, United is not the primary beneficiary because it does not hold a material number of shares of AVH and does not have the power through the AVH Convertible Loan Agreement or any other agreement to direct the activities that most significantly impact AVH's economic performance\. See Note 8 of this report for more information regarding the AVH Convertible Loan and Note 9 of this report for more information about the AVH call options\.

NOTE 13 \- COMMITMENTS AND CONTINGENCIES

Commitments\.  As of  December 31, 2019 , United had firm commitments and options to purchase aircraft from The Boeing Company ("Boeing"), Airbus S\.A\.S\. ("Airbus") and Embraer S\.A\. ("Embraer") presented in the table below:

|                   |                                         |                                   |                                   |
| ----------------- | --------------------------------------- | --------------------------------- | --------------------------------- |
|                   |                                         | **Scheduled Aircraft Deliveries** | **Scheduled Aircraft Deliveries** |
| **Aircraft Type** | **Number of Firm  <br>Commitments (a)** | **2020**                          | **After 2020**                    |
| Airbus A321XLR    | 50                                      | —                                 | 50                                |
| Airbus A350       | 45                                      | —                                 | 45                                |
| Boeing 737 MAX    | 171                                     | 44                                | 127                               |
| Boeing 777\-300ER | 2                                       | 2                                 | —                                 |
| Boeing 787        | 16                                      | 15                                | 1                                 |
| Embraer E175      | 20                                      | 20                                | —                                 |

(a) United also has options and purchase rights for additional aircraft\.

The aircraft listed in the table above are scheduled for delivery  through  2030 \.  The Company expects to assign the purchase obligation for each of the   20  Embraer E175 aircraft to one of its regional partners at the time of such aircraft's delivery, subject to certain conditions\.  To the extent the Company and the aircraft manufacturers with which the Company has existing orders for new aircraft agree to modify the contracts governing those orders, the amount and timing of the Company's future capital commitments could change\.  United also has agreements to purchase   20  used Airbus A319 aircraft with expected delivery dates through  2022  and   19  used Boeing 737\-700 aircraft with expected delivery dates through  2021 \.

The   44  Boeing 737 MAX aircraft in the table above include   16  Boeing B737 MAX aircraft of which the Company planned to take delivery in 2019, and   28  aircraft of which the Company planned to take delivery in 2020; however, following the FAA Order, Boeing suspended deliveries of new Boeing 737 MAX aircraft\. The extent of the delay to the scheduled deliveries of new 737 MAX aircraft is expected to be impacted by the length of time the FAA Order remains in place, Boeing's production rate and the pace at which Boeing can deliver aircraft following the lifting of the FAA Order, among other factors\. As a result, the Company is unable to estimate the number of Boeing 737 MAX aircraft of which it will take delivery in 2020\.

The table below summarizes United's commitments as of  December 31, 2019 , which include aircraft and related spare engines, aircraft improvements and all non\-aircraft capital commitments (in billions):

|            |        |
| ---------- | ------ |
| 2020       | $6\.9  |
| 2021       | 4\.3   |
| 2022       | 2\.0   |
| 2023       | 1\.0   |
| 2024       | 1\.2   |
| After 2024 | 11\.3  |
|            | $26\.7 |

The Company secured   $328 million  of EETC financing to finance certain aircraft deliveries in 2020\. The Company has also secured backstop financing commitments from certain of its aircraft manufacturers for a limited number of its future aircraft deliveries, subject to certain customary conditions\. Financing may be necessary to satisfy the Company's capital commitments for its firm order aircraft and other related capital expenditures\.

Legal and Environmental\.  The Company has certain contingencies resulting from litigation and claims incident to the ordinary course of business\. As of  December 31, 2019 , management believes, after considering a number of factors, including (but not limited to) the information currently available, the views of legal counsel, the nature of contingencies to which the Company is subject and prior experience, that the ultimate disposition of the litigation and claims will not materially affect the Company's consolidated financial position or results of operations\. The Company records liabilities for legal and environmental claims

83


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

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

DELTA AIR LINES, INC\.

Consolidated Statements of Comprehensive Income

|                                              |                             |                             |                             |
| -------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                              | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
| **(in millions)**                            | **2017**                    | **2016**                    | **2015**                    |
| **Net Income**                               | $3,577                      | $4,373                      | $4,526                      |
|  Other comprehensive income (loss):          |                             |                             |                             |
| Net change in derivative contracts           | (27

)                | (43

)                | (82

)                |
| Net change in pension and other benefits     | (98

)                | (360

)               | 163                         |
| Net change in investments                    | 140                         | 42                          | (45

)                |
|  **Total Other Comprehensive Income (Loss)** | 15                          | (361

)               | 36                          |
| **Comprehensive Income**                     | $3,592                      | $4,012                      | $4,562                      |

The accompanying notes are an integral part of these Consolidated Financial Statements\.

 52


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

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

|               |                         |
| ------------- | ----------------------- |
| **ITEM 9B\.** | **OTHER INFORMATION\.** |

None\.

**PART III**

**ITEM 10\. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE\.**

Certain information required by this item with respect to UAL is incorporated by reference from UAL's definitive proxy statement for its 2019 Annual Meeting of Stockholders under the captions "Election of Directors," "Corporate Governance" and "Beneficial Ownership of Securities—Section 16(a) Beneficial Ownership Reporting Compliance\." Information regarding the executive officers of UAL is presented below\.

Information required by this item with respect to United is omitted pursuant to General Instruction I(2)(c) of Form 10\-K\.

**EXECUTIVE OFFICERS OF UAL**

**Kate Gebo\.** Age 50\. Ms\. Gebo has served as Executive Vice President Human Resources and Labor Relations of UAL and United since December 2017\. From November 2016 to November 2017, Ms\. Gebo served as Senior Vice President, Global Customer Service Delivery and Chief Customer Officer of United\. From October 2015 to November 2016, Ms\. Gebo served as Vice President of the Office of the Chief Executive Officer\. From November 2009 to October 2015, Ms\. Gebo served as Vice President of Corporate Real Estate of United\.

**Brett J\. Hart\.** Age 49\. Mr\. Hart has served as Executive Vice President, Chief Administrative Officer and General Counsel of UAL and United since May 2017\. From February 2012 to May 2017, he served as Executive Vice President and General Counsel of UAL and United\. Mr\. Hart served as acting Chief Executive Officer and principal executive officer of the Company, on an interim basis, from October 2015 to March 2016\. From December 2010 to February 2012, he served as Senior Vice President, General Counsel and Secretary of UAL, United and Continental Airlines, Inc\. ("Continental")\. From June 2009 to December 2010, Mr\. Hart served as Executive Vice President, General Counsel and Corporate Secretary at Sara Lee Corporation, a consumer food and beverage company\. From March 2005 to May 2009, Mr\. Hart served as Deputy General Counsel and Chief Global Compliance Officer of Sara Lee Corporation\.

**Gregory L\. Hart\.** Age 53\. Mr\. Hart has served as Executive Vice President and Chief Operations Officer of UAL and United since February 2014\. From December 2013 to February 2014, he served as Senior Vice President Operations of UAL and United\. From September 2012 to December 2013, Mr\. Hart served as Senior Vice President Technical Operations of United\. From October 2010 to September 2012, Mr\. Hart served as Senior Vice President Network of United and Continental\. From September 2008 to September 2010, Mr\. Hart served as Vice President Network Strategy of Continental\. Mr\. Hart joined Continental in 1997\.

**Linda P\. Jojo\.** Age 53\. Ms\. Jojo has served as Executive Vice President Technology and Chief Digital Officer of UAL and United since May 2017\. From November 2014 to May 2017, Ms\. Jojo served as Executive Vice President and Chief Information Officer of UAL and United\. From July 2011 to October 2014, Ms\. Jojo served as Executive Vice President and Chief Information Officer of Rogers Communications, Inc\., a Canadian communications and media company\. From October 2008 to June 2011, Ms\. Jojo served as Chief Information Officer of Energy Future Holdings, a Dallas\-based privately held energy company and electrical utility provider\.

**Chris Kenny\.** Age 54\. Mr\. Kenny has served as Vice President and Controller of UAL and United since October 2010\. From September 2003 to September 2010, Mr\. Kenny served as Vice President and Controller of Continental\. Mr\. Kenny joined Continental in 1997\.

**J\. Scott Kirby\.** Age 51\. Mr\. Kirby has served as President of UAL and United since August 2016\. Prior to joining the Company, from December 2013 to August 2016, Mr\. Kirby served as President of American Airlines Group and American Airlines, Inc\. Mr\. Kirby also previously served as President of US Airways from October 2006 to December 2013\. Mr\. Kirby held significant other leadership roles at US Airways and at America West prior to the 2005 merger of those carriers, including Executive Vice President—Sales and Marketing (2001 to 2006); Senior Vice President, e\-business (2000 to 2001); Vice President, Revenue Management (1998 to 2000); Vice President, Planning (1997 to 1998); and Senior Director, Scheduling and Planning (1995 to 1998)\. Prior to joining America West, Mr\. Kirby worked for American Airlines Decision Technologies and at the Pentagon\.

**Gerald Laderman\.** Age 61**\.** Mr\. Laderman has served as Executive Vice President and Chief Financial Officer since August 2018\. Mr\. Laderman served as Senior Vice President Finance, Procurement and Treasurer for UAL and United from 2013 to August 2015, and again from August 2016 to May 2018\. Mr\. Laderman additionally was acting Chief Financial Officer from

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

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

**17\. Quarterly Financial Data (Unaudited)**

Unaudited summarized financial data by quarter for 2018 and 2017 (in millions, except share and per share amounts):

|                                             |                   |                    |                   |                    |
| ------------------------------------------- | ----------------- | ------------------ | ----------------- | ------------------ |
|                                             | **First Quarter** | **Second Quarter** | **Third Quarter** | **Fourth Quarter** |
| **2018**  **^(1)^**                         |                   |                    |                   |                    |
| Operating revenues                          | $10,401           | $11,643            | $11,559           | $10,938            |
| Operating expenses                          | 10,005            | 10,639             | 10,874            | 10,367             |
| Operating income                            | 396               | 1,004              | 685               | 571                |
| Net income                                  | 159               | 556                | 372               | 325                |
| Earnings per share:                         |                   |                    |                   |                    |
| Basic                                       | $0\.34            | $1\.20             | $0\.81            | $0\.71             |
| Diluted                                     | $0\.34            | $1\.20             | $0\.81            | $0\.70             |
| Shares used for computation (in thousands): |                   |                    |                   |                    |
| Basic                                       | 472,297           | 463,533            | 460,526           | 460,589            |
| Diluted                                     | 474,598           | 464,618            | 461,507           | 461,915            |
| **2017**                                    |                   |                    |                   |                    |
| Operating revenues                          | $9,820            | $11,227            | $10,965           | $10,611            |
| Operating expenses                          | 9,083             | 9,628              | 9,709             | 9,973              |
| Operating income                            | 737               | 1,599              | 1,256             | 638                |
| Net income (loss)                           | 340               | 864                | 661               | (583)              |
| Earnings (loss) per share:                  |                   |                    |                   |                    |
| Basic                                       | $0\.67            | $1\.76             | $1\.36            | $(1\.22)           |
| Diluted                                     | $0\.67            | $1\.75             | $1\.36            | $(1\.22)           |
| Shares used for computation (in thousands): |                   |                    |                   |                    |
| Basic                                       | 503,902           | 490,818            | 484,772           | 477,165            |
| Diluted                                     | 507,797           | 492,965            | 486,625           | 477,165            |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | In the fourth quarter of 2018, we adopted the New Lease Standard as of January 1, 2018\. In accordance with the New Lease Standard, prior 2018 periods have been recast to reflect the effects of this adoption\. See Note 1(b) and Note 6 for further discussion of the New Lease Standard\.  |

Our fourth quarter 2018 results include $225 million of total net special items that principally included $146 million of fleet restructuring expenses, $81 million of merger integration expenses, $37 million of severance costs associated with reductions of management and support staff team members, $22 million of mark\-to\-market net unrealized losses associated with certain equity investments, offset in part by a $37 million net credit resulting from mark\-to\-market adjustments on bankruptcy obligations and a $22 million income tax credit as a result of the reversal of the valuation allowance previously recognized in the first quarter of 2018 related to our estimated refund for AMT credits, which is no longer subject to sequestration\.

Our fourth quarter 2017 results include $1\.1 billion of total net special items that principally included a $149 million charge for the $1,000 cash bonus and associated payroll taxes granted to mainline employees as of December 31, 2017 in recognition of the 2017 Tax Act, $81 million of merger integration expenses, $58 million of fleet restructuring expenses, a $20 million net charge resulting from mark\-to\-market adjustments on bankruptcy obligations and an $823 million special non\-cash charge to reflect the impact of lower corporate income tax rates on our deferred tax asset and liabilities due to the 2017 Tax Act, which reduced the federal corporate income tax rate from 35% to 21%\.

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