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

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

|                                                                         |                             |                             |                             |                             |                             |
| ----------------------------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                                         | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                                         | **2018**                    | **2017 (a)**                | **2016 (a)**                | **2015**                    | **2014**                    |
| **Consolidated (b)**                                                    |                             |                             |                             |                             |                             |
| Passengers (thousands) (c)                                              | 158,330                     | 148,067                     | 143,177                     | 140,369                     | 138,029                     |
| Revenue passenger miles ("RPMs") (millions) (d)                         | 230,155                     | 216,261                     | 210,309                     | 208,611                     | 205,559                     |
| Available seat miles ("ASMs") (millions) (e)                            | 275,262                     | 262,386                     | 253,590                     | 250,003                     | 246,021                     |
| Cargo revenue ton miles (millions) (f)                                  | 3,425                       | 3,316                       | 2,805                       | 2,614                       | 2,487                       |
| Passenger load factor (g)                                               | 83\.6%                      | 82\.4%                      | 82\.9%                      | 83\.4%                      | 83\.6%                      |
| Passenger revenue per available seat mile ("PRASM") (cents)             | 13\.70                      | 13\.13                      | 13\.18                      | 13\.11                      | 13\.72                      |
| Total revenue per available seat mile ("TRASM") (cents)                 | 15\.00                      | 14\.40                      | 14\.42                      | 15\.15                      | 15\.81                      |
| Average yield per revenue passenger mile ("Yield") (cents) (h)          | 16\.38                      | 15\.93                      | 15\.90                      | 15\.72                      | 16\.42                      |
| Cost per available seat mile ("CASM") (cents)                           | 13\.81                      | 13\.00                      | 12\.70                      | 13\.08                      | 14\.85                      |
| Average price per gallon of fuel, including fuel taxes                  | $2\.25                      | $1\.74                      | $1\.49                      | $1\.94                      | $2\.99                      |
| Fuel gallons consumed (millions)                                        | 4,137                       | 3,978                       | 3,904                       | 3,886                       | 3,905                       |
| Average stage length (miles) (i)                                        | 1,446                       | 1,460                       | 1,473                       | 1,487                       | 1,480                       |
| Average daily utilization of each mainline aircraft (hours:minutes) (j) |  10:45                      |  10:27                      | 10:06                       | 10:24                       | 10:26                       |

(a) PRASM, TRASM, Yield, and CASM are adjusted due to the adoption of Accounting Standards Update No\. 2014\-09, *Revenue from Contracts with Customers (Topic 606)* andAccounting Standards Update No\. 2017\-07, *Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost\.* See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information\.

(b) Includes data from our regional carriers operating under CPAs\.

(c) The number of revenue passengers measured by each flight segment flown\.

(d) The number of scheduled miles flown by revenue passengers\.

(e) The number of seats available for passengers multiplied by the number of scheduled miles those seats are flown\.

(f) The number of cargo revenue tons transported multiplied by the number of miles flown\.

(g) RPM divided by ASM\.

(h) The average passenger revenue received for each revenue passenger mile flown\.

(i) Average stage length equals the average distance a flight travels weighted for size of aircraft\.

(j) The average number of hours per day that an aircraft flown in revenue service is operated (from gate departure to gate arrival)\.

23


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

AMERICAN AIRLINES, INC\.

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

(In millions)

|                                                                                |                             |                                                       |                                                                           |                                                       |               |
| ----------------------------------------------------------------------------------------------------------------------- | --------------------------- | ----------------------------------------------------- | ------------------------------------------------------------------------- | ----------------------------------------------------- | ------------- |
|                                                                                | **Common**

**Stock** | **Additional**

**Paid\-in**

**Capital** | **Accumulated**

**Other**

**Comprehensive**

**Loss** | **Retained**

**Earnings**

**(Deficit)** | **Total**     |
| **Balance at December 31, 2016**                                                                                | $—                          | $16,624                                               | $

(5,182

)                                                  | $

(2,862

)                              | $8,580        |
| Net income                                                                                | —                           | —                                                     | —                                                                         | 1,285                                                 | 1,285         |
| Other comprehensive loss, net                                                                                | —                           | —                                                     | (69

)                                                              | —                                                     | (69

)  |
| Share\-based compensation expense                                                                                | —                           | 90                                                    | —                                                                         | —                                                     | 90            |
| Intercompany equity transfer                                                                                | —                           | 2                                                     | —                                                                         | —                                                     | 2             |
| Impact of adoption of Accounting Standards Update (ASU)

2018\-02 related to comprehensive income (See Note 1(b)) | —                           | —                                                     | (622

)                                                             | 622                                                   | —             |
| **Balance at December 31, 2017**                                                                                | —                           | 16,716                                                | (5,873

)                                                           | (955

)                                         | 9,888         |
| Net income                                                                                | —                           | —                                                     | —                                                                         | 1,658                                                 | 1,658         |
| Other comprehensive loss, net                                                                                | —                           | —                                                     | (119

)                                                             | —                                                     | (119

) |
| Share\-based compensation expense                                                                                | —                           | 86                                                    | —                                                                         | —                                                     | 86            |
| Impact of adoption of ASU 2016\-01 related to financial

instruments                                              | —                           | —                                                     | —                                                                         | 60                                                    | 60            |
| Impact of adoption of ASU 2016\-02 related to leases                                                                    | —                           | —                                                     | —                                                                         | 197                                                   | 197           |
| **Balance at December 31, 2018**                                                                                | —                           | 16,802                                                | (5,992

)                                                           | 960                                                   | 11,770        |
| Net income                                                                                | —                           | —                                                     | —                                                                         | 1,972                                                 | 1,972         |
| Other comprehensive loss, net                                                                                | —                           | —                                                     | (431

)                                                             | —                                                     | (431

) |
| Share\-based compensation expense                                                                                | —                           | 94                                                    | —                                                                         | —                                                     | 94            |
| Intercompany equity transfer                                                                                | —                           | 7                                                     | —                                                                         | 10                                                    | 17            |
| **Balance at December 31, 2019**                                                                                | $—                          | $16,903                                               | $

(6,423

)                                                  | $2,942                                                | $13,422       |

See accompanying notes to consolidated financial statements\.

121


Annual Report of Southwest Airlines Co\. for year 2017

from its fleet in September 2017 and began scheduled service with its first Boeing 737 MAX 8 aircraft in October 2017\. The Boeing 737 MAX 8 is expected to significantly reduce fuel use and CO2 emissions, as compared with the Company's other aircraft\. The Company ended 2017 with 13 Boeing 737 MAX 8 aircraft in its fleet\. The Company's fleet composition and delivery schedules are discussed in more detail below under "Properties \- Aircraft\." The Company has also undertaken a number of other fuel conservation initiatives which are discussed in detail under "Regulation \- Environmental Regulation\."

To illustrate the results of the Company's efforts to reduce fuel consumption and improve fuel efficiency, the table below sets forth the Company's available seat miles produced per fuel gallon consumed over the last five years:

|                                               |                             |                             |                             |                             |                             |
| --------------------------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                               | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** |
|                                               | **2017**                    | **2016**                    | **2015**                    | **2014**                    | **2013**                    |
| Available seat miles per fuel gallon consumed | 75\.2                       | 74\.4                       | 73\.9                       | 72\.8                       | 71\.7                       |

The Company also enters into fuel derivative contracts to manage its risk associated with significant increases in fuel prices\. The Company's fuel hedging activities, as well as the risks associated with high and/or volatile fuel prices, are discussed in more detail below under "Risk Factors," "Management’s Discussion and Analysis of Financial Condition and Results of Operations," and Note 10 to the Consolidated Financial Statements\.

Salaries, wages, and benefits expense constituted approximately 41 percent of the Company's operating expenses during 2017 and was the Company's largest operating cost\. The Company's ability to control labor costs is limited by the terms of its collective\-bargaining agreements, and increased labor costs have negatively impacted the Company's low\-cost competitive position\. The Company's labor costs, and risks associated therewith, are discussed in more detail below under "Risk Factors" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations\."

**Fare Structure**

***General***

Southwest offers a relatively simple fare structure that features competitive fares and product benefits, including unrestricted fares as well as lower fares available on a restricted basis\. Southwest fare products include three major categories: "Wanna Get Away®," "Anytime," and "Business Select®," with the goal of making it easier for Customers to choose the fare they prefer\. All fare products include the privilege of two free checked bags (weight and size limits apply), complimentary soft drinks and snacks, as well as free live and on\-demand television where available\. In addition, regardless of the fare product, Southwest does not charge fees for changes to flight reservations although fare differences may apply\.

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | "Wanna Get Away" fares are generally the lowest fares and are typically subject to advance purchase requirements\. They are nonrefundable, but, subject to Southwest's No Show Policy, funds may be applied to future travel on Southwest\.  |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| • | Anytime" fares are, subject to Southwest's No Show Policy, refundable if canceled, or funds may be applied towards future travel on Southwest\. A change or modification to a flight reservation will result in the fare becoming nonrefundable\. In addition, if this fare is purchased with nonrefundable funds, then the flight would be nonrefundable if canceled\. Anytime fares also include a higher frequent flyer point multiplier under Southwest's Rapid Rewards® frequent flyer program compared with "Wanna Get Away" fares\. The Company's frequent flyer program is discussed below under "Rapid Rewards Frequent Flyer Program\. |

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | "Business Select" fares are, subject to Southwest's No Show Policy, refundable if canceled, or funds may be applied towards future travel on Southwest\. A change or modification to a flight reservation will result in the fare becoming nonrefundable\. In addition, if this fare is purchased with nonrefundable funds, then the flight would be nonrefundable if canceled\. Upgrading to "Business Select" from another fare type will result in the fare becoming nonrefundable\. Business Select fares also include additional perks such as priority boarding with a boarding position in the first 15 boarding positions within boarding group "A," the highest frequent flyer point multiplier of all Southwest fare products, "Fly By®" priority security and/or ticket counter access in participating airports, and one complimentary adult beverage coupon for the day of travel (for Customers of legal drinking age)\.  |

7


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

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

gallon for the years ended December 31 (in millions, except percentage changes and per gallon data):

|                                  |          |          |                         |
| -------------------------------- | -------- | -------- | ----------------------- |
|                                  | **2019** | **2018** | **%**

**Change** |
| Fuel expense                     | $8,953   | $9,307   | (3\.8)                  |
| Total fuel consumption (gallons) | 4,292    | 4,137    | 3\.7                    |
| Average price per gallon         | $2\.09   | $2\.25   | (7\.1)                  |

Regional capacity purchase costs increased  $200 million , or  7\.6% , in  2019  as compared to  2018 , primarily due to a rate increase under various capacity purchase agreements with regional carriers and a 4\.1% increase in regional flying\.

Depreciation and amortization increased  $123 million , or  5\.7% , in  2019  as compared to  2018 , primarily due to the additions of new and used aircraft and new capital projects related both to infrastructure and information technology\.

Aircraft rent decreased  $145 million , or  33\.5% , in  2019  as compared to  2018 , primarily due to the purchase of leased aircraft and the conversion of certain operating leases to finance leases\.

The table below presents special charges incurred by the Company during the years ended December 31 (in millions):

|                                                            |          |          |
| ---------------------------------------------------------- | -------- | -------- |
|                                                            | **2019** | **2018** |
| Impairment of assets                                       | $171     | $377     |
| Severance and benefit costs                                | 16       | 41       |
| Termination of an engine maintenance service agreement     | —        | 64       |
| (Gains) losses on sale of assets and other special charges | 59       | 5        |
| Total special charges                                      | $246     | $487     |

See Note 14 to the financial statements included in Part II, Item 8 of this report for additional information\.

Other operating expenses increased  $474 million , or  8\.2% , in  2019  as compared to  2018 , primarily due to increased purchased services related to airport operations weather\-related costs, technology initiatives, catering costs, facility projects and crew\-related expenses\.

Nonoperating Income (Expense)\.  The following table illustrates the year\-over\-year dollar and percentage changes in the Company's nonoperating income (expense) for the years ended December 31 (in millions, except percentage changes):

|                                               |          |          |                         |              |
| --------------------------------------------- | -------- | -------- | ----------------------- | ------------ |
|                                               | **2019** | **2018** | **Increase (Decrease)** | **% Change** |
| Interest expense                              | $(731)   | $(670)   | $61                     | 9\.1         |
| Interest capitalized                          | 85       | 65       | 20                      | 30\.8        |
| Interest income                               | 133      | 101      | 32                      | 31\.7        |
| Unrealized gains (losses) on investments, net | 153      | (5)      | 158                     | NM           |
| Miscellaneous, net                            | (27)     | (72)     | (45)                    | (62\.5)      |
| Total nonoperating expense, net               | $(387)   | $(581)   | $(194)                  | (33\.4)      |

Interest expense increased  $61 million , or  9\.1% , in  2019  as compared to  2018 , primarily due to the conversion of certain operating leases to finance leases and debt issued for the acquisition of new aircraft\.

Interest income increased  $32 million , or  31\.7% , in  2019  as compared to  2018 , primarily due to higher levels of cash balances throughout the year\.

Unrealized gains (losses) on investments, net increased  $158 million  in  2019  as compared to  2018 , primarily due to the change in market value of certain of its equity investments and derivative assets\. See Notes 9 and 14 to the financial statements included in Part II, Item 8 of this report for additional information\.

Miscellaneous, net decreased  $45 million , or  62\.5% , in  2019  as compared to  2018 , primarily due to more favorable foreign exchange rates and the remeasurement of postretirement plans due to a plan change\.

Income Taxes\.  See Note 6 to the financial statements included in Part II, Item 8 of this report for information related to income taxes\.

30


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

ITEM 9\. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND  FINANCIAL DISCLOSURE

None\.

ITEM 9A\. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of our disclosure controls and procedures, which have been designed to permit us to record, process, summarize and report, within time periods specified by the SEC's rules and forms, information required to be disclosed\. Our management, including our Chief Executive Officer and Chief Financial Officer, concluded that the controls and procedures were effective as of December 31, 2019 to ensure that material information was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure\.

Changes in Internal Control

During the three months ended December 31, 2019, we did not make any changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting\.

Management's Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a\-15(f) and 15d\-15(f) under the Securities Exchange Act of 1934\. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America\.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements\. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies may deteriorate\.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2019 using the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in the 2013 Internal Control\-Integrated Framework\. Based on that evaluation, management believes that our internal control over financial reporting was effective as of December 31, 2019\.

The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by Ernst & Young LLP, an independent registered public accounting firm, which also audited our Consolidated Financial Statements for the year ended December 31, 2019\. Ernst & Young LLP's report on our internal control over financial reporting is set forth below\.

96


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

Delta is not filing any instruments evidencing any indebtedness because the total amount of securities authorized under any single such instrument does not exceed 10% of the total assets of Delta and its subsidiaries on a consolidated basis\. Copies of such instruments will be furnished to the Securities and Exchange Commission upon request\.

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.1 | [Credit Agreement, dated as of April 19, 2018, among Delta Air Lines, Inc\., as Borrower and The Lenders and JP Morgan Chase Bank, N\.A\., as Administrative Agent, Barclays Bank PLC, BNP Paribas, Citigroup Global Markets Inc\., Compass Bank, Credit Suisse AG, Cayman Islands Branch, Deutsche Bank Securities Inc\., Fifth Third Bank, Goldman Sachs Bank USA, Industrial and Commercial Bank of China Limited, New York Branch, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley Senior Funding, Inc\., PNC Bank, National Association, Standard Chartered Bank, Sumitomo Mitsui Banking Corporation, U\.S\. Bank National Association and Wells Fargo Bank, N\.A\., as Co\-Syndication Agents, and JP Morgan Chase Bank, N\.A\., Barclays Bank PLC, BNP Paribas, Citigroup Global Markets Inc\., Compass Bank, Credit Suisse AG, Cayman Islands Branch, Deutsche Bank Securities Inc\., Fifth Third Bank, Goldman Sachs Bank USA, Industrial and Commercial Bank of China Limited, New York Branch, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley Senior Funding, Inc\., PNC Capital Markets LLC, Standard Chartered Bank, Sumitomo Mitsui Banking Corporation, U\.S\. Bank National Association, Wells Fargo Bank, N\.A\., Credit Agricole Corporate and Investment Bank and Natixis, New York Branch, as Joint Lead Arrangers and Joint Bookrunners (Filed as Exhibit 10\.1 to Delta's Quarterly Report on Form 10\-Q for the quarter ended June 30, 2018)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790418000016/dal6302018ex101.htm) |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| 10\.2 | [Anchor Tenant Agreement dated as of December 9, 2010 between JFK International Air Terminal LLC and Delta Air Lines, Inc\. (Filed as Exhibit 10\.4 to Delta's Annual Report on Form 10\-K for the year ended December 31, 2010)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000095012311014364/g24877exv10w4.htm) |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.3 | [Amended and Restated Agreement of Lease by and between The Port Authority of New York and New Jersey and Delta Air Lines, Inc\., dated as of September 13, 2017 (Filed as Exhibit 10\.1 to Delta’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2017)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000017/dal9302017ex101.htm) |

|          |                                                                                |
| -------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.4(a) | [Supplemental Agreement No\. 13 to Purchase Agreement Number 2022, dated August 24, 2011, between The Boeing Company and Delta Air Lines, Inc\. relating to Boeing Model 737NG Aircraft ("Supplemental Agreement 13") (Filed as Exhibit 10\.1 to Delta's Quarterly Report on Form 10\-Q for the quarter ended September 30, 2011)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000144530511003058/dal9302011ex101.htm) |

|          |                                                                                |
| -------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.4(b) | [Supplemental Agreement No\. 17 to Purchase Agreement Number 2022, dated December 16, 2015, between The Boeing Company and Delta Air Lines, Inc\. relating to Boeing Model 737NG Aircraft ("Supplemental Agreement 17") (Filed as Exhibit 10\.6(b) to Delta’s Annual Report on Form 10\-K for the year ended December 31, 2015)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790416000018/dal12312015ex106b.htm) |

|          |                                                                                |
| -------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.4(c) | [Supplemental Agreement No\. 20 to Purchase Agreement Number 2022, dated March 30, 2017, between The Boeing Company and Delta Air Lines, Inc\. relating to Boeing Model 737NG Aircraft ("Supplemental Agreement No\. 20") (Filed as Exhibit 10\.1 to Delta's Quarterly Report on Form 10\-Q for the quarter ended March 31, 2017)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000008/dal3312017ex101.htm) |

|          |                                                                                |
| -------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.4(d) | [Letter Agreements, dated March 30, 2017, relating to Supplemental Agreement No\. 20 (Filed as Exhibit 10\.2 to Delta's Quarterly Report on Form 10\-Q for the quarter ended March 31, 2017)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000008/dal3312017ex102.htm) |

|          |                                                                                |
| -------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.5(a) | [Letter Agreements, dated August 24, 2011, relating to Supplemental Agreement 13 (Filed as Exhibit 10\.2 to Delta's Quarterly Report on Form 10\-Q for the quarter ended September 30, 2011)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000144530511003058/dal9302011ex102.htm) |

|          |                                                                                |
| -------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.5(b) | [Letter Agreements, dated December 16, 2015, relating to Supplemental Agreement 17 (Filed as Exhibit 10\.7(b) to Delta’s Annual Report on Form 10\-K for the year ended December 31, 2015)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790416000018/dal12312015ex107b.htm) |

|          |                                                                                |
| -------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| 10\.6(a) | [Aircraft General Terms Agreement, dated October 21, 1997, between The Boeing Company and Delta Air Lines, Inc\. (Filed as Exhibit 10\.6 to Delta's Quarterly Report on Form 10\-Q for the quarter ended December 31, 1997)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/0000950144-98-001674.txt) |

 102


Annual Report of Southwest Airlines Co\. for year 2019

investments, if any, are reflected in Interest income in the accompanying Consolidated Statement of Income\. Both unrealized and realized gains and/or losses associated with investments were immaterial for all years presented\.

Noncurrent investments consist of investments with maturities of greater than twelve months\. Noncurrent investments are included as a component of Other assets in the Consolidated Balance Sheet\.

Accounts and Other Receivables

Accounts and other receivables are carried at cost\. They primarily consist of amounts due from the Company's business partners and other suppliers, credit card companies associated with sales of tickets for future travel, and amounts due from business partners in the Company’s loyalty program\. See Note  15  for further information\. The allowance for doubtful accounts was immaterial at  December 31, 2019  and  2018 \. In addition, the provision for doubtful accounts and write\-offs for  2019 ,  2018 , and  2017  were each immaterial\.

Inventories

Inventories primarily consist of aircraft fuel, flight equipment expendable parts, materials, and supplies\. All of these items are carried at average cost, less an allowance for obsolescence\. These items are generally charged to expense when issued for use\. The reserve for obsolescence was immaterial at  December 31, 2019 , and  2018 \. In addition, the Company’s provision for obsolescence and write\-offs for  2019 ,  2018 , and  2017  were each immaterial\.

Property and Equipment

Property and equipment is stated at cost\. Capital expenditures include payments made for aircraft, other flight equipment, purchase deposits related to future aircraft deliveries, airport and other facility construction projects, and ground and other property and equipment\. Depreciation is provided by the straight\-line method to estimated residual values over periods of approximately   25  years for flight equipment, and  5  to   30  years for ground property and equipment\. Residual values estimated for aircraft are approximately   15 percent , and generally range from   0  to   10 percent  for ground property and equipment\. Assets constructed for others consists of airport improvement projects in which the Company is considered to have control of the asset during the construction period\. Once construction is effectively completed, the sale\-leaseback model would apply when control passes from the lessee to the lessor\. See Note  4  for further information\.

In September 2017, the Company retired its remaining   61  Boeing 737\-300 ("Classic") aircraft as part of an accelerated retirement schedule\. This resulted in a change in anticipated retirement dates, which was considered a change in estimate and was accounted for on a prospective basis as of the dates the decisions were finalized\. Therefore, the Company recorded accelerated depreciation expense over the remainder of the useful lives for each Classic aircraft and related parts\. See Note  7  for further information regarding the Company's leased aircraft fleet\. The impact on expense and earnings from the accelerated depreciation were as follows:

|                                             |                                  |
| ------------------------------------------- | -------------------------------- |
| **(in millions, except per share amounts)** | **Year ended December 31, 2017** |
| Depreciation and amortization expense       | $21                              |
| Net income \*                               | $

(19

)            |
| Net income per basic share                  | $

(0\.03

)         |
| Net income per diluted share                | $

(0\.03

)         |

\* net of profitsharing benefit and income taxes

The Company evaluates its long\-lived assets used in operations for impairment when events and circumstances indicate that the undiscounted cash flows to be generated by that asset are less than the carrying amounts of the asset and may not be recoverable\. Factors that would indicate potential impairment include, but are not limited to, significant decreases in the market value of the long\-lived asset(s), a significant change in the long\-lived asset’s physical condition, and

70


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

Information About Our Executive Officers

Edward H\. Bastian, Age 62 :  Chief Executive Officer of Delta since May 2016; President of Delta (September 2007 \- May 2016); President of Delta and Chief Executive Officer Northwest Airlines, Inc\. (October 2008 \- December 2009); President and Chief Financial Officer of Delta (September 2007 \- October 2008); Executive Vice President and Chief Financial Officer of Delta (July 2005 \- September 2007); Chief Financial Officer of Acuity Brands (June 2005 \- July 2005); Senior Vice President \- Finance and Controller of Delta (2000 \- April 2005); Vice President and Controller of Delta (1998 \- 2000)\.

Peter W\. Carter, Age 56 :  Executive Vice President \- Chief Legal Officer of Delta since July 2015; Partner of Dorsey & Whitney LLP (1999 \- 2015), including co\-chair of Securities Litigation and Enforcement practice group, chair of Policy Committee and chair of trial department\.

Glen W\. Hauenstein, Age 59 :  President of Delta since May 2016; Executive Vice President \- Chief Revenue Officer of Delta (August 2013 \- May 2016); Executive Vice President \- Network Planning and Revenue Management of Delta (April 2006 \- July 2013); Executive Vice President and Chief of Network and Revenue Management of Delta (August 2005 \- April 2006); Vice General Director \- Chief Commercial Officer and Chief Operating Officer of Alitalia (2003 \- 2005); Senior Vice President\- Network of Continental Airlines (2003); Senior Vice President \- Scheduling of Continental Airlines (2001 \- 2003); Vice President Scheduling of Continental Airlines (1998 \- 2001)\.

Paul A\. Jacobson, Age 48:  Executive Vice President \- Chief Financial Officer of Delta since August 2013; Senior Vice President and Chief Financial Officer of Delta (March 2012 \- July 2013); Senior Vice President and Treasurer of Delta (December 2007 \- March 2012); Vice President and Treasurer of Delta (August 2005 \- December 2007)\.

William P\. Lentsch, Age 56 : Executive Vice President \- Flying/Air Operations of Delta since August 2018; Senior Vice President \- Delta Connection and Delta Global Services, CEO \- Endeavor Air (April 2017 \- August 2018); Senior Vice President \- Airport Customer Service and Airline Operations of Delta (September 2013 \- April 2017); Senior Vice President \- Minnesota Operations of Delta (June 2009 \- September 2013); Senior Vice President \- Flight Operations of Northwest Airlines, Inc\. (October 2008 \- June 2009); Vice President \- Flight Operations of Northwest Airlines, Inc\. (October 2007 \- October 2008); Vice President \- Customer Service \- Minneapolis of Northwest Airlines, Inc\. (May 2006 \- October 2007); Vice President \- Station Operations of Northwest Airlines, Inc\. (July 2005 \- May 2006)\.

Rahul Samant, Age 53:  Executive Vice President \- Chief Information Officer of Delta since January 2018; Senior Vice President and Chief Information Officer of Delta (February 2016 \- December 2017); Senior Vice President and Chief Digital Officer of American International Group, Inc\. (January 2015 \- February 2016); Senior Vice President and Global Head, Application Development and Management of American International Group, Inc\. (September 2012 \- December 2014); Managing Director of Bank of America (1999 \- September 2012)\.

Steven M\. Sear, Age 54 :  President, International and Executive Vice President \- Global Sales of Delta since February 2016; Senior Vice President \- Global Sales of Delta (December 2011 \- February 2016); Vice President \- Global Sales of Delta (October 2008 \- December 2011); Vice President \- Sales & Customer Care of Northwest Airlines, Inc\. (June 2005 \- October 2008)\.

Joanne D\. Smith, Age 61:  Executive Vice President and Chief People Officer of Delta since October 2014; Senior Vice President \- In\-Flight Service of Delta (March 2007 \- September 2014); Vice President \- Marketing of Delta (November 2005 \- February 2007); President of Song (January 2005 \- October 2005); Vice President \- Marketing and Customer Service of Song (November 2002 \- December 2004)\.

W\. Gil West, Age 59:  Senior Executive Vice President and Chief Operating Officer of Delta since February 2016; Executive Vice President and Chief Operating Officer of Delta (March 2014 \- February 2016); Senior Vice President \- Airport Customer Service and Technical Operations of Delta (February 2012 \- February 2014); Senior Vice President \- Airport Customer Service of Delta (March 2008 \- January 2012); President and Chief Executive Officer of Laidlaw Transit Services (2006 \- 2007)\.

Additional Information

We make available free of charge on our website at  ir\.delta\.com  our Annual Report on Form 10\-K, our Quarterly Reports on Form 10\-Q, our Current Reports on Form 8\-K and amendments to those reports as soon as reasonably practicable after these reports are filed with or furnished to the Securities and Exchange Commission\. Information on our website is not incorporated into this Form 10\-K or our other securities filings and is not a part of those filings\.

12


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

**ITEM 2\. PROPERTIES**

**Flight Equipment and Fleet Renewal**

As of December 31, 2017, American operated a mainline fleet of 948 aircraft\. In 2017, we continued our extensive fleet renewal program, which has provided us with the youngest fleet of the major U\.S\. network carriers\. During 2017, American took delivery of 57 new mainline aircraft and retired 39 mainline aircraft\. We are supported by our wholly\-owned and third\-party regional carriers that fly under capacity purchase agreements operating as American Eagle\. As of December 31, 2017, American Eagle operated 597 regional aircraft\. During 2017, we reduced our regional fleet by a net of nine aircraft, including the addition of 63 regional aircraft and retirement of 72 regional aircraft\.

***Mainline***

As of December 31, 2017, American’s mainline fleet consisted of the following aircraft:

|                          |                                         |                                               |           |            |           |
| ------------------------ | --------------------------------------- | --------------------------------------------- | --------- | ---------- | --------- |
|                          | **Average Seating**

**Capacity** | **Average**

**Age**

**(Years)** | **Owned** | **Leased** | **Total** |
| Airbus A319              | 128                                     | 13\.8                                         | 21        | 104        | 125       |
| Airbus A320              | 150                                     | 16\.7                                         | 10        | 38         | 48        |
| Airbus A321              | 178                                     | 5\.4                                          | 165       | 54         | 219       |
| Airbus A330\-200         | 251                                     | 6\.0                                          | 15        | —          | 15        |
| Airbus A330\-300         | 291                                     | 17\.4                                         | 4         | 5          | 9         |
| Boeing 737\-800          | 160                                     | 8\.1                                          | 132       | 172        | 304       |
| Boeing 737\-8 MAX        | 172                                     | 0\.1                                          | 4         | —          | 4         |
| Boeing 757\-200          | 180                                     | 18\.1                                         | 31        | 3          | 34        |
| Boeing 767\-300ER        | 209                                     | 19\.1                                         | 24        | —          | 24        |
| Boeing 777\-200ER        | 269                                     | 17\.0                                         | 44        | 3          | 47        |
| Boeing 777\-300ER        | 310                                     | 3\.8                                          | 18        | 2          | 20        |
| Boeing 787\-8            | 226                                     | 2\.1                                          | 20        | —          | 20        |
| Boeing 787\-9            | 285                                     | 0\.7                                          | 14        | —          | 14        |
| Embraer 190              | 99                                      | 10\.2                                         | 20        | —          | 20        |
| McDonnell Douglas MD\-80 | 140                                     | 21\.3                                         | 13        | 32         | 45        |
| Total                    |                                         | 10\.1                                         | 535       | 413        | 948       |

33


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

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

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

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

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

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

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

The Company may be required to recognize losses in the future due to, among other factors, extreme fuel price volatility, tight credit markets, government regulatory changes, decline in the fair values of certain tangible or intangible assets, such as aircraft, route authorities, airport slots and frequent flyer database, unfavorable trends in historical or forecasted results of operations and cash flows and an uncertain economic environment, as well as other uncertainties\. For example, in 2019 and 2018, the Company recorded impairment charges of  $90 million  and  $206 million , respectively, associated with its Hong Kong routes, resulting in the full impairment of these assets\. The Company can provide no assurance that a material impairment loss of tangible or intangible assets will not occur in a future period\. The value of the Company's aircraft could be impacted in future periods by changes in supply and demand for these aircraft\. Such changes in supply and demand for certain aircraft types could result from the grounding of aircraft\. An impairment loss could have a material adverse effect on the Company's financial condition and operating results\.

Any damage to our reputation or brand image could adversely affect our business or financial results\.

We operate in a public\-facing industry and maintaining a good reputation is critical to our business\. The Company's reputation or brand image could be adversely impacted by any failure to maintain satisfactory practices for all of our operations and activities, any failure to achieve and/or make progress toward our environmental and sustainability goals, public pressure from investors or policy groups to change our policies, customer perceptions of our advertising campaigns, sponsorship arrangements or marketing programs, customer perceptions of our use of social media, or customer perceptions of statements made by us, our employees and executives, agents or other third parties\. Damage to our reputation or brand image or loss of customer confidence in our services could adversely affect our business and financial results, as well as require additional resources to rebuild our reputation\.

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

None\.

22


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

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

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Unrealized gains and losses on short\-term investments are recorded in accumulated other comprehensive loss at each measurement date\.  |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | All short\-term investments are classified as available\-for\-sale and stated at fair value\. Our short\-term investments as of  December 31, 2019  mature in one year or less except for   $1\.1 billion  of bank notes/certificates of deposit/time deposits and   $95 million  of corporate obligations\.  |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| ^(3)^ | Long\-term investments primarily include our equity investment in China Southern Airlines, in which we presently own a   2\.2%  equity interest, and are classified in other assets on the consolidated balance sheets\. |

Fair Value of Debt

The fair value of our long\-term debt was estimated using quoted market prices or discounted cash flow analyses, based on our current estimated incremental borrowing rates for similar types of borrowing arrangements\. If our long\-term debt was measured at fair value, it would have been classified as Level 2 in the fair value hierarchy\.

The carrying value and estimated fair value of our long\-term debt, including current maturities, were as follows (in millions):

|                                               |                               |                           |                               |                           |
| --------------------------------------------- | ----------------------------- | ------------------------- | ----------------------------- | ------------------------- |
|                                               | **December 31, 2019**         | **December 31, 2019**     | **December 31, 2018**         | **December 31, 2018**     |
|                                               | **Carrying**

**Value** | **Fair**

**Value** | **Carrying**

**Value** | **Fair**

**Value** |
| Long\-term debt, including current maturities | $23,645                       | $24,508                   | $23,779                       | $23,775                   |

10\. Employee Benefit Plans

We sponsor defined benefit and defined contribution pension plans for eligible employees\. The defined benefit pension plans provide benefits for participating employees based on years of service and average compensation for a specified period of time before retirement\. Effective November 1, 2012, substantially all of our defined benefit pension plans were frozen and we began providing enhanced benefits under our defined contribution pension plans for certain employee groups\. We use a December 31 measurement date for all of our defined benefit pension plans\. We also provide certain retiree medical and other postretirement benefits, including health care and life insurance benefits, to retired employees\. Effective November 1, 2012, we modified our retiree medical and other postretirement benefits plans to eliminate the company subsidy for employees who retire on or after November 1, 2012\. As a result of modifications to our retiree medical and other postretirement benefits plans in 2012, we recognized a negative plan amendment of   $1\.9 billion , which is included as a component of prior service benefit in accumulated other comprehensive income (loss) (AOCI) and will be amortized over the future service life of the active plan participants for whom the benefit was eliminated, or approximately   eight years \. As of  December 31, 2019 ,   $150 million  of prior service benefit remains, which will be fully amortized in 2020\.

Benefit Obligations, Fair Value of Plan Assets and Funded Status

The following tables provide a reconciliation of the changes in the pension and retiree medical and other postretirement benefits obligations, fair value of plan assets and a statement of funded status as of  December 31, 2019  and  2018 :

|                                           |                      |                      |                                                                   |                                                                   |
| ----------------------------------------- | -------------------- | -------------------- | ----------------------------------------------------------------- | ----------------------------------------------------------------- |
|                                           | **Pension Benefits** | **Pension Benefits** | **Retiree Medical and**

**Other Postretirement Benefits** | **Retiree Medical and**

**Other Postretirement Benefits** |
|                                           | **2019**             | **2018**             | **2019**                                                          | **2018**                                                          |
|                                           | **(In millions)**    | **(In millions)**    | **(In millions)**                                                 | **(In millions)**                                                 |
| Benefit obligation at beginning of period | $16,378              | $18,275              | $837                                                              | $1,011                                                            |
| Service cost                              | 2                    | 3                    | 3                                                                 | 5                                                                 |
| Interest cost                             | 703                  | 674                  | 33                                                                | 35                                                                |
| Actuarial (gain) loss  ^(1), (2)^         | 1,965                | (1,910

)      | 20                                                                | (133

)                                                     |
| Settlements                               | (2

)          | (4

)          | —                                                                 | —                                                                 |
| Benefit payments                          | (689

)        | (662

)        | (74

)                                                      | (81

)                                                      |
| Other                                     | 1                    | 2                    | 5                                                                 | —                                                                 |
| Benefit obligation at end of period       | $18,358              | $16,378              | $824                                                              | $837                                                              |

98


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

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

Depreciation and Amortization\.  The increase in depreciation expense primarily results from new aircraft deliveries, including B\-737\-900ER, A321\-200, A330\-300 and A350\-900 aircraft, fleet modifications and accelerated depreciation due to the planned retirement of our MD\-88 fleet and two B\-767\-300ER aircraft\.

Contracted Services\.  The increase in contracted services expense predominantly relates to additional contract labor expenses associated with investments in our technology infrastructure and other activities to improve the customer experience\.

Aircraft Maintenance Materials and Outside Repairs\.  Aircraft maintenance materials and outside repairs consist of costs associated with the maintenance of aircraft used in our operations and costs associated with maintenance sales to third parties by our MRO business\. The increase in aircraft maintenance materials and outside repairs expense primarily relates to an increase in maintenance activity in order to enhance service reliability of certain aircraft\.

Passenger Service\.  Passenger service expense includes the costs of onboard food and beverage, cleaning and supplies\. The increase in passenger service expense predominantly relates to costs associated with enhancements to our onboard product offering and higher traffic\.

Aircraft Rent\.  The increase in aircraft rent primarily results from new leased aircraft deliveries since the prior year, including B\-737\-900ER and A321\-200 aircraft\.

Other\.  The increase in other expense primarily relates to costs associated with sales of non\-jet fuel products to third parties by our oil refinery\.

 31


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

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

12\.  Operating Segments and Related Disclosures

American is managed as a single business unit that provides air transportation for passengers and cargo\. This allows it to benefit from an integrated revenue pricing and route network that includes American and AAG’s wholly\-owned and third\-party regional carriers that fly under capacity purchase agreements operating as American Eagle\. The flight equipment of all these carriers is combined to form   one  fleet that is deployed through a single route scheduling system\. Financial information and annual operational plans and forecasts are prepared and reviewed by the chief operating decision maker at the consolidated level\. When making operational decisions, the chief operating decision maker evaluates flight profitability data, which considers aircraft type and route economics, but is indifferent to the results of the individual regional carriers\. The objective in making operational decisions is to maximize consolidated financial results, not the individual results of American or American Eagle\.

See Note 1(k) for American’s passenger revenue by geographic region\. American’s tangible assets consist primarily of flight equipment, which are mobile across geographic markets and, therefore, have not been allocated\.

13\. Share\-based Compensation

The 2013 AAG Incentive Award Plan (the 2013 Plan) provides that awards may be in the form of an option, restricted stock award, restricted stock unit award, performance award, dividend equivalent award, deferred stock award, deferred stock unit award, stock payment award or stock appreciation right\. The 2013 Plan initially authorized the grant of awards for the issuance of up to   40 million  shares\. Any shares underlying awards granted under the 2013 Plan that are forfeited, terminate or are settled in cash (in whole or in part) without the delivery of shares will again be available for grant\.

American’s salaries, wages and benefits expense for the years ended  December 31, 2019 ,  2018  and  2017  included   $95 million ,   $88 million  and   $90 million , respectively, of share\-based compensation costs\.

During  2019 ,  2018  and  2017 , AAG withheld approximately   0\.8 million ,   0\.8 million  and   1\.1 million  shares of AAG common stock, respectively, and paid approximately   $25 million ,   $37 million  and   $51 million , respectively, in satisfaction of certain tax withholding obligations associated with employee equity awards\.

Restricted Stock Unit Awards (RSUs)

The majority of American’s RSUs have service conditions (time vested primarily over   three years )\. The grant\-date fair value of these RSUs is equal to the market price of the underlying shares of AAG common stock on the date of grant\. The expense for these RSUs is recognized on a straight\-line basis over the vesting period for the entire award\. RSUs are classified as equity awards as the vesting results in the issuance of shares of AAG common stock\.

RSU award activity for all plans for the years ended  December 31, 2019 ,  2018  and  2017  is as follows:

|                                  |                      |                                            |
| -------------------------------- | -------------------- | ------------------------------------------ |
|                                  | **Number of Shares** | **Weighted Average Grant Date Fair Value** |
|                                  | **(In thousands)**   |                                            |
| Outstanding at December 31, 2016 | 5,187                | $41\.48                                    |
| Granted                          | 2,309                | 48\.58                                     |
| Vested and released              | (2,708

)      | 39\.63                                     |
| Forfeited                        | (464

)        | 44\.48                                     |
| Outstanding at December 31, 2017 | 4,324                | $46\.94                                    |
| Granted                          | 2,194                | 47\.65                                     |
| Vested and released              | (1,999

)      | 44\.99                                     |
| Forfeited                        | (199

)        | 45\.72                                     |
| Outstanding at December 31, 2018 | 4,320                | $44\.29                                    |
| Granted                          | 3,206                | 34\.00                                     |
| Vested and released              | (2,002

)      | 44\.90                                     |
| Forfeited                        | (337

)        | 42\.55                                     |
| Outstanding at December 31, 2019 | 5,187                | $37\.01                                    |

155


Annual Report of Southwest Airlines Co\. for year 2017

**Liquidity and Capital Resources**

Net cash provided by operating activities for 2017, 2016, and 2015 was $3\.9 billion, $4\.3 billion, and $3\.2 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 2017, 2016, and 2015 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 2017 and 2016, the Company had net cash inflows of $316 million and $535 million, respectively, in cash collateral from derivative counterparties\. During 2015, the Company provided $570 million in cash collateral to derivative counterparties\. Cash flows related to the purchase of derivatives utilized to offset a portion of the Company's future fuel hedge positions prior to their settlement, as well as new fuel derivatives, which are also classified as Other, net, operating cash flows, were net outflows of $142 million in 2017, $165 million in 2016, and $556 million in 2015\. 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 2017, 2016, and 2015 was $2\.4 billion, $2\.3 billion, and $1\.9 billion, respectively\. Investing activities in 2017, 2016, and 2015 included Capital expenditures, primarily related to aircraft and other equipment, and payments associated with airport construction projects, denoted as Assets constructed for others, and also included purchases and sales of short\-term and noncurrent investments\. See Note 4 to the Consolidated Financial Statements for further information\. During 2017, Capital expenditures were $2\.1 billion, the majority of which were payments for new aircraft delivered to the Company, but also included payments associated with airport and other facility construction projects and technology projects\. This compared with $2\.0 billion in Capital expenditures during both 2016 and 2015\. During 2017 and 2016, the Company's purchases and sales of short\-term and noncurrent investments resulted in net cash outflows of $159 million and $125 million, respectively, and a net cash inflow of $237 million in 2015\. The Company currently estimates its 2018 capital expenditures will be approximately $1\.9 billion\.

Net cash used in financing activities for 2017, 2016, and 2015 was $1\.7 billion, $1\.9 billion, and $1\.0 billion, respectively\. During 2017, the Company repaid $592 million in debt and capital lease obligations, compared with $591 million (including convertible notes) and $213 million during 2016 and 2015, respectively\. During 2017, the Company issued, under its shelf registration statement, $300 million 2\.75% senior unsecured notes due 2022 and $300 million 3\.45% senior unsecured notes due 2027, compared with the 2016 borrowing of $215 million under a secured term loan agreement and issuance of $300 million3\.00% senior unsecured notes due 2026 under its shelf registration statement, and the 2015 issuance of $500 million 2\.65% senior unsecured notes due 2020 under its shelf registration statement\. See Note 6 to the Consolidated Financial Statements for further information\. The Company repurchased $1\.6 billion of its outstanding common stock through authorized share repurchases during 2017, compared with repurchases of $1\.8 billion and $1\.2 billion during 2016 and 2015, respectively\. The Company also paid $274 million in dividends to Shareholders during 2017, compared with $222 million in 2016 and $180 million in 2015\. 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 is a "well\-known seasoned issuer" and currently 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 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

55


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

Investing Activities

Our net cash used in investing activities was  $2\.2 billion  and  $2\.0 billion  in  2019  and  2018 , respectively\.

Our principal investing activities in  2019  included expenditures of  $4\.3 billion  for property and equipment, including 21 Embraer E175 aircraft, 12 Bombardier CRJ900 aircraft, 12 Airbus A321neo aircraft, four Boeing 737 MAX aircraft and two Boeing 787 Family aircraft\. These cash outflows were offset in part by  $960 million  in net  sales  of short\-term investments,  $850 million  of proceeds from aircraft sale\-leaseback transactions and  $250 million  in proceeds from a vendor\.

Our principal investing activities in  2018  included expenditures of  $3\.7 billion  for property and equipment, including 16 Boeing 737 MAX aircraft, six Boeing 787 family aircraft and five Embraer E175 aircraft\. These cash outflows were offset in part by  $1\.1 billion  of proceeds from aircraft sale\-leaseback transactions and  $293 million  in net  sales  of short\-term investments\.

Financing Activities

Our net cash used in financing activities was  $1\.6 billion  and  $1\.7 billion  in  2019  and  2018 , respectively\.

Our principal financing activities in  2019  included  $4\.2 billion  in debt repayments, consisting of  $2\.9 billion  in scheduled debt repayments and the prepayment of  $1\.3 billion  of secured loans\. We also had  $1\.1 billion  in share repurchases and  $178 million  in dividend payments\. These cash outflows were offset in part by  $4\.0 billion  in proceeds from the issuance of debt, consisting of  $3\.2 billion  in connection with the issuance of equipment notes related to EETCs and the financing of certain aircraft and other flight equipment, as well as the issuance of  $750 million  aggregate principal amount of  5\.000%  senior notes\.

Our principal financing activities in  2018  included  $2\.9 billion  in debt repayments, consisting of  $2\.4 billion  in scheduled debt repayments and the prepayment of  $513 million  of secured loans\. We also had  $837 million  in share repurchases and  $186 million  in dividend payments\. These cash outflows were offset in part by  $2\.4 billion  in proceeds from the issuance of debt, consisting of  $1\.9 billion  in connection with the issuance of equipment notes related to EETCs and the financing of certain aircraft and pre\-delivery purchase deposits, as well as an incremental  $500 million  on a term loan facility\.

American

2019  Compared to  2018

Operating Activities

American’s net cash provided by operating activities was  $2\.4 billion  and  $1\.9 billion  in  2019  and  2018 , respectively, a year\-over\-year  increase  of  $486 million \. This  increase  in operating cash flows was primarily due to higher profitability in  2019  as well as working capital increases principally in American's air traffic liability and loyalty program deferred revenue\. These increases were offset in part by higher contributions to American's defined benefit pension plans in  2019  as compared to  2018 \.

Investing Activities

American’s net cash used in investing activities was  $2\.1 billion  and  $1\.9 billion  in  2019  and  2018 , respectively\.

American’s principal investing activities in  2019  included expenditures of  $4\.2 billion  for property and equipment, including 21 Embraer E175 aircraft, 12 Bombardier CRJ900 aircraft, 12 Airbus A321neo aircraft, four Boeing 737 MAX aircraft and two Boeing 787 Family aircraft\. These cash outflows were offset in part by  $960 million  in net  sales  of short\-term investments,  $850 million  of proceeds from aircraft sale\-leaseback transactions and  $250 million  in proceeds from a vendor\.

American’s principal investing activities in  2018  included expenditures of  $3\.7 billion  for property and equipment, including 16 Boeing 737 MAX aircraft, six Boeing 787 family aircraft and five Embraer E175 aircraft\. These cash outflows were offset in part by  $1\.1 billion  of proceeds from aircraft sale\-leaseback transactions and  $293 million  in net  sales  of short\-term investments\.

Financing Activities

American’s net cash used in financing activities was  $282 million  and  $147 million  in  2019  and  2018 , respectively\.

61


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

We have no off\-balance sheet arrangements of the types described in the first three categories above that we believe may have a material current or future effect on financial condition, liquidity or results of operations\. Certain guarantees that we do not expect to have a material current or future effect on our financial condition, liquidity or results of operations are disclosed in Note 12(d) to AAG’s Consolidated Financial Statements included in Part II, Item 8A and Note 10(d) to American’s Consolidated Financial Statements in Part II, Item 8B\.

*Pass\-Through Trusts*

We have financed certain aircraft and engines with EETCs, issued by pass\-through trusts\. These trusts are off\-balance sheet entities, the primary purpose of which is to finance the acquisition of flight equipment\. Rather than finance each aircraft separately when such aircraft is purchased, delivered or refinanced, these trusts allow American to raise the financing for a number of aircraft at one time and, if applicable, place such funds in escrow pending a future purchase, delivery or refinancing of the relevant aircraft\. The trusts have also been structured to provide for certain credit enhancements, such as liquidity facilities to cover certain interest payments, that reduce the risks to the purchasers of the trust certificates and, as a result, reduce the cost of aircraft financing to American\.

Each trust covers a set number of aircraft scheduled to be delivered or refinanced upon the issuance of the EETC or within a specific period of time thereafter\. At the time of each covered aircraft financing, the relevant trust used the proceeds of the issuance of the EETC (which may have been available at the time of issuance thereof or held in escrow until financing of the applicable aircraft following its delivery) to purchase equipment notes relating to the financed aircraft\. The equipment notes are issued, at American’s election, in connection with a mortgage financing of the aircraft or, in certain cases, by a separate owner trust in connection with a leveraged lease financing of the aircraft\. In the case of a leveraged lease financing, the owner trust then leases the aircraft to American\. In both cases, the equipment notes are secured by a security interest in the aircraft\. The pass\-through trust certificates are not direct obligations of, nor are they guaranteed by, AAG or American\. However, in the case of mortgage financings, the equipment notes issued to the trusts are direct obligations of American and, in certain instances, have been guaranteed by AAG\. As of December 31, 2018, $11\.6 billion associated with these mortgage financings is reflected as debt in the accompanying consolidated balance sheet\.

With respect to leveraged leases, American evaluated whether the leases had characteristics of a variable interest entity\. American concluded the leasing entities met the criteria for variable interest entities\. American generally is not the primary beneficiary of the leasing entities if the lease terms are consistent with market terms at the inception of the lease and do not include a residual value guarantee, fixed\-price purchase option or similar feature that obligates American to absorb decreases in value or entitles American to participate in increases in the value of the aircraft\. American does not provide residual value guarantees to the bondholders or equity participants in the trusts\. Some leases have a fair market value or a fixed price purchase option that allows American to purchase the aircraft at or near the end of the lease term\. However, the option price approximates an estimate of the aircraft’s fair value at the option date\. Under this feature, American does not participate in any increases in the value of the aircraft\. American concluded it is not the primary beneficiary under these arrangements\. Therefore, American accounts for the majority of its EETC leveraged lease financings as operating leases\. American’s total future payments to the trusts of each of the relevant EETCs under these leveraged lease financings are$352 million as of December 31, 2018\.

*Letters of Credit and Other*

We provide financial assurance, such as letters of credit, surety bonds or restricted cash and investments, primarily to support projected workers’ compensation obligations and airport commitments\. As of December 31, 2018, we had $460 million of letters of credit and surety bonds securing various obligations\. The letters of credit and surety bonds that are subject to expiration will expire on various dates through 2022\.

69


Annual Report of Southwest Airlines Co\. for year 2018

**Item 9\.** ***Changes in and Disagreements With Accountants on Accounting and Financial Disclosure***

None\.

**Item 9A\.** ***Controls and Procedures***

*Evaluation of Disclosure Controls and Procedures\.* The Company maintains disclosure controls and procedures (as defined in Rule 13a\-15(e) of the Securities Exchange Act (the “Exchange Act”)) designed to provide reasonable assurance that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms\. These include controls and procedures designed to ensure that this information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure\. Management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2018\. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2018, at the reasonable assurance level\.

*Management’s Annual Report on Internal Control over Financial Reporting\.* Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a\-15(f) of the Exchange Act)\. The Company’s internal control over financial reporting is a process, under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States\.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements\. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives\.

Management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018\. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control \- Integrated Framework (2013 Framework)\. Based on this evaluation, management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, concluded that, as of December 31, 2018, the Company’s internal control over financial reporting was effective\.

Ernst & Young, LLP, the independent registered public accounting firm who audited the Company’s Consolidated Financial Statements included in this Form 10\-K, has issued a report on the Company’s internal control over financial reporting, which is included herein\.

*Changes in Internal Control over Financial Reporting\.* There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a\-15(f) of the Exchange Act) during the quarter ended December 31, 2018, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting\.

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

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

agreements, particularly in the U\.S\., often contain provisions for periodic adjustments to rates and charges applicable under such agreements\. These rates and charges also vary with American’s level of operations and the operations of the airport\. Additionally, at American’s hub locations and in certain other cities it serves, American leases administrative offices, catering, cargo, training, maintenance and other facilities\.

The components of lease expense were as follows (in millions):

|                               |                                       |
| ----------------------------- | ------------------------------------- |
|                               | **Year Ended  <br>December 31, 2018** |
| Operating lease cost          | $1,889                                |
| Finance lease cost:           |                                       |
| Amortization of assets        | 78                                    |
| Interest on lease liabilities | 48                                    |
| Variable lease cost           | 2,353                                 |
| Total net lease cost          | $4,368                                |

Included in the table above is $226 million of operating lease cost under American’s capacity purchase agreement with Republic\. American holds a 25% equity interest in Republic Holdings, the parent company of Republic\.

Supplemental balance sheet information related to leases was as follows (in millions, except lease term and discount rate):

|                                                   |                       |
| ------------------------------------------------- | --------------------- |
|                                                   | **December 31, 2018** |
| Operating leases:                                 |                       |
| Operating lease ROU assets                        | $9,094                |
| Current operating lease liabilities               | 1,639                 |
| Noncurrent operating lease liabilities            | 7,857                 |
| Total operating lease liabilities                 | $9,496                |
| Finance leases:                                   |                       |
| Property and equipment, at cost                   | $936                  |
| Accumulated amortization                          | (391)                 |
| Property and equipment, net                       | $545                  |
| Current obligations of finance leases             | $81                   |
| Finance leases, net of current obligations        | 613                   |
| Total finance lease liabilities                   | $694                  |
| Weighted average remaining lease term (in years): |                       |
| Operating leases                                  | 7\.6                  |
| Finance leases                                    | 7\.4                  |
| Weighted average discount rate:                   |                       |
| Operating leases                                  | 4\.6%                 |
| Finance leases                                    | 6\.5%                 |

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