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

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The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statements of consolidated cash flows:

|                                                                                |                     |                     |                     |                     |                     |                     |
|:-------------------------------------------------------------------------------------------------- | -------------------:| -------------------:| -------------------:| -------------------:| -------------------:| -------------------:|
|                                                                                |             **UAL** |             **UAL** |             **UAL** |          **United** |          **United** |          **United** |
|                                                                                | **At December 31,** | **At December 31,** | **At December 31,** | **At December 31,** | **At December 31,** | **At December 31,** |
|                                                                                |            **2017** |            **2016** |            **2015** |            **2017** |            **2016** |            **2015** |
| Current assets:                                                                                |                     |                     |                     |                     |                     |                     |
| Cash and cash equivalents                                                                          |              $1,482 |              $2,179 |              $3,006 |              $1,476 |              $2,173 |              $3,000 |
| Restricted cash included in Prepaid expenses and other                                             |                  18 |                   — |                   2 |                  18 |                   — |                   2 |
| Other assets:                                                                                |                     |                     |                     |                     |                     |                     |
| Restricted cash                                                                                |                  91 |                 124 |                 204 |                  91 |                 124 |                 204 |
| Total cash, cash equivalents and restricted cash shown in the statement of consolidated cash flows |              $1,591 |              $2,303 |              $3,212 |              $1,585 |              $2,297 |              $3,206 |

|     |                                                                                |
| --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (e) | **Short\-term Investments—**Short\-term investments are classified as   available\-for\-sale and are stated at fair value\. Realized gains and losses on sales of investments are reflected in nonoperating income (expense) in the consolidated statements of operations\. Unrealized gains and losses on   available\-for\-sale securities are reflected as a component of accumulated other comprehensive income (loss)\. |

|      |                                                                                |
| ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (f)  | **Aircraft Fuel, Spare Parts and Supplies—**The Company accounts for aircraft fuel, spare parts and supplies at average cost and provides an obsolescence allowance for aircraft spare parts with an assumed residual value of 10% of original cost\. |

|      |                                                                                |
| ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (g)  | **Property and Equipment—**The Company records additions to owned operating property and equipment at cost when acquired\. Property under capital leases and the related obligation for future lease payments are recorded at an amount equal to the initial present value of those lease payments\. Modifications that enhance the operating performance or extend the useful lives of airframes or engines are capitalized as property and equipment\. It is the Company’s policy to record compensation from delays in delivery of aircraft as a reduction of the cost of the related aircraft\. |

Depreciation and amortization of owned depreciable assets is based on the straight\-line method over the assets’ estimated useful lives\. Leasehold improvements are amortized over the remaining term of the lease, including estimated facility renewal options when renewal is reasonably assured at key airports, or the estimated useful life of the related asset, whichever is less\. Properties under capital leases are amortized on the straight\-line method over the life of the lease or, in the case of certain aircraft, over their estimated useful lives, whichever is shorter\. Amortization of capital lease assets is included in depreciation and amortization expense\. The estimated useful lives of property and equipment are as follows:

|                                    |                                       |
|:---------------------------------- | -------------------------------------:|
|                                    | **Estimated Useful Life (in years)**  |
| Aircraft and related rotable parts |                             25 to 30  |
| Buildings                          |                             25 to 45  |
| Other property and equipment       |                              3 to 15  |
| Computer software                  |                              5 to 15  |
| Building improvements              |                              1 to 40  |

As of December 31, 2017 and 2016, the Company had a carrying value of computer software of $345 million and $356 million, respectively\. For the years ended December 31, 2017, 2016 and 2015, the Company’s depreciation expense related to computer software was $117 million, $108 million and

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

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|           |     |                                                                                |
| ---------:|:--- |:-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| \*†10\.38 | UAL | [Form of Annual Incentive Program Award Notice pursuant to the United Continental Holdings, Inc\. Annual Incentive Program (for fiscal years beginning on or after January 1, 2013) (filed as Exhibit 10\.47 to UAL’s Form  10\-K for the year ended December 31, 2012, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312513074391/d436512dex1047.htm)                                      |
| \*†10\.39 | UAL | [Form of Long\-Term Relative Performance Award Notice pursuant to the United Continental Holdings, Inc\. Long\-Term Relative Performance Program (for use with respect to performance periods beginning January 1, 2014) (filed as Exhibit 10\.45 to UAL’s Form  10\-K for the year ended December 31, 2013, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312514060695/d624298dex1045.htm) |
| \*†10\.40 | UAL | [Description of Compensation and Benefits for United Continental Holdings, Inc\.  Non\-Employee Directors (filed as Exhibit 10\.30 to UAL’s Form  10\-K for the year ended December 31, 2014, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312515056493/d820060dex1030.htm)                                                                                |
| \*†10\.41 | UAL | [United Continental Holdings, Inc\. 2006 Director Equity Incentive Plan (as amended and restated, effective February 20, 2014, filed as Annex A to UAL’s Definitive Proxy Statement filed April 25, 2014, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000104746914004198/a2219797zdef14a.htm#lc42701_annex_a)                                                                                |
| \*†10\.42 | UAL | [Form of Share Unit Award Notice pursuant to the United Continental Holdings, Inc\. 2006 Director Equity Incentive Plan (for awards granted on or after June 2011) (filed as Exhibit 10\.9 to UAL’s Form  10\-Q for the quarter ended June 30, 2014, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312514278970/d732259dex109.htm)                                                          |
| \*†10\.43 | UAL | [Continental Airlines, Inc\. 1998 Stock Incentive Plan (filed as Exhibit 4\.3 to Continental’s Form  S\-8 Registration Statement (No\.  333\-57297), Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/0000319687-98-000006.txt)                                                                                |
| \*†10\.44 | UAL | [Amendment No\. 1 to 1998 Incentive Plan, 1997 Incentive Plan and 1994 Incentive Plan (filed as Exhibit 10\.2 to Continental’s Quarterly Report on Form  10\-Q for the quarter ended June 30, 2001, Commission file no\.  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968701500015/exhibit102.htm)                                                                                |
| \*†10\.45 | UAL | [Amendment to 1998 Incentive Plan, 1997 Incentive Plan and 1994 Incentive Plan (filed as Exhibit 10\.5 to Continental’s Quarterly Report on Form  10\-Q for the quarter ended March 31, 2004, Commission file no\.  1\-10323 and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968704000025/fexhibit105.htm)                                                                                |
| \*†10\.46 | UAL | [Form of Outside Director Stock Option Grant pursuant to the Continental Airlines, Inc\. 1998 Incentive Plan (filed as Exhibit 10\.12(c) to Continental’s Form  10\-K for the year ended December 31, 2006, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968707000009/f200610kexh1012c.htm)                                                                                |
| \*†10\.47 | UAL | [Continental Airlines, Inc\. Incentive Plan 2000, as amended and restated (filed as Exhibit 10\.1 to Continental’s Form  10\-Q for the quarter ended March 31, 2002, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968702000012/exhibit101.htm)                                                                                |
| \*†10\.48 | UAL | [Amendment to Incentive Plan 2000, dated as of March 12, 2004 (filed as Exhibit 10\.6 to Continental’s Form  10\-Q for the quarter ended March 31, 2004, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968704000025/fexhibit106.htm)                                                                                |
| \*†10\.49 | UAL | [Second Amendment to Incentive Plan 2000, dated as of June 6, 2006 (filed as Exhibit 10\.1 to Continental’s Form  10\-Q for the quarter ended June 30, 2006, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968706000062/fexhibit101.htm)                                                                                |

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

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|               |                                                                                |
| ------------- | -------------------------------------------------------------------------------------------- |
|  **ITEM 7\.** | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\.**  |

**Overview**

United Continental Holdings, Inc\. (together with its consolidated subsidiaries, “UAL” or the “Company”) is a holding company and its principal, wholly\-owned subsidiary is United Airlines, Inc\. (together with its consolidated subsidiaries, “United”)\. As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL, unless otherwise noted\. United’s operating revenues and operating expenses comprise nearly 100% of UAL’s revenues and operating expenses\. In addition, United comprises approximately the entire balance of UAL’s assets, liabilities and operating cash flows\. When appropriate, UAL and United are named specifically for their individual contractual obligations and related disclosures and any significant differences between the operations and results of UAL and United are separately disclosed and explained\. We sometimes use the words “we,” “our,” “us,” and the “Company” in this report for disclosures that relate to all of UAL and United\.

**2017 Financial Highlights**

|   |                                                                            |
| - | -------------------------------------------------------------------------- |
| • | 2017 net income was $2\.1 billion, or $7\.02 diluted earnings per share\.  |

|   |                                                                         |
| - | ----------------------------------------------------------------------- |
| • | United’s consolidated PRASM decreased 0\.4% in 2017 compared to 2016\.  |

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------- |
| • | Aircraft fuel cost increased 18\.9% year\-over\-year due mainly to higher fuel prices\.  |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | In 2017, UAL repurchased approximately 28 million shares of UAL common stock for $1\.8 billion, completing the $2\.0 billion share repurchase program authorized by UAL’s Board of Directors in July 2016\. In December 2017, UAL’s Board of Directors authorized a new $3\.0 billion share repurchase program to acquire UAL’s common stock\. As of December 31, 2017, the Company had approximately $3\.0 billion remaining to purchase shares under its share repurchase program\.  |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | UAL ended the year with $5\.8 billion in unrestricted liquidity, which consisted of unrestricted cash, cash equivalents, short\-term investments and available capacity under the revolving credit facility\.  |

**2017 Operational Highlights**

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Consolidated RPMs for 2017 increased 2\.8% as compared to 2016, and consolidated ASMs increased 3\.5% from the prior year, resulting in a consolidated load factor of 82\.4% in 2017 versus 82\.9% in 2016\.  |

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | For 2017 and 2016, the Company recorded a DOT  on\-time arrival rate of 81\.9% and 81\.3%, respectively, and a system completion factor of 99\.0% for each year\. |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | During 2017, the Company took delivery of three new Boeing  787\-9s, four new Boeing  737\-800s, 12 new Boeing  777\-300ERs, 24 new Embraer E175s, two used Airbus A320s and six used Airbus A319s and retired 20 Boeing  747\-400s\. |

**Outlook**

Set forth below is a discussion of the principal matters that we believe could impact our financial and operating performance and cause our results of operations in future periods to differ materially from our historical operating results and/or from our anticipated results of operations described in the forward\-looking statements in this report\. See Part I, Item 1A\., Risk Factors, of this report and the factors described under “Forward\-Looking Information” below for additional discussion of these and other factors that could affect us\.

In 2017, the Company had its best operational performance in its post\-merger history\. Operational reliability, service and experience underpin the Company’s long\-term strategy\. Our priorities for 2018 are continued top\-tier operational reliability while strengthening our domestic network through growth, driving efficiency and productivity and continued investment in our employees, product and technology\.

28


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

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UAL’s quarterly financial data is subject to seasonal fluctuations and historically its second and third quarter financial results, which reflect higher travel demand, are better than its first and fourth quarter financial results\. UAL’s quarterly results were impacted by the following significant items (in millions):

|                                                                                |                   |                   |                   |                   |
|:------------------------------------------------------------------------------------------------ | -----------------:| -----------------:| -----------------:| -----------------:|
|                                                                                | **Quarter Ended** | **Quarter Ended** | **Quarter Ended** | **Quarter Ended** |
|                                                                                |     **March 31**  |      **June 30**  |  **September 30** |   **December 31** |
| **2017**                                                                                |                   |                   |                   |                   |
| Operating:                                                                                |                   |                   |                   |                   |
| Severance and benefit costs                                                                      |              $37  |              $41  |              $23  |              $15  |
| Impairment of assets                                                                             |                —  |                —  |               15  |               10  |
| (Gains) losses on sale of assets and other special charges                                       |               14  |                3  |               12  |                6  |
| Total operating special charges                                                                  |               51  |               44  |               50  |               31  |
| Income taxes:                                                                                |                   |                   |                   |                   |
| Income tax benefit related to special charges                                                    |              (18) |              (16) |              (18) |              (11) |
| Income tax adjustments (Note 7)                                                                  |                —  |                —  |                —  |             (192) |
| Total operating special charges, net of income taxes and income tax adjustments                  |             $ 33  |             $ 28  |              $32  |            $(172) |
| **2016**                                                                                |                   |                   |                   |                   |
| Operating:                                                                                |                   |                   |                   |                   |
| Labor agreement costs and related items                                                          |             $100  |              $10  |              $14  |             $(60) |
| Cleveland airport lease restructuring                                                            |               74  |                —  |                —  |                —  |
| Severance and benefit costs                                                                      |                8  |                6  |               13  |               10  |
| Impairment of assets                                                                             |                —  |              412  |                —  |                —  |
| (Gains) losses on sale of assets and other special charges                                       |                8  |                6  |               18  |               19  |
| Total operating special charges                                                                  |              190  |              434  |               45  |              (31) |
| Nonoperating and income taxes:                                                                   |                   |                   |                   |                   |
| Losses (gain) on extinguishment of debt and other                                                |                8  |               (9) |                —  |                —  |
| Income tax expense (benefit) related to special charges                                          |              (72) |             (153) |              (16) |               12  |
| Income tax adjustments (Note 6)                                                                  |                —  |                —  |                —  |              180  |
| Total operating and nonoperating special charges, net of income taxes and income tax adjustments |             $126  |             $272  |              $29  |             $161  |

See Note 14 of this report for additional information of these items\.

101


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

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

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

To determine whether impairments exist for aircraft used in operations, we group assets at the fleet\-type level (the lowest level for which there are identifiable cash flows) and then estimate future cash flows based on projections of capacity, passenger mile yield, fuel costs, labor costs and other relevant factors\. If an impairment occurs, the impairment loss recognized is the amount by which the fleet's carrying amount exceeds its estimated fair value\. We estimate aircraft fair values using published sources, appraisals and bids received from third parties, as available\.

Goodwill and Other Intangible Assets

Our goodwill and identifiable intangible assets relate to the airline segment\.  We apply a fair value\-based impairment test to the carrying value of goodwill and indefinite\-lived intangible assets on an annual basis (as of October 1) and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis\. We assess the value of our goodwill and indefinite\-lived assets under either a qualitative or quantitative approach\. Under a qualitative approach, we consider various market factors, including the key assumptions listed below\. We analyze these factors to determine if events and circumstances have affected the fair value of goodwill and indefinite\-lived intangible assets\. If we determine that it is more likely than not that the asset may be impaired, we use the quantitative approach to assess the asset's fair value and the amount of the impairment\. Under a quantitative approach, we calculate the fair value of the asset using the key assumptions listed below\.

We value goodwill and indefinite\-lived intangible assets primarily using market capitalization and income approach valuation techniques\. These measurements include the following key assumptions:  (1) forecasted revenues, expenses and cash flows, (2) terminal period revenue growth and cash flows, (3) an estimated weighted average cost of capital, (4) assumed discount rates depending on the asset and (5) a tax rate\. These assumptions are consistent with those hypothetical market participants would use\. Since we are required to make estimates and assumptions when evaluating goodwill and indefinite\-lived intangible assets for impairment, actual transaction amounts may differ materially from these estimates\.

Changes in certain events and circumstances could result in impairment or a change from indefinite\-lived to definite\-lived\. Factors which could cause impairment include, but are not limited to, (1) negative trends in our market capitalization, (2) reduced profitability resulting from lower passenger mile yields or higher input costs (primarily related to fuel and employees), (3) lower passenger demand as a result of weakened U\.S\. and global economies, (4) interruption to our operations due to a prolonged employee strike, terrorist attack or other reasons, (5) changes to the regulatory environment (e\.g\., diminished slot restrictions or additional Open Skies agreements), (6) competitive changes by other airlines and (7) strategic changes to our operations leading to diminished utilization of the intangible assets\.

Goodwill\.  When we evaluate goodwill for impairment using a quantitative approach, we estimate the fair value of the reporting unit by considering both market capitalization and projected discounted future cash flows (an income approach)\.  If the reporting unit's fair value exceeds its carrying value, no further testing is required\. If, however, the reporting unit's carrying value exceeds its fair value, we then determine the amount of the impairment charge, if any\. We recognize an impairment charge if the carrying value of the reporting unit's goodwill exceeds its estimated fair value\.

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

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|            |                 |                                                                                |
| ----------:|:--------------- |:------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| \*^10\.122 | UAL
United | [Supplemental Agreement No\. 29, including side letters, to Purchase Agreement No\. 1951, dated August 19, 2003 (filed as Exhibit 10\.2 to Continental’s Form  10\-Q for the quarter ended September 30, 2003, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968703000071/exhibit102.htm)       |
| \*^10\.123 | UAL
United | [Supplemental Agreement No\. 30 to Purchase Agreement No\. 1951, dated November 4, 2003 (filed as Exhibit 10\.23(ae) to Continental’s Form  10\-K for the year ended December 31, 2003, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968704000008/exhibit1023ae.htm)                           |
| \*^10\.124 | UAL
United | [Supplemental Agreement No\. 31 to Purchase Agreement No\. 1951, dated August 20, 2004 (filed as Exhibit 10\.4 to Continental’s Form  10\-Q for the quarter ended September 30, 2004, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968704000085/fexhibit104.htm)                               |
| \*^10\.125 | UAL
United | [Supplemental Agreement No\. 32, including side letters, to Purchase Agreement No\. 1951, dated December 29, 2004 (filed as Exhibit 10\.21(ag) to Continental’s Form  10\-K for the year ended December 31, 2004, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968705000036/exhibit1021ag.htm) |
| \*^10\.126 | UAL
United | [Supplemental Agreement No\. 33, including side letters, to Purchase Agreement No\. 1951, dated December 29, 2004 (filed as Exhibit 10\.21(ah) to Continental’s Form  10\-K for the year ended December 31, 2004, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968705000036/exhibit1021ah.htm) |
| \*^10\.127 | UAL
United | [Supplemental Agreement No\. 34 to Purchase Agreement No\. 1951, dated June 22, 2005 (filed as Exhibit 10\.3 to Continental’s Form  10\-Q for the quarter ended June 30, 2005, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968705000095/fexhibit103.htm)                                      |
| \*^10\.128 | UAL
United | [Supplemental Agreement No\. 35 to Purchase Agreement No\. 1951, dated June 30, 2005 (filed as Exhibit 10\.4 to Continental’s Form  10\-Q for the quarter ended June 30, 2005, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968705000095/fexhibit104.htm)                                      |
| \*^10\.129 | UAL
United | [Supplemental Agreement No\. 36 to Purchase Agreement No\. 1951, dated July 28, 2005 (filed as Exhibit 10\.1 to Continental’s Form  10\-Q for the quarter ended September 30, 2005, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968705000138/f3rd10qexhibit101.htm)                           |
| \*^10\.130 | UAL
United | [Supplemental Agreement No\. 37 to Purchase Agreement No\. 1951, dated March 30, 2006 (filed as Exhibit 10\.2 to Continental’s Form  10\-Q for the quarter ended March 31, 2006, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968706000025/fexhibit102.htm)                                    |
| \*^10\.131 | UAL
United | [Supplemental Agreement No\. 38 to Purchase Agreement No\. 1951, dated June 6, 2006 (filed as Exhibit 10\.3 to Continental’s Form  10\-Q for the quarter ended June 30, 2006, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968706000062/fexhibit103.htm)                                       |
| \*^10\.132 | UAL
United | [Supplemental Agreement No\. 39 to Purchase Agreement No\. 1951, dated August 3, 2006 (filed as Exhibit 10\.4 to Continental’s Form  10\-Q for the quarter ended September 30, 2006, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968706000073/fexhibit104.htm)                                |
| \*^10\.133 | UAL
United | [Supplemental Agreement No\. 40 to Purchase Agreement No\. 1951, dated December 5, 2006 (filed as Exhibit 10\.23(ao) to Continental’s Form  10\-K for the year ended December 31, 2006, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968707000009/f200610kexh1023ao.htm)                       |

122


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

***Stock Options***

Stock options to purchase common stock are granted at the fair market value of the stock on the date of grant\. The stock options granted have terms of up to ten years\.

The fair value of each option grant was estimated on the date of grant using the Black\-Scholes option\-pricing model with the following weighted\-average assumptions used for grants:

|                                                    |             |          |          |
| -------------------------------------------------- | ----------- | -------- | -------- |
|                                                    | **2017**    | **2016** | **2015** |
| Expected volatility                                | **51%**     | 51%      | 53%      |
| Expected term                                      | **6 years** | 6 years  | 6 years  |
| Risk\-free interest rate                           | **2\.04%**  | 1\.23%   | 1\.67%   |
| Expected dividend yield                            | **1\.10%**  | 1\.50%   | 1\.25%   |
| Weighted\-average grant date fair value per share  | **$41\.19** | $27\.14  | $28\.71  |
| Estimated fair value of options granted (millions) | **$4**      | $2       | $3       |

The expected market price volatility and expected term are based on historical results\. The risk\-free interest rate is based on the U\.S\. Treasury yield curve in effect at the time of the grant\. The expected dividend yield is based on the estimated weighted average dividend yield over the expected term\. The expected forfeiture rates are based on historical experience\.

The tables below summarize stock option activity for the year ended December 31, 2017:

|                                               |             |                                                            |                                                                       |                                                                    |
| --------------------------------------------- | ----------- | ---------------------------------------------------------- | --------------------------------------------------------------------- | ------------------------------------------------------------------ |
|                                               | **Shares**  | **Weighted\-**

**Average Exercise Price Per Share** | **Weighted\-**

**Average**

**Contractual Life (Years)** | **Aggregate Intrinsic**

**Value**

**(in millions)** |
| Outstanding, December 31, 2016                | 453,674     | $40\.02                                                    | 6\.2                                                                  | $22                                                                |
| Granted                                       | 88,580      | 94\.67                                                     |                                                                       |                                                                    |
| Exercised                                     | (91,013)    | 31\.31                                                     |                                                                       |                                                                    |
| Canceled                                      | —           | —                                                          |                                                                       |                                                                    |
| Forfeited or expired                          | (9,774)     | 60\.33                                                     |                                                                       |                                                                    |
| Outstanding, December 31, 2017                | 441,467     | $52\.34                                                    | 6\.0                                                                  | $11                                                                |
| Exercisable, December 31, 2017                | **229,233** | **$32\.08**                                                | **4\.9**                                                              | **$9**                                                             |
| Vested or expected to vest, December 31, 2017 | **441,467** | **$52\.34**                                                | **6\.0**                                                              | **$11**                                                            |

|                                               |          |          |          |
| --------------------------------------------- | -------- | -------- | -------- |
|  ***(in millions)***                          | **2017** | **2016** | **2015** |
| Intrinsic value of option exercises           | **$6**   | $9       | $14      |
| Cash received from stock option exercises     | **3**    | 3        | 4        |
| Tax benefit related to stock option exercises | **2**    | 3        | 5        |
| Fair value of options vested                  | **3**    | 3        | 3        |

***Stock Awards***

Restricted Stock Units (RSUs) are awarded to eligible employees and entitle the grantee to receive shares of common stock at the end of the vest period\. The fair value of the RSUs is based on the stock price on the date of grant\. Generally, RSUs “cliff vest” after three years, or the period from the date of grant to the employee’s retirement eligibility, and expense is recognized accordingly\. Performance Share Units (PSUs) are awarded to certain executives to receive shares of common stock if specific performance goals and market conditions are achieved\. There are several tranches of PSUs which vest when performance goals and market conditions are met\.

 90


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

Designated Hedge Gains (Losses)

Gains (losses) related to our designated hedge contracts during the years ended December 31,  2018 ,  2017  and  2016  are as follows:

|                                     |                                                          |                                                          |                                                          |                                                                       |                                                                       |                                                                       |
| ----------------------------------- | -------------------------------------------------------- | -------------------------------------------------------- | -------------------------------------------------------- | --------------------------------------------------------------------- | --------------------------------------------------------------------- | --------------------------------------------------------------------- |
|                                     | **Effective Portion Reclassified from AOCI to Earnings** | **Effective Portion Reclassified from AOCI to Earnings** | **Effective Portion Reclassified from AOCI to Earnings** | **Effective Portion Recognized in Other Comprehensive (Loss) Income** | **Effective Portion Recognized in Other Comprehensive (Loss) Income** | **Effective Portion Recognized in Other Comprehensive (Loss) Income** |
| **(in millions)**                   | **2018**                                                 | **2017**                                                 | **2016**                                                 | **2018**                                                              | **2017**                                                              | **2016**                                                              |
| Foreign currency exchange contracts | $

(3

)                                     | $10                                                      | $37                                                      | $1                                                                    | $

(43

)                                                 | $

(68

)                                                 |

Credit Risk

To manage credit risk associated with our fuel price, interest rate and foreign currency hedging programs, we evaluate counterparties based on several criteria including their credit ratings and limit our exposure to any one counterparty\.

Our hedge contracts contain margin funding requirements\.  The margin funding requirements may cause us to post margin to counterparties or may cause counterparties to post margin to us as market prices in the underlying hedged items change\.  Due to the fair value position of our hedge contracts, we held margin of   $9 million  as of  December 31, 2018  and posted margin of   $43 million  as of  December 31, 2017 \.

Our accounts receivable are generated largely from the sale of passenger airline tickets and cargo transportation services, the majority of which are processed through major credit card companies\. We also have receivables from the sale of mileage credits under our loyalty program to participating airlines and non\-airline businesses such as credit card companies, hotels and car rental agencies\. The credit risk associated with our receivables is minimal\.

Self\-Insurance Risk

We self\-insure a portion of our losses from claims related to workers' compensation, environmental issues, property damage, medical insurance for employees and general liability\. Losses are accrued based on an estimate of the aggregate liability for claims incurred, using independent actuarial reviews based on standard industry practices and our historical experience\.

NOTE 6 \. INTANGIBLE ASSETS

Indefinite\-Lived Intangible Assets

|                                |                                    |                                    |
| ------------------------------ | ---------------------------------- | ---------------------------------- |
|                                | **Carrying Value at December 31,** | **Carrying Value at December 31,** |
| **(in millions)**              | **2018**                           | **2017**                           |
| International routes and slots | $2,583                             | $2,583                             |
| Delta tradename                | 850                                | 850                                |
| SkyTeam\-related assets        | 661                                | 661                                |
| Domestic slots                 | 622                                | 622                                |
| Total                          | $4,716                             | $4,716                             |

International Routes and Slots\.  Our international routes and slots primarily relate to Pacific route authorities and slots at capacity\-constrained airports in Asia, and slots at London\-Heathrow airport\.

Domestic Slots\.  Our domestic slots relate to our slots at New York\-LaGuardia and Washington\-Reagan National airports\.

 74


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

*AAG’s* *2018* *Results*

The selected financial data presented below is derived from AAG’s audited consolidated financial statements included in Part II, Item 8A of this report and should be read in conjunction with those financial statements and the related notes thereto\.

We adopted three new accounting standards as of January 1, 2018: the New Lease Standard, the New Revenue Standard and the New Retirement Standard\. The 2017 and 2016 financial information presented within Item 7\. Management’s Discussion and Analysis of Financial Condition and Results of Operations has been recast to reflect the impact of the adoption of the New Revenue Standard and the New Retirement Standard\. The New Lease Standard did not require the recast of prior periods\. See Note 1(b) to AAG’s and American’s Consolidated Financial Statements in Part II, Items 8A and 8B, respectively, for further information on the impacts of these new accounting standards\.

|                                                       |                                              |                                              |                                              |                                                       |
| ----------------------------------------------------- | -------------------------------------------- | -------------------------------------------- | -------------------------------------------- | ----------------------------------------------------- |
|                                                       | **Year Ended**

**December 31,**       | **Year Ended**

**December 31,**       | **Increase**

**(Decrease)**           | **Percent**

**Increase**

**(Decrease)** |
|                                                       | **2018**                                     | **2017**                                     | **Increase**

**(Decrease)**           | **Percent**

**Increase**

**(Decrease)** |
|                                                       | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)**          |
| Passenger revenue                                     | $40,676                                      | $39,131                                      | $1,545                                       | 3\.9                                                  |
| Cargo revenue                                         | 1,013                                        | 890                                          | 123                                          | 13\.8                                                 |
| Other operating revenue                               | 2,852                                        | 2,601                                        | 251                                          | 9\.7                                                  |
| Total operating revenues                              | 44,541                                       | 42,622                                       | 1,919                                        | 4\.5                                                  |
| Mainline and regional aircraft fuel and related taxes | 9,896                                        | 7,510                                        | 2,386                                        | 31\.8                                                 |
| Salaries, wages and benefits                          | 12,251                                       | 11,954                                       | 297                                          | 2\.5                                                  |
| Total operating expenses                              | 41,885                                       | 38,391                                       | 3,494                                        | 9\.1                                                  |
| Operating income                                      | 2,656                                        | 4,231                                        | (1,575)                                      | (37\.2)                                               |
| Pre\-tax income                                       | 1,884                                        | 3,395                                        | (1,511)                                      | (44\.5)                                               |
| Income tax provision                                  | 472                                          | 2,113                                        | (1,641)                                      | (77\.7)                                               |
| Net income                                            | 1,412                                        | 1,282                                        | 130                                          | 10\.2                                                 |
| Pre\-tax income – GAAP                                | $1,884                                       | $3,395                                       | $(1,511)                                     | (44\.5)                                               |
| Adjusted for: Pre\-tax special items, net  ^(1)^      | 906                                          | 756                                          | 150                                          | 19\.8                                                 |
| Pre\-tax income excluding special items               | $2,790                                       | $4,151                                       | $(1,361)                                     | (32\.8)                                               |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | See Part II, Item 6\. Selected Consolidated Financial Data –  *“* *Reconciliation of GAAP to Non\-GAAP Financial Measures* *”*  and Note 2 to AAG’s Consolidated Financial Statements in Part II, Item 8A for details on the components of special items\. |

***Pre\-Tax Income and Net Income***

Pre\-tax income and net income were $1\.9 billion and $1\.4 billion in 2018, respectively\. This compares to 2017 pre\-tax income and net income of $3\.4 billion and $1\.3 billion, respectively\. Excluding the effects of pre\-tax net special items, pre\-tax income was $2\.8 billion and $4\.2 billion in 2018 and 2017, respectively\. The year\-over\-year declines in our pre\-tax income on both a GAAP basis and excluding pre\-tax net special items were principally driven by a 29\.0% increase in the average price per gallon of fuel\. This increase was offset in part by higher revenues driven by strong demand\.

***Revenue***

In 2018, we reported total operating revenues of $44\.5 billion, an increase of $1\.9 billion, or 4\.5%, as compared to 2017\. Passenger revenues were $40\.7 billion, an increase of $1\.5 billion, or 3\.9%, as compared to 2017\. The increase in passenger revenues was due to a 2\.1% increase in revenue passenger miles (RPMs) and a 1\.8% increase in yields driven by strong demand\. Domestic yields increased 0\.9% and international yields rose 4\.2%, led by a 5\.3% increase in yield in the Atlantic market\.

In 2018, cargo revenue was $1\.0 billion, an increase of $123 million, or 13\.8%, as compared to 2017, primarily driven by increases in domestic and international freight yields and international freight volume\. Other revenue, driven by higher loyalty revenue, increased $251 million, or 9\.7%, in 2018 as compared to 2017\.

49


Annual Report of Southwest Airlines Co\. for year 2019

PART IV

Item 15\.  Exhibits and Financial Statement Schedules

(a) 1\.  Financial Statements:

The financial statements included in Item 8\. Financial Statements and Supplementary Data above are filed as part of this annual report\.

2\.  Financial Statement Schedules:

There are no financial statement schedules filed as part of this annual report, since the required information is included in the Consolidated Financial Statements, including the notes thereto, or the circumstances requiring inclusion of such schedules are not present\.

3\. Exhibits:

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 3\.1  | [Restated Certificate of Formation of the Company, effective May 18, 2012 (incorporated by reference to Exhibit 3\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2012 (File No\. 1\-7259))\.](http://www.sec.gov/Archives/edgar/data/92380/000009238012000089/ex3_1.htm)                                                                                |
| 3\.2  | [Second Amended and Restated Bylaws of the Company, effective November 17, 2016 (incorporated by reference to Exhibit 3\.1 to the Company’s Current Report on Form 8\-K filed November 21, 2016 (File No\. 1\-7259))\.](http://www.sec.gov/Archives/edgar/data/92380/000119312516773178/d282581dex31.htm)                                                                                |
| 4\.1  | [Specimen certificate representing common stock of the Company (incorporated by reference to Exhibit 4\.2 to the Company’s Annual Report on Form 10\-K for the year ended December 31, 1994 (File No\. 1\-7259))\.](http://www.sec.gov/Archives/edgar/data/92380/0000930661-95-000050.txt)                                                                                |
| 4\.2  | [Indenture dated as of February 14, 2005, between the Company and The Bank of New York Trust Company, N\.A\., Trustee (incorporated by reference to Exhibit 4\.2 to the Company’s Current Report on Form 8\-K filed February 14, 2005 (File No\. 1\-7259))\.](http://www.sec.gov/Archives/edgar/data/92380/000129993305000651/exhibit3.htm)                                                                                |
| 4\.3  | [Indenture dated as of September 17, 2004, between the Company and Wells Fargo Bank, N\.A\., Trustee (incorporated by reference to Exhibit 4\.1 to the Company’s Registration Statement on Form S\-3 filed October 30, 2002 (File No\. 333\-100861))\.](http://www.sec.gov/Archives/edgar/data/92380/000095013402013127/d00530exv4w1.txt)                                                                                |
| 4\.4  | [Indenture dated as of February 25, 1997, between the Company and U\.S\. Trust Company of Texas, N\.A\. (incorporated by reference to Exhibit 4\.12 to the Company’s Annual Report on Form 10\-K for the year ended December 31, 1996 (File No\. 1\-7259))\.](http://www.sec.gov/Archives/edgar/data/92380/0000950134-97-002019.txt)                                                                                |
| 4\.5  | [Description of Common Stock\.](https://www.example.com/luv-12312019xex45.htm)                                                                                |
|       | The Company is not filing any other instruments evidencing any indebtedness because the total amount of securities authorized under any single such instrument does not exceed 10 percent of its total consolidated assets\. Copies of such instruments will be furnished to the Securities and Exchange Commission upon request\.                                                                                |
| 10\.1 | Purchase Agreement No\. 1810, dated January 19, 1994, between The Boeing Company and the Company (incorporated by reference to Exhibit 10\.4 to the Company’s Annual Report on Form 10\-K for the year ended December 31, 1993 (File No\. 1\-7259)); [Supplemental Agreement No\. 1 (incorporated by reference to Exhibit 10\.3 to the Company’s Annual Report on Form 10\-K for the year ended December 31, 1996 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/0000092380-97-000010.txt) ; [Supplemental Agreements Nos\. 2, 3, and 4 (incorporated by reference to Exhibit 10\.2 to the Company’s Annual Report on Form 10\-K for the year ended December 31, 1997 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/0000950134-98-002150.txt) ; [Supplemental Agreements Nos\. 5, 6, and 7 (incorporated by reference to Exhibit 10\.1 to the Company’s Annual Report on Form 10\-K for the year ended December 31, 1998 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/0000950134-99-002046.txt) ; [Supplemental Agreements Nos\. 8, 9, and 10 (incorporated by reference to Exhibit 10\.1 to the Company’s Annual Report on Form 10\-K for the year ended December 31, 1999 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000095013400002530/0000950134-00-002530.txt) ;

 |

119


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

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

likely than not that it will realize its deferred income tax assets\. In making this determination, the Company considers all available positive and negative evidence and makes certain assumptions\. The Company considers, among other things, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, the Company’s historical financial results and tax planning strategies\. In evaluating the likelihood of utilizing the Company’s net deferred income tax assets, the significant factors that the Company considers include (1) the Company’s recent history and forecasted profitability; (2) growth in the U\.S\. and global economies; and (3) the future impact of taxable temporary differences\. In 2015, the Company concluded that its deferred income tax assets were more likely than not to be realized and released almost all of its valuation allowance in 2015, resulting in a $3\.1 billion benefit in its provision for income taxes\.

The Company has a valuation allowance of $63 million for certain state and local NOLs and credit carryforwards\. The Company expects these NOLs and credits will expire unused due to limited carryforward periods\. The ability to utilize these state NOLs and credits will be evaluated on a quarterly basis to determine if there are any significant events or any prudent and feasible tax planning strategies that would affect the Company’s ability to realize these deferred tax assets\.

The Company’s unrecognized tax benefits related to uncertain tax positions were $21 million, $74 million and $24 million at December 31, 2017, 2016 and 2015, respectively\. Included in the ending balance at December 31, 2017 is $21 million that would affect the Company’s effective tax rate if recognized\. The changes in unrecognized tax benefits relating to settlements with taxing authorities, unrecognized tax benefits as a result of tax positions taken during a prior period and unrecognized tax benefits relating from a lapse of the statute of limitations were immaterial during 2017, 2016 and 2015\. The Company does not expect significant increases or decreases in their unrecognized tax benefits within the next 12 months\.

There are no material amounts included in the balance at December 31, 2017 for tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility\.

The Company’s federal income tax returns for tax years after 2001 remain subject to examination by the Internal Revenue Service (“IRS”) and state taxing jurisdictions\. Currently, there are no ongoing examinations of the Company’s prior year tax returns being conducted by the IRS\.

**NOTE 8 \- PENSION AND OTHER POSTRETIREMENT PLANS**

The following summarizes the significant pension and other postretirement plans of United:

Pension Plans

United maintains two primary defined benefit pension plans, one covering certain pilot employees and another covering certain U\.S\. non\-pilot employees\. Each of these plans provide benefits based on a combination of years of benefit accruals service and an employee’s final average compensation\. Additional benefit accruals are frozen under the plan covering certain pilot employees and management and administrative employees\. Benefit accruals for certain non\-pilot employees continue\. United maintains additional defined benefit pension plans, which cover certain international employees\.

Other Postretirement Plans

United maintains postretirement medical programs which provide medical benefits to certain retirees and eligible dependents, as well as life insurance benefits to certain retirees participating in the plan\. Benefits provided are subject to applicable contributions, co\-payments, deductibles and other limits as described in the specific plan documentation\.

Actuarial assumption changes are reflected as a component of the net actuarial gains/(losses) during 2017 and 2016\. These amounts will be amortized over the average remaining service life of the covered active employees or the average life expectancy of inactive participants and will impact 2017 and 2016 pension and retiree medical expense as described below\.

77


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

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

preferred shares, which maybe be deposited with the depositary for AVH's American Depositary Receipts ("ADRs"), the class of AVH securities that trades on the New York Stock Exchange (the "NYSE"), in exchange for 64\.5 million ADRs) (such shares and equity, collectively, the "BRW Loan Collateral")\. BRW is currently in default under the BRW Term Loan Agreement\. In order to protect the value of its collateral, on May 24, 2019, United began to exercise certain remedies available to it under the terms of the BRW Term Loan Agreement and related documents\. In connection with the delivery by United of a notice of default to BRW, Kingsland Holdings Limited ("Kingsland"), AVH's largest minority shareholder, was granted, in accordance with the agreements related to the BRW Term Loan Agreement, authority to manage BRW, which remains the majority shareholder of AVH\. After a hearing on September 26, 2019, a New York state court granted Kingsland summary judgment authorizing it to foreclose on the BRW Loan Collateral under the BRW Term Loan Agreement\. Kingsland is continuing with the foreclosure process, which is expected to result in a judicially supervised sale of the BRW Loan Collateral\. The New York state court also granted Kingsland's motion for a preliminary injunction that, among other things, enjoins BRW Holding from interfering with Kingsland's ability to exercise voting and other rights in certain equity interests in BRW\. These rulings are intermediate steps in the judicial foreclosure process in New York and are subject to appeal\. The repayment of the BRW Term Loan is dependent on this judicial foreclosure process and there is no assurance that a judicial foreclosure sale will be completed, or, if completed, will result in the full satisfaction of all of the obligations under the BRW Term Loan\. Our ability to enforce a deficiency judgment against BRW in the event that the proceeds from the sale of the BRW Loan Collateral in the judicial foreclosure are insufficient to repay the full amount of the BRW Term Loan may be limited\. Any of these circumstances may lead to a loss or delay in the repayment of the BRW Term Loan\. Further, the amount we receive from the foreclosure sale of the BRW Loan Collateral may be inadequate to fully pay the amounts owed to us by BRW and our costs incurred to foreclose, repossess and sell the property\.

In November 2019, United entered into a senior secured convertible term loan agreement (the "AVH Convertible Loan Agreement") with, among others, AVH, as borrower, for the provision by the lenders thereunder (including United) to AVH of convertible term loans for general corporate purposes\. In December 2019, United provided such a convertible term loan to AVH under the Convertible Loan Agreement in the aggregate amount of $150 million (the "AVH Convertible Loan")\.

See Note 8 to the financial statements included in Part II, Item 8 of this report for additional information regarding our investments in AVH and its affiliates\.

These transactions and relationships involve significant challenges and risks, particularly given AVH's recent debt restructuring and the judicial foreclosure process to which the repayment of the BRW Term Loan is subject\. While AVH has successfully carried out its debt restructuring plan to date, there is no guarantee that such debt restructuring plan will improve AVH's long\-term financial condition, United's exposure to which has increased with the completion of the AVH Convertible Loan\. While we work closely with Avianca in connection with the JBA, and have supported AVH by providing capital in the form of the AVH Convertible Loan, Avianca is a separately certificated commercial air carrier, and we do not have control over its or AVH's operations, strategy, management or business methods\. Avianca is also subject to a number of the same risks as our business, which are described in this Part I, Item 1A, Risk Factors, including competitive pressures on pricing, demand and capacity, changes in aircraft fuel pricing, and the impact of global and local political and economic conditions on operations and customer travel patterns, among others, as well as to its own distinct financial and operational risks\.

In addition, the value of the BRW Loan Collateral and the collateral securing the AVH Convertible Loan is subject to market and other conditions\. Changes in the aviation market may adversely affect the value of the BRW Loan Collateral and the collateral securing the AVH Convertible Loan and thereby lower the value to be derived from a foreclosure or other exercise of remedies with respect to the BRW Term Loan Agreement or the AVH Convertible Loan\. As a result of these and other factors, including delays in foreclosure proceedings, we may not receive full repayment of our BRW Term Loan or our AVH Convertible Loan, and we may be unable to realize the full value of the BRW Loan Collateral or the collateral securing the AVH Convertible Loan\. As a consequence, we may not realize a satisfactory return on our invested or loaned funds with respect to AVH and its affiliates\.

Further, these investments may not generate the revenue or operational synergies we expect, and they may distract management focus from our operations or other strategic options\. Finally, our reliance on Avianca in the region in which it operates may negatively impact our global operations and results if AVH does not successfully recover from its debt restructuring or is otherwise impacted by general business risks or performs below our expectations or needs\. Any one or more of these events could have a material adverse effect on our operating results or financial condition\.

The airline industry may undergo further change with respect to alliances and JBAs or due to consolidations, any of which could have a material adverse effect on the Company\.

The Company faces, and may continue to face, strong competition from other carriers due to the modification of alliances and formation of new JBAs\. Carriers may improve their competitive positions through airline alliances, slot swaps and/or JBAs\. Certain types of airline JBAs further competition by allowing multiple airlines to coordinate routes, pool revenues and costs,

16


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

Our Customer Loyalty and Brand  \- During 2017, we achieved record customer satisfaction levels, with higher net promoter scores in every region and a 2\-point improvement overall, including an all\-time high in November 2017\. We will continue to build on this success, with more than $12 billion of airport facility projects planned in the next decade\. We are offering more customer choice through Branded Fares, including First Class upsell, Comfort\+, Preferred Seats and Basic Economy, which combined generated nearly $2 billion of revenue in 2017\. We are also growing our relationship with American Express \- our co\-brand partnership contributed $3 billion in 2017, which we expect to grow to $4 billion by 2021\.

Our Investment Grade Balance Sheet  \- Since 2009, we have reduced the principal amount of our debt by more than $9 billion, which has lowered our annual interest expense by approximately $900 million and resulted in an investment grade credit rating from all three agencies\. In addition, our pension funded status is at its highest level since the merger\. Our long\-term goal is to generate $8 \- $9 billion in operating cash flow and $4 \- $5 billion of free cash flow annually, which will be used to further pay down debt and continue to return cash to shareholders\. In 2017, we returned $2\.4 billion to shareholders through dividends and share repurchases and announced our fourth 50% dividend increase in as many years\. Since 2013, we have returned nearly $10 billion to shareholders and have reduced our outstanding shares by 18%\.

We are approaching the 10\-year anniversary of the Delta\-Northwest merger, and the transformation of our company and the airline industry over that decade has been unprecedented\. We are financially stronger, consistently delivering and investing in a high\-quality experience for our customers, and sharing our success with our people\. We love our “Keep Climbing” tagline because it reminds us not only of the hard work it has taken to achieve our current success, but also that our greatest days are ahead of us\.

![edsignature\.jpg](http://ir.delta.com/edsignature.jpg)

Edward H\. Bastian

Chief Executive Officer

February 23, 2018


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

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***Aircraft Fuel\.*** The table below summarizes UAL's aircraft fuel consumption and expense during the last three years\.

|          |                                               |                                            |                              |                                           |                                          |
| -------- | --------------------------------------------- | ------------------------------------------ | ---------------------------- | ----------------------------------------- | ---------------------------------------- |
| **Year** | **Gallons Consumed**

**(in millions)** | **Fuel Expense**

**(in millions)** | **Average Price Per Gallon** | **Percentage of Total Operating Expense** | **Available Seat Miles per Fuel Gallon** |
| **2018** | 4,137                                         | $9,307                                     | $2\.25                       | 24%                                       | 67                                       |
| **2017** | 3,978                                         | $6,913                                     | $1\.74                       | 20%                                       | 66                                       |
| **2016** | 3,904                                         | $5,813                                     | $1\.49                       | 18%                                       | 65                                       |

Our operational and financial results can be significantly impacted by changes in the price and availability of aircraft fuel\. To provide adequate supplies of fuel, the Company routinely enters into purchase contracts that are customarily indexed to market prices for aircraft fuel, and the Company generally has some ability to cover short\-term fuel supply and infrastructure disruptions at certain major demand locations\. The price of aircraft fuel has fluctuated substantially in the past several years\. The Company's current strategy is to not enter into transactions to hedge its fuel consumption, although the Company regularly reviews its strategy based on market conditions and other factors\.

***Third\-Party Business\.*** United generates third\-party business revenue that includes frequent flyer award non\-air redemptions, maintenance services, catering and ground handling\. Third\-party business revenue is recorded in Other operating revenue\. Expenses associated with third\-party business, except non\-air redemptions, are recorded in Other operating expenses\. Non\-air redemptions expenses are recorded to Other operating revenue\.

***Distribution Channels\.*** The Company's airline seat inventory and fares are distributed through the Company's direct channels, traditional travel agencies and on\-line travel agencies\. The use of the Company's direct sales website, www\.united\.com, the Company's mobile applications and alternative distribution systems provides the Company with an opportunity to de\-commoditize its services, better present its content, make more targeted offerings, better retain its customers, enhance its brand and lower its ticket distribution costs\. Agency sales are primarily sold using global distribution systems ("GDS")\. United has developed and expects to continue to develop capabilities to sell certain ancillary products through the GDS channel to provide an enhanced buying experience for customers who purchase in that channel\.

**Industry Conditions**

***Domestic Competition\.*** The domestic airline industry is highly competitive and dynamic\. The Company's competitors consist primarily of other airlines and, to a certain extent, other forms of transportation\. Currently, any U\.S\. carrier deemed fit by the U\.S\. Department of Transportation (the "DOT") is largely free to operate scheduled passenger service between any two points within the United States\. Competition can be direct, in the form of another carrier flying the exact non\-stop route, or indirect, where a carrier serves the same two cities non\-stop from an alternative airport in that city or via an itinerary requiring a connection at another airport\. Air carriers' cost structures are not uniform and there are numerous factors influencing cost structure\. Carriers with lower costs may offer lower fares to passengers, which could have a potential negative impact on the Company's revenues\. Decisions on domestic pricing are based on intense competitive pressure exerted on the Company by other U\.S\. airlines\. In order to remain competitive and maintain passenger traffic levels, we often find it necessary to match competitors' discounted fares\. Since we compete in a dynamic marketplace, attempts to generate additional revenue through increased fares oftentimes fail\.

***International Competition\.*** Internationally, the Company competes not only with U\.S\. airlines, but also with foreign carriers\. International competition has increased and may continue to increase in the future as a result of airline mergers and acquisitions, JBAs, alliances, restructurings, liberalization of aviation bilateral agreements and new or increased service by competitors, including government subsidized competitors from certain Middle East countries\. Competition on international routes is subject to varying degrees of governmental regulation\. The Company's ability to compete successfully with non\-U\.S\. carriers on international routes depends in part on its ability to generate traffic to and from the entire United States via its integrated domestic route network and its ability to overcome business and operational challenges across its network worldwide\. Foreign carriers currently are prohibited by U\.S\. law from carrying local passengers between two points in the United States and the Company generally experiences comparable restrictions in foreign countries\. Separately, "fifth freedom rights" allow the Company to operate between points in two different foreign countries and foreign carriers may also have fifth freedom rights between the U\.S\. and another foreign country\. In the absence of fifth freedom rights, or some other extra\-bilateral right to conduct operations between two foreign countries, U\.S\. carriers are constrained from carrying passengers to points beyond designated international gateway cities\. To compensate partially for these structural limitations, U\.S\. and foreign carriers have entered into alliances, immunized JBAs and marketing arrangements that enable these carriers to exchange traffic between each other's flights and route networks\. See *Alliances,* above, for additional information\.

5


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

**ITEM 6\. SELECTED CONSOLIDATED FINANCIAL DATA**

**Selected Consolidated Financial Data of AAG**

The selected consolidated financial data presented below under the captions “Consolidated Statements of Operations data” and “Consolidated Balance Sheet data” for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 are derived from AAG’s audited consolidated financial statements\. On December 9, 2013, a subsidiary of AMR merged with and into US Airways Group, which survived as a wholly\-owned subsidiary of AAG\. Therefore, AAG’s consolidated financial data provided in the tables below includes the results of US Airways Group beginning on December 9, 2013, the effective date of the Merger\. In addition, AAG emerged from bankruptcy on December 9, 2013\. Accordingly, AAG’s consolidated financial information for periods prior to December 9, 2013 is not directly comparable to consolidated financial information for periods subsequent to December 9, 2013\.

|                                                                     |                                                    |                                                    |                                                    |                                                    |                                                    |
| ------------------------------------------------------------------- | -------------------------------------------------- | -------------------------------------------------- | -------------------------------------------------- | -------------------------------------------------- | -------------------------------------------------- |
|                                                                     | **Year Ended December 31,**                        | **Year Ended December 31,**                        | **Year Ended December 31,**                        | **Year Ended December 31,**                        | **Year Ended December 31,**                        |
|                                                                     | **2017**                                           | **2016**                                           | **2015**                                           | **2014**                                           | **2013**                                           |
|                                                                     | **(In millions, except share and per share data)** | **(In millions, except share and per share data)** | **(In millions, except share and per share data)** | **(In millions, except share and per share data)** | **(In millions, except share and per share data)** |
| **Consolidated Statements of Operations data:**                     |                                                    |                                                    |                                                    |                                                    |                                                    |
| Total operating revenues                                            | $42,207                                            | $40,180                                            | $40,990                                            | $42,650                                            | $26,743                                            |
| Total operating expenses                                            | 38,149                                             | 34,896                                             | 34,786                                             | 38,401                                             | 25,344                                             |
| Operating income                                                    | 4,058                                              | 5,284                                              | 6,204                                              | 4,249                                              | 1,399                                              |
| Bankruptcy reorganization items, net                                | —                                                  | —                                                  | —                                                  | —                                                  | (2,655)                                            |
| Net income (loss)                                                   | 1,919                                              | 2,676                                              | 7,610                                              | 2,882                                              | (1,834)                                            |
| Earnings (loss) per common share:  ^(1)^                            |                                                    |                                                    |                                                    |                                                    |                                                    |
| Basic                                                               | $3\.92                                             | $4\.85                                             | $11\.39                                            | $4\.02                                             | $(6\.54)                                           |
| Diluted                                                             | 3\.90                                              | 4\.81                                              | 11\.07                                             | 3\.93                                              | (6\.54)                                            |
| Shares used for computation (in thousands):  ^(1)^                  |                                                    |                                                    |                                                    |                                                    |                                                    |
| Basic                                                               | 489,164                                            | 552,308                                            | 668,393                                            | 717,456                                            | 280,213                                            |
| Diluted                                                             | 491,692                                            | 556,099                                            | 687,355                                            | 734,016                                            | 280,213                                            |
| Cash dividends declared per common share                            | $0\.40                                             | $0\.40                                             | $0\.40                                             | $0\.20                                             | $—                                                 |
| **Consolidated Balance Sheet data**

**(at end of period):** |                                                    |                                                    |                                                    |                                                    |                                                    |
| Total assets                                                        | $51,396                                            | $51,274                                            | $48,415                                            | $43,225                                            | $41,741                                            |
| Long\-term debt and capital leases, net of current maturities       | 22,511                                             | 22,489                                             | 18,330                                             | 16,043                                             | 15,212                                             |
| Pension and postretirement benefits  ^(2)^                          | 7,497                                              | 7,842                                              | 7,450                                              | 7,562                                              | 5,828                                              |
| Stockholders’ equity (deficit)                                      | 3,926                                              | 3,785                                              | 5,635                                              | 2,021                                              | (2,731)                                            |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Former holders of AMR common stock as of December 9, 2013, the effective date of the plan of reorganization, may in the future receive additional distributions of AAG common stock dependent upon the ultimate distribution of shares of AAG common stock to holders of disputed claims\. Thus, the shares and related earnings per share calculations prior to December 9, 2013 may change in the future to reflect these distributions\. |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | Substantially all defined benefit pension plans were frozen effective November 1, 2012\. See Note 9 to AAG’s consolidated financial statements in Part II, Item 8A for further information on pension and postretirement benefits\. |

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