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

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

|                                                                                |                                                                                |
| ------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| **Description**                                                                | **Fair Value Methodology**                                                                                |
| Cash and cash equivalents                                                      | The carrying amounts approximate fair value because of the short\-term maturity of these assets\.                                                                                |
| Short\-term investments,

Equity securities and

Restricted cash | Fair value is based on (a) the trading prices of the investment or similar instruments, (b) an income approach, which uses valuation techniques to convert future amounts into a single present amount based on current market expectations about those future amounts when observable trading prices are not available, or (c) broker quotes obtained by third\-party valuation services\.                                                                                |
| Other investments measured at NAV                                              | In accordance with the relevant accounting standards, certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy\. The fair value amounts presented in the table above are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position\. The investments measured using NAV are shares of mutual funds that invest in fixed\-income instruments including bonds, debt securities, and other similar instruments issued by various U\.S\. and non\-U\.S\. public\- or private\-sector entities\. The Company can redeem its shares at any time at NAV subject to a three\-day settlement period\.  |
| AVH Derivative Assets                                                          | Fair values are calculated using a Monte Carlo simulation approach\. Unobservable inputs include expected volatility, expected dividend yield and control and acquisition premiums\.                                                                                |
| Long\-term debt                                                                | Fair values were based on either market prices or the discounted amount of future cash flows using our current incremental rate of borrowing for similar liabilities or assets\.                                                                                |

Investments in Regional Carriers \.  United holds investments in several regional carriers that fly for the Company as United Express under its capacity purchase agreements ("CPAs")\. The combined carrying value of the investments was approximately   $126 million  as of  December 31, 2019 \. United accounts for each investment using the equity method\. Each investment and United's ownership stake are listed below\.

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Republic Airways Holdings Inc\. ("Republic")\. United holds a   19%  minority interest in Republic which the Company received in 2017 in consideration for its unsecured claim in Republic's bankruptcy case\. Republic is the parent company of Republic Airline Inc\. |

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | ManaAir, LLC ("ManaAir")\. United holds a   49\.9%  minority ownership stake in ManaAir\. ManaAir is the parent company of ExpressJet Airlines LLC\. |

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Champlain Enterprises, LLC ("Champlain")\. United owns a   40%  minority ownership stake in Champlain\. Champlain does business as CommutAir\.  |

Other Investments\.  United owns approximately   8%  of the preferred shares (representing approximately   7%  of the total capital stock) of Fulcrum BioEnergy, Inc\. ("Fulcrum"), a company that is developing a process for transforming municipal solid waste into transportation fuels, including jet fuel and diesel\. United records its investment in Fulcrum at cost less impairment, adjusted for observable price changes in orderly transactions for an identical or similar investment of the same issuer\. As of  December 31, 2019 , the carrying value of United's investment was   $51 million \.

76


Annual Report of Southwest Airlines Co\. for year 2018

|                                                                                |                             |                             |             |
| -------------------------------------------------------------------------------------------------------- | --------------------------- | --------------------------- | ----------- |
|                                                                                | **Year ended December 31,** | **Year ended December 31,** |             |
|                                                                                | **2018**                    | **2017**                    | **Percent** |
|                                                                                |                             | **As Recast**               | **Change**  |
| **Net income per share, diluted, as reported**                                                           | $4\.29                      | $5\.57                      |             |
| Deduct: Net impact to net income above from fuel contracts divided by

 dilutive shares            | (0\.02)                     | (0\.08)                     |             |
| Add (Deduct): Impact of special items                                                                    | (0\.04)                     | 0\.16                       |             |
| Add (Deduct): Net income tax impact of special items, excluding Tax reform

 impact (b)            | 0\.01                       | (0\.03)                     |             |
| Deduct: Tax reform impact (c)                                                                            | —                           | (2\.11)                     |             |
| **Net income per share, diluted, excluding special items**                                               | $4\.24                      | $3\.51                      | 20\.8%      |
| **Operating expenses per ASM (cents)**                                                                   | 11\.74¢                     | 11\.53¢                     |             |
| Deduct: Fuel and oil expense divided by ASMs                                                             | (2\.89)                     | (2\.65)                     |             |
| Deduct: Profitsharing expense divided by ASMs                                                            | (0\.34)                     | (0\.35)                     |             |
| Add (Deduct): Impact of special items                                                                    | 0\.02                       | (0\.06)                     |             |
| **Operating expenses per ASM, excluding profitsharing, Fuel and oil expense, and special items (cents)** | 8\.53¢                      | 8\.47¢                      | 0\.7%       |

(a) As a result of prior hedge ineffectiveness and/or contracts marked to market through earnings\.

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

(c) Adjustment related to the Tax Cuts and Jobs Act legislation enacted in December 2017, which resulted in a re\-measurement of the Company's deferred tax assets and liabilities at the new federal corporate tax rate of 21 percent\.

51


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

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

**UNITED CONTINENTAL HOLDINGS, INC\.**

**STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY**

**(In millions)**

|                                                   |                           |                           |                                                |                         |                                                            |                                                                      |             |
|:------------------------------------------------- | -------------------------:| -------------------------:| ----------------------------------------------:| -----------------------:| ----------------------------------------------------------:| --------------------------------------------------------------------:| -----------:|
|                                                   | **Common**
**Stock** | **Common**
**Stock** | **Additional**
**Capital
Invested**  | **Treasury
Stock** | **Retained
Earnings
(Accumulated
Deficit)** | **Accumulated**
**Other
Comprehensive
Income (Loss)** |  **Total**  |
|                                                   |                **Shares** |                **Amount** | **Additional**
**Capital
Invested**  | **Treasury
Stock** | **Retained
Earnings
(Accumulated
Deficit)** | **Accumulated**
**Other
Comprehensive
Income (Loss)** |  **Total**  |
|  Balance at December 31, 2014                     |                      375  |                       $4  |                                        $7,721  |                  $(367) |                                                   $(3,883) |                                                             $(1,079) |     $2,396  |
| Net income                                        |                        —  |                        —  |                                             —  |                      —  |                                                     7,340  |                                                                   —  |      7,340  |
| Other comprehensive income                        |                        —  |                        —  |                                             —  |                      —  |                                                         —  |                                                                 248  |        248  |
| Convertible debt redemptions                      |                       11  |                        —  |                                           202  |                      —  |                                                         —  |                                                                   —  |        202  |
| Share\-based compensation                         |                        —  |                        —  |                                             7  |                      —  |                                                         —  |                                                                   —  |          7  |
| Proceeds from exercise of stock options           |                        —  |                        —  |                                            16  |                      —  |                                                         —  |                                                                   —  |         16  |
| Repurchases of common stock                       |                      (21) |                        —  |                                             —  |                 (1,232) |                                                         —  |                                                                   —  |     (1,232) |
| Other                                             |                        —  |                        —  |                                             —  |                    (11) |                                                         —  |                                                                   —  |        (11) |
|  Balance at December 31, 2015                     |                      365  |                        4  |                                         7,946  |                 (1,610) |                                                     3,457  |                                                                (831) |      8,966  |
| Net income                                        |                        —  |                        —  |                                             —  |                      —  |                                                     2,263  |                                                                   —  |      2,263  |
| Other comprehensive income                        |                        —  |                        —  |                                             —  |                      —  |                                                         —  |                                                                   2  |          2  |
| Share\-based compensation                         |                        —  |                        —  |                                            32  |                      —  |                                                         —  |                                                                   —  |         32  |
| Proceeds from exercise of stock options           |                        —  |                        —  |                                             6  |                      —  |                                                         —  |                                                                   —  |          6  |
| Repurchases of common stock                       |                      (50) |                        —  |                                             —  |                 (2,607) |                                                         —  |                                                                   —  |     (2,607) |
| Treasury stock retired                            |                        —  |                       (1) |                                        (1,415) |                  3,709  |                                                    (2,293) |                                                                   —  |          —  |
| Other                                             |                        —  |                        —  |                                             —  |                     (3) |                                                         —  |                                                                   —  |         (3) |
|  Balance at December 31, 2016                     |                      315  |                        3  |                                         6,569  |                   (511) |                                                     3,427  |                                                                (829) |      8,659  |
| Net income                                        |                        —  |                        —  |                                             —  |                      —  |                                                     2,131  |                                                                   —  |      2,131  |
| Other comprehensive loss                          |                        —  |                        —  |                                             —  |                      —  |                                                         —  |                                                                (200) |       (200) |
| Share\-based compensation                         |                        —  |                        —  |                                            56  |                      —  |                                                         —  |                                                                   —  |         56  |
| Proceeds from exercise of stock options           |                        —  |                        —  |                                             2  |                      —  |                                                         —  |                                                                   —  |          2  |
| Repurchases of common stock                       |                      (28) |                        —  |                                             —  |                 (1,844) |                                                         —  |                                                                   —  |     (1,844) |
| Treasury stock retired                            |                        —  |                        —  |                                          (508) |                  1,576  |                                                    (1,068) |                                                                   —  |          —  |
| Net treasury stock issued for share\-based awards |                        —  |                        —  |                                           (21) |                     10  |                                                        (1) |                                                                   —  |        (12) |
| Excess tax benefits from share\-based awards      |                        —  |                        —  |                                             —  |                      —  |                                                        14  |                                                                   —  |         14  |
| Reclassification of stranded tax effects (Note 1) |                        —  |                        —  |                                             —  |                      —  |                                                       118  |                                                                (118) |          —  |
|  Balance at December 31, 2017                     |                      287  |                       $3  |                                        $6,098  |                  $(769) |                                                    $4,621  |                                                             $(1,147) |     $8,806  |

The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements\.

54


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

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

Background

Together with our wholly\-owned regional airline subsidiaries and third\-party regional carriers operating as American Eagle, our airline operates an average of 6,800 flights per day to more than 365 destinations in 61 countries through our hubs and gateways in Charlotte, Chicago, Dallas/Fort Worth, London Heathrow, Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington, D\.C\. In  2019 , approximately  215 million  passengers boarded our flights\.

2019  Financial Overview

AAG’s  2019  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\.

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

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

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

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

**Increase**

**(Decrease)** |
|                                                       | **2019**                                     | **2018**                                     | **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                                     | $42,010                                      | $40,676                                      | $1,334                                       | 3\.3                                                  |
| Cargo revenue                                         | 863                                          | 1,013                                        | (150)                                        | (14\.8)                                               |
| Other operating revenue                               | 2,895                                        | 2,852                                        | 43                                           | 1\.5                                                  |
| Total operating revenues                              | 45,768                                       | 44,541                                       | 1,227                                        | 2\.8                                                  |
| Mainline and regional aircraft fuel and related taxes | 9,395                                        | 9,896                                        | (501)                                        | (5\.1)                                                |
| Salaries, wages and benefits                          | 12,609                                       | 12,251                                       | 358                                          | 2\.9                                                  |
| Total operating expenses                              | 42,703                                       | 41,885                                       | 818                                          | 2\.0                                                  |
| Operating income                                      | 3,065                                        | 2,656                                        | 409                                          | 15\.4                                                 |
| Pre\-tax income                                       | 2,256                                        | 1,884                                        | 372                                          | 19\.7                                                 |
| Income tax provision                                  | 570                                          | 472                                          | 98                                           | 20\.7                                                 |
| Net income                                            | 1,686                                        | 1,412                                        | 274                                          | 19\.4                                                 |
| Pre\-tax income – GAAP                                | $2,256                                       | $1,884                                       | $372                                         | 19\.7                                                 |
| Adjusted for: Pre\-tax net special items  ^(1)^       | 644                                          | 906                                          | (262)                                        | (28\.9)                                               |
| Pre\-tax income excluding net special items           | $2,900                                       | $2,790                                       | $110                                         | 3\.9                                                  |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(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 net special items\. |

Pre\-Tax Income and Net Income

Pre\-tax income and net income were  $2\.3 billion  and  $1\.7 billion  in  2019 , respectively\. This compares to  2018  pre\-tax income and net income of  $1\.9 billion  and  $1\.4 billion , respectively\. Excluding the effects of pre\-tax net special items, pre\-tax income was  $2\.9 billion  and  $2\.8 billion  in  2019  and  2018 , respectively\. The year\-over\-year increase in our pre\-tax income on both a GAAP basis and excluding pre\-tax net special items was principally driven by higher revenues and lower fuel costs, offset in part by increases in salaries, wages and benefits, maintenance expenses and costs associated with increased regional capacity\.

49


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

**Exhibits**

Exhibits required to be filed by Item 601 of Regulation S\-K: Where the amount of securities authorized to be issued under any of our long\-term debt agreements does not exceed 10 percent of our assets, pursuant to paragraph (b)(4) of Item 601 of Regulation S\-K, in lieu of filing such as an exhibit, we hereby agree to furnish to the Commission upon request a copy of any agreement with respect to such long\-term debt\.

|                               |                                                                                |
| ----------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| **Exhibit**

**Number** | **Description**                                                                                |
| 2\.1                          | [Confirmation Order and Plan (incorporated by reference to Exhibit 2\.1 to AMR’s Current Report on Form 8\-K filed on October 23, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513408263/d605556dex21.htm)                                                                                |
| 2\.2                          | [Agreement and Plan of Merger, dated as of February 13, 2013, among AMR Corporation, AMR Merger Sub, Inc\. and US Airways Group, Inc\. (incorporated by reference to Exhibit 2\.1 to US Airways Group’s Current Report on Form 8\-K/A filed on February 14, 2013 (Commission File No\. 1\-8444))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513060746/d487000dex21.htm) \#                                                                                |
| 2\.3                          | [Amendment to Agreement and Plan of Merger, dated as of May 15, 2013, among AMR Corporation, AMR Merger Sub, Inc\. and US Airways Group, Inc\. (incorporated by reference to Exhibit 2\.1 to US Airways Group’s Current Report on Form 8\-K filed on May 16, 2013 (Commission File No\. 1\-8444))\.](http://www.sec.gov/Archives/edgar/data/6201/000119312513224465/d539647dex21.htm)                                                                                |
| 2\.4                          | [Second Amendment to Agreement and Plan of Merger, dated as of June 7, 2013, among AMR Corporation, AMR Merger Sub, Inc\. and US Airways Group, Inc\. (incorporated by reference to Exhibit 2\.1 to US Airways Group’s Current Report on Form 8\-K filed on June 12, 2013 (Commission File No\. 1\-8444))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513256170/d555547dex21.htm)                                                                                |
| 2\.5                          | [Third Amendment to Agreement and Plan of Merger, dated as of September 20, 2013, among AMR Corporation, AMR Merger Sub, Inc\. and US Airways Group, Inc\. (incorporated by reference to Exhibit 2\.1 to US Airways Group’s Current Report on Form 8\-K filed on September 23, 2013 (Commission File No\. 1\-8444))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513374023/d601604dex21.htm)                                                                                |
| 2\.6                          | [Agreement and Plan of Merger, dated as of December 28, 2015, between American Airlines, Inc\. and US Airways, Inc\. (incorporated by reference to Exhibit 2\.1 to AAG’s Current Report on Form 8\-K filed on December 31, 2015 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515418305/d110614dex21.htm)                                                                                |
| 3\.1                          | [Restated Certificate of Incorporation of American Airlines Group Inc\., including the Certificate of Designations, Powers, Preferences and Rights of the American Airlines Group Inc\. Series A Convertible Preferred Stock attached as Annex I thereto (incorporated by reference to Exhibit 3\.1 to AAG’s Current Report on Form 8\-K filed on December 9, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513466973/d640718dex31.htm)                                                                                |
| 3\.2                          | [Certificate of Amendment of Restated Certificate of Incorporation of American Airlines Group Inc\. (incorporated by reference to Exhibit 3\.1 to American Airlines Group Inc\.’s Current Report on Form 8\-K filed on June 13, 2018 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/6201/000119312518191662/d594984dex31.htm)                                                                                |
| 3\.3                          | [Third Amended and Restated Bylaws of American Airlines Group Inc\. (incorporated by reference to Exhibit 3\.2 to American Airlines Group Inc\.’s Current Report on Form 8\-K filed on June 13, 2018 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/6201/000119312518191662/d594984dex32.htm)                                                                                |
| 3\.4                          | [Amended and Restated Certificate of Incorporation of American Airlines, Inc\. (incorporated by reference to Exhibit 3\.3 to AAG’s Annual Report on Form 10\-K for the year ended December 31, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620114000004/d682697dex33.htm)                                                                                |
| 3\.5                          | [Amended and Restated Bylaws of American Airlines, Inc\. (incorporated by reference to Exhibit 3\.4 to AAG’s Annual Report on Form 10\-K for the year ended December 31, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620114000004/d682697dex34.htm)                                                                                |
| 4\.1                          | [Pass Through Trust Agreement, dated as of March 12, 2013, between American Airlines, Inc\. and Wilmington Trust Company (incorporated by reference to Exhibit 4\.1 to AMR’s Current Report on Form 8\-K filed on March 12, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/6201/000119312513103330/d501326dex41.htm)                                                                                |
| 4\.2                          | [Trust Supplement No\. 2013\-2B, dated as of November 27, 2013, among American Airlines, Inc\. and Wilmington Trust Company, as Class B Trustee, to the Pass Through Trust Agreement, dated as of March 12, 2013 (incorporated by reference to Exhibit 4\.2 to AMR’s Current Report on Form 8\-K filed on November 27, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513456230/d634326dex42.htm)                                                                                |
| 4\.3                          | [Form of Pass Through Trust Certificate, Series 2013\-2B (included in Exhibit A to Exhibit 4\.2) (incorporated by reference to Exhibit 4\.3 to AMR’s Current Report on Form 8\-K filed on November 27, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513456230/d634326dex42.htm)                                                                                |
| 4\.4                          | [Revolving Credit Agreement (2013\-2B), dated as of November 27, 2013, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for Trustee of American Airlines Pass Through Trust 2013\-2B and as Borrower, and Morgan Stanley Bank, N\.A\., as Class B Liquidity Provider (incorporated by reference to Exhibit 4\.5 to AMR’s Current Report on Form 8\-K filed on November 27, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513456230/d634326dex45.htm)                                                                                |
| 4\.5                          | [Participation Agreement (N907AN), dated as of September 9, 2013, among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements in effect as of the date thereof, Wilmington Trust Company, as Subordination Agent, Wilmington Trust Company, as Loan Trustee, and Wilmington Trust Company, in its individual capacity as set forth therein (incorporated by reference to Exhibit 4\.6 to AMR’s Current Report on Form 8\-K filed on November 27, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513456230/d634326dex46.htm) |

180


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

Employees Under Collective Bargaining Agreements

At  December 31, 2018 , we had approximately   89,000  full\-time equivalent employees\. Approximately   19%  of these employees were represented by unions\. The following table shows our domestic airline employee groups that are represented by unions\.

|                                                  |                                                        |           |                                                                     |
| ------------------------------------------------ | ------------------------------------------------------ | --------- | ------------------------------------------------------------------- |
| **Employee Group**                               | **Approximate Number of Active Employees Represented** | **Union** | **Date on which Collective Bargaining Agreement Becomes Amendable** |
| Delta Pilots                                     | 13,203                                                 | ALPA      | December 31, 2019                                                   |
| Delta Flight Superintendents (Dispatchers) ^(1)^ | 432                                                    | PAFCA     | March 31, 2018                                                      |
| Endeavor Air Pilots                              | 1,976                                                  | ALPA      | January 1, 2024                                                     |
| Endeavor Air Flight Attendants ^(1)^             | 1,307                                                  | AFA       | December 31, 2018                                                   |
| Endeavor Air Dispatchers ^(1)^                   | 60                                                     | PAFCA     | December 31, 2018                                                   |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | We are in discussions with representatives of these employee groups regarding terms of amendable collective bargaining agreements\. |

In addition to the domestic airline employee groups discussed above,   196  refinery employees of Monroe are represented by the United Steel Workers under an agreement that expires on February 28, 2019\. This agreement is governed by the National Labor Relations Act , which generally allows either party to engage in self help upon the expiration of the agreement\.

Other

We have certain contracts for goods and services that require us to pay a penalty, acquire inventory specific to us or purchase contract\-specific equipment, as defined by each respective contract, if we terminate the contract without cause prior to its expiration date\. Because these obligations are contingent on our termination of the contract without cause prior to its expiration date, no obligation would exist unless such a termination occurs\.

NOTE 12 \. INCOME TAXES

Income Tax Provision

Our income tax provision consisted of the following:

|                                  |                             |                             |                             |
| -------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                  | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
| **(in millions)**                | **2018**                    | **2017**                    | **2016**                    |
| Current tax (provision) benefit: |
                      |
                      |
                      |
| Federal                          | $187                        | $

(4

)        | $—                          |
| State and local                  | (26

)                | 5                           | (28

)                |
| International                    | (13

)                | (54

)                | (12

)                |
| Deferred tax provision:          |
                      |
                      |
                      |
| Federal                          | (1,226

)             | (2,093

)             | (1,990

)             |
| State and local                  | (138

)               | (149

)               | (128

)               |
| Income tax provision             | $

(1,216

)    | $

(2,295

)    | $

(2,158

)    |

 90


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

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

actions designed to disrupt the Company's normal operations, in an attempt to pressure the Company in collective bargaining negotiations\. Although the RLA makes such actions unlawful until the parties have been lawfully released to self\-help, and the Company can seek injunctive relief against premature self\-help, such actions can cause significant harm even if ultimately enjoined\. Similarly, if the operations of our third\-party regional carriers, ground handlers or other vendors are impacted by labor\-related disruptions, our operations could be adversely affected\. In addition, collective bargaining agreements with the Company's represented employee groups increase the Company's labor costs, which increase could be material\.

An outbreak of disease or similar public health threat, such as the coronavirus, could have a material adverse impact on the Company's business, operating results and financial condition\.

An outbreak of disease or similar public health threat, or fear of such an event, that affects travel demand, travel behavior, or travel restrictions could have a material adverse impact on the Company's business, financial condition and operating results\. In addition, outbreaks of disease could result in increased government restrictions and regulation, including quarantines of our personnel or an inability to access facilities or our aircraft, which could adversely affect our operations\.

In December 2019, a novel strain of coronavirus ("COVID\-19") was reported in Wuhan, China\. The World Health Organization has declared COVID\-19 to constitute a "Public Health Emergency of International Concern\." On January 30, 2020, the U\.S\. Department of State issued a Level 4 "do not travel" advisory for China\. The U\.S\. government has also implemented enhanced screenings, quarantine requirements and travel restrictions in connection with the COVID\-19 outbreak\. The Company has suspended its flights between the United States and each of Beijing, Chengdu, Shanghai and Hong Kong through April 24, 2020\. These routes represented approximately 5% of the Company's 2020 planned capacity and the Company's other trans\-Pacific routes represented an additional 10% of the Company's 2020 planned capacity\. As of the date of this report, the Company is experiencing an approximately 100% decline in near\-term demand to China and an approximately 75% decline in near\-term demand on the rest of the Company's trans\-Pacific routes\. The extent of the impact of the COVID\-19 on the Company's operational and financial performance will depend on future developments, including the duration and spread of the outbreak and related travel advisories and restrictions and the impact of the COVID\-19 on overall demand for air travel, all of which are highly uncertain and cannot be predicted\. If traffic on the Company's trans\-Pacific routes were to remain at these levels for an extended period, and/or routes in other parts of the Company's network begin to see significant declines in demand, our results of operations for full year 2020 may be materially adversely affected\.

If we experience changes in, or are unable to retain, our senior management team or other key employees, our operating results could be adversely affected\.

Much of our future success depends on the continued availability of skilled personnel with industry experience and knowledge, including our senior management team and other key employees\. If we are unable to attract and retain talented, highly qualified senior management and other key employees, or if we are unable to effectively provide for the succession of senior management, our business may be adversely affected\.

Extended interruptions or disruptions in service at major airports where we operate could have a material adverse impact on our operations\.

The airline industry is heavily dependent on business models that concentrate operations in major airports in the United States and throughout the world\. An extended interruption or disruption at an airport where we have significant operations could have a material impact on our business, financial condition and results of operation\.

We operate principally through our domestic hubs in at Newark, Chicago O'Hare, Denver, Houston Bush, LAX, Guam, SFO and Washington Dulles\. Substantially all of our flights either originate in or fly into one of these locations\. A significant interruption or disruption in service at one of our hubs or other airports where we have a significant presence resulting from ATC delays, weather conditions, natural disasters, growth constraints, relations with third\-party service providers, failure of computer systems, disruptions to government agencies or personnel (including as a result of government shutdowns), disruptions at airport facilities or other key facilities used by us to manage our operations, labor relations, power supplies, fuel supplies, terrorist activities, international hostilities or otherwise could result in the cancellation or delay of a significant portion of our flights and, as a result, could have a material impact on our business, operating results and financial condition\. We have minimal control over the operation, quality or maintenance of these services or whether vendors will improve or continue to provide services that are essential to our business\.

The airline industry is subject to extensive government regulation, which imposes significant costs and may adversely impact our business, operating results and financial condition\.

Airlines are subject to extensive regulatory and legal oversight\. Compliance with U\.S\. and international regulations imposes significant costs and may have adverse effects on the Company\. Laws, regulations, taxes and airport rates and charges, both

18


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

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

***Liquidity and Capital Resources***

As of December 31, 2017, the Company had $3\.8 billion in unrestricted cash, cash equivalents and short\-term investments, a decrease of $0\.6 billion from December 31, 2016\. The Company had its entire commitment capacity of $2\.0 billion under the revolving credit facility of the Company’s Amended and Restated Credit and Guaranty Agreement, dated as of March 29, 2017 (as amended by the First Amendment to the Amended and Restated Credit and Guaranty Agreement, dated as of November 15, 2017, the “2017 Credit Agreement”) available for borrowings as of December 31, 2017\. As of December 31, 2017, the Company had $109 million of restricted cash and cash equivalents, which is primarily collateral for letters of credit and collateral associated with obligations for facility leases and workers’ compensation\. We may be required to post significant additional cash collateral to provide security for obligations\. Restricted cash and cash equivalents at December 31, 2016 totaled $124 million\.

We have a significant amount of fixed obligations, including debt, aircraft leases and financings, leases of airport property and other facilities and pension funding obligations\. At December 31, 2017, the Company had approximately $14\.4 billion of debt and capital lease obligations, including $1\.7 billion that are due within the next 12 months\. In addition, we have substantial noncancelable commitments for capital expenditures, including the acquisition of new aircraft and related spare engines\. As of December 31, 2017, our current liabilities exceeded our current assets by approximately $5\.6 billion\. However, approximately $6\.1 billion of our current liabilities are related to our advance ticket sales and frequent flyer deferred revenue, both of which largely represent revenue to be recognized for travel in the near future and not cash outlays\. The deficit in working capital does not have an adverse impact to our cash flows, liquidity or operations\.

The Company will continue to evaluate opportunities to prepay its debt, including open market repurchases, to reduce its indebtedness and related interest\.

For 2018, the Company expects between $3\.6 billion and $3\.8 billion of gross capital expenditures\. See Note 13 to the financial statements included in Part II, Item 8 of this report for additional information on commitments\.

As of December 31, 2017, a substantial portion of the Company’s assets, principally aircraft, route authorities, airport slots and loyalty program intangible assets, was pledged under various loan and other agreements\. We must sustain our profitability and/or access the capital markets to meet our significant long\-term debt and capital lease obligations and future commitments for capital expenditures, including the acquisition of aircraft and related spare engines\. See Note 10 to the financial statements included in Part II, Item 8 of this report for additional information on assets provided as collateral by the Company\.

The following is a discussion of the Company’s sources and uses of cash from 2015 through 2017\.

***Operating Activities***

*2017 compared to 2016*

Cash flow provided by operations for the year ended December 31, 2017 was $3\.4 billion compared to $5\.5 billion in the same period in 2016, the decrease resulting from lower operating income and reduced cash flows from certain changes in working capital items\. Excluding the non\-cash impairment of the Newark slots, operating income for 2017 was approximately $1\.2 billion lower than 2016\. Working capital changes reduced cash flow from operations by an additional $1\.2 billion year\-over\-year in 2017 as compared to 2016\. The following were significant working capital items in 2017:

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------ |
| • | $0\.9 billion decrease in advanced purchase of miles due to increased utilization  of pre\-purchased miles\. |

|   |                                                                    |
| - | ------------------------------------------------------------------ |
| • | $0\.4 billion increase in prepayments for maintenance contracts\.  |

*2016 compared to 2015*

Cash flow provided by operations for the year ended December 31, 2016 was $5\.5 billion compared to $6\.0 billion in the same period in 2015\. Working capital changes reduced cash flow from operations by

35


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

Operating Expense

|                                                    |                                                    |                                                    |                         |                         |         |                          |                          |                            |                            |                            |  |  |  |
|:-------------------------------------------------- |:-------------------------------------------------- |:-------------------------------------------------- | -----------------------:| -----------------------:| -------:| ------------------------:| ------------------------:|:--------------------------:|:--------------------------:|:--------------------------:|:- |:- |:- |
|                                                    |                                                    |                                                    | Year Ended December 31, | Year Ended December 31, |         | Increase
(Decrease) | Increase
(Decrease) | % Increase
(Decrease) | % Increase
(Decrease) | % Increase
(Decrease) |
| (in millions)                                      | (in millions)                                      | (in millions)                                      |                    2019 |                    2018 |         | Increase
(Decrease) | Increase
(Decrease) | % Increase
(Decrease) | % Increase
(Decrease) | % Increase
(Decrease) |  |  |  |
| Salaries and related costs                         | Salaries and related costs                         | Salaries and related costs                         |                $11,225  |                $10,743  |   $482  |                   4\.5 % |                   4\.5 % |
| Aircraft fuel and related taxes                    | Aircraft fuel and related taxes                    | Aircraft fuel and related taxes                    |                  8,519  |                  9,020  |   (501) |                  (5\.6)% |                  (5\.6)% |
| Regional carriers expense, excluding fuel          | Regional carriers expense, excluding fuel          | Regional carriers expense, excluding fuel          |                  3,584  |                  3,438  |    146  |                   4\.2 % |                   4\.2 % |
| Contracted services                                | Contracted services                                | Contracted services                                |                  2,641  |                  2,175  |    466  |                  21\.4 % |                  21\.4 % |
| Depreciation and amortization                      | Depreciation and amortization                      | Depreciation and amortization                      |                  2,581  |                  2,329  |    252  |                  10\.8 % |                  10\.8 % |
| Passenger commissions and other selling expenses   | Passenger commissions and other selling expenses   | Passenger commissions and other selling expenses   |                  1,993  |                  1,941  |     52  |                   2\.7 % |                   2\.7 % |
| Landing fees and other rents                       | Landing fees and other rents                       | Landing fees and other rents                       |                  1,762  |                  1,662  |    100  |                   6\.0 % |                   6\.0 % |
| Aircraft maintenance materials and outside repairs | Aircraft maintenance materials and outside repairs | Aircraft maintenance materials and outside repairs |                  1,751  |                  1,575  |    176  |                  11\.2 % |                  11\.2 % |
| Profit sharing                                     | Profit sharing                                     | Profit sharing                                     |                  1,643  |                  1,301  |    342  |                  26\.3 % |                  26\.3 % |
| Passenger service                                  | Passenger service                                  | Passenger service                                  |                  1,251  |                  1,178  |     73  |                   6\.2 % |                   6\.2 % |
| Ancillary businesses and refinery                  | Ancillary businesses and refinery                  | Ancillary businesses and refinery                  |                  1,245  |                  1,695  |   (450) |                 (26\.5)% |                 (26\.5)% |
| Aircraft rent                                      | Aircraft rent                                      | Aircraft rent                                      |                    423  |                    394  |     29  |                   7\.4 % |                   7\.4 % |
| Other                                              | Other                                              | Other                                              |                  1,771  |                  1,723  |     48  |                   2\.8 % |                   2\.8 % |
| Total operating expense                            | Total operating expense                            | Total operating expense                            |                $40,389  |                $39,174  | $1,215  |                   3\.1 % |                   3\.1 % |

Salaries and Related Costs\.  The increase in salaries and related costs is primarily due to pay rate increases for eligible employees\. This increase is partially offset by salaries for DGS employees, which are no longer included in salaries and related costs following the sale of that business in December 2018\. DGS\-related expenses are now recorded in contracted services\.

Aircraft Fuel and Related Taxes\.  Fuel expense decreased $501 million compared to the prior year despite a 4\.6% increase in capacity, due to an 8% decrease in the market price per gallon of fuel and improved fuel efficiency driven by our investment in new aircraft\.

The table below shows the impact of hedging and the refinery on fuel expense and average price per gallon, adjusted (non\-GAAP financial measures):

|                                                |                                                |                                                |                          |                          |        |                          |                          |                          |         |                          |                          |                          |                          |                          |                          |                          |                          |  |  |  |  |  |  |
|:---------------------------------------------- |:---------------------------------------------- |:---------------------------------------------- | ------------------------:| ------------------------:| ------:|:------------------------:|:------------------------:|:------------------------:| -------:| ------------------------:| ------------------------:|:------------------------:|:------------------------:|:------------------------:|:------------------------:|:------------------------:|:------------------------:|:- |:- |:- |:- |:- |:- |
|                                                |                                                |                                                |                          |                          |        |                          |                          |                          |         |                          | Average Price Per Gallon | Average Price Per Gallon | Average Price Per Gallon | Average Price Per Gallon | Average Price Per Gallon | Average Price Per Gallon | Average Price Per Gallon |  |  |  |  |  |  |
|                                                |                                                |                                                | Year Ended December 31,  | Year Ended December 31,  |        | Increase
(Decrease) | Increase
(Decrease) | Increase
(Decrease) |         | Year Ended December 31,  | Year Ended December 31,  |                          |                          |                          |   Increase (Decrease)    |   Increase (Decrease)    |   Increase (Decrease)    |
| (in millions, except per gallon data)^(1)^     | (in millions, except per gallon data)^(1)^     | (in millions, except per gallon data)^(1)^     |                     2019 |                     2018 |        | Increase
(Decrease) | Increase
(Decrease) | Increase
(Decrease) |         |                     2019 |                     2018 |                          |                          |                          |   Increase (Decrease)    |   Increase (Decrease)    |   Increase (Decrease)    |
| Fuel purchase cost^(2)^                        | Fuel purchase cost^(2)^                        | Fuel purchase cost^(2)^                        |                  $8,581  |                  $9,131  | $(550) |                          |                          |                          | $2\.04  |                  $2\.22  |                 $(0\.18) |
| Fuel hedge impact                              | Fuel hedge impact                              | Fuel hedge impact                              |                      14  |                     (53) |    67  |                          |                          |                          |      —  |                  (0\.01) |                   0\.01  |
| Refinery segment impact                        | Refinery segment impact                        | Refinery segment impact                        |                     (76) |                     (58) |   (18) |                          |                          |                          | (0\.02) |                  (0\.01) |                  (0\.01) |
| Total fuel expense                             | Total fuel expense                             | Total fuel expense                             |                  $8,519  |                  $9,020  | $(501) |                          |                          |                          | $2\.02  |                  $2\.20  |                 $(0\.18) |
| MTM adjustments and settlements on hedges^(3)^ | MTM adjustments and settlements on hedges^(3)^ | MTM adjustments and settlements on hedges^(3)^ |                     (14) |                      53  |   (67) |                          |                          |                          |      —  |                   0\.01  |                  (0\.01) |
| Total fuel expense, adjusted                   | Total fuel expense, adjusted                   | Total fuel expense, adjusted                   |                  $8,505  |                  $9,073  | $(568) |                          |                          |                          | $2\.02  |                  $2\.21  |                 $(0\.19) |

^(1)^ This reconciliation may not calculate exactly due to rounding\.

^(2)^ Market price for jet fuel at airport locations, including related taxes and transportation costs\.

^(3)^ MTM adjustments and settlements on hedges include the effects of the derivative transactions disclosed in Note 5 of the Notes to the Consolidated Financial Statements\. For additional information and the reason for adjusting fuel expense, see "Supplemental Information" below\.

Contracted Services\.  The increase in contracted services expense predominantly relates to services performed by DGS that were recorded in salaries and related costs prior to the sale of that business in December 2018\. During 2018, DGS incurred expenses of approximately $350 million related to internal Delta services that were primarily recorded in salaries and related costs\. After the sale of DGS to a third party, we now record these expenses and our portion of the new entity's ("AirCo") financial results under the equity method of accounting, in contracted services\.

33


Annual Report of Southwest Airlines Co\. for year 2018

**EXECUTIVE OFFICERS OF THE REGISTRANT**

The following information regarding the Company’s executive officers is as of February 1, 2019\.

|                        |                                                                           |         |
| ---------------------- | ------------------------------------------------------------------------- | ------- |
| **Name**               | **Position**                                                              | **Age** |
| Gary C\. Kelly         | Chairman of the Board & Chief Executive Officer                           | 63      |
| Thomas M\. Nealon      | President                                                                 | 57      |
| Michael G\. Van de Ven | Chief Operating Officer                                                   | 57      |
| Robert E\. Jordan      | Executive Vice President Corporate Services                               | 58      |
| Tammy Romo             | Executive Vice President & Chief Financial Officer                        | 56      |
| Mark R\. Shaw          | Executive Vice President & Chief Legal & Regulatory Officer

 | 56      |
| Andrew M\. Watterson   | Executive Vice President & Chief Revenue Officer                          | 52      |
| Gregory D\. Wells      | Executive Vice President Daily Operations                                 | 60      |

Set forth below is a description of the background of each of the Company’s executive officers\.

*Gary C\. Kelly* has served as the Company's Chairman of the Board since May 2008 and as its Chief Executive Officer since July 2004\. Mr\. Kelly also served as President from July 2008 to January 2017, Executive Vice President & Chief Financial Officer from June 2001 to July 2004, and Vice President Finance & Chief Financial Officer from 1989 to 2001\. Mr\. Kelly joined the Company in 1986 as its Controller\.

*Thomas M\. Nealon* has served as the Company's President since January 2017\. Mr\. Nealon also served as Executive Vice President Strategy & Innovation from January 2016 to January 2017\. Prior to becoming an executive officer of the Company, Mr\. Nealon served on the Company’s Board of Directors from December 2010 until November 2015\. Mr\. Nealon has also served as Group Executive Vice President of J\.C\. Penney Company, Inc\., a retail company, from August 2010 until December 2011\. In this role Mr\. Nealon was responsible for Strategy, jcp\.com, Information Technology, Customer Insights, and Digital Ventures\. Mr\. Nealon also served as J\.C\. Penney’s Executive Vice President & Chief Information Officer from September 2006 until August 2010\. Prior to joining J\.C\. Penney, Mr\. Nealon was a partner with The Feld Group, a provider of information technology consulting services, where he served in a consultant capacity as Senior Vice President & Chief Information Officer for the Company from 2002 to 2006\. Mr\. Nealon also served as Chief Information Officer for Frito\-Lay, a division of PepsiCo, Inc\., from 1996 to 2000, and in various software engineering, systems engineering, and management positions for Frito\-Lay from 1983 to 1996\.

*Michael G\. Van de Ven* has served as the Company's Chief Operating Officer since May 2008\. Mr\. Van de Ven also served as Executive Vice President & Chief Operating Officer from May 2008 to January 2017, Chief of Operations from September 2006 to May 2008, Executive Vice President Aircraft Operations from November 2005 through August 2006, Senior Vice President Planning from August 2004 to November 2005, Vice President Financial Planning & Analysis from 2001 to 2004, Senior Director Financial Planning & Analysis from 2000 to 2001, and Director Financial Planning & Analysis from 1997 to 2000\. Mr\. Van de Ven joined the Company in 1993 as its Director Internal Audit\.

*Robert E\. Jordan* has served as the Company's Executive Vice President Corporate Services since July 2017 and as President of AirTran Airways, Inc\. since May 2011\. Mr\. Jordan also served as Executive Vice President & Chief Commercial Officer from September 2011 to July 2017, Executive Vice President Strategy & Planning from May 2008 to September 2011, Executive Vice President Strategy & Technology from September 2006 to May 2008, Senior Vice President Enterprise Spend Management from August 2004 to September 2006, Vice President Technology from 2002 to 2004, Vice President Purchasing from 2001 to 2002, Controller from 1997 to 2001, Director Revenue Accounting from 1994 to 1997, and Manager Sales Accounting from 1990 to 1994\. Mr\. Jordan joined the Company in 1988 as a programmer\.

*Tammy Romo* has served as the Company's Executive Vice President & Chief Financial Officer since July 2015\. Ms\. Romo also served as Senior Vice President Finance & Chief Financial Officer from September 2012 to July 2015, Senior Vice President of Planning from February 2010 to September 2012, Vice President of Financial Planning from September 2008 to February 2010, Vice President Controller from February 2006 to August 2008, Vice President Treasurer from September 2004 to February 2006, Senior Director of Investor Relations from March 2002 to September

32


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

***Certain provisions of AAG’s Certificate of Incorporation and Bylaws make it difficult for stockholders to change the composition of our Board of Directors and may discourage takeover attempts that some of our stockholders might consider beneficial\.***

Certain provisions of our Certificate of Incorporation and Bylaws, as currently in effect, may have the effect of delaying or preventing changes in control if our Board of Directors determines that such changes in control are not in our best interest and the best interest of our stockholders\. These provisions include, among other things, the following:

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------- |
| • | advance notice procedures for stockholder proposals to be considered at stockholders’ meetings; |

|   |                                                                       |
| - | --------------------------------------------------------------------- |
| • | the ability of our Board of Directors to fill vacancies on the board; |

|   |                                                                      |
| - | -------------------------------------------------------------------- |
| • | a prohibition against stockholders taking action by written consent; |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | stockholders are restricted from calling a special meeting unless they hold at least 20% of our outstanding shares and follow the procedures provided for in the amended Bylaws; |

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | a requirement that holders of at least 80% of the voting power of the shares entitled to vote in the election of directors approve any amendment of our Bylaws submitted to stockholders for approval; and |

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------- |
| • | super\-majority voting requirements to modify or amend specified provisions of our Certificate of Incorporation\. |

These provisions are not intended to prevent a takeover, but are intended to protect and maximize the value of the interests of our stockholders\. While these provisions have the effect of encouraging persons seeking to acquire control of our company to negotiate with our Board of Directors, they could enable our Board of Directors to prevent a transaction that some, or a majority, of our stockholders might believe to be in their best interest and, in that case, may prevent or discourage attempts to remove and replace incumbent directors\. In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which prohibits business combinations with interested stockholders\. Interested stockholders do not include stockholders whose acquisition of our securities is approved by the Board of Directors prior to the investment under Section 203\.

***AAG’s Certificate of Incorporation and Bylaws include provisions that limit voting and acquisition and disposition of our equity interests\.***

Our Certificate of Incorporation and Bylaws include provisions that limit voting and ownership and disposition of our equity interests, as described in Part II, Item 5\. Market for American Airlines Group’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities \- “*Ownership Restrictions\.*” These restrictions may adversely affect the ability of certain holders of AAG common stock and our other equity interests to vote such interests and adversely affect the ability of persons to acquire shares of AAG common stock and our other equity interests\.

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

We had no unresolved Securities and Exchange Commission staff comments that were issued 180 days or more preceding December 31, 2018\.

35


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

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

**NOTE 9 \- FAIR VALUE MEASUREMENTS AND INVESTMENTS**

***Fair Value Information\.*** Accounting standards require us to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs\. These inputs are described in Note 8 of this report\. The table below presents disclosures about the fair value of financial assets and liabilities measured at fair value on a recurring basis in the Company’s financial statements as of December 31 (in millions):

|                                                                              |           |             |             |             |           |             |             |             |
|:---------------------------------------------------------------------------- | ---------:| -----------:| -----------:| -----------:| ---------:| -----------:| -----------:| -----------:|
|                                                                              |  **2017** |    **2017** |    **2017** |    **2017** |  **2016** |    **2016** |    **2016** |    **2016** |
|                                                                              | **Total** | **Level 1** | **Level 2** | **Level 3** | **Total** | **Level 1** | **Level 2** | **Level 3** |
| Cash and cash equivalents                                                    |  $ 1,482  |    $ 1,482  |         $—  |         $—  |  $ 2,179  |    $ 2,179  |         $—  |         $—  |
| Short\-term investments:                                                     |           |             |             |             |           |             |             |             |
| Corporate debt                                                               |      958  |          —  |        958  |          —  |      835  |          —  |        835  |          —  |
| Asset\-backed securities                                                     |      753  |          —  |        753  |          —  |      792  |          —  |        792  |          —  |
| Certificates of deposit placed through an account registry service (“CDARS”) |      120  |          —  |        120  |          —  |      246  |          —  |        246  |          —  |
| U\.S\. government and agency notes                                           |      113  |          —  |        113  |          —  |      140  |          —  |        140  |          —  |
| Other fixed\-income securities                                               |      188  |          —  |        188  |          —  |       54  |          —  |         54  |          —  |
| Other investments measured at NAV                                            |      184  |          —  |          —  |          —  |      182  |          —  |          —  |          —  |
| Restricted cash                                                              |      109  |        109  |          —  |          —  |      124  |        124  |          —  |          —  |
| Long\-term investments:                                                      |           |             |             |             |           |             |             |             |
| Equity securities                                                            |       99  |         99  |          —  |          —  |        —  |          —  |          —  |          —  |
| Enhanced equipment trust certificates (“EETC”)                               |       22  |          —  |          —  |         22  |       23  |          —  |          —  |         23  |

**Available\-for\-sale investment maturities**—The short\-term investments shown in the table above are classified as available\-for\-sale\. As of December 31, 2017, asset\-backed securities have remaining maturities of less than one year to approximately 17 years, corporate debt securities have remaining maturities of less than one year to approximately three years and CDARS have maturities of less than one year\. U\.S\. government and other securities have maturities of less than one year to approximately three years\. The EETC securities mature in 2019\.

**Restricted cash**—Restricted cash primarily includes cash collateral for letters of credit and collateral associated with obligations for facility leases and workers’ compensation\.

**Equity securities**—Equity securities represent United’s investment in Azul Linhas Aereas Brasileiras S\.A\. (“Azul”), which was previously accounted for as a cost\-method investment\. The fair value of Azul’s shares became readily determinable in the second quarter of 2017 upon its initial public offering and the investment is now accounted for as available\-for\-sale\.

85


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

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

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 posted margin of   $43 million  and   $38 million  as of  December 31, 2017  and  2016 , respectively\.

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 SkyMiles 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 5 \. INTANGIBLE ASSETS

Indefinite\-Lived Intangible Assets

|                                |                                    |                                    |
| ------------------------------ | ---------------------------------- | ---------------------------------- |
|                                | **Carrying Value at December 31,** | **Carrying Value at December 31,** |
| **(in millions)**              | **2017**                           | **2016**                           |
| International routes and slots | $2,583                             | $2,563                             |
| Delta tradename                | 850                                | 850                                |
| SkyTeam\-related assets        | 661                                | 661                                |
| Domestic slots                 | 622                                | 622                                |
| Total                          | $4,716                             | $4,696                             |

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\.

Definite\-Lived Intangible Assets

|                      |                                                |                                             |                                                |                                             |
| -------------------- | ---------------------------------------------- | ------------------------------------------- | ---------------------------------------------- | ------------------------------------------- |
|                      | **December 31, 2017**                          | **December 31, 2017**                       | **December 31, 2016**                          | **December 31, 2016**                       |
| **(in millions)**    | **Gross**

**Carrying**

**Value** |
**Accumulated**

**Amortization** | **Gross**

**Carrying**

**Value** |
**Accumulated**

**Amortization** |
| Marketing agreements | $730                                           | $

(677

)                      | $730                                           | $

(667

)                      |
| Contracts            | 193                                            | (115

)                               | 193                                            | (108

)                               |
| Other                | 53                                             | (53

)                                | 53                                             | (53

)                                |
| Total                | $976                                           | $

(845

)                      | $976                                           | $

(828

)                      |

Amortization expense was   $17 million ,   $17 million  and   $18 million  for the years ended  December 31, 2017 ,  2016  and  2015 , respectively\. We estimate that we will incur approximately   $16 million  of amortization expense annually through 2022\.

 68


Annual Report of Southwest Airlines Co\. for year 2017

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S\-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)\. Yes þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S\-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10\-K or any amendment to this Form 10\-K\. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non\-accelerated filer, smaller reporting company, or an emerging growth company\. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b\-2 of the Exchange Act\.

|                            |                              |
| -------------------------- | ---------------------------- |
| Large accelerated filer  þ | Accelerated filer  ¨         |
| Non\-accelerated filer  ¨  | Smaller reporting company  ¨ |
|                            | Emerging growth company  ¨   |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act\.¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b\-2 of the Act)\. Yes ¨ No þ

The aggregate market value of the common stock held by non\-affiliates of the registrant was approximately $37,211,057,645 computed by reference to the closing sale price of the common stock on the New York Stock Exchange on June 30, 2017, the last trading day of the registrant’s most recently completed second fiscal quarter\.

Number of shares of common stock outstanding as of the close of business on February 5, 2018: 587,950,973 shares

**DOCUMENTS INCORPORATED BY REFERENCE**

Portions of the Definitive Proxy Statement for the Company’s Annual Meeting of Shareholders to be held May 16, 2018, are incorporated into Part III of this Annual Report on Form 10\-K\.


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

Aircraft Purchase Commitments

As part of a multi\-year effort, we have been investing in new aircraft to provide more premium products, an improved customer experience and better operating economics\. Our purchase commitments for additional aircraft at  December 31, 2018  are detailed in the following table:

|                                   |                                       |                                       |                                       |                                       |                                       |
| --------------------------------- | ------------------------------------- | ------------------------------------- | ------------------------------------- | ------------------------------------- | ------------------------------------- |
|                                   | **Delivery in Calendar Years Ending** | **Delivery in Calendar Years Ending** | **Delivery in Calendar Years Ending** | **Delivery in Calendar Years Ending** | **Delivery in Calendar Years Ending** |
| **Aircraft Purchase Commitments** | **2019**                              | **2020**                              | **2021**                              | **After 2021**                        | **Total**                             |
| A220\-100                         | 24                                    | 12                                    | —                                     | —                                     | 36                                    |
| A220\-300                         | —                                     | 6                                     | 12                                    | 32                                    | 50                                    |
| A321\-200                         | 32                                    | 27                                    | 3                                     | —                                     | 62                                    |
| A321\-200neo                      | —                                     | 16                                    | 36                                    | 48                                    | 100                                   |
| A330\-900neo                      | 4                                     | 4                                     | 9                                     | 18                                    | 35                                    |
| A350\-900                         | 2                                     | 2                                     | —                                     | 10                                    | 14                                    |
| B\-737\-900ER                     | 18                                    | —                                     | —                                     | —                                     | 18                                    |
| CRJ\-900                          | 7                                     | 8                                     | —                                     | —                                     | 15                                    |
| Total                             | 87                                    | 75                                    | 60                                    | 108                                   | 330                                   |

Ground Facilities

Airline Operations

We lease most of the land and buildings that we occupy\. Our largest aircraft maintenance base, various equipment maintenance, cargo, flight kitchen and training facilities and most of our principal offices are located at or near the Atlanta airport on land leased from the City of Atlanta\. We lease ticket counters, passenger holdrooms, operating areas and other terminal space in most of the airports that we serve\. At most airports, we have entered into use agreements which provide for the non\-exclusive use of runways, taxiways and other improvements and facilities; landing fees under these agreements normally are based on the number of landings and weight of aircraft\. These leases and use agreements generally run for periods of less than one year to 30 years or more, and often contain provisions for periodic adjustments of lease rates, landing fees and other charges applicable under that type of agreement\. We also lease aircraft maintenance, equipment maintenance and air cargo facilities at several airports\. Our facility leases generally require us to pay the cost of providing, operating and maintaining such facilities, including, in some cases, amounts necessary to pay debt service on special facility bonds issued to finance their construction\. We also lease computer facilities, marketing offices, reservations offices and other off\-airport facilities in certain locations for varying terms\.

We own our Atlanta reservations center, other real property in Atlanta, and reservations centers in Minot, North Dakota and Chisholm, Minnesota\.

Refinery Operations

Our wholly owned subsidiaries, Monroe and MIPC, own and operate the Trainer refinery and related assets in Pennsylvania\. The facility includes pipelines and terminal assets that allow the refinery to supply jet fuel to our airline operations throughout the Northeastern U\.S\., including our New York hubs at LaGuardia and JFK\.

 21


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

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

***(q) Regional Expenses***

Expenses associated with American Eagle operations are classified as regional expenses on the consolidated statements of operations\. Regional expenses consist of the following (in millions):

|                                                               |                             |                             |                             |
| ------------------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                               | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                               | **2017**                    | **2016**                    | **2015**                    |
| Aircraft fuel and related taxes                               | $1,382                      | $1,109                      | $1,230                      |
| Salaries, wages and benefits                                  | 356                         | 327                         | 276                         |
| Capacity purchases from third\-party regional carriers  ^(1)^ | 3,283                       | 3,186                       | 3,137                       |
| Maintenance, materials and repairs                            | 7                           | 4                           | 4                           |
| Other rent and landing fees                                   | 602                         | 487                         | 434                         |
| Aircraft rent                                                 | 27                          | 28                          | 28                          |
| Selling expenses                                              | 361                         | 347                         | 333                         |
| Depreciation and amortization                                 | 262                         | 237                         | 197                         |
| Special items, net                                            | 3                           | 13                          | 18                          |
| Other                                                         | 289                         | 271                         | 295                         |
| Total regional expenses                                       | $6,572                      | $6,009                      | $5,952                      |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| ^(1)^ | For the years ended  December 31, 2017 ,  2016  and  2015 , the component of capacity purchase expenses representing the lease of aircraft for accounting purposes was approximately  $437 million ,  $405 million  and  $492 million , respectively\. |

***(r) Recent Accounting Pronouncements***

*Standards Effective for 2018 Reporting Periods*

Effective January 1, 2018, American is adopting the accounting pronouncements described below\. The adoption and related required disclosures will be reported in American’s first quarter 2018 Quarterly Report on Form 10\-Q\.

***ASU 2014\-09: Revenue from Contracts with Customers (Topic 606) (the New Revenue Standard)***

The New Revenue Standard applies to all companies that enter into contracts with customers to transfer goods or services\. American is adopting the New Revenue Standard using the full retrospective method, which results in the recast of each prior reporting period presented\.

The adoption of the New Revenue Standard will impact American’s accounting for outstanding mileage credits earned through travel by AAdvantage loyalty program members\. There is no change in accounting for sales of mileage credits to co\-branded card or other partners as those are currently reported in accordance with the New Revenue Standard\. Through December 31, 2017, American used the incremental cost method to account for the portion of its loyalty program liability related to mileage credits earned through travel, which were valued based on the estimated incremental cost of carrying one additional passenger (see (i) Loyalty Program above)\. The New Revenue Standard requires American to change its policy to the deferred revenue method and apply a relative selling price approach whereby a portion of each passenger ticket sale attributable to mileage credits earned is deferred and recognized in passenger revenue upon future mileage redemption\. The value of the earned mileage credits is materially greater under the deferred revenue method than the value attributed to these mileage credits under the incremental cost method\.

The New Revenue Standard will also require certain reclassifications, principally the reclassification of certain ancillary revenues previously classified and reported as other revenue to passenger revenue and as applicable to cargo revenue\. Additionally, the New Revenue Standard requires a gross presentation on the face of American’s statement of operations for certain revenues and expenses that had previously been presented on a net basis\.

See recast 2017 statement of operations and balance sheet data presented below for the expected effects of adoption\.

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