Annual Report of Southwest Airlines Co\. for year 2019

nor has it experienced any such liability in the past that has had a material adverse effect on its operations, costs, or profitability\.

Further regulatory developments pertaining to the control of engine exhaust emissions from ground support equipment could increase operating costs in the airline industry\. The Company does not believe, however, that pending  environmental regulatory developments in this area will have a material effect on the Company's capital expenditures or otherwise adversely affect its operations, operating costs, or competitive position in a material way\.

The federal government, as well as several state and local governments, the governments of other countries, and the United Nations’ International Civil Aviation Organization ("ICAO") have implemented legislative and regulatory proposals and voluntary measures to address climate change by reducing green\-house gas emissions\. At the federal level, in July 2016, the Environmental Protection Agency (the "EPA") issued a final endangerment finding for greenhouse gas emissions from certain types of aircraft engines, which the agency determined contribute to pollution that causes climate change and endangers public health and the environment\. Following this endangerment finding, per the federal Clean Air Act, the EPA is required to promulgate new regulations for controlling greenhouse gas emissions from aircraft, including potential new carbon\-efficiency standards on aircraft and engine manufacturers\.

The EPA's endangerment finding preceded adoption by the ICAO Assembly of a new "global market\-based measure" framework in an effort to control carbon dioxide emissions from international aviation\. The focal point of this framework is a carbon offsetting system on aircraft operators designed to cap the growth of emissions related to international aviation emissions\. ICAO's Carbon Offsetting and Reduction Scheme for International Aviation ("CORSIA") program is a global market\-based measure intended to cap carbon emissions from international civil aviation at their 2020 levels, enabling carbon\-neutral growth for the international aviation sector from 2020\.  The U\.S\. federal government has opted to participate in the voluntary phases of the CORSIA program from 2021\-2026\. As part of the CORSIA program, the Company is currently monitoring its international emissions for reporting purposes\. Data collected from the monitoring phase will form the baseline and be used in the calculations to determine subsequent carbon offsetting requirements under the CORSIA program\. Regardless of the method of regulation or application of CORSIA, further policy changes with regard to climate change are possible, which could significantly increase operating costs in the airline industry and, as a result, adversely affect operations\.

In addition to climate change, aircraft noise continues to be an environmental focus, especially as the FAA implements new flight procedures as part of its NextGen airspace modernization program discussed above\. The Airport Noise and Capacity Act of 1990 gives airport operators the right, under certain circumstances, to implement local noise abatement programs, provided they do not unreasonably interfere with interstate or foreign commerce or the national air transportation system\. Some airports have established airport restrictions to limit noise, including restrictions on aircraft types to be used and limits on the number of hourly or daily operations or the time of operations\. These types of restrictions can cause curtailments in service or increases in operating costs and can limit the ability of air carriers to expand operations at the affected airports\.

At the federal level, the FAA has committed to inform and involve the public, engage with communities, and give meaningful consideration to community concerns and views when developing new flight procedures, and there is a possibility that Congress may enact legislation in 2020 to address local noise concerns at one or more commercial airports in the United States\. In addition, the Reauthorization Act requires the FAA to consider community noise concerns when proposing a new navigation departure procedure or amending an existing navigation procedure that would direct aircraft over noise sensitive areas\. This requirement could delay or otherwise impede the implementation or use of more efficient flight paths\.

The Company remains steadfast in its desire to pursue, implement, and enhance initiatives that will reduce fuel consumption, which reduces carbon emissions, and improve fuel efficiency\. During 2019, the Company continued its efforts at more efficient flight planning and flight operation\. In addition, over the years, the Company has undertaken a number of other fuel conservation and carbon emission reduction initiatives such as the following:

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | introduced the MAX aircraft into the Company's fleet, which is more fuel\-efficient and releases fewer CO ^2^  emissions than the Company's other aircraft; |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------- |
| • | installation of blended winglets, which reduce drag and increase fuel efficiency, on all aircraft in the Company's fleet; |

14


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

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

(a) 2013, 2014, April 2016 and December 2016 Credit Facilities

2013 Credit Facilities

In November 2019, American and AAG entered into the Sixth Amendment to Amended and Restated Credit and Guaranty Agreement, amending the Amended and Restated Credit and Guaranty Agreement dated as of May 21, 2015 (as previously amended, the 2013 Credit Agreement; the revolving credit facility established thereunder, the 2013 Revolving Facility; the term loan facility established thereunder, the 2013 Term Loan Facility; and the 2013 Revolving Facility together with the 2013 Term Loan Facility, the 2013 Credit Facilities), which reduced the total aggregate commitments under the 2013 Revolving Facility to   $750 million  from   $1\.0 billion \. In addition, certain lenders party to the 2013 Credit Agreement extended the maturity date of their commitments under the 2013 Revolving Facility to October 2024 from October 2023\.

2014 Credit Facilities

In November 2019, American and AAG entered into the Seventh Amendment to Amended and Restated Credit and Guaranty Agreement, amending the Amended and Restated Credit and Guaranty Agreement dated as of April 20, 2015 (as previously amended, the 2014 Credit Agreement; the revolving credit facility established thereunder, the 2014 Revolving Facility; the term loan facility established thereunder, the 2014 Term Loan Facility; and the 2014 Revolving Facility together with the 2014 Term Loan Facility, the 2014 Credit Facilities), which increased the total aggregate commitments under the 2014 Revolving Facility to   $1\.6 billion  from   $1\.5 billion \. In addition, certain lenders party to the 2014 Credit Agreement extended the maturity date of their commitments under the 2014 Revolving Facility to October 2024 from October 2023\.

April 2016 Credit Facilities

In November 2019, American and AAG entered into the Fifth Amendment to Credit and Guaranty Agreement, amending the Credit and Guaranty Agreement dated as of April 29, 2016 (as previously amended, April 2016 Credit Agreement; the revolving credit facility established thereunder, the April 2016 Revolving Facility; the term loan facility established thereunder, the 2016 Term Loan Facility; and the April 2016 Revolving Facility together with the 2016 Term Loan Facility, the April 2016 Credit Facilities), which increased the total aggregate commitments under the April 2016 Revolving Facility to   $450 million  from   $300 million \. In addition, certain lenders party to the April 2016 Credit Agreement extended the maturity date of their commitments under the April 2016 Revolving Facility to October 2024 from October 2023\.

December 2016 Credit Facilities

In December 2016, American and AAG entered into the Amended and Restated Credit and Guaranty Agreement, dated as of December 15, 2016 (as amended, the December 2016 Credit Agreement; the term loan facility established thereunder, the December 2016 Term Loan Facility; and together with the revolving credit facility that may be established thereunder in the future, the December 2016 Credit Facilities)\.

Certain details of our 2013 Credit Facilities, 2014 Credit Facilities, April 2016 Credit Facilities and December 2016 Credit Facilities (collectively referred to as the Credit Facilities) are shown in the table below as of  December 31, 2019 :

|                                                                                |                                |                                  |                            |                                       |                                  |                                             |                                     |
| ---------------------------------------------------------------------------------------- | ------------------------------ | -------------------------------- | -------------------------- | ------------------------------------- | -------------------------------- | ------------------------------------------- | ----------------------------------- |
|                                                                                | **2013 Credit Facilities**     | **2013 Credit Facilities**       | **2014 Credit Facilities** | **2014 Credit Facilities**            | **April 2016 Credit Facilities** | **April 2016 Credit Facilities**            | **December 2016 Credit Facilities** |
|                                                                                | **2013 Replacement Term Loan** | **2013
Revolving Facility** | **2014 Term Loan**         | **2014
Revolving
Facility** | **April 2016 Term Loan**         | **April 2016
Revolving
Facility** | **December 2016 Term Loan**         |
| Aggregate principal issued

 or credit facility availability

 (in millions) | $1,919                         | $750                             | $1,250                     | $1,643                                | $1,000                           | $450                                        | $1,250                              |
| Principal outstanding or

 drawn (in millions)                                     | $1,807                         | $—                               | $1,202                     | $—                                    | $970                             | $—                                          | $1,213                              |
| Maturity date                                                                            | June 2025                      | October 2024                     | October 2021               | October 2024                          | April 2023                       | October 2024                                | December 2023                       |
| LIBOR margin                                                                             | 1\.75%                         | 2\.00%                           | 2\.00%                     | 2\.00%                                | 2\.00%                           | 2\.00%                                      | 2\.00%                              |

The term loans under each of the Credit Facilities are repayable in annual installments in an amount equal to   1\.00%  of the aggregate principal amount issued, with any unpaid balance due on the respective maturity dates\. Voluntary prepayments may be made by American at any time\.

88


Annual Report of ALASKA AIR GROUP, INC\. for year 2018

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Stockholders and Board of Directors

Alaska Air Group, Inc\.:

*Opinion on Internal Control Over Financial Reporting*

We have audited Alaska Air Group, Inc\. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2018, based on criteria established in *Internal Control \- Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission\. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in *Internal Control \- Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission\.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive operations, shareholders’ equity, and cash flows for each of the years in the three\-year period ended December 31, 2018, and the related notes (collectively, the consolidated financial statements), and our report dated February 15, 2019 expressed an unqualified opinion on those consolidated financial statements\.

*Basis for Opinion*

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting\. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit\. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U\.S\. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB\.

We conducted our audit in accordance with the standards of the PCAOB\. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects\. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk\. Our audit also included performing such other procedures as we considered necessary in the circumstances\. We believe that our audit provides a reasonable basis for our opinion\.

*Definition and Limitations of Internal Control Over Financial Reporting*

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles\. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements\.

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

/s/ KPMG LLP

Seattle, Washington

February 15, 2019

 94


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

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

5\. Debt

Long\-term debt included on our consolidated balance sheets consisted of (in millions):

|                                                                                |                  |                  |
| ------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------- | ---------------- |
|                                                                                | **December 31,** | **December 31,** |
|                                                                                | **2019**         | **2018**         |
| *Secured*                                                                                |                  |                  |
| 2013 Credit Facilities, variable interest rate of 3\.54%, installments through 2025  ^(a)^                                                                    | $1,807           | $1,825           |
| 2014 Credit Facilities, variable interest rate of 3\.72%, installments through 2021  ^(a)^                                                                    | 1,202            | 1,215            |
| April 2016 Credit Facilities, variable interest rate of 3\.80%, installments through 2023  ^(a)^                                                              | 970              | 980              |
| December 2016 Credit Facilities, variable interest rate of 3\.74%, installments through 2023  ^(a)^                                                           | 1,213            | 1,225            |
| Enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 3\.00% to 8\.39%, averaging 4\.05%, maturing from 2020 to 2032  ^(b)^        | 11,933           | 11,648           |
| Equipment loans and other notes payable, fixed and variable interest rates ranging from 2\.99% to 7\.31%, averaging 3\.45%, maturing from 2020 to 2031  ^(c)^ | 4,727            | 5,060            |
| Special facility revenue bonds, fixed interest rates ranging from 5\.00% to 8\.00%, maturing from 2020 to 2031                                                | 754              | 798              |
|                                                                                | 22,606           | 22,751           |
| *Unsecured*                                                                                |                  |                  |
| 4\.625% senior notes, interest only payments until due in March 2020  ^(d)^                                                                                | 500              | 500              |
| 5\.000% senior notes, interest only payments until due in June 2022  ^(d)^                                                                                | 750              | —                |
| 5\.50% senior notes                                                                                | —                | 750              |
|                                                                                | 1,250            | 1,250            |
| Total long\-term debt                                                                                | 23,856           | 24,001           |
| Less: Total unamortized debt discount, premium and issuance costs                                                                                | 211              | 222              |
| Less: Current maturities                                                                                | 2,749            | 3,213            |
| Long\-term debt, net of current maturities                                                                                | $20,896          | $20,566          |

The table below shows the maximum availability under revolving credit facilities, all of which were undrawn, as of  December 31, 2019  (in millions):

|                                      |        |
| ------------------------------------ | ------ |
| 2013 Revolving Facility              | $750   |
| 2014 Revolving Facility              | 1,643  |
| April 2016 Revolving Facility        | 450    |
| Other Short\-term Revolving Facility | 400    |
| Total                                | $3,243 |

Secured financings are collateralized by assets, primarily aircraft, engines, simulators, aircraft spare parts, airport gate leasehold rights, route authorities, airport slots and certain pre\-delivery payments\.

At  December 31, 2019 , the maturities of long\-term debt are as follows (in millions):

|                     |         |
| ------------------- | ------- |
| 2020                | $2,798  |
| 2021                | 3,510   |
| 2022                | 2,303   |
| 2023                | 4,074   |
| 2024                | 1,523   |
| 2025 and thereafter | 9,648   |
| Total               | $23,856 |

87


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

***Future Fuel Hedge Positions***

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

|                     |                                                 |                                                  |                                     |
| ------------------- | ----------------------------------------------- | ------------------------------------------------ | ----------------------------------- |
|                     | **Approximate % of Expected Fuel Requirements** | **Weighted\-Average Crude Oil Price per Barrel** | **Average Premium Cost per Barrel** |
| First Quarter 2018  | 50%                                             | $62                                              | $2                                  |
| Second Quarter 2018 | 50%                                             | $63                                              | $1                                  |
| Third Quarter 2018  | 40%                                             | $62                                              | $2                                  |
| Fourth Quarter 2018 | 30%                                             | $62                                              | $2                                  |
|  **Full Year 2018** | **42%**                                         | **$62**                                          | **$2**                              |
| First Quarter 2019  | 20%                                             | $64                                              | $1                                  |
| Second Quarter 2019 | 10%                                             | $65                                              | $2                                  |
|  **Full Year 2019** | **7%**                                          | **$65**                                          | **$2**                              |

***Contractual Obligations***

The following table provides a summary of our obligations as of December 31, 2017\. For agreements with variable terms, amounts included reflect our minimum obligations\.

|                                           |          |          |          |          |          |            |           |
| ----------------------------------------- | -------- | -------- | -------- | -------- | -------- | ---------- | --------- |
| *(in millions)*                           | **2018** | **2019** | **2020** | **2021** | **2022** | **Beyond** | **Total** |
| Current and long\-term debt obligations   | $310     | $393     | $449     | $414     | $247     | $768       | $2,581    |
| Operating lease commitments ^(a)^         | 431      | 423      | 391      | 338      | 296      | 1,163      | 3,042     |
| Aircraft maintenance deposits ^(b)^       | 61       | 65       | 68       | 64       | 52       | 39         | 349       |
| Aircraft purchase commitments  ^(c)^      | 955      | 816      | 377      | 268      | 193      | 145        | 2,754     |
| Interest obligations ^(d)^                | 89       | 81       | 64       | 47       | 35       | 69         | 385       |
| Aircraft maintenance and parts management | 98       | 102      | 105      | 121      | 76       | 80         | 582       |
| Other obligations                         | 136      | 158      | 166      | 172      | 180      | 1,099      | 1,911     |
| Total                                     | $2,080   | $2,038   | $1,620   | $1,424   | $1,079   | $3,363     | $11,604   |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(a)^ | Operating lease commitments generally include aircraft operating leases, airport property and hangar leases, office space, and other equipment leases\. Included here are E175 aircraft operated by SkyWest under a capacity purchase agreement\.  |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------- |
| ^(b)^ | Aircraft maintenance deposits relate to leased Airbus aircraft, and the power\-by\-the\-hour agreement for the B737\-800 fleet\.  |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(c)^ | Represents non\-cancelable contractual payment commitments for aircraft and engines\. We intend to reduce the capital investment from these levels, specifically in 2018, 2019 and 2020, which may require deferral of certain aircraft deliveries\. |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------- |
| ^(d)^ | For variable\-rate debt, future obligations are shown above using interest rates forecast as of  December 31, 2017 \. |

***Defined Benefit Pensions***

The table above excludes contributions to our various pension plans, for which there are no minimum required contributions given the funded status of the plans\. The unfunded liability for our qualified defined\-benefit pension plans was $304 million at December 31, 2017, compared to a $197 million unfunded position at December 31, 2016\. This results in an 87% funded status on a projected benefit obligation basis compared to 90% funded as of December 31, 2016\. We contributed approximately $15 million in 2017 to the plans\.

***Credit Card Agreements***

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

 54


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

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

Operating Expense

|                                                    |                             |                             |                                    |                                      |
| -------------------------------------------------- | --------------------------- | --------------------------- | ---------------------------------- | ------------------------------------ |
|                                                    | **Year Ended December 31,** | **Year Ended December 31,** | **Increase**

**(Decrease)** | **% Increase**

**(Decrease)** |
| **(in millions)**                                  | **2017**                    | **2016**                    | **Increase**

**(Decrease)** | **% Increase**

**(Decrease)** |
| Salaries and related costs                         | $10,436                     | $10,034                     | $402                               | 4\.0 %                               |
| Aircraft fuel and related taxes                    | 5,733                       | 5,133                       | 600                                | 11\.7 %                              |
| Regional carriers expense                          | 4,503                       | 4,311                       | 192                                | 4\.5 %                               |
| Depreciation and amortization                      | 2,235                       | 1,902                       | 333                                | 17\.5 %                              |
| Contracted services                                | 2,184                       | 1,991                       | 193                                | 9\.7 %                               |
| Aircraft maintenance materials and outside repairs | 1,992                       | 1,823                       | 169                                | 9\.3 %                               |
| Passenger commissions and other selling expenses   | 1,787                       | 1,710                       | 77                                 | 4\.5 %                               |
| Landing fees and other rents                       | 1,528                       | 1,490                       | 38                                 | 2\.6 %                               |
| Passenger service                                  | 1,067                       | 907                         | 160                                | 17\.6 %                              |
| Profit sharing                                     | 1,065                       | 1,115                       | (50)                               | (4\.5)%                              |
| Aircraft rent                                      | 351                         | 285                         | 66                                 | 23\.2 %                              |
| Other                                              | 2,249                       | 1,986                       | 263                                | 13\.2 %                              |
| Total operating expense                            | $35,130                     | $32,687                     | $2,443                             | 7\.5 %                               |

Salaries and Related Costs\.  The increase in salaries and related costs is primarily  due to increases for eligible merit, ground and flight attendant employees implemented in the June 2017 quarter\.

Aircraft Fuel and Related Taxes\.  Including our regional carriers, fuel expense increased  $771 million  compared to the prior year due to a 22\.3% increase in the market price per gallon of fuel, partially offset by reduced fuel hedge losses compared to the prior year and profits generated within our refinery segment\.  The table below presents fuel expense, including our regional carriers:

|                                                                           |                             |                             |              |                |
| ------------------------------------------------------------------------- | --------------------------- | --------------------------- | ------------ | -------------- |
|                                                                           | **Year Ended December 31,** | **Year Ended December 31,** | **Increase** | **% Increase** |
| **(in millions)**                                                         | **2017**                    | **2016**                    | **Increase** | **% Increase** |
| Aircraft fuel and related taxes ^(1)^                                     | $5,733                      | $5,133                      | $600         |                |
| Aircraft fuel and related taxes included within regional carriers expense | 1,023                       | 852                         | 171          |                |
| Total fuel expense                                                        | $6,756                      | $5,985                      | $771         | 12\.9%         |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------- |
| ^(1)^ | Includes the impact of fuel hedging and refinery results described further in the table below\. |

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

**(Decrease)** | **Year Ended December 31,**  | **Year Ended December 31,**  | **Increase (Decrease)**      |
| **(in millions, except per gallon data)** | **2017**                    | **2016**                    | **Increase**

**(Decrease)** | **2017**                     | **2016**                     | **Increase (Decrease)**      |
| Fuel purchase cost ^(1)^                  | $6,833                      | $5,579                      | $1,254                             | $1\.70                       | $1\.39                       | $0\.31                       |
| Airline segment fuel hedge losses ^(2)^   | 33                          | 281                         | (248)                              | 0\.01                        | 0\.07                        | (0\.06)                      |
| Refinery segment impact ^(2)^             | (110)                       | 125                         | (235)                              | (0\.03)                      | 0\.03                        | (0\.06)                      |
| Total fuel expense                        | $6,756                      | $5,985                      | $771                               | $1\.68                       | $1\.49                       | $0\.19                       |
| MTM adjustments and settlements ^(3)^     | 259                         | 450                         | (191)                              | 0\.06                        | 0\.11                        | (0\.05)                      |
| Total fuel expense, adjusted              | $7,015                      | $6,435                      | $580                               | $1\.74                       | $1\.60                       | $0\.14                       |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------- |
| ^(1)^ | Market price for jet fuel at airport locations, including related taxes and transportation costs\. |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | Includes the impact of pricing arrangements between the airline and refinery segments with respect to the refinery's inventory price risk\. For additional information regarding the refinery segment impact, see "Refinery Segment" below\. |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(3)^ | MTM adjustments and settlements include the effects of the derivative transactions discussed in  Note 4  of the Notes to the Consolidated Financial Statements\. For additional information and the reason for adjusting fuel expense, see "Supplemental Information" below\. |

 30


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

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

The 2013 Revolving Facility, 2014 Revolving Facility and April 2016 Revolving Facility provide that American may from time to time borrow, repay and reborrow loans thereunder\. The 2013 Revolving Facility and 2014 Revolving Facility have the ability to issue letters of credit thereunder in an aggregate amount outstanding at any time up to   $100 million  and   $200 million , respectively\. The 2013 Revolving Facility, 2014 Revolving Facility and April 2016 Revolving Facility are each subject to an undrawn annual fee of   0\.63% \. As of  December 31, 2019 , there were no borrowings or letters of credit outstanding under the 2013 Revolving Facility, 2014 Revolving Facility or April 2016 Revolving Facility\. The December 2016 Credit Facilities provide for a revolving credit facility that may be established thereunder in the future\.

Subject to certain limitations and exceptions, the Credit Facilities are secured by collateral, including certain spare parts, slots, route authorities, simulators and leasehold rights\. American has the ability to make future modifications to the collateral pledged, subject to certain restrictions\. American’s obligations under the Credit Facilities are guaranteed by AAG\. American is required to maintain a certain minimum ratio of appraised value of the collateral to the outstanding loans as further described below in  “Collateral\-Related Covenants\.”

The Credit Facilities contain events of default customary for similar financings, including cross default to other material indebtedness\. Upon the occurrence of an event of default, the outstanding obligations may be accelerated and become due and payable immediately\. In addition, if a “change of control” occurs, American will (absent an amendment or waiver) be required to repay at par the loans outstanding under the Credit Facilities and terminate the 2013 Revolving Facility, 2014 Revolving Facility and April 2016 Revolving Facility and any revolving credit facility established under the December 2016 Credit Facilities\. The Credit Facilities also include covenants that, among other things, require AAG to maintain a minimum aggregate liquidity (as defined in the Credit Facilities) of not less than   $2\.0 billion  and limit the ability of AAG and its restricted subsidiaries to pay dividends and make certain other payments, make certain investments, incur additional indebtedness, incur liens on the collateral, dispose of the collateral, enter into certain affiliate transactions and engage in certain business activities, in each case subject to certain exceptions\.

In December 2019, due to uncertainty surrounding the timing of the Boeing 737 MAX aircraft return to service, American entered into an additional short\-term revolving line of credit to provide us with incremental borrowing capacity of up to   $400 million \. We have no present intention to borrow any amounts under this facility, which matures in September 2020 with an optional extension to December 2020\.

(b) EETCs

2019\-1 Aircraft EETCs

In August 2019, American created three pass\-through trusts which issued approximately   $1\.1 billion  aggregate face amount of Series 2019\-1 Class AA, Class A and Class B EETCs (the 2019\-1 Aircraft EETCs) in connection with the financing of   35  aircraft previously delivered or to be delivered to American through September 2020 (the 2019\-1 Aircraft)\. As of  December 31, 2019 , approximately   $804 million  of the proceeds had been used to purchase equipment notes issued by American in connection with financing   28  aircraft under the 2019\-1 Aircraft EETCs, of which   $608 million  was used to repay existing indebtedness\. Interest and principal payments on equipment notes issued in connection with the 2019\-1 Aircraft EETCs are payable semi\-annually in February and August of each year, with interest payments scheduled to begin in February 2020 and with principal payments scheduled to begin (i) in the case of equipment notes with respect to any 2019\-1 Aircraft owned by American at the time of issuance of the 2019\-1 Aircraft EETCs, in February 2020 and (ii) in the case of equipment notes with respect to the Embraer E175 aircraft and the Airbus A321neo aircraft scheduled to be delivered after the issuance of the 2019\-1 Aircraft EETCs, in August 2020 and August 2021, respectively\. The remaining proceeds of approximately   $293 million  as of  December 31, 2019  were being held in escrow with a depositary for the benefit of the holders of the 2019\-1 Aircraft EETCs until such time as American issues additional equipment notes with respect to the remaining 2019\-1 Aircraft to the pass\-through trusts, which will purchase such additional equipment notes with the escrowed funds\. These escrowed funds are not guaranteed by American and are not reported as debt on its condensed consolidated balance sheet because the proceeds held by the depositary for the benefit of the holders of the 2019\-1 Aircraft EETCs are not American’s assets\.

133


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

Ground Properties

At each airport where we conduct flight operations, we have agreements, generally with a governmental unit or authority, for the use of passenger, operations and baggage handling space as well as runways and taxiways\. These agreements, particularly in the U\.S\., often contain provisions for periodic adjustments to rates and charges applicable under such agreements\. These rates and charges also vary with our level of operations and the operations of the airport\. Additionally, at our hub locations and in certain other cities we serve, we lease administrative offices, catering, cargo, training, maintenance and other facilities\.

We lease or have built on leased property our headquarters and training facilities in Fort Worth, Texas, our principal overhaul and maintenance base in Tulsa, Oklahoma, our regional reservation offices, and administrative offices throughout the U\.S\. and abroad\. Construction was completed in 2019 on our new headquarters on the corporate campus in Fort Worth, Texas\.

ITEM 3\. LEGAL PROCEEDINGS

Chapter 11 Cases \. On November 29, 2011, AMR, American, and certain of AMR’s other direct and indirect domestic subsidiaries (the Debtors) filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court)\. On October 21, 2013, the Bankruptcy Court entered an order approving and confirming the Debtors’ fourth amended joint plan of reorganization (as amended, the Plan)\. On the Effective Date, December 9, 2013, the Debtors consummated their reorganization pursuant to the Plan and completed the Merger\.

Pursuant to rulings of the Bankruptcy Court, the Plan established the Disputed Claims Reserve to hold shares of AAG common stock reserved for issuance to disputed claimholders at the Effective Date that ultimately become holders of allowed claims\. The shares of AAG common stock issued to the Disputed Claims Reserve were originally issued on December 13, 2013 and have at all times since been included in the number of shares issued and outstanding as reported from time to time in our quarterly and annual reports, including for purposes of calculating earnings per common share\. As disputed claims are resolved, the claimants receive distributions of shares from the Disputed Claims Reserve\. However, we are not required to distribute additional shares above the limits contemplated by the Plan, even if the shares remaining for distribution in the Disputed Claims Reserve are not sufficient to fully pay any additional allowed unsecured claims\. To the extent that any of the reserved shares remain undistributed upon resolution of all remaining disputed claims, such shares will not be returned to us but rather will be distributed to former AMR stockholders and former convertible noteholders treated as stockholders under the Plan\. As of  December 31, 2019 , the Disputed Claims Reserve held approximately  7 million  shares of AAG common stock\.

Private Party Antitrust Action Related to Passenger Capacity\.  We, along with Delta Air Lines, Inc\., Southwest Airlines Co\., United Airlines, Inc\. and, in the case of litigation filed in Canada, Air Canada, were named as defendants in approximately  100  putative class action lawsuits alleging unlawful agreements with respect to air passenger capacity\. The U\.S\. lawsuits were consolidated in the Federal District Court for the District of Columbia (the DC Court)\. On June 15, 2018, we reached a settlement agreement with the plaintiffs in the amount of $45 million to resolve all class claims in the U\.S\. lawsuits\. That settlement was approved by the DC Court on May 13, 2019\. Three parties who objected to the settlement have appealed that decision to the United States Court of Appeals for the District of Columbia\. We believe these appeals are without merit and intend to vigorously defend against them\.

Private Party Antitrust Action Related to the Merger \. On August 6, 2013, a lawsuit captioned Carolyn Fjord, et al\., v\. AMR Corporation, et al\., was filed in the Bankruptcy Court\. The complaint named as defendants US Airways Group, US Airways, AMR and American, alleged that the effect of the Merger may be to create a monopoly in violation of Section 7 of the Clayton Antitrust Act, and sought injunctive relief and/or divestiture\. On November 27, 2013, the Bankruptcy Court denied plaintiffs’ motion to preliminarily enjoin the Merger\. On August 29, 2018, the Bankruptcy Court denied in part defendants' motion for summary judgment, and fully denied plaintiffs' cross\-motion for summary judgment\. The parties' evidentiary cases were presented before the Bankruptcy Court in a bench trial in March 2019\. The parties submitted proposed findings of fact and conclusions of law and made closing arguments in April 2019, and we are awaiting the Bankruptcy Court's decision\. We believe this lawsuit is without merit and intend to vigorously defend against the allegations\.

Pension Benefits Action\.  On December 11, 2018, a lawsuit captioned Torres, et al\. v\. American Airlines, Inc\., The Employee Benefits Committee and John/Jane Does 1\-5, was filed in the United States District Court for the Northern District of Texas\. The plaintiffs in this lawsuit purport to represent a class consisting of all participants in and beneficiaries under any of the four American defined benefit pension plans who elected to receive an optional form of benefit other than a lump sum distribution of a participant’s vested benefit\. Under the Employee Retirement Income Security Act (ERISA), participants

40


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

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

**Number** | **Description**                                                                                |
| 4\.155                        | [Amended and Restated Intercreditor Agreement (2017\-2), dated as of October 5, 2017, among Wilmington Trust Company, as Trustee of the American Airlines Pass Through Trust 2017\-2AA, as Trustee of the American Airlines Pass Through Trust 2017\-2A and as Trustee of the American Airlines Pass Through Trust 2017\-2B, National Australia Bank Limited, as Class AA Liquidity Provider, Class A Liquidity Provider and Class B Liquidity Provider, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4\.3 to American’s Current Report on Form 8\-K filed on October 6, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517305920/d463889dex43.htm) |
| 4\.156                        | [Amended and Restated Note Purchase Agreement, dated as of October 5, 2017, among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust, National Association, as Escrow Agent, and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on October 6, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517305920/d463889dex46.htm)                                                                                |
| 4\.157                        | [Form of Participation Agreement (Participation Agreement among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, 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 B to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on October 6, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517305920/d463889dex46.htm#ex4_6)                                                                                |
| 4\.158                        | [Form of First Amendment to Participation Agreement (First Amendment to Participation Agreement among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, 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 D to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on October 6, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517305920/d463889dex46.htm#ex4_6b)                                                                            |
| 4\.159                        | [Form of Indenture and Security Agreement (Indenture and Security Agreement between American Airlines, Inc\., and Wilmington Trust Company, as Loan Trustee) (incorporated by reference to Exhibit C to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on October 6, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517305920/d463889dex46.htm#ex4_6a)                                                                                |
| 4\.160                        | [Form of Pass Through Trust Certificate, Series 2017\-2B (incorporated by reference to Exhibit A to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on October 6, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517305920/d463889dex42.htm#ex4_2toc463889_35)                                                                                |
| 4\.161                        | [Revolving Credit Agreement (2017\-2B), dated as of October 5, 2017, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2017\-2B, as Borrower, and National Australia Bank Limited, as Liquidity Provider (incorporated by reference to Exhibit 4\.12 to American’s Current Report on Form 8\-K filed on October 6, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517305920/d463889dex412.htm)                                                                                |
| 4\.162                        | [Trust Supplement No\. 2012\-2C(R), dated as of May 15, 2018, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on May 16, 2018 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312518165266/d589456dex42.htm)                                                                                |
| 4\.163                        | [Form of Amendment No\. 2 to Intercreditor Agreement (2012\-2C(R)) among Wilmington Trust Company, not in its individual capacity but solely as Trustee of the American Airlines, Inc\. Pass Through Trust 2012\-2C(R), American Airlines, Inc\. and Wilmington Trust Company, not in its individual capacity but solely as Subordination Agent and Trustee (incorporated by reference to Exhibit C to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on May 16, 2018 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312518165266/d589456dex46.htm)                                                                                |
| 4\.164                        | [Note Purchase Agreement, dated as of May 15, 2018, among American Airlines, Inc\., Wilmington Trust Company, not in its individual capacity, but solely as Pass Through Trustee under the Class C(R) Pass Through Trust Agreement, as Subordination Agent and as Indenture Trustee, Wilmington Trust, National Association, as Escrow Agent, and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on May 16, 2018 (Commission File No\. 1\- 2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312518165266/d589456dex46.htm)                                                                                |
| 4\.165                        | [Form of Amendment to Participation Agreement (Amendment to Participation Agreement among American Airlines, Inc\., Wilmington Trust Company, not in its individual capacity, but solely as Subordination Agent and as Indenture Trustee, and Wilmington Trust Company, not in its individual capacity, but solely as Pass Through Trustee under each of the Pass Through Trust Agreements) (incorporated by reference to Exhibit A to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on May 16, 2018 (Commission File No\. 1\- 2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312518165266/d589456dex46.htm)                                                                                |
| 4\.166                        | [Form of Amendment to Trust Indenture and Security Agreement (Amendment to Trust Indenture and Security Agreement between American Airlines, Inc\., Wilmington Trust Company, not in its individual capacity, but solely as Indenture Trustee, and Wilmington Trust, National Association, as Securities Intermediary) (incorporated by reference to Exhibit B to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on May 16, 2018 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312518165266/d589456dex46.htm)                                                                                |
| 4\.167                        | [Form of Pass Through Trust Certificate, Series 2012\-2C(R) (incorporated by reference to Exhibit A to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on May 16, 2018 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312518165266/d589456dex42.htm)                                                                                |

175


Annual Report of Southwest Airlines Co\. for year 2018

|        |                                                                                |
| ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.14 | [Southwest Airlines Co\. Amended and Restated 2007 Equity Incentive Plan Form of Notice of Grant and Terms and Conditions for Restricted Stock Unit grants (incorporated by reference to Exhibit 10\.3 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2014 (File No\. 1\-7259))\.](http://www.sec.gov/Archives/edgar/data/92380/000009238014000117/luv-6302014xex103.htm)  (2) |

|            |                                                                                |
| ---------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.15     | [$1,000,000,000 Revolving Credit Facility Agreement among the Company, the Banks party thereto, Barclays Bank PLC, as Syndication Agent, Bank of America, N\.A\., BNP Paribas, Goldman Sachs Bank USA, Morgan Stanley Senior Funding, Inc\., U\.S\. Bank National Association, and Wells Fargo Bank, N\.A\., as Documentation Agents, JPMorgan Chase Bank, N\.A\. and Citibank, N\.A\., as Co\-Administrative Agents, and JPMorgan Chase Bank, N\.A\., as Paying Agent, dated as of August 3, 2016 (incorporated by reference to Exhibit 10\.1 to the Company’s Current Report on Form 8\-K filed August 9, 2016 (File No\. 1\-7259))\.](http://www.sec.gov/Archives/edgar/data/92380/000119312516676282/d223237dex101.htm)                                                                                |
| 10\.16     | [Purchase Agreement No\. 3729 and Aircraft General Terms Agreement, dated December 13, 2011, between The Boeing Company and the Company (incorporated by reference to Exhibit 10\.28 to the Company’s Annual Report on Form 10\-K for the year ended December 31, 2011 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000119312512049647/d293991dex1028.htm) [Supplemental Agreement No\. 1 (incorporated by reference to Exhibits 10\.3 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2013 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238013000097/sa-1topa3729_redacted.htm) [Supplemental Agreement No\. 2 (incorporated by reference to Exhibit 10\.4 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2013 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238013000097/sa-2topa3792_redacted.htm) [Supplemental Agreement No\. 3 (incorporated by reference to Exhibit 10\.27(a) to the Company’s Annual Report on Form 10\-K for the year ended December 31, 2013 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238014000010/luv-12312013xex1027a.htm) [Supplemental Agreement No\. 4 (incorporated by reference to Exhibit 10\.18(a) to the Company’s Annual Report on Form 10\-K for the year ended December 31, 2015 (File No\. 1\-7259)); ](http://www.sec.gov/Archives/edgar/data/92380/000009238016000175/luv-12312015xex1018a.htm)[Supplemental Agreement No\. 5 (incorporated by reference to Exhibit 10\.2 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2016 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238016000252/luv-6302016xex102.htm) ; [Supplemental Agreement No\. 6 (incorporated by reference to Exhibit 10\.2 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2017 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238017000167/luv-9302017xex102.htm) [Supplemental Agreement No\. 7 (incorporated by reference to Exhibit 10\.3 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2017 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238017000167/luv-9302017xex103.htm) ; [Supplemental Letter Agreement No\. 6\-1162\-KLK\-0059R3 (incorporated by reference to Exhibit 10\.4 to the Company's Quarterly Report on Form 10\-Q for the quarter ended September 30, 2017 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238017000167/luv-9302017xex104.htm) ; [Supplemental Agreement No\. 8 (incorporated by reference to Exhibit 10\.16(a) to the Company's Annual Report on Form 10\-K for the year ended December 31, 2017 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238018000031/luv-12312017xex101.htm) ; [Supplemental Agreement No\. 9 (incorporated by reference to Exhibit 10\.2 to the Company's Quarterly Report on Form 10\-Q for the quarter ended March 31, 2018 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238018000073/luv-3312018xex102.htm) [Supplemental Agreement No\. 10 (incorporated by reference to Exhibit 10\.3 to the Company's Quarterly Report on Form 10\-Q for the quarter ended March 31, 2018 (File No\. 1\-7259))\.](http://www.sec.gov/Archives/edgar/data/92380/000009238018000073/luv-3312018xex103.htm)  (1) |
| 10\.16 (a) | [Supplemental Letter Agreement No\. 03729\-LA\-1808800, dated December 10, 2018, between The Boeing Company and the Company\.](https://www.example.com/luv-12312018xex1016a.htm)  (1)                                                                                |
| 10\.17     | [Southwest Airlines Co\. Senior Executive Short Term Incentive Plan (incorporated by reference to Exhibit 99\.1 to the Company’s Current Report on Form 8\-K filed January 30, 2013 (File No\. 1\-7259))\.](http://www.sec.gov/Archives/edgar/data/92380/000119312513030183/d476691dex991.htm)  (2)                                                                                |
| 10\.18     | [Southwest Airlines Co\. Deferred Compensation Plan for Senior Leadership and Non\-Employee Members of the Southwest Airlines Co\. Board of Directors (as amended and restated, effective as of January 1, 2018) (incorporated by reference to Exhibit 10\.6 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2017 (File No\. 1\-7259))\.](http://www.sec.gov/Archives/edgar/data/92380/000009238017000167/luv-9302017ex106.htm)  (2)<br><br>  <br>                                                                                |
| 10\.19     | [Southwest Airlines Co\. Amended and Restated 2007 Equity Incentive Plan Form of Notice of Grant and Terms and Conditions for Performance\-Based Restricted Stock Unit grants (incorporated by reference to Exhibit 10\.4 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2014 (File No\. 1\-7259))\. ](http://www.sec.gov/Archives/edgar/data/92380/000009238014000117/luv-6302014xex104.htm) (2)<br><br>  <br>                                                                                |

127


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

You should not place undue reliance on our forward\-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control\.

Our forward\-looking statements are based on the information currently available to us and speak only as of the date on which this report was filed with the SEC\. We expressly disclaim any obligation to issue any updates or revisions to our forward\-looking statements, even if subsequent events cause our expectations to change regarding the matters discussed in those statements\. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward\-looking statements, and such differences might be significant and materially adverse to our shareholders\. For a discussion of these and other risk factors in this Form 10\-K, see “Item 1A: Risk Factors\.” Please consider our forward\-looking statements in light of those risks as you read this report\.

 3


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

Our fuel hedge contracts may contain margin funding requirements, which require us to post margin to counterparties or cause counterparties to post margin to us as market prices in the underlying hedged items change\. If fuel prices decrease significantly from the levels existing at the time we enter into fuel hedge contracts, we may be required to post a significant amount of margin, which could have a material impact on the level of our unrestricted cash and cash equivalents and short\-term investments\.

Our significant investments in airlines in other parts of the world and the commercial relationships that we have with those carriers may not produce the returns or results we expect\.

An important part of our strategy to expand our global network has been to make significant investments in airlines in other parts of the world and expand our commercial relationships with these carriers\. We expect to continue exploring ways to expand our relationships with other carriers as part of our global business strategy\. These investments and relationships involve significant challenges and risks, including that we may not realize a satisfactory return on our investment, that they may distract management from our operations or that they may not generate the expected revenue synergies\. These events could have a material adverse effect on our operating results or financial condition\.

In addition, we are dependent on these other carriers for significant aspects of our network in the regions in which they operate\. While we work closely with these carriers, we do not have control over their operations or business methods\. To the extent that the operations of any of these carriers are disrupted over an extended period of time or their actions subject us to the consequences of failure to comply with laws and regulations or adversely affect our operations, our results of operations may be adversely affected\. We also may be subject to consequences from any improper behavior of joint venture partners, including for failure to comply with anti\-corruption laws such as the United States Foreign Corrupt Practices Act\.

We are at risk of losses and adverse publicity stemming from a serious accident involving our aircraft or aircraft of our airline partners\.

An aircraft crash or other serious accident could expose us to significant liability\. Although we believe that our insurance coverage is appropriate, we may be forced to bear substantial losses from an accident in the event that the coverage was not sufficient\.

In addition, any accident involving an aircraft that we operate or an aircraft that is operated by an airline that is one of our regional carriers or codeshare, alliance or joint venture partners could create a negative public perception about safety, which could harm our reputation, resulting in air travelers being reluctant to fly on our aircraft and therefore harm our business\.

Breaches or lapses in the security of our technology systems and the data we store could compromise passenger or employee information and expose us to liability, possibly having a material adverse effect on our business\.

As a regular part of our ordinary business operations, we collect and store sensitive data, including personal information of our passengers and employees and information of our business partners\. The secure operation of the networks and systems on which this type of information is stored, processed and maintained is critical to our business operations and strategy\.

Our information systems and those of our service providers are subject to an increasing threat of continually evolving cybersecurity risks\. Unauthorized parties may attempt to gain access to our systems or information or those of our service providers, including through fraud or other means of deception\. Hardware or software we develop, acquire or use in connection with our systems may contain defects that could unexpectedly compromise information security\. We were notified in 2018 that a third\-party vendor of chat services for Delta and other companies determined it had been involved in a cyber incident for a short period in 2017\. We have incurred remedial, legal and other costs in connection with this incident but the costs are not material to our financial position or results of operations\.

The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are constantly evolving and may be difficult to anticipate or to detect for long periods of time\. As a result of these types of risks and regular attacks on our systems, we regularly review and update procedures and processes to prevent and protect against unauthorized access to our systems and information and inadvertent misuse of data\. In addition to continuously risk assessing and reviewing our procedures, processes and technologies, we also continue to monitor, review and update the process and control requirements we expect our third parties and vendors to leverage and implement for the protection of Delta information that is in their care\. However, the constantly changing nature of the threats means that we may not be able to prevent all data security breaches or misuse of data\.

 13


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

The following is the financial impact of our marketing alliances:

|                                 |          |                    |          |          |          |
| ------------------------------- | -------- | ------------------ | -------- | -------- | -------- |
|                                 | **2017** | **2016** **^(a)^** | **2015** | **2014** | **2013** |
| **Air Group Marketed Revenues** | **94%**  | 92%                | 90%      | 91%      | 90%      |
| **Codeshare Agreements:**       |          |                    |          |          |          |
| American Airlines               | **1%**   | 3%                 | 4%       | 3%       | 2%       |
| Delta Air Lines                 | **1%**   | 1%                 | 2%       | 2%       | 4%       |
| Others                          | **1%**   | 1%                 | 1%       | 1%       | 1%       |
| **Interline Agreements:**       |          |                    |          |          |          |
| Domestic Interline              | **1%**   | 2%                 | 2%       | 2%       | 2%       |
| International Interline         | **2%**   | 1%                 | 1%       | 1%       | 1%       |
| **Total Operating Revenue**     | **100%** | 100%               | 100%     | 100%     | 100%     |

|     |                                                                                |
| --- | ---------------------------------------------------------------------------------------------------- |
| (a) | Includes information for Virgin America for the period December 14, 2016 through December 31, 2016\. |

**OTHER REVENUE**

Other revenue consists of freight and mail, certain frequent flyer and ancillary revenue\. While some of our product features are included in our base pricing, we have unbundled certain ancillary features that our guests separately value\. Major ancillary revenue products include checked bag fees, change fees and lounge memberships\. We also promote and sell products in\-flight to enhance the guest experience, including our Tom Douglas signature meals, snacks, alcoholic beverages, in\-flight entertainment and Wi\-Fi\. Total other revenue, excluding frequent flyer program revenue, represents about 7% of our total revenues\.

**GENERAL**

The airline industry is highly competitive and subject to various uncertainties, including economic conditions, volatile fuel prices, industry instability, new competition, a largely unionized work force, the need to finance large capital expenditures and the related availability of capital, government regulation—including taxes and fees, and potential aircraft incidents\. Airlines have high fixed costs, primarily for wages, aircraft fuel, aircraft ownership and facilities rents\. Because expenses of a flight do not vary significantly based on the number of passengers carried, a relatively small change in the number of passengers or in pricing has a disproportionate effect on an airline’s operating and financial results\. In other words, a minor shortfall in expected revenue levels could cause a disproportionately negative impact on our operating and financial results\. Passenger demand and ticket prices are, in large measure, influenced by the general state of the economy, current global economic and political events, and total available airline seat capacity\.

In 2017, the airline industry's profits declined when compared to the record setting year of 2016, primarily due to rising fuel prices, higher labor costs, and increased competitive fare actions reducing ticket prices\. Despite some of these headwinds, the industry continued to report strong profits in 2017\. In the current strong industry environment, airlines are making significant investments in airports, in more fuel\-efficient planes and in new services to differentiate their customer service offering\. Thus, the level of competition is expected to continue to increase\.

**FUEL**

Our business and financial results are highly affected by the price and the availability of aircraft fuel\. The cost of aircraft fuel is volatile and outside of our control, and it can have a significant and immediate impact on our operating results\. Over the past five years, aircraft fuel expense ranged from 18% to 34% of operating expenses\. Fuel prices are impacted by changes in both the price of crude oil and refining margins and can vary by region in the U\.S\.

The prices we have paid for crude oil on an average annual basis for the past five years have ranged from a low of $43 per barrel in 2016 to a high of $98 in 2013\. For us, a $1 per barrel change in the price of oil equates to approximately $19 million of fuel cost annually\. Said another way, a one\-cent change in our fuel price per gallon will impact our expected annual fuel cost by approximately $8 million per year\.

Refining margins, which represent the price of refining crude oil into aircraft fuel, are a smaller portion of the overall price of jet fuel but also contributed to the price volatility in recent years\. Average annual West Coast refining margin prices have fluctuated between $13 per barrel and $36 per barrel in the last five years, and averaged $18 per barrel in 2017\.

 10


Annual Report of Southwest Airlines Co\. for year 2019

|                                                                                |                           |
| ------------------------------------------------------------------------------------------------- | ------------------------- |
|                                                                                | **Air traffic liability** |
| Balance at December 31, 2017                                                                      | $4,565                    |
|  Current period sales (passenger travel, ancillary services, flight loyalty, and partner loyalty) | 21,026                    |
|  Revenue from amounts included in contract liability opening balances                             | (3,479

)           |
|  Revenue from current period sales                                                                | (17,042

)          |
| Balance at December 31, 2018                                                                      | $5,070                    |

All performance obligations related to freight services sold are completed within twelve months or less; therefore, the Company has elected to not disclose the amount of the remaining transaction price and its expected timing of recognition for freight shipments\.

Other revenues primarily consist of marketing royalties associated with the Company’s co\-branded Chase ^®^  Visa credit card, but also include commissions and advertising associated with Southwest\.com ^®^ \. All amounts classified as Other revenues are paid monthly, coinciding with the Company fulfilling its deliverables; therefore, the Company has elected to not disclose the amount of the remaining transaction price and its expected timing of recognition for such services provided\.

The Company recognized revenue related to the marketing, advertising, and other travel\-related benefits of the revenue associated with various loyalty partner agreements including, but not limited to, the Agreement with Chase, within Other operating revenues\. For the  years ended December 31, 2019, 2018, and 2017  the Company recognized   $1\.3 billion ,   $1\.1 billion , and   $1\.0 billion , respectively\.

The Company is also required to collect certain taxes and fees from Customers on behalf of government agencies and remit these back to the applicable governmental entity on a periodic basis\. These taxes and fees include foreign and U\.S\. federal transportation taxes, federal security charges, and airport passenger facility charges\. These items are collected from Customers at the time they purchase their tickets, are excluded from the contract transaction price, and are therefore not included in Passenger revenue\. The Company records a liability upon collection from the Customer and relieves the liability when payments are remitted to the applicable governmental agency\.

6 \. LONG\-TERM DEBT

|                                                         |                       |                       |
| ------------------------------------------------------- | --------------------- | --------------------- |
| **(in millions)**                                       | **December 31, 2019** | **December 31, 2018** |
| 2\.75% Notes due November 2019

            | $—                    | $300                  |
| Term Loan Agreement payable through May 2019 \- 6\.315% | —                     | 23                    |
| Term Loan Agreement payable through July 2019 \- 4\.84% | —                     | 10                    |
| 2\.65% Notes due 2020                                   | 500                   | 492                   |
| Term Loan Agreement payable through 2020 \- 5\.223%     | 134                   | 187                   |
| 737 Aircraft Notes payable through 2020                 | 20                    | 67                    |
| 2\.75% Notes due 2022                                   | 300                   | 300                   |
| Pass Through Certificates due 2022 \- 6\.24%            | 197                   | 250                   |
| Term Loan Agreement payable through 2026 \- 3\.03%      | 178                   | 197                   |
| 3\.00% Notes due 2026                                   | 300                   | 300                   |
| 3\.45% Notes due 2027                                   | 300                   | 300                   |
| 7\.375% Debentures due 2027                             | 122                   | 125                   |
| Finance leases                                          | 627                   | 845                   |
|                                                         | $2,678                | $3,396                |
| Less current maturities                                 | 819                   | 606                   |
| Less debt discount and issuance costs                   | 13                    | 19                    |
|                                                         | $1,846                | $2,771                |

84


Annual Report of Southwest Airlines Co\. for year 2018

restrictions can cause curtailments in service or increases in operating costs and can limit the ability of air carriers to expand operations at the affected airports\.

At the federal level, the FAA has committed to inform and involve the public, engage with communities, and give meaningful consideration to community concerns and views when developing new flight procedures, and there is a possibility that Congress may enact legislation in 2019 to address local noise concerns at one or more commercial airports in the United States\. In addition, the Reauthorization Act requires the FAA to consider community noise concerns when proposing a new navigation departure procedure or amending an existing navigation procedure that would direct aircraft over noise sensitive areas\. This requirement could delay or otherwise impede the implementation or use of more efficient flight paths\. In 2017, the FAA published a final rule adopting the ICAO noise standard for new type design large aircraft submitted for certification after December 31, 2017; however, this standard does not affect the Company's in\-service fleet, nor does it require that manufacturers who produce existing aircraft types, such as the Boeing 737, meet the standard with respect to these types of aircraft\.

The Company remains steadfast in its desire to pursue, implement, and enhance initiatives that will reduce fuel consumption and improve fuel efficiency\. During 2018, the Company continued its efforts at more efficient flight planning and flight operation, while also benefitting from the continued addition of Boeing 737 MAX 8 aircraft to the Company's fleet\. In addition, over the years, the Company has undertaken a number of other fuel conservation and carbon emission reduction initiatives such as the following:

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------- |
| • | installation of blended winglets, which reduce drag and increase fuel efficiency, on all aircraft in the Company's fleet; |

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| - | --------------------------------------------------------------------------------- |
| • | upgrading of the Company's 737\-800 fleet with designed, split scimitar winglets; |

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| - | ----------------------- |
| • | periodic engine washes; |

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| - | ------------------------------------------------------------------------------------------------------------------------- |
| • | use of electric ground power for aircraft air and power at the gate and for ground support equipment at select locations; |

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| - | ----------------------------------------------------------------------------------------- |
| • | deployment of auto\-throttle and vertical navigation to maintain optimum cruising speeds; |

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| - | ------------------------------------------------------------------------------------------------- |
| • | implementation of engine start procedures to support the Company's single engine taxi procedures; |

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| - | -------------------------------------------------------------------------------------------------------------------- |
| • | adjustment of the timing of auxiliary power unit starts on originating flights to reduce auxiliary power unit usage; |

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| - | ------------------------------------------------------------------------------------ |
| • | implementation of fuel planning initiatives to safely reduce loading of excess fuel; |

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| - | ------------------------------------------------------ |
| • | aircraft cabin interior retrofitting to reduce weight; |

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| - | ---------------------------------------------------------------------------------------------- |
| • | reduction of aircraft engine idle speed while on the ground, which also increases engine life; |

|   |                                                   |
| - | ------------------------------------------------- |
| • | galley refreshes with dry goods weight reduction; |

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| - | ---------------------------------------------------------------------------------------------------------------- |
| • | Company\-optimized routes (flying the best wind routes to take advantage of tailwinds or to minimize headwinds); |

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| - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | improvements in flight planning algorithms to better match the Company's aircraft flight management system and thereby enabling the Company to fly at the most efficient altitudes; |

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| - | ------------------------------------------------------------------------------------------------------ |
| • | substitution of Pilot and Flight Attendant flight bags with lighter Electronic Flight Bag tablets; and |

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| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | implementation of Real Time Descent Winds (automatic uplinking of up\-to\-date wind data to the aircraft, allowing crews to time the descent to minimize thrust inputs)\. |

The Company has also participated in Required Navigation Performance ("RNP") operations as part of the FAA's Performance Based Navigation program, which is intended to modernize the U\.S\. air traffic control system by addressing limitations on air transportation capacity and making more efficient use of airspace\. RNP combines the capabilities of advanced aircraft avionics, Global Positioning System ("GPS") satellite navigation (instead of less precise ground\-based navigation), and new flight procedures to (i) enable aircraft to carry navigation capabilities, rather than relying on airports; (ii) improve operational capabilities by opening up many new and more direct airport approach paths to

15


Annual Report of Southwest Airlines Co\. for year 2017

The sublease terms for the 76 B717s on operating lease and the two B717s on capital lease coincide with the Company's remaining lease terms for these aircraft from the original lessor, which range from approximately two to seven years\. The leasing of the ten B717s that are owned by the Company is subject to certain conditions, and the lease terms are for up to six years, after which Delta will have the option to purchase the aircraft at the then\-prevailing market value\. The ten owned B717s are accounted for as sales type leases, the two B717s classified by the Company as capital leases are accounted for as direct financing leases, and the remaining 76 subleases are accounted for as operating leases with Delta\. There are no contingent payments and no significant residual value conditions associated with the transaction\.

During 2017, the Company retired its remaining 87 Classic aircraft, which included 61 Classic aircraft grounded in September 2017 as part of an accelerated retirement schedule\. The Company recorded a charge of $63 million related to the leased portion of the Classic fleet, representing the remaining net lease payments due and certain lease return requirements that could have to be performed on these leased aircraft prior to their return to the lessors, as of the cease\-use date\.

**8****\. COMMON STOCK**

The Company has one class of capital stock, its common stock\. Holders of shares of common stock are entitled to receive dividends when and if declared by the Board of Directors and are entitled to one vote per share on all matters submitted to a vote of the Shareholders\. At December 31, 2017, the Company had 60 million shares of common stock reserved for issuance pursuant to Employee equity plans (of which 30 million shares had not been granted) through various share\-based compensation arrangements\. See Note 9 to the Consolidated Financial Statements for information regarding the Company's equity plans\.

**9****\. STOCK PLANS**

***Share\-based Compensation***

The Company accounts for share\-based compensation utilizing fair value, which is determined on the date of grant for all instruments\. The Consolidated Statement of Income for the years ended December 31, 2017, 2016, and 2015, reflects share\-based compensation expense of $37 million, $33 million, and $29 million, respectively\. The total tax benefit recognized in earnings from share\-based compensation arrangements for the years ended December 31, 2017, 2016, and 2015, was not material\. As of December 31, 2017, there was $35 million of total unrecognized compensation cost related to share\-based compensation arrangements, which is expected to be recognized over a weighted\-average period of 1\.8 years\. The Company expects substantially all unvested awards to vest\.

***Restricted Stock Units and Stock Grants***

Under the Company’s Amended and Restated 2007 Equity Incentive Plan ("2007 Equity Plan"), it granted restricted stock units ("RSUs") and performance\-based restricted stock units ("PBRSUs") to certain Employees during 2015, 2016, and 2017\. Outstanding RSUs vest over three years, subject generally to the individual’s continued employment or service\. The PBRSUs granted in January 2015, January 2016, and February 2017 are subject to the Company’s performance with respect to a three\-year simple average of Return on Invested Capital, before taxes and excluding special items ("ROIC"), for the defined performance period and the individual’s continued employment or service\. The number of PBRSUs vesting on the vesting date will be interpolated based on the Company's ROIC performance and ranges from zero PBRSUs to 200 percent of granted PBRSUs\. Forfeiture rates are estimated at the time of grant based on historical actuals for similar grants, and are trued\-up to actuals over the vesting period\. The Company recognizes all expense on a straight\-line basis over the vesting period, with any changes in expense due to the number of PBRSUs expected to vest being modified on a prospective basis\.

Aggregated information regarding the Company’s RSUs and PBRSUs is summarized below:

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