Annual Report of Southwest Airlines Co\. for year 2017

|             |                                                                                |                                                                                |
| ----------- | -------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- |
| **Year**    | **Fair value of fuel**

**derivative contracts**

**at December 31, 2017** | **Amount of gains (losses) deferred**

**in AOCI at December 31,**

**2017 (net of tax)** |
| 2018        | $112                                                                                | $(9)                                                                                |
| 2019        | 75                                                                                | 8                                                                                |
| 2020        | 42                                                                                | 3                                                                                |
| Beyond 2020 | 19                                                                                | —                                                                                |
| Total       | $248                                                                                | $2                                                                                |

Based on forward market prices and the amounts in the above table (and excluding any other subsequent changes to the fuel hedge portfolio), the Company's jet fuel costs per gallon could exceed market (i\.e\., unhedged) prices during some of these future periods\. This is based primarily on expected future cash settlements associated with fuel derivatives, but excludes any impact associated with the ineffectiveness of fuel hedges or fuel derivatives that are marked to market because they do not qualify for hedge accounting\. See Note 10 to the Consolidated Financial Statements for further information\. Assuming no changes to the Company's current fuel derivative portfolio, but including all previous hedge activity for fuel derivatives that have not yet settled and expected fuel hedge premium costs associated with settling contracts each period, and considering only the expected net cash payments and/or receipts related to hedges that will settle, the Company is providing the below sensitivity table for first quarter 2018 and full year 2018 jet fuel prices at different crude oil assumptions as of January 19, 2018, and for expected premium costs associated with settling contracts each period, respectively\.

|                                                         |                                                 |                                                                                |                                                 |                                                                                |
| ------------------------------------------------------- | ----------------------------------------------- | --------------------------------------------------------------------------------- | ----------------------------------------------- | --------------------------------------------------------------------------------- |
|                                                         | **Fuel hedging premium expense per gallon (b)** | **Estimated economic fuel price per gallon, including taxes and premiums (c)(e)** | **Fuel hedging premium expense per gallon (b)** | **Estimated economic fuel price per gallon, including taxes and premiums (d)(e)** |
| **Average Brent Crude Oil**

**price per barrel** | **1Q 2018**                                     | **1Q 2018**                                                                       | **Full Year 2018**                              | **Full Year 2018**                                                                |
| $55                                                     | $0\.07                                          | $1\.85 \- $1\.90                                                                  | $0\.06                                          | $1\.75 \- $1\.80                                                                  |
| $65                                                     | $0\.07                                          | $2\.05 \- $2\.10                                                                  | $0\.06                                          | $2\.00 \- $2\.05                                                                  |
| **Current Market (a)**                                  | $0\.07                                          | **$2\.10 \- $2\.15**                                                              | $0\.06                                          | **$2\.10 \- $2\.15**                                                              |
| $75                                                     | $0\.07                                          | $2\.25 \- $2\.30                                                                  | $0\.06                                          | $2\.30 \- $2\.35                                                                  |
| $80                                                     | $0\.07                                          | $2\.30 \- $2\.35                                                                  | $0\.06                                          | $2\.35 \- $2\.40                                                                  |
| $85                                                     | $0\.07                                          | $2\.35 \- $2\.40                                                                  | $0\.06                                          | $2\.45 \- $2\.50                                                                  |
| Estimated premium costs                                 | Approximately $34 million                       | Approximately $34 million                                                         | Approximately $135 million                      | Approximately $135 million                                                        |

(a) Brent crude oil average market prices as of January 19, 2018, were approximately $68 and $67 per barrel for first quarter 2018 and full year 2018, respectively\.

(b) In accordance with the Company's planned early adoption of Accounting Standards Update No\. 2017\-12, Targeting Improvements to Accounting for Hedging Activities, the Company will begin reporting premium expense within Fuel and oil expense as of January 1, 2018\.

(c) Based on the Company's existing fuel derivative contracts and market prices as of January 19, 2018, first quarter 2018 economic fuel costs are estimated to be in the $2\.10 to $2\.15 per gallon range, including fuel hedging premium expense of approximately $34 million, or $0\.07 per gallon\. First quarter 2018's expected economic fuel cost range of $2\.10 to $2\.15 per gallon compares with first quarter 2017's economic fuel cost of $1\.96 per gallon, as reported, but including fuel hedging premium expense of $34 million, or $\.07 per gallon, will be recast as $2\.03 per gallon\.

(d) Based on the Company's existing fuel derivative contracts and market prices as of January 19, 2018, annual 2018 economic fuel costs are estimated to be in the $2\.10 to $2\.15 per gallon range, including fuel hedging premium expense of approximately $135 million, or $\.06 per gallon\. 2018's annual expected economic fuel cost range of $2\.10 to $2\.15 per gallon compares with 2017's annual economic fuel costs of $2\.00 per gallon, as reported herein, but including fuel hedging premium expense of $135 million, or $\.06 per gallon, will be recast as $2\.06 per gallon\.

(e) The economic fuel price per gallon sensitivities provided assume the relationship between Brent crude oil and refined products based on market prices as of January 19, 2018\. Economic fuel cost projections do not reflect the potential impact of special items because the Company cannot reliably predict or estimate the hedge accounting impact associated with the volatility of the energy

44


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

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

ITEM 7A\. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have market risk exposure related to fuel prices, interest rates and foreign currency exchange rates\. Market risk is the potential negative impact of adverse changes in these prices or rates on our Consolidated Financial Statements\. In an effort to manage our exposure to these risks, we enter into derivative contracts and may adjust our derivative portfolio as market conditions change\. We expect adjustments to the fair value of financial instruments to result in ongoing volatility in earnings and stockholders' equity\.

The following sensitivity analyses do not consider the effects of a change in demand for air travel, the economy as a whole or actions we may take to seek to mitigate our exposure to a particular risk\. For these and other reasons, the actual results of changes in these prices or rates may differ materially from the following hypothetical results\.

Fuel Price Risk

Changes in fuel prices materially impact our results of operations\.  We have recently managed our fuel price risk through a hedging program intended to reduce the financial impact from changes in the price of fuel as fuel prices are subject to potential volatility\.  A one cent increase in the cost of jet fuel would result in approximately $40 million of additional annual fuel expense\.

Interest Rate Risk

Our exposure to market risk from adverse changes in interest rates is primarily associated with our long\-term debt obligations\. Market risk associated with our fixed and variable rate long\-term debt relates to the potential reduction in fair value and negative impact to future earnings, respectively, from an increase in interest rates\.

At  December 31, 2017 , we had $5\.3 billion of fixed\-rate long\-term debt and $3\.2 billion of variable\-rate long\-term debt\. An increase of 100 basis points in average annual interest rates would have decreased the estimated fair value of our fixed\-rate long\-term debt by $160 million at  December 31, 2017  and would have increased the annual interest expense on our variable\-rate long\-term debt by $32 million\.

Foreign Currency Exchange Risk

We are subject to foreign currency exchange rate risk because we have revenue and expense denominated in foreign currencies with our primary exposures being the Japanese yen and Canadian dollar\. To manage exchange rate risk, we execute both our international revenue and expense transactions in the same foreign currency to the extent practicable\.  From time to time, we may also enter into foreign currency option and forward contracts\.  At  December 31, 2017 , we had open foreign currency forward contracts totaling a  $17 million  liability position\. We estimate that a 10% depreciation or appreciation in the price of the Japanese yen and Canadian dollar in relation to the U\.S\. dollar would change the projected cash settlement value of our open hedge contracts by a $34 million gain or $42 million loss, respectively, for the year ending December 31, 2018\.

 47


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

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

**Number** | **Description**                                                                                |
| 4\.106                        | [Escrow and Paying Agent Agreement (Class AA), dated as of May 16, 2016, among Wilmington Trust, National Association, as Escrow Agent, Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc\., for themselves and on behalf of the several Underwriters, Wilmington Trust Company, not in its individual capacity, but solely as Pass Through Trustee for and on behalf of American Airlines Pass Through Trust 2016\-2AA, and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4\.7 to American’s Current Report on Form 8\-K filed on May 17, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516592083/d177635dex47.htm)        |
| 4\.107                        | [Escrow and Paying Agent Agreement (Class A), dated as of May 16, 2016, among Wilmington Trust, National Association, as Escrow Agent, Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc\., for themselves and on behalf of the several Underwriters, Wilmington Trust Company, not in its individual capacity, but solely as Pass Through Trustee for and on behalf of American Airlines Pass Through Trust 2016\-2A, and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4\.8 to American’s Current Report on Form 8\-K filed on May 17, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516592083/d177635dex48.htm)          |
| 4\.108                        | [Note Purchase Agreement, dated as of May 16, 2016, 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\.9 to American’s Current Report on Form 8\-K filed on May 17, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516592083/d177635dex49.htm)                                                                                |
| 4\.109                        | [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\.9 to American’s Current Report on Form 8\-K filed on May 17, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516592083/d177635dex49.htm)                                                                                |
| 4\.110                        | [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\.9 to American’s Current Report on Form 8\-K filed on May 17, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516592083/d177635dex49.htm)                                                                                |
| 4\.111                        | [Form of Pass Through Trust Certificate, Series 2016\-2AA (incorporated by reference to Exhibit A to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on May 17, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516592083/d177635dex42.htm)                                                                                |
| 4\.112                        | [Form of Pass Through Trust Certificate, Series 2016\-2A (incorporated by reference to Exhibit A to Exhibit 4\.3 to American’s Current Report on Form 8\-K filed on May 17, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516592083/d177635dex43.htm)                                                                                |
| 4\.113                        | [Revolving Credit Agreement (2016\-2AA), dated as of May 16, 2016, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2016\-2AA, as Borrower, and KfW IPEX\-Bank GmbH, as Liquidity Provider (incorporated by reference to Exhibit 4\.14 to American’s Current Report on Form 8\-K filed on May 17, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516592083/d177635dex414.htm)                                                                                |
| 4\.114                        | [Revolving Credit Agreement (2016\-2A), dated as of May 16, 2016, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2016\-2A, as Borrower, and KfW IPEX\-Bank GmbH, as Liquidity Provider (incorporated by reference to Exhibit 4\.15 to American’s Current Report on Form 8\-K filed on May 17, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516592083/d177635dex415.htm)                                                                                |
| 4\.115                        | [Trust Supplement No\. 2016\-2B, dated as of July 8, 2016, 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 July 12, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516646353/d210431dex42.htm)                                                                                |
| 4\.116                        | [Amended and Restated Intercreditor Agreement (2016\-2), dated as of July 8, 2016, among Wilmington Trust Company, as Trustee of the American Airlines Pass Through Trust 2016\-2AA, as Trustee of the American Airlines Pass Through Trust 2016\-2A and as Trustee of the American Airlines Pass Through Trust 2016\-2B, KfW IPEX\-Bank GmbH, 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 July 12, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516646353/d210431dex43.htm) |
| 4\.117                        | [Deposit Agreement (Class B), dated as of July 8, 2016, between Wilmington Trust, National Association, as Escrow Agent, and Citibank, N\.A\., as Depositary (incorporated by reference to Exhibit 4\.4 to American’s Current Report on Form 8\-K filed on July 12, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516646353/d210431dex44.htm)                                                                                |
| 4\.118                        | [Escrow and Paying Agent Agreement (Class B), dated as of July 8, 2016, among Wilmington Trust, National Association, as Escrow Agent, Citigroup Global Markets Inc\., as the initial purchaser, Wilmington Trust Company, not in its individual capacity, but solely as Pass Through Trustee for and on behalf of American Airlines Pass Through Trust 2016\-2B, and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4\.5 to American’s Current Report on Form 8\-K filed on July 12, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516646353/d210431dex45.htm)                                                                                |
| 4\.119                        | [Amended and Restated Note Purchase Agreement, dated as of July 8, 2016, 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 July 12, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516646353/d210431dex46.htm)                                                                                |

184


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

***Impacts to*** ***2016*** ***Results***

The effects of the adoption of the New Revenue Standard and New Retirement Standard to our consolidated statement of operations for the twelve months ended December 31, 2016 were as follows (in millions):

|                                       |                 |                             |                                         |                                   |                             |               |
| ------------------------------------- | --------------- | --------------------------- | --------------------------------------- | --------------------------------- | --------------------------- | ------------- |
|                                       |                 | **New Revenue Standard**    | **New Revenue Standard**                | **New Revenue Standard**          | **New Retirement Standard** |               |
| **Year Ended  <br>December 31, 2016** | **As Reported** | **Deferred Revenue Method** | **Ancillary Revenue Reclassifications** | **Gross Versus Net Presentation** | **Reclassifications**       | **As Recast** |
| Operating revenues:                   |                 |                             |                                         |                                   |                             |               |
|  Passenger                            | $34,579         | $(147)                      | $2,571                                  | $42                               | $—                          | $37,045       |
|  Cargo                                | 700             | —                           | 36                                      | 49                                | —                           | 785           |
|  Other                                | 4,901           | —                           | (2,607)                                 | 18                                | —                           | 2,312         |
|  Total operating revenues             | 40,180          | (147)                       | —                                       | 109                               | —                           | 40,142        |
|  Total operating expenses             | 34,896          | —                           | —                                       | 109                               | 77                          | 35,082        |
| Operating income                      | 5,284           | (147)                       | —                                       | —                                 | (77)                        | 5,060         |
| Total nonoperating expense, net       | (985)           | —                           | —                                       | —                                 | 77                          | (908)         |
| Income before income taxes            | 4,299           | (147)                       | —                                       | —                                 | —                           | 4,152         |
| Income tax provision                  | 1,623           | (55)                        | —                                       | —                                 | —                           | 1,568         |
| Net income                            | $2,676          | $(92)                       | $—                                      | $—                                | $—                          | $2,584        |
| Diluted earnings per common share     | $4\.81          |                             |                                         |                                   |                             | $4\.65        |

*Standards Effective for 2019 Reporting Periods*

***ASU 2018\-02: Income Statement \- Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income***

This ASU provides financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings due to the U\.S\. federal corporate income tax rate change as a result of the 2017 Tax Act\. The amount of the reclassification is the difference between the amount initially charged or credited directly to other comprehensive income at the previously enacted U\.S\. federal corporate income tax rate that remains in accumulated other comprehensive income and the amount that would have been charged or credited directly to other comprehensive income using the newly enacted U\.S\. federal corporate income tax rate, excluding the effect of any valuation allowance previously charged to income from continuing operations\. This standard is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted\. We will adopt this standard effective January 1, 2019\. The adoption of the standard may impact tax amounts stranded in accumulated other comprehensive income related to our pension and retiree medical and other postretirement benefit plans\.

**ITEM 7A\. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

The risk inherent in our market risk sensitive instruments and positions is the potential loss arising from adverse changes in the price of fuel, foreign currency exchange rates and interest rates as discussed below\. The sensitivity analyses presented do not consider the effects that such adverse changes may have on overall economic activity, nor do they consider additional actions we may take to mitigate our exposure to such changes\. Therefore, actual results may differ\. See Note 8 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 6 to American’s Consolidated Financial Statements in Part II, Item 8B for additional discussion regarding risk management matters\.

***Aircraft Fuel***

Our operating results are materially impacted by changes in the availability, price volatility and cost of aircraft fuel, which represents one of the largest single cost items in our business\. Because of the amount of fuel needed to operate our airlines, even a relatively small increase or decrease in the price of fuel can have a material effect on our costs and liquidity\. Market prices for jet fuel have fluctuated substantially over the past several years with market spot prices ranging from a low of approximately $0\.80 per gallon to a high of approximately $2\.35 per gallon during the period from January 1, 2016 to December 31, 2018\.

78


Annual Report of Southwest Airlines Co\. for year 2019

|                                                                                |
| ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| [Supplemental Agreement No\. 65 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2010 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238010000079/ex10_1.htm) ; [Supplemental Agreement No\. 66 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2010 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238010000099/ex10_1.htm) ; [Supplemental Agreement No\. 67 (incorporated by reference to Exhibit 10\.1(a) to the Company’s Annual Report on Form 10\-K for the year ended December 31, 2010 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000119312511026045/dex101a.htm) ; [Supplemental Agreement No\. 68 (incorporated by reference to Exhibit 10\.1(b) to the Company’s Annual Report on Form 10\-K for the year ended December 31, 2010 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000119312511026045/dex101b.htm) ; [Supplemental Agreement No\. 69 (incorporated by reference to Exhibit 10\.1(c) to the Company’s Annual Report on Form 10\-K for the year ended December 31, 2010 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000119312511026045/dex101c.htm) ; [Supplemental Agreement No\. 70 (incorporated by reference to Exhibit 10\.1(d) to the Company’s Annual Report on Form 10\-K for the year ended December 31, 2010 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000119312511026045/dex101d.htm) ;[ Supplemental Agreement No\. 71 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2011 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238011000020/ex10_1.htm) ; [Supplemental Agreement No\. 72 (incorporated by reference to Exhibit 10\.2 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2011 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238011000020/ex10_2.htm) ; [Supplemental Agreement No\. 73 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2011 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238011000070/ex10_1.htm) ; [Supplemental Agreement No\. 74 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2011 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238011000088/ex10_1.htm) ; [Supplemental Agreement No\. 75 (incorporated by reference to Exhibit 10\.1(a) 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/d293991dex101a.htm) ; [Supplemental Agreement No\. 76 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2012 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238012000089/ex10_1.htm) ; [Supplemental Agreement No\. 77 (incorporated by reference to Exhibit 10\.2 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2012 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238012000089/ex10_2.htm) ; [Supplemental Agreement No\. 78 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2012 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238012000103/ex10_1.htm) ; [Supplemental Agreement No\. 79 (incorporated by reference to Exhibit 10\.2 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2012 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238012000103/ex10_2.htm) ;[ Supplemental Agreement No\. 80 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2013 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238013000020/sa80topa18101redacted.htm) ; [Supplemental Agreement No\. 81 (incorporated by reference to Exhibit 10\.2 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2013 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238013000020/sa81topa1810redacted.htm) ; [Supplemental Agreement No\. 82 (incorporated by reference to Exhibit 10\.1 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-82topax1810_redacted.htm) [Supplemental Agreement No\. 83 (incorporated by reference to Exhibit 10\.2 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-83topax1810_redacted.htm) [Supplemental Agreement No\. 84 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2013 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238013000111/sa-84topax1810redacted.htm) [Supplemental Agreement No\. 85 (incorporated by reference to Exhibit 10\.1(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-12312013xex101a.htm) [Supplemental Agreement No\. 86 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2014 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238014000024/sa-86topax18101redacted.htm) [Supplemental Agreement No\. 87 (incorporated by reference to Exhibit 10\.1 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/sa-87topax1810redacted.htm) [Supplemental Agreement No\. 88 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2014 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238014000151/sa-88pax18101redacted.htm) [Supplemental Agreement No\. 89 (incorporated by reference to Exhibit 10\.1(a) to the Company’s Annual Report on Form 10\-K for the year ended December 31, 2014 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238015000027/luv-12312014xex101a.htm) [Supplemental Agreement No\. 90 (incorporated by reference to Exhibit 10\.1(b) to the Company’s Annual Report on Form 10\-K for the year ended December 31, 2014 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238015000027/luv-12312014xex101b.htm) [Supplemental Agreement No\. 91 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2015 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238015000098/luv-6302015xex101.htm) [Supplemental Letter Agreement No\. 1810\-LA\-1501773 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2015 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238015000129/luv-9302015xex101.htm) [Supplemental Agreement No\. 92 (incorporated by reference to Exhibit 10\.1(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-12312015xex101a.htm) [Supplemental Agreement No\. 93 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2016 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238016000213/luv-3312016xex101.htm) [Supplemental Agreement No\. 94 (incorporated by reference to Exhibit 10\.1 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-6302016xex101.htm)[Supplemental Agreement No\. 95 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2016 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238016000270/luv-9302016xex101.htm) [Supplemental Agreement No\. 96 (incorporated by reference to Exhibit 10\.2 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2016 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238016000270/luv-9302016xex102.htm) [Supplemental Agreement No\. 97 (incorporated by reference to Exhibit 10\.3 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2016 (File No\. 1\-7259)); ](http://www.sec.gov/Archives/edgar/data/92380/000009238016000270/luv-9302016xex103.htm)<br><br>  <br> |

121


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

Other Financial and Statistical Data (Unaudited)

|                                                |                                                |                                                |                         |                         |                         |                         |                         |  |  |  |  |  |  |  |  |  |  |  |  |
|:---------------------------------------------- |:---------------------------------------------- |:---------------------------------------------- | -----------------------:| -----------------------:| -----------------------:| -----------------------:| -----------------------:|:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |
|                                                |                                                |                                                | Year Ended December 31, | Year Ended December 31, | Year Ended December 31, | Year Ended December 31, | Year Ended December 31, |  |  |  |  |  |  |  |  |  |  |  |  |
| Consolidated^(1)^                              | Consolidated^(1)^                              | Consolidated^(1)^                              |                    2019 |                    2018 |                    2017 |                    2016 |                    2015 |
| Revenue passenger miles (in millions)          | Revenue passenger miles (in millions)          | Revenue passenger miles (in millions)          |                237,680  |                225,243  |                217,712  |                213,098  |                209,625  |
| Available seat miles (in millions)             | Available seat miles (in millions)             | Available seat miles (in millions)             |                275,379  |                263,365  |                254,325  |                251,867  |                246,764  |
| Passenger mile yield                           | Passenger mile yield                           | Passenger mile yield                           |                17\.79 ¢ |                17\.65 ¢ |                16\.97 ¢ |                16\.81 ¢ |                16\.59 ¢ |
| Passenger revenue per available seat mile      | Passenger revenue per available seat mile      | Passenger revenue per available seat mile      |                15\.35 ¢ |                15\.09 ¢ |                14\.53 ¢ |                14\.22 ¢ |                14\.10 ¢ |
| Total revenue per available seat mile          | Total revenue per available seat mile          | Total revenue per available seat mile          |                17\.07 ¢ |                16\.87 ¢ |                16\.18 ¢ |                15\.66 ¢ |                16\.50 ¢ |
| Operating cost per available seat mile         | Operating cost per available seat mile         | Operating cost per available seat mile         |                14\.67 ¢ |                14\.87 ¢ |                13\.83 ¢ |                12\.89 ¢ |                13\.33 ¢ |
| Passenger load factor                          | Passenger load factor                          | Passenger load factor                          |                 86\.3 % |                 85\.5 % |                 85\.6 % |                 84\.6 % |                 84\.9 % |
| Fuel gallons consumed (in millions)            | Fuel gallons consumed (in millions)            | Fuel gallons consumed (in millions)            |                  4,214  |                  4,113  |                  4,032  |                  4,016  |                  3,988  |
| Average price per fuel gallon^(2)^             | Average price per fuel gallon^(2)^             | Average price per fuel gallon^(2)^             |                 $2\.02  |                 $2\.20  |                 $1\.68  |                 $1\.49  |                 $1\.90  |
| Full\-time equivalent employees, end of period | Full\-time equivalent employees, end of period | Full\-time equivalent employees, end of period |                 91,224  |                 88,680  |                 86,564  |                 83,756  |                 82,949  |

^(1)^ Includes the operations of our regional carriers under capacity purchase agreements\. Full\-time equivalent employees exclude employees of regional carriers that we do not own\.

^(2)^ Includes the impact of fuel hedge activity and refinery segment results\.

28


Annual Report of Southwest Airlines Co\. for year 2019

violation of the Racketeer Influenced and Corrupt Organization Act and also asserts related state law claims based upon the same alleged facts\. The initial complaint seeks damages on behalf of putative classes of customers who purchased tickets for air travel from either the Company or American Airlines between August 29, 2017, and March 13, 2019\. The complaint generally seeks money damages, equitable monetary relief, injunctive relief, declaratory relief, and attorneys’ fees and other costs\. On September 13, 2019, the Company filed a motion to dismiss the complaint and to strike certain class allegations\. The plaintiffs filed a response to the Company's motion, and thereafter the parties filed respective reply briefs\. On December 9, 2019, the Court held a hearing on the Company and Boeing’s motions to dismiss, and the parties are currently awaiting the Court’s ruling\. The Company denies all allegations of wrongdoing, including those in the complaint\. The Company believes the plaintiffs' positions are without merit and intends to vigorously defend itself\.

The Company is from time to time subject to various legal proceedings and claims arising in the ordinary course of business, including, but not limited to, examinations by the Internal Revenue Service\.

The Company’s management does not expect that the outcome in any of its currently ongoing legal proceedings or the outcome of any proposed adjustments presented to date by the Internal Revenue Service, individually or collectively, will have a material adverse effect on the Company’s financial condition, results of operations, or cash flow\.

|               |                                |
| ------------- | ------------------------------ |
| **Item 4\.**  | ***Mine Safety Disclosures***  |

Not applicable\.

32


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

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

|                                                                        |                                   |                                   |
| ---------------------------------------------------------------------- | --------------------------------- | --------------------------------- |
|                                                                        | **Pension Benefits**              | **Pension Benefits**              |
|                                                                        | **December 31, 2019**             | **December 31, 2018**             |
| Amounts recognized in the consolidated balance sheets consist of:      |                                   |                                   |
| Noncurrent asset                                                       | $14                               | $13                               |
| Current liability                                                      | (2

)                       | (6

)                       |
| Noncurrent liability                                                   | (1,446

)                   | (1,576

)                   |
| Total liability                                                        | $

(1,434

)          | $

(1,569

)          |
| Amounts recognized in accumulated other comprehensive loss consist of: |                                   |                                   |
| Net actuarial loss                                                     | $

(1,652

)          | $

(1,382

)          |
| Prior service cost                                                     | (4

)                       | (5

)                       |
| Total accumulated other comprehensive loss                             | $

(1,656

)          | $

(1,387

)          |
|                                                                        | **Other Postretirement Benefits** | **Other Postretirement Benefits** |
|                                                                        | **Year Ended December 31, 2019**  | **Year Ended December 31, 2018**  |
| Change in benefit obligation:                                          |                                   |                                   |
| Benefit obligation at beginning of year                                | $1,391                            | $1,710                            |
| Service cost                                                           | 10                                | 12                                |
| Interest cost                                                          | 47                                | 61                                |
| Plan participants' contributions                                       | 67                                | 68                                |
| Benefits paid                                                          | (180

)                     | (181

)                     |
| Actuarial loss (gain)                                                  | 99                                | (285

)                     |
| Plan amendments                                                        | (597

)                     | —                                 |
| Other                                                                  | 5                                 | 6                                 |
| Benefit obligation at end of year                                      | $842                              | $1,391                            |
| Change in plan assets:                                                 |                                   |                                   |
| Fair value of plan assets at beginning of year                         | $53                               | $54                               |
| Actual return on plan assets                                           | 1                                 | 1                                 |
| Employer contributions                                                 | 111                               | 111                               |
| Plan participants' contributions                                       | 67                                | 68                                |
| Benefits paid                                                          | (180

)                     | (181

)                     |
| Fair value of plan assets at end of year                               | 52                                | 53                                |
| Funded status—Net amount recognized                                    | $

(790

)            | $

(1,338

)          |

|                                                                          |                                   |                                   |
| ------------------------------------------------------------------------ | --------------------------------- | --------------------------------- |
|                                                                          | **Other Postretirement Benefits** | **Other Postretirement Benefits** |
|                                                                          | **December 31, 2019**             | **December 31, 2018**             |
| Amounts recognized in the consolidated balance sheets consist of:        |                                   |                                   |
| Current liability                                                        | $

(1

)              | $

(43

)             |
| Noncurrent liability                                                     | (789

)                     | (1,295

)                   |
| Total liability                                                          | $

(790

)            | $

(1,338

)          |
| Amounts recognized in accumulated other comprehensive income consist of: |                                   |                                   |
| Net actuarial gain                                                       | $403                              | $554                              |
| Prior service credit                                                     | 693                               | 170                               |
| Total accumulated other comprehensive income                             | $1,096                            | $724                              |

69


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

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

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of United Airlines, Inc\. and in the capacities and on the date indicated\.

|                      |                                                                |
| -------------------- | -------------------------------------------------------------- |
| Signature            | Capacity                                                       |
| /s/ Oscar Munoz      | Chief Executive Officer, Director                              |
| Oscar Munoz          | (Principal Executive Officer)                                  |
| /s/ Gerald Laderman  | Executive Vice President and Chief Financial Officer, Director |
| Gerald Laderman      | (Principal Financial Officer)                                  |
| /s/ Chris Kenny      | Vice President and Controller                                  |
| Chris Kenny          | (Principal Accounting Officer)                                 |
| /s/ Gregory L\. Hart | Director                                                       |
| Gregory L\. Hart     |                                                                |
| /s/ J\. Scott Kirby  | Director                                                       |
| J\. Scott Kirby      |                                                                |

Date: February 28, 2019

111


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

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

|               |                                                    |
| ------------- | -------------------------------------------------- |
|  **ITEM 8\.** | **FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA\.**  |

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Stockholders and the Board of Directors of

United Continental Holdings, Inc\.

**Opinion on the Financial Statements**

We have audited the accompanying consolidated balance sheets of United Continental Holdings, Inc\. (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income (loss), cash flows, and stockholders’ equity for each of the three years in the period ended December 31, 2017, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”)\. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U\.S\. generally accepted accounting principles\.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control\-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 22, 2018, expressed an unqualified opinion thereon\.

**Basis for Opinion**

These financial statements are the responsibility of the Company’s management\. Our responsibility is to express an opinion on the Company’s financial statements based on our audits\. 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 audits in accordance with the standards of the PCAOB\. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud\. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks\. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements\. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements\. We believe that our audits provide a reasonable basis for our opinion\.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2009\.

Chicago, Illinois

February 22, 2018

47


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

relationship with Qantas Airways\. This JBA has been approved by the competition law regulators in Australia and New Zealand\.

In addition, we have signed JBAs with certain air carriers of the LATAM Airlines Group, which JBAs have been approved in all jurisdictions other than the United States, where approval is pending\. Most recently, in November 2018, the Court of Free Competition in Chile approved the JBA between American and LATAM Airlines Group with respect to both our passenger and cargo businesses\. That decision has been appealed to the Chilean Supreme Court\.

In November 2018, we announced that we are taking steps to strengthen our partnership with China Southern Airlines Company Limited (China Southern Airlines), in which we presently hold a 2\.2% equity interest, with a significant expansion of codeshare cooperation and the launch of reciprocal loyalty program benefits and lounge access\.

***Marketing Relationships***

To improve access to each other’s markets, various U\.S\. and foreign air carriers, including American, have established marketing agreements with other airlines\. These marketing agreements generally provide enhanced customer choice by means of an expanded network with reciprocal loyalty program participation and joint sales cooperation\. American currently has codeshare and/or loyalty program relationships with Air Tahiti Nui, Alaska Airlines, British Airways, Cape Air, Cathay Dragon, Cathay Pacific, China Southern Airlines, EL AL, Etihad Airways, Fiji Airways, Finnair, Gulf Air, Hawaiian Airlines, Iberia, Interjet, Japan Airlines, Jetstar Group (includes Jetstar Airways and Jetstar Japan), Korean Air, LATAM (includes LATAM Airlines, LATAM Argentina, LATAM Brasil, LATAM Peru, LATAM Colombia and LATAM Ecuador), Malaysia Airlines, Qantas Airways, Qatar Airways, Royal Jordanian, S7 Airlines, Seaborne Airlines and SriLankan Airlines\.

**Loyalty Program**

Our loyalty program, AAdvantage^®^, was established to develop passenger loyalty by offering awards to travelers for their continued patronage\. AAdvantage was named Best Elite Program in the Americas for the seventh consecutive year in that category at the 2018 Freddie Awards, which are annual awards that recognize the world’s most outstanding frequent travel programs\. AAdvantage members earn mileage credits by flying on American, any **one**world airline or other partner airlines, or by using the services of over 1,000 program participants, such as the Citi and Barclaycard US co\-branded credit cards, hotels and car rental companies\. For every dollar spent, non\-status members earn five mileage credits, but Gold, Platinum, Platinum Pro and Executive Platinum status holders earn bonus mileage credits of seven, eight, nine and eleven mileage credits, respectively\.

All travel on eligible tickets counts toward qualification for elite status in the AAdvantage program\. Mileage credits can be redeemed for free or upgraded travel on American and participating airlines, membership to our Admirals Club^®^ or for other non\-travel awards from our program participants\. Most travel awards are subject to capacity\-controlled seating\. A member’s mileage credit does not expire as long as that member has any type of qualifying activity at least once every 18 months\. Elite members can enjoy additional benefits of the AAdvantage program, including complimentary upgrades, checked bags, and Preferred and Main Cabin Extra seats, as well as priority check\-in, security, boarding and baggage delivery\. Additionally, our members earn bonus mileage credits when elite status is obtained\.

Under our agreements with AAdvantage members and program partners, we reserve the right to change the AAdvantage program at any time without notice, and may end the program with six months’ notice\. Program rules, partners, special offers, awards and requisite mileage levels for awards are subject to change\.

During 2018, our members redeemed approximately 13 million awards including travel redemptions for flights and upgrades on American and other air carriers, as well as redemption of car and hotel awards, club memberships and merchandise\. Approximately 7\.6% of our 2018 total revenue passenger miles flown were from award travel\.

See Part II, Item 7\. Management’s Discussion and Analysis of Financial Condition and Results of Operations – “*Critical Accounting Policies and Estimate*s” for more information on our loyalty program\.

**Industry Competition**

***Domestic***

The markets in which we operate are highly competitive\. On most of our domestic nonstop routes, we currently face competing service from other domestic airlines, including major network airlines, low\-cost carriers and ultra\-low\-cost carriers such as Alaska Airlines, Allegiant Air, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, Southwest Airlines, Spirit Airlines and United Airlines\. Competition is even greater between cities that require a connection, where the major airlines compete via their respective hubs\. In addition, we face competition on some of our connecting routes from airlines

7


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

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

**UNITED AIRLINES, INC\.**

**CONSOLIDATED BALANCE SHEETS**

**(In millions, except shares)**

|                                                                                |                     |                     |
|:------------------------------------------------------------------------------------------- | -------------------:| -------------------:|
|                                                                                | **At December 31,** | **At December 31,** |
| **ASSETS**                                                                                |           **2017**  |           **2016**  |
| Current assets:                                                                             |                     |                     |
| Cash and cash equivalents                                                                   |             $1,476  |             $2,173  |
| Short\-term investments                                                                     |              2,316  |              2,249  |
| Receivables, less allowance for doubtful accounts (2017—$7; 2016—$10)                       |              1,340  |              1,176  |
| Aircraft fuel, spare parts and supplies, less obsolescence allowance (2017—$354; 2016—$295) |                924  |                873  |
| Prepaid expenses and other                                                                  |              1,051  |                832  |
| Total current assets                                                                        |              7,107  |              7,303  |
| Operating property and equipment:                                                           |                     |                     |
| Owned—                                                                                |                     |                     |
| Flight equipment                                                                            |             28,692  |             25,873  |
| Other property and equipment                                                                |              6,946  |              5,652  |
| Total owned property and equipment                                                          |             35,638  |             31,525  |
| Less—Accumulated depreciation and amortization                                              |            (11,159) |             (9,975) |
| Total owned property and equipment, net                                                     |             24,479  |             21,550  |
| Purchase deposits for flight equipment                                                      |              1,344  |              1,059  |
| Capital leases—                                                                             |                     |                     |
| Flight equipment                                                                            |              1,151  |              1,319  |
| Other property and equipment                                                                |                 11  |                331  |
| Total capital leases                                                                        |              1,162  |              1,650  |
| Less—Accumulated amortization                                                               |               (777) |               (941) |
| Total capital leases, net                                                                   |                385  |                709  |
| Total operating property and equipment, net                                                 |             26,208  |             23,318  |
| Other assets:                                                                               |                     |                     |
| Goodwill                                                                                |              4,523  |              4,523  |
| Intangibles, less accumulated amortization (2017—$1,313; 2016—$1,234)                       |              3,539  |              3,632  |
| Deferred income taxes                                                                       |                  —  |                612  |
| Restricted cash                                                                             |                 91  |                124  |
| Investments in affiliates and other, net                                                    |                852  |                579  |
| Total other assets                                                                          |              9,005  |              9,470  |
| Total assets                                                                                |            $42,320  |            $40,091  |

57

(continued on next page)


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

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

**Number** | **Description**                                                                                |
| 4\.21                         | [Indenture, dated as of May 24, 2013, between American Airlines Group Inc\. (as successor in interest to US Airways Group, Inc\.) and Wilmington Trust, National Association, as Trustee (incorporated by reference to Exhibit 4\.1 to US Airways Group’s Current Report on Form 8\-K filed on May 24, 2013 (Commission File No\. 1\-8444))\.](http://www.sec.gov/Archives/edgar/data/701345/000119312513235868/d544095dex41.htm)                                                                                |
| 4\.22                         | [First Supplemental Indenture, dated as of May 24, 2013, among American Airlines Group Inc\. (as successor in interest to US Airways Group, Inc\.), American Airlines, Inc\. (as successor in interest to US Airways, Inc\.) and Wilmington Trust, National Association, as Trustee (incorporated by reference to Exhibit 4\.2 to US Airways Group’s Current Report on Form 8\-K filed on May 24, 2013 (Commission File No\. 1\-8444))\.](http://www.sec.gov/Archives/edgar/data/701345/000119312513235868/d544095dex42.htm)                                                                                |
| 4\.23                         | [Second Supplemental Indenture dated as of December 9, 2013, among American Airlines Group Inc\. (as successor in interest to US Airways Group, Inc\.) and Wilmington Trust, National Association, as trustee, to the Indenture, dated as of May 24, 2013 (incorporated by reference to Exhibit 4\.1 to AAG’s Current Report on Form 8\-K filed on December 9, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513466973/d640718dex41.htm)                                                                                |
| 4\.24                         | [Third Supplemental Indenture, dated as of December 30, 2015, among American Airlines Group Inc\., American Airlines, Inc\. and Wilmington Trust, National Association, as trustee, to the Indenture dated as of May 24, 2013 (incorporated by reference to Exhibit 4\.1 to AAG’s Current Report on Form 8\-K filed on December 31, 2015 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515418305/d110614dex41.htm)                                                                                |
| 4\.25                         | [Pass Through Trust Agreement, dated as of September 16, 2014, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee (incorporated by reference to Exhibit 4\.1 to American’s Current Report on Form 8\-K filed on September 17, 2014 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312514343482/d790263dex41.htm)                                                                                |
| 4\.26                         | [Trust Supplement No\. 2014\-1A, dated as of September 16, 2014, 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 September 17, 2014 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312514343482/d790263dex42.htm)                                                                                |
| 4\.27                         | [Trust Supplement No\. 2014\-1B, dated as of September 16, 2014, 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\.3 to American’s Current Report on Form 8\-K filed on September 17, 2014 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312514343482/d790263dex43.htm)                                                                                |
| 4\.28                         | [Intercreditor Agreement (2014\-1), dated as of September 16, 2014, among Wilmington Trust Company, as Trustee of the American Airlines Pass Through Trust 2014\-1A and as Trustee of the American Airlines Pass Through Trust 2014\-1B, Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Class A Liquidity Provider and Class B Liquidity Provider, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4\.4 to American’s Current Report on Form 8\-K filed on September 17, 2014 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312514343482/d790263dex44.htm) |
| 4\.29                         | [Amendment No\. 1 to Intercreditor Agreement (2014\-1), dated as of June 24, 2015, among American Airlines, Inc\., Credit Agricole Corporate and Investment Bank, as Class A and Class B liquidity provider and Wilmington Trust Company, as subordination agent and trustee (incorporated by reference to Exhibit 10\.6 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2015 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515261937/d945812dex106.htm)                                                                                |
| 4\.30                         | [Note Purchase Agreement, dated as of September 16, 2014, 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\.9 to American’s Current Report on Form 8\-K filed on September 17, 2014 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312514343482/d790263dex49.htm)                                                                                |
| 4\.31                         | [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) (Exhibit B to Note Purchase Agreement) (incorporated by reference to Exhibit 4\.10 to American’s Current Report on Form 8\-K filed on September 17, 2014 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312514343482/d790263dex410.htm)                              |
| 4\.32                         | [Form of Indenture and Security Agreement (Indenture and Security Agreement between American Airlines, Inc\., and Wilmington Trust Company, as Loan Trustee) (Exhibit C to Note Purchase Agreement) (incorporated by reference to Exhibit 4\.11 to American’s Current Report on Form 8\-K filed on September 17, 2014 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312514343482/d790263dex411.htm)                                                                                |
| 4\.33                         | [Revolving Credit Agreement (2014\-1A), dated as of September 16, 2014, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2014\-1A, as Borrower, and Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Liquidity Provider (incorporated by reference to Exhibit 4\.14 to American’s Current Report on Form 8\-K filed on September 17, 2014 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312514343482/d790263dex414.htm)                                                                                |

178


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

Non\-Operating Results

|                                            |                             |                             |                             |                             |                             |
| ------------------------------------------ | --------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                            | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Favorable (Unfavorable)** | **Favorable (Unfavorable)** |
| **(in millions)**                          | **2018**                    | **2017**                    | **2016**                    |  **2018 vs\. 2017**         |  **2017 vs\. 2016**         |
| Interest expense, net                      | $(311)                      | $(396)                      | $(388)                      | $85                         | $(8)                        |
| Unrealized gain/(loss) on investments, net | 14                          | —                           | —                           | 14                          | —                           |
| Miscellaneous, net                         | 184                         | (70)                        | (255)                       | 254                         | 185                         |
| Total non\-operating expense, net          | $(113)                      | $(466)                      | $(643)                      | $353                        | $177                        |

Interest Expense\.  At December 31, 2017, the principal amount of debt and finance leases was  $8\.9 billion \. During 2018, we issued $1\.6 billion of unsecured notes, $1\.4 billion of NYTDC Special Facilities Revenue Bonds and $621 million of aircraft secured loans\. As a result of the debt issuances, partially offset by principal payments, the amount of debt and finance leases was  $9\.7 billion  at  December 31, 2018 \. Despite the increase in debt during the current year, interest expense decreased  $85 million  compared to the prior year due to recent refinancing transactions at lower interest rates resulting from our improvement to an investment grade credit rating in recent years and the favorable interest rate environment\.

Unrealized Gain/(Loss) on Investments\.  Unrealized gain/(loss) on investments reflects the unrealized gains and losses on our equity investments in GOL, China Eastern, Air France\-KLM and Alclear Holdings LLC, the parent company of CLEAR\. Before we adopted the new financial instruments accounting standard in 2018, we recorded unrealized gains and losses on available\-for\-sale investments in accumulated other comprehensive income/(loss) ("AOCI")\.

Miscellaneous\.  During 2018, miscellaneous non\-operating income is composed of pension benefits and realized gains from the DGS transaction and CLEAR share sale\. This income was partially offset by our proportionate share of losses from our equity investments in Virgin Atlantic and Grupo Aeroméxico, charitable contributions and foreign exchange losses\. The favorable movement in 2018 compared to 2017 primarily results from:

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *Pension Benefit\.*  The pension benefit increased $243 million in the current year compared to the prior year as plan assets increased $4\.4 billion from the prior year end\. In recent years, we have contributed significantly more to the pension plans than the minimum funding requirements, including $500 million in 2018 and $3\.5 billion in 2017\. |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *DGS Transaction\.*  In the sale of our DGS entity to a subsidiary of Argenbright Holdings, LLC, we received a non\-controlling  49%  equity stake in a new entity and  $40 million  cash, which resulted in a gain of  $91 million \. See  Note 4  of the Notes to the Consolidated Financial Statements for more information\. |

|     |                                                                                |
| --- | -------------------------------------------------------------------------------------------------------------------------------- |
| *•* | *CLEAR Share Sale\.*  We sold a portion of our equity interest in Alclear Holdings LLC, and recognized a gain of  $18 million \. |

The favorable movement resulting from pension benefit in 2017 compared to net cost in 2016 primarily resulted from our $3\.5 billion pension contribution during 2017\.

Our equity investment earnings and foreign exchange gains/(losses) vary and impact the comparability of miscellaneous from period to period\.

Income Taxes

Our effective tax rate for 2018 was  23\.6% \. We expect our annual effective tax rate to be between 23% and 24% for 2019\. At  December 31, 2018 , we had approximately  $2\.2 billion  of U\.S\. federal pre\-tax net operating loss carryforwards, which do not begin to expire until  2027 \. We believe we will utilize the majority of our remaining federal net operating losses and tax credits during 2019\.

For more information about our income taxes, see  Note 12  of the Notes to the Consolidated Financial Statements\.

 36


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

During 2019, net actuarial losses increased our benefit obligation due to the decrease in discount rates, while in 2018 our obligations decreased due to the actuarial gains from an increase in discount rates\. These gains and losses are recorded in AOCI and reflected in the table below\.

A net actuarial loss of $333 million will be amortized from AOCI into net periodic benefit cost in 2020\. Amounts are generally amortized from AOCI over the expected future lifetime of plan participants\.

Balance Sheet Position

|                                                      |                                                      |                                                      |                  |                  |  |  |  |           |                                                  |                                                  |                                                  |                                                  |  |  |  |
|:---------------------------------------------------- |:---------------------------------------------------- |:---------------------------------------------------- | ----------------:| ----------------:|:- |:- |:- | ---------:| ------------------------------------------------:|:------------------------------------------------:|:------------------------------------------------:|:------------------------------------------------:|:- |:- |:- |
|                                                      |                                                      |                                                      | Pension Benefits | Pension Benefits |  |  |  |           | Other Postretirement and Postemployment Benefits | Other Postretirement and Postemployment Benefits | Other Postretirement and Postemployment Benefits | Other Postretirement and Postemployment Benefits |  |  |  |
|                                                      |                                                      |                                                      |     December 31, |     December 31, |  |  |  |           |                                     December 31, |                   December 31,                   |                   December 31,                   |                   December 31,                   |  |  |  |
| (in millions)                                        | (in millions)                                        | (in millions)                                        |             2019 |             2018 |  |  |  |      2019 |                                             2018 |
| Current liabilities                                  | Current liabilities                                  | Current liabilities                                  |           $ (19) |           $ (27) |  |  |  |   $ (125) |                                          $ (123) |
| Noncurrent liabilities                               | Noncurrent liabilities                               | Noncurrent liabilities                               |          (5,335) |          (6,323) |  |  |  |   (2,647) |                                          (2,465) |
| Total liabilities                                    | Total liabilities                                    | Total liabilities                                    |        $ (5,354) |        $ (6,350) |  |  |  | $ (2,772) |                                        $ (2,588) |
| Net actuarial loss                                   | Net actuarial loss                                   | Net actuarial loss                                   |        $ (8,765) |        $ (8,682) |  |  |  |   $ (715) |                                          $ (613) |
| Prior service credit                                 | Prior service credit                                 | Prior service credit                                 |                — |                — |  |  |  |        38 |                                               47 |
| Total accumulated other comprehensive loss, pre\-tax | Total accumulated other comprehensive loss, pre\-tax | Total accumulated other comprehensive loss, pre\-tax |        $ (8,765) |        $ (8,682) |  |  |  |   $ (677) |                                          $ (566) |

Net Periodic (Benefit) Cost

|                                      |                                      |                                      |                         |                         |                         |  |  |  |       |       |                                                  |                                                  |                                                  |                                                  |                                                  |                                                  |                                                  |  |  |  |  |  |  |
|:------------------------------------ |:------------------------------------ |:------------------------------------ | -----------------------:| -----------------------:| -----------------------:|:- |:- |:- | -----:| -----:| ------------------------------------------------:|:------------------------------------------------:|:------------------------------------------------:|:------------------------------------------------:|:------------------------------------------------:|:------------------------------------------------:|:------------------------------------------------:|:- |:- |:- |:- |:- |:- |
|                                      |                                      |                                      |        Pension Benefits |        Pension Benefits |        Pension Benefits |  |  |  |       |       | Other Postretirement and Postemployment Benefits | Other Postretirement and Postemployment Benefits | Other Postretirement and Postemployment Benefits | Other Postretirement and Postemployment Benefits | Other Postretirement and Postemployment Benefits | Other Postretirement and Postemployment Benefits | Other Postretirement and Postemployment Benefits |  |  |  |  |  |  |
|                                      |                                      |                                      | Year Ended December 31, | Year Ended December 31, | Year Ended December 31, |  |  |  |       |       |                          Year Ended December 31, |             Year Ended December 31,              |             Year Ended December 31,              |             Year Ended December 31,              |             Year Ended December 31,              |             Year Ended December 31,              |             Year Ended December 31,              |  |  |  |  |  |  |
| (in millions)                        | (in millions)                        | (in millions)                        |                    2019 |                    2018 |                    2017 |  |  |  |  2019 |  2018 |                                             2017 |
| Service cost                         | Service cost                         | Service cost                         |                     $ — |                     $ — |                     $ — |  |  |  |  $ 83 |  $ 85 |                                             $ 87 |
| Interest cost                        | Interest cost                        | Interest cost                        |                     833 |                     781 |                     853 |  |  |  |   137 |   126 |                                              138 |
| Expected return on plan assets       | Expected return on plan assets       | Expected return on plan assets       |                 (1,186) |                 (1,318) |                 (1,143) |  |  |  |  (47) |  (67) |                                             (69) |
| Amortization of prior service credit | Amortization of prior service credit | Amortization of prior service credit |                       — |                       — |                       — |  |  |  |   (9) |  (24) |                                             (26) |
| Recognized net actuarial loss        | Recognized net actuarial loss        | Recognized net actuarial loss        |                     291 |                     267 |                     262 |  |  |  |    37 |    36 |                                               32 |
| Settlements                          | Settlements                          | Settlements                          |                       5 |                       4 |                       3 |  |  |  |     — |     — |                                                — |
| Curtailment                          | Curtailment                          | Curtailment                          |                       — |                       — |                       — |  |  |  |     — |  (53) |                                                — |
| Net periodic (benefit) cost          | Net periodic (benefit) cost          | Net periodic (benefit) cost          |                  $ (57) |                 $ (266) |                  $ (25) |  |  |  | $ 201 | $ 103 |                                            $ 162 |

Service cost is recorded in salaries and related costs in the income statement while other components are recorded within miscellaneous under non\-operating expense\.

82