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

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**UNITED AIRLINES, INC\.**

**CONSOLIDATED BALANCE SHEETS**

**(In millions, except shares)**

|                                                                                |                     |                     |
|:--------------------------------------------------------------------------------------------------------------------------------- | -------------------:| -------------------:|
|                                                                                | **At December 31,** | **At December 31,** |
| **LIABILITIES AND STOCKHOLDER’S EQUITY**                                                                                |            **2017** |            **2016** |
| Current liabilities:                                                                                |                     |                     |
| Advance ticket sales                                                                                |             $3,876  |             $3,730  |
| Frequent flyer deferred revenue                                                                                |              2,176  |              2,135  |
| Accounts payable                                                                                |              2,196  |              2,144  |
| Accrued salaries and benefits                                                                                |              2,166  |              2,307  |
| Current maturities of long\-term debt                                                                                |              1,565  |                849  |
| Current maturities of capital leases                                                                                |                128  |                116  |
| Other                                                                                |                574  |              1,009  |
| Total current liabilities                                                                                |             12,681  |             12,290  |
| Long\-term debt                                                                                |             11,703  |              9,918  |
| Long\-term obligations under capital leases                                                                                |                996  |                822  |
| Other liabilities and deferred credits:                                                                                |                     |                     |
| Frequent flyer deferred revenue                                                                                |              2,565  |              2,748  |
| Postretirement benefit liability                                                                                |              1,602  |              1,581  |
| Pension liability                                                                                |              1,921  |              1,892  |
| Advanced purchase of miles                                                                                |                  —  |                 430 |
| Deferred income taxes                                                                                |                252  |                  —  |
| Lease fair value adjustment, net                                                                                |                198  |                277  |
| Other                                                                                |              1,634  |              1,527  |
| Total other liabilities and deferred credits                                                                                |              8,172  |              8,455  |
| Commitments and contingencies                                                                                |                     |                     |
| Stockholder’s equity:                                                                                |                     |                     |
| Common stock at par, $0\.01 par value; authorized 1,000 shares; issued and outstanding 1,000 shares at December 31, 2017 and 2016 |                  —  |                  —  |
| Additional capital invested                                                                                |              1,787  |              3,573  |
| Retained earnings                                                                                |              8,218  |              5,937  |
| Accumulated other comprehensive loss                                                                                |             (1,147) |               (829) |
| Receivable from related parties                                                                                |                (90) |                (75) |
| Total stockholder’s equity                                                                                |              8,768  |              8,606  |
| Total liabilities and stockholder’s equity                                                                                |            $42,320  |            $40,091  |

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

58


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

***Deferred Income Taxes***

For federal income tax purposes, the majority of our assets are fully depreciated over a seven\-year life using an accelerated depreciation method or bonus depreciation, if available\. For financial reporting purposes, the majority of our assets are depreciated over 15 to 25 years to an estimated salvage value using the straight\-line basis\. This difference has created a significant deferred tax liability\. At some point in the future the depreciation basis will reverse, potentially resulting in an increase in income taxes paid\.

While it is possible that we could have material cash obligations for this deferred liability at some point in the future, we cannot estimate the timing of long\-term cash flows with reasonable accuracy\. Taxable income and cash taxes payable in the short\-term are impacted by many items, including the amount of book income generated (which can be volatile depending on revenue and fuel prices), usage of net operating losses, whether "bonus depreciation" provisions are available, any future tax reform efforts at the federal level, as well as other legislative changes that are beyond our control\.

In 2017, we made tax payments, net of refunds, totaling $177 million, and had an effective tax rate of 14\.3% largely due to the impact of the Tax Cuts and Jobs Act\. We expect our effective tax rate to be approximately 24\.5% for 2018 and the effective rate of cash paid for income taxes to be approximately 10%\-15% of book income, although these estimates are subject to change\. We believe that we will have the liquidity available to make our future tax payments\.

**CRITICAL ACCOUNTING ESTIMATES**

The discussion and analysis of our financial position and results of operations in this MD&A are based upon our consolidated financial statements\. The preparation of these financial statements requires us to make estimates and judgments that affect our financial position and results of operations\. See Note 1 to the consolidated financial statements for a description of our significant accounting policies\.

Critical accounting estimates are defined as those that reflect significant management judgment and uncertainties and that potentially may lead to materially different results under varying assumptions and conditions\. Management has identified the following critical accounting estimates and has discussed the development, selection and disclosure of these policies with our audit committee\.

**FREQUENT FLYER PROGRAMS**

Alaska's Mileage Plan™ loyalty program awards miles to members who fly on our airlines and our airline partners\. We also sell services, including miles for transportation, to non\-airline partners, such as hotels, car rental agencies and a major bank that offers Alaska affinity credit cards\. In either case, the outstanding miles may be redeemed for travel on our airlines or any of our airline partners\. As long as the Mileage Plan™ is in existence, we have an obligation to provide this future travel\.

For miles earned by guests who fly on us or our airline partners, we recognize a liability and a corresponding selling expense representing the incremental cost associated with the obligation to provide travel in the future\. For services sold through one of our non\-airline partners, the sales proceeds that represent award transportation and certificates for discounted companion travel are deferred and recognized when the transportation is delivered, and the remaining components are recorded as commission in other—net revenue in the period the services are performed\. Commission revenue recognized for the years ended December 31, 2017, 2016 and 2015 was $396 million, $329 million and $280 million, respectively\. The deferred revenue is recognized as passenger revenue when the award travel occurs, or the miles expire, and as other***—***net revenue for awards issued and flown on partner airlines\.

At December 31, 2017, we had approximately 220 billion miles and points outstanding, resulting in an aggregate liability and deferred revenue balance of $1\.2 billion\. Both the liability and the deferred revenue are determined based on several assumptions that require significant management judgment to estimate and formulate\. There are uncertainties inherent in these estimates\. Therefore, different assumptions could affect the amount and/or timing of revenue recognition or expenses\. The most significant assumptions in accounting for the Mileage Plan™ are described below\.

 55


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

Part I

ITEM 1\. BUSINESS

General

We are a major passenger airline, providing scheduled air transportation for passengers and cargo throughout the United States ("U\.S\.") and around the world\. Through the dedication of our employees, we are committed to providing exceptional customer service through our global route network\. Our route network is centered around a system of significant hubs and key markets at airports in Amsterdam, Atlanta, Boston, Detroit, London\-Heathrow, Los Angeles, Mexico City, Minneapolis\-St\. Paul, New York\-LaGuardia, New York\-JFK, Paris\-Charles de Gaulle, Salt Lake City, São Paulo, Seattle, Seoul\-Incheon and Tokyo\-Narita\. Each of these operations includes flights that gather and distribute traffic from markets in the geographic region surrounding the hub or key market to domestic and international cities and to other hubs or key markets\. Our network is supported by a fleet of aircraft that is varied in size and capabilities, giving us flexibility to adjust aircraft to the network\. Through our international joint ventures, our alliances with other foreign airlines, our membership in SkyTeam and agreements with multiple domestic regional carriers that operate as Delta Connection, ^®^  we are able to bring choice to customers worldwide\.

We are incorporated under the laws of the State of Delaware\. Our principal executive offices are located at Hartsfield\-Jackson Atlanta International Airport in Atlanta, Georgia\. Our telephone number is (404) 715\-2600 and our Internet address is www\.delta\.com\. Information contained on our website is not part of, and is not incorporated by reference in, this Form 10\-K\.

Expanded Product Offerings

We have a retail oriented, merchandised approach to distribution with well\-defined and differentiated products for our customers\. We offer distinct travel experiences with clear value propositions that enable customer choice\. Delta One ^TM^ , Delta Premium Select, First Class and Delta Comfort\+ ^TM^  include varying premium amenities and services while Main Cabin and Basic Economy allow varying levels of pre\-travel flexibility as well as exceptional service onboard the aircraft\. We are investing in our fleet, acquiring new, more efficient aircraft with increased premium seating to replace older aircraft\.

Our tickets are sold through various distribution channels, including: (1) digital channels, such as delta\.com and mobile applications/web, (2) telephone reservations, (3) online travel agencies and (4) traditional "brick and mortar" and other agencies\. We make fare and product information widely available across those channels, ensuring customers always receive the best information and service options\. An increasing number of our tickets are sold through Delta digital channels, driving more direct, personalized interactions with our customers and reducing distribution costs\.

We expect that these merchandising initiatives as implemented across our distribution channels will allow customers to better understand our product offerings, make it easier to buy the products they desire and increase customer satisfaction\. This merchandising effort is most effective in Delta's digital channels where customers can compare all product options in a single, easy to understand display\.

Leveraging Technology to Improve Service and Efficiency

We are engaged in a digital transformation by continuing to invest in technology that supports our operations and provides tools for our employees, with our long term goal to convert our technology into a competitive advantage\. These investments include improvements to infrastructure and technology architecture to unify and improve access to data sources and continue innovations in customer facing applications\. This digital transformation will enhance interactions with our customers and allow us to deliver more personalized service, further enhancing the customer experience and strengthening our brand and competitive position\.

We continue to make technological improvements that personalize the travel experience for our customers and empower our employees\. We made significant progress in 2018 on the digital transformation to create a single view of the customer\. We delivered several capabilities that enable our front\-line employees to personalize their interactions with our customers\. We also added self\-service features on both the mobile app and delta\.com and launched the first facial recognition biometric terminal for international travelers at the Atlanta airport\.

 2


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

**Report of Independent Registered Public Accounting Firm**

To the Stockholder and Board of Directors

American Airlines, Inc\.:

*Opinion on Internal Control Over Financial Reporting*

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

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of American as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income, cash flows, and stockholder’s equity for each of the years in the three\-year period ended December 31, 2018, and the related notes (collectively, the consolidated financial statements), and our report dated February 25, 2019 expressed an unqualified opinion on those consolidated financial statements\.

*Basis for Opinion*

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

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

*Definition and Limitations of Internal Control Over Financial Reporting*

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

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

/s/ KPMG LLP

Dallas, Texas

February 25, 2019

177


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

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**UNITED AIRLINES, INC\.**

**STATEMENTS OF CONSOLIDATED OPERATIONS**

**(In millions)**

|                                                    |                             |                             |                             |
|:-------------------------------------------------- | ---------------------------:| ---------------------------:| ---------------------------:|
|                                                    | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                    |                   **2017**  |                   **2016**  |                   **2015**  |
| Operating revenue:                                 |                             |                             |                             |
| Passenger—Mainline                                 |                    $26,552  |                    $25,414  |                    $26,333  |
| Passenger—Regional                                 |                      5,852  |                      6,043  |                      6,452  |
| Total passenger revenue                            |                     32,404  |                     31,457  |                     32,785  |
| Cargo                                              |                      1,035  |                        876  |                        937  |
| Other operating revenue                            |                      4,297  |                      4,223  |                      4,142  |
| Total operating revenue                            |                     37,736  |                     36,556  |                     37,864  |
| Operating expense:                                 |                             |                             |                             |
| Salaries and related costs                         |                     11,045  |                     10,275  |                      9,713  |
| Aircraft fuel                                      |                      6,913  |                      5,813  |                      7,522  |
| Landing fees and other rent                        |                      2,240  |                      2,165  |                      2,203  |
| Regional capacity purchase                         |                      2,232  |                      2,197  |                      2,290  |
| Depreciation and amortization                      |                      2,149  |                      1,977  |                      1,819  |
| Aircraft maintenance materials and outside repairs |                      1,856  |                      1,749  |                      1,651  |
| Distribution expenses                              |                      1,349  |                      1,303  |                      1,342  |
| Aircraft rent                                      |                        621  |                        680  |                        754  |
| Special charges (Note 14)                          |                        176  |                        638  |                        326  |
| Other operating expenses                           |                      5,655  |                      5,418  |                      5,076  |
| Total operating expenses                           |                     34,236  |                     32,215  |                     32,696  |
| Operating income                                   |                      3,500  |                      4,341  |                      5,168  |
| Nonoperating income (expense):                     |                             |                             |                             |
| Interest expense                                   |                       (643) |                       (614) |                       (670) |
| Interest capitalized                               |                         84  |                         72  |                         49  |
| Interest income                                    |                         57  |                         42  |                         25  |
| Miscellaneous, net (Note 14)                       |                          3  |                        (19) |                       (351) |
| Total nonoperating expense, net                    |                       (499) |                       (519) |                       (947) |
| Income before income taxes                         |                      3,001  |                      3,822  |                      4,221  |
| Income tax expense (benefit) (Note 14)             |                        852  |                      1,558  |                    (3,080)  |
| Net income                                         |                     $2,149  |                     $2,264  |                     $7,301  |

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

55


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

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rate from historical SICAD rates to a combination of SIMADI and SICAD rates based on projections of future cash payments\. Including this adjustment, the Company’s resulting cash balance held in Venezuelan bolivars at December 31, 2015 was approximately $13 million\.

**Accrual Activity**

Activity related to the accruals for severance and medical costs and future lease payments on permanently grounded aircraft is as follows (in millions):

|                                 |                                   |                                        |
|:------------------------------- | ---------------------------------:| --------------------------------------:|
|                                 | **Severance/
Benefit Costs** | **Permanently
Grounded Aircraft** |
| Balance at December 31, 2014    |                              $109 |                                   $102 |
| Accrual                         |                               107 |                                     30 |
| Payments                        |                             (189) |                                   (54) |
| Balance at December 31, 2015    |                                27 |                                     78 |
| Accrual and related adjustments |                                37 |                                   (17) |
| Payments                        |                              (50) |                                   (20) |
| Balance at December 31, 2016    |                                14 |                                     41 |
| Accrual                         |                               116 |                                    (4) |
| Payments                        |                              (93) |                                   (15) |
| Balance at December 31, 2017    |                               $37 |                                    $22 |

The Company’s accrual and payment activity is primarily related to severance and other compensation expense associated with voluntary employee early retirement programs\.

**NOTE 15 \- SEGMENT INFORMATION**

Operating segments are defined as components of an enterprise with separate financial information, which are evaluated regularly by the chief operating decision maker and are used in resource allocation and performance assessments\.

The Company deploys its aircraft across its route network through a single route scheduling system to maximize its value\. When making resource allocation decisions, the Company’s chief operating decision maker evaluates flight profitability data, which considers aircraft type and route economics\. The Company’s chief operating decision maker makes resource allocation decisions to maximize the Company’s consolidated financial results\. Managing the Company as one segment allows management the opportunity to maximize the value of its route network\.

The Company’s operating revenue by principal geographic region (as defined by the U\.S\. Department of Transportation) for the years ended December 31 is presented in the table below (in millions):

|                              |            |            |            |
|:---------------------------- | ----------:| ----------:| ----------:|
|                              |  **2017**  |  **2016**  |  **2015**  |
| Domestic (U\.S\. and Canada) |    $23,131 |    $22,202 |    $21,931 |
| Pacific                      |      4,898 |      4,959 |      5,498 |
| Atlantic                     |      6,285 |      6,157 |      7,068 |
| Latin America                |      3,422 |      3,238 |      3,367 |
| Total                        |    $37,736 |    $36,556 |    $37,864 |

The Company attributes revenue among the geographic areas based upon the origin and destination of each flight segment\. The Company’s operations involve an insignificant level of dedicated revenue\-producing assets in

99


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

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NOTE 10 \- DEBT

|                                                                                |                     |                     |
| ------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | ------------------- |
| **(In millions)**                                                                                | **At December 31,** | **At December 31,** |
|                                                                                | **2019**            | **2018**            |
| Secured                                                                                |                     |                     |
| Notes payable, fixed interest rates of 2\.7% to 9\.8% (weighted average rate of 3\.95% as of December 31, 2019), payable through 2032 | $9,615              | $8,811              |
| Notes payable, floating interest rates of the London interbank offered rate ("LIBOR") plus 1\.05% to 2\.25%, payable through 2030     | 1,970               | 2,051               |
| Term loan, LIBOR plus 1\.75%, or alternative rate based on certain market rates plus 0\.75%, due 2024                                 | 1,459               | 1,474               |
| Unsecured                                                                                |                     |                     |
| 6% Senior Notes due 2020 (a)                                                                                | 300                 | 300                 |
| 4\.25% Senior Notes due 2022 (a)                                                                                | 400                 | 400                 |
| 5% Senior Notes due 2024 (a)                                                                                | 300                 | 300                 |
| 4\.875% Senior Notes due 2025 (a)                                                                                | 350                 | —                   |
| Other                                                                                | 339                 | 300                 |
|                                                                                | 14,733              | 13,636              |
| Less: unamortized debt discount, premiums and debt issuance costs                                                                     | (181

)       | (191

)       |
| Less: current portion of long\-term debt                                                                                | (1,407

)     | (1,230

)     |
| Long\-term debt, net                                                                                | $13,145             | $12,215             |

(a) UAL is the issuer of this debt\. United is a guarantor\.

The table below presents the Company's contractual principal payments (not including debt discount or debt issuance costs) at  December 31, 2019  under then\-outstanding long\-term debt agreements in each of the next five calendar years (in millions):

|            |         |
| ---------- | ------- |
| 2020       | $1,407  |
| 2021       | 1,415   |
| 2022       | 1,765   |
| 2023       | 815     |
| 2024       | 3,122   |
| After 2024 | 6,209   |
|            | $14,733 |

Secured debt

Credit and Guaranty Agreement\.  United and UAL, as borrower and guarantor, respectively, are parties to the Amended and Restated Credit and Guaranty Agreement (as amended, the "Credit Agreement")\. The Credit Agreement consists of a   $1\.5 billion  term loan due April 1, 2024 and a   $2\.0 billion  revolving credit facility available for drawing until its maturity date on April 1, 2022\. The obligations of United under the amended Credit Agreement are secured by liens on certain international route authorities, certain take\-off and landing rights and related assets of United\.

Term loan borrowings under the Credit Agreement bear interest at a variable rate equal to LIBOR plus a margin of   1\.75%  per annum, or another rate based on certain market interest rates, plus a margin of   0\.75%  per annum\. The principal amount of the term loan must be repaid in consecutive quarterly installments of   0\.25%  of the original principal amount thereof, commencing on June 30, 2017, with any unpaid balance due on  April 1, 2024 \. United may prepay all or a portion of the loan from time to time, at par plus accrued and unpaid interest\.

As of  December 31, 2019 , United had its entire capacity of   $2\.0 billion  available under the revolving credit facility of the Company's Credit Agreement\. United pays a commitment fee equal to   0\.75%  per annum on the undrawn amount available under the revolving credit facility\. If drawn, revolving loans under the Credit Agreement bear interest at a variable rate equal to LIBOR plus a margin of   2\.25%  per annum, or another rate based on certain market interest rates, plus a margin of   1\.25%  per annum\.

77


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

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

Balance Sheet Position

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

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

**Other Postretirement Benefits** |
|                      | **2019**             | **2018**             | **2019**                                                         | **2018**                                                         |
|                      | **(In millions)**    | **(In millions)**    | **(In millions)**                                                | **(In millions)**                                                |
| As of December 31,   |                      |                      |                                                                  |                                                                  |
| Current liability    | $5                   | $7                   | $24                                                              | $23                                                              |
| Noncurrent liability | 5,412                | 6,274                | 596                                                              | 589                                                              |
| Total liabilities    | $5,417               | $6,281               | $620                                                             | $612                                                             |

|                                                               |        |        |                        |                        |
| ------------------------------------------------------------- | ------ | ------ | ---------------------- | ---------------------- |
| Net actuarial loss (gain)                                     | $5,662 | $5,341 | $

(426

) | $

(452

) |
| Prior service cost (benefit)                                  | 102    | 131    | (120

)          | (362

)          |
| Total accumulated other comprehensive loss (income), pre\-tax | $5,764 | $5,472 | $

(546

) | $

(814

) |

Plans with Accumulated Benefit Obligations Exceeding Fair Value of Plan Assets

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

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

**Other Postretirement Benefits** |
|                                               | **2019**             | **2018**             | **2019**                                                         | **2018**                                                         |
|                                               | **(In millions)**    | **(In millions)**    | **(In millions)**                                                | **(In millions)**                                                |
| Projected benefit obligation                  | $18,215              | $16,254              | $—                                                               | $—                                                               |
| Accumulated benefit obligation (ABO)          | 18,204               | 16,246               | —                                                                | —                                                                |
| Accumulated postretirement benefit obligation | —                    | —                    | 824                                                              | 837                                                              |
| Fair value of plan assets                     | 12,794               | 9,971                | 204                                                              | 225                                                              |
| ABO less fair value of plan assets            | 5,410                | 6,275                | —                                                                | —                                                                |

Net Periodic Benefit Cost (Income)

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

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

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

 **Other Postretirement Benefits**  |
|                                    | **2019**             | **2018**              | **2017**             | **2019**                                                           | **2018**                                                           | **2017**                                                           |
|                                    | **(In millions)**    | **(In millions)**     | **(In millions)**    | **(In millions)**                                                  | **(In millions)**                                                  | **(In millions)**                                                  |
| Defined benefit plans:             |                      |                       |                      |                                                                    |                                                                    |                                                                    |
| Service cost                       | $2                   | $2                    | $2                   | $3                                                                 | $5                                                                 | $4                                                                 |
| Interest cost                      | 699                  | 670                   | 717                  | 33                                                                 | 35                                                                 | 39                                                                 |
| Expected return on assets          | (811

)        | (901

)         | (786

)        | (15

)                                                       | (24

)                                                       | (21

)                                                       |
| Settlements                        | —                    | —                     | 1                    | —                                                                  | —                                                                  | —                                                                  |
| Amortization of:                   |                      |                       |                      |                                                                    |                                                                    |                                                                    |
| Prior service cost (benefit)       | 28                   | 28                    | 28                   | (236

)                                                      | (236

)                                                      | (237

)                                                      |
| Unrecognized net loss (gain)       | 150                  | 140                   | 144                  | (31

)                                                       | (21

)                                                       | (23

)                                                       |
| Net periodic benefit cost (income) | $68                  | $

(61

) | $106                 | $

(246

)                                             | $

(241

)                                             | $

(238

)                                             |

The components of net periodic benefit cost (income) other than the service cost component are included in nonoperating other income, net in American’s consolidated statements of operations\.

The estimated amount of unrecognized actuarial net loss and prior service cost for the defined benefit pension plans that will be amortized from AOCI into net periodic benefit cost over the next fiscal year is   $193 million \.

The estimated amount of unrecognized actuarial net gain and prior service benefit for the retiree medical and other postretirement benefits plans that will be amortized from AOCI into net periodic benefit cost over the next fiscal year is   $167 million \.

143


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

**NOTE 9\. SHAREHOLDERS' EQUITY**

***Common Stock Changes***

During the second quarter of 2017, shareholders voted to increase the number of authorized shares of common stock from 200 million to 400 million\.

***Dividends***

During 2017, the Board of Directors declared dividends of $1\.20 per share\. The Company paid dividends of $148 million, $136 million and $102 million to shareholders of record during 2017, 2016 and 2015\.

Subsequent to year\-end, the Board of Directors declared a quarterly cash dividend of $0\.32 per share to be paid in March 2018 to shareholders of record as of February 20, 2018\. This is a 7% increase from the most recent quarterly dividend of $0\.30 per share\.

***Common Stock Repurchase***

In May 2014, the Board of Directors authorized a $650 million share repurchase program, which was completed in October 2015\. In August 2015, the Board of Directors authorized a $1 billion share repurchase program\. As of December 31, 2017, the Company has repurchased 5\.1 million shares for $388 million under this program\.

At December 31, 2017, the Company held 6,842,860 shares in treasury\. Management does not anticipate retiring common shares held in treasury for the foreseeable future\.

Share repurchase activity (in millions, except shares):

|                                        |             |            |            |            |            |            |
| -------------------------------------- | ----------- | ---------- | ---------- | ---------- | ---------- | ---------- |
|                                        | **2017**    | **2017**   | **2016**   | **2016**   | **2015**   | **2015**   |
|                                        | **Shares**  | **Amount** | **Shares** | **Amount** | **Shares** | **Amount** |
| 2015 Repurchase Program – $1 billion   | **981,277** | **$75**    | 2,594,809  | $193       | 1,517,277  | $120       |
| 2014 Repurchase Program – $650 million | **—**       | **—**      | —          | —          | 5,691,051  | 385        |
| Total                                  | **981,277** | **$75**    | 2,594,809  | $193       | 7,208,328  | $505       |

***Accumulated Other Comprehensive Loss (AOCL)***

AOCL consisted of the following (in millions, net of tax):

|                                      |            |          |
| ------------------------------------ | ---------- | -------- |
|                                      | **2017**   | **2016** |
| Related to marketable securities     | **$(5)**   | $(3)     |
| Related to employee benefit plans    | **(376)**  | (299)    |
| Related to interest rate derivatives | **1**      | (3)      |
|                                      | **$(380)** | $(305)   |

In relation to the Tax Cuts and Jobs Act, amounts recognized in other comprehensive income subsequent to the December 22, 2017 enactment date, are taxed at the revised federal income tax rates\. The Company's actuarial adjustments for employee benefit plans occur annually at December 31, and therefore are tax effected at the new lower rates\. Accordingly, the effective tax rate for employee benefit plan amounts recognized in other comprehensive income at December 31, 2017 is lower than it historically has been\.

 88


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

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Stockholders and Board of Directors

Alaska Air Group, Inc\.:

*Opinion on the Consolidated Financial Statements*

We have audited the accompanying consolidated balance sheets of Alaska Air Group, Inc\. and subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive operations, shareholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2017, and the related notes (collectively, the “consolidated financial statements”)\. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three‑year 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 (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 14, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting\.

*Basis for Opinion*

These consolidated financial statements are the responsibility of the Company’s management\. Our responsibility is to express an opinion on these consolidated 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 consolidated 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 consolidated 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 consolidated 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 consolidated financial statements\. We believe that our audits provide a reasonable basis for our opinion\.

KPMG LLP

We have served as the Company’s auditor since 2004\.

Seattle*,* Washington

February 14, 2018

 61


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

In particular, an outbreak of a contagious disease such as the Ebola virus, Middle East Respiratory Syndrome, Severe Acute Respiratory Syndrome, H1N1 influenza virus, avian flu, Zika virus or any other similar illness, if it were to become associated with air travel or persist for an extended period, could materially affect the airline industry and us by reducing revenues and adversely impacting our operations and passengers’ travel behavior\. As a result of these or other conditions beyond our control, our results of operations could be volatile and subject to rapid and unexpected change\. In addition, due to generally weaker demand for air travel during the winter, our revenues in the first and fourth quarters of the year could be weaker than revenues in the second and third quarters of the year\.

***A higher than normal number of pilot retirements, more stringent duty time regulations, increased flight hour requirements for commercial airline pilots, reductions in the number of military pilots entering the commercial workforce and other factors have caused a shortage of pilots that could materially adversely affect our business\.***

We currently have a higher than normal number of pilots eligible for retirement\. Large numbers of pilots in the industry are approaching the FAA’s mandatory retirement age of 65\. Further, in July 2013, the FAA issued regulations that increased the flight hours required for pilots working for airlines certificated under Part 121 of the Federal Aviation Regulations\. In addition, on January 4, 2014, more stringent pilot flight and duty time requirements under Part 117 of the Federal Aviation Regulations took effect\. These and other factors, including reductions in the number of military pilots being trained by the U\.S\. armed forces and available as commercial pilots upon their retirement from military service, have contributed to a shortage of qualified, entry\-level pilots and increased compensation costs, particularly for our regional subsidiaries and our other regional partners who are being required by market conditions to pay significantly increased wages and large signing bonuses to their pilots in an attempt to achieve desired staffing levels\. The foregoing factors have also led to increased competition from large, mainline carriers attempting to meet their hiring needs\. We believe that this industry\-wide pilot shortage is becoming an increasing problem for airlines in the United States\. Our regional partners have recently been unable to hire adequate numbers of pilots to meet their needs, resulting in a reduction in the number of flights offered, disruptions, increased costs of operations, financial difficulties and other adverse effects, and these circumstances may become more severe in the future and thereby cause a material adverse effect on our business\.

***Increases in insurance costs or reductions in insurance coverage may adversely impact our operations and financial results\.***

The terrorist attacks of September 11, 2001 led to a significant increase in insurance premiums and a decrease in the insurance coverage available to commercial air carriers\. Accordingly, our insurance costs increased significantly, and our ability to continue to obtain insurance even at current prices remains uncertain\. If we are unable to maintain adequate insurance coverage, our business could be materially and adversely affected\. Additionally, severe disruptions in the domestic and global financial markets could adversely impact the claims paying ability of some insurers\. Future downgrades in the ratings of enough insurers could adversely impact both the availability of appropriate insurance coverage and its cost\. Because of competitive pressures in our industry, our ability to pass along additional insurance costs to passengers is limited\. As a result, further increases in insurance costs or reductions in available insurance coverage could have an adverse impact on our financial results\.

***We may be a party to litigation in the normal course of business or otherwise, which could affect our financial position and liquidity\.***

From time to time, we are a party to or otherwise involved in legal proceedings, claims and government inspections or investigations and other legal matters, both inside and outside the United States, arising in the ordinary course of our business or otherwise\. We are currently involved in various legal proceedings and claims that have not yet been fully resolved, and additional claims may arise in the future\. Legal proceedings can be complex and take many months, or even years, to reach resolution, with the final outcome depending on a number of variables, some of which are not within our control\. Litigation is subject to significant uncertainty and may be expensive, time\-consuming, and disruptive to our operations\. Although we will vigorously defend ourselves in such legal proceedings, their ultimate resolution and potential financial and other impacts on us are uncertain\. For these and other reasons, we may choose to settle legal proceedings and claims, regardless of their actual merit\. If a legal proceeding is resolved against us, it could result in significant compensatory damages, and in certain circumstances punitive or trebled damages, disgorgement of revenue or profits, remedial corporate measures or injunctive relief imposed on us\. If our existing insurance does not cover the amount or types of damages awarded, or if other resolution or actions taken as a result of the legal proceeding were to restrain our ability to operate or market our services, our consolidated financial position, results of operations or cash flows could be materially adversely affected\. In addition, legal proceedings, and any adverse resolution thereof, can result in adverse publicity and damage to our reputation, which could adversely impact our business\. Additional information regarding certain legal matters in which we are involved can be found in Part I, Item 3\. Legal Proceedings\.

29


Annual Report of Southwest Airlines Co\. for year 2017

The Company owns an additional headquarters building, located across the street from the Company's main headquarters building, on land owned by the Company\. This energy\-efficient, modern building, called TOPS, houses certain operational and training functions, including its 24\-hour operations\. In 2016, the Company broke ground on an additional headquarters complex, called the Wings Complex, consisting of a Leadership Education and Aircrew Development (LEAD) Center (designed to house flight simulators and classroom space for Pilot training), an additional office building, and a parking garage\. The Wings Complex is scheduled to be completed in 2018 and is also located across the street from the Company's main headquarters building on land owned by the Company\. The Company began moving its Boeing 737 flight simulators to the LEAD Center during 2017 and expects to have 15 Boeing 737 flight simulators in the LEAD Center by mid\-2018\. As of December 31, 2017, the Company operated seven Customer Support and Services call centers\. The centers located in Atlanta, San Antonio, Chicago, Albuquerque, and Oklahoma City occupy leased space\. The Company owns its Houston and Phoenix centers\.

The Company performs substantially all line maintenance on its aircraft and provides ground support services at most of the airports it serves\. However, the Company has arrangements with certain aircraft maintenance firms for major component inspections and repairs for its airframes and engines, which comprise the majority of the Company's annual aircraft maintenance costs\.

29


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

***Components of Income Tax Expense***

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

|                                             |          |          |          |
| ------------------------------------------- | -------- | -------- | -------- |
|                                             | **2017** | **2016** | **2015** |
| Current income tax expense:                 |          |          |          |
| Federal                                     | **$127** | $392     | $397     |
| State                                       | **35**   | 48       | 30       |
| Total current income tax expense            | **162**  | 440      | 427      |
| Deferred income tax expense (benefit):      |          |          |          |
| Federal                                     | **(30)** | 77       | 60       |
| State                                       | **41**   | 14       | (23)     |
| Total deferred income tax expense (benefit) | **11**   | 91       | 37       |
| Income tax expense                          | **$173** | $531     | $464     |

***Income Tax Rate Reconciliation***

Income tax expense reconciles to the amount computed by applying the U\.S\. federal rate of 35% to income before income tax and the 2018 US federal rate of 21% for deferred taxes as follows (in millions):

|                          |            |          |          |
| ------------------------ | ---------- | -------- | -------- |
|                          | **2017**   | **2016** | **2015** |
| Income before income tax | **$1,207** | $1,345   | $1,312   |
| Expected tax expense     | **422**    | 471      | 459      |
| Nondeductible expenses   | **5**      | 20       | 4        |
| State income taxes       | **29**     | 28       | 19       |
| State income sourcing    | **9**      | 13       | (15)     |
| Tax law changes          | **(280)**  | —        | —        |
| Other—net                | **(12)**   | (1)      | (3)      |
| Actual tax expense       | **$173**   | $531     | $464     |
| Effective tax rate       | **14\.3%** | 39\.5%   | 35\.4%   |

As a result of tax changes signed into law during 2017, the Company recorded a deferred tax benefit of $280 million as a result of the reduction in future corporate income tax rate and other state law changes\.

The Company incurred $39 million of acquisition\-related costs that are not deductible under U\.S\. federal tax law in 2016\. These expenses are included in Special items—merger\-related costs and other on the Company’s consolidated statement of operations and are reflected as a permanent unfavorable adjustment for the year ended December 31, 2016, in the table above\.

In the fourth quarter of 2015, the Company filed amended state tax returns for the years 2010 through 2013 to change the Company’s position on income sourcing in various states\. These positions were also taken on 2014 and subsequent filings, unless guidance or rules changed\. In 2017, adjustments were made to the Company's position on income sourcing in various states due to updated guidance from state taxing authorities\. The impact of this guidance is reflected as an increase in income tax expense of approximately $9 million for the year ended December 31, 2017\.

 81


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

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

(k) Revenue Recognition

Revenue

The following are the significant categories comprising our reported operating revenues (in millions):

|                                       |                             |                             |                             |
| ------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                       | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                       | **2019**                    | **2018**                    | **2017**                    |
| Passenger revenue:                    |                             |                             |                             |
| Passenger travel                      | $38,831                     | $37,457                     | $36,152                     |
| Loyalty revenue \- travel  ^(1)^      | 3,179                       | 3,219                       | 2,979                       |
| Total passenger revenue               | 42,010                      | 40,676                      | 39,131                      |
| Cargo                                 | 863                         | 1,013                       | 890                         |
| Other:                                |                             |                             |                             |
| Loyalty revenue \- marketing services | 2,361                       | 2,352                       | 2,124                       |
| Other revenue                         | 534                         | 500                         | 477                         |
| Total other revenue                   | 2,895                       | 2,852                       | 2,601                       |
| Total operating revenues              | $45,768                     | $44,541                     | $42,622                     |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Loyalty revenue included in passenger revenue is principally comprised of mileage credit redemptions earned through travel or from co\-branded credit card and other partners\. See “ *Loyalty Revenue* ” below for further discussion on these mileage credits\. |

The following is our total passenger revenue by geographic region (in millions):

|                         |                             |                             |                             |
| ----------------------- | --------------------------- | --------------------------- | --------------------------- |
|                         | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                         | **2019**                    | **2018**                    | **2017**                    |
| Domestic                | $30,881                     | $29,573                     | $28,749                     |
| Latin America           | 5,047                       | 5,125                       | 4,840                       |
| Atlantic                | 4,624                       | 4,376                       | 4,028                       |
| Pacific                 | 1,458                       | 1,602                       | 1,514                       |
| Total passenger revenue | $42,010                     | $40,676                     | $39,131                     |

We attribute passenger revenue by geographic region based upon the origin and destination of each flight segment\.

Passenger Revenue

We recognize all revenues generated from transportation on American and our regional flights operated under the brand name American Eagle, including associated baggage fees, ticketing change fees and other inflight services, as passenger revenue when transportation is provided\. Ticket and other related sales for transportation that has not yet been provided are initially deferred and recorded as air traffic liability on our consolidated balance sheets\. The air traffic liability principally represents tickets sold for future travel on American and partner airlines, as well as estimated future refunds and exchanges of tickets sold for past travel\.

The majority of tickets sold are nonrefundable\. A small percentage of tickets, some of which are partially used tickets, expire unused\. Due to complex pricing structures, refund and exchange policies, and interline agreements with other airlines, certain amounts are recognized in passenger revenue using estimates regarding both the timing of the revenue recognition and the amount of revenue to be recognized\. These estimates are generally based on the analysis of our historical data\. We have consistently applied this accounting method to estimate revenue from unused tickets at the date of travel\. Estimated future refunds and exchanges included in the air traffic liability are routinely evaluated based on subsequent activity to validate the accuracy of our estimates\. Any adjustments resulting from periodic evaluations of the estimated air traffic liability are included in passenger revenue during the period in which the evaluations are completed\.

81


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

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

**Number** | **Description**                                                                                |
| 4\.91                         | [Intercreditor Agreement (2016\-1), dated as of January 19, 2016, among Wilmington Trust Company, as Trustee of the American Airlines Pass Through Trust 2016\-1AA, as Trustee of the American Airlines Pass Through Trust 2016\-1A and as Trustee of the American Airlines Pass Through Trust 2016\-1B, 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\.5 to American’s Current Report on Form 8\-K filed on January 21, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516433815/d126794dex45.htm) |
| 4\.92                         | [Note Purchase Agreement, dated as of January 19, 2016, among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on January 21, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516433815/d126794dex46.htm)                                                                                |
| 4\.93                         | [Form of Participation Agreement (Participation Agreement among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust Company, as Loan Trustee, and Wilmington Trust Company, in its individual capacity as set forth therein) (incorporated by reference to Exhibit B to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on January 21, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516433815/d126794dex46.htm)                                                                                |
| 4\.94                         | [Form of Indenture and Security Agreement (Indenture and Security Agreement between American Airlines, Inc\., and Wilmington Trust Company, as Loan Trustee) (incorporated by reference to Exhibit C to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on January 21, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516433815/d126794dex46.htm)                                                                                |
| 4\.95                         | [Form of Pass Through Trust Certificate, Series 2016\-1AA (incorporated by reference to Exhibit A to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on January 21, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516433815/d126794dex42.htm)                                                                                |
| 4\.96                         | [Form of Pass Through Trust Certificate, Series 2016\-1A (incorporated by reference to Exhibit A to Exhibit 4\.3 to American’s Current Report on Form 8\-K filed on January 21, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516433815/d126794dex43.htm)                                                                                |
| 4\.97                         | [Form of Pass Through Trust Certificate, Series 2016\-1B (incorporated by reference to Exhibit A to Exhibit 4\.4 to American’s Current Report on Form 8\-K filed on January 21, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516433815/d126794dex44.htm)                                                                                |
| 4\.98                         | [Revolving Credit Agreement (2016\-1AA), dated as of January 19, 2016, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2016\-1AA, as Borrower, and KfW IPEX\-Bank GmbH, as Liquidity Provider (incorporated by reference to Exhibit 4\.12 to American’s Current Report on Form 8\-K filed on January 21, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516433815/d126794dex412.htm)                                                                                |
| 4\.99                         | [Revolving Credit Agreement (2016\-1A), dated as of January 19, 2016, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2016\-1A, as Borrower, and KfW IPEX\-Bank GmbH, as Liquidity Provider (incorporated by reference to Exhibit 4\.13 to American’s Current Report on Form 8\-K filed on January 21, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516433815/d126794dex413.htm)                                                                                |
| 4\.100                        | [Revolving Credit Agreement (2016\-1B), dated as of January 19, 2016, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2016\-1B, 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 January 21, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516433815/d126794dex414.htm)                                                                                |
| 4\.101                        | [Trust Supplement No\. 2016\-2AA, dated as of May 16, 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 May 17, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516592083/d177635dex42.htm)                                                                                |
| 4\.102                        | [Trust Supplement No\. 2016\-2A, dated as of May 16, 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\.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\.103                        | [Intercreditor Agreement (2016\-2), dated as of May 16, 2016, among Wilmington Trust Company, as Trustee of the American Airlines Pass Through Trust 2016\-2AA and as Trustee of the American Airlines Pass Through Trust 2016\-2A, KfW IPEX\-Bank GmbH, as Class AA Liquidity Provider and Class A 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 May 17, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516592083/d177635dex44.htm)                                                                                |
| 4\.104                        | [Deposit Agreement (Class AA), dated as of May 16, 2016, between Wilmington Trust, National Association, as Escrow Agent, and Citibank, N\.A\., as Depositary (incorporated by reference to Exhibit 4\.5 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/d177635dex45.htm)                                                                                |
| 4\.105                        | [Deposit Agreement (Class A), dated as of May 16, 2016, between Wilmington Trust, National Association, as Escrow Agent, and Citibank, N\.A\., as Depositary (incorporated by reference to Exhibit 4\.6 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/d177635dex46.htm)                                                                                |

183


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

AMERICAN AIRLINES GROUP INC\.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

|                                                            |                             |                             |                             |
| ---------------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                            | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                            | **2019**                    | **2018**                    | **2017**                    |
| **Net income**                                             | $1,686                      | $1,412                      | $1,282                      |
| **Other comprehensive income (loss), net of tax:**         |                             |                             |                             |
| Pension, retiree medical and other postretirement benefits | (438

)               | (117

)               | (70

)                |
| Investments                                                | 3                           | (3

)                 | (1

)                 |
| **Total other comprehensive loss, net of tax**             | (435

)               | (120

)               | (71

)                |
| **Total comprehensive income**                             | $1,251                      | $1,292                      | $1,211                      |

See accompanying notes to consolidated financial statements\.

73


Annual Report of ALASKA AIR GROUP, INC\. for year 2019

|                             |                             |                             |
| --------------------------- | --------------------------- | --------------------------- |
| ITEM 9B\. OTHER INFORMATION | ITEM 9B\. OTHER INFORMATION | ITEM 9B\. OTHER INFORMATION |

As previously reported in a Form 8\-K filed by Alaska Air Group, Inc\. (the “Company”) on January 6, 2020, Brandon S\. Pedersen will resign as the Company’s Executive Vice President Finance, Chief Financial Officer and Treasurer, effective March 2, 2020\. On February 11, 2020, the Compensation Committee of the Company’s Board of Directors (the “Committee”) approved the terms of an agreement to be entered into by the Company and Mr\. Pedersen (the “Retirement & Release Agreement”)\. Under the Retirement & Release Agreement, Mr\. Pedersen will receive a pro\-rated amount of the award he would have received for 2020 under the Company’s Performance Based Pay Plan had he remained employed through the end of the year, and he will be deemed to have met the requirements to receive benefits under the Company’s Travel Benefits for Former Officers policy\. In addition, his resignation will be treated as a “retirement” for purposes of his outstanding equity awards granted by the Company, such that his awards of stock units that are subject to performance\-based vesting will remain outstanding until the end of the applicable performance period and vest on a pro\-rated basis based on the Company’s performance against the goals established for that period and the period of his employment with the Company during each period, and his awards of stock units that are subject only to time\-based vesting will vest in full upon his resignation\. Any portion of Mr\. Pedersen’s outstanding and unvested stock options that are scheduled to vest within three years after his retirement date will be fully vested on that date, and his vested options will remain exercisable for three years following his retirement (provided, however, that any options that vest upon his resignation may not be exercised prior to their original vesting date and that all of his vested options will remain subject to earlier termination at the end of the maximum term of the option or in connection with a change in control of the Company)\. The Retirement Agreement will also include a non\-competition commitment for a period of 24 months following his separation and other covenants favorable to the Company\.

PART III

|                                                                  |                                                                  |                                                                  |
| ---------------------------------------------------------------- | ---------------------------------------------------------------- | ---------------------------------------------------------------- |
| ITEM 10\. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | ITEM 10\. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | ITEM 10\. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |

See “Executive Officers” under Item 1, “Our Business,” in Part I of this Form 10\-K for information on the executive officers of Air Group and its subsidiaries\. Except as provided herein, the remainder of the information required by this item is incorporated herein by reference from the definitive Proxy Statement for Air Group's 2020 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year ended December 31, 2019 (hereinafter referred to as our “2020 Proxy Statement”)\.

|                                  |                                  |                                  |
| -------------------------------- | -------------------------------- | -------------------------------- |
| ITEM 11\. EXECUTIVE COMPENSATION | ITEM 11\. EXECUTIVE COMPENSATION | ITEM 11\. EXECUTIVE COMPENSATION |

The information required by this item is incorporated herein by reference from our 2020 Proxy Statement\.

87


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

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

In 2017, United borrowed approximately $497 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2017\. The notes evidencing these borrowings, which are secured by the related aircraft, mature in 2027 and have interest rates comprised of the LIBOR plus a specified margin\.

*Unsecured debt*

***4\.25% Senior Notes due 2022\.*** In September 2017, UAL issued $400 million aggregate principal amount of 4\.25% Senior Notes due October 1, 2022 (the “4\.25% Senior Notes due 2022”)\. These notes are fully and unconditionally guaranteed and recorded by United on its balance sheet as debt\. The indenture for the 4\.25% Senior Notes due 2022 requires UAL to offer to repurchase the notes for cash if certain changes of control of UAL occur at a purchase price equal to 101% of the principal amount of notes repurchased plus accrued and unpaid interest\.

***5% Senior Notes due 2024\.*** In January 2017, UAL issued $300 million aggregate principal amount of 5% Senior Notes due February 1, 2024 (the “5% Senior Notes due 2024”)\. These notes are fully and unconditionally guaranteed and recorded by United on its balance sheet as debt\. The indenture for the 5% Senior Notes due 2024 requires UAL to offer to repurchase the notes for cash if certain changes of control of UAL occur at a purchase price equal to 101% of the principal amount of notes repurchased plus accrued and unpaid interest\.

89


Annual Report of Southwest Airlines Co\. for year 2019

The following table aggregates the Company’s material expected contractual obligations and commitments as of  December 31, 2019 :

|                                                |                                         |                                         |                                         |                                         |                                         |
| ---------------------------------------------- | --------------------------------------- | --------------------------------------- | --------------------------------------- | --------------------------------------- | --------------------------------------- |
|                                                | **Obligations by period (in millions)** | **Obligations by period (in millions)** | **Obligations by period (in millions)** | **Obligations by period (in millions)** | **Obligations by period (in millions)** |
| **Contractual obligations**                    | **2020**                                | **2021 \- 2022**                        | **2023 \- 2024**                        | **Thereafter**                          | **Total**                               |
| Long\-term debt (a)                            | $734                                    | $480                                    | $43                                     | $776                                    | $2,033                                  |
| Interest commitments \- fixed (b)              | 52                                      | 83                                      | 53                                      | 67                                      | 255                                     |
| Interest commitments \- floating (c)           | 18                                      | 8                                       | 6                                       | 4                                       | 36                                      |
| Facility and other operating lease commitments | 107                                     | 131                                     | 88                                      | 580                                     | 906                                     |
| Aircraft operating lease commitments (d)       | 285                                     | 267                                     | 117                                     | 81                                      | 750                                     |
| Aircraft finance lease commitments (e)         | 107                                     | 200                                     | 184                                     | 230                                     | 721                                     |
| Aircraft purchase commitments (f)              | 2,106                                   | 2,862                                   | 3,495                                   | 1,509                                   | 9,972                                   |
| Other commitments                              | 217                                     | 227                                     | 108                                     | 320                                     | 872                                     |
| Total contractual obligations                  | $3,626                                  | $4,258                                  | $4,094                                  | $3,567                                  | $15,545                                 |

|     |                                                                                |
| --- | ------------------------------------------------------------------------------------------------------------ |
| (a) | Includes principal only\. See Note  6  to the Consolidated Financial Statements for additional information\. |

|     |                                                                          |
| --- | ------------------------------------------------------------------------ |
| (b) | Related to fixed\-rate debt (either at issuance or through swaps) only\. |

|     |                                                                                |
| --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (c) | Interest obligations associated with floating\-rate debt (either at issuance or through swaps) is estimated utilizing forward interest rate curves as of  December 31, 2019 , and can be subject to significant fluctuation\. |

|     |                                                                                |
| --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (d) | Includes the impact of the B717 lease/sublease transaction entered into in  2012 \. See Note  7  to the Consolidated Financial Statements for additional information\. |

|     |                                                                                |
| --- | -------------------------------------------------------------------------------------------------------------------------------------- |
| (e) | Includes principal and interest on finance leases\. See Note  7  to the Consolidated Financial Statements for additional information\. |

|     |                                                                                |
| --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (f) | This reflects firm orders for purchased MAX aircraft from Boeing; shifting the 28 MAX aircraft originally scheduled for delivery in 2019 into 2020 and 2021 as MAX deliveries were suspended as of March 13, 2019, and the timeline of future deliveries is uncertain\. The FAA will ultimately determine the timing of the MAX return to service, and the Company therefore offers no assurances that current estimation and timelines of aircraft purchase commitments are correct\. See Part I, Item 2 for a complete table of the Company’s contractual firm deliveries\. |

Airport Projects

The Company has commitments associated with various airport improvement projects that will impact its future liquidity needs in differing ways\. These projects include the construction of new facilities and the rebuilding or modernization of existing facilities and are discussed in more detail in Note  4  to the Consolidated Financial Statements\.

Dallas Love Field

For the rebuilding of the facilities at Dallas Love Field, the Company guaranteed principal, premium, and interest on  $456 million  in bonds issued by the Love Field Airport Modernization Corporation ("LFAMC") that were utilized to fund the majority of the project\. The amount of bonds outstanding as of  December 31, 2019 , was  $407 million \. Repayment of the bonds is through the "Facilities Payments" described below\. Reimbursement of the Company for its payment of Facilities Payments is made through recurring ground rents, fees, and other revenues collected at the airport\.

Prior to the issuance of the bonds by the LFAMC, the Company entered into two separate funding agreements: (i) a "Facilities Agreement" pursuant to which the Company is obligated to make debt service payments on the principal and interest amounts associated with the bonds ("Facilities Payments"), less other sources of funds the City of Dallas may apply to the repayment of the bonds (including, but not limited to, passenger facility charges collected from passengers originating from the airport); and (ii) a "Revenue Credit Agreement" pursuant to which the City of Dallas reimburses the Company for the Facilities Payments made by the Company\.

A majority of the monies transferred from the City of Dallas to the Company under the Revenue Credit Agreement originate from a reimbursement account created in the "Use and Lease Agreement" between the City of Dallas and the

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