Annual Report of Southwest Airlines Co\. for year 2019

counterparty, cash collateral amounts held are first netted against current outstanding derivative asset amounts associated with that counterparty until that balance is zero, and then any remainder is applied against the fair value of noncurrent outstanding derivative instruments\.   No  cash collateral deposits were provided by or held by the Company based on its outstanding interest rate swap agreements\.

The Company has the following recognized financial assets and financial liabilities resulting from those transactions that meet the scope of the disclosure requirements as necessitated by applicable accounting guidance for balance sheet offsetting:

|                                     |                                           |                                        |                                               |                                                          |                                     |                                        |                                               |                                                          |     |
| ----------------------------------- | ----------------------------------------- | -------------------------------------- | --------------------------------------------- | -------------------------------------------------------- | ----------------------------------- | -------------------------------------- | --------------------------------------------- | -------------------------------------------------------- | --- |
| **Offsetting of derivative assets** | **Offsetting of derivative assets**       | **Offsetting of derivative assets**    | **Offsetting of derivative assets**           | **Offsetting of derivative assets**                      | **Offsetting of derivative assets** | **Offsetting of derivative assets**    | **Offsetting of derivative assets**           | **Offsetting of derivative assets**                      |     |
| (in millions)                       | (in millions)                             | (in millions)                          | (in millions)                                 | (in millions)                                            | (in millions)                       | (in millions)                          | (in millions)                                 | (in millions)                                            |     |
|                                     |                                           | (i)                                    | (ii)                                          | (iii) = (i) \+ (ii)                                      |                                     | (i)                                    | (ii)                                          | (iii) = (i) \+ (ii)                                      |     |
|                                     |                                           | **December 31, 2019**                  | **December 31, 2019**                         | **December 31, 2019**                                    |                                     | **December 31, 2018**                  | **December 31, 2018**                         | **December 31, 2018**                                    |     |
| **Description**                     | **Balance Sheet location**                | **Gross amounts of recognized assets** | **Gross amounts offset in the Balance Sheet** | **Net amounts of assets presented in the Balance Sheet** |                                     | **Gross amounts of recognized assets** | **Gross amounts offset in the Balance Sheet** | **Net amounts of assets presented in the Balance Sheet** |     |
| Fuel derivative contracts           | Prepaid expenses and other current assets | $48                                    | $

(10

)                         | $38                                                      |                                     | $43                                    | $—                                            | $43                                                      |     |
| Fuel derivative contracts           | Other assets                              | $62                                    | $

(15

)                         | $47                                                      | (a)                                 | $95                                    | $—                                            | $95                                                      | (a) |
| Interest rate derivative contracts  | Other assets                              | $2                                     | $—                                            | $2                                                       | (a)                                 | $—                                     | $—                                            | $—                                                       | (a) |

(a) The net amounts of derivative assets and liabilities are reconciled to the individual line item amounts presented in the Consolidated Balance Sheet in Note  15 \.

|                                          |                                           |                                             |                                               |                                                               |                                          |                                             |                                               |                                                               |     |
| ---------------------------------------- | ----------------------------------------- | ------------------------------------------- | --------------------------------------------- | ------------------------------------------------------------- | ---------------------------------------- | ------------------------------------------- | --------------------------------------------- | ------------------------------------------------------------- | --- |
| **Offsetting of derivative liabilities** | **Offsetting of derivative liabilities**  | **Offsetting of derivative liabilities**    | **Offsetting of derivative liabilities**      | **Offsetting of derivative liabilities**                      | **Offsetting of derivative liabilities** | **Offsetting of derivative liabilities**    | **Offsetting of derivative liabilities**      | **Offsetting of derivative liabilities**                      |     |
| (in millions)                            | (in millions)                             | (in millions)                               | (in millions)                                 | (in millions)                                                 | (in millions)                            | (in millions)                               | (in millions)                                 | (in millions)                                                 |     |
|                                          |                                           | (i)                                         | (ii)                                          | (iii) = (i) \+ (ii)                                           |                                          | (i)                                         | (ii)                                          | (iii) = (i) \+ (ii)                                           |     |
|                                          |                                           | **December 31, 2019**                       | **December 31, 2019**                         | **December 31, 2019**                                         |                                          | **December 31, 2018**                       | **December 31, 2018**                         | **December 31, 2018**                                         |     |
| **Description**                          | **Balance Sheet location**                | **Gross amounts of recognized liabilities** | **Gross amounts offset in the Balance Sheet** | **Net amounts of liabilities presented in the Balance Sheet** |                                          | **Gross amounts of recognized liabilities** | **Gross amounts offset in the Balance Sheet** | **Net amounts of liabilities presented in the Balance Sheet** |     |
| Fuel derivative contracts                | Prepaid expenses and other current assets | $10                                         | $

(10

)                         | $—                                                            |                                          | $—                                          | $—                                            | $—                                                            |     |
| Fuel derivative contracts                | Other assets                              | $15                                         | $

(15

)                         | $—                                                            | (a)                                      | $—                                          | $—                                            | $—                                                            | (a) |
| Interest rate derivative contracts       | Accrued liabilities                       | $5                                          | $—                                            | $5                                                            |                                          | $2                                          | $—                                            | $2                                                            |     |
| Interest rate derivative contracts       | Other noncurrent liabilities              | $1                                          | $—                                            | $1                                                            |                                          | $12                                         | $—                                            | $12                                                           |     |

(a) The net amounts of derivative assets and liabilities are reconciled to the individual line item amounts presented in the Consolidated Balance Sheet in Note  15 \.

95


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

Issuer Purchases of Equity Securities

The following table presents information with respect to purchases of common stock we made during the  December 2018  quarter\. The total number of shares purchased includes shares repurchased pursuant to our $5 billion share repurchase program, which was publicly announced on May 11, 2017 and will terminate no later than December 31, 2020\. Some purchases made in the  December 2018  quarter were made pursuant to a trading plan meeting the requirements of Rule 10b5\-1 under the Securities Exchange Act of 1934\.

In addition, the table includes shares withheld from employees to satisfy certain tax obligations due in connection with grants of stock under the Delta Air Lines, Inc\. Performance Compensation Plan (the "Plan")\. The Plan provides for the withholding of shares to satisfy tax obligations\. It does not specify a maximum number of shares that can be withheld for this purpose\. The shares of common stock withheld to satisfy tax withholding obligations may be deemed to be "issuer purchases" of shares that are required to be disclosed pursuant to this Item\.

|               |                                      |                                  |                                                                                |                                                                                |
| ------------- | ------------------------------------ | -------------------------------- | ------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------- |
| **Period**    | **Total Number of Shares Purchased** | **Average Price Paid Per Share** | **Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs** | **Approximate Dollar Value (in millions) of Shares That May Yet Be Purchased Under the Plan or Programs** |
| October 2018  | 1,538,432                            | $53\.25                          | 1,538,432                                                                            | $3,350                                                                                |
| November 2018 | 2,188,178                            | $56\.38                          | 2,188,178                                                                            | $3,225                                                                                |
| December 2018 | 2,221,305                            | $54\.22                          | 2,221,305                                                                            | $3,100                                                                                |
| Total         | 5,947,915                            |                                  | 5,947,915                                                                            |                                                                                |

 24


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

Long\-term debt principal payments for the next five years and thereafter (in millions):

|                          |           |
| ------------------------ | --------- |
|                          | **Total** |
| 2019                     | $488      |
| 2020                     | 305       |
| 2021                     | 263       |
| 2022                     | 216       |
| 2023                     | 262       |
| Thereafter               | 579       |
| Total principal payments | $2,113    |

Subsequent to year end, the Company prepaid approximately $262 million of outstanding secured debt\. This debt is classified as short\-term in nature on our Consolidated Balance Sheet as of December 31, 2018\. Also subsequent to year end, the Company obtained additional secured debt financing of $254 million from multiple lenders\. The new debt is secured by a total of nine aircraft\.

***Bank Line of Credit***

The Company has three credit facilities with availability totaling $516 million\. All three facilities have variable interest rates based on LIBOR plus a specified margin\. One credit facility for $250 million expires in June 2021 and is secured by aircraft\. A second credit facility increased from $75 million to $116 million in July 2018\. It expires in July 2019, with a mechanism for annual renewal, and is secured by aircraft\. A third credit facility for $150 million expires in March 2022 and is secured by certain accounts receivable, spare engines, spare parts and ground service equipment\. The Company has secured letters of credit against the $116 million facility, but has no plans to borrow using either of the two other facilities\. All three credit facilities have a requirement to maintain a minimum unrestricted cash and marketable securities balance of $500 million\. The Company was in compliance with this covenant at December 31, 2018\.

**NOTE 7\. INCOME TAXES**

***Deferred Income Taxes***

Deferred income taxes reflect the impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and such amounts for tax purposes\. The Company has a net deferred tax liability, primarily due to differences in depreciation rates for federal income tax purposes and for financial reporting purposes\.

Deferred tax (assets) and liabilities comprise the following (in millions):

|                                       |            |          |
| ------------------------------------- | ---------- | -------- |
|                                       | **2018**   | **2017** |
| Excess of tax over book depreciation  | **$1,066** | $964     |
| Intangibles—net                       | **15**     | 14       |
| Other—net                             | **43**     | 88       |
| Deferred tax liabilities              | **1,124**  | 1,066    |
| Mileage Plan™                         | **(315)**  | (337)    |
| Inventory obsolescence                | **(15)**   | (16)     |
| Deferred gains                        | **(5)**    | (5)      |
| Employee benefits                     | **(172)**  | (154)    |
| Acquired net operating losses         | **(64)**   | (127)    |
| Other—net                             | **(43)**   | (57)     |
| Deferred tax assets                   | **(614)**  | (696)    |
| Valuation allowance                   | **2**      | —        |
| Net deferred tax (assets) liabilities | **$512**   | $370     |

 77


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

The Company records a receivable for amounts due from the affinity card partner and from other partners as mileage credits are sold until the payments are collected\. The Company had $105 million and $119 million of such receivables as of December 31, 2019 and December 31, 2018\.

Mileage credits are combined into one homogeneous pool and are not specifically identifiable\. As such, loyalty revenues disclosed earlier in this Note are comprised of miles that were part of the deferred revenue and liabilities balances at the beginning of the period and miles that were issued during the period\. The table below presents a roll forward of the total frequent flyer liability (in millions):

|                                                                        |                                                                        |                                                                        |                                  |                                  |                                  |                                  |                                  |  |  |  |  |  |  |
|:---------------------------------------------------------------------- |:---------------------------------------------------------------------- |:---------------------------------------------------------------------- | --------------------------------:|:--------------------------------:|:--------------------------------:|:--------------------------------:| --------------------------------:|:- |:- |:- |:- |:- |:- |
|                                                                        |                                                                        |                                                                        | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, |  |  |  |  |  |  |
|                                                                        |                                                                        |                                                                        |                             2019 |                                  |                                  |                                  |                             2018 |
| Total Deferred Revenue balance at January 1                            | Total Deferred Revenue balance at January 1                            | Total Deferred Revenue balance at January 1                            |                          $ 1,874 |                                  |                                  |                                  |                          $ 1,725 |
| Travel miles and companion certificate redemption \- Passenger revenue | Travel miles and companion certificate redemption \- Passenger revenue | Travel miles and companion certificate redemption \- Passenger revenue |                            (704) |                                  |                                  |                                  |                            (619) |
| Miles redeemed on partner airlines \- Other revenue                    | Miles redeemed on partner airlines \- Other revenue                    | Miles redeemed on partner airlines \- Other revenue                    |                            (111) |                                  |                                  |                                  |                             (90) |
| Increase in liability for mileage credits issued                       | Increase in liability for mileage credits issued                       | Increase in liability for mileage credits issued                       |                              931 |                                  |                                  |                                  |                              858 |
| Total Deferred Revenue balance at December 31                          | Total Deferred Revenue balance at December 31                          | Total Deferred Revenue balance at December 31                          |                          $ 1,990 |                                  |                                  |                                  |                          $ 1,874 |

Selling Costs

Certain costs such as credit card fees, travel agency and other commissions paid, as well as Global Distribution Systems (GDS) booking fees are incurred when the Company sells passenger tickets and ancillary services in advance of the travel date\. The Company defers such costs and recognizes them as expenses when the travel occurs\. Prepaid expense recorded on the consolidated balance sheets for such costs was $27 million and $23 million as of December 31, 2019 and December 31, 2018\. The Company recorded related expense on the consolidated statement of operations of $208 million, $217 million and $238 million for the twelve months ended December 31, 2019, 2018 and 2017\.

NOTE 3\. DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT

Fuel Hedge Contracts

The Company’s operations are inherently dependent upon the price and availability of aircraft fuel\. To manage economic risks associated with fluctuations in aircraft fuel prices, the Company periodically enters into call options for crude oil\.

As of December 31, 2019, the Company had outstanding fuel hedge contracts covering 435 million gallons of crude oil that will be settled from January 2020 to June 2021\.

Interest Rate Swap Agreements

The Company is exposed to market risk from adverse changes in variable interest rates on long\-term debt and certain aircraft lease agreements\. To manage this risk, the Company periodically enters into interest rate swap agreements\. As of December 31, 2019, the Company has outstanding interest rate swap agreements with a third party designed to hedge the volatility of the underlying variable interest rates on lease agreements for six B737\-800 aircraft, as well as 13 interest rate swap agreements with third parties designed to hedge the volatility of the underlying variable interest rates on $717 million of debt\. All of the interest rate swap agreements stipulate that the Company pay a fixed interest rate and receive a floating interest rate over the term of the underlying contracts\. The interest rate swap agreements expire from February 2020 through March 2021, associated with lease terms, and December 2021 through August 2029 to coincide with the debt maturity dates\. All significant terms of the swap agreements match the terms of the underlying hedged items and have been designated as qualifying hedging instruments, which are accounted for as cash flow hedges\.

As qualifying cash flow hedges, the interest rate swaps are recognized at fair value on the balance sheet, and changes in the fair value are recognized in accumulated other comprehensive loss\. The effective portion of the derivative represents the change in fair value of the hedge that offsets the change in fair value of the hedged item\. To the extent the change in fair value of the hedge does not perfectly offset the change in the fair value of the hedged item, the ineffective portion of the hedge is recognized in interest expense, if material\.

63


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

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

**NOTE 10 \- DEBT**

|                                                                                |                     |                     |
|:--------------------------------------------------------------------------------------------------------------------------------------- | -------------------:| -------------------:|
| **(In millions)**                                                                                | **At December 31,** | **At December 31,** |
|                                                                                |            **2017** |            **2016** |
| Secured                                                                                |                     |                     |
| Notes payable, fixed interest rates of 2\.88% to 9\.52% (weighted average rate of 4\.39% as of December 31, 2017), payable through 2028 |             $8,661  |             $7,586  |
| Notes payable, floating interest rates of the London interbank offered rate (“LIBOR”) plus 0\.2% to 2\.25%, payable through 2028        |              1,880  |              1,546  |
| Term loan, LIBOR plus 2\.00%, or alternative rate based on certain market rates plus 1\.00%, due 2024                                   |              1,489  |                  —  |
| Term loan, LIBOR subject to a 0\.75% floor, plus 2\.50%, or alternative rate based on certain market rates plus 1\.50%, due 2019        |                  —  |                866  |
| Term loan, LIBOR subject to a 0\.75% floor, plus 2\.75%, or alternative rate based on certain market rates plus 1\.75%, due 2021        |                  —  |                192  |
| Unsecured                                                                                |                     |                     |
| 6\.375% Senior Notes due 2018 (a)                                                                                |                300  |                300  |
| 6% Senior Notes due 2020 (a)                                                                                |                300  |                300  |
| 4\.25% Senior Notes due 2022 (a)                                                                                |                400  |                  —  |
| 5% Senior Notes due 2024 (a)                                                                                |                300  |                  —  |
| Other                                                                                |                101  |                101  |
|                                                                                |             13,431  |             10,891  |
| Less: unamortized debt discount, premiums and debt issuance costs                                                                       |               (163) |               (124) |
| Less: current portion of long\-term debt                                                                                |             (1,565) |               (849) |
| Long\-term debt, net                                                                                |           $ 11,703  |            $ 9,918  |

(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, 2017 under then\-outstanding long\-term debt agreements in each of the next five calendar years (in millions):

|            |            |
|:---------- | ----------:|
| 2018       |    $1,565  |
| 2019       |     1,165  |
| 2020       |     1,170  |
| 2021       |     1,157  |
| 2022       |     1,492  |
| After 2022 |     6,882  |
|            |  $ 13,431  |

*Secured debt*

***2017 Credit and Guaranty Agreement\.*** On March 29, 2017, United and UAL, as borrower and guarantor, respectively, entered into an Amended and Restated Credit and Guaranty Agreement (as amended by the First Amendment to the Amended and Restated Credit and Guaranty Agreement, dated as of November 15, 2017, the “November 2017 Amendment,” and as so amended, the “2017 Credit Agreement”)\. The 2017 Credit Agreement consists of a $1\.5 billion term loan due April 1, 2024, which was used to retire the entire principal balance of the term loans under the credit and guaranty agreement, dated March 27, 2013 (as amended, the “2013 Credit Agreement”), and increased the term loan balance by approximately $440 million\. The 2017 Credit Agreement

87


Annual Report of Southwest Airlines Co\. for year 2017

base fare to compete with a ULCC base fare, but includes significant additional restrictions on amenities such as seat assignments (including restrictions on group and family seating), order of boarding, checked baggage and use of overhead bin space, flight changes and refunds, and eligibility for upgrades\. Also in response to ULCC pricing, some legacy carriers have removed their fare floors for certain routes, leading to lower fares across the industry\. Conversely, some legacy carriers offer a "Premium Economy" fare that targets consumers willing to pay extra for additional amenities such as more favorable seating options in segmented aircraft\.

**Company Operations**

**Route Structure**

Southwest principally provides point\-to\-point service, rather than the "hub\-and\-spoke" service provided by most major U\.S\. airlines\. The hub\-and\-spoke system concentrates most of an airline's operations at a limited number of central hub cities and serves most other destinations in the system by providing one\-stop or connecting service through a hub\. By not concentrating operations through one or more central transfer points, Southwest's point\-to\-point route structure has allowed for more direct nonstop routing than hub\-and\-spoke service\. Approximately 76 percent of the Company's Customers flew nonstop during 2017, and, as of December 31, 2017, Southwest served 675 nonstop city pairs\.

Southwest’s point\-to\-point service has also enabled it to provide its markets with frequent, conveniently timed flights and low fares\. For example, Southwest currently offers 19 weekday roundtrips between Dallas Love Field and Houston Hobby, 12 weekday roundtrips between Burbank and Oakland, 12 weekday roundtrips between San Diego and San Jose, eight weekday roundtrips between Denver and Chicago Midway, and 10 weekday roundtrips between Los Angeles International and Las Vegas\.

Southwest complements its high\-frequency short\-haul routes with long\-haul nonstop service between markets such as Los Angeles and Nashville, Las Vegas and Orlando, San Diego and Baltimore, Houston and New York LaGuardia, and Oakland and Baltimore\. During 2017, the Company introduced the Boeing 737 Max 8 to its fleet and continued to incorporate the Boeing 737\-800 aircraft into its fleet, both of which offer significantly more Customer seating capacity than the Company’s other aircraft\. This has enabled the Company to more economically serve long\-haul routes, as well as high\-demand, slot\-controlled, and gate\-restricted airports, by adding seats for such routes without increasing the number of flights (a "slot" is the right of an air carrier, pursuant to regulations of the FAA, to operate a takeoff or landing at a specific time at certain airports)\. For 2017, the Company’s average aircraft trip stage length was 754 miles, with an average duration of approximately 2\.0 hours, as compared with an average aircraft trip stage length of 760 miles and an average duration of approximately 2\.0 hours in 2016\.

The Company continued its focus on California in 2017, and continues to invest significant resources to solidify its leadership position in California, including the planned addition of new domestic and international destination options and flights for California Customers, as well as additional marketing programs, loyalty incentives, and local outreach efforts designed to retain, engage, and acquire Customers\. Based on the most recent data available from the DOT, for the year ending October 31, 2017, Southwest carried more domestic Revenue Passengers to, from, and within California than any other airline\.

The Company ended 2017 with international service to 14 destinations through 16 international gateway cities within the 48 contiguous United States\. During 2017, the Company commenced international service out of Oakland, San Diego, Nashville, and St\. Louis\. In addition, the Company announced commencement in 2018 of international service out of Indianapolis, San Jose, Sacramento, Columbus, New Orleans, Pittsburgh, and Raleigh\-Durham\. The Company has also concentrated its service to Cuba in Havana and ceased operations during 2017 to Varadero and Santa Clara, Cuba\.

In 2017, to further support its near\-international operations, the Company opened a new five\-gate international concourse at Fort Lauderdale\-Hollywood International Airport (FLL)\. The Company expanded its international flight schedule for South Florida to a total of nine international nonstop destinations including Montego Bay, Jamaica; Belize City, Belize; Cancun, Mexico; Grand Cayman; Havana, Cuba; Nassau, The Bahamas; San Jose, Costa Rica; Punta Cana, Dominican Republic; and Turks and Caicos\. Additional information regarding the Company’s involvement with construction of the new concourse at FLL is provided below under "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and in Note 4 to the Consolidated Financial Statements\.

5


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

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Regional aircraft fuel and related taxes  increase d  1\.4 % in  2019  as compared to  2018  primarily due to an  8\.3%  increase  in gallons of fuel consumed, offset in part by a  6\.4%  decrease  in the average price per gallon of fuel including related taxes to  $2\.15  in  2019  from  $2\.30  in  2018 \. |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Regional other operating expenses  increase d  8\.2 % in  2019  as compared to  2018  primarily driven by an increase in regional capacity\. |

Operating Special Items, Net

|                                                                    |                             |                             |
| ------------------------------------------------------------------ | --------------------------- | --------------------------- |
|                                                                    | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                                    | **2019**                    | **2018**                    |
|                                                                    | **(In millions)**           | **(In millions)**           |
| Fleet restructuring expenses  ^(1)^                                | $271                        | $422                        |
| Fleet impairment  ^(2)^                                            | 213                         | —                           |
| Merger integration expenses  ^(3)^                                 | 191                         | 268                         |
| Litigation reserve adjustments                                     | (53)                        | 45                          |
| Mark\-to\-market adjustments on bankruptcy obligations, net  ^(4)^ | (11)                        | (76)                        |
| Severance expenses  ^(5)^                                          | 11                          | 58                          |
| Intangible asset impairment  ^(6)^                                 | —                           | 26                          |
| Labor contract expenses                                            | —                           | 13                          |
| Other operating charges, net                                       | 13                          | 31                          |
| Total mainline operating special items, net                        | $635                        | $787                        |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Fleet restructuring expenses principally included accelerated depreciation and rent expense for aircraft and related equipment grounded or expected to be grounded earlier than planned\. |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | Fleet impairment principally includes a non\-cash write\-down of aircraft related to the planned retirement of American's Embraer E190 fleet\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(3)^ | Merger integration expenses included costs associated with integration projects, principally American's technical operations, flight attendant, human resources and payroll systems\. |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------- |
| ^(4)^ | Bankruptcy obligations that will be settled in shares of AAG common stock are marked\-to\-market based on AAG’s stock price\. |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------- |
| ^(5)^ | Severance expenses primarily included costs associated with reductions of management and support staff team members\. |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(6)^ | Intangible asset impairment includes a non\-cash charge to write\-off American’s Brazil route authority as a result of the U\.S\.\-Brazil open skies agreement\. |

Nonoperating Results

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

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

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

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

**Increase**

**(Decrease)** |
|                                 | **2019**                                     | **2018**                                     | **Increase**

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

**Increase**

**(Decrease)** |
|                                 | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)**          |
| Interest income                 | $515                                         | $330                                         | $185                                         | 56\.1                                                 |
| Interest expense, net           | (1,109)                                      | (1,028)                                      | (81)                                         | 7\.8                                                  |
| Other income, net               | 152                                          | 167                                          | (15)                                         | (9\.3)                                                |
| Total nonoperating expense, net | $(442)                                       | $(531)                                       | $89                                          | (16\.9)                                               |

Interest income  increase d  $185 million , or  56\.1 %, due to higher interest\-bearing related party receivables from American’s parent company, AAG in  2019  as compared to  2018 \.

58


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

As passenger tickets and related ancillary services are primarily sold via credit cards, certain amounts due from credit card processors are recorded as airline traffic receivables\. These credit card receivables and receivables from our affinity credit card partner represent the majority of the receivables balance on the consolidated balance sheets\.

For performance obligations with performance periods of less than one year, GAAP provides a practical expedient that allows the Company not to disclose the transaction price allocated to remaining performance obligations and the timing of related revenue recognition\. As passenger tickets expire one year from ticketing, if unused or not exchanged, the Company elected to apply this practical expedient\.

**Mileage Plan™ Loyalty Program**

***Loyalty mileage credits***

The Company’s Mileage Plan™ loyalty program provides frequent flyer travel awards to program members based upon accumulated loyalty mileage credits\. Mileage credits are earned through travel, purchases using the Mileage Plan™ co\-branded credit card and purchases from other participating partners\. The program has a 24 month expiration period for unused mileage credits from the month of last account activity\. The Company offers redemption of mileage credits through free, discounted or upgraded air travel on flights operated by Alaska and its regional partners or on one of its 17 airline partners, as well as redemption at partner hotels\.

The Company uses a relative standalone selling price to allocate consideration to material performance obligations in contracts with customers that include loyalty mileage credits\. As directly observable selling prices for mileage credits are not available, the Company determines the standalone selling price of mileage credits primarily using actual ticket purchase prices for similar tickets flown, adjusted for the likelihood of redemption, or breakage\. In determining similar tickets flown, the Company considers current market prices, class of service, type of award, and other factors\. For mileage credits accumulated through travel on partner airlines, the Company uses actual consideration received from the partners\.

Revenue related to air transportation is deferred in the amount of the relative standalone selling price allocated to the loyalty mileage credits as they are issued\. The Company satisfies its performance obligation when the mileage credits are redeemed and the related air transportation is delivered\.

The Company estimates breakage for the portion of loyalty mileage credits not expected to be redeemed using a statistical analysis of historical data, including actual mileage credits expiring, slow\-moving and low\-credit accounts, among other factors\. The breakage rate for the twelve months ended December 31, 2018 and 2017 was 17\.4%\. The Company reviews the breakage rate used on an annual basis\.

***Co\-brand credit card agreement and other***

In addition to mileage credits, the co\-brand credit card agreement, referred to herein as the Agreement, also includes performance obligations for waived bag fees, Companion Fare™ offers to purchase an additional ticket at a discount, marketing, and the use of intellectual property including the brand (unlimited access to the use of the Company’s brand and frequent flyer member lists), which is the predominant element in the Agreement\. The affinity card bank partner is the customer for some elements, including the brand and marketing, while the Mileage Plan™ member is the customer for other elements such as mileage credits, bag waivers, and companion fares\.

At the inception of the Agreement, management estimated the selling price of each of the performance obligations\. The objective was to determine the price at which a sale would be transacted if the product or service was sold on a stand\-alone basis\. The Company determined its best estimate of selling price for each element by considering multiple inputs and methods including, but not limited to, the estimated selling price of comparable travel, discounted cash flows, brand value, published selling prices, number of miles awarded and number of miles redeemed\. The Company estimated the selling prices and volumes over the term of the Agreement in order to determine the allocation of proceeds to each of the multiple deliverables\. The estimates of the standalone selling prices of each element do not change subsequent to the original valuation of the contract unless the contract is materially modified, but the allocation between elements may change based upon the actual and updated projected volumes of each element delivered during the term of the contract\.

Consideration received from the bank is variable and is primarily from consumer spend on the card, among other items\. The Company allocates consideration to each of the performance obligations, including mileage credits, waived bag fees, companion fares, and brand and marketing, using their relative standalone selling price\. Because the performance obligation related to providing use of intellectual property including the brand is satisfied over time, it is recognized in Mileage Plan^TM^

 71


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

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

The table below presents selected passenger revenue and operating data of the Company, broken out by geographic region, expressed as year\-over\-year changes:

|                                                                                |                                                                                |                                                                                |                                        |                                        |                                        |
| ---------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | -------------------------------------- | -------------------------------------- | -------------------------------------- |
|                                                                                | **Increase (decrease) from 2018 (a):**                                                                     | **Increase (decrease) from 2018 (a):**                                                                     | **Increase (decrease) from 2018 (a):** | **Increase (decrease) from 2018 (a):** | **Increase (decrease) from 2018 (a):** |
|                                                                                | **Domestic**                                                                                | **Atlantic**                                                                                | **Pacific**                            | **Latin**                              | **Total**                              |
| Average fare per passenger                                                                                | 3\.4%                                                                                | (1\.9)%                                                                                | (4\.0)%                                | 5\.9%                                  | 2\.4%                                  |
| Passengers                                                                                | 2\.1%                                                                                | 6\.5 %                                                                                | 4\.0 %                                 | 3\.9%                                  | 2\.6%                                  |
| RPMs (traffic)                                                                                | 3\.5%                                                                                | 6\.9 %                                                                                | 2\.4 %                                 | 4\.0%                                  | 4\.0%                                  |
| ASMs (capacity)                                                                                | 3\.8%                                                                                | 5\.8 %                                                                                | 0\.5 %                                 | 2\.9%                                  | 3\.5%                                  |
| Passenger load factor (points)                                                                             | (0\.2)                                                                                | 0\.8                                                                                | 1\.5                                   | 0\.9                                   | 0\.4                                   |
| (a) See Part II, Item 6\. Selected Financial Data, of this report for the definition of these statistics\. | (a) See Part II, Item 6\. Selected Financial Data, of this report for the definition of these statistics\. | (a) See Part II, Item 6\. Selected Financial Data, of this report for the definition of these statistics\. |                                        |                                        |                                        |

Passenger revenue increased  $1\.9 billion , or  5\.1% , in  2019  as compared to  2018 , primarily due to a  4\.0%  increase in traffic, continuing strong domestic demand, improvements in average fares in the Latin and Domestic markets, and increases in ancillary fees driven by improved product offerings\.

Cargo revenue decreased  $58 million , or  4\.7% , in  2019  as compared to  2018 , primarily due to an approximately 3% decrease in cargo ton miles and a 2% decline in cargo ton mile yield\.

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

Operating Expense\.  The table below includes data related to the Company's operating expense for the years ended December 31 (in millions, except percentage changes):

|                                                    |          |          |                         |              |
| -------------------------------------------------- | -------- | -------- | ----------------------- | ------------ |
|                                                    | **2019** | **2018** | **Increase (Decrease)** | **% Change** |
| Salaries and related costs                         | $12,071  | $11,458  | $613                    | 5\.3         |
| Aircraft fuel                                      | 8,953    | 9,307    | (354)                   | (3\.8)       |
| Regional capacity purchase                         | 2,849    | 2,649    | 200                     | 7\.6         |
| Landing fees and other rent                        | 2,543    | 2,449    | 94                      | 3\.8         |
| Depreciation and amortization                      | 2,288    | 2,165    | 123                     | 5\.7         |
| Aircraft maintenance materials and outside repairs | 1,794    | 1,767    | 27                      | 1\.5         |
| Distribution expenses                              | 1,651    | 1,558    | 93                      | 6\.0         |
| Aircraft rent                                      | 288      | 433      | (145)                   | (33\.5)      |
| Special charges                                    | 246      | 487      | (241)                   | NM           |
| Other operating expenses                           | 6,275    | 5,801    | 474                     | 8\.2         |
| Total operating expenses                           | $38,958  | $38,074  | $884                    | 2\.3         |

Salaries and related costs increased  $613 million , or  5\.3% , in  2019  as compared to  2018 , primarily due to higher contractual pay rates, higher benefit expenses, higher employee incentives and a 4\.0% increase in average full\-time equivalent employees\. Employee incentives included $157 million increase in profit sharing in  2019  as compared to  2018 \.

Aircraft fuel expense decreased  $354 million , or  3\.8% , in  2019  as compared to  2018 , primarily due to a  7\.1%  decrease in fuel prices, partially offset by a  3\.5%  increase in capacity\. The table below presents the significant changes in aircraft fuel cost per

29


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

Employee Matters

Railway Labor Act

Our relations with labor unions representing our airline employees in the U\.S\. are governed by the Railway Labor Act\. Under the Railway Labor Act, a labor union seeking to represent an unrepresented craft or class of employees is required to file with the National Mediation Board (the "NMB") an application alleging a representation dispute, along with authorization cards signed by at least 50% of the employees in that craft or class\. The NMB then investigates the dispute and, if it finds the labor union has obtained a sufficient number of authorization cards, conducts an election to determine whether to certify the labor union as the collective bargaining representative of that craft or class\. A labor union will be certified as the representative of the employees in a craft or class if more than 50% of votes cast are for that union\. A certified labor union would commence negotiations toward a collective bargaining agreement with the employer\.

Under the Railway Labor Act, a collective bargaining agreement between an airline and a labor union does not expire, but instead becomes amendable as of a stated date\. Either party may request that the NMB appoint a federal mediator to participate in the negotiations for a new or amended agreement\. If no agreement is reached in mediation, the NMB may determine, at any time, that an impasse exists and offer binding arbitration\. If either party rejects binding arbitration, a 30\-day "cooling off" period begins\. At the end of this 30\-day period, the parties may engage in “self help,” unless the U\.S\. President appoints a Presidential Emergency Board ("PEB") to investigate and report on the dispute\. The appointment of a PEB maintains the "status quo" for an additional 60 days\. If the parties do not reach agreement during this period, the parties may then engage in self help\. Self help includes, among other things, a strike by the union or the imposition of proposed changes to the collective bargaining agreement by the airline\. Congress and the President have the authority to prevent self help by enacting legislation that, among other things, imposes a settlement on the parties\.

Collective Bargaining

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

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

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

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

Labor unions periodically engage in organizing efforts to represent various groups of our employees, including at our operating subsidiaries, that are not represented for collective bargaining purposes\.

 10


Annual Report of Southwest Airlines Co\. for year 2018

Company also had agreements with counterparties in which cash deposits, letters of credit, and/or pledged aircraft are required to be posted as collateral whenever the net fair value of derivatives associated with those counterparties exceeds specific thresholds\. Refer to the counterparty credit risk and collateral table provided in Note 10 to the Consolidated Financial Statements for the fair values of fuel derivatives, and applicable collateral posting threshold amounts as of December 31, 2018, at which such postings are triggered\.

Due to the Company's investment grade credit rating, terms of the Company’s current fuel hedging agreements with counterparties, and the types of derivatives held as of December 31, 2018, in the Company's judgment, it does not have cash collateral exposure\. See Note 10 to the Consolidated Financial Statements\. The Company is also subject to the risk that the fuel derivatives it uses to hedge against fuel price volatility do not provide adequate protection\. The Company has found that financial derivative instruments in commodities, such as West Texas Intermediate crude oil, Brent crude oil, and refined products, such as heating oil and unleaded gasoline, can be useful in decreasing its exposure to jet fuel price volatility\. In addition, to add further protection, the Company may periodically enter into jet fuel derivatives for short\-term timeframes\. Jet fuel is not widely traded on an organized futures exchange and, therefore, there are limited opportunities to hedge directly in jet fuel for time horizons longer than approximately 24 months into the future\.

The Company also has agreements with each of its counterparties associated with its outstanding interest rate swap agreements in which cash collateral may be required based on the fair value of outstanding derivative instruments, as well as the Company’s and its counterparty’s credit ratings\. As of December 31, 2018, no cash collateral deposits were provided by or held by the Company based on its outstanding interest rate swap agreements\.

Due to the significance of the Company’s fuel hedging program and the emphasis that the Company places on utilizing fuel derivatives to reduce its fuel price risk, the Company has created a system of governance and management oversight and has put in place a number of internal controls designed so that procedures are properly followed and accountability is present at the appropriate levels\. For example, the Company has put in place controls designed to: (i) create and maintain a comprehensive risk management policy; (ii) provide for proper authorization by the appropriate levels of management; (iii) provide for proper segregation of duties; (iv) maintain an appropriate level of knowledge regarding the execution of and the accounting for derivative instruments; and (v) have key performance indicators in place in order to adequately measure the performance of its hedging activities\. The Company believes the governance structure that it has in place is adequate given the size and sophistication of its hedging program\.

***Financial Market Risk***

The vast majority of the Company’s tangible assets are aircraft, which are long\-lived\. The Company’s strategy is to maintain a conservative balance sheet and grow capacity steadily and profitably under the right conditions\. While the Company uses financial leverage, it strives to maintain a strong balance sheet and has a "BBB\+" rating with Fitch, a "BBB\+" rating with Standard & Poor’s, and an "A3" credit rating with Moody’s as of December 31, 2018, all of which are considered "investment grade\." As disclosed in Note 10 to the Consolidated Financial Statements, the Company has converted certain of its long\-term debt to floating rate debt by entering into an interest rate swap agreement\. See Note 6 to the Consolidated Financial Statements for more information on the material terms of the Company’s short\-term and long\-term debt\.

As of December 31, 2018, excluding the notes or debentures that have been converted to a floating rate, the Company’s fixed\-rate senior unsecured notes outstanding included its $300 million2\.75% senior unsecured notes due 2022, its $300 million3\.00% senior unsecured notes due 2026, its $100 million7\.375% senior unsecured notes due 2027, and its $300 million3\.45% senior unsecured notes due 2027\. The $100 million7\.375% senior unsecured notes due 2027 had at one point been converted to a floating rate, but the Company subsequently terminated the fixed\-to\-floating interest rate swap agreements related to it\. The effect of this termination was that the interest associated with this debt prospectively reverted back to its original fixed rate\. As a result of the gain realized on this transaction, which is being amortized over the remaining term of the corresponding notes, and based on projected interest rates at the date of termination, the Company does not believe its future interest expense, based on projected future interest rates at the date of termination, associated with these notes will significantly differ from the expense it would have recorded had

64


Annual Report of Southwest Airlines Co\. for year 2018

efficient 737\-800 and 737 MAX 8 aircraft\. Fuel gallons consumed increased 2\.4 percent, compared with 2017, while year\-over\-year capacity increased 3\.9 percent\.

As of January 18, 2019, on an economic basis, the Company had derivative contracts in place related to expected future fuel consumption as follows:

|                 |                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |
| --------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| **Period**      | **Maximum percent of estimated fuel consumption covered by fuel derivative contracts at varying West Texas Intermediate/Brent Crude Oil, Heating Oil, and Gulf Coast Jet Fuel\-equivalent price levels (a)** | **Maximum percent of estimated fuel consumption covered by fuel derivative contracts at varying West Texas Intermediate/Brent Crude Oil, Heating Oil, and Gulf Coast Jet Fuel\-equivalent price levels (a)** | **Maximum percent of estimated fuel consumption covered by fuel derivative contracts at varying West Texas Intermediate/Brent Crude Oil, Heating Oil, and Gulf Coast Jet Fuel\-equivalent price levels (a)** | **Maximum percent of estimated fuel consumption covered by fuel derivative contracts at varying West Texas Intermediate/Brent Crude Oil, Heating Oil, and Gulf Coast Jet Fuel\-equivalent price levels (a)** | **Maximum percent of estimated fuel consumption covered by fuel derivative contracts at varying West Texas Intermediate/Brent Crude Oil, Heating Oil, and Gulf Coast Jet Fuel\-equivalent price levels (a)** |
| **2019**        | 70%                                                                                | 70%                                                                                | 70%                                                                                | 70%                                                                                | 70%                                                                                |
| **2020**        | 53%                                                                                | 53%                                                                                | 53%                                                                                | 53%                                                                                | 53%                                                                                |
| **2021**        | 25%                                                                                | 25%                                                                                | 25%                                                                                | 25%                                                                                | 25%                                                                                |
| **Beyond 2021** | less than 5%                                                                                | less than 5%                                                                                | less than 5%                                                                                | less than 5%                                                                                | less than 5%                                                                                |

(a) The Company's hedge position can vary significantly at different price levels, including prices at which the Company considers "catastrophic" coverage\. The percentages provided are not indicative of the Company's hedge coverage at every price, but represent the highest level of coverage at a single price\. See Note 10 to the Consolidated Financial Statements for further information\.

As a result of applying hedge accounting in prior periods, the Company has amounts in Accumulated other comprehensive income (loss) ("AOCI") that will be recognized in earnings in future periods when the underlying fuel derivative contracts settle\. The following table displays the Company's estimated fair value of remaining fuel derivative contracts (not considering the impact of the cash collateral provided to or received from counterparties \- see Note 10 to the Consolidated Financial Statements for further information), as well as the amount of deferred gains/losses in AOCI at December 31, 2018, and the expected future periods in which these items are expected to settle and/or be recognized in earnings (in millions):

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

**derivative contracts**

**at December 31, 2018** | **Amount of losses deferred**

**in AOCI at December 31,**

**2018 (net of tax)** |
| 2019     | $43                                                                                | $(36)                                                                                |
| 2020     | 65                                                                                | (6)                                                                                |
| 2021     | 26                                                                                | (1)                                                                                |
| 2022     | 4                                                                                | —                                                                                |
| Total    | $138                                                                                | $(43)                                                                                |

 Assuming no changes to the Company's current fuel derivative portfolio, but including all previous hedge activity for fuel derivatives that have not yet settled, and considering only the expected net cash receipts related to hedges that will settle, the Company is providing the below sensitivity table for first quarter 2019 and full year 2019 jet fuel prices at different crude oil assumptions as of January 18, 2019, and for expected premium costs associated with settling contracts each period, respectively\.

43


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

The operation of the refinery by Monroe is subject to significant environmental regulation\. Failure to comply with environmental regulations or the enactment of additional regulation could have a material adverse effect on our consolidated financial results\.

Monroe's operations are subject to extensive environmental, health and safety laws and regulations, including those relating to the discharge of materials into the environment, waste management, pollution prevention measures and greenhouse gas emissions\. Monroe could incur fines and other sanctions, cleanup costs and third\-party claims as a result of violations of or liabilities under environmental, health and safety requirements, which if significant, could have a material adverse effect on our consolidated financial results\. In addition, the enactment of new environmental laws and regulations, including any laws or regulations relating to greenhouse gas emissions, could significantly increase the level of expenditures required for Monroe or restrict its operations\.

In particular, under the Energy Independence and Security Act of 2007, the EPA has adopted RFS that mandate the blending of renewable fuels into Transportation Fuels\. RINs are assigned to renewable fuels produced or imported into the U\.S\. that are blended into Transportation Fuels to demonstrate compliance with this obligation\. A refinery may meet its obligation under RFS by blending the necessary volumes of renewable fuels with Transportation Fuels or by purchasing RINs in the open market or through a combination of blending and purchasing RINs\.

Because Monroe blends only a small amount of renewable fuels, it must purchase the majority of its RINs requirement in the secondary market or obtain a waiver from the EPA\. As a result, Monroe is exposed to the market price of RINs\. Market prices for RINs have been volatile, marked by periods of sharp increases and decreases\. We cannot predict the future prices of RINs\. Purchasing RINs at elevated prices could have a material impact on our consolidated results of operations and cash flows\.

Existing laws or regulations could change, and the minimum volumes of renewable fuels that must be blended with refined petroleum products may increase\. Increases in the volume of renewable fuels that must be blended into Monroe's products could limit the refinery's production if sufficient numbers of RINs are not available for purchase or relief from this requirement is not obtained, which could have a material adverse effect on our consolidated financial results\.

If we lose senior management and other key employees and they are not replaced by individuals with comparable skills, our operating results could be materially adversely affected\.

We are dependent on the experience and industry knowledge of our officers and other key employees to design and execute our business plans\. If we experience a substantial turnover in our leadership and other key employees, and these persons are not replaced by individuals with comparable skills, our performance could be materially adversely impacted\. Furthermore, we may be unable to attract and retain additional qualified executives as needed in the future\.

Our reputation and brand could be damaged if we are exposed to significant adverse publicity\.

We operate in a highly visible, public environment with significant exposure to traditional and social media\. Adverse publicity, whether justified or not, can rapidly spread, including through social or digital media\. In particular, passengers can use social media to provide feedback about their interaction with us in a manner that can be quickly and broadly disseminated\. To the extent we are unable to respond timely and appropriately to adverse publicity, our brand and reputation may be damaged\. Significant damage to our overall reputation and brand image could have a material adverse effect on our financial results\.

17


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

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

Pacific Facilities\.  Our obligations under the Pacific Facilities are secured by a first lien on our Pacific route authorities and certain related assets\. The Pacific Facilities include affirmative, negative and financial covenants that could restrict our ability to, among other things, make investments, sell or otherwise dispose of collateral if we are not in compliance with the collateral coverage ratio tests described below, pay dividends or repurchase stock\.

|                                                                                |               |
| -------------------------------------------------------------------------------- | ------------- |
| Minimum fixed charge coverage ratio  ^(1)^                                       | 1\.20:1       |
| Minimum unrestricted liquidity                                                   |               |
| Unrestricted cash, permitted investments and undrawn revolving credit facilities | $2\.0 billion |
| Minimum collateral coverage ratio  ^(2)^                                         | 1\.60:1       |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Defined as the ratio of (a) earnings before interest, taxes, depreciation, amortization and aircraft rent and other adjustments to net income to (b) the sum of gross cash interest expense (including the interest portion of our capitalized lease obligations) and cash aircraft rent expense, for the 12\-month period ending as of the last day of each fiscal quarter\. |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | Defined as the ratio of (a) certain of the collateral that meet specified eligibility standards to (b) the sum of the aggregate outstanding obligations and certain other obligations\.  |

2015 Credit Facilities\.  Our obligations under the 2015 Credit Facilities are secured by liens on certain of our and the Guarantors’ assets, including accounts receivable, aircraft, spare engines, non\-Pacific international routes, domestic slots and certain investment property\. The 2015 Credit Facilities include affirmative, negative and financial covenants that may restrict our ability to, among other things, make investments, sell or otherwise dispose of assets if not in compliance with the collateral coverage ratio tests, pay dividends or repurchase stock\. These covenants require us to maintain:

|                                                                                |               |
| -------------------------------------------------------------------------------- | ------------- |
| Minimum unrestricted liquidity                                                   |               |
| Unrestricted cash, permitted investments and undrawn revolving credit facilities | $2\.0 billion |
| Minimum collateral coverage ratio ^(1)^                                          | 1\.60:1       |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Defined as the ratio of (a) certain of the collateral that meet specified eligibility standards to (b) the sum of the aggregate outstanding obligations under the 2015 Credit Facilities and certain other obligations\.  |

Under the 2015 Credit Facilities, if the Minimum Collateral Coverage Ratio is not maintained, we must either provide additional collateral to secure our obligations, or we must reduce the secured obligations under the facilities by an amount necessary to maintain compliance with the collateral coverage ratio\. The 2015 Credit Facilities contain events of default customary for similar financings, including cross\-defaults to other material indebtedness and certain change of control events\. Upon the occurrence of an event of default, the outstanding obligations under the 2015 Credit Facilities may be accelerated and become due and payable immediately\.

Availability Under Revolving Credit Facilities

The table below shows availability under revolving credit facilities, all of which were undrawn, as of  December 31, 2017 :

|                                                      |        |
| ---------------------------------------------------- | ------ |
| **(in millions)**                                    |        |
| Revolving Credit Facility                            | $1,500 |
| Pacific Revolving Credit Facility                    | 415    |
| Other revolving credit facilities                    | 535    |
| Total availability under revolving credit facilities | $2,450 |

 70


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

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

The table below presents supplemental cash flow information related to leases during the year ended December 31 (in millions):

|                                                                         |          |          |          |
| ----------------------------------------------------------------------- | -------- | -------- | -------- |
|                                                                         | **2019** | **2018** | **2017** |
| Cash paid for amounts included in the measurement of lease liabilities: |          |          |          |
| Operating cash flows for operating leases                               | $902     | $1,078   | $1,451   |
| Operating cash flows for finance leases                                 | 70       | 53       | 24       |
| Financing cash flows for finance leases                                 | 151      | 79       | 84       |

Regional CPAs\.  United  has contractual relationships with various regional carriers to provide regional aircraft service branded as United Express\.  Under these CPAs, the Company pays the regional carriers contractually agreed fees (carrier costs) for operating these flights plus a variable rate adjustment based on agreed performance metrics, subject to annual adjustments\. The fees are based on specific rates multiplied by specific operating statistics (e\.g\., block hours, departures), as well as fixed monthly amounts\. Under these CPAs, the Company is also responsible for all fuel costs incurred, as well as landing fees and other costs, which are either passed through by the regional carrier to the Company without any markup or directly incurred by the Company\. In some cases, the Company owns some or all of the aircraft subject to the CPA and leases such aircraft to the regional carrier\.  United's CPAs are for   581  regional aircraft as of  December 31, 2019 , and the CPAs have terms expiring through  2029 \. Aircraft operated under CPAs include aircraft leased directly from the regional carriers and those owned by United and operated by the regional carriers\. See Part I, Item 2\. Properties, of this report for additional information\.

In 2019, United amended an agreement with GoJet Airlines to operate up to   54  Bombardier CRJ\-550s under a   10 \-year CPA arrangement\. United also amended an agreement with Mesa Airlines, which added   20  new Embraer E175 LL aircraft under a  12 \-year CPA and also extended   42  United\-owned Embraer E175 aircraft for an additional   5 years \.

United recorded approximately   $1 billion ,   $979 million  and   $907 million  in expenses related to its CPAs with its regional carriers in which United is a minority shareholder, for the years ended  December 31, 2019 ,  2018  and  2017 , respectively\. There were approximately   $69 million  and   $53 million  in accounts payable due to these companies as of  December 31, 2019  and December 31,  2018 , respectively\. There were no material accounts receivables due from these companies as of  December 31, 2019  and December 31,  2018 \. The CPAs with these related parties were executed in the ordinary course of business\.

Our future commitments under our CPAs are dependent on numerous variables, and are, therefore, difficult to predict\. The most important of these variables is the number of scheduled block hours\. Although we are not required to purchase a minimum number of block hours under certain of our CPAs, we have set forth below estimates of our future payments under the CPAs based on our assumptions\. United's estimates of its future payments under all of the CPAs do not include the portion of the underlying obligation for any aircraft leased to a regional carrier or deemed to be leased from other regional carriers and facility rent that are disclosed as part of operating leases above\. For purposes of calculating these estimates, we have assumed (1) the number of block hours flown is based on our anticipated level of flight activity or at any contractual minimum utilization levels if applicable, whichever is higher, (2) that we will reduce the fleet as rapidly as contractually allowed under each CPA, (3) that aircraft utilization, stage length and load factors will remain constant, (4) that each carrier's operational performance will remain at historic levels and (5) an annual projected inflation rate\. These amounts exclude variable pass\-through costs such as fuel and landing fees, among others\. Based on these assumptions as of  December 31, 2019 , our future payments through the end of the terms of our CPAs are presented in the table below (in billions):

|            |        |
| ---------- | ------ |
| 2020       | $2\.9  |
| 2021       | 2\.9   |
| 2022       | 2\.4   |
| 2023       | 1\.5   |
| 2024       | 1\.3   |
| After 2024 | 4\.7   |
|            | $15\.7 |

The actual amounts we pay to our regional operators under CPAs could differ materially from these estimates\. For example, a   10%  increase or decrease in scheduled block hours for all of United's regional operators (whether as a result of changes in average daily utilization or otherwise) in  2020  would result in a corresponding change in annual cash obligations under the CPAs of approximately   $202 million \.

81


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

During  2019 , we reviewed and revised certain economic and demographic assumptions including the pension and retiree medical and other postretirement benefits discount rates and health care cost trend rates\. The net effect of changing these assumptions for the pension plans resulted in an  increase  of  $2\.1 billion  in the projected benefit obligation at  December 31, 2019 \. The net effect of changing these assumptions for retiree medical and other postretirement benefits plans resulted in an  increase  of  $71 million  in the projected benefit obligation at  December 31, 2019 \. We also revised our mortality assumptions to incorporate the new Pri\-2012 mortality tables and improvement scale issued by the Society of Actuaries\. This resulted in a  decrease  in the projected benefit obligations of our pension and retiree medical and other postretirement benefits plans of  $127 million  and  $11 million , respectively\.

See Note 10 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 8 to American’s Consolidated Financial Statements in Part II, Item 8B for additional information regarding our employee benefit plans\.

Recent Accounting Pronouncement

ASU 2016\-13: Financial Instruments  –  Credit Losses (Topic 326)

This ASU requires the use of an expected loss model for certain types of financial instruments and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates\. For trade receivables, loans and held\-to \- maturity debt securities, an estimate of lifetime expected credit losses is required\. For available\-for\-sale debt securities, an allowance for credit losses will be required rather than a reduction to the carrying value of the asset\. This standard is effective for interim and annual reporting periods beginning after December 15, 2019\. While we have not completed our evaluation of the impact of adoption of this standard, we do not expect it to have a material impact on our consolidated financial statements\.

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

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

Aircraft Fuel

Our operating results are materially impacted by changes in the availability, price volatility and cost of aircraft fuel, which represents one of the largest single cost items in our business\. Because of the amount of fuel needed to operate our business, even a relatively small increase or decrease in the price of fuel can have a material effect on our costs and liquidity\. Market prices for aircraft fuel can be volatile, with market spot prices ranging from a low of approximately  $1\.24  per gallon to a high of approximately  $2\.35  per gallon during the period from January 1, 2017 to  December 31, 2019 \.

As of  December 31, 2019 , we did not have any fuel hedging contracts outstanding to hedge our fuel consumption\. Our current policy is not to enter into transactions to hedge our fuel consumption, although we review that policy from time to time based on market conditions and other factors\. As such, and assuming we do not enter into any future transactions to hedge our fuel consumption, we will continue to be fully exposed to fluctuations in fuel prices\. Based on our  2020  forecasted fuel consumption, we estimate that a one cent per gallon increase in the price of aircraft fuel would increase our  2020  annual fuel expense by  $47 million \.

Foreign Currency

We are exposed to the effect of foreign exchange rate fluctuations on the U\.S\. dollar value of foreign currency\-denominated transactions\. Our largest exposure comes from the British pound, Euro, Canadian dollar and various Latin American currencies, primarily the Brazilian real\. We do not currently have a foreign currency hedge program\. We estimate a uniform 10% strengthening in the value of the U\.S\. dollar from  2019  levels relative to each of the currencies in which we have foreign currency exposure would have resulted in a decrease in pre\-tax income of approximately  $190 million  for the year ended  December 31, 2019 \.

68