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

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

potentially be significant to the VIE\. Therefore, the Company must identify which activities most significantly impact the VIE's economic performance and determine whether it, or another party, has the power to direct those activities\.

***Aircraft Leases***\. We are the lessee in a number of operating leases covering the majority of our leased aircraft\. The lessors are trusts established specifically to purchase, finance and lease aircraft to us\. These leasing entities meet the criteria for VIEs\. We are generally not the primary beneficiary of the leasing entities if the lease terms are consistent with market terms at the inception of the lease and do not include a residual value guarantee, fixed\-price purchase option or similar feature that obligates us to absorb decreases in value or entitles us to participate in increases in the value of the aircraft\. This is the case for many of our operating leases; however, leases of 23 mainline jet aircraft contain a fixed\-price purchase option that allow United to purchase the aircraft at predetermined prices on specified dates during the lease term\. Additionally, leases covering 90 leased regional jet aircraft contain an option to purchase the aircraft at the end of the lease term at prices that, depending on market conditions, could be below fair value\. United has not consolidated the related trusts because, even taking into consideration these purchase options, United is still not the primary beneficiary\. United's maximum exposure under these leases is the remaining lease payments, which are reflected in future lease commitments in Note 11 of this report\.

***EETCs\.*** United evaluated whether the pass\-through trusts formed for its EETC financings, treated as either debt or aircraft operating leases, are VIEs required to be consolidated by United under applicable accounting guidance, and determined that the pass\-through trusts are VIEs\. Based on United's analysis as described below, United determined that it does not have a variable interest in the pass\-through trusts\.

The primary risk of the pass\-through trusts is credit risk (i\.e\. the risk that United, the issuer of the equipment notes, may be unable to make its principal and interest payments)\. The primary purpose of the pass\-through trust structure is to enhance the credit worthiness of United's debt obligation through certain bankruptcy protection provisions, a liquidity facility (in certain of the EETC structures) and improved loan\-to\-value ratios for more senior debt classes\. These credit enhancements lower United's total borrowing cost\. Pass\-through trusts are established to receive principal and interest payments on the equipment notes purchased by the pass\-through trusts from United and remit these proceeds to the pass\-through trusts' certificate holders\.

United does not invest in or obtain a financial interest in the pass\-through trusts\. Rather, United has an obligation to make interest and principal payments on its equipment notes held by the pass\-through trusts\. United did not intend to have any voting or non\-voting equity interest in the pass\-through trusts or to absorb variability from the pass\-through trusts\. Based on this analysis, the Company determined that it is not required to consolidate the pass\-through trusts\.

***Synergy affiliates***\.

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | BRW Aviation LLC ("BRW"): Synergy's wholly\-owned affiliate, BRW, is a special purpose entity created to be the borrower of the Synergy Term Loan\. BRW is also the owner of the collateral that secures the Synergy Term Loan, including Synergy's shares of AVH\. BRW is a VIE and United holds variable interests in BRW including the Synergy Term Loan\. However, United is not the primary beneficiary of BRW because it does not hold BRW equity and does not have management rights at BRW and therefore does not have the power to direct the activities that most significantly impact BRW's economic performance\. |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | AVH: United concluded that AVH is a VIE and that United holds a variable interest through its call option on Synergy's AVH shares\. However, United is not the primary beneficiary because it does not hold a material number of shares of AVH and does not have the power through any other agreements to direct the activities that most significantly impact AVH's economic performance\. |

**NOTE 13 \- COMMITMENTS AND CONTINGENCIES**

***Commitments\.*** As of December 31, 2018, United had firm commitments and options to purchase aircraft from The Boeing Company ("Boeing"), Airbus S\.A\.S\. ("Airbus") and Embraer S\.A\. ("Embraer") presented in the table below:

|                                                                           |                                                                           |
| ------------------------------------------------------------------------- | ------------------------------------------------------------------------- |
| **Aircraft Type**                                                         | **Number of Firm  <br>Commitments (a)**                                   |
| Airbus A350                                                               | 45                                                                        |
| Boeing 737 MAX                                                            | 175                                                                       |
| Boeing 777\-300ER                                                         | 4                                                                         |
| Boeing 787                                                                | 24                                                                        |
| Embraer E175                                                              | 25                                                                        |
| (a) United also has options and purchase rights for additional aircraft\. | (a) United also has options and purchase rights for additional aircraft\. |

83


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

|                           |                           |                           |  |  |  |                                                                                |                                                                                |                                                                                |  |  |  |
| ------------------------- | ------------------------- | ------------------------- | - | - | - | ----------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | - | - | - |
| /s/ BRADLEY D\. TILDEN    | /s/ BRADLEY D\. TILDEN    | /s/ BRADLEY D\. TILDEN    |  |  |  | Chairman and Chief Executive Officer
(Principal Executive Officer)                         | Chairman and Chief Executive Officer
(Principal Executive Officer)                         | Chairman and Chief Executive Officer
(Principal Executive Officer)                         |
| Bradley D\. Tilden        | Bradley D\. Tilden        | Bradley D\. Tilden        |  |  |  | Chairman and Chief Executive Officer
(Principal Executive Officer)                         | Chairman and Chief Executive Officer
(Principal Executive Officer)                         | Chairman and Chief Executive Officer
(Principal Executive Officer)                         |  |  |  |
| /s/ BRANDON S\. PEDERSEN  | /s/ BRANDON S\. PEDERSEN  | /s/ BRANDON S\. PEDERSEN  |  |  |  | Executive Vice President/Finance and Chief Financial Officer
(Principal Financial Officer) | Executive Vice President/Finance and Chief Financial Officer
(Principal Financial Officer) | Executive Vice President/Finance and Chief Financial Officer
(Principal Financial Officer) |
| Brandon S\. Pedersen      | Brandon S\. Pedersen      | Brandon S\. Pedersen      |  |  |  | Executive Vice President/Finance and Chief Financial Officer
(Principal Financial Officer) | Executive Vice President/Finance and Chief Financial Officer
(Principal Financial Officer) | Executive Vice President/Finance and Chief Financial Officer
(Principal Financial Officer) |  |  |  |
| /s/ CHRISTOPHER M\. BERRY | /s/ CHRISTOPHER M\. BERRY | /s/ CHRISTOPHER M\. BERRY |  |  |  | Vice President Finance and Controller
(Principal Accounting Officer)                       | Vice President Finance and Controller
(Principal Accounting Officer)                       | Vice President Finance and Controller
(Principal Accounting Officer)                       |
| Christopher M\. Berry     | Christopher M\. Berry     | Christopher M\. Berry     |  |  |  | Vice President Finance and Controller
(Principal Accounting Officer)                       | Vice President Finance and Controller
(Principal Accounting Officer)                       | Vice President Finance and Controller
(Principal Accounting Officer)                       |  |  |  |
| /s/ PATRICIA M\. BEDIENT  | /s/ PATRICIA M\. BEDIENT  | /s/ PATRICIA M\. BEDIENT  |  |  |  | Director                                                                                | Director                                                                                | Director                                                                                |
| Patricia M\. Bedient      | Patricia M\. Bedient      | Patricia M\. Bedient      |  |  |  |                                                                                |                                                                                |                                                                                |
| /s/ JAMES A\. BEER        | /s/ JAMES A\. BEER        | /s/ JAMES A\. BEER        |  |  |  | Director                                                                                | Director                                                                                | Director                                                                                |
| James A\. Beer            | James A\. Beer            | James A\. Beer            |  |  |  |                                                                                |                                                                                |                                                                                |
| /s/ MARION C\. BLAKEY     | /s/ MARION C\. BLAKEY     | /s/ MARION C\. BLAKEY     |  |  |  | Director                                                                                | Director                                                                                | Director                                                                                |
| Marion C\. Blakey         | Marion C\. Blakey         | Marion C\. Blakey         |  |  |  |                                                                                |                                                                                |                                                                                |
| /s/ PHYLLIS J\. CAMPBELL  | /s/ PHYLLIS J\. CAMPBELL  | /s/ PHYLLIS J\. CAMPBELL  |  |  |  | Director                                                                                | Director                                                                                | Director                                                                                |
| Phyllis J\. Campbell      | Phyllis J\. Campbell      | Phyllis J\. Campbell      |  |  |  |                                                                                |                                                                                |                                                                                |
| /s/ RAYMOND L\. CONNER    | /s/ RAYMOND L\. CONNER    | /s/ RAYMOND L\. CONNER    |  |  |  | Director                                                                                | Director                                                                                | Director                                                                                |
| Raymond L\. Conner        | Raymond L\. Conner        | Raymond L\. Conner        |  |  |  |                                                                                |                                                                                |                                                                                |
| /s/ DHIREN R\. FONSECA    | /s/ DHIREN R\. FONSECA    | /s/ DHIREN R\. FONSECA    |  |  |  | Director                                                                                | Director                                                                                | Director                                                                                |
| Dhiren R\. Fonseca        | Dhiren R\. Fonseca        | Dhiren R\. Fonseca        |  |  |  |                                                                                |                                                                                |                                                                                |
| /s/ KATHLEEN T\. HOGAN    | /s/ KATHLEEN T\. HOGAN    | /s/ KATHLEEN T\. HOGAN    |  |  |  | Director                                                                                | Director                                                                                | Director                                                                                |
| Kathleen T\. Hogan        | Kathleen T\. Hogan        | Kathleen T\. Hogan        |  |  |  |                                                                                |                                                                                |                                                                                |
| /s/ SUSAN J\. LI          | /s/ SUSAN J\. LI          | /s/ SUSAN J\. LI          |  |  |  | Director                                                                                | Director                                                                                | Director                                                                                |
| Susan J\. Li              | Susan J\. Li              | Susan J\. Li              |  |  |  |                                                                                |                                                                                |                                                                                |
| /s/ HELVI K\. SANDVIK     | /s/ HELVI K\. SANDVIK     | /s/ HELVI K\. SANDVIK     |  |  |  | Director                                                                                | Director                                                                                | Director                                                                                |
| Helvi K\. Sandvik         | Helvi K\. Sandvik         | Helvi K\. Sandvik         |  |  |  |                                                                                |                                                                                |                                                                                |
| /s/ J\. KENNETH THOMPSON  | /s/ J\. KENNETH THOMPSON  | /s/ J\. KENNETH THOMPSON  |  |  |  | Director                                                                                | Director                                                                                | Director                                                                                |
| J\. Kenneth Thompson      | J\. Kenneth Thompson      | J\. Kenneth Thompson      |  |  |  |                                                                                |                                                                                |                                                                                |
| /s/ ERIC K\. YEAMAN       | /s/ ERIC K\. YEAMAN       | /s/ ERIC K\. YEAMAN       |  |  |  | Director                                                                                | Director                                                                                | Director                                                                                |
| Eric K\. Yeaman           | Eric K\. Yeaman           | Eric K\. Yeaman           |  |  |  |                                                                                |                                                                                |                                                                                |

90


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

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

**Number** | **Description**                                                                                |
| 4\.119                        | [Form of Participation Agreement (Participation Agreement among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust Company, as Loan Trustee, and Wilmington Trust Company, in its individual capacity as set forth therein) (included in Exhibit B to Exhibit 4\.9) (incorporated by reference to Exhibit 4\.9 to American’s Current Report on Form 8\-K filed on October 4, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516730454/d359659dex49.htm)                                                            |
| 4\.120                        | [Form of Indenture and Security Agreement (Indenture and Security Agreement between American Airlines, Inc\., and Wilmington Trust Company, as Loan Trustee) (included in Exhibit C to Exhibit 4\.9) (incorporated by reference to Exhibit C to Exhibit 4\.9 to American’s Current Report on Form 8\-K filed on October 4, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516730454/d359659dex49.htm)                                                                                |
| 4\.121                        | [Form of Pass Through Trust Certificate, Series 2016\-3AA (incorporated by reference to Exhibit A to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on October 4, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516730454/d359659dex42.htm)                                                                                |
| 4\.122                        | [Form of Pass Through Trust Certificate, Series 2016\-3A (incorporated by reference to Exhibit A to Exhibit 4\.3 to American’s Current Report on Form 8\-K filed on October 4, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516730454/d359659dex43.htm)                                                                                |
| 4\.123                        | [Revolving Credit Agreement (2016\-3AA), dated as of October 3, 2016, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2016\-3AA, as Borrower, and KfW IPEX\-Bank GmbH, as Liquidity Provider (incorporated by reference to Exhibit 4\.14 to American’s Current Report on Form 8\-K filed on October 4, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516730454/d359659dex414.htm)                                                                                |
| 4\.124                        | [Revolving Credit Agreement (2016\-3A), dated as of October 3, 2016, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2016\-3A, as Borrower, and KfW IPEX\-Bank GmbH, as Liquidity Provider (incorporated by reference to Exhibit 4\.15 to American’s Current Report on Form 8\-K filed on October 4, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516730454/d359659dex415.htm)                                                                                |
| 4\.125                        | [Trust Supplement No\. 2017\-1AA, dated as of January 13, 2017, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on January 17, 2017 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517011067/d319419dex42.htm)                                                                                |
| 4\.126                        | [Trust Supplement No\. 2017\-1A, dated as of January 13, 2017, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014, (incorporated by reference to Exhibit 4\.3 to American’s Current Report on Form 8\-K filed on January 17, 2017 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517011067/d319419dex43.htm)                                                                                |
| 4\.127                        | [Trust Supplement No\. 2017\-1B, dated as of January 13, 2017, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.4 to American’s Current Report on Form 8\-K filed on January 17, 2017 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517011067/d319419dex44.htm)                                                                                |
| 4\.128                        | [Intercreditor Agreement (2017\-1), dated as of January 13, 2017, among Wilmington Trust Company, as Trustee of the American Airlines Pass Through Trust 2017\-1AA, as Trustee of the American Airlines Pass Through Trust 2017\-1A and as Trustee of the American Airlines Pass Through Trust 2017\-1B, Citibank N\.A\., as Class AA Liquidity Provider, Class A Liquidity Provider and Class B Liquidity Provider, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4\.5 to American’s Current Report on Form 8\-K filed on January 17, 2017 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517011067/d319419dex45.htm) |
| 4\.129                        | [Note Purchase Agreement, dated as of January 13, 2017, among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust, National Association, as Escrow Agent, and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4\.12 to American’s Current Report on Form 8\-K filed on January 17, 2017 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517011067/d319419dex412.htm)                                                                                |
| 4\.130                        | [Form of Participation Agreement (Participation Agreement among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust Company, as Loan Trustee, and Wilmington Trust Company, in its individual capacity as set forth therein) (incorporated by reference to Exhibit B to Exhibit 4\.12 to American’s Current Report on Form 8\-K filed on January 17, 2017 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517011067/d319419dex412.htm)                                                                                |
| 4\.131                        | [Form of Indenture and Security Agreement (Indenture and Security Agreement between American Airlines, Inc\., and Wilmington Trust Company, as Loan Trustee) (incorporated by reference to Exhibit C to Exhibit 4\.12 to American’s Current Report on Form 8\-K filed on January 17, 2017 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517011067/d319419dex412.htm)                                                                                |
| 4\.132                        | [Form of Pass Through Trust Certificate, Series 2017\-1AA (incorporated by reference to Exhibit A to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on January 17, 2017 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517011067/d319419dex42.htm)                                                                                |
| 4\.133                        | [Form of Pass Through Trust Certificate, Series 2017\-1A (incorporated by reference to Exhibit A to Exhibit 4\.3 to American’s Current Report on Form 8\-K filed on January 17, 2017 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517011067/d319419dex43.htm)                                                                                |
| 4\.134                        | [Form of Pass Through Trust Certificate, Series 2017\-1B (incorporated by reference to Exhibit A to Exhibit 4\.4 to American’s Current Report on Form 8\-K filed on January 17, 2017 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517011067/d319419dex44.htm)                                                                                |

189


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

Consolidated balance sheets as of December 31, 2017 (in millions):

|                                            |                       |                                        |                       |
| ------------------------------------------ | --------------------- | -------------------------------------- | --------------------- |
|                                            | **December 31, 2017** | **December 31, 2017**                  | **December 31, 2017** |
|                                            | **As Reported**       | **Adjustments \- Revenue Recognition** | **As Adjusted**       |
| **Current Assets:**                        |                       |                                        |                       |
|  Prepaid expenses and other current assets | $127                  | $6                                     | $133                  |
| **Current Liabilities:**                   |                       |                                        |                       |
|  Air traffic liability ^(a)^               | 937                   | (131)                                  | 806                   |
|  Deferred revenue ^(b)^                    | 518                   | 117                                    | 635                   |
| **Other liabilities and credits:**         |                       |                                        |                       |
|  Deferred income taxes                     | 454                   | (84)                                   | 370                   |
|  Deferred revenue ^(b)^                    | 699                   | 391                                    | 1,090                 |
|  Other liabilities                         | 451                   | (26)                                   | 425                   |
| **Shareholders' Equity:**                  |                       |                                        |                       |
|  Retained earnings                         | 4,454                 | (261)                                  | 4,193                 |

|     |                                                                                |
| --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (a) | Application of Topic 606 resulted in a decrease to our Air Traffic Liability as the standard requires earlier recognition of revenue for advance breakage\. |

|     |                                                                                |
| --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (b) | Application of Topic 606 resulted in an increase to our Deferred Revenues as we are required to value flown miles at a relative fair value rather than at incremental cost\.  |

 67


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

***Mileage Plan******^TM^*** ***liabilities***

The total deferred revenue liability included on the consolidated balance sheets represents the remaining transaction price that has been allocated to Mileage Plan^TM^ performance obligations not yet satisfied by the Company\. In general, the current amounts will be recognized as revenue within 12 months and the long\-term amounts will be recognized as revenue over a period of approximately three to four years\. This period of time represents the average time that members have historically taken to earn and redeem miles\.

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 $119 million of such receivables as of December 31, 2018 and $101 million as of December 31, 2017\.

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,** |
|                                                                        | **2018**                             | **2017**                             |
| **Total Deferred Revenue balance at January 1**                        | **$1,725**                           | $1,534                               |
| Travel miles and companion certificate redemption \- Passenger revenue | **(619)**                            | (541)                                |
| Miles redeemed on partner airlines \- Other revenue                    | **(90)**                             | (73)                                 |
| Increase in liability for mileage credits issued                       | **858**                              | 805                                  |
| **Total Deferred Revenue balance at December 31**                      | **$1,874**                           | $1,725                               |

**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 $23 million and $24 million as of December 31, 2018 and December 31, 2017\. The Company recorded related expense on the consolidated statement of operations of $217 million, $238 million and $173 million for the twelve months ended December 31, 2018, 2017 and 2016\.

**NOTE 4\. 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, 2018, the Company had outstanding fuel hedge contracts covering 421 million gallons of crude oil that will be settled from January 2019 to June 2020\.

***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, 2018, 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 four interest rate swap agreements with third parties designed to hedge the volatility of the underlying variable interest rates on $382 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 to coincide with the lease termination dates, and October 2022 through September 2026 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\.

 73


Annual Report of Southwest Airlines Co\. for year 2017

|     |                                                                                |
| --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 3\. | E xpenses associated with the Company’s acquisition and integration of AirTran\. Such expenses were primarily incurred during the acquisition and integration period of the two companies from 2011 through 2015 as a result of the Company’s acquisition of AirTran, which closed on May 2, 2011\. The exclusion of these expenses provides investors with a more applicable basis with which to compare results in future periods now that the integration process has been completed; |

|     |                                                                                |
| --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 4\. | A gain resulting from a litigation settlement received in January 2015\. This cash settlement meaningfully lowered Other operating expenses during the applicable period and the Company does not expect a similar impact on its cost structure in the future; |

|     |                                                                                |
| --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 5\. | A noncash impairment charge related to leased slots at Newark Liberty International Airport as a result of the FAA announcement in April 2016 that this airport was being changed to a Level 2 schedule\-facilitated airport from its previous designation as Level 3; |

|     |                                                                                |
| --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| 6\. | Lease termination costs recorded as a result of the Company acquiring 13 of its Boeing 737\-300 aircraft off operating leases as part of the Company’s strategic effort to remove its Classic aircraft from operations on or before September 29, 2017, in the most economically advantageous manner possible\. The Company had not budgeted for these early lease termination costs, as they were subject to negotiations being concluded with the third party lessors\. The Company recorded the fair value of the aircraft acquired off operating leases, as well as any associated remaining obligations to the balance sheet as debt; |

|     |                                                                                |
| --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 7\. | An Aircraft grounding charge recorded in third quarter 2017, as a result of the Company grounding its remaining Boeing 737\-300 aircraft on September 29, 2017\. The loss was a result of the remaining net lease payments due and certain lease return requirements that could have to be performed on these leased aircraft prior to their return to the lessors as of the cease\-use date\. The Company had not budgeted for the lease return requirements, as they are subject to negotiation with third party lessors; and |

|     |                                                                                |
| --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 8\. | An adjustment to Provision for income taxes related to the Tax Cuts and Jobs Act legislation enacted in December 2017, which resulted in a re\-measurement of the Company's deferred tax assets and liabilities at the new federal corporate tax rate of 21 percent\. This adjustment is a non\-cash item and is being treated as a special item\. |

Because management believes each of these items can distort the trends associated with the Company’s ongoing performance as an airline, the Company believes that evaluation of its financial performance can be enhanced by a supplemental presentation of results that exclude the impact of these items in order to enhance consistency and comparativeness with results in prior periods that do not include such items and as a basis for evaluating operating results in future periods\. The following measures are often provided, excluding special items, and utilized by the Company’s management, analysts, and investors to enhance comparability of year\-over\-year results, as well as to industry trends: Total operating expenses, non\-GAAP; Operating income, non\-GAAP; Provision for income taxes, non\-GAAP; Net income, non\-GAAP; Net income per share, diluted, non\-GAAP; and Operating expenses per ASM, non\-GAAP, excluding Fuel and oil and special items\.

The Company has also provided its calculation of return on invested capital, which is a measure of financial performance used by management to evaluate its investment returns on capital\. Return on invested capital is not a substitute for financial results as reported in accordance with GAAP, and should not be utilized in place of such GAAP results\. Although return on invested capital is not a measure defined by GAAP, it is calculated by the Company, in part, using non\-GAAP financial measures\. Those non\-GAAP financial measures are utilized for the same reasons as those noted above for Net income, non\-GAAP and Operating income, non\-GAAP \- the comparable GAAP measures include charges or benefits that are deemed "special items" that the Company believes make its results difficult to compare to prior periods, anticipated future periods, or industry trends, and the Company’s profitability targets and estimates, both internally and externally, are based on non\-GAAP results since in the vast majority of cases the "special items" cannot be reliably predicted or estimated\. The Company believes non\-GAAP return on invested capital is a meaningful measure because it quantifies the Company's effectiveness in generating returns relative to the capital it has invested in its business\. Although return on invested capital is commonly used as a measure of capital efficiency, definitions of return on invested capital differ; therefore, the Company is providing an explanation of its calculation for non\-GAAP return on invested capital in the accompanying reconciliation, in order to allow investors to compare and contrast its calculation to those provided by other companies\.

54


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

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 \. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Delta Air Lines, Inc\., a Delaware corporation, provides scheduled air transportation for passengers and cargo throughout the United States ("U\.S\.") and around the world\. Our Consolidated Financial Statements include the accounts of Delta Air Lines, Inc\. and our wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the U\.S\. ("GAAP")\. We do not consolidate the financial statements of any company in which we have an ownership interest of   50%  or less\. We are not the primary beneficiary of, nor do we have a controlling financial interest in, any variable interest entity\. Accordingly, we have not consolidated any variable interest entity\.

We have marketing alliances with other airlines to enhance our access to domestic and international markets\. These arrangements may include codesharing, reciprocal frequent flyer program benefits, shared or reciprocal access to passenger lounges, joint promotions, common use of airport gates and ticket counters, ticket office co\-location and other marketing agreements\. We have received antitrust immunity for certain marketing arrangements, which enables us to offer a more integrated route network and develop common sales, marketing and discount programs for customers\. Some of our marketing arrangements provide for the sharing of revenues and expenses\. Revenues and expenses associated with collaborative arrangements are presented on a gross basis in the applicable line items on our Consolidated Statements of Operations\.

We reclassified certain prior period amounts to conform to the current period presentation\. Unless otherwise noted, all amounts disclosed are stated before consideration of income taxes\.

Use of Estimates

We are required to make estimates and assumptions when preparing our Consolidated Financial Statements in accordance with GAAP\. These estimates and assumptions affect the amounts reported in our Consolidated Financial Statements and the accompanying notes\. Actual results could differ materially from those estimates\.

Recent Accounting Standards

Revenue from Contracts with Customers\.  In 2014, the FASB issued ASU No\. 2014\-09, "Revenue from Contracts with Customers (Topic 606)\." Under this ASU and subsequently issued amendments, revenue is recognized at the time a good or service is transferred to a customer for the amount of consideration received\. Entities may use a full retrospective approach or report the cumulative effect as of the date of adoption\. We will adopt the standard effective January 1, 2018 using the full retrospective approach\.

While the adoption of the new standard will not have a significant effect on earnings, the classification of certain revenues that are currently classified in other revenue will be reclassified to passenger revenue\. These include baggage fees, administrative charges and other travel\-related fees, all of which will be deemed part of the single performance obligation of providing passenger transportation\. These revenues, which are approximately   $2 billion  annually, will be reclassified from the current presentation in other revenue to passenger revenue after adoption\.

In addition, the adoption of the new standard increases the rate used to account for frequent flyer miles\. We currently analyze our standalone sales of mileage credits to other airlines and customers to establish the accounting value for frequent flyer miles\. Considering the guidance in the new standard, we will change our valuation of a mileage credit to an analysis of the award redemption value\. The new valuation considers the value a passenger receives by redeeming miles rather than paying cash for an award ticket\. This change increases our frequent flyer liability by approximately   $2 billion \. The mileage deferral and redemption rates are approximately the same; therefore, assuming stable volume, there would not be a significant change in revenue recognized from the program for a given period\.

The adoption of the new standard will also reduce our air traffic liability by approximately   $500 million \. This change primarily results from estimating the tickets that will expire unused and recognizing revenue at the scheduled flight date rather than when the unused tickets expire\.

Leases\.  In 2016, the FASB issued ASU No\. 2016\-02, "Leases (Topic 842)\." This standard will require all leases with durations greater than twelve months to be recognized on the balance sheet and is effective for interim and annual reporting periods beginning after December 15, 2018\.

 55


Annual Report of Southwest Airlines Co\. for year 2017

**Stock Performance Graph**

*The following Performance Graph and related information shall not be deemed "soliciting material" or "filed" with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934\.*

The following graph compares the cumulative total shareholder return on the Company’s common stock over the five\-year period ended December 31, 2017, with the cumulative total return during such period of the Standard and Poor’s 500 Stock Index and the NYSE ARCA Airline Index\. The comparison assumes $100 was invested on December 31, 2012, in the Company’s common stock and in each of the foregoing indices and assumes reinvestment of dividends\. The stock performance shown on the graph below represents historical stock performance and is not necessarily indicative of future stock price performance\.

**COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG SOUTHWEST AIRLINES CO\., S&P 500 INDEX, AND NYSE ARCA AIRLINE INDEX**

![chart\.jpg](https://www.example.com/chart.jpg)

|                             |                |                |                |                |                |                |
| --------------------------- | -------------- | -------------- | -------------- | -------------- | -------------- | -------------- |
|                             | **12/31/2012** | **12/31/2013** | **12/31/2014** | **12/31/2015** | **12/31/2016** | **12/31/2017** |
| **Southwest Airlines Co\.** | $100           | $185           | $418           | $428           | $500           | $661           |
| **S&P 500**                 | $100           | $132           | $150           | $152           | $170           | $206           |
| **NYSE ARCA Airline**       | $100           | $158           | $237           | $201           | $258           | $274           |

35


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

Subsequent Event

Starting in February 2020, we temporarily suspended flights between the U\.S\. and China as the result of an outbreak of a novel coronavirus originating in Wuhan, Hubei Province, China\. We have suspended flights between the U\.S\. and China through April 30, will continue to monitor the situation closely and may make additional adjustments\. Given the uncertainty about the situation, we currently cannot estimate the impact to our financial statements\. Flights to and from China have historically represented less than 2% of our revenue\. We are currently exploring options for the redeployment of aircraft to other routes within our diverse global network\.

NOTE 2\.  REVENUE RECOGNITION

Passenger Revenue

Passenger revenue is primarily composed of passenger ticket sales, loyalty travel awards and travel\-related services performed in conjunction with a passenger’s flight\.

|                          |                          |                          |                         |                         |                         |  |  |  |  |  |  |
|:------------------------ |:------------------------ |:------------------------ | -----------------------:| -----------------------:| -----------------------:|:- |:- |:- |:- |:- |:- |
|                          |                          |                          | Year Ended December 31, | Year Ended December 31, | Year Ended December 31, |  |  |  |  |  |  |
| (in millions)            | (in millions)            | (in millions)            |                    2019 |                    2018 |                    2017 |
| Ticket                   | Ticket                   | Ticket                   |                $ 36,908 |                $ 34,950 |                $ 32,467 |
| Loyalty travel awards    | Loyalty travel awards    | Loyalty travel awards    |                   2,900 |                   2,651 |                   2,403 |
| Travel\-related services | Travel\-related services | Travel\-related services |                   2,469 |                   2,154 |                   2,077 |
| Total passenger revenue  | Total passenger revenue  | Total passenger revenue  |                $ 42,277 |                $ 39,755 |                $ 36,947 |

Ticket

Passenger Tickets\.  We defer sales of passenger tickets to be flown by us or that we sell on behalf of other airlines in air traffic liability\. Passenger revenue is recognized when we provide transportation or when ticket breakage occurs\. For tickets that we sell on behalf of other airlines, we reduce the air traffic liability when consideration is remitted to those airlines\. We periodically evaluate the estimated air traffic liability and record any adjustments in our income statement\. These adjustments relate primarily to refunds, exchanges, ticket breakage, transactions with other airlines and other items for which final settlement occurs in periods subsequent to the sale of the related tickets at amounts other than the original sales price\.

Approximately $3\.8 billion, $3\.5 billion and $3\.5 billion of the prior year air traffic liability related to passenger ticket sales (which excludes those tickets sold on behalf of other airlines) was recognized in passenger revenue during the years ended December 31, 2019, 2018 and 2017, respectively\.

Ticket Breakage\.  We estimate the value of tickets that will expire unused and recognize revenue at the scheduled flight date\.

Regional Carriers \. Our regional carriers include both third\-party regional carriers with which we have contract carrier agreements ("contract carriers") and Endeavor Air, Inc\., our wholly owned subsidiary\. Our contract carrier agreements are primarily structured as capacity purchase agreements where we purchase all or a portion of the contract carrier's capacity and are responsible for selling the seat inventory we purchase\. We record revenue related to our capacity purchase agreements in passenger revenue and the related expenses in regional carriers expense, excluding fuel\.

Loyalty Travel Awards

Loyalty travel awards revenue is related to the redemption of miles for travel\. We recognize loyalty travel awards revenue in passenger revenue as miles are redeemed and transportation is provided\. See below for discussion of our loyalty program accounting policies\.

Travel\-Related Services

Travel\-related services are primarily composed of services  performed in conjunction with a passenger’s flight, including administrative fees (such as ticket change fees), baggage fees and on\-board sales\. We recognize revenue for these services when the related transportation service is provided\.

63


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

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

amendment of $1\.9 billion, which is included as a component of prior service benefit in OCI and will be amortized over the future service life of the active plan participants for whom the benefit was eliminated, or approximately eight years\. As of December 31, 2017, $631 million of prior service benefit remains to be amortized\.

***Benefit Obligations, Fair Value of Plan Assets and Funded Status***

The following tables provide a reconciliation of the changes in the pension and retiree medical and other postretirement benefits obligations, fair value of plan assets and a statement of funded status as of December 31, 2017 and 2016:

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

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

**Other Postretirement Benefits** |
|                                           | **2017**             | **2016**             | **2017**                                                          | **2016**                                                          |
|                                           | **(In millions)**    | **(In millions)**    | **(In millions)**                                                 | **(In millions)**                                                 |
| Benefit obligation at beginning of period | $17,238              | $16,395              | $991                                                              | $1,131                                                            |
| Service cost                              | 2                    | 2                    | 4                                                                 | 3                                                                 |
| Interest cost                             | 721                  | 749                  | 39                                                                | 47                                                                |
| Actuarial (gain) loss  ^(1) (2)^          | 1,016                | 729                  | 49                                                                | (105)                                                             |
| Plan amendments                           | —                    | —                    | —                                                                 | 7                                                                 |
| Settlements                               | (4)                  | (2)                  | —                                                                 | —                                                                 |
| Benefit payments                          | (726)                | (635)                | (80)                                                              | (92)                                                              |
| Other                                     | 28                   | —                    | 8                                                                 | —                                                                 |
| Benefit obligation at end of period       | $18,275              | $17,238              | $1,011                                                            | $991                                                              |

|                                                  |          |          |        |        |
| ------------------------------------------------ | -------- | -------- | ------ | ------ |
| Fair value of plan assets at beginning of period | $10,017  | $9,707   | $266   | $253   |
| Actual return on plan assets                     | 1,797    | 915      | 37     | 22     |
| Employer contributions  ^(3)^                    | 286      | 32       | 72     | 83     |
| Settlements                                      | (4)      | (2)      | —      | —      |
| Benefit payments                                 | (726)    | (635)    | (80)   | (92)   |
| Other                                            | 25       | —        | —      | —      |
| Fair value of plan assets at end of period       | $11,395  | $10,017  | $295   | $266   |
| Funded status at end of period                   | $(6,880) | $(7,221) | $(716) | $(725) |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | The  December 31, 2017  and  2016  pension actuarial loss primarily relates to weighted average discount rate assumption changes and changes to our mortality assumptions\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | The  December 31, 2017  retiree medical and other postretirement benefits actuarial (gain) loss primarily relates to plan experience adjustments, weighted average discount rate assumption changes and changes to our mortality assumptions and as of  December 31, 2016 , also includes medical trend and cost assumption changes\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(3)^ | During  2017 , we contributed  $286 million  to our defined benefit pension plans, including supplemental contributions of  $261 million  in addition to a  $25 million  minimum required cash contribution\. |

107


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

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

Supplemental cash flow and other information related to leases was as follows (in millions):

|                                                                         |                                       |
| ----------------------------------------------------------------------- | ------------------------------------- |
|                                                                         | **Year Ended  <br>December 31, 2018** |
| Cash paid for amounts included in the measurement of lease liabilities: |                                       |
| Operating cash flows from operating leases                              | $1,914                                |
| Operating cash flows from finance leases                                | 48                                    |
| Financing cash flows from finance leases                                | 78                                    |
| ROU assets obtained in exchange for lease liabilities:                  |                                       |
| Operating leases                                                        | 1,258                                 |
| Gain on sale leaseback transactions, net                                | 59                                    |

Maturities of lease liabilities were as follows (in millions):

|                              |                       |                       |
| ---------------------------- | --------------------- | --------------------- |
|                              | **December 31, 2018** | **December 31, 2018** |
|                              | **Operating Leases**  | **Finance Leases**    |
| 2019                         | $1,894                | $124                  |
| 2020                         | 1,824                 | 120                   |
| 2021                         | 1,625                 | 118                   |
| 2022                         | 1,428                 | 122                   |
| 2023                         | 1,250                 | 105                   |
| 2024 and thereafter          | 3,611                 | 282                   |
| Total lease payments         | 11,632                | 871                   |
| Less: Imputed interest       | (2,136)               | (177)                 |
| Total lease obligations      | 9,496                 | 694                   |
| Less: Current obligations    | (1,639)               | (81)                  |
| Long\-term lease obligations | $7,857                | $613                  |

As of December 31, 2018, American has additional operating lease commitments that have not yet commenced of approximately $1\.9 billion for 22 787\-8 aircraft to be delivered in 2020 and 2021 with lease terms of 10 years\.

152


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

**Selected Consolidated Financial Data of American**

The selected consolidated financial data presented below under the captions “Consolidated Statements of Operations data” and “Consolidated Balance Sheet data” for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 are derived from American’s audited consolidated financial statements\. On December 30, 2015, US Airways merged with and into American, with American as the surviving corporation\. For financial reporting purposes, this transaction constituted a transfer of assets between entities under common control and is reflected in American’s consolidated financial statements as though the transaction had occurred on December 9, 2013, when a subsidiary of AMR merged with and into US Airways Group, which represents the earliest date that American and US Airways were under common control\.

|                                                                     |                             |                             |                             |                             |                             |
| ------------------------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                                     | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                                     | **2018**                    | **2017**                    | **2016**                    | **2015**                    | **2014**                    |
|                                                                     | **(In millions)**           | **(In millions)**           | **(In millions)**           | **(In millions)**           | **(In millions)**           |
| **Consolidated Statements of Operations data:**                     |                             |                             |                             |                             |                             |
| Total operating revenues                                            | $44,530                     | $42,610                     | $40,125                     | $40,938                     | $42,676                     |
| Total operating expenses                                            | 41,807                      | 38,405                      | 35,045                      | 34,749                      | 38,410                      |
| Operating income                                                    | 2,723                       | 4,205                       | 5,080                       | 6,189                       | 4,266                       |
| Net income                                                          | 1,658                       | 1,285                       | 2,689                       | 8,120                       | 2,948                       |
| **Consolidated Balance Sheet data**

**(at end of period):** |                             |                             |                             |                             |                             |
| Total assets                                                        | $70,878                     | $61,401                     | $60,428                     | $50,439                     | $42,787                     |
| Debt and finance leases                                             | 23,197                      | 23,294                      | 22,577                      | 18,826                      | 16,482                      |
| Pension and postretirement obligations  ^(1)^                       | 6,893                       | 7,550                       | 7,904                       | 7,526                       | 7,649                       |
| Operating lease liabilities                                         | 9,496                       | —                           | —                           | —                           | —                           |
| Stockholder’s equity                                                | 11,770                      | 9,888                       | 8,578                       | 9,698                       | 1,406                       |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Substantially all defined benefit pension plans were frozen effective November 1, 2012\. See Note 8 to American's Consolidated Financial Statements in Part II, Item 8B for further information on pension and postretirement benefits\. |

47


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

**INSURANCE**

We carry insurance of types customary in the airline industry and in amounts deemed adequate to protect our interests and property and to comply both with federal regulations and certain credit and lease agreements\. The insurance policies principally provide coverage for Airline Hull, Spares and Comprehensive Legal Liability, War and Allied Perils, and Workers’ Compensation\. In addition, we currently carry a Cyber Insurance policy in the event of security breaches from malicious parties\.

We believe that our emphasis on safety and our state\-of\-the\-art flight deck safety technology help to control the cost of our insurance\.

**WHERE YOU CAN FIND MORE INFORMATION**

Our filings with the Securities and Exchange Commission, including our annual report on Form 10\-K, quarterly reports on Form 10\-Q, current reports on Form 8\-K and amendments to those reports are available on our website at *www\.alaskaair\.com,* free of charge, as soon as reasonably practicable after the electronic filing of these reports with the Securities and Exchange Commission\. The information contained on our website is not a part of this annual report on Form 10\-K\.

**GLOSSARY OF TERMS**

**Aircraft Utilization** \- block hours per day; this represents the average number of hours per day our aircraft are in transit

**Aircraft Stage Length** \- represents the average miles flown per aircraft departure

**ASMs** \- available seat miles, or “capacity”; represents total seats available across the fleet multiplied by the number of miles flown

**CASM** \- operating costs per ASM, or "unit cost"; represents all operating expenses including fuel and special items

**CASMex** \- operating costs excluding fuel and special items per ASM; this metric is used to help track progress toward reduction of non\-fuel operating costs since fuel is largely out of our control

**Debt\-to\-capitalization ratio** \- represents adjusted debt (long\-term debt plus the present value of future operating lease payments) divided by total equity plus adjusted debt

**Diluted Earnings per Share** \- represents earnings per share (EPS) using fully diluted shares outstanding

**Diluted Shares** \- represents the total number of shares that would be outstanding if all possible sources of conversion, such as stock options, were exercised

**Economic Fuel** \- best estimate of the cash cost of fuel, net of the impact of our fuel\-hedging program

**Free Cash Flow \-** total operating cash flow generated less cash paid for capital expenditures

**Load Factor** \- RPMs as a percentage of ASMs; represents the number of available seats that were filled with paying passengers

**Mainline** \- represents flying Boeing 737, Airbus 320 family and Airbus 321neo jets and all associated revenues and costs

**Productivity** \- number of revenue passengers per full\-time equivalent employee

**RASM** \- operating revenue per ASMs, or "unit revenue"; operating revenue includes all passenger revenue, freight & mail, Mileage Plan™ and other ancillary revenue; represents the average total revenue for flying one seat one mile

**Regional** \- represents capacity purchased by Alaska from Horizon, SkyWest and PenAir\. In this segment, Regional records actual on\-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon, SkyWest and

 18


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

Hedge Position as of  December 31, 2018

|                                             |                            |                                           |                         |                                |                             |                               |                                  |                            |
| ------------------------------------------- | -------------------------- | ----------------------------------------- | ----------------------- | ------------------------------ | --------------------------- | ----------------------------- | -------------------------------- | -------------------------- |
| **(in millions)**                           | **Volume**                 |                                           | **Final Maturity Date** | **Prepaid Expenses and Other** | **Other Noncurrent Assets** | **Other Accrued Liabilities** | **Other Noncurrent Liabilities** | **Hedge Derivatives, net** |
| ***Designated as hedges***                  |                            |                                           |                         |                                |                             |                               |                                  |                            |
| Interest rate contracts (fair value hedges) | 1,893                      | U\.S\. dollars                            | April 2028              | $—                             | $8                          | $

(7

)          | $—                               | $1                         |
| Foreign currency exchange contracts         | 6,934                      | Japanese yen                              | November 2019           | 1                              | —                           | —                             | —                                | 1                          |
| ***Not designated as hedges***              |                            |                                           |                         |                                |                             |                               |                                  |                            |
| Foreign currency exchange contract          | 397                        | Euros                                     | December 2020           | 13                             | —                           | —                             | (17

)                     | (4

)                |
| Fuel hedge contracts                        | 219                        | gallons \- crude oil and refined products | December 2019           | 30                             | —                           | (15

)                  | —                                | 15                         |
| Total derivative contracts                  | Total derivative contracts |                                           |                         | $44                            | $8                          | $

(22

)         | $

(17

)            | $13                        |

Hedge Position as of  December 31, 2017

|                                     |                                |                                           |                         |                                |                             |                               |                                  |                            |
| ----------------------------------- | ------------------------------ | ----------------------------------------- | ----------------------- | ------------------------------ | --------------------------- | ----------------------------- | -------------------------------- | -------------------------- |
| **(in millions)**                   | **Volume**                     |                                           | **Final Maturity Date** | **Prepaid Expenses and Other** | **Other Noncurrent Assets** | **Other Accrued Liabilities** | **Other Noncurrent Liabilities** | **Hedge Derivatives, net** |
| ***Designated as hedges***          | ***Designated as hedges***     |                                           |                         |                                |                             |                               |                                  |                            |
| Foreign currency exchange contracts | 23,512                         | Japanese yen                              | November 2019           | $1                             | $1                          | $

(13

)         | $

(6

)             | $

(17

)      |
| Foreign currency exchange contracts | 490                            | Canadian dollars                          | May 2020                | $1                             | $1                          | $

(13

)         | $

(6

)             | $

(17

)      |
| ***Not designated as hedges***      | ***Not designated as hedges*** |                                           |                         |                                |                             |                               |                                  |                            |
| Fuel hedge contracts                | 249                            | gallons \- crude oil and refined products | May 2019                | 638                            | 8                           | (694

)                 | (18

)                     | (66

)               |
| Total derivative contracts          | Total derivative contracts     |                                           |                         | $639                           | $9                          | $

(707

)        | $

(24

)            | $

(83

)      |

Offsetting Assets and Liabilities

We have master netting arrangements with our counterparties giving us the right to offset hedge assets and liabilities\. However, we have elected not to offset the fair value positions recorded on our balance sheets\. The following table shows the net fair value of our counterparty positions had we elected to offset\.

|                          |                                |                             |                               |                                  |                            |
| ------------------------ | ------------------------------ | --------------------------- | ----------------------------- | -------------------------------- | -------------------------- |
| **(in millions)**        | **Prepaid Expenses and Other** | **Other Noncurrent Assets** | **Other Accrued Liabilities** | **Other Noncurrent Liabilities** | **Hedge Derivatives, Net** |
| **December 31, 2018**    |                                |                             |                               |                                  |                            |
| Net derivative contracts | $35                            | $—                          | $

(13

)         | $

(9

)             | $13                        |
| **December 31, 2017**    |                                |                             |                               |                                  |                            |
| Net derivative contracts | $—                             | $1                          | $

(68

)         | $

(16

)            | $

(83

)      |

 73


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

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

**UNITED CONTINENTAL HOLDINGS, INC\.**

**STATEMENTS OF CONSOLIDATED OPERATIONS**

**(In millions, except per share amounts)**

|                                                    |                             |                             |                             |
|:-------------------------------------------------- | ---------------------------:| ---------------------------:| ---------------------------:|
|                                                    | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                    |                   **2017**  |                   **2016**  |                   **2015**  |
| Operating revenue:                                 |                             |                             |                             |
| Passenger—Mainline                                 |                    $26,552  |                    $25,414  |                    $26,333  |
| Passenger—Regional                                 |                      5,852  |                      6,043  |                      6,452  |
| Total passenger revenue                            |                     32,404  |                     31,457  |                     32,785  |
| Cargo                                              |                      1,035  |                        876  |                        937  |
| Other operating revenue                            |                      4,297  |                      4,223  |                      4,142  |
| Total operating revenue                            |                     37,736  |                     36,556  |                     37,864  |
| Operating expense:                                 |                             |                             |                             |
| Salaries and related costs                         |                     11,045  |                     10,275  |                      9,713  |
| Aircraft fuel                                      |                      6,913  |                      5,813  |                      7,522  |
| Landing fees and other rent                        |                      2,240  |                      2,165  |                      2,203  |
| Regional capacity purchase                         |                      2,232  |                      2,197  |                      2,290  |
| Depreciation and amortization                      |                      2,149  |                      1,977  |                      1,819  |
| Aircraft maintenance materials and outside repairs |                      1,856  |                      1,749  |                      1,651  |
| Distribution expenses                              |                      1,349  |                      1,303  |                      1,342  |
| Aircraft rent                                      |                        621  |                        680  |                        754  |
| Special charges (Note 14)                          |                        176  |                        638  |                        326  |
| Other operating expenses                           |                      5,657  |                      5,421  |                      5,078  |
| Total operating expenses                           |                     34,238  |                     32,218  |                     32,698  |
| Operating income                                   |                      3,498  |                      4,338  |                      5,166  |
| Nonoperating income (expense):                     |                             |                             |                             |
| Interest expense                                   |                       (643) |                       (614) |                       (669) |
| Interest capitalized                               |                         84  |                         72  |                         49  |
| Interest income                                    |                         57  |                         42  |                         25  |
| Miscellaneous, net (Note 14)                       |                          3  |                        (19) |                       (352) |
| Total nonoperating expense, net                    |                       (499) |                       (519) |                       (947) |
| Income before income taxes                         |                      2,999  |                      3,819  |                      4,219  |
| Income tax expense (benefit) (Note 14)             |                        868  |                      1,556  |                     (3,121) |
| Net income                                         |                     $2,131  |                     $2,263  |                     $7,340  |
| Earnings per share, basic                          |                     $7\.04  |                     $6\.86  |                    $19\.52  |
| Earnings per share, diluted                        |                     $7\.02  |                     $6\.85  |                    $19\.47  |

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

49


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

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

As of  December 31, 2019 , there was   $108 million  of unrecognized compensation cost related to RSUs\. These costs are expected to be recognized over a weighted average period of   one year \. The total fair value of RSUs vested during the years ended  December 31, 2019 ,  2018  and  2017  was   $68 million ,   $91 million  and   $123 million , respectively\.

14\. Valuation and Qualifying Accounts (in millions)

|                                               |                                  |                                                           |                        |                                       |
| --------------------------------------------- | -------------------------------- | --------------------------------------------------------- | ---------------------- | ------------------------------------- |
|                                               | **Balance at Beginning of Year** | **Additions Charged to Statement of Operations Accounts** | **Deductions**         | **Balance at**

**End of Year** |
| **Allowance for obsolescence of spare parts** |                                  |                                                           |                        |                                       |
| Year ended December 31, 2019                  | $754                             | $79                                                       | $

(104

) | $729                                  |
| Year ended December 31, 2018                  | 717                              | 57                                                        | (20

)           | 754                                   |
| Year ended December 31, 2017                  | 720                              | 18                                                        | (21

)           | 717                                   |
| **Allowance for uncollectible accounts**      |                                  |                                                           |                        |                                       |
| Year ended December 31, 2019                  | $24                              | $17                                                       | $

(16

)  | $25                                   |
| Year ended December 31, 2018                  | 21                               | 39                                                        | (36

)           | 24                                    |
| Year ended December 31, 2017                  | 35                               | 41                                                        | (55

)           | 21                                    |

15\.  Quarterly Financial Data (Unaudited)

Unaudited summarized financial data by quarter for  2019  and  2018  (in millions):

|                    |                   |                    |                   |                    |
| ------------------ | ----------------- | ------------------ | ----------------- | ------------------ |
|                    | **First Quarter** | **Second Quarter** | **Third Quarter** | **Fourth Quarter** |
| **2019**           |                   |                    |                   |                    |
| Operating revenues | $10,581           | $11,958            | $11,910           | $11,312            |
| Operating expenses | 10,236            | 10,831             | 11,082            | 10,565             |
| Operating income   | 345               | 1,127              | 828               | 747                |
| Net income         | 230               | 714                | 508               | 520                |
| **2018**           |                   |                    |                   |                    |
| Operating revenues | $10,398           | $11,640            | $11,556           | $10,936            |
| Operating expenses | 9,986             | 10,626             | 10,850            | 10,344             |
| Operating income   | 412               | 1,014              | 706               | 592                |
| Net income         | 209               | 609                | 433               | 407                |

American’s fourth quarter  2019  results include   $108 million  of total pre\-tax net special items that principally included   $85 million  of merger integration expenses and   $39 million  of fleet restructuring expenses, offset in part by   $42 million  of mark\-to\-market net unrealized gains associated with certain equity and other investments\.

American’s fourth quarter  2018  results include   $190 million  of total pre\-tax net special items that principally included   $94 million  of fleet restructuring expenses,   $81 million  of merger integration expenses,   $37 million  of severance costs associated with reductions of management and support staff team members,   $22 million  of mark\-to\-market net unrealized losses associated with certain equity investments, offset in part by a   $37 million  net credit resulting from mark\-to\-market adjustments on bankruptcy obligations\.

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Annual Report of Southwest Airlines Co\. for year 2019

reservations, hotel reservations, and travel activities\. In addition, the digital platforms provide self\-service tools for reservation management and Customer support\.

During 2019, to improve customer support, Southwest also added live chat functionality to the Southwest apps to enable Customers to connect directly with Customer Support and Services representatives\. Southwest\.com was also updated with a digital feedback tool to enhance Customer self\-service options, including the ability to provide feedback on their experience\.

During 2019, to improve the booking process, Southwest added PayPal ^®^  to its mobile website and apps\. Payment choices were also improved by adding Apple Pay ^®^  to the Southwest iOS and iPadOS apps as well as to the Inflight WiFi purchase page\. Southwest also enhanced Southwest\.com and Southwest's mobile website and apps to make it easier for Customers to manage unused travel funds after a cancellation or change\.

For the year ended December 31, 2019, approximately 80 percent of the Company’s Passenger revenues originated from its website (including revenues from SWABIZ)\.

Marketing

During 2019, Southwest continued to market and benefit from its competitive points of differentiation\. The Company's Trans fare ncy ^SM^  campaign, for example, emphasized Southwest's approach to  treating Customers fairly, honestly, and respectfully, by offering low fares and no unexpected bag fees, change fees, or hidden fees\.

Southwest, unlike its competitors, does not charge a fee on any fare for a change in flight reservation\. While a difference in airfare may apply, the Customer will not be charged a change fee on top of that fare difference\. Southwest also does not impose additional fees for items such as seat selection, snacks, curb\-side check\-in, and telephone reservations, commonly found on other carriers\.

Southwest also continues to be the only major U\.S\. airline that offers to all ticketed Customers up to two checked bags that fly free (subject to weight and size limits)\. In addition, each ticketed Customer may check one stroller and one car seat free of charge\. Southwest has continued to promote this unique benefit with its "Bags Fly Free ^®^ " message\.

The Company also continues to promote all of the many other reasons to fly Southwest in its marketing, such as its hospitality, low fares, network, Customer Service, free inflight entertainment, and its Rapid Rewards loyalty program\.

Technology Initiatives

The Company has committed significant resources to technology improvements in support of its ongoing operations and initiatives\. The Company continues to focus on the prioritization and execution of its technology investments and is in the process of continually executing an evolving multi\-year plan for technology, with the goal of developing a stronger, adaptable, and more efficient and reliable technology foundation to support the Company’s strategic priorities\. The Company continues to invest significantly in technology resources including, among others, the Company's systems related to (i) aircraft maintenance record keeping, (ii) flight planning and scheduling, (iii) crew scheduling, and (iv) technology infrastructure\.

Regulation

The airline industry is heavily regulated, especially by the federal government, and there are a significant number of governmental agencies and legislative bodies that have the ability to directly or indirectly affect the Company and/or the airline industry financially and/or operationally\. Examples of regulations affecting the Company and/or the airline industry, imposed by several of these governmental agencies and legislative bodies, are discussed below\.

Economic and Operational Regulation

Consumer Protection Regulation by the U\.S\. Department of Transportation

The DOT regulates economic operating authority for air carriers and consumer protection for airline passengers\. The FAA, an agency within the DOT, regulates aviation safety\. The DOT and the FAA may impose civil penalties on air carriers for violating their regulations\.

To provide passenger transportation in the United States, a domestic airline is required to hold both a Certificate of Public Convenience & Necessity from the DOT and an Air Carrier Operating Certificate from the FAA\. A Certificate

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