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

Fleet and Operation

Boeing 737 MAX

On March 13, 2019, a directive from the FAA grounded all U\.S\.\-registered Boeing 737 MAX aircraft\. Our fleet currently includes 24 Boeing 737 MAX aircraft with an additional 76 aircraft on order\. As a result of this directive, we canceled approximately 27,600 flights in 2019\. We have removed all Boeing 737 MAX flying from our flight schedule through August 17, 2020 and continue to assess this timeline\.

Our estimate of the financial damages incurred in 2019 due to the Boeing 737 MAX grounding and related cancellations was approximately $540 million\.

As previously announced in January 2020, we reached a confidential agreement with Boeing on compensation related to financial damages incurred in 2019 due to the grounding of the Boeing 737 MAX aircraft\. The settlement did not have a material impact on 2019 earnings because we are accounting for substantially all of the compensation as a reduction in cost basis of grounded Boeing 737 MAX aircraft and certain future Boeing 737 MAX aircraft deliveries\. Our future aircraft purchase commitments in Note 12 to AAG’s Consolidated Financial Statements in Part II, Item 8A reflect the portion of the compensation we expect to receive in the future as Boeing 737 MAX aircraft are delivered\. These amounts reflect our best estimate in light of the uncertainty surrounding the timing of future Boeing 737 MAX aircraft deliveries\.

Due to the impact of the Boeing 737 MAX grounding on our 2019 financial results, our Board of Directors authorized a discretionary portion of the settlement to be returned to team members through our 2019 profit\-sharing program\. The profit\-sharing award was based on our estimate of full\-year 2019 financial damages for the Boeing 737 MAX grounding\. As a result, an additional accrual of approximately $30 million was made to our 2019 profit\-sharing program\.

We are pleased with the settlement agreement we reached for 2019, which was intended to address our financial damages incurred in 2019 due to the grounding of the Boeing 737 MAX aircraft\. However, the aircraft remain grounded and therefore we continue to incur financial damages in 2020\. We expect discussions to continue with Boeing for further compensation for these damages\.

Operational Slowdown

In 2019, the TWU\-IAM Association engaged in an illegal work slowdown in an effort to influence contract negotiations\. This slowdown significantly impacted our operation and caused a significant number of flight cancellations and delays in the second and third quarters of 2019\. Agreements in principle were reached on January 30, 2020 for JCBAs covering all of the workgroups represented by the TWU\-IAM Association\. Those agreements are subject to membership ratification vote\.

Revenue

In  2019 , we reported total operating revenues of  $45\.8 billion , an  increase  of  $1\.2 billion , or  2\.8 %, as compared to  2018 \. Passenger revenue was  $42\.0 billion , an  increase  of  $1\.3 billion , or  3\.3 %, as compared to  2018 \. The increase in passenger revenue in  2019  was due to continued strength in passenger demand resulting in a  4\.4 %  increase  in revenue passenger miles (RPMs) and a  2\.6  point increase in passenger load factor\. Domestic passenger revenue per available seat mile (PRASM) increased  2\.0 % as compared to  2018 \. Latin America was the best performing international region in 2019, with PRASM increasing  3\.4 % followed by Pacific with PRASM increasing 3\.1%, while Atlantic PRASM declined  1\.5 % principally due to lower transfer payments related to our joint business arrangement and foreign currency effects\.

In  2019 , cargo revenue was  $863 million , a  decrease  of  $150 million , or  14\.8 %, as compared to  2018 , primarily due to a  14\.4 % decrease in cargo ton miles reflecting declines in freight volumes, principally as a result of international schedule reductions\. Other operating revenue  increase d  $43 million , or  1\.5 %, in  2019  as compared to  2018 , principally driven by higher revenue associated with our airport clubs and loyalty program\.

Our total revenue per available seat mile (TRASM) was  16\.05  cents in  2019 , a  1\.7 %  increase  as compared to  15\.79  cents in  2018 \.

Fuel

Our mainline and regional fuel expense totaled  $9\.4 billion  in  2019 , which was  $501 million , or  5\.1 %,  lower  compared to  2018 \. This  decrease  was primarily driven by a  6\.9 %  decrease  in the average price per gallon of fuel including related taxes to  $2\.07  in  2019  from  $2\.23  in  2018 , offset in part by a  2\.0%  increase in gallons of fuel consumed\.

50


Annual Report of Southwest Airlines Co\. for year 2019

Item 2\.  Properties

Aircraft

Southwest operated a total of  747  Boeing 737 aircraft as of  December 31, 2019 , of which 52 and 70 were under operating and finance leases, respectively\. The following table details information on the  747  aircraft as of  December 31, 2019 :

|           |           |                                             |                                   |                                 |                              |
| --------- | --------- | ------------------------------------------- | --------------------------------- | ------------------------------- | ---------------------------- |
| **Type**  | **Seats** | **Average**

**Age**

**(Yrs)** | **Number of**

**Aircraft** | **Number**

**Owned (a)** | **Number**

**Leased** |
| 737\-700  | 143       | 15                                          | 506                               | 394                             | 112                          |
| 737\-800  | 175       | 4                                           | 207                               | 200                             | 7                            |
| 737 MAX 8 | 175       | 2                                           | 34                                | 31                              | 3                            |
| Totals    |           | 12                                          | 747                               | 625                             | 122                          |

|     |                                                                                |
| --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (a) | As discussed further in Note  6  to the Consolidated Financial Statements, 96 of the Company's aircraft were pledged as collateral as of  December 31, 2019 , for secured borrowings and/or in the case that the Company has obligations related to its fuel derivative instruments with counterparties that exceed certain thresholds\. |

Note: All MAX deliveries were suspended as of March 13, 2019, upon the FAA emergency order for all U\.S\. airlines to ground all MAX aircraft\. The FAA's timetables and directives will determine the timing of MAX return to service\.

The delivery schedule below reflects contractual commitments; although, the timing of future deliveries is uncertain\. One of the Company's 2019 undelivered aircraft contractually shifted to 2021\. For purposes of the delivery schedule below, the Company has included the remaining 40 of its 2019 undelivered aircraft within its 2020 contractual commitments, and has not made any further adjustments to this schedule based on current estimations\. However, Boeing currently has 27 MAX 8 aircraft produced and in storage that the Company is including in its current 2020 fleet planning assumptions\. The Company also currently expects to retire 16 737\-700 aircraft in 2020\. The Company offers no assurances that current estimations and timelines are correct\.

29


Annual Report of Southwest Airlines Co\. for year 2017

|                                      |          |          |          |
| ------------------------------------ | -------- | -------- | -------- |
| **(in millions)**                    | **2017** | **2016** | **2015** |
| **CURRENT:**                         |          |          |          |
| Federal                              | $904     | $778     | $1,292   |
| State                                | 72       | 69       | 114      |
| Total current                        | 976      | 847      | 1,406    |
| **DEFERRED:**                        |          |          |          |
| Federal                              | 192      | 426      | (97)     |
| State                                | 5        | 30       | (11)     |
| Change in federal statutory tax rate | (1,410)  | —        | —        |
| Total deferred                       | (1,213)  | 456      | (108)    |
|                                      | $(237)   | $1,303   | $1,298   |

The effective tax rate on income before income taxes differed from the federal income tax statutory rate for the following reasons:

|                                            |          |          |          |
| ------------------------------------------ | -------- | -------- | -------- |
| **(in millions)**                          | **2017** | **2016** | **2015** |
| Tax at statutory U\.S\. tax rates          | $1,138   | $1,241   | $1,218   |
| State income taxes, net of federal benefit | 50       | 64       | 66       |
| Change in federal statutory tax rate       | (1,410)  | —        | —        |
| Other, net                                 | (15)     | (2)      | 14       |
| Total income tax provision                 | $(237)   | $1,303   | $1,298   |

The only periods subject to examination for the Company’s federal tax return are the 2016 and 2017 tax years\.

108


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

**Report of Independent Registered Public Accounting Firm**

To the Stockholders and Board of Directors

American Airlines Group Inc\.:

*Opinion on Internal Control Over Financial Reporting*

We have audited American Airlines Group Inc\.’s and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2017, based on criteria established in *Internal Control – Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission\. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in *Internal Control – Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission\.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income, cash flows, and stockholders’ equity for each of the years in the three\-year period ended December 31, 2017, and the related notes (collectively, the consolidated financial statements), and our report dated February 21, 2018 expressed an unqualified opinion on those consolidated financial statements\.

*Basis for Opinion*

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

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

*Definition and Limitations of Internal Control Over Financial Reporting*

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

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

/s/ KPMG LLP

Dallas, Texas

February 21, 2018

172


Annual Report of Southwest Airlines Co\. for year 2018

and made available for use to purchase a ticket for a flight that occurs prior to their expiration\. These funds are typically created as a result of a prior ticket cancellation or exchange\. These performance obligations are expected to have a duration of twelve months or less; therefore, the Company has elected the provision within ASC 606 to not disclose the amount of the remaining transaction price and its expected timing of recognition for passenger tickets\. Recognition of revenue associated with the Company’s loyalty liability can be difficult to predict, as the number of award seats available to members is not currently restricted and they could choose to redeem their points at any time that a seat is available\. The performance obligations classified as a current liability related to the Company’s loyalty program were estimated based on expected redemptions utilizing historical redemption patterns, and forecasted flight availability, fares, and coefficients\. The entire balance classified as Air traffic liability – noncurrent relates to loyalty points that were estimated to be redeemed in periods beyond 12 months following the representative balance sheet date\. The Company expects the majority of loyalty points to be redeemed within two years\. A rollforward of the Company's Air traffic liability \- loyalty program for the years ended December 31, 2018 and 2017 is as follows (in millions):

|                                                               |                             |                             |
| ------------------------------------------------------------- | --------------------------- | --------------------------- |
|                                                               | **Year ended December 31,** | **Year ended December 31,** |
|                                                               | **2018**                    | **2017**                    |
| Air traffic liability \- loyalty program \- beginning balance | $2,667                      | $2,485                      |
|  Amounts deferred associated with points awarded              | 2,717                       | 2,485                       |
|  Revenue recognized from points redeemed \- Passenger         | (2,307)                     | (2,263)                     |
|  Revenue recognized from points redeemed \- Other             | (66)                        | (40)                        |
| Air traffic liability \- loyalty program \- ending balance    | $3,011                      | $2,667                      |

Air traffic liability includes consideration received for ticket and loyalty related performance obligations which have not been satisfied as of a given date\. A rollforward of the amounts included in Air traffic liability as of December 31, 2018 and 2017 are as follows (in millions):

|                                                                                |                           |
| ------------------------------------------------------------------------------------------------- | ------------------------- |
|                                                                                | **Air traffic liability** |
| Balance at December 31, 2017                                                                      | $4,565                    |
|  Current period sales (passenger travel, ancillary services, flight loyalty, and partner loyalty) | 21,026                    |
|  Revenue from amounts included in contract liability opening balances                             | (3,479)                   |
|  Revenue from current period sales                                                                | (17,042)                  |
| Balance at December 31, 2018                                                                      | $5,070                    |

|                                                                                |                           |
| ------------------------------------------------------------------------------------------------- | ------------------------- |
|                                                                                | **Air traffic liability** |
| Balance at December 31, 2016                                                                      | $4,221                    |
|  Current period sales (passenger travel, ancillary services, flight loyalty, and partner loyalty) | 20,146                    |
|  Revenue from amounts included in contract liability opening balances                             | (3,099)                   |
|  Revenue from current period sales                                                                | (16,703)                  |
| Balance at December 31, 2017                                                                      | $4,565                    |

All performance obligations related to freight services sold are completed within twelve months or less; therefore, the Company has elected the provision within ASC 606 to not disclose the amount of the remaining transaction price and its expected timing of recognition for freight shipments\.

Other revenues primarily consist of marketing royalties associated with the Company’s co\-branded Chase^®^ Visa credit card, but also include commissions and advertising associated with Southwest\.com^®^\. All amounts classified as Other revenues are paid monthly, coinciding with the Company fulfilling its deliverables; therefore, the Company has elected the provision within ASC 606 to not disclose the amount of the remaining transaction price and its expected timing of recognition for such services provided\.

89


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

Operating segment information is as follows (in millions):

|                                       |                                       |                                       |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|:------------------------------------- |:------------------------------------- |:------------------------------------- | ----------------------------:|:----------------------------:|:----------------------------:|:----------------------------:| ----------------------------:|:----------------------------:|:----------------------------:|:----------------------------:| ----------------------------:|:----------------------------:|:----------------------------:|:----------------------------:| ----------------------------:|:----------------------------:|:----------------------------:|:----------------------------:| ----------------------------:|:----------------------------:|:----------------------------:|:----------------------------:| ----------------------------:|:----------------------------:|:----------------------------:|:----------------------------:| ----------------------------:|:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |
|                                       |                                       |                                       | Year Ended December 31, 2019 | Year Ended December 31, 2019 | Year Ended December 31, 2019 | Year Ended December 31, 2019 | Year Ended December 31, 2019 | Year Ended December 31, 2019 | Year Ended December 31, 2019 | Year Ended December 31, 2019 | Year Ended December 31, 2019 | Year Ended December 31, 2019 | Year Ended December 31, 2019 | Year Ended December 31, 2019 | Year Ended December 31, 2019 | Year Ended December 31, 2019 | Year Ended December 31, 2019 | Year Ended December 31, 2019 | Year Ended December 31, 2019 | Year Ended December 31, 2019 | Year Ended December 31, 2019 | Year Ended December 31, 2019 | Year Ended December 31, 2019 | Year Ended December 31, 2019 | Year Ended December 31, 2019 | Year Ended December 31, 2019 | Year Ended December 31, 2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                       |                                       |                                       |                     Mainline |                              |                              |                              |                     Regional |                              |                              |                              |                      Horizon |                              |                              |                              |   Consolidating & Other^(a)^ |                              |                              |                              |      Air Group Adjusted^(b)^ |                              |                              |                              |           Special Items^(c)^ |                              |                              |                              |                 Consolidated |
| Operating Revenues                    | Operating Revenues                    | Operating Revenues                    |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |
| Passenger revenues                    | Passenger revenues                    | Passenger revenues                    |                        6,750 |                              |                              |                              |                        1,345 |                              |                              |                              |                            — |                              |                              |                              |                            — |                              |                              |                              |                        8,095 |                              |                              |                              |                            — |                              |                              |                              |                        8,095 |
| CPA revenues                          | CPA revenues                          | CPA revenues                          |                            — |                              |                              |                              |                            — |                              |                              |                              |                          450 |                              |                              |                              |                        (450) |                              |                              |                              |                            — |                              |                              |                              |                            — |                              |                              |                              |                            — |
| Mileage Plan other revenue            | Mileage Plan other revenue            | Mileage Plan other revenue            |                          419 |                              |                              |                              |                           46 |                              |                              |                              |                            — |                              |                              |                              |                            — |                              |                              |                              |                          465 |                              |                              |                              |                            — |                              |                              |                              |                          465 |
| Cargo and other                       | Cargo and other                       | Cargo and other                       |                          212 |                              |                              |                              |                            3 |                              |                              |                              |                            1 |                              |                              |                              |                            5 |                              |                              |                              |                          221 |                              |                              |                              |                            — |                              |                              |                              |                          221 |
| Total Operating Revenues              | Total Operating Revenues              | Total Operating Revenues              |                        7,381 |                              |                              |                              |                        1,394 |                              |                              |                              |                          451 |                              |                              |                              |                        (445) |                              |                              |                              |                        8,781 |                              |                              |                              |                            — |                              |                              |                              |                        8,781 |
| Operating Expenses                    | Operating Expenses                    | Operating Expenses                    |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |
| Non\-fuel operating expenses          | Non\-fuel operating expenses          | Non\-fuel operating expenses          |                        4,778 |                              |                              |                              |                        1,097 |                              |                              |                              |                          385 |                              |                              |                              |                        (464) |                              |                              |                              |                        5,796 |                              |                              |                              |                           44 |                              |                              |                              |                        5,840 |
| Fuel expense                          | Fuel expense                          | Fuel expense                          |                        1,589 |                              |                              |                              |                          295 |                              |                              |                              |                            — |                              |                              |                              |                            — |                              |                              |                              |                        1,884 |                              |                              |                              |                          (6) |                              |                              |                              |                        1,878 |
| Total Operating Expenses              | Total Operating Expenses              | Total Operating Expenses              |                        6,367 |                              |                              |                              |                        1,392 |                              |                              |                              |                          385 |                              |                              |                              |                        (464) |                              |                              |                              |                        7,680 |                              |                              |                              |                           38 |                              |                              |                              |                        7,718 |
| Non\-operating Income (Expense)       | Non\-operating Income (Expense)       | Non\-operating Income (Expense)       |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |
| Interest income                       | Interest income                       | Interest income                       |                           66 |                              |                              |                              |                            — |                              |                              |                              |                            — |                              |                              |                              |                         (24) |                              |                              |                              |                           42 |                              |                              |                              |                            — |                              |                              |                              |                           42 |
| Interest expense                      | Interest expense                      | Interest expense                      |                         (76) |                              |                              |                              |                            — |                              |                              |                              |                         (28) |                              |                              |                              |                           26 |                              |                              |                              |                         (78) |                              |                              |                              |                            — |                              |                              |                              |                         (78) |
| Interest capitalized                  | Interest capitalized                  | Interest capitalized                  |                           15 |                              |                              |                              |                            — |                              |                              |                              |                            — |                              |                              |                              |                            — |                              |                              |                              |                           15 |                              |                              |                              |                            — |                              |                              |                              |                           15 |
| Other                                 | Other                                 | Other                                 |                         (26) |                              |                              |                              |                            — |                              |                              |                              |                            — |                              |                              |                              |                            — |                              |                              |                              |                         (26) |                              |                              |                              |                            — |                              |                              |                              |                         (26) |
| Total Non\-operating Income (Expense) | Total Non\-operating Income (Expense) | Total Non\-operating Income (Expense) |                         (21) |                              |                              |                              |                            — |                              |                              |                              |                         (28) |                              |                              |                              |                            2 |                              |                              |                              |                         (47) |                              |                              |                              |                            — |                              |                              |                              |                         (47) |
| Income (Loss) Before Income Tax       | Income (Loss) Before Income Tax       | Income (Loss) Before Income Tax       |                        $ 993 |                              |                              |                              |                          $ 2 |                              |                              |                              |                         $ 38 |                              |                              |                              |                         $ 21 |                              |                              |                              |                      $ 1,054 |                              |                              |                              |                       $ (38) |                              |                              |                              |                      $ 1,016 |

|                                       |                                       |                                       |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|:------------------------------------- |:------------------------------------- |:------------------------------------- | ----------------------------:|:----------------------------:|:----------------------------:|:----------------------------:| ----------------------------:|:----------------------------:|:----------------------------:|:----------------------------:| ----------------------------:|:----------------------------:|:----------------------------:|:----------------------------:| ----------------------------:|:----------------------------:|:----------------------------:|:----------------------------:| ----------------------------:|:----------------------------:|:----------------------------:|:----------------------------:| ----------------------------:|:----------------------------:|:----------------------------:|:----------------------------:| ----------------------------:|:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |
|                                       |                                       |                                       | Year Ended December 31, 2018 | Year Ended December 31, 2018 | Year Ended December 31, 2018 | Year Ended December 31, 2018 | Year Ended December 31, 2018 | Year Ended December 31, 2018 | Year Ended December 31, 2018 | Year Ended December 31, 2018 | Year Ended December 31, 2018 | Year Ended December 31, 2018 | Year Ended December 31, 2018 | Year Ended December 31, 2018 | Year Ended December 31, 2018 | Year Ended December 31, 2018 | Year Ended December 31, 2018 | Year Ended December 31, 2018 | Year Ended December 31, 2018 | Year Ended December 31, 2018 | Year Ended December 31, 2018 | Year Ended December 31, 2018 | Year Ended December 31, 2018 | Year Ended December 31, 2018 | Year Ended December 31, 2018 | Year Ended December 31, 2018 | Year Ended December 31, 2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                       |                                       |                                       |                     Mainline |                              |                              |                              |                     Regional |                              |                              |                              |                      Horizon |                              |                              |                              |   Consolidating & Other^(a)^ |                              |                              |                              |      Air Group Adjusted^(b)^ |                              |                              |                              |           Special Items^(c)^ |                              |                              |                              |                 Consolidated |
| Operating Revenues                    | Operating Revenues                    | Operating Revenues                    |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |
| Passenger revenues                    | Passenger revenues                    | Passenger revenues                    |                        6,474 |                              |                              |                              |                        1,157 |                              |                              |                              |                            — |                              |                              |                              |                            — |                              |                              |                              |                        7,631 |                              |                              |                              |                            — |                              |                              |                              |                        7,631 |
| CPA revenues                          | CPA revenues                          | CPA revenues                          |                            — |                              |                              |                              |                            — |                              |                              |                              |                          508 |                              |                              |                              |                        (508) |                              |                              |                              |                            — |                              |                              |                              |                            — |                              |                              |                              |                            — |
| Mileage Plan other revenue            | Mileage Plan other revenue            | Mileage Plan other revenue            |                          397 |                              |                              |                              |                           37 |                              |                              |                              |                            — |                              |                              |                              |                            — |                              |                              |                              |                          434 |                              |                              |                              |                            — |                              |                              |                              |                          434 |
| Cargo and other                       | Cargo and other                       | Cargo and other                       |                          192 |                              |                              |                              |                            3 |                              |                              |                              |                            4 |                              |                              |                              |                            — |                              |                              |                              |                          199 |                              |                              |                              |                            — |                              |                              |                              |                          199 |
| Total Operating Revenues              | Total Operating Revenues              | Total Operating Revenues              |                        7,063 |                              |                              |                              |                        1,197 |                              |                              |                              |                          512 |                              |                              |                              |                        (508) |                              |                              |                              |                        8,264 |                              |                              |                              |                            — |                              |                              |                              |                        8,264 |
| Operating Expenses                    | Operating Expenses                    | Operating Expenses                    |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |
| Non\-fuel operating expenses          | Non\-fuel operating expenses          | Non\-fuel operating expenses          |                        4,577 |                              |                              |                              |                        1,024 |                              |                              |                              |                          465 |                              |                              |                              |                        (513) |                              |                              |                              |                        5,553 |                              |                              |                              |                          132 |                              |                              |                              |                        5,685 |
| Fuel expense                          | Fuel expense                          | Fuel expense                          |                        1,652 |                              |                              |                              |                          262 |                              |                              |                              |                            — |                              |                              |                              |                            — |                              |                              |                              |                        1,914 |                              |                              |                              |                           22 |                              |                              |                              |                        1,936 |
| Total Operating Expenses              | Total Operating Expenses              | Total Operating Expenses              |                        6,229 |                              |                              |                              |                        1,286 |                              |                              |                              |                          465 |                              |                              |                              |                        (513) |                              |                              |                              |                        7,467 |                              |                              |                              |                          154 |                              |                              |                              |                        7,621 |
| Non\-operating Income (Expense)       | Non\-operating Income (Expense)       | Non\-operating Income (Expense)       |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |                              |
| Interest income                       | Interest income                       | Interest income                       |                           53 |                              |                              |                              |                            — |                              |                              |                              |                            — |                              |                              |                              |                         (15) |                              |                              |                              |                           38 |                              |                              |                              |                            — |                              |                              |                              |                           38 |
| Interest expense                      | Interest expense                      | Interest expense                      |                         (82) |                              |                              |                              |                            — |                              |                              |                              |                         (22) |                              |                              |                              |                           13 |                              |                              |                              |                         (91) |                              |                              |                              |                            — |                              |                              |                              |                         (91) |
| Interest capitalized                  | Interest capitalized                  | Interest capitalized                  |                           16 |                              |                              |                              |                            — |                              |                              |                              |                            2 |                              |                              |                              |                            — |                              |                              |                              |                           18 |                              |                              |                              |                            — |                              |                              |                              |                           18 |
| Other                                 | Other                                 | Other                                 |                         (12) |                              |                              |                              |                         (11) |                              |                              |                              |                            — |                              |                              |                              |                            — |                              |                              |                              |                         (23) |                              |                              |                              |                            — |                              |                              |                              |                         (23) |
| Total Non\-operating Income (Expense) | Total Non\-operating Income (Expense) | Total Non\-operating Income (Expense) |                         (25) |                              |                              |                              |                         (11) |                              |                              |                              |                         (20) |                              |                              |                              |                          (2) |                              |                              |                              |                         (58) |                              |                              |                              |                            — |                              |                              |                              |                         (58) |
| Income (Loss) Before Income Tax       | Income (Loss) Before Income Tax       | Income (Loss) Before Income Tax       |                        $ 809 |                              |                              |                              |                      $ (100) |                              |                              |                              |                         $ 27 |                              |                              |                              |                          $ 3 |                              |                              |                              |                        $ 739 |                              |                              |                              |                      $ (154) |                              |                              |                              |                        $ 585 |

82


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

**2017** **COMPARED WITH** **2016**

Our consolidated net income for 2017 was $960 million, or $7\.75 per diluted share, compared to net income of $797 million, or $6\.41 per diluted share, in 2016\. Our financial results include results of Virgin America for the period from December 14, 2016 through December 31, 2016 and the impact of purchase accounting as of December 14, 2016\. Refer to our previously filed Forms 10\-K for 2016 and 2017 for additional information on accounting for our merger with Virgin America\.

Excluding the impact of mark\-to\-market fuel hedge adjustments and special items, our adjusted consolidated net income for 2017 was $791 million, or $6\.38 per diluted share, compared to an adjusted consolidated net income of $894 million, or $7\.19 per share, in 2016\. The following tables reconcile our adjusted net income and EPS during the full year 2017 and 2016 to amounts as reported in accordance with GAAP\.

|                                                     |                                      |                                      |                                      |                                      |
| --------------------------------------------------- | ------------------------------------ | ------------------------------------ | ------------------------------------ | ------------------------------------ |
|                                                     | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** |
|                                                     | **2017**                             | **2017**                             | **2016**                             | **2016**                             |
| ***(in millions, except per\-share amounts)***      | **Dollars**                          | **Diluted EPS**                      | **Dollars**                          | **Diluted EPS**                      |
| Reported GAAP net income and diluted EPS            | **$960**                             | **$7\.75**                           | $797                                 | $6\.41                               |
| Mark\-to\-market fuel hedge (benefit) expense       | **(7)**                              | **(0\.06)**                          | (13)                                 | (0\.11)                              |
| Special items—merger\-related costs and other ^(a)^ | **116**                              | **0\.94**                            | 117                                  | 0\.94                                |
| Income tax effect of special items ^(b)^            | **(41)**                             | **(0\.33)**                          | (24)                                 | (0\.19)                              |
| Special income tax (benefit) expense ^(c)^          | **(237)**                            | **(1\.92)**                          | 17                                   | 0\.14                                |
| Non\-GAAP adjusted net income and diluted EPS       | **$791**                             | **$6\.38**                           | $894                                 | $7\.19                               |

|     |                                                                                |
| --- | ----------------------------------------------------------------------------------------------- |
| (a) | Refer to Note 11 to the consolidated financial statement for the description of special items\. |

|     |                                                                                |
| --- | ---------------------------------------------------------------------------------------------------------------------------------- |
| (b) | Certain merger\-related costs are non\-deductible for tax purposes, resulting in a smaller income tax effect for adjusting items\. |

|     |                                                                                |
| --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (c) | Special tax (benefit)/expense in 2017 is due to the remeasurement of deferred tax liabilities as a result of the Tax Cuts and Jobs Act signed into law on December 22, 2017, offset by certain state tax law enactments\. In 2016 it represents discrete impacts of adjustments to our position on income sourcing in various states\. |

CASM is summarized below:

|                                                     |                                      |                                      |                                      |
| --------------------------------------------------- | ------------------------------------ | ------------------------------------ | ------------------------------------ |
|                                                     | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** |
|                                                     | **2017**                             | **2016**                             | **% Change**                         |
| **Consolidated:**                                   |                                      |                                      |                                      |
| Total operating expenses per ASM (CASM)             | **10\.77¢**                          | 10\.47¢                              | 2\.9 %                               |
| Less the following components:                      |                                      |                                      |                                      |
| Aircraft fuel, including hedging gains and losses   | **2\.33**                            | 1\.88                                | 23\.9 %                              |
| Special items—merger\-related costs and other ^(a)^ | **0\.19**                            | 0\.27                                | (29\.6)%                             |
| CASM, excluding fuel and special items              | **8\.25¢**                           | 8\.32¢                               | (0\.8)%                              |
| **Mainline:**                                       |                                      |                                      |                                      |
| Total operating expenses per ASM (CASM)             | **9\.94¢**                           | 9\.48¢                               | 4\.9 %                               |
| Less the following components:                      |                                      |                                      |                                      |
| Aircraft fuel, including hedging gains and losses   | **2\.24**                            | 1\.79                                | 25\.1 %                              |
| Special items—merger\-related costs and other ^(a)^ | **0\.20**                            | 0\.30                                | (33\.3)%                             |
| CASM, excluding fuel and special items              | **7\.50¢**                           | 7\.39¢                               | 1\.5 %                               |

|     |                                                                                |
| --- | ----------------------------------------------------------------------------------------------- |
| (a) | Refer to Note 11 to the consolidated financial statement for the description of special items\. |

**COMBINED COMPARATIVE OPERATING STATISTICS**

Given the December 2016 acquisition of Virgin America, we believe that analysis of specific financial and operational results on a combined basis provides more meaningful year\-over\-year comparisons\. The discussion below includes “Combined Comparative” results for 2016, determined as the sum of the historical consolidated results of Air Group and Virgin America\. Additionally, we adopted the new Revenue Recognition and Retirement Benefit accounting standards on January 1, 2018 utilizing a full retrospective transition method\. Pre\-acquisition Virgin America 2016 results have not been retrospectively adjusted for these accounting standards, nor has it been conformed to reflect Air Group's historical financial statement presentation\. The Combined Comparative information does not purport to reflect what our financial and operational results would have been had the acquisition been consummated at the beginning of the periods presented\.

 42


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

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

Our information systems are subject to an increasing threat of continually evolving cybersecurity risks\. Unauthorized parties may attempt to gain access to our systems or information, including through fraud or other means of deception\. Hardware or software we develop or acquire may contain defects that could unexpectedly compromise information security\. The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are constantly evolving and may be difficult to anticipate or to detect for long periods of time\. As a result of these types of risks and regular attacks, we regularly review and update procedures and processes to prevent and protect against unauthorized access to our systems and information and inadvertent misuse of data\. However, the constantly changing nature of the threats means that we may not be able to prevent all data security breaches or misuse of data\. The compromise of our technology systems resulting in the loss, disclosure, misappropriation of, or access to, customers', employees' or business partners' information or failure to comply with regulatory or contractual obligations with respect to such information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disruption to our operations and damage to our reputation, any or all of which could adversely affect our business\.

Disruptions of our information technology infrastructure could interfere with our operations, possibly having a material adverse effect on our business\.

Disruptions in our information technology network could result from a technology error or failure impacting our internal systems, whether hosted internally at our data centers or externally at third\-party locations, or large scale external interruption in technology infrastructure support on which we depend, such as power, telecommunications or the internet\. The operation of our technology systems and the use of related data may also be vulnerable to a variety of other sources of interruption, including natural disasters, terrorist attacks, computer viruses, hackers and other security issues\. A significant individual, sustained or repeated failure of our network, including third\-party networks we utilize and on which we depend, could impact our customer service and result in increased costs\. While we have in place initiatives to prevent disruptions and disaster recovery plans and continue to invest in improvements to these initiatives and plans, these measures may not be adequate to prevent a business disruption and its adverse financial and reputational consequences to our business\.

Failure of our technology to perform effectively could have an adverse effect on our business\.

We are dependent on technology initiatives to provide customer service and operational effectiveness in order to compete in the current business environment\. For example, we have made and continue to make significant investments in customer facing technology such as delta\.com, mobile device applications, check\-in kiosks, customer service applications, airport information displays and related initiatives, including security for these initiatives\. We are also investing in significant upgrades to technology infrastructure and other supporting systems\. The performance, reliability and security of the technology are critical to our ability to serve customers\. If our technology does not perform effectively, our business and operations would be negatively affected, which could be material\.

Agreements governing our debt, including credit agreements, include financial and other covenants\. Failure to comply with these covenants could result in events of default\.

Our credit facilities have various financial and other covenants that require us to maintain, depending on the particular agreement, minimum fixed charge coverage ratios, minimum liquidity and/or minimum collateral coverage ratios\. The value of the collateral that has been pledged in each facility may change over time due to appraisals of collateral required by our credit agreements and indentures\. These changes could result from factors that are not under our control\. A decline in the value of collateral could result in a situation where it may be difficult to maintain the collateral coverage ratio\. In addition, the credit facilities contain other negative covenants customary for such financings\. These covenants are subject to important exceptions and qualifications\. If we fail to comply with these covenants and are unable to remedy or obtain a waiver or amendment, an event of default would result\.

The credit facilities also contain other events of default customary for such financings\. If an event of default were to occur, the lenders could, among other things, declare outstanding amounts due and payable\. In addition, an event of default or declaration of acceleration under any of the credit facilities could also result in an event of default under other of our financing agreements\. The acceleration of significant amounts of debt could require us to renegotiate, repay or refinance the obligations under the credit facilities or other financing arrangements\.

 14


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

ITEM 14\. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required by this item is set forth under the heading "Proposal 3 \- Ratification of the Appointment of Independent Auditors" in our Proxy Statement and is incorporated by reference\.

PART IV

ITEM 15\. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1)\. The following is an index of the financial statements required by this item that are included in this Form 10\-K:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets—December 31, 2019 and 2018

Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Stockholders' Equity for the years ended December 31, 2019, 2018 and 2017

Notes to the Consolidated Financial Statements

(2)\. Financial Statement Schedules\. Financial statement schedules are not included herein as the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements and accompanying notes included in this Form 10\-K\.

(3)\. Exhibit List\.

The exhibits required by this item are listed below\. The management contracts and compensatory plans or arrangements required to be filed as an exhibit to this Form 10\-K are listed as Exhibits 10\.8 through 10\.18\.

Note to Exhibits : Any representations and warranties of a party set forth in any agreement (including all exhibits and schedules thereto) filed with this Annual Report on Form 10\-K have been made solely for the benefit of the other party to the agreement\. Some of those representations and warranties were made only as of the date of the agreement or such other date as specified in the agreement, may be subject to a contractual standard of materiality different from what may be viewed as material to stockholders, or may have been used for the purpose of allocating risk between the parties rather than establishing matters as facts\. Such agreements are included with this filing only to provide investors with information regarding the terms of the agreements, and not to provide investors with any other factual or disclosure information regarding the registrant or its business\.

3\.1(a)  [Delta's Amended and Restated Certificate of Incorporation (Filed as Exhibit 3\.1 to Delta's Current Report on Form 8\-K as filed on April 30, 2007)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000118811207001266/ex3-1.htm)

3\.1 (b)  [Amendment to Amended and Restated Certificate of Incorporation (Filed as Exhibit 3\.1 to Delta's Current Report on Form 8\-K as filed on June 27, 2014)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000101968714002579/delta_8k-ex0301.htm)

3\.2  [Delta's Bylaws (Filed as Exhibit 3\.1 to Delta's Current Report on Form 8\-K as filed on February 8, 2019)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000168316819000302/delta_8k-ex0301.htm)

4\.1  [Description](http://ir.delta.com/dal12312019ex41.htm)[ of Registra](http://ir.delta.com/dal12312019ex41.htm)[n](http://ir.delta.com/dal12312019ex41.htm)[t's Securities](http://ir.delta.com/dal12312019ex41.htm)[\.](http://ir.delta.com/dal12312019ex41.htm)

99


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

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

|                                                                                |           |          |          |
| ---------------------------------------------------------------------------------- | --------- | -------- | -------- |
| **Year Ended December 31**  ***(in millions)***                                    | **2018**  | **2017** | **2016** |
| **Cash flows from operating activities:**                                          |           |          |          |
| Net income                                                                         | **$437**  | $960     | $797     |
| Adjustments to reconcile net income to net cash provided by operating activities:  |           |          |          |
| Depreciation and amortization                                                      | **398**   | 372      | 363      |
| Stock\-based compensation and other                                                | **47**    | 55       | 26       |
| Changes in certain assets and liabilities:                                         |           |          |          |
| Changes in deferred tax provision                                                  | **146**   | 45       | 82       |
| (Increase) decrease in accounts receivable                                         | **(25)**  | (39)     | (46)     |
| Increase (decrease) in air traffic liability                                       | **(18)**  | 45       | 3        |
| Increase (decrease) in deferred revenue                                            | **149**   | 191      | 153      |
| Changes in pension and other postretirement benefits                               | **52**    | 17       | 23       |
| Other—net                                                                          | **9**     | (56)     | (15)     |
| Net cash provided by operating activities                                          | **1,195** | 1,590    | 1,386    |
| **Cash flows from investing activities:**                                          |           |          |          |
| Property and equipment additions:                                                  |           |          |          |
| Aircraft and aircraft purchase deposits                                            | **(686)** | (804)    | (528)    |
| Other flight equipment                                                             | **(105)** | (96)     | (53)     |
| Other property and equipment                                                       | **(169)** | (126)    | (97)     |
| Total property and equipment additions                                             | **(960)** | (1,026)  | (678)    |
| Acquisition of Virgin America, net of cash acquired                                | **—**     | —        | (1,951)  |
| Purchases of marketable securities                                                 | **(834)** | (1,569)  | (960)    |
| Sales and maturities of marketable securities                                      | **1,116** | 1,388    | 962      |
| Proceeds from disposition of assets and changes in restricted deposits             | **47**    | 78       | 5        |
| Net cash used in investing activities                                              | **(631)** | (1,129)  | (2,622)  |
| **Cash flows from financing activities:**                                          |           |          |          |
| Proceeds from issuance of long\-term debt, net of issuance costs                   | **339**   | —        | 2,044    |
| Long\-term debt payments                                                           | **(807)** | (397)    | (249)    |
| Common stock repurchases                                                           | **(50)**  | (75)     | (193)    |
| Cash dividend paid                                                                 | **(158)** | (148)    | (136)    |
| Other financing activities                                                         | **29**    | 28       | 25       |
| **Net cash provided by (used in) financing activities**                            | **(647)** | (592)    | 1,491    |
| Net increase (decrease) in cash, cash equivalents, and restricted cash             | **(83)**  | (131)    | 255      |
| Cash, cash equivalents, and restricted cash at beginning of year                   | **197**   | 328      | 73       |
| **Cash, cash equivalents, and restricted cash at end of year**                     | **$114**  | $197     | $328     |
| **Supplemental disclosure:**                                                       |           |          |          |
| Cash paid during the year for:                                                     |           |          |          |
| Interest, net of amount capitalized                                                | **$72**   | $84      | $24      |
| Income taxes, net of refunds received                                              | **—**     | 177      | 459      |
| Reconciliation of cash, cash equivalents, and restricted cash at end of the period |           |          |          |
| Cash and cash equivalents                                                          | **$105**  | $194     | $328     |
| Restricted cash included in Other noncurrent assets                                | **9**     | 3        | —        |
| Total cash, cash equivalents, and restricted cash at end of the period             | **$114**  | $197     | $328     |

Certain historical information has been adjusted to reflect the adoption of new accounting standards\. See accompanying notes to consolidated financial statements\.

 61


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

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| ^(4)^ | Merger integration expenses included costs associated with integration projects, principally our technical operations, flight attendant, human resources and payroll systems\. |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------- |
| ^(5)^ | Bankruptcy obligations that will be settled in shares of our common stock are marked\-to\-market based on our stock price\.  |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------- |
| ^(6)^ | Severance expenses primarily included costs associated with reductions of management and support staff team members\. |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(7)^ | Intangible asset impairment includes a non\-cash charge to write\-off our Brazil route authority as a result of the U\.S\.\-Brazil open skies agreement\. |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(8)^ | Mark\-to\-market adjustments on equity and other investments, net primarily relates to net unrealized gains and losses associated with our equity investment in China Southern Airlines\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------- |
| ^(9)^ | Income tax special items, net for  2018  included an  $18 million  charge related to an international income tax matter\. |

Additionally, the table below presents the reconciliation of total operating expenses (GAAP measure) to total operating costs excluding net special items and fuel (non\-GAAP measure)\. Management uses total operating costs excluding net special items and fuel to evaluate our current operating performance and for period\-to\-period comparisons\. The price of fuel, over which we have no control, impacts the comparability of period\-to\-period financial performance\. The adjustment to exclude aircraft fuel and net special items allows management an additional tool to understand and analyze our non\-fuel costs and core operating performance\. Amounts may not recalculate due to rounding\.

|                                                                                |                             |                             |
| ------------------------------------------------------------------------------------------------------------------------- | --------------------------- | --------------------------- |
|                                                                                | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                                                | **2019**                    | **2018**                    |
| **Reconciliation of Total Operating Costs per Available Seat**  <br>**Mile (CASM) Excluding Net Special Items and Fuel:** |                             |                             |
| **(In millions)**                                                                                |                             |                             |
| Total operating expenses \- GAAP                                                                                | $42,703                     | $41,885                     |
| Operating net special items  ^(1)^ :                                                                                |                             |                             |
| Mainline operating special items, net                                                                                | (635)                       | (787)                       |
| Regional operating special items, net                                                                                | (6)                         | (6)                         |
| Fuel:                                                                                |                             |                             |
| Aircraft fuel and related taxes \- mainline                                                                               | (7,526)                     | (8,053)                     |
| Aircraft fuel and related taxes \- regional                                                                               | (1,869)                     | (1,843)                     |
| Total operating expenses, excluding net special items and fuel                                                            | $32,667                     | $31,196                     |
| **(In millions)**                                                                                |                             |                             |
| Total Available Seat Miles (ASM)                                                                                | 285,088                     | 282,054                     |
| **(In cents)**                                                                                |                             |                             |
| Total operating CASM                                                                                | 14\.98                      | 14\.85                      |
| Operating net special items per ASM  ^(1)^ :                                                                              |                             |                             |
| Mainline operating special items, net                                                                                | (0\.22)                     | (0\.28)                     |
| Regional operating special items, net                                                                                | —                           | —                           |
| Fuel per ASM:                                                                                |                             |                             |
| Aircraft fuel and related taxes \- mainline                                                                               | (2\.64)                     | (2\.86)                     |
| Aircraft fuel and related taxes \- regional                                                                               | (0\.66)                     | (0\.65)                     |
| Total CASM, excluding net special items and fuel                                                                          | 11\.46                      | 11\.06                      |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------ |
| ^(1)^ | See Note 2 to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information on net special items\. |

47


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

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

***(b) EETCs***

Below is a discussion of the 2018 aircraft financing activities resulting from EETC issuances\.

*2017\-2 EETCs*

In August and October 2017, American created three pass\-through trusts which issued approximately $1\.0 billion aggregate face amount of Series 2017\-2 Class AA, Class A and Class B EETCs (the 2017\-2 EETCs) in connection with the financing of 30 aircraft delivered to American through May 2018 (the 2017\-2 Aircraft)\. In 2017, approximately $735 million of the net proceeds were used to purchase equipment notes issued by American in connection with the financing of 24 aircraft financed under the 2017\-2 EETC\. During the first six months of 2018, the remaining $283 million of net proceeds was used to purchase equipment notes issued by American in connection with the financing of the remaining six aircraft financed under the 2017\-2 EETCs\. Interest and principal payments on equipment notes issued in connection with the 2017\-2 EETCs are payable semi\-annually in April and October of each year, with interest payments that began in April 2018 and principal payments that began in October 2018\. These equipment notes are secured by liens on the 2017\-2 Aircraft\.

Certain information regarding the 2017\-2 EETC equipment notes, as of December 31, 2018, is set forth in the table below\.

|                               |                   |                   |                   |
| ----------------------------- | ----------------- | ----------------- | ----------------- |
|                               | **2017\-2 EETCs** | **2017\-2 EETCs** | **2017\-2 EETCs** |
|                               | **Series AA**     | **Series A**      | **Series B**      |
| Aggregate principal issued    | $545 million      | $252 million      | $221 million      |
| Fixed interest rate per annum | 3\.35%            | 3\.60%            | 3\.70%            |
| Maturity date                 | October 2029      | October 2029      | October 2025      |

*2012\-2C(R) EETCs*

On May 15, 2018, American created a pass\-through trust which issued $100 million aggregate face amount of the Series 2012\-2 Class C(R) EETCs (the 2012\-2C(R) EETCs)\. Interest and principal payments on equipment notes issued in connection with the 2012\-2C(R) EETCs are payable semi\-annually in June and December of each year, which began in December 2018\.

American had previously issued $100 million aggregate face amount of Series 2012\-2 Class C Certificates on June 6, 2013 (the 2012\-2C Certificates) in connection with the financing of 11 aircraft previously delivered to American between May 2013 and October 2013\. On June 1, 2018, American redeemed the Series C Equipment Notes relating to such 2012\-2C Certificates (the 2012\-2C Equipment Notes), which were scheduled to mature on June 3, 2018\. The proceeds received from the 2012\-2C(R) EETCs were used for the redemption of the 2012\-2 Series C Equipment Notes and the repayment of the 2012\-2C Certificates\.

Certain information regarding the 2012\-2 Class C(R) EETC equipment notes, as of December 31, 2018, is set forth in the table below\.

|                               |                       |
| ----------------------------- | --------------------- |
|                               | **2012\-2C(R) EETCs** |
|                               | **Series C(R)**       |
| Aggregate principal issued    | $100 million          |
| Fixed interest rate per annum | 4\.70%                |
| Maturity date                 | June 2021             |

***(c) Equipment Loans and Other Notes Payable Issued in*** ***2018***

In 2018, American entered into agreements under which it borrowed $1\.5 billion in connection with the financing of certain aircraft and certain pre\-delivery purchase deposits\. Debt incurred under these agreements matures in 2021 through 2030 and bears interest at fixed and variable rates of LIBOR plus an applicable margin averaging 4\.28% at December 31, 2018\.

102