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

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

DELTA AIR LINES, INC\.

Consolidated Statements of Stockholders' Equity

|                                                                                |                  |                  |                                      |                             |                                                    |                    |                        |                 |
| -------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------- | ---------------- | ------------------------------------ | --------------------------- | -------------------------------------------------- | ------------------ | ---------------------- | --------------- |
|                                                                                | **Common Stock** | **Common Stock** | **Additional
Paid\-In Capital** |  **Retained
Earnings** | **Accumulated
Other
Comprehensive Loss** | **Treasury Stock** | **Treasury Stock**     |                 |
| **(in millions, except per share data)**                                                                                | **Shares**       | **Amount**       | **Additional
Paid\-In Capital** |  **Retained
Earnings** | **Accumulated
Other
Comprehensive Loss** | **Shares**         | **Amount**             | **Total**       |
| Balance at January 1, 2015                                                                                | 845              | $—               | $13,621                              | $2,816                      | $

(7,311

)                           | 20                 | $

(313

) | $8,813          |
| Net income                                                                                | —                | —                | —                                    | 4,526                       | —                                                  | —                  | —                      | 4,526           |
| Dividends declared                                                                                | —                | —                | —                                    | (359

)               | —                                                  | —                  | —                      | (359

)   |
| Other comprehensive income                                                                                | —                | —                | —                                    | —                           | 36                                                 | —                  | —                      | 36              |
| Shares of common stock issued and compensation expense associated with equity awards (Treasury shares withheld for payment of taxes, $46\.83 ^(1)^  per share) | 1                | —                | 76                                   | —                           | —                                                  | 1                  | (60

)           | 16              |
| Stock options exercised                                                                                | 2                | —                | 18                                   | —                           | —                                                  | —                  | —                      | 18              |
| Stock purchased and retired                                                                                | (48

)     | —                | (779

)                        | (1,421

)             | —                                                  | —                  | —                      | (2,200

) |
| Balance at December 31, 2015                                                                                | 800              | —                | 12,936                               | 5,562                       | (7,275

)                                    | 21                 | (373

)          | 10,850          |
| Net income                                                                                | —                | —                | —                                    | 4,373                       | —                                                  | —                  | —                      | 4,373           |
| Change in accounting principle                                                                                | —                | —                | —                                    | 95                          | —                                                  | —                  | —                      | 95              |
| Dividends declared                                                                                | —                | —                | —                                    | (509

)               | —                                                  | —                  | —                      | (509

)   |
| Other comprehensive loss                                                                                | —                | —                | —                                    | —                           | (361

)                                      | —                  | —                      | (361

)   |
| Shares of common stock issued and compensation expense associated with equity awards (Treasury shares withheld for payment of taxes, $44\.27 ^(1)^  per share) | 2                | —                | 105                                  | —                           | —                                                  | 1                  | (40

)           | 65              |
| Stock options exercised                                                                                | 3                | —                | 32                                   | —                           | —                                                  | —                  | —                      | 32              |
| Treasury stock, net, contributed to our qualified defined benefit pension plans                                                                                | —                | —                | 204                                  | —                           | —                                                  | (8

)        | 139                    | 343             |
| Stock purchased and retired                                                                                | (60

)     | —                | (983

)                        | (1,618

)             | —                                                  | —                  | —                      | (2,601

) |
| Balance at December 31, 2016                                                                                | 745              | —                | 12,294                               | 7,903                       | (7,636

)                                    | 14                 | (274

)          | 12,287          |
| Net income                                                                                | —                | —                | —                                    | 3,577                       | —                                                  | —                  | —                      | 3,577           |
| Dividends declared                                                                                | —                | —                | —                                    | (731

)               | —                                                  | —                  | —                      | (731

)   |
| Other comprehensive income                                                                                | —                | —                | —                                    | —                           | 15                                                 | —                  | —                      | 15              |
| Shares of common stock issued and compensation expense associated with equity awards (Treasury shares withheld for payment of taxes, $48\.31 ^(1)^  per share) | 1                | —                | 107                                  | —                           | —                                                  | 1                  | (39

)           | 68              |
| Stock options exercised                                                                                | 2                | —                | 28                                   | —                           | —                                                  | —                  | —                      | 28              |
| Treasury stock, net, contributed to our qualified defined benefit pension plans                                                                                | —                | —                | 188                                  | —                           | —                                                  | (8

)        | 155                    | 343             |
| Stock purchased and retired                                                                                | (33

)     | —                | (564

)                        | (1,113

)             | —                                                  | —                  | —                      | (1,677

) |
| Balance at December 31, 2017                                                                                | 715              | $—               | $12,053                              | $9,636                      | $

(7,621

)                           | 7                  | $

(158

) | $13,910         |

|       |                                   |
| ----- | --------------------------------- |
| ^(1)^ | Weighted average price per share  |

The accompanying notes are an integral part of these Consolidated Financial Statements\.

 54


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

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of

Delta Air Lines, Inc\.

Opinion on Internal Control over Financial Reporting

We have audited Delta Air Lines, Inc\.’s internal control over financial reporting as of  December 31, 2017 , based on criteria established in Internal Control\-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria)\. In our opinion, Delta Air Lines, Inc\. (the Company) maintained, in all material respects, effective internal control over financial reporting as of  December 31, 2017 , based on  the COSO criteria \.

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 ,  and the related consolidated statements of operations, comprehensive income, cash flows and stockholders’ equity for each of the three years in the period ended  December 31, 2017 , and the related notes and our report dated  February 23, 2018  expressed an unqualified opinion thereon\.

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 included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and 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 Limitation 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\.

|                   |                       |
| ----------------- | --------------------- |
| Atlanta, Georgia  | /s/ Ernst & Young LLP |
| February 23, 2018 |                       |

 90


Annual Report of Southwest Airlines Co\. for year 2017

inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate\.

/s/ Ernst & Young LLP

Dallas, Texas

February 7, 2018

111


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

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

|            |                 |                                                                                |
| ----------:|:--------------- |:--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| \*^10\.134 | UAL
United | [Supplemental Agreement No\. 41 to Purchase Agreement No\. 1951, dated June 1, 2007 (filed as Exhibit 10\.1 to Continental’s Form  10\-Q for the quarter ended June 30, 2007, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968707000040/fexhibit101.htm)                       |
| \*^10\.135 | UAL
United | [Supplemental Agreement No\. 42 to Purchase Agreement No\. 1951, dated June 12, 2007 (filed as Exhibit 10\.2 to Continental’s Form  10\-Q for the quarter ended June 30, 2007, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968707000040/fexhibit102.htm)                      |
| \*^10\.136 | UAL
United | [Supplemental Agreement No\. 43 to Purchase Agreement No\. 1951, dated July 18, 2007 (filed as Exhibit 10\.1 to Continental’s Form  10\-Q for the quarter ended September 30, 2007, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968707000049/f3rd10qfileexh101.htm)           |
| \*^10\.137 | UAL
United | [Supplemental Agreement No\. 44 to Purchase Agreement No\. 1951, dated December 7, 2007 (filed as Exhibit 10\.21(as) to Continental’s Form  10\-K for the year ended December 31, 2007, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968708000009/f200710kexh1021as.htm)       |
| \*^10\.138 | UAL
United | [Supplemental Agreement No\. 45 to Purchase Agreement No\. 1951, dated February 20, 2008 (filed as Exhibit 10\.2 to Continental’s Form  10\-Q for the quarter ended March 31, 2008, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968708000020/f1st10qfileexh102.htm)           |
| \*^10\.139 | UAL
United | [Supplemental Agreement No\. 46 to Purchase Agreement No\. 1951, dated June 25, 2008 (filed as Exhibit 10\.5 to Continental’s Form  10\-Q for the quarter ended June 30, 2008, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968708000040/f2nd10qfileexh105.htm)                |
| \*^10\.140 | UAL
United | [Supplemental Agreement No\. 47 to Purchase Agreement No\. 1951, dated October 30, 2008 (filed as Exhibit 10\.21(av) to Continental’s Form  10\-K for the year ended December 31, 2008, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968709000008/f123108form10kexh1021av.htm) |
| \*^10\.141 | UAL
United | [Supplemental Agreement No\. 48 to Purchase Agreement No\. 1951, dated January 29, 2009 (filed as Exhibit 10\.3 to Continental’s Form  10\-Q for the quarter ended June 30, 2009, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968709000038/exhibit103.htm)                    |
| \*^10\.142 | UAL
United | [Supplemental Agreement No\. 49 to Purchase Agreement No\. 1951, dated May 1, 2009 (filed as Exhibit 10\.4 to Continental’s Form  10\-Q for the quarter ended June 30, 2009, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968709000038/exhibit104.htm)                         |
| \*^10\.143 | UAL
United | [Supplemental Agreement No\. 50 to Purchase Agreement No\. 1951, dated July 23, 2009 (filed as Exhibit 10\.2 to Continental’s Form  10\-Q for the quarter ended September 30, 2009, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968709000050/fexhibit102.htm)                 |
| \*^10\.144 | UAL
United | [Supplemental Agreement No\. 51 to Purchase Agreement No\. 1951, dated August 5, 2009 (filed as Exhibit 10\.3 to Continental’s Form  10\-Q for the quarter ended September 30, 2009, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/000031968709000050/fexhibit103.htm)                |

123


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

NOTE 7\. DEBT

The following table summarizes our debt:

|                                                           |                                                           |                                                           |          |          |          |          |          |          |          |          |          |          |          |          |          |          |                                            |                                            |                                            |                                            |   |   |  |  |  |              |              |              |              |              |              |  |  |  |
|:--------------------------------------------------------- |:--------------------------------------------------------- |:--------------------------------------------------------- |:--------:|:--------:|:--------:|:--------:|:--------:|:--------:|:--------:|:--------:|:--------:|:--------:|:--------:|:--------:|:--------:|:--------:|:------------------------------------------:|:------------------------------------------:| ------------------------------------------:| ------------------------------------------:| -:| -:|:- |:- |:- |:------------:|:------------:|:------------:|:------------:|:------------:|:------------:|:- |:- |:- |
|                                                           |                                                           |                                                           | Maturity | Maturity | Maturity | Maturity | Maturity | Maturity | Maturity | Maturity | Maturity |          |          |          |          |          | Interest Rate(s)^(1)^

 Per Annum at | Interest Rate(s)^(1)^

 Per Annum at | Interest Rate(s)^(1)^

 Per Annum at | Interest Rate(s)^(1)^

 Per Annum at |   |   |  |  |  | December 31, | December 31, | December 31, | December 31, | December 31, | December 31, |  |  |  |
| (in millions)                                             | (in millions)                                             | (in millions)                                             |  Dates   |  Dates   |  Dates   |  Dates   |  Dates   |  Dates   |  Dates   |  Dates   |  Dates   |          |          |          |          |          |             December 31, 2019              |             December 31, 2019              |                          December 31, 2019 |                          December 31, 2019 |   |   |  |  |  |     2019     |     2019     |     2019     |     2018     |     2018     |     2018     |
| Unsecured notes                                           | Unsecured notes                                           | Unsecured notes                                           |   2020   |   2020   |   2020   |    to    |    to    |    to    |   2029   |   2029   |   2029   | 2\.60%   | 2\.60%   |    to    |    to    |    to    |                  4\.38%                    |                  4\.38%                    |                                    $ 5,550 |                                    $ 4,050 |
| Financing arrangements secured by aircraft:               | Financing arrangements secured by aircraft:               | Financing arrangements secured by aircraft:               |          |          |          |          |          |          |          |          |          |          |          |          |          |          |                                            |                                            |                                            |                                            |
| Certificates^(2)^                                         | Certificates^(2)^                                         | Certificates^(2)^                                         |   2020   |   2020   |   2020   |    to    |    to    |    to    |   2027   |   2027   |   2027   | 3\.20%   | 3\.20%   |    to    |    to    |    to    |                  8\.02%                    |                  8\.02%                    |                                      1,669 |                                      1,837 |
| Notes^(2)^                                                | Notes^(2)^                                                | Notes^(2)^                                                |   2020   |   2020   |   2020   |    to    |    to    |    to    |   2025   |   2025   |   2025   | 1\.99%   | 1\.99%   |    to    |    to    |    to    |                  6\.08%                    |                  6\.08%                    |                                      1,193 |                                      1,787 |
| NYTDC Special Facilities Revenue Bonds, Series 2018^(2)^  | NYTDC Special Facilities Revenue Bonds, Series 2018^(2)^  | NYTDC Special Facilities Revenue Bonds, Series 2018^(2)^  |   2022   |   2022   |   2022   |    to    |    to    |    to    |   2036   |   2036   |   2036   | 4\.00%   | 4\.00%   |    to    |    to    |    to    |                  5\.00%                    |                  5\.00%                    |                                      1,383 |                                      1,383 |
| Other financings^(2)(3)^                                  | Other financings^(2)(3)^                                  | Other financings^(2)(3)^                                  |   2021   |   2021   |   2021   |    to    |    to    |    to    |   2030   |   2030   |   2030   | 2\.51%   | 2\.51%   |    to    |    to    |    to    |                  8\.75%                    |                  8\.75%                    |                                        196 |                                        251 |
| 2018 Unsecured Revolving Credit Facility                  | 2018 Unsecured Revolving Credit Facility                  | 2018 Unsecured Revolving Credit Facility                  |   2021   |   2021   |   2021   |    to    |    to    |    to    |   2023   |   2023   |   2023   | undrawn  | undrawn  | variable | variable | variable |                  variable                  |                  variable                  |                                            |                                          — | — | — |
| Other revolving credit facilities                         | Other revolving credit facilities                         | Other revolving credit facilities                         |   2020   |   2020   |   2020   |    to    |    to    |    to    |   2021   |   2021   |   2021   | undrawn  | undrawn  | variable | variable | variable |                  variable                  |                  variable                  |                                            |                                          — | — | — |
| Total secured and unsecured debt                          | Total secured and unsecured debt                          | Total secured and unsecured debt                          |          |          |          |          |          |          |          |          |          |          |          |          |          |          |                                            |                                            |                                      9,991 |                                      9,308 |
| Unamortized premium and debt issuance cost, net and other | Unamortized premium and debt issuance cost, net and other | Unamortized premium and debt issuance cost, net and other |          |          |          |          |          |          |          |          |          |          |          |          |          |          |                                            |                                            |                                        115 |                                         60 |
| Total debt                                                | Total debt                                                | Total debt                                                |          |          |          |          |          |          |          |          |          |          |          |          |          |          |                                            |                                            |                                     10,106 |                                      9,368 |
| Less: current maturities                                  | Less: current maturities                                  | Less: current maturities                                  |          |          |          |          |          |          |          |          |          |          |          |          |          |          |                                            |                                            |                                    (2,054) |                                    (1,409) |
| Total long\-term debt                                     | Total long\-term debt                                     | Total long\-term debt                                     |          |          |          |          |          |          |          |          |          |          |          |          |          |          |                                            |                                            |                                    $ 8,052 |                                    $ 7,959 |

^(1)^ Certain aircraft and other financings are comprised of variable rate debt\. All variable rates are equal to LIBOR (generally subject to a floor) or another index rate, in each case plus a specified margin\.

^(2)^ Due in installments\.

^(3)^ Primarily includes unsecured bonds and debt secured by certain accounts receivable and real estate\.

2019 Unsecured Notes

In October 2019, we issued $1\.5 billion in aggregate principal amount of unsecured notes, consisting of $900 million of 2\.9% Notes due 2024 and $600 million of 3\.75% Notes due 2029 (collectively, the "Notes")\. These Notes are included in Unsecured notes in the table above\. We used the net proceeds from the offering of these Notes to fund a portion of the tender offer to acquire common shares of LATAM in January 2020\. See Note 4, "Investments," for further information on our investment in LATAM\.

2019\-1 EETC

We completed a $500 million offering of Pass Through Certificates, Series 2019\-1 ("2019\-1 EETC") utilizing a pass through trust during 2019\. This amount is included in Certificates in the table above\. The details of the 2019\-1 EETC, which is secured by 14 aircraft, are shown in the table below:

|                               |                               |                               |                 |                     |                     |               |               |               |                     |                     |                     |
|:----------------------------- |:----------------------------- |:----------------------------- | ---------------:| -------------------:| -------------------:| -------------:| -------------:| -------------:| -------------------:| -------------------:| -------------------:|
| (in millions)                 | (in millions)                 | (in millions)                 | Total Principal | Fixed Interest Rate | Fixed Interest Rate | Issuance Date | Issuance Date | Issuance Date | Final Maturity Date | Final Maturity Date | Final Maturity Date |
| 2019\-1 Class AA Certificates | 2019\-1 Class AA Certificates | 2019\-1 Class AA Certificates |           $ 425 |            3\.204 % |            3\.204 % |    March 2019 |    March 2019 |    March 2019 |          April 2024 |          April 2024 |          April 2024 |
| 2019\-1 Class A Certificates  | 2019\-1 Class A Certificates  | 2019\-1 Class A Certificates  |              75 |            3\.404 % |            3\.404 % |    March 2019 |    March 2019 |    March 2019 |          April 2024 |          April 2024 |          April 2024 |
| Total                         | Total                         | Total                         |           $ 500 |                     |                     |               |               |               |                     |                     |                     |

2019 Unsecured Term Loan

In February 2019, we entered into a $1 billion term loan issued by two lenders, which was subsequently repaid by the end of the June 2019 quarter\. We used the net proceeds of the term loan to accelerate planned 2019 repurchases under our share repurchase program\.

Financial Covenants

We were in compliance with the covenants in our financing agreements at December 31, 2019\.

74


Annual Report of Southwest Airlines Co\. for year 2018

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *Fair Value of Rapid Rewards Points*  \- Determined from the base fare value of tickets which were purchased using prior point redemptions for travel and other products and services, which the Company believes to be indicative of the fair value of points as perceived by Customers and representative of the value of each point at the time of redemption\. The Company’s booking site allows a Customer to toggle between fares utilizing either cash or point redemptions, which provides the Customer with an approximation of the equivalent value of their points\. The value can differ, however, based on demand, the amount of time prior to the flight, and other factors\. The fare mix during the period measured represents a constraint, which could result in the assumptions above changing at the measurement date, as fare classes can have different coefficients used to determine the total loyalty points needed to purchase an award ticket\. The mixture of these fare classes could cause the fair value per point to increase or decrease\. |

The majority of the points sold to business partners are through the Southwest co\-branded credit card agreement ("Agreement") with Chase Bank USA, N\.A\. Consideration received as part of this Agreement is subject to Accounting Standards Codification 606, Revenue From Contracts With Customers ("ASC 606")\. The Agreement has the following multiple elements: travel points to be awarded, use of the Southwest Airlines’ brand and access to Rapid Rewards Member lists, advertising elements, and the Company’s resource team\. These elements are combined into two performance obligations, transportation and marketing, and consideration from the Agreement is allocated based on the relative selling price of each performance obligation\.

Significant management judgment was used to estimate the selling price of each of the performance obligations in the Agreement at inception\. The objective is to determine the price at which the Company would transact a sale if the product or service was sold on a stand\-alone basis\. The Company determines the best estimate of selling price by considering multiple inputs and methods including, but not limited to, the estimated selling price of comparable travel, discounted cash flows, brand value, published selling prices, number of points awarded, and the number of points redeemed\. The Company estimates the selling prices and volumes over the term of the Agreement in order to determine the allocation of proceeds to each of the multiple performance obligations\. The Company records revenue related to air transportation when the transportation is delivered and revenue related to marketing elements when the performance obligation is satisfied\. A one percent increase or decrease in the Company's estimate of the standalone selling prices, implemented as of January 1, 2018, resulting in an allocation of proceeds to air transportation would have changed the Company's Operating revenues by approximately $6 million for the year ended December 31, 2018\.

Under its current program, Southwest estimates the portion of loyalty points that will not be redeemed\. In estimating the spoilage, the Company takes into account the Member’s past behavior, as well as several factors related to the Member’s account that are expected to be indicative of the likelihood of future point redemption\. These factors include, but are not limited to, tenure with the program, points accrued in the program, and whether or not the Member has a co\-branded credit card\. The Company believes it has obtained sufficient historical behavioral data to develop a predictive statistical model to analyze the amount of spoilage expected for all loyalty points\. The Company updates this model at least annually, and applies the new spoilage rates effective October 1st each year, or more frequently if required by changes in the business\. Changes in the spoilage rates applied annually in recent years have not had a material impact on Passenger revenues\. However, given the Company's January 1, 2018 adoption of the New Revenue Standard and elimination of the incremental cost method of accounting for flight points, the value of the loyalty liabilities subject to changes in the spoilage rates has significantly increased\. Therefore, future spoilage rate changes are much more likely to cause volatility in Passenger revenues\. For the year ended December 31, 2018, based on actual redemptions of points sold to business partners and earned through flights, a hypothetical one percentage point change in the estimated spoilage rate would have resulted in a change to Passenger revenue of approximately $107 million (an increase in spoilage would have resulted in an increase in revenue and a decrease in spoilage would have resulted in a decrease in revenue)\. Given that Member behavior will continue to develop as the program matures, the Company expects the current estimates may change in future periods\. However, the Company believes its current estimates are reasonable given current facts and circumstances\.

**Item 7A\.** ***Quantitative and Qualitative Disclosures About Market Risk***

62


Annual Report of Southwest Airlines Co\. for year 2018

The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 31, 2018, and December 31, 2017:

|                                         |                       |                                                                                |                                                               |                                                           |
| --------------------------------------- | --------------------- | ------------------------------------------------------------------------------ | ------------------------------------------------------------- | --------------------------------------------------------- |
|                                         |                       | **Fair value measurements at reporting date using:**                           | **Fair value measurements at reporting date using:**          | **Fair value measurements at reporting date using:**      |
|                                         |                       | **Quoted prices in**

**active markets**

**for identical assets** | **Significant**

**other observable**

**inputs** | **Significant**

**unobservable**

**inputs** |
| **Description**                         | **December 31, 2018** | **(Level 1)**                                                                  | **(Level 2)**                                                 | **(Level 3)**                                             |
| **Assets**                              | (in millions)         | (in millions)                                                                  | (in millions)                                                 | (in millions)                                             |
| Cash equivalents                        |                       |                                                                                |                                                               |                                                           |
| Cash equivalents (a)                    | $1,392                | $1,392                                                                         | $—                                                            | $—                                                        |
| Commercial paper                        | 454                   | —                                                                              | 454                                                           | —                                                         |
| Certificates of deposit                 | 8                     | —                                                                              | 8                                                             | —                                                         |
| Short\-term investments:                |                       |                                                                                |                                                               |                                                           |
| Treasury bills                          | 1,582                 | 1,582                                                                          | —                                                             | —                                                         |
| Certificates of deposit                 | 228                   | —                                                                              | 228                                                           | —                                                         |
| Time deposits                           | 25                    | —                                                                              | 25                                                            | —                                                         |
| Fuel derivatives:                       |                       |                                                                                |                                                               |                                                           |
| Option contracts (b)                    | 138                   | —                                                                              | —                                                             | 138                                                       |
| Other available\-for\-sale securities   | 127                   | 127                                                                            | —                                                             | —                                                         |
| **Total assets**                        | $3,954                | $3,101                                                                         | $715                                                          | $138                                                      |
| **Liabilities**                         |                       |                                                                                |                                                               |                                                           |
| Interest rate derivatives (see Note 10) | (14)                  | —                                                                              | (14)                                                          | —                                                         |

(a) Cash equivalents are primarily composed of money market investments\.

(b) In the Consolidated Balance Sheet amounts are presented as an asset\. See Note 10\.

106


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

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

NOTE 13 \. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table shows the components of accumulated other comprehensive loss:

|                                                                     |                                                      |                          |                       |                          |
| ------------------------------------------------------------------- | ---------------------------------------------------- | ------------------------ | --------------------- | ------------------------ |
| **(in millions)**                                                   | **Pension and Other Benefits Liabilities** **^(2)^** | **Derivative Contracts** | **Investments**       | **Total**                |
| Balance at January 1, 2015 (net of tax effect of $1,279)            | $

(7,517

)                             | $222                     | $

(16

) | $

(7,311

) |
| Changes in value (net of tax effect of $41)                         | 10                                                   | 43                       | (45

)          | 8                        |
| Reclassification into earnings (net of tax effect of $16) ^(1)^     | 153                                                  | (125

)            | —                     | 28                       |
| Balance at December 31, 2015 (net of tax effect of $1,222)          | (7,354

)                                      | 140                      | (61

)          | (7,275

)          |
| Changes in value (net of tax effect of $293)                        | (482

)                                        | (19

)             | 42                    | (459

)            |
| Reclassification into earnings (net of tax effect of $57) ^(1)^     | 122                                                  | (24

)             | —                     | 98                       |
| Balance at December 31, 2016 (net of tax effect of $1,458)          | (7,714

)                                      | 97                       | (19

)          | (7,636

)          |
| Changes in value (net of tax effect of $32)                         | (264

)                                        | (21

)             | 148                   | (137

)            |
| Reclassification into earnings (net of tax effect of $90)**^(1)^** | 166                                                  | (6

)              | (8

)           | 152                      |
| Balance at December 31, 2017 (net of tax effect of $1,400)          | $

(7,812

)                             | $70                      | $121                  | $

(7,621

) |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Amounts reclassified from AOCI for pension and other benefits liabilities and for derivative contracts designated as foreign currency cash flow hedges are recorded in salaries and related costs and in passenger revenue, respectively, in the Consolidated Statements of Operations\. The reclassification into earnings for investments relates to our investment in Grupo Aeroméxico and the related conversion to accounting under the equity method\. The reclassification of the unrealized gain was recorded to non\-operating expense in our Consolidates Statements of Operations\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | Includes   $700 million  of deferred income tax expense, primarily related to pension obligations, that will not be recognized in net income until the pension obligations are fully extinguished\. We consider all income sources, including other comprehensive income, in determining the amount of tax benefit allocated to continuing operations\. |

NOTE 14 \. SEGMENTS AND GEOGRAPHIC INFORMATION

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker and is used in resource allocation and performance assessments\. Our chief operating decision maker is considered to be our executive leadership team\. Our executive leadership team regularly reviews discrete information for our   two  operating segments, which are determined by the products and services provided: our airline segment and our refinery segment\.

Airline Segment

Our airline segment is managed as a single business unit that provides scheduled air transportation for passengers and cargo throughout the U\.S\. and around the world and other ancillary airline services\. This allows us to benefit from an integrated revenue pricing and route network\. Our flight equipment forms one fleet, which is deployed through a single route scheduling system\. When making resource allocation decisions, our chief operating decision maker evaluates flight profitability data, which considers aircraft type and route economics, but gives no weight to the financial impact of the resource allocation decision on an individual carrier basis\. Our objective in making resource allocation decisions is to optimize our consolidated financial results\.

Refinery Segment

In  June 2012 , our wholly owned subsidiaries, Monroe Energy, LLC, and MIPC, LLC (collectively, "Monroe"), acquired the Trainer oil refinery and related assets located near Philadelphia, Pennsylvania, as part of our strategy to mitigate the cost of the refining margin reflected in the price of jet fuel\. The acquisition included pipelines and terminal assets that allow the refinery to supply jet fuel to our airline operations throughout the Northeastern U\.S\., including our New York hubs at LaGuardia and JFK\. We accounted for the refinery acquisition as a business combination\.

Our refinery segment operates for the benefit of the airline segment by providing jet fuel to the airline segment from its own production and through jet fuel obtained through agreements with third parties\. The refinery's production consists of jet fuel as well as non\-jet fuel products\. We use several counterparties to exchange the non\-jet fuel products produced by the refinery for jet fuel consumed in our airline operations\. The gross fair value of the products exchanged under these agreements during the years ended  December 31, 2017 ,  2016  and  2015  was   $3\.2 billion ,   $2\.7 billion  and   $3\.1 billion , respectively\.

 85


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

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

**Number** | **Description**                                                                                |
| 4\.36                         | [Trust Supplement No\. 2015\-1A, dated as of March 16, 2015, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on March 16, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515093938/d890456dex42.htm)                                                                                |
| 4\.37                         | [Trust Supplement No\. 2015\-1B, dated as of March 16, 2015, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.3 to American’s Current Report on Form 8\-K filed on March 16, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515093938/d890456dex43.htm)                                                                                |
| 4\.38                         | [Intercreditor Agreement (2015\-1), dated as of March 16, 2015, among Wilmington Trust Company, as Trustee of the American Airlines Pass Through Trust 2015\-1A and as Trustee of the American Airlines Pass Through Trust 2015\-1B, Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Class A Liquidity Provider and Class B Liquidity Provider, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4\.4 to American’s Current Report on Form 8\-K filed on March 16, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515093938/d890456dex44.htm)                                                                                |
| 4\.39                         | [Note Purchase Agreement, dated as of March 16, 2015, among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust, National Association, as Escrow Agent, and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4\.9 to American’s Current Report on Form 8\-K filed on March 16, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515093938/d890456dex49.htm)                                                                                |
| 4\.40                         | [Form of Participation Agreement (Participation Agreement among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust Company, as Loan Trustee, and Wilmington Trust Company, in its individual capacity as set forth therein) (incorporated by reference to Exhibit 4\.10 to American’s Current Report on Form 8\-K filed on March 16, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515093938/d890456dex410.htm)                                                                                |
| 4\.41                         | [Form of Indenture and Security Agreement (Indenture and Security Agreement between American Airlines, Inc\., and Wilmington Trust Company, as Loan Trustee) (incorporated by reference to Exhibit 4\.11 to American’s Current Report on Form 8\-K filed on March 16, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515093938/d890456dex411.htm)                                                                                |
| 4\.42                         | [Form of Pass Through Trust Certificate, Series 2015\-1A (incorporated by reference to Exhibit A to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on March 16, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515093938/d890456dex42.htm)                                                                                |
| 4\.43                         | [Form of Pass Through Trust Certificate, Series 2015\-1B (incorporated by reference to Exhibit A to Exhibit 4\.3 to American’s Current Report on Form 8\-K filed on March 16, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515093938/d890456dex43.htm)                                                                                |
| 4\.44                         | [Revolving Credit Agreement (2015\-1A), dated as of March 16, 2015, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2015\-1A, as Borrower, and Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Liquidity Provider (incorporated by reference to Exhibit 4\.14 to American’s Current Report on Form 8\-K filed on March 16, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515093938/d890456dex414.htm)                                                                                |
| 4\.45                         | [Revolving Credit Agreement (2015\-1B), dated as of March 16, 2015, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2015\-1B, as Borrower, and Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Liquidity Provider (incorporated by reference to Exhibit 4\.15 to American’s Current Report on Form 8\-K filed on March 16, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515093938/d890456dex415.htm)                                                                                |
| 4\.46                         | [Trust Supplement No\. 2015\-2AA, dated as of September 24, 2015, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on September 24, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515327525/d69559dex42.htm)                                                                                |
| 4\.47                         | [Trust Supplement No\. 2015\-2A, dated as of September 24, 2015, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.3 to American’s Current Report on Form 8\-K filed on September 24, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515327525/d69559dex43.htm)                                                                                |
| 4\.48                         | [Trust Supplement No\. 2015\-2B, dated as of September 24, 2015, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.4 to American’s Current Report on Form 8\-K filed on September 24, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515327525/d69559dex44.htm)                                                                                |
| 4\.49                         | [Intercreditor Agreement (2015\-2), dated as of September 24, 2015, among Wilmington Trust Company, as Trustee of the American Airlines Pass Through Trust 2015\-2AA, as Trustee of the American Airlines Pass Through Trust 2015\-2A and as Trustee of the American Airlines Pass Through Trust 2015\-2B, Commonwealth Bank of Australia, New York Branch, as Class AA Liquidity Provider, Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Class A Liquidity Provider and Class B Liquidity Provider, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4\.5 to American’s Current Report on Form 8\-K filed on September 24, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515327525/d69559dex45.htm) |

183


Annual Report of Southwest Airlines Co\. for year 2018

The following table provides information about the Company’s ESPP activity during 2018, 2017, and 2016:

|                                  |                                  |                                  |                                  |
| -------------------------------- | -------------------------------- | -------------------------------- | -------------------------------- |
| **Employee Stock Purchase Plan** | **Employee Stock Purchase Plan** | **Employee Stock Purchase Plan** | **Employee Stock Purchase Plan** |
|                                  |                                  |                                  | (a)                              |
|                                  | **Total number**                 |                                  | **Weighted\-average**            |
|                                  | **of shares**                    | **Average**                      | **fair value of each**           |
|                                  | **purchased**                    | **price paid**                   | **purchase right**               |
| **Period**                       | (in thousands)                   | **per share**                    | **under the ESPP**               |
| As of December 31, 2016          | 622                              | $36\.57                          | $4\.06                           |
| As of December 31, 2017          | 544                              | $50\.13                          | $5\.57                           |
| As of December 31, 2018          | 661                              | $50\.73                          | $5\.64                           |

(a) The weighted\-average fair value of each purchase right under the ESPP granted is equal to ten percent discount from the market value of the Common Stock at the end of each monthly purchase period\.

***Taxes***

Grants of RSUs result in the creation of a deferred tax asset, which is a temporary difference, until the time the RSU vests\. All excess tax benefits and tax deficiencies are recorded through the income statement\. Due to the treatment of RSUs for tax purposes, the Company’s effective tax rate from year to year is subject to variability\.

**10****\. FINANCIAL DERIVATIVE INSTRUMENTS**

***Fuel Contracts***

Airline operators are inherently dependent upon energy to operate and, therefore, are impacted by changes in jet fuel prices\. Furthermore, jet fuel and oil typically represents one of the largest operating expenses for airlines\. The Company endeavors to acquire jet fuel at the lowest possible cost and to reduce volatility in operating expenses through its fuel hedging program\. Although the Company may periodically enter into jet fuel derivatives for short\-term timeframes, because jet fuel is not widely traded on an organized futures exchange, there are limited opportunities to hedge directly in jet fuel for time horizons longer than approximately 24 months into the future\. However, the Company has found that financial derivative instruments in other commodities, such as West Texas Intermediate ("WTI") crude oil, Brent crude oil, and refined products, such as heating oil and unleaded gasoline, can be useful in decreasing its exposure to jet fuel price volatility\. The Company does not purchase or hold any financial derivative instruments for trading or speculative purposes\.

The Company has used financial derivative instruments for both short\-term and long\-term timeframes, and primarily uses a mixture of purchased call options, collar structures (which include both a purchased call option and a sold put option), call spreads (which include a purchased call option and a sold call option), put spreads (which include a purchased put option and a sold put option), and fixed price swap agreements in its portfolio\. Although the use of collar structures and swap agreements can reduce the overall cost of hedging, these instruments carry more risk than purchased call options in that the Company could end up in a liability position when the collar structure or swap agreement settles\. With the use of purchased call options and call spreads, the Company cannot be in a liability position at settlement, but does not have coverage once market prices fall below the strike price of the purchased call option\.

For the purpose of evaluating its net cash spend for jet fuel and for forecasting its future estimated jet fuel expense, the Company evaluates its hedge volumes strictly from an "economic" standpoint and thus does not consider whether the hedges have qualified or will qualify for hedge accounting\. The Company defines its "economic" hedge as the net volume of fuel derivative contracts held, including the impact of positions that have been offset through sold positions, regardless of whether those contracts qualify for hedge accounting\. The level at which the Company is economically hedged for a particular period is also dependent on current market prices for that period, as well as the types of derivative instruments held and the strike prices of those instruments\. For example, the Company may enter into "out\-of\-the\-money" option contracts (including catastrophic protection), which may not generate intrinsic gains at settlement if market prices do not rise above the option strike price\. Therefore, even though the Company may have an economic

97


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

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

***Unfavorable economic and political conditions, in the United States and globally, may have a material adverse effect on our business, operating results and financial condition\.***

The Company's business and operating results are significantly impacted by U\.S\. and global economic and political conditions\. The airline industry is highly cyclical, and the level of demand for air travel is correlated to the strength of the U\.S\. and global economies\. Robust demand for the Company's air transportation services depends largely on favorable economic conditions, including the strength of the domestic and foreign economies, low unemployment levels, strong consumer confidence levels and the availability of consumer and business credit\. Air transportation is often a discretionary purchase that leisure travelers may limit or eliminate during difficult economic times\. Short\-haul travelers, in particular, have the option to replace air travel with surface travel\. In addition, during periods of unfavorable economic conditions, business travelers historically have reduced the volume of their travel, either due to cost\-saving initiatives, the replacement of travel with alternatives such as videoconferencing, or as a result of decreased business activity requiring travel\. During such periods, the Company's business and operating results may be adversely affected due to significant declines in industry passenger demand, particularly with respect to the Company's business and premium cabin travelers, and a reduction in fare levels\.

As a global business with operations outside of the United States from which it derives significant operating revenues, volatile conditions in certain international regions may have a negative impact on the Company's operating results and its ability to achieve its business objectives\. The Company's international operations are a vital part of its worldwide airline network\. Political disruptions and instability in certain regions can negatively impact the demand and network availability for air travel\.

Stagnant or weakening global economic conditions either in the United States or in other geographic regions may have a material adverse effect on the Company's revenues, operating results and liquidity\.

***The global airline industry is highly competitive and susceptible to price discounting and changes in capacity, which could have a material adverse effect on our business, operating results and financial condition\.***

The airline industry is highly competitive, marked by significant competition with respect to routes, fares, schedules (both timing and frequency), services, products, customer service and frequent flyer programs\. Consolidation in the airline industry, the rise of well\-funded government sponsored international carriers, changes in international alliances and the creation of immunized JBAs have altered and are expected to continue to alter the competitive landscape in the industry, resulting in the formation of airlines and alliances with increased financial resources, more extensive global networks and services and competitive cost structures\.

Airlines also compete by increasing or decreasing their capacity, including route systems and the number of destinations served\. Several of the Company's domestic and international competitors have increased their international capacity by including service to some destinations that the Company currently serves, causing overlap in destinations served and therefore increasing competition for those destinations\. This increased competition in both domestic and international markets may have a material adverse effect on the Company's business, operating results and financial condition\.

The Company's U\.S\. operations are subject to competition from traditional network carriers, national point\-to\-point carriers, and discount carriers, including low\-cost carriers and ultra\-low\-cost carriers\. Such carriers may have lower costs and provide service at lower fares to destinations also served by the Company\. The significant presence of low\-cost carriers, which engage in substantial price discounting, may diminish our ability to achieve sustained profitability on domestic and international routes\. Our ability to compete in the domestic market effectively depends, in part, on our ability to maintain a competitive cost structure\. If we cannot maintain our costs at a competitive level, then our business, financial condition and operating results could be materially and adversely affected\.

Our international operations are subject to competition from both foreign and domestic carriers\. Competition is significant from government subsidized competitors from certain Middle East countries\. These carriers have large numbers of international widebody aircraft on order and are increasing service to the U\.S\. from their hubs in the Middle East\. The government support provided to these carriers has allowed them to grow quickly, reinvest in their product, invest in other airlines and expand their global presence\.

Through alliance and other marketing and codesharing agreements with foreign carriers, U\.S\. carriers have increased their ability to sell international transportation, such as services to and beyond traditional European and Asian gateway cities\. Similarly, foreign carriers have obtained increased access to interior U\.S\. passenger traffic beyond traditional U\.S\. gateway cities through these relationships\. In addition, several JBAs among U\.S\. and foreign carriers have received grants of antitrust immunity allowing the participating carriers to coordinate schedules, pricing, sales and inventory\. If we are not able to continue participating in these types of alliance and other marketing and codesharing agreements in the future, our business, financial condition and operating results could be materially and adversely affected\.

9


Annual Report of Southwest Airlines Co\. for year 2019

|                            |     |                       |                              |                             |                       |                              |                             |
| -------------------------- | --- | --------------------- | ---------------------------- | --------------------------- | --------------------- | ---------------------------- | --------------------------- |
|                            |     | **December 31, 2019** | **December 31, 2019**        | **December 31, 2019**       | **December 31, 2018** | **December 31, 2018**        | **December 31, 2018**       |
| (in millions)              |     | **ACFO**              | **ACFO,**

**Net (a)** | **Construction Obligation** | **ACFO**              | **ACFO,**

**Net (a)** | **Construction Obligation** |
| FLL Terminal               |     | $—                    | $—                           | $—                          | $313                  | $304                         | $308                        |
| LAX Terminal 1             |     | —                     | —                            | —                           | 485                   | 459                          | 476                         |
| LAX Terminal 1\.5          | (b) | 164                   | 164                          | 164                         | 99                    | 99                           | 99                          |
| LFMP Terminal              |     | —                     | —                            | —                           | 545                   | 460                          | 502                         |
| LFMP Parking Garage        |     | —                     | —                            | —                           | 200                   | 200                          | 200                         |
| HOU International Terminal | (c) | —                     | —                            | —                           | 126                   | 115                          | 116                         |
|                            |     | $164                  | $164                         | $164                        | $1,768                | $1,637                       | $1,701                      |

(a) Net of accumulated depreciation\.

(b) Project still in progress\.

(c) Project completed in 2015 at Houston William P\. Hobby Airport ("HOU")\.

Contingencies

The Company is from time to time subject to various legal proceedings and claims arising in the ordinary course of business, including, but not limited to, examinations by the Internal Revenue Service ("IRS")\. The Company's management does not expect that the outcome of any of its currently ongoing legal proceedings or the outcome of any adjustments presented by the IRS, individually or collectively, will have a material adverse effect on the Company's financial condition, results of operations, or cash flow\.

5 \. REVENUE

Passenger Revenues

The Company’s contracts with its Customers primarily consist of its tickets sold, which are initially deferred as Air traffic liability\. Passenger revenue associated with tickets is recognized when the performance obligation to the Customer is satisfied, which is primarily when travel is provided\.

Revenue is categorized by revenue source as the Company believes it best depicts the nature, amount, timing, and uncertainty of revenue and cash flow\. The following table provides the components of Passenger revenue recognized for the years ended  December 31, 2019 ,  2018 , and  2017 :

|                                         |                             |                             |                             |
| --------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                         | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** |
| **(in millions)**                       | **2019**                    | **2018**                    | **2017**                    |
| Passenger non\-loyalty                  | $17,578                     | $17,506                     | $16,934                     |
| Passenger loyalty \- air transportation | 2,487                       | 2,307                       | 2,263                       |
| Passenger ancillary sold separately     | 711                         | 642                         | 566                         |
|  **Total passenger revenues**           | $20,776                     | $20,455                     | $19,763                     |

Passenger non\-loyalty includes all revenues recognized from Passengers related to flights paid for primarily with cash or credit card\. All Customers purchasing a ticket on Southwest Airlines are generally able to check up to two bags at no extra charge (with certain exceptions as stated in the Company's published Contract of Carriage), and the Company also does not charge a fee for a Customer to make a change to their flight after initial purchase, although fare differences may apply\. Passenger loyalty \- air transportation primarily consists of the revenue recognized associated with award flights taken by loyalty program members upon redemption of loyalty points\. Passenger ancillary sold separately

81


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

**SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized\.

|                         |                         |       |                   |
| ----------------------- | ----------------------- | ----- | ----------------- |
| ALASKA AIR GROUP, INC\. | ALASKA AIR GROUP, INC\. |       |                   |
| By:                     | /s/ BRADLEY D\. TILDEN  | Date: | February 15, 2019 |
|                         | **Bradley D\. Tilden**  |       |                   |
|                         | Chief Executive Officer |       |                   |

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on February 15, 2019 on behalf of the registrant and in the capacities indicated\.

 97


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

**NOTE 8\. EMPLOYEE BENEFIT PLANS**

Four qualified defined\-benefit plans, one non\-qualified defined\-benefit plan, and seven defined\-contribution retirement plans cover various employee groups of Alaska, Horizon and McGee Air Services\.

The defined\-benefit plans provide benefits based on an employee’s term of service and average compensation for a specified period of time before retirement\. The qualified defined\-benefit pension plans are closed to new entrants\.

Accounting standards require recognition of the overfunded or underfunded status of an entity’s defined\-benefit pension and other postretirement plan as an asset or liability in the consolidated financial statements and requires recognition of the funded status in AOCL\.

***Qualified Defined\-Benefit Pension Plans***

The Company’s four qualified defined\-benefit pension plans are funded as required by the Employee Retirement Income Security Act of 1974\. The defined\-benefit plan assets consist primarily of marketable equity and fixed\-income securities\. The work groups covered by qualified defined\-benefit pension plans include salaried employees, pilots, clerical, office, passenger service employees, mechanics and related craft employees\. The Company uses a December 31 measurement date for these plans\. All plans are closed to new entrants\.

***Weighted average assumptions used to determine benefit obligations:***

The rates below vary by plan and related work group\.

|                                |                      |                   |
| ------------------------------ | -------------------- | ----------------- |
|                                | **2018**             | **2017**          |
| Discount rates                 | **4\.37% to 4\.46%** | 3\.69% to 3\.78%  |
| Rate of compensation increases | **2\.11% to 3\.50%** | 2\.11% to 16\.51% |

***Weighted average assumptions used to determine net periodic benefit cost:***

The rates below vary by plan and related work group\.

|                                      |                       |                  |                  |
| ------------------------------------ | --------------------- | ---------------- | ---------------- |
|                                      | **2018**              | **2017**         | **2016**         |
| Discount rates                       | **3\.69% to 3\.78%**  | 4\.29% to 4\.50% | 4\.55% to 4\.69% |
| Expected return on plan assets       | **4\.25% to 5\.50%**  | 5\.50% to 6\.00% | 6\.00% to 6\.50% |
| Rate of compensation increases ^(a)^ | **2\.11% to 16\.51%** | 2\.12% to 2\.59% | 2\.06% to 2\.65% |

|     |                                                                                |
| --- | ----------------------------------------------------------------------------------------------------------------------------------------------- |
| (a) | Significant rate of compensation increase in 2018 is due to the new contract with our Mainline pilots, which was executed at the end of 2017\.  |

The discount rates are determined using current interest rates earned on high\-quality, long\-term bonds with maturities that correspond with the estimated cash distributions from the pension plans\. At December 31, 2018, the Company selected discount rates for each of the plans using a pool of higher\-yielding bonds estimated to be more reflective of settlement rates, as management has taken steps to ultimately terminate or settle plans that are frozen and move toward freezing benefits in active plans in the future\. In determining the expected return on plan assets, the Company assesses the current level of expected returns on risk\-free investments (primarily government bonds), the historical level of the risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class\. The expected return for each asset class is then weighted based on the target asset allocation to develop the expected long\-term rate of return on assets assumption for the portfolio\.

 80


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

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

Stock Performance Graph

The following graph compares the cumulative total returns during the period from December 31, 2012 to  December 31, 2017  of our common stock to the Standard & Poor's 500 Stock Index and the NYSE ARCA Airline Index\. The comparison assumes $100 was invested on December 31, 2012 in each of our common stock and the indices and assumes that all dividends were reinvested\.

![dal1231201\_chart\-56897a05\.jpg](http://ir.delta.com/dal1231201_chart-56897a05.jpg)

Issuer Purchases of Equity Securities

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

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

|               |                                      |                                  |                                                                                |                                                                                |
| ------------- | ------------------------------------ | -------------------------------- | ------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------- |
| **Period**    | **Total Number of Shares Purchased** | **Average Price Paid Per Share** | **Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs** | **Approximate Dollar Value (in millions) of Shares That May Yet Be Purchased Under the Plan or Programs** |
| October 2017  | 1,382,740                            | $52\.67                          | 1,382,740                                                                            | $4,925                                                                                |
| November 2017 | 2,529,455                            | $49\.86                          | 2,529,455                                                                            | $4,800                                                                                |
| December 2017 | 2,321,176                            | $54\.34                          | 2,321,176                                                                            | $4,675                                                                                |
| Total         | 6,233,371                            |                                  | 6,233,371                                                                            |                                                                                |

 24


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

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

|                          |                                                                                |                                                                              |                                                                                |                                                     |
| ------------------------ | --------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | --------------------------------------------------- |
|                          | **Fair Value Measurements as of December 31, 2018**                                                 | **Fair Value Measurements as of December 31, 2018**                          | **Fair Value Measurements as of December 31, 2018**                            | **Fair Value Measurements as of December 31, 2018** |
| **Asset Category**       | **Quoted Prices in**

**Active Markets for**

**Identical Assets**

**(Level 1)** | **Significant**

**Observable**

**Inputs**

**(Level 2)** | **Significant**

**Unobservable**

**Inputs**

**(Level 3)** | **Total**                                           |
| Money market fund        | $4                                                                                | $—                                                                           | $—                                                                             | $4                                                  |
| Mutual funds – AAL Class | —                                                                                | 221                                                                          | —                                                                              | 221                                                 |
| Total                    | $4                                                                                | $221                                                                         | $—                                                                             | $225                                                |

Investments in the retiree medical and other postretirement benefits plans’ mutual funds are valued by quoted prices on the active market, which is fair value, and represents the net asset value of the shares of such funds as of the close of business at the end of the period\. The AAL Class mutual funds are offered only to benefit plans of American, therefore, trading is restricted only to American, resulting in a fair value classification of Level 2\. Investments included approximately   24%  and   30%  of investments in non\-U\.S\. common stocks in  2019  and  2018 , respectively\. Net asset value is based on the fair market value of the funds’ underlying assets and liabilities at the date of determination\.

Defined Contribution and Multiemployer Plans

The costs associated with American’s defined contribution plans were   $836 million ,   $825 million  and   $813 million  for the years ended  December 31, 2019 ,  2018  and  2017 , respectively\.

American participates in the International Association of Machinists & Aerospace Workers (IAM) National Pension Fund, Employer Identification No\. 51\-6031295 and Plan No\. 002 (the IAM Pension Fund)\. American’s contributions to the IAM Pension Fund were   $32 million ,   $31 million  and   $31 million  for the years ended  December 31, 2019 ,  2018  and  2017 , respectively\. The IAM Pension Fund reported   $467 million  in employers’ contributions for the year ended  December 31, 2018 , which is the most recent year for which such information is available\. For  2018 , American’s contributions represented more than   5%  of total contributions to the IAM Pension Fund\.

On March 29, 2019, the actuary for the IAM Pension Fund certified that the fund was in endangered status despite reporting a funded status of over   80% \. Additionally, the IAM Pension Fund’s Board voluntarily elected to enter into critical status on April 17, 2019\. In connection with the entry into critical status, the IAM Pension Fund adopted a rehabilitation plan on April 17, 2019 (the Rehabilitation Plan)\. Under the Rehabilitation Plan, American was subject to an immaterial contribution surcharge, which ceased to apply June 14, 2019 upon American’s adoption of a contribution schedule under the Rehabilitation Plan\. The contribution schedule American adopted provides for   2\.5%  annual increases to its contribution rate\. This contribution schedule will remain in effect through the earlier of December 31, 2031 or the date the IAM Pension Fund emerges from critical status\.

Profit Sharing Program

American accrues   5%  of its pre\-tax income excluding net special items for its profit sharing program\. For the year ended  December 31, 2019 , American accrued   $213 million  for this program, which will be distributed to employees in the first quarter of  2020 \.

149


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

Financing Activities\.  Significant financing events in  2019  were as follows:

Share Repurchases\.  The Company used  $1\.6 billion  of cash to purchase approximately  19\.2 million  shares of its common stock during  2019 \. In December 2017, UAL's Board of Directors authorized a $3\.0 billion share repurchase program to acquire UAL's common stock\. In July 2019, UAL's Board of Directors authorized a new $3\.0 billion share repurchase program to acquire UAL's common stock\. As of  December 31, 2019 , the Company had approximately  $3\.1 billion  remaining to purchase shares under its share repurchase programs\.

Debt Issuances\.  During  2019 , United received and recorded  $1\.8 billion  of proceeds as debt related to enhanced equipment trust certificate ("EETC") offerings created in  2019  to finance the purchase of aircraft\. Also, United received and recorded $350 million of proceeds from the 4\.875% Senior Notes due January 15, 2025 and borrowed approximately  $105 million  aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in  2019 \. As of December 31, 2019, United had recorded approximately $39 million of debt to finance the construction of an aircraft maintenance and ground service equipment complex at Los Angeles International Airport\.

Debt and Finance Lease Principal Payments\.  During the year ended  December 31, 2019 , the Company made debt and finance lease principal payments of  $1\.4 billion \.

Significant financing events in 2018 were as follows:

Share Repurchases\.  The Company used $1\.2 billion of cash to purchase approximately 17\.5 million shares of its common stock during 2018\.

Debt Issuances\.  During 2018, United received and recorded $1\.2 billion of proceeds as debt related to EETC offerings created in 2018 to finance the purchase of aircraft\. Also, United borrowed approximately $424 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2018\.

Debt and Finance Lease Principal Payments\.  During the year ended December 31, 2018, the Company made debt and finance lease principal payments of $1\.8 billion\.

For additional information regarding these Liquidity and Capital Resource matters, see Notes 2, 10, 11 and 13  to the financial statements included in Part II, Item 8 of this report\. For information regarding non\-cash investing and financing activities, see the Company's statements of consolidated cash flows\.

Credit Ratings\.  As of the filing date of this report, UAL and United had the following corporate credit ratings:

|                                                                                |                                                                                |                                                                                |                                                                                |
| -------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- |
|                                                                                | S&P                                                                                | Moody's                                                                                | Fitch                                                                                |
| UAL                                                                                | BB                                                                                | Ba2                                                                                | BB                                                                                |
| United                                                                                | BB                                                                                | \*                                                                                | BB                                                                                |
| \*The credit agency does not issue corporate credit ratings for subsidiary entities\.  | \*The credit agency does not issue corporate credit ratings for subsidiary entities\.  | \*The credit agency does not issue corporate credit ratings for subsidiary entities\.  | \*The credit agency does not issue corporate credit ratings for subsidiary entities\.  |

These credit ratings are below investment grade levels; however, the Company has been able to secure financing with investment grade credit ratings for certain EETCs and term loans\. Downgrades from these rating levels, among other things, could restrict the availability, or increase the cost, of future financing for the Company\.

Other Liquidity Matters

Below is a summary of additional liquidity matters\. See the indicated notes to our consolidated financial statements included in Part II, Item 8 of this report for additional details related to these and other matters affecting our liquidity and commitments\.

|                                         |         |
| --------------------------------------- | ------- |
| Pension and other postretirement plans  | Note 7  |
| Long\-term debt and debt covenants      | Note 10 |
| Leases and capacity purchase agreements | Note 11 |
| Commitments and contingencies           | Note 13 |

Contractual Obligations\.  The Company's business is capital intensive, requiring significant amounts of capital to fund the acquisition of assets, particularly aircraft\. In the past, the Company has funded the acquisition of aircraft with cash, by using EETC financing, by entering into finance or operating leases, or through other financings\. The Company also often enters into long\-term lease commitments with airports to ensure access to terminal, cargo, maintenance and other required facilities\.

The table below provides a summary of the Company's material contractual obligations as of  December 31, 2019  (in billions):

32