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

AMERICAN AIRLINES GROUP INC\.

CONSOLIDATED BALANCE SHEETS

(In millions, except share and par value)

|                                                                                |                  |                  |
| ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------- | ---------------- |
|                                                                                | **December 31,** | **December 31,** |
|                                                                                | **2019**         | **2018**         |
| **ASSETS**                                                                                |                  |                  |
| **Current assets**                                                                                |                  |                  |
| Cash                                                                                | $280             | $275             |
| Short\-term investments                                                                                | 3,546            | 4,485            |
| Restricted cash and short\-term investments                                                                                | 158              | 154              |
| Accounts receivable, net                                                                                | 1,750            | 1,706            |
| Aircraft fuel, spare parts and supplies, net                                                                                | 1,851            | 1,522            |
| Prepaid expenses and other                                                                                | 621              | 495              |
| Total current assets                                                                                | 8,206            | 8,637            |
| **Operating property and equipment**                                                                                |                  |                  |
| Flight equipment                                                                                | 42,537           | 41,499           |
| Ground property and equipment                                                                                | 9,443            | 8,764            |
| Equipment purchase deposits                                                                                | 1,674            | 1,278            |
| Total property and equipment, at cost                                                                                | 53,654           | 51,541           |
| Less accumulated depreciation and amortization                                                                                | (18,659

) | (17,443

) |
| Total property and equipment, net                                                                                | 34,995           | 34,098           |
| **Operating lease right\-of\-use assets**                                                                                | 8,737            | 9,151            |
| **Other assets**                                                                                |                  |                  |
| Goodwill                                                                                | 4,091            | 4,091            |
| Intangibles, net of accumulated amortization of $704 and $663, respectively                                                                                | 2,084            | 2,137            |
| Deferred tax asset                                                                                | 645              | 1,145            |
| Other assets                                                                                | 1,237            | 1,321            |
| Total other assets                                                                                | 8,057            | 8,694            |
| **Total assets**                                                                                | $59,995          | $60,580          |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)**                                                                                |                  |                  |
| **Current liabilities**                                                                                |                  |                  |
| Current maturities of long\-term debt and finance leases                                                                                | $2,861           | $3,294           |
| Accounts payable                                                                                | 2,062            | 1,773            |
| Accrued salaries and wages                                                                                | 1,541            | 1,427            |
| Air traffic liability                                                                                | 4,808            | 4,339            |
| Loyalty program liability                                                                                | 3,193            | 3,267            |
| Operating lease liabilities                                                                                | 1,708            | 1,654            |
| Other accrued liabilities                                                                                | 2,138            | 2,342            |
| Total current liabilities                                                                                | 18,311           | 18,096           |
| **Noncurrent liabilities**                                                                                |                  |                  |
| Long\-term debt and finance leases, net of current maturities                                                                                | 21,454           | 21,179           |
| Pension and postretirement benefits                                                                                | 6,052            | 6,907            |
| Loyalty program liability                                                                                | 5,422            | 5,272            |
| Operating lease liabilities                                                                                | 7,421            | 7,902            |
| Other liabilities                                                                                | 1,453            | 1,393            |
| Total noncurrent liabilities                                                                                | 41,802           | 42,653           |
| **Commitments and contingencies (Note 12)**                                                                                |                  |                  |
| **Stockholders' equity (deficit)**                                                                                |                  |                  |
| Common stock, $0\.01 par value; 1,750,000,000 shares authorized, 428,202,506 shares issued and outstanding at December 31, 2019; 460,610,870 shares issued and outstanding at December 31, 2018 | 4                | 5                |
| Additional paid\-in capital                                                                                | 3,945            | 4,964            |
| Accumulated other comprehensive loss                                                                                | (6,331

)  | (5,896

)  |
| Retained earnings                                                                                | 2,264            | 758              |
| Total stockholders' deficit                                                                                | (118

)    | (169

)    |
| **Total liabilities and stockholders’ equity (deficit)**                                                                                | $59,995          | $60,580          |

See accompanying notes to consolidated financial statements\.

74


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

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

Stock\-settled RSU award activity for all plans for the years ended December 31, 2017, 2016 and 2015 is as follows:

|                                  |                      |                                            |
| -------------------------------- | -------------------- | ------------------------------------------ |
|                                  | **Number of Shares** | **Weighted Average Grant Date Fair Value** |
|                                  | **(In thousands)**   |                                            |
| Outstanding at December 31, 2014 | 21,342               | $26\.43                                    |
| Granted                          | 2,213                | 46\.62                                     |
| Vested and released              | (17,163)             | 25\.20                                     |
| Forfeited                        | (785)                | 27\.12                                     |
| Outstanding at December 31, 2015 | 5,607                | $38\.08                                    |
| Granted                          | 2,655                | 41\.34                                     |
| Vested and released              | (2,754)              | 34\.83                                     |
| Forfeited                        | (321)                | 40\.15                                     |
| Outstanding at December 31, 2016 | 5,187                | $41\.48                                    |
| Granted                          | 2,309                | 48\.58                                     |
| Vested and released              | (2,708)              | 39\.63                                     |
| Forfeited                        | (464)                | 44\.48                                     |
| Outstanding at December 31, 2017 | 4,324                | $46\.94                                    |

As of December 31, 2017, there was $121 million of unrecognized compensation cost related to stock\-settled RSUs\. These costs are expected to be recognized over a weighted average period of one year\. The total fair value of stock\-settled RSUs vested during the years ended December 31, 2017, 2016 and 2015 was $123 million, $107 million and $750 million, respectively\.

***(b) Stock Appreciation Rights (SARs)***

We assumed US Airways Group’s outstanding SARs in connection with the Merger using an exchange ratio of one to one\. These SARs were granted with an exercise price equal to the underlying common stock’s fair value at the date of each grant, have service conditions, become exercisable over a three\-year vesting period and expire if unexercised at the end of their term, which ranges from seven to ten years\. During 2017, 2016 and 2015, 0\.8 million, 1\.7 million and 3\.0 million SARs, respectively, were exercised at weighted average exercise prices of $15\.71, $14\.49 and $12\.09, respectively, for a total intrinsic value of $27 million, $49 million and $102 million, respectively\. As of December 31, 2017, we had 1\.2 million SARs outstanding with an aggregate intrinsic value of $54 million and weighted average exercise price of $8\.08 that expire between 2018 and 2020 if unexercised\.

***(c) ASU 2016\-09: Compensation \- Stock Compensation (Topic 718): Improvements to Employee Share\-Based Payment Accounting***

This ASU simplified the accounting for share\-based payment award transactions including the financial statement presentation of excess tax benefits and deficiencies\. We adopted this ASU during the second quarter of 2016, which resulted in the recognition of $418 million of previously unrecognized excess tax benefits in deferred tax assets and an increase to retained earnings on the consolidated balance sheet as of the beginning of 2016\.

122


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

The following table shows a reconciliation of CASM (a GAAP measure) to CASM\-Ex (a non\-GAAP financial measure)\. We adjust CASM for the following items to determine CASM\-Ex for the reasons described below:

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *Aircraft Fuel and Related Taxes\.*  The volatility in fuel prices impacts the comparability of year\-over\-year financial performance\. The adjustment for aircraft fuel and related taxes allows investors to better understand and analyze our non\-fuel costs and year\-over\-year financial performance\. |

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *Ancillary Businesses and Refinery\.*  These expenses include aircraft maintenance we provide to third parties, our vacation wholesale operations and refinery cost of sales to third parties\. Results also include staffing services performed by DGS\. Because these businesses are not related to the generation of a seat mile, we adjust for the costs related to these areas to provide a more meaningful comparison of the costs of our airline operations to the rest of the airline industry\.  |

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *Profit Sharing\.*  We adjust for profit sharing because this adjustment allows investors to better understand and analyze our recurring cost performance and provides a more meaningful comparison of our core operating costs to the airline industry\. |

|                                   |                             |                             |
| --------------------------------- | --------------------------- | --------------------------- |
|                                   | **Year Ended December 31,** | **Year Ended December 31,** |
|                                   | **2018**                    | **2017**                    |
| CASM (cents)                      | 14\.87¢                     | 13\.83¢                     |
| Adjusted for:                     |                             |                             |
| Aircraft fuel and related taxes   | (3\.43)                     | (2\.66)                     |
| Ancillary businesses and refinery | (0\.64)                     | (0\.58)                     |
| Profit sharing                    | (0\.49)                     | (0\.42)                     |
| CASM\-Ex                          | 10\.31¢                     | 10\.17¢                     |

Glossary of Defined Terms

ASM  \- Available Seat Mile\. A measure of capacity\. ASMs equal the total number of seats available for transporting passengers during a reporting period multiplied by the total number of miles flown during that period\.

CASM  \- (Operating) Cost per Available Seat Mile\. The amount of operating cost incurred per ASM during a reporting period\. CASM is also referred to as "unit cost\."

CASM\-Ex  \- The amount of operating cost incurred per ASM during a reporting period, adjusted for aircraft fuel and related taxes, ancillary businesses and refinery and profit sharing expenses\.

Passenger Load Factor  \- A measure of utilized available seating capacity calculated by dividing RPMs by ASMs for a reporting period\.

Passenger Mile Yield or Yield  \- The amount of passenger revenue earned per RPM during a reporting period\.

PRASM  \- Passenger Revenue per ASM\. The amount of passenger revenue earned per ASM during a reporting period\. PRASM is also referred to as "unit revenue\."

RPM  \- Revenue Passenger Mile\. One revenue\-paying passenger transported one mile\. RPMs equal the number of revenue passengers during a reporting period multiplied by the number of miles flown by those passengers during that period\. RPMs are also referred to as "traffic\."

TRASM  \- Total Revenue per ASM\. The amount of total revenue earned per ASM during a reporting period\.

 49


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

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

***Balance Sheet Position***

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

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

**Other Postretirement Benefits** |
|                      | **2018**             | **2017**             | **2018**                                                          | **2017**                                                          |
|                      | **(In millions)**    | **(In millions)**    | **(In millions)**                                                 | **(In millions)**                                                 |
| As of December 31,   |                      |                      |                                                                   |                                                                   |
| Current liability    | $7                   | $10                  | $23                                                               | $89                                                               |
| Noncurrent liability | 6,318                | 6,870                | 589                                                               | 627                                                               |
| Total liabilities    | $6,325               | $6,880               | $612                                                              | $716                                                              |

|                                                               |        |        |        |        |
| ------------------------------------------------------------- | ------ | ------ | ------ | ------ |
| Net actuarial loss (gain)                                     | $5,356 | $5,351 | $(452) | $(388) |
| Prior service cost (benefit)                                  | 131    | 160    | (362)  | (600)  |
| Total accumulated other comprehensive loss (income), pre\-tax | $5,487 | $5,511 | $(814) | $(988) |

***Plans with Accumulated Benefit Obligations Exceeding Fair Value of Plan Assets***

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

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

**Other Postretirement Benefits** |
|                                               | **2018**             | **2017**             | **2018**                                                          | **2017**                                                          |
|                                               | **(In millions)**    | **(In millions)**    | **(In millions)**                                                 | **(In millions)**                                                 |
| Projected benefit obligation                  | $16,351              | $18,245              | $—                                                                | $—                                                                |
| Accumulated benefit obligation (ABO)          | 16,341               | 18,235               | —                                                                 | —                                                                 |
| Accumulated postretirement benefit obligation | —                    | —                    | 837                                                               | 1,011                                                             |
| Fair value of plan assets                     | 10,023               | 11,364               | 225                                                               | 295                                                               |
| ABO less fair value of plan assets            | 6,318                | 6,871                | —                                                                 | —                                                                 |

***Net Periodic Benefit Cost (Income)***

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

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

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

**Other Postretirement Benefits** |
|                                    | **2018**             | **2017**             | **2016**             | **2018**                                                         | **2017**                                                         | **2016**                                                         |
|                                    | **(In millions)**    | **(In millions)**    | **(In millions)**    | **(In millions)**                                                | **(In millions)**                                                | **(In millions)**                                                |
| Defined benefit plans:             |                      |                      |                      |                                                                  |                                                                  |                                                                  |
| Service cost                       | $3                   | $2                   | $2                   | $5                                                               | $4                                                               | $3                                                               |
| Interest cost                      | 674                  | 721                  | 749                  | 35                                                               | 39                                                               | 47                                                               |
| Expected return on assets          | (905)                | (790)                | (750)                | (24)                                                             | (21)                                                             | (20)                                                             |
| Settlements                        | —                    | 1                    | —                    | —                                                                | —                                                                | —                                                                |
| Amortization of:                   |                      |                      |                      |                                                                  |                                                                  |                                                                  |
| Prior service cost (benefit)       | 28                   | 28                   | 28                   | (236)                                                            | (237)                                                            | (240)                                                            |
| Unrecognized net loss (gain)       | 141                  | 144                  | 126                  | (21)                                                             | (23)                                                             | (17)                                                             |
| Net periodic benefit cost (income) | $(59)                | $106                 | $155                 | $(241)                                                           | $(238)                                                           | $(227)                                                           |

The components of net periodic benefit income other than the service cost component are included in nonoperating other income, net in our consolidated statements of operations\.

The estimated amount of unrecognized actuarial net loss and prior service cost for the defined benefit pension plans that will be amortized from AOCI into net periodic benefit cost over the next fiscal year is $181 million\.

113


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

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

**NOTE 14 \- SPECIAL CHARGES**

Special charges in the statements of consolidated operations consisted of the following for the years ended December 31 (in millions):

|                                                                                |            |            |            |
|:------------------------------------------------------------------------------------------------ | ----------:| ----------:| ----------:|
| Operating:                                                                                |  **2017**  |  **2016**  |  **2015**  |
| Severance and benefit costs                                                                      |     $ 116  |      $ 37  |     $ 107  |
| Impairment of assets                                                                             |        25  |       412  |        79  |
| Cleveland airport lease restructuring                                                            |         —  |        74  |         —  |
| Labor agreement costs                                                                            |         —  |        64  |        18  |
| (Gains) losses on sale of assets and other special charges                                       |        35  |        51  |       122  |
| Total operating special charges                                                                  |       176  |       638  |       326  |
| Nonoperating:                                                                                |            |            |            |
| (Gains) losses on extinguishment of debt and other                                               |         —  |        (1) |       202  |
| Total operating and nonoperating special charges before income taxes                             |       176  |       637  |       528  |
| Income tax benefit related to special charges                                                    |       (63) |      (229) |       (11) |
| Income tax adjustments (Notes 6 and 7)                                                           |      (192) |       180  |    (3,130) |
| Total operating and nonoperating special charges, net of income taxes and income tax adjustments |      $(79) |      $588  |   $(2,613) |

***2017***

During 2017, the Company recorded $83 million ($53 million net of taxes) of severance and benefit costs related to a voluntary early\-out program for its technicians and related employees represented by the IBT\. In the first quarter of 2017, approximately 1,000 technicians and related employees elected to voluntarily separate from the Company and will receive a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through early 2019\. Also during 2017, the Company recorded $33 million ($21 million net of taxes) of severance primarily related to its management reorganization initiative\.

During 2017 the Company recorded a $10 million ($6 million net of taxes) impairment charge related to obsolete spare parts inventory and a $15 million ($10 million net of taxes) intangible asset impairment charge related to a maintenance service agreement\.

***2016***

In April 2016, the Federal Aviation Administration (“FAA”) announced that it will designate Newark Liberty International Airport (“Newark”) as a Level 2 schedule\-facilitated airport under the International Air Transport Association Worldwide Slot Guidelines\. The designation was associated with an updated demand and capacity analysis of Newark by the FAA\. In 2016, the Company determined that the FAA’s action impaired the entire value of its Newark slots because the slots are no longer the mechanism that governs take\-off and landing rights\. Accordingly, the Company recorded a $412 million special charge ($264 million net of taxes) to write off the intangible asset\.

In 2016, the City of Cleveland agreed to amend the Company’s lease, which runs through 2029, associated with certain excess airport terminal space (principally Terminal D) and related facilities at Hopkins International Airport (“Cleveland”)\. The Company recorded an accrual for remaining payments under the lease for facilities

97


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

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

UNITED AIRLINES, INC\.

STATEMENTS OF CONSOLIDATED OPERATIONS

(In millions)

|                                                    |                             |                             |                             |
| -------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                    | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                    | **2019**                    | **2018 (a)**                | **2017 (a)**                |
| Operating revenue:                                 |                             |                             |                             |
| Passenger revenue                                  | $39,625                     | $37,706                     | $34,460                     |
| Cargo                                              | 1,179                       | 1,237                       | 1,114                       |
| Other operating revenue                            | 2,455                       | 2,360                       | 2,210                       |
| Total operating revenue                            | 43,259                      | 41,303                      | 37,784                      |
| Operating expense:                                 |                             |                             |                             |
| Salaries and related costs                         | 12,071                      | 11,458                      | 10,941                      |
| Aircraft fuel                                      | 8,953                       | 9,307                       | 6,913                       |
| Regional capacity purchase                         | 2,849                       | 2,649                       | 2,268                       |
| Landing fees and other rent                        | 2,543                       | 2,449                       | 2,310                       |
| Depreciation and amortization                      | 2,288                       | 2,165                       | 2,096                       |
| Aircraft maintenance materials and outside repairs | 1,794                       | 1,767                       | 1,856                       |
| Distribution expenses                              | 1,651                       | 1,558                       | 1,435                       |
| Aircraft rent                                      | 288                         | 433                         | 621                         |
| Special charges                                    | 246                         | 487                         | 176                         |
| Other operating expenses                           | 6,273                       | 5,799                       | 5,548                       |
| Total operating expense                            | 38,956                      | 38,072                      | 34,164                      |
| Operating income                                   | 4,303                       | 3,231                       | 3,620                       |
| Nonoperating income (expense):                     |                             |                             |                             |
| Interest expense                                   | (731

)               | (670

)               | (626

)               |
| Interest capitalized                               | 85                          | 65                          | 74                          |
| Interest income                                    | 133                         | 101                         | 57                          |
| Unrealized gains (losses) on investments, net      | 153                         | (5

)                 | —                           |
| Miscellaneous, net                                 | (27

)                | (72

)                | (100

)               |
| Total nonoperating expense, net                    | (387

)               | (581

)               | (595

)               |
| Income before income taxes                         | 3,916                       | 2,650                       | 3,025                       |
| Income tax expense                                 | 905                         | 527                         | 864                         |
| Net income                                         | $3,011                      | $2,123                      | $2,161                      |

(a) Amounts adjusted due to the adoption of Accounting Standards Update No\. 2016\-02,  Leases (Topic 842) \. See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information\.

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

49


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

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *DOT:*  A domestic airline is required to hold a certificate of public convenience and necessity issued by the DOT in order to provide passenger and cargo air transportation in the U\.S\. Subject to certain individual airport capacity, noise and other restrictions, this certificate permits an air carrier to operate between any two points in the U\.S\. Certificates do not expire, but may be revoked for failure to comply with federal aviation statutes, regulations, orders or the terms of the certificates\. While airlines are permitted to establish their own fares without government regulation,  the DOT has jurisdiction over the approval of international codeshare agreements, marketing alliance agreements between major domestic carriers, international and some domestic route authorities, Essential Air Service market subsidies, carrier liability for personal or property damage, and certain airport rates and charges disputes\. International treaties may also contain restrictions or requirements for flying outside of the U\.S\. and impose different carrier liability limits than those applicable to domestic flights\. The DOT has been active in implementing a variety of “consumer protection” regulations, covering subjects such as advertising, passenger communications, denied boarding compensation and tarmac delay response\.  Airlines are subject to enforcement actions that are brought by the DOT from time to time for alleged violations of consumer protection and other economic regulations\. We are not aware of any enforcement proceedings that could either materially affect our financial position or impact our authority to operate\.  |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *FAA:*  The FAA, through Federal Aviation Regulations (FARs), generally regulates all aspects of airline operations, including establishing personnel, maintenance and flight operation standards\. Domestic airlines are required to hold a valid air carrier operating certificate issued by the FAA\. Pursuant to these regulations, we have established, and the FAA has approved, our operations specifications and a maintenance program for each type of aircraft we operate\. Each maintenance program provides for the ongoing maintenance of the relevant aircraft type, ranging from frequent routine inspections to major overhauls\. From time to time, the FAA issues airworthiness directives (ADs) that must be incorporated into our aircraft maintenance program and operations\. All airlines are subject to enforcement actions that are brought by the FAA from time to time for alleged violations of FARs or ADs\. At this time, we are not aware of any enforcement proceedings that could either materially affect our financial position or impact our authority to operate\.  |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *TSA:*  Airlines serving the U\.S\. must operate a TSA\-approved Aircraft Operator Standard Security Program (AOSSP), and comply with TSA Security Directives (SDs) and regulations\. Under TSA authority, we are required to collect a September 11 Security Fee of $5\.60 per one\-way trip from passengers and remit that sum to the government to fund aviation security me asures\.  Airlines are subject to enforcement actions that are brought by the TSA from time to time for alleged violations of the AOSSP, SDs or security regulations\. We are not aware of any enforcement proceedings that could either materially affect our financial position or impact our authority to operate\.  |

The Department of Justice and DOT have jurisdiction over airline antitrust matters\. The U\.S\. Postal Service has jurisdiction over certain aspects of the transportation of mail and related services\. Labor relations in the air transportation industry are regulated under the Railway Labor Act\. To the extent we continue to fly to foreign countries and pursue alliances with international carriers, we may be subject to certain regulations of foreign agencies and international treaties\.

**ENVIRONMENTAL AND OCCUPATIONAL SAFETY MATTERS**

We are subject to various laws and government regulations concerning environmental matters and employee safety and health in the U\.S\. and other countries\. We are also subject to the oversight of the Occupational Safety and Health Administration (OSHA) concerning employee safety and health matters\. The U\.S\. Environmental Protection Agency, OSHA, and other federal agencies have been authorized to create and enforce regulations that have an impact on our operations\. In addition to these federal activities, various states have been delegated certain authorities under these federal statutes\. Many state and local governments have adopted environmental and employee safety and health laws and regulations\. We maintain our safety, health and environmental programs in order to meet or exceed these requirements\.

In the future there may be legislation to reduce carbon and other greenhouse gas emissions\. Over the course of several years, we have transitioned to more fuel\-efficient aircraft fleets and reduced our emissions with the goal of continuing that trend\.

The Airport Noise and Capacity Act recognizes the rights of airport operators with noise problems to implement local noise abatement programs so long as they do not interfere unreasonably with interstate or foreign commerce or the national air transportation system\. Authorities in several cities have established aircraft noise reduction programs, including the imposition of nighttime curfews\. We believe we have sufficient scheduling flexibility to accommodate local noise restrictions\.

Although we do not currently anticipate that these regulatory matters, individually or collectively, will have a material effect on our financial condition, results of operations or cash flows, new regulations or compliance issues that we do not currently anticipate could have the potential to harm our financial condition, results of operations or cash flows in future periods\.

 17


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

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

**Number** | **Description**                                                                                |
| 4\.77                         | [Form of Participation Agreement (Participation Agreement between American Airlines, Inc\. (as successor in interest to US Airways, Inc\.), as Owner, and Wilmington Trust Company, as Indenture Trustee and Subordination Agent) (incorporated by reference to Exhibit 4\.18 to US Airways Group’s Current Report on Form 8\-K filed on July 1, 2011 (Commission File No\. 1\-08444))\.](http://www.sec.gov/Archives/edgar/data/701345/000095012311063424/p18939exv4w18.htm)                                                                                |
| 4\.78                         | [Form of Indenture (Trust Indenture and Security Agreement between American Airlines, Inc\. (as successor in interest to US Airways, Inc\.), as Owner, and Wilmington Trust Company, as Indenture Trustee) (incorporated by reference to Exhibit 4\.19 to US Airways Group’s Current Report on Form 8\-K filed on July 1, 2011 (Commission File No\. 1\-08444))\.](http://www.sec.gov/Archives/edgar/data/701345/000095012311063424/p18939exv4w19.htm)                                                                                |
| 4\.79                         | [Guarantee, dated as of June 28, 2011, from American Airlines Group Inc\. (as successor in interest to US Airways Group, Inc\.) (incorporated by reference to Exhibit 4\.23 to US Airways Group’s Current Report on Form 8\-K filed on July 1, 2011 (Commission File No\. 1\-08444))\.](http://www.sec.gov/Archives/edgar/data/701345/000095012311063424/p18939exv4w23.htm)                                                                                |
| 4\.80                         | [Amended and Restated Guarantee, dated as of March 31, 2014, from American Airlines Group Inc\. (as successor in interest to US Airways Group, Inc\.) relating to obligations of US Airways under the equipment notes relating to its Series 2011\-1 Pass Through Certificates (incorporated by reference to Exhibit 10\.2 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2014 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620114000011/d715288dex102.htm)                                                                                |
| 4\.81                         | [Form of Participation Agreement (Participation Agreement between American Airlines, Inc\. (as successor in interest to US Airways, Inc\.), as Owner, and Wilmington Trust Company, as Indenture Trustee and Subordination Agent) (incorporated by reference to Exhibit 4\.18 to US Airways Group’s Current Report on Form 8\-K filed on May 16, 2012 (Commission File No\. 1\-08444))\.](http://www.sec.gov/Archives/edgar/data/701345/000119312512236751/d354045dex418.htm)                                                                                |
| 4\.82                         | [Form of Indenture (Trust Indenture and Security Agreement between American Airlines, Inc\. (as successor in interest to US Airways, Inc\.), as Owner, and Wilmington Trust Company, as Indenture Trustee) (incorporated by reference to Exhibit 4\.19 to US Airways Group’s Current Report on Form 8\-K filed on May 16, 2012 (Commission File No\. 1\-08444))\.](http://www.sec.gov/Archives/edgar/data/701345/000119312512236751/d354045dex419.htm)                                                                                |
| 4\.83                         | [Amended and Restated Guarantee, dated as of March 31, 2014, from American Airlines Group Inc\. (as successor in interest to US Airways Group, Inc\.) relating to obligations of US Airways under the equipment notes relating to its Series 2012\-1 Pass Through Certificates (incorporated by reference to Exhibit 10\.3 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2014 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620114000011/d715288dex103.htm)                                                                                |
| 4\.84                         | [Form of Participation Agreement (Participation Agreement between American Airlines, Inc\. (as successor in interest to US Airways, Inc\.), as Owner, and Wilmington Trust Company, as Indenture Trustee and Subordination Agent) (incorporated by reference to Exhibit B to Exhibit 4\.12 to US Airways Group’s Current Report on Form 8\-K filed on December 13, 2012 (Commission File No\. 1\-08444))\.](http://www.sec.gov/Archives/edgar/data/701345/000119312512501957/d452985dex412.htm)                                                                                |
| 4\.85                         | [Form of Indenture (Trust Indenture and Security Agreement between American Airlines, Inc\. (as successor in interest to US Airways, Inc\.), as Owner, and Wilmington Trust Company, as Indenture Trustee) (incorporated by reference to Exhibit C to Exhibit 4\.12 to US Airways Group’s Current Report on Form 8\-K filed on December 13, 2012 (Commission File No\. 1\-08444))\.](http://www.sec.gov/Archives/edgar/data/701345/000119312512501957/d452985dex412.htm)                                                                                |
| 4\.86                         | [Amended and Restated Guarantee, dated as of March 31, 2014, from American Airlines Group Inc\. (as successor in interest to US Airways Group, Inc\.) relating to obligations of US Airways under the equipment notes relating to its Series 2012\-2 Pass Through Certificates (incorporated by reference to Exhibit 10\.4 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2014 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620114000011/d715288dex104.htm)                                                                                |
| 4\.87                         | [Form of Assumption Agreement, dated as of December 30, 2015, by American Airlines, Inc\. for the benefit of Wilmington Trust Company, as Indenture Trustee, to (i) each Participation Agreement between, among others, American Airlines, Inc\. (as successor in interest to US Airways, Inc\.) and Wilmington Trust Company, as Indenture Trustee, entered into pursuant to the 2010\-1, 2011\-1, 2012\-1, 2012\-2 and 2013\-1 EETC note purchase agreements and (ii) each Trust Indenture and Security Agreement, between, among others, American Airlines, Inc\. (as successor in interest to US Airways, Inc\.), and Wilmington Trust Company, as Indenture Trustee entered into pursuant to the 2010\-1, 2011\-1, 2012\-1, 2012\-2 and 2013\-1 EETC note purchase agreements (incorporated by reference to Exhibit 10\.3 to AAG’s Current Report on Form 8\-K filed on December 31, 2015 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515418305/d110614dex103.htm) |
| 4\.88                         | [Trust Supplement No\. 2016\-1AA, dated as of January 19, 2016, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on January 21, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516433815/d126794dex42.htm)                                                                                |
| 4\.89                         | [Trust Supplement No\. 2016\-1A, dated as of January 19, 2016, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.3 to American’s Current Report on Form 8\-K filed on January 21, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516433815/d126794dex43.htm)                                                                                |
| 4\.90                         | [Trust Supplement No\. 2016\-1B, dated as of January 19, 2016, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.4 to American’s Current Report on Form 8\-K filed on January 21, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516433815/d126794dex44.htm)                                                                                |

182


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

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

or credited directly to other comprehensive income at the previously enacted U\.S\. federal corporate income tax rate that remains in AOCI and the amount that would have been charged or credited directly to other comprehensive income using the newly enacted U\.S\. federal corporate income tax rate, excluding the effect of any valuation allowance previously charged to income from continuing operations\. ASU 2018\-02 is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted\. We have elected to early adopt this standard for the year ended December 31, 2017\. We have reclassified $118 million from AOCI to RE as a result of this adoption\. See Note 6 of this report for additional information\.

**NOTE 2 \- GOODWILL AND OTHER INTANGIBLE ASSETS**

The following table presents information about the Company’s goodwill and other intangible assets at December 31 (in millions):

|                                     |                    |                                    |                                       |                                    |                                       |
|:-----------------------------------:|:------------------:| ----------------------------------:| -------------------------------------:| ----------------------------------:| -------------------------------------:|
|                                     |                    |                           **2017** |                              **2017** |                           **2016** |                              **2016** |
|              **Item**               | **Asset life (a)** | **Gross Carrying**
**Amount** | **Accumulated**
**Amortization** | **Gross Carrying**
**Amount** | **Accumulated**
**Amortization** |
|              Goodwill               |                    |                            $4,523  |                                       |                            $4,523  |                                       |
|   Finite\-lived intangible assets   |                    |                                    |                                       |                                    |                                       |
|     Frequent flyer database (b)     |         22         |                            $1,177  |                                 $832  |                            $1,177  |                                 $771  |
|                Hubs                 |         20         |                               145  |                                   89  |                               145  |                                   82  |
|              Contracts              |         13         |                               121  |                                  103  |                               135  |                                   95  |
|       Patents and tradenames        |         3          |                               108  |                                  108  |                               108  |                                  108  |
|       Airport slots and gates       |         8          |                                97  |                                   97  |                                97  |                                   97  |
|                Other                |         25         |                               109  |                                   84  |                               109  |                                   81  |
|                Total                |                    |                            $1,757  |                               $1,313  |                            $1,771  |                               $1,234  |
| Indefinite\-lived intangible assets |                    |                                    |                                       |                                    |                                       |
|          Route authorities          |                    |                            $1,562  |                                       |                            $1,562  |                                       |
|       Airport slots and gates       |                    |                               536  |                                       |                               536  |                                       |
|        Tradenames and logos         |                    |                               593  |                                       |                               593  |                                       |
|              Alliances              |                    |                               404  |                                       |                               404  |                                       |
|                Total                |                    |                            $3,095  |                                       |                            $3,095  |                                       |

(a) Weighted average life expressed in years\.

(b) The frequent flyer database is amortized based on an accelerated amortization schedule to reflect utilization of the assets\. Estimated cash flows correlating to the expected attrition rate of customers in the frequent flyer database is considered in the determination of the amortization schedules\.

Amortization expense in 2017, 2016 and 2015 was $79 million, $90 million and $105 million, respectively\. Projected amortization expense in 2018, 2019, 2020, 2021 and 2022 is $67 million, $61 million, $55 million, $50 million and $40 million, respectively\.

See Note 14 of this report for additional information related to impairment of intangible assets\.

**NOTE 3 – COMMON STOCKHOLDERS’ EQUITY AND PREFERRED SECURITIES**

In 2017, UAL repurchased approximately 28 million shares of UAL common stock for $1\.8 billion, completing its July 2016 repurchase authorization\. In December 2017, UAL’s Board of Directors authorized a new $3\.0 billion share repurchase program to acquire UAL’s common stock\. As of December 31, 2017, the Company had approximately $3\.0 billion remaining to purchase shares under its existing share repurchase authority\. UAL may repurchase shares through the open market, privately negotiated transactions, block trades or accelerated share repurchase transactions from time to time in accordance with applicable securities laws\. UAL may repurchase shares of UAL common stock subject to prevailing market conditions, and may discontinue such repurchases at any time\. See Part II, Item 5, Market for registrant’s common equity, related stockholder matters and issuer purchases of equity securities, of this report for additional information\.

69


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

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

PART IV

ITEM 15\. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES\.

|     |                                                                                |
| --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (a) | List of documents filed as part of this report:                                                                                |
| (1) | *Financial Statements* \. The financial statements required by this item are listed in Part II, Item 8,  *Financial Statements and Supplementary Data*  herein\.        |
| (2) | *Financial Statement Schedules\.*  The financial statement schedule required by this item is listed below and included in this report after the signature page hereto\. |

|     |                                                                                |
| --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
|     |  Schedule II\-Valuation and Qualifying Accounts for the years ended December 31, 2019, 2018 and 2017\.                                                                         |
|     | All other schedules are omitted because they are not applicable, not required or the required information is shown in the consolidated financial statements or notes thereto\. |
| (b) | *Exhibits\.*  The exhibits required by this item are provided in the Exhibit Index\.                                                                                |

ITEM 16\. FORM 10\-K SUMMARY\.

None\.

EXHIBIT INDEX

|                  |                   |                                                                                |
| ---------------- | ----------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| **Exhibit No\.** | **Registrant**    | **Exhibit**                                                                                |
|                  |                   | **Articles of Incorporation and Bylaws**                                                                                |
| 3\.1             | UAL               | [Amended and Restated Certificate of Incorporation of United Airlines Holdings, Inc\. (filed as Exhibit 3\.1 to UAL's Form 8\-K filed June 27, 2019, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000110465919037929/a19-12113_1ex3d1.htm)                                                                                |
| 3\.2             | UAL               | [Amended and Restated Bylaws of United Airlines Holdings, Inc\. (filed as Exhibit 3\.2 to UAL's Form 8\-K filed June 27, 2019, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000110465919037929/a19-12113_1ex3d2.htm)                                                                                |
| 3\.3             | United            | [Amended and Restated Certificate of Incorporation of United Airlines, Inc\. (filed as Exhibit 3\.1 to UAL's Form 8\-K filed April 3, 2013, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312513140583/d514659dex31.htm)                                                                                |
| 3\.4             | United            | [Amended and Restated By\-laws of United Airlines, Inc\. (filed as Exhibit 3\.2 to UAL's Form 8\-K filed April 3, 2013, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312513140583/d514659dex32.htm)                                                                                |
|                  |                   | **Instruments Defining Rights of Security Holders, Including Indentures**                                                                                |
|  4\.1            | UAL

United | [Indenture, dated as of May 7, 2013, among United Continental Holdings, Inc\., United Airlines, Inc\. and The Bank of New York Mellon Trust Company, N\.A\., as Trustee (filed as Exhibit 4\.1 to UAL's Form 8\-K filed on May 10, 2013, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000095015513000024/e62332806ex4_1.htm)                                                                                |
|  4\.2            | UAL

United | [Second Supplemental Indenture, dated as of November 8, 2013, among United Continental Holdings, Inc\., United Airlines, Inc\. and The Bank of New York Mellon Trust Company, N\.A\., as Trustee, providing for the issuance of 6\.000% Senior Notes due 2020 (filed as Exhibit 4\.2 to UAL's Form 8\-K filed on November 12, 2013, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000095015513000051/e62651277ex4_2.htm) |
|  4\.3            | UAL

United | [Form of 6\.000% Senior Notes due 2020 (filed as Exhibit 4\.3 to UAL's Form 8\-K filed on November 12, 2013, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000095015513000051/e62651277ex4_3.htm)                                                                                |
|  4\.4            | UAL

United | [Form of Notation of Note Guarantee (filed as Exhibit 4\.4 to UAL's Form 8\-K filed on November 12, 2013, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000095015513000051/e62651277ex4_4.htm)                                                                                |

95


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

**Aircraft Fuel**

Currently, our fuel\-hedging portfolio consists of crude oil call options\. Call options effectively cap our pricing for the crude oil component of jet fuel, limiting our exposure to increasing fuel prices for about half of our planned fuel consumption\. With call options, we are hedged against volatile crude oil price increases, and, during a period of decline in crude oil prices, we only forfeit cash previously paid for hedge premiums\. We believe there is risk in not hedging against the possibility of fuel price increases\. We estimate that a hypothetical 10% increase or decrease in the forward curve for crude oil prices as of December 31, 2018 would change the fair value of our crude oil hedge portfolio to approximately $8 million or $2 million, respectively\.

Our portfolio value of fuel hedge contracts was $4 million at December 31, 2018 compared to a portfolio value of $22 million at December 31, 2017\. We do not have any collateral held by counterparties to these agreements as of December 31, 2018\.

We continue to believe that our fuel hedge program is an important part of our strategy to reduce our exposure to volatile fuel prices\. We expect to continue to enter into these types of contracts prospectively, although significant changes in market conditions could affect our decisions\. For more discussion, see Note 4 to our consolidated financial statements\.

**Interest Rates**

We have exposure to market risk associated with changes in interest rates related primarily to our debt obligations and short\-term investment portfolio\. Our debt obligations include variable\-rate instruments, which have exposure to changes in interest rates\. In order to mitigate the risk of interest rate fluctuations, we have a number of interest rate swaps that fix the interest rates on certain variable\-rate debt agreements\. A hypothetical 10% change in the average interest rates incurred on average variable\-rate debt held during 2018 would have correspondingly changed our net earnings and cash flows associated with these items by less than $5 million\. Our variable\-rate debt represents approximately 70% and 63% of our total long\-term debt as of December 31, 2018 and December 31, 2017, respectively\.

Our exposure to interest rate variability is further mitigated through our variable\-rate investment portfolio\. We also have investments in marketable securities, which are exposed to market risk associated with changes in interest rates\. If short\-term interest rates were to average one point more than they did in 2018, interest income would increase by approximately $14 million\.

|                                                                       |
| --------------------------------------------------------------------- |
| **ITEM 8\. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA** |

**SELECTED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (unaudited)**

|                                   |                   |                   |                    |                    |                   |                   |                    |                    |
| --------------------------------- | ----------------- | ----------------- | ------------------ | ------------------ | ----------------- | ----------------- | ------------------ | ------------------ |
|                                   | **First Quarter** | **First Quarter** | **Second Quarter** | **Second Quarter** | **Third Quarter** | **Third Quarter** | **Fourth Quarter** | **Fourth Quarter** |
| *(in millions, except per share)* | **2018**          | **2017**          | **2018**           | **2017**           | **2018**          | **2017**          | **2018**           | **2017**           |
| Operating revenues                | **$1,832**        | $1,740            | **$2,156**         | $2,102             | **$2,212**        | $2,110            | **$2,064**         | $1,942             |
| Operating income                  | **29**            | 157               | **271**            | 487                | **297**           | 427               | **46**             | 137                |
| Net income                        | **4**             | 93                | **193**            | 293                | **217**           | 259               | **23**             | 315                |
| Basic earnings per share ^(a)^    | **0\.03**         | 0\.75             | **1\.57**          | 2\.37              | **1\.76**         | 2\.10             | **0\.19**          | 2\.56              |
| Diluted earnings per share ^(a)^  | **0\.03**         | 0\.75             | **1\.56**          | 2\.36              | **1\.75**         | 2\.09             | **0\.19**          | 2\.55              |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------- |
| ^(a)^ | For earnings per share, the sum of the quarters may not equal the total for the full year due to rounding\. |

 53


Annual Report of Southwest Airlines Co\. for year 2017

In addition, the Company retired its remaining Classic aircraft during the year as part of an accelerated retirement schedule, including 54 of which are still owned or on operating lease\. As these aircraft are not in service for the Company, they are not included in the fleet count as of December 31, 2017\. See Note 7 to the Consolidated Financial Statements for further information\. In accounting for long\-lived assets, the Company must make estimates about the expected useful lives of the assets, the expected residual values of the assets, and the potential for impairment based on the fair value of the assets and their future expected cash flows\.

The following table shows a breakdown of the Company’s long\-lived asset groups along with information about estimated useful lives and residual values for new assets generally purchased from the manufacturer and assets constructed for others:

|                               |                        |                                   |
| ----------------------------- | ---------------------- | --------------------------------- |
|                               | Estimated useful life  | Estimated

 residual value  |
| Airframes and engines         | 25 years               | 15 percent                        |
| Aircraft parts                | Fleet life             | 4 percent                         |
| Assets constructed for others | 10 to 30 years         | 17 to 75 percent                  |
| Ground property and equipment | 5 to 30 years          | 0 to 10 percent                   |

In estimating the lives and expected residual values of its aircraft, the Company primarily has relied upon actual experience with the same or similar aircraft types, current and projected future market information, and recommendations from Boeing\. Aircraft estimated useful lives are based on the number of "cycles" flown (one take\-off and landing) as well as the aircraft age\. The Company has made a conversion of cycles into years based on both historical and anticipated future utilization of the aircraft\. Subsequent revisions to these estimates, which can be significant, could be caused by changes to aircraft maintenance programs, changes in utilization of the aircraft (actual cycles during a given period of time), governmental regulations on aging aircraft, and changing market prices of new and used aircraft of the same or similar types\. The Company evaluates its estimates and assumptions each reporting period and, when warranted, adjusts these estimates and assumptions\. Generally, these adjustments are accounted for on a prospective basis through depreciation and amortization expense\. See Note 1 to the Consolidated Financial Statements for further information\.

The Company believes it is unlikely that materially different estimates for expected lives, expected residual values, and impairment evaluations would be made or reported based on other reasonable assumptions or conditions suggested by actual historical experience and other data available at the time estimates were made\.

***Financial Derivative Instruments***

The Company utilizes financial derivative instruments primarily to manage its risk associated with changing jet fuel prices\. See "Quantitative and Qualitative Disclosures about Market Risk" for more information on these risk management activities, and see Note 10 to the Consolidated Financial Statements for more information on the Company’s fuel hedging program and financial derivative instruments\. Also, see Note 2 to the Consolidated Financial Statements for information about future required changes to hedge accounting per ASU No\. 2017\-12\.

All derivatives are required to be reflected at fair value and recorded on the Consolidated Balance Sheet\. At December 31, 2017, the Company was a party to over 400 separate financial derivative instruments related to its fuel hedging program for future periods\. Changes in the fair values of these instruments can vary dramatically based on changes in the underlying commodity prices\. For example, during 2017, market "spot" prices for Brent crude oil peaked at a high of approximately $67 per barrel and hit a low price of approximately $45 per barrel\. During 2016, market spot prices ranged from a high of approximately $57 per barrel to a low of approximately $28 per barrel\. Market price changes can be driven by factors such as supply and demand, inventory levels, weather events, refinery capacity, political agendas, the value of the U\.S\. dollar, geopolitical events, and general economic conditions, among other items\. The financial derivative instruments utilized by the Company primarily are a combination of collars, purchased call options, call spreads, put spreads, and fixed price swap agreements\.

61


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

NOTE 10\. EMPLOYEE BENEFIT PLANS

We sponsor defined benefit and defined contribution pension plans, healthcare plans and disability and survivorship plans for eligible employees and retirees and their eligible family members\.

Defined Benefit Pension Plans\.  We sponsor defined benefit pension plans for eligible employees and retirees\. These plans are closed to new entrants and frozen for future benefit accruals\. The Pension Protection Act of 2006 allows commercial airlines to elect alternative funding rules ("Alternative Funding Rules") for defined benefit plans that are frozen\. We elected the Alternative Funding Rules under which the unfunded liability for a frozen defined benefit plan may be amortized over a fixed 17\-year period and is calculated using an 8\.85% discount rate until the 17\-year period expires for all frozen defined benefit plans by the end of 2024\. We have no minimum funding requirements in 2020, but we plan to voluntarily contribute approximately $500 million to these plans\.

Defined Contribution Pension Plans\.  We sponsor several defined contribution plans\. These plans generally cover different employee groups and employer contributions vary by plan\. The costs associated with our defined contribution pension plans were $991 million, $926 million and $875 million for the years ended December 31, 2019, 2018 and 2017, respectively\.

Postretirement Healthcare Plans\.  We sponsor healthcare plans that provide benefits to eligible retirees and their dependents who are under age 65\. We have generally eliminated company\-paid post age 65 healthcare coverage, except for (1) subsidies available to a limited group of retirees and their dependents and (2) a group of retirees who retired prior to 1987\. Benefits under these plans are funded from current assets and employee contributions\. During 2018, we remeasured our postretirement obligation to reflect a curtailment of our postretirement healthcare plans\.

Postemployment Plans\.  We provide certain other welfare benefits to eligible former or inactive employees after employment but before retirement, primarily as part of the disability and survivorship plans\. Substantially all employees are eligible for benefits under these plans in the event of death and/or disability\.

Benefit Obligations, Fair Value of Plan Assets and Funded Status

|                                                  |                                                  |                                                  |                  |                  |  |  |  |           |                                                  |                                                  |                                                  |                                                  |  |  |  |
|:------------------------------------------------ |:------------------------------------------------ |:------------------------------------------------ | ----------------:| ----------------:|:- |:- |:- | ---------:| ------------------------------------------------:|:------------------------------------------------:|:------------------------------------------------:|:------------------------------------------------:|:- |:- |:- |
|                                                  |                                                  |                                                  | Pension Benefits | Pension Benefits |  |  |  |           | Other Postretirement and Postemployment Benefits | Other Postretirement and Postemployment Benefits | Other Postretirement and Postemployment Benefits | Other Postretirement and Postemployment Benefits |  |  |  |
|                                                  |                                                  |                                                  |     December 31, |     December 31, |  |  |  |           |                                     December 31, |                   December 31,                   |                   December 31,                   |                   December 31,                   |  |  |  |
| (in millions)                                    | (in millions)                                    | (in millions)                                    |             2019 |             2018 |  |  |  |      2019 |                                             2018 |
| Benefit obligation at beginning of period        | Benefit obligation at beginning of period        | Benefit obligation at beginning of period        |         $ 19,809 |         $ 21,696 |  |  |  |   $ 3,225 |                                          $ 3,504 |
| Service cost                                     | Service cost                                     | Service cost                                     |                — |                — |  |  |  |        83 |                                               85 |
| Interest cost                                    | Interest cost                                    | Interest cost                                    |              833 |              781 |  |  |  |       137 |                                              126 |
| Actuarial loss (gain)                            | Actuarial loss (gain)                            | Actuarial loss (gain)                            |            1,678 |          (1,560) |  |  |  |       226 |                                            (142) |
| Benefits paid, including lump sums and annuities | Benefits paid, including lump sums and annuities | Benefits paid, including lump sums and annuities |          (1,107) |          (1,093) |  |  |  |     (315) |                                            (306) |
| Participant contributions                        | Participant contributions                        | Participant contributions                        |                — |                — |  |  |  |        23 |                                               26 |
| Curtailment                                      | Curtailment                                      | Curtailment                                      |                — |                — |  |  |  |         — |                                             (68) |
| Settlements                                      | Settlements                                      | Settlements                                      |             (14) |             (15) |  |  |  |         — |                                                — |
| Benefit obligation at end of period^(1)^         | Benefit obligation at end of period^(1)^         | Benefit obligation at end of period^(1)^         |         $ 21,199 |         $ 19,809 |  |  |  |   $ 3,379 |                                          $ 3,225 |
| Fair value of plan assets at beginning of period | Fair value of plan assets at beginning of period | Fair value of plan assets at beginning of period |         $ 13,459 |         $ 14,744 |  |  |  |     $ 637 |                                            $ 866 |
| Actual gain (loss) on plan assets                | Actual gain (loss) on plan assets                | Actual gain (loss) on plan assets                |            2,485 |            (700) |  |  |  |       134 |                                             (72) |
| Employer contributions                           | Employer contributions                           | Employer contributions                           |            1,022 |              523 |  |  |  |       159 |                                              152 |
| Participant contributions                        | Participant contributions                        | Participant contributions                        |                — |                — |  |  |  |        23 |                                               26 |
| Benefits paid, including lump sums and annuities | Benefits paid, including lump sums and annuities | Benefits paid, including lump sums and annuities |          (1,107) |          (1,093) |  |  |  |     (346) |                                            (335) |
| Settlements                                      | Settlements                                      | Settlements                                      |             (14) |             (15) |  |  |  |         — |                                                — |
| Fair value of plan assets at end of period       | Fair value of plan assets at end of period       | Fair value of plan assets at end of period       |         $ 15,845 |         $ 13,459 |  |  |  |     $ 607 |                                            $ 637 |
| Funded status at end of period                   | Funded status at end of period                   | Funded status at end of period                   |        $ (5,354) |        $ (6,350) |  |  |  | $ (2,772) |                                        $ (2,588) |

^(1)^ At the end of each year presented, our accumulated benefit obligations for our pension plans are equal to the benefit obligations shown above\.

81


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

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

**Number** | **Description**                                                                                |
| 10\.8                         | [Fifth Amendment to the Amended and Restated Credit and Guaranty Agreement, dated as of September 17, 2018, amending the Amended and Restated Credit and Guaranty Agreement, dated as of April 20, 2015, among American Airlines, Inc\., American Airlines Group Inc\., the lenders from time to time party thereto, Citibank N\.A\., as administrative agent, and certain other parties thereto (incorporated by reference to Exhibit 10\.1 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2018 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620118000039/ex10110qq318.htm) \*                                                                                |
| 10\.9                         | [Sixth Amendment to the Amended and Restated Credit and Guaranty Agreement, dated as of December 10, 2018, amending the Amended and Restated Credit and Guaranty Agreement, dated as of April 20, 2015, among American Airlines, Inc\., American Airlines Group Inc\., the lenders from time to time party thereto, Citibank N\.A\., as administrative agent, and certain other parties thereto (incorporated by reference to Exhibit 10\.9 to AAG’s Annual Report on Form 10\-K for the year ended December 31, 2018 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620119000009/ex10910k2018.htm) \*\*                                                                                |
| 10\.10                        | [Seventh Amendment to the Amended and Restated Credit and Guaranty Agreement, dated as of November 8, 2019, amending the Amended and Restated Credit and Guaranty Agreement, dated as of April 20, 2015, among American Airlines, Inc\., American Airlines Group Inc\., the lenders from time to time party thereto, Citibank N\.A\., as administrative agent, and certain other parties thereto\.\*\*](https://americanairlines.gcs-web.com/email-alerts/ex101010k2019.htm)                                                                                |
| 10\.11                        | [First Amendment and Restatement Agreement, dated as of May 21, 2015, in relation to the Credit and Guaranty Agreement, dated as of June 27, 2013 (as amended), among American Airlines Group Inc\. (as successor in interest to US Airways Group, Inc\.), American Airlines, Inc\. (as successor in interest to US Airways, Inc\.), the Revolving Lenders (as defined therein) party thereto, the 2015 Term Loan Lenders (as defined therein) party thereto and Deutsche Bank AG New York Branch, as administrative agent and collateral agent (incorporated by reference to Exhibit 10\.5 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2015 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515261937/d945812dex105.htm) |
| 10\.12                        | [First Amendment to Amended and Restated Credit and Guaranty Agreement, dated as of October 26, 2015, amending the Amended and Restated Credit and Guaranty Agreement, dated as of May 21, 2015, among American Airlines, Inc\. (as successor in interest to US Airways, Inc\.), American Airlines Group Inc\., (as successor in interest to US Airways Group, Inc\.), the lenders from time to time party thereto, Deutsche Bank AG New York Branch, as administrative agent, and certain other parties thereto (incorporated by reference to Exhibit 10\.8 to AAG’s Annual Report on Form 10\-K for the year ended December 31, 2015 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516474605/d78287dex108.htm)                                   |
| 10\.13                        | [Second Amendment to Amended and Restated Credit and Guaranty Agreement, dated as of March 14, 2017, amending the Amended and Restated Credit and Guaranty Agreement, dated as of May 21, 2015, among American Airlines, Inc\., American Airlines Group Inc\., the lenders from time to time party thereto, Deutsche Bank AG New York Branch, as administrative agent, and certain other parties thereto (incorporated by reference to Exhibit 10\.2 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2017 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517140927/d358913dex102.htm)                                                                                |
| 10\.14                        | [Third Amendment to the Amended and Restated Credit And Guaranty Agreement, dated as of August 21, 2017, amending the Amended and Restated Credit and Guaranty Agreement, dated as of May 21, 2015, among American Airlines, Inc\., American Airlines Group Inc\., the lenders from time to time party thereto, Deutsche Bank AG New York Branch, as administrative agent, and certain other parties thereto (incorporated by reference to Exhibit 10\.11 to AAG’s Annual Report on Form 10\-K for the year ended December 31, 2017 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620118000009/ex101110k2017.htm) \*                                                                                |
| 10\.15                        | [Fourth Amendment to Amended and Restated Credit and Guaranty Agreement, dated as of May 15, 2018, amending the Amended and Restated Credit and Guaranty Agreement, dated as of May 21, 2015, among American Airlines, Inc\., American Airlines Group Inc\., the lenders from time to time party thereto, Deutsche Bank AG New York Branch, as administrative agent, and Barclays Bank PLC, as designated replacement term lender (incorporated by reference to Exhibit 10\.3 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2018 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620118000027/ex10310qq218.htm)                                                                                |
| 10\.16                        | [Fifth Amendment to Amended and Restated Credit and Guaranty Agreement, dated as of December 10, 2018, amending the Amended and Restated Credit and Guaranty Agreement, dated as of May 21, 2015, among American Airlines, Inc\., American Airlines Group Inc\., the lenders from time to time party thereto, Deutsche Bank AG New York Branch, as administrative agent, and Barclays Bank PLC, as designated replacement term lender (incorporated by reference to Exhibit 10\.15 to AAG’s Annual Report on Form 10\-K for the year ended December 31, 2018 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620119000009/ex101510k2018.htm) \*\*                                                                                |
| 10\.17                        | [Sixth Amendment to Amended and Restated Credit and Guaranty Agreement, dated as of November 8, 2019, amending the Amended and Restated Credit and Guaranty Agreement, dated as of May 21, 2015, among American Airlines, Inc\., American Airlines Group Inc\., the lenders from time to time party thereto, Deutsche Bank AG New York Branch, as administrative agent, and Barclays Bank PLC, as designated replacement term lender\.\*\*](https://americanairlines.gcs-web.com/email-alerts/ex101710k2019.htm)                                                                                |
| 10\.18                        | [Credit and Guaranty Agreement, dated as of April 29, 2016, among American Airlines, Inc\. as borrower, American Airlines Group Inc\., as parent and guarantor, certain other subsidiaries of American Airlines Group Inc\., as guarantors, the lenders party thereto, Barclays Bank PLC, as administrative agent and collateral agent, and certain other parties thereto (incorporated by reference to Exhibit 10\.2 to AAG’s Quarterly Report on Form 10\-Q filed on July 22, 2016 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516654354/d204187dex102.htm)                                                                                |

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