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

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

***(d) Senior Notes***

The details of our 5\.50% and 4\.625% senior notes are shown in the table below as of December 31, 2018:

|                                            |                                                |                                                  |
| ------------------------------------------ | ---------------------------------------------- | ------------------------------------------------ |
|                                            | **5\.50% Senior Notes**                        | **4\.625% Senior Notes**                         |
| Aggregate principal issued and outstanding | $750 million                                   | $500 million                                     |
| Maturity date                              | October 2019                                   | March 2020                                       |
| Fixed interest rate per annum              | 5\.50%                                         | 4\.625%                                          |
| Interest payments                          | Semi\-annually in arrears in April and October | Semi\-annually in arrears in March and September |

The 5\.50% and 4\.625% senior notes are senior unsecured obligations of AAG\. The senior notes are fully and unconditionally guaranteed by American\. The indentures for the senior notes contain covenants and events of default generally customary for similar financings\. In addition, if we experience specific kinds of changes of control, we must offer to repurchase the senior notes at a price of 101% of the principal amount plus accrued and unpaid interest, if any, to (but not including) the repurchase date\. Upon the occurrence of certain events of default, the senior notes may be accelerated and become due and payable\.

***Guarantees***

As of December 31, 2018, AAG had issued guarantees covering approximately $769 million of American’s special facility revenue bonds (and interest thereon) and $8\.4 billion of American’s secured debt (and interest thereon), including the Credit Facilities and certain EETC financings\.

***Collateral\-Related Covenants***

Certain of our debt financing agreements contain loan to value (LTV) ratio covenants and require us to annually appraise the related collateral\. Pursuant to such agreements, if the LTV ratio exceeds a specified threshold, we are required, as applicable, to pledge additional qualifying collateral (which in some cases may include cash collateral), or pay down such financing, in whole or in part\.

Specifically, we are required to meet certain collateral coverage tests on an annual basis for our Credit Facilities, as described below:

|                                                        |                                                                                |                                                                                |                                                                       |                                                                                |
| ------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- |
|                                                        | **2013 Credit Facilities**                                                                                | **2014 Credit Facilities**                                                                                | **April 2016**

**Credit Facilities**                          | **December 2016**

**Credit Facilities**                                                                                |
| Frequency of Appraisals

of Appraised Collateral | Annual                                                                                | Annual                                                                                | Annual                                                                | Annual                                                                                |
| LTV Requirement                                        | 1\.6x Collateral valuation to amount of debt outstanding (62\.5% LTV)                                                                                | 1\.6x Collateral valuation to amount of debt outstanding (62\.5% LTV)                                                                                | 1\.6x Collateral valuation to amount of debt outstanding (62\.5% LTV) | 1\.6x Collateral valuation to amount of debt outstanding (62\.5% LTV)                                                                                |
| LTV as of Last Measurement Date                        | 34\.8%                                                                                | 18\.8%                                                                                | 40\.9%                                                                | 57\.5%                                                                                |
| Collateral Description                                 | Generally, certain slots, route authorities and airport gate leasehold rights used by American to operate all services between the U\.S\. and South America | Generally, certain slots, route authorities and airport gate leasehold rights used by American to operate certain services between the U\.S\. and European Union (including London Heathrow) | Generally, certain spare parts                                        | Generally, certain Ronald Reagan Washington National Airport (DCA) slots, certain La Guardia Airport (LGA) slots, certain simulators and certain leasehold rights |

At December 31, 2018, we were in compliance with the applicable collateral coverage tests as of the most recent measurement dates\.

103


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

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

that the Company no longer uses and will continue to incur costs under the lease without economic benefit to the Company\. This liability was measured and recorded at its fair value when the Company ceased its right to use such facilities leased to it pursuant to the lease\. The Company recorded a net charge of $74 million ($47 million net of taxes) related to the amended lease\.

The fleet service, passenger service, storekeeper and other employees represented by the International Association of Machinists and Aerospace Workers (the “IAM”) ratified seven new contracts with the Company which extended the contracts through 2021\. The technicians and related employees represented by the IBT ratified a six\-year joint collective bargaining agreement which extended the contract through 2022\. During 2016, the Company recorded $171 million ($110 million net of taxes) of special charges primarily for payments in conjunction with the IAM and IBT agreements described above\. As part of the ratified contract with the IBT, the Company amended some of its technicians and related employees’ postretirement medical plans\. The amendments triggered curtailment accounting, resulting in the recognition of a one\-time $60 million gain ($38 million net of taxes) for accelerated recognition of a prior service credit in one of the plans\. Also, as part of the ratified contract with the Association of Flight Attendants, the Company amended two of its flight attendant postretirement medical plans\. The amendments triggered curtailment accounting, resulting in the recognition of a one\-time $47 million gain ($30 million net of taxes) for accelerated recognition of a prior service credit\.

During 2016, the Company recorded $37 million ($24 million net of taxes) of severance and benefit costs related to a voluntary early\-out program for the Company’s flight attendants and other severance agreements\. In 2014, more than 2,500 flight attendants elected to voluntarily separate from the Company for a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through the end of 2016\.

***2015***

During its annual assessment in the fourth quarter, the Company recorded $33 million ($22 million net of related income tax benefit) related to the impairment of its indefinite\-lived intangible assets (certain domestic slots and international Pacific routes), $8 million for the write\-off of unexercised aircraft purchase options and $7 million for inventory held for sale\. For the full\-year 2015, the Company also recorded other impairments, including $10 million for discontinued internal software projects and $10 million for the impairment of several engines held for sale\.

The Company recorded $107 million of severance and benefit costs primarily related to a voluntary early\-out program for its flight attendants\. In 2014, more than 2,500 flight attendants elected to voluntarily separate from the Company for a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through the end of 2016\.

During 2015, the Company also recorded $18 million related to collective bargaining agreements, $60 million of integration\-related costs primarily related to systems integration and training for employees, $32 million related to charges for settlements in connection with legal matters, $16 million for the cease use of an aircraft under lease and $14 million for losses on the sale of aircraft and other miscellaneous gains and losses\.

The Company recorded $202 million of losses as part of Nonoperating income (expense): Miscellaneous, net due primarily to the write\-off of $134 million related to the unamortized non\-cash debt discount from the extinguishment of the 6% Notes due 2026 and the 6% Notes due 2028\. During 2015, the Company also recorded a $61 million foreign exchange loss related to its cash holdings in Venezuela\. The Venezuelan government has maintained currency controls and fixed official exchange rates (i\.e\. Sistema Complementario de Administracion de Divisas (“SICAD”), and Sistema Marginal de Divisas (“SIMADI”)) for many years\. Previously, airlines were permitted to use the more favorable SICAD rate (13\.5 Venezuelan bolivars to one U\.S\. dollar) if repatriating profits and for payments of local goods and services in Venezuela\. During 2015, many of the payments for local goods and services transitioned to utilizing the SIMADI rate (200 Venezuelan bolivars to one U\.S\. dollar) or were required to be paid in U\.S\. dollars\. Furthermore, the Venezuelan government has not permitted the exchange and repatriations of local currency since mid\-2014\. As a result, the Company changed the exchange

98


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

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

In addition, the Company’s operations may be adversely impacted due to the existing antiquated ATC system utilized by the U\.S\. government\. During peak travel periods in certain markets, the current ATC system’s inability to handle ATC demand has led to short\-term capacity constraints imposed by government agencies and resulted in delays and disruptions of air traffic\. In addition, the current system will not be able to effectively handle projected future air traffic growth\. Imposition of these ATC constraints on a long\-term basis may have a material adverse effect on the Company’s operations\. Failure to update the ATC system in a timely manner, and the substantial funding requirements of a modernized ATC system that may be imposed on air carriers may have an adverse impact on the Company’s financial condition or results of operations\.

Access to landing and take\-off rights, or “slots,” at several major U\.S\. airports and many foreign airports served by the Company are, or recently have been, subject to government regulation\. Certain of the Company’s major hubs are among the most congested airports in the United States and have been or could be the subject of regulatory action that might limit the number of flights and/or increase costs of operations at certain times or throughout the day\. The FAA may limit the Company’s airport access by limiting the number of departure and arrival slots at high density traffic airports, which could affect the Company’s ownership and transfer rights, and local airport authorities may have the ability to control access to certain facilities or the cost of access to their facilities, which could have an adverse effect on the Company’s business\. The FAA historically has taken actions with respect to airlines’ slot holdings that airlines have challenged; if the FAA were to take actions that adversely affect the Company’s slot holdings, the Company could incur substantial costs to preserve its slots or may lose slots\. If slots are eliminated at an airport, or if the number of hours of operation governed by slots is reduced at an airport, the lack of controls on takeoffs and landings could result in greater congestion both at the affected airport or in the regional airspace (e\.g\., the New York City metropolitan region airspace) and could significantly impact the Company’s operations\. Further, the Company’s operating costs at airports, including the Company’s major hubs, may increase significantly because of capital improvements at such airports that the Company may be required to fund, directly or indirectly\. Such costs could be imposed by the relevant airport authority without the Company’s approval and may have a material adverse effect on the Company’s financial condition\.

Many aspects of the Company’s operations are also subject to increasingly stringent federal, state, local and international laws protecting the environment\. Future environmental regulatory developments, such as climate change regulations in the United States and abroad could adversely affect operations and increase operating costs in the airline industry\. In addition, there is the potential for additional regulatory actions in regard to the emission of GHGs by the aviation industry\. The precise nature of future requirements and their applicability to the Company are difficult to predict, but the financial impact to the Company and the aviation industry would likely be adverse and could be significant\.

See Part I, Item 1, Business—Industry Regulation, of this report for additional information on government regulation impacting the Company\.

***Extensive government regulation on international routes could restrict the Company’s ability to conduct its business and have a material adverse effect on the Company’s financial position and results of operations\.***

The ability of carriers to operate flights on international routes between the United States and other countries may be subject to change\. Applicable arrangements between the United States and foreign governments may be amended from time to time, government policies with respect to airport operations may be revised, and the availability of appropriate slots or facilities may change\. The Company currently operates a number of flights on international routes under government arrangements, regulations or policies that designate the number of carriers permitted to operate on such routes, the capacity of the carriers providing services on such routes, the airports at which carriers may operate international flights, or the number of carriers allowed access to particular airports\. Any further limitations, additions or modifications to such arrangements, regulations or policies could have a material adverse effect on the Company’s financial position and results of operations\. Additionally, a change in law, regulation or policy for any of the Company’s international routes, such as Open Skies, could have a

16


Annual Report of Southwest Airlines Co\. for year 2017

**DISCLOSURE REGARDING FORWARD\-LOOKING INFORMATION**

This Form 10\-K contains "forward\-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934\. Forward\-looking statements are based on, and include statements about, the Company’s estimates, expectations, beliefs, intentions, and strategies for the future, and the assumptions underlying these forward\-looking statements\. Specific forward\-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and include, without limitation, words such as "anticipates," "believes," "estimates," "expects," "intends," "may," "will," "would," "could," "should," "projects," "plans," "goal," and similar expressions\. Although management believes these forward\-looking statements are reasonable as and when made, forward\-looking statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict\. Therefore, actual results may differ materially from what is expressed in or indicated by the Company's forward\-looking statements or from historical experience or the Company's present expectations\. Known material risk factors that could cause these differences are set forth below under "Risk Factors\." Additional risks or uncertainties (i) that are not currently known to the Company, (ii) that the Company currently deems to be immaterial, or (iii) that could apply to any company, could also materially adversely affect the Company's business, financial condition, or future results\.

Caution should be taken not to place undue reliance on the Company's forward\-looking statements, which represent the Company's views only as of the date this Form 10\-K is filed\. The Company undertakes no obligation to update publicly or revise any forward\-looking statement, whether as a result of new information, future events, or otherwise\.

**Item 1A\.*****Risk Factors***

***The airline industry is particularly sensitive to changes in economic conditions; in the event of unfavorable economic conditions or economic uncertainty, the Company's results of operations could be negatively affected, which could require the Company to adjust its business strategies\.***

The airline industry, which is subject to relatively high fixed costs and highly variable and unpredictable demand, is particularly sensitive to changes in economic conditions\. Historically, unfavorable U\.S\. economic conditions have driven changes in travel patterns and have resulted in reduced spending for both leisure and business travel\. For some consumers, leisure travel is a discretionary expense, and short\-haul travelers, in particular, have the option to replace air travel with surface travel\. Businesses are able to forego air travel by using communication alternatives such as videoconferencing and the Internet or may be more likely to purchase less expensive tickets to reduce costs, which can result in a decrease in average revenue per seat\. Unfavorable economic conditions, when low fares are often used to stimulate traffic, have also historically hampered the ability of airlines to raise fares to counteract any increases in fuel, labor, and other costs\. Although the U\.S\. economy has experienced modest economic growth over the course of the past several years, any continuing or future U\.S\. or global economic uncertainty could negatively affect the Company's results of operations and could cause the Company to adjust its business strategies\.

***The Company's business can be significantly impacted by high and/or volatile fuel prices, and the Company's operations are subject to disruption in the event of any delayed supply of fuel; therefore, the Company's strategic plans and future profitability are likely to be impacted by the Company's ability to effectively address fuel price increases and fuel price volatility and availability\.***

Airlines are inherently dependent upon energy to operate, and jet fuel and oil represented approximately 22 percent of the Company's operating expenses for 2017\. Although 2017 fuel prices were moderately higher than 2016 fuel prices, as discussed above under "Business \- Cost Structure," the cost of fuel can be extremely volatile and unpredictable, and even a small change in market fuel prices can significantly affect profitability\. Furthermore, volatility in fuel prices can be due to many external factors that are beyond the Company's control\. For example, fuel prices can be impacted by political and economic factors, such as (i) dependency on foreign imports of crude oil and the potential for hostilities or other conflicts in oil producing areas; (ii) limited domestic refining or pipeline capacity due to weather, natural disasters, or other factors; (iii) worldwide demand for fuel, particularly in developing countries, which can result in inflated energy prices; (iv) changes in U\.S\. governmental policies on fuel production, transportation, taxes, and marketing; and (v) changes in currency exchange rates\.

The Company's ability to effectively address fuel price increases could be limited by factors such as its historical low\-fare reputation, the portion of its Customer base that purchases travel for leisure purposes, the competitive nature of

21


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

*General*\. In addition to the specifically identified legal proceedings, we and our subsidiaries are also engaged in other legal proceedings from time to time\. Legal proceedings can be complex and take many months, or even years, to reach resolution, with the final outcome depending on a number of variables, some of which are not within our control\. Therefore, although we will vigorously defend ourselves in each of the actions described above and such other legal proceedings, their ultimate resolution and potential financial and other impacts on us are uncertain but could be material\. See Part I, Item 1A\. Risk Factors –“*We may be a party to litigation in the normal course of business or otherwise, which could affect our financial position and liquidity*” for additional discussion\.

**ITEM 4\. MINE SAFETY DISCLOSURES**

Not Applicable\.

37


Annual Report of ALASKA AIR GROUP, INC\. for year 2017

**RPMs** \- revenue passenger miles, or "traffic"; represents the number of seats that were filled with paying passengers; one passenger traveling one mile is one RPM

**Yield** \- passenger revenue per RPM; represents the average revenue for flying one passenger one mile

|                            |
| -------------------------- |
| **ITEM 1A\. RISK FACTORS** |

If any of the following occurs, our business, financial condition and results of operations could suffer\. The trading price of our common stock could also decline\. We operate in a continually changing business environment\. In this environment, new risks may emerge, and already identified risks may vary significantly in terms of impact and likelihood of occurrence\. Management cannot predict such developments, nor can it assess the impact, if any, on our business of such new risk factors or of events described in any forward\-looking statements\.

We have adopted an enterprise\-wide risk analysis and oversight program designed to identify the various risks faced by the organization, assign responsibility for managing those risks to individual executives as well as align these risks with Board oversight\. These enterprise\-wide risks have been aligned to the risk factors discussed below\.

***SAFETY, COMPLIANCE AND OPERATIONAL EXCELLENCE***

***Our reputation and financial results could be harmed in the event of an airline accident or incident\.***

An accident or incident involving one of our aircraft or an aircraft operated by one of our codeshare partners or CPA carriers could involve a significant loss of life and result in a loss of confidence in our Company by the flying public and/or aviation authorities\. We could experience significant claims from injured passengers, bystanders and surviving relatives as well as costs for the repair or replacement of a damaged aircraft and temporary or permanent loss from service\. We maintain liability insurance in amounts and of the type generally consistent with industry practice, as do our codeshare partners and CPA carriers\. However, the amount of such coverage may not be adequate to fully cover all claims, and we may be forced to bear substantial economic losses from such event\. Substantial claims resulting from an accident in excess of our related insurance coverage would harm our business and financial results\. Moreover, any aircraft accident or incident, even if it is fully insured and does not involve one of our aircraft, could cause a public perception that our airlines or the aircraft we or our partners fly are less safe or reliable than other transportation alternatives\. This would harm our business\.

***Our operations are often affected by factors beyond our control, including delays, cancellations and other conditions, which could harm our business, financial condition and results of operations\.***

As is the case for all airlines, our operations often are affected by delays, cancellations and other conditions caused by factors largely beyond our control\.

Factors that might impact our operations include:

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------- |
| • | congestion and/or space constraints at airports, specifically in our hub locations of Seattle, Los Angeles, and San Francisco;  |

|   |                               |
| - | ----------------------------- |
| • | air traffic control problems; |

|   |                                                                                |
| - | ------------------------------------------------------------------------------ |
| • | lack of operational approval (e\.g\. new routes, aircraft deliveries, etc\.);  |

|   |                             |
| - | --------------------------- |
| • | adverse weather conditions; |

|   |                                                      |
| - | ---------------------------------------------------- |
| • | increased security measures or breaches in security; |

|   |                                           |
| - | ----------------------------------------- |
| • | contagious illness and fear of contagion; |

|   |                                                          |
| - | -------------------------------------------------------- |
| • | changes in international treaties concerning air rights; |

|   |                                                                |
| - | -------------------------------------------------------------- |
| • | international or domestic conflicts or terrorist activity; and |

 20


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

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

***Off\-Balance Sheet Arrangements\.***An off\-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity, or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support, or that engages in leasing, hedging or research and development arrangements\. The Company’s primary off\-balance sheet arrangements include operating leases, which are summarized in the contractual obligations table under *Contractual Obligations,* above,and certain municipal bond obligations, as discussed below\.

As of December 31, 2017, United had cash collateralized $75 million of letters of credit\. United also had $362 million of surety bonds securing various obligations at December 31, 2017\. Most of the letters of credit have evergreen clauses and are expected to be renewed on an annual basis\. The surety bonds have expiration dates through 2021\.

As of December 31, 2017, United is the guarantor of approximately $1\.8 billion in aggregate principal amount of tax\-exempt special facilities revenue bonds and interest thereon\. These bonds, issued by various airport municipalities, are payable solely from rentals paid under long\-term agreements with the respective governing bodies\. The leasing arrangements associated with a majority of these obligations are accounted for as operating leases\. The leasing arrangements associated with a portion of these obligations are accounted for as capital leases\. The annual lease payments for those obligations are included in the contractual obligations table under *Contractual Obligations,* above\.

As of December 31, 2017, United is the guarantor of $157 million of aircraft mortgage debt issued by one of United’s regional carriers\. The aircraft mortgage debt is subject to increased cost provisions and the Company would potentially be responsible for those costs under the guarantees\. The increased cost provisions in the $157 million of aircraft mortgage debt are similar to those in certain of the Company’s debt agreements\. See discussion under *Increased Cost Provisions,*below, for additional information on increased cost provisions related to the Company’s debt\.

***EETCs\.*** As of December 31, 2017, United had $8\.6 billion principal amount of equipment notes outstanding issued under EETC financings\. Generally, the structure of these EETC financings consists of pass\-through trusts created by United to issue pass\-through certificates, which represent fractional undivided interests in the respective pass\-through trusts and are not obligations of United\. The proceeds of the issuance of the pass\-through certificates are used to purchase equipment notes which are issued by United and secured by its aircraft\. The payment obligations under the equipment notes are those of United\. Proceeds received from the sale of pass\-through certificates are initially held by a depositary in escrow for the benefit of the certificate holders until United issues equipment notes to the trust, which purchases such notes with a portion of the escrowed funds\. These escrowed funds are not guaranteed by United and are not reported as debt on United’s consolidated balance sheet because the proceeds held by the depositary are not United’s assets\.

***Increased Cost Provisions\.*** In United’s financing transactions that include loans, United typically agrees to reimburse lenders for any reduced returns with respect to the loans due to any change in capital requirements and, in the case of loans in which the interest rate is based on LIBOR, for certain other increased costs that the lenders incur in carrying these loans as a result of any change in law, subject, in most cases, to obligations of the lenders to take certain limited steps to mitigate the requirement for, or the amount of, such increased costs\. At December 31, 2017, the Company had $3\.4 billion of floating rate debt and $60 million of fixed rate debt, with remaining terms of up to 11 years, that are subject to these increased cost provisions\. In several financing transactions involving loans or leases from non\-U\.S\. entities, with remaining terms of up to 11 years and an aggregate balance of $3\.3 billion, the Company bears the risk of any change in tax laws that would subject loan or lease payments thereunder to non\-U\.S\. entities to withholding taxes, subject to customary exclusions\.

***Fuel Consortia\.***United participates in numerous fuel consortia with other air carriers at major airports to reduce the costs of fuel distribution and storage\. Interline agreements govern the rights and responsibilities of the consortia members and provide for the allocation of the overall costs to operate the consortia based on usage\. The

39


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

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

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

The following tables provide a reconciliation of the changes in the pension and retiree medical and other postretirement benefits obligations, fair value of plan assets and a statement of funded status as of December 31, 2018 and 2017:

|                                           |                      |                      |                                                                   |                                                                   |
| ----------------------------------------- | -------------------- | -------------------- | ----------------------------------------------------------------- | ----------------------------------------------------------------- |
|                                           | **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)**                                                 |
| Benefit obligation at beginning of period | $18,275              | $17,238              | $1,011                                                            | $991                                                              |
| Service cost                              | 3                    | 2                    | 5                                                                 | 4                                                                 |
| Interest cost                             | 674                  | 721                  | 35                                                                | 39                                                                |
| Actuarial (gain) loss  ^(1) (2)^          | (1,910)              | 1,016                | (133)                                                             | 49                                                                |
| Settlements                               | (4)                  | (4)                  | —                                                                 | —                                                                 |
| Benefit payments                          | (662)                | (726)                | (81)                                                              | (80)                                                              |
| Other                                     | 2                    | 28                   | —                                                                 | 8                                                                 |
| Benefit obligation at end of period       | $16,378              | $18,275              | $837                                                              | $1,011                                                            |

|                                                  |          |          |        |        |
| ------------------------------------------------ | -------- | -------- | ------ | ------ |
| Fair value of plan assets at beginning of period | $11,395  | $10,017  | $295   | $266   |
| Actual return on plan assets                     | (1,151)  | 1,797    | (24)   | 37     |
| Employer contributions  ^(3)^                    | 475      | 286      | 35     | 72     |
| Settlements                                      | (4)      | (4)      | —      | —      |
| Benefit payments                                 | (662)    | (726)    | (81)   | (80)   |
| Other                                            | —        | 25       | —      | —      |
| Fair value of plan assets at end of period       | $10,053  | $11,395  | $225   | $295   |
| Funded status at end of period                   | $(6,325) | $(6,880) | $(612) | $(716) |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| ^(1)^ | The  December 31, 2018  and  2017  pension actuarial (gain) loss primarily relates to changes in our weighted average discount rate and mortality assumptions and, in 2018, changes to our retirement rate assumptions\. |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | The  December 31, 2018  and  2017  retiree medical and other postretirement benefits actuarial (gain) loss primarily relates to weighted average discount rate assumption changes and, in 2018, changes to our medical trend and per capita claim assumptions\. |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(3)^ | During  2018 , we contributed  $475 million  to our defined benefit pension plans, including supplemental contributions of  $433 million  in addition to a  $42 million  minimum required contribution\. During  2017 , we contributed  $286 million  to our defined benefit pension plans, including supplemental contributions of  $261 million  in addition to a  $25 million  minimum required contribution\. |

112


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

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

of trust assets less liabilities, divided by the number of units outstanding\. No changes in valuation techniques or inputs occurred during the year\.

***Benefit Plan Assets Measured at Fair Value on a Recurring Basis***

The fair value of our pension plan assets at December 31, 2017 and 2016, by asset category, are as follows (in millions):

|                                                                                |                                                                                |                                                                              |                                                                                |                                                     |
| -------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | --------------------------------------------------- |
|                                                                                | **Fair Value Measurements as of December 31, 2017**                                                            | **Fair Value Measurements as of December 31, 2017**                          | **Fair Value Measurements as of December 31, 2017**                            | **Fair Value Measurements as of December 31, 2017** |
| **Asset Category**                                                                           | **Quoted Prices in**

**Active Markets**

**for Identical**

**Assets**

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

**Observable**

**Inputs**

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

**Unobservable**

**Inputs**

**(Level 3)** | **Total**                                           |
| Cash and cash equivalents                                                                    | $28                                                                                | $—                                                                           | $—                                                                             | $28                                                 |
| Equity securities:                                                                           |                                                                                |                                                                              |                                                                                |
                                              |
| International markets  ^(a)^  ^(b)^                                                          | 3,837                                                                                | —                                                                            | —                                                                              | 3,837                                               |
| Large\-cap companies  ^(b)^                                                                  | 2,451                                                                                | —                                                                            | —                                                                              | 2,451                                               |
| Mid\-cap companies  ^(b)^                                                                    | 744                                                                                | —                                                                            | —                                                                              | 744                                                 |
| Small\-cap companies  ^(b)^                                                                  | 125                                                                                | —                                                                            | —                                                                              | 125                                                 |
| Mutual funds  ^(c)^                                                                          | 55                                                                                | —                                                                            | —                                                                              | 55                                                  |
| Fixed income:                                                                                |                                                                                |                                                                              |                                                                                |
                                              |
| Corporate bonds  ^(d)^                                                                       | —                                                                                | 2,344                                                                        | —                                                                              | 2,344                                               |
| Government securities  ^(e)^                                                                 | —                                                                                | 238                                                                          | —                                                                              | 238                                                 |
| U\.S\. municipal securities                                                                  | —                                                                                | 39                                                                           | —                                                                              | 39                                                  |
| Alternative instruments:                                                                     |                                                                                |                                                                              |                                                                                |
                                              |
| Private equity partnerships  ^(f)^                                                           | —                                                                                | —                                                                            | 14                                                                             | 14                                                  |
| Private equity partnerships measured at net asset value  ^(f) (h)^                           | —                                                                                | —                                                                            | —                                                                              | 879                                                 |
| Common/collective trusts  ^(g)^                                                              | —                                                                                | 315                                                                          | —                                                                              | 315                                                 |
| Common/collective trusts and 103\-12 Investment Trust measured at net asset value  ^(g) (h)^ | —                                                                                | —                                                                            | —                                                                              | 283                                                 |
| Insurance group annuity contracts                                                            | —                                                                                | —                                                                            | 2                                                                              | 2                                                   |
| Dividend and interest receivable                                                             | 44                                                                                | —                                                                            | —                                                                              | 44                                                  |
| Due to/from brokers for sale of securities – net                                             | 3                                                                                | —                                                                            | —                                                                              | 3                                                   |
| Other liabilities – net                                                                      | (6)                                                                                | —                                                                            | —                                                                              | (6)                                                 |
| Total                                                                                | $7,281                                                                                | $2,936                                                                       | $16                                                                            | $11,395                                             |

|      |                                                                                |
| ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^a)^ | Holdings are diversified as follows:  17%  United Kingdom,  11%  Japan,  9%  France,  6%  Switzerland,  16%  emerging markets and the remaining  41%  with no concentration greater than 5% in any one country\. |

|      |                                                                              |
| ---- | ---------------------------------------------------------------------------- |
| ^b)^ | There are no significant concentrations of holdings by company or industry\. |

|      |                                                                                |
| ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^c)^ | Investment includes mutual funds invested  39%  in equity securities of large\-cap, mid\-cap and small\-cap U\.S\. companies,  34%  in U\.S\. treasuries and corporate bonds and  27%  in equity securities of international companies\. |

|      |                                                                                |
| ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^d)^ | Includes approximately  76%  investments in corporate debt with a S&P rating lower than A and  24%  investments in corporate debt with a S&P rating A or higher\. Holdings include  85%  U\.S\. companies,  12%  international companies and  3%  emerging market companies\. |

|      |                                                                                |
| ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^e)^ | Includes approximately  27%  investments in U\.S\. domestic government securities,  43%  in emerging market government securities and  30%  in international government securities\. There are no significant foreign currency risks within this classification\. |

111


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

ITEM 1A\. RISK FACTORS

Risk Factors Relating to Delta

Our business and results of operations are dependent on the price of aircraft fuel\. High fuel costs or cost increases, including in the cost of crude oil, could have a material adverse effect on our operating results\.

Our operating results are significantly impacted by changes in the price of aircraft fuel\. Over the last decade, fuel prices have increased substantially at times and have been highly volatile\. In  2018 , our average fuel price per gallon, including the impact of fuel hedges, was  $2\.20 , a 31\.0% increase from our average fuel price in  2017 \. In  2017 , our average fuel price per gallon was  $1\.68 , a 12\.8% increase from our average fuel price in  2016 \. In  2016 , our average fuel price per gallon was  $1\.49 , a 21\.6% decrease from our average fuel price in 2015\. Fuel costs represented  23\.0% ,  19\.2%  and  18\.3%  of our operating expense in  2018 ,  2017  and  2016 , respectively\.

Our ability to pass along rapidly increasing fuel costs to our customers may be affected by the competitive nature of the airline industry\. In addition, because passengers often purchase tickets well in advance of their travel, a significant rapid increase in fuel price may result in the fare charged not covering that increase\. At times in the past, we often were not able to increase our fares to offset fully the effect of increases in fuel costs, and we may not be able to do so in the future\.

We acquire a significant amount of jet fuel from our wholly owned subsidiary, Monroe, and through strategic agreements that Monroe has with third parties\. The cost of the fuel we purchase under these arrangements remains subject to volatility in the cost of crude oil and jet fuel\. In addition, we continue to purchase a significant amount of aircraft fuel in addition to what we obtain from Monroe\. Our aircraft fuel purchase contracts alone do not provide material protection against price increases as these contracts typically establish the price based on industry standard market price indices\.

Significant extended disruptions in the supply of aircraft fuel, including from Monroe, could have a material adverse effect on our operations and operating results\.

Weather\-related events, natural disasters, political disruptions or wars involving oil\-producing countries, changes in governmental policy concerning aircraft fuel production, transportation, taxes or marketing, changes in refining capacity, environmental concerns and other unpredictable events may impact crude oil and fuel supply and could result in shortages in the future\. Shortages in fuel supplies could have negative effects on our results of operations and financial condition\.

Because we acquire a large amount of our jet fuel from Monroe, the disruption or interruption of production at the refinery could have an impact on our ability to acquire jet fuel needed for our operations\. Disruptions or interruptions of production at the refinery could result from various sources including a major accident or mechanical failure, interruption of supply or delivery of crude oil, work stoppages relating to organized labor issues, or damage from severe weather or other natural or man\-made disasters, including acts of terrorism\. If the refinery were to experience an interruption in operations, disruptions in fuel supplies could have negative effects on our results of operations and financial condition\. In addition, the financial benefits from the operation of the refinery could be materially adversely affected (to the extent not recoverable through insurance) because of lost production and repair costs\.

If Monroe's cost of producing non\-jet fuel products exceeds the value it receives for those products, the financial benefits we expect to achieve through the ownership of the refinery and our consolidated results of operations could be materially adversely affected\.

Fuel hedging activities are intended to manage the financial impact of the volatility in the price of jet fuel\. The effects of rebalancing our hedge portfolio and mark\-to\-market adjustments may have a negative effect on our financial results\.

To the extent that we may reduce the financial impact of changes in the price of jet fuel through a hedging program, we may utilize different contract and commodity types in the program and test their economic effectiveness against our financial targets\. Any hedging program may not be successful in providing price protection due to market conditions and the choice of hedging instruments\. We closely monitor any hedge portfolio and rebalance the portfolio based on market conditions, which may result in locking in gains or losses on hedge contracts prior to their settlement dates\. In addition, we record mark\-to\-market adjustments ("MTM adjustments") on our fuel hedges\. MTM adjustments are based on market prices at the end of the reporting period for contracts settling in future periods\. Losses from rebalancing or MTM adjustments (or both) may have a negative impact on our financial results\.

 12


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

certain amounts are recognized in passenger revenue using estimates regarding both the timing of the revenue recognition and the amount of revenue to be recognized\. These estimates are generally based on the analysis of our historical data\. We have consistently applied this accounting method to estimate revenue from forfeited tickets at the date of travel\. Estimated future refunds and exchanges included in the air traffic liability are routinely evaluated based on subsequent activity to validate the accuracy of our estimates\. Any adjustments resulting from periodic evaluations of the estimated air traffic liability are included in passenger revenue during the period in which the evaluations are completed\.

Various taxes and fees assessed on the sale of tickets to end customers are collected by us as an agent and remitted to taxing authorities\. These taxes and fees have been presented on a net basis in the accompanying consolidated statements of operations and recorded as a liability until remitted to the appropriate taxing authority\.

***Loyalty Revenue***

We currently operate the loyalty program, AAdvantage\. This program awards mileage credits to passengers who fly on American, any **one**world airline or other partner airlines, or by using the services of other program participants, such as the Citi and Barclaycard US co\-branded credit cards, hotels and car rental companies\. Mileage credits can be redeemed for travel on American and other participating partner airlines, as well as other non\-air travel awards such as hotels and rental cars\. For mileage credits earned by AAdvantage loyalty program members, we apply the deferred revenue method in accordance with the New Revenue Standard\.

***Mileage credits earned through travel***

For mileage credits earned through travel, we apply a relative selling price approach whereby the total amount collected from each passenger ticket sale is allocated between the air transportation and the mileage credits earned\. The portion of each passenger ticket sale attributable to mileage credits earned is initially deferred and then recognized in passenger revenue when mileage credits are redeemed and transportation is provided\. The estimated selling price of mileage credits is determined using an equivalent ticket value approach, which uses historical data, including award redemption patterns by geographic region and class of service, as well as similar fares as those used to settle award redemptions\. The estimated selling price of miles is adjusted for an estimate of miles that will not be redeemed based on historical redemption patterns\. For the year ended December 31, 2018, a hypothetical 10% increase in the estimated selling price of miles would have decreased revenues by approximately $100 million as a result of additional amounts deferred from passenger ticket sales\.

***Mileage credits sold to co\-branded credit cards and other partners***

We sell mileage credits to participating airline partners and non\-airline business partners including our co\-branded credit card partners, under contracts with terms extending generally for one to nine years\. Consideration received from the sale of mileage credits is variable and payment terms typically are within 30 days subsequent to the month of mileage sale\. Sales of mileage credits to non\-airline business partners are comprised of two components, transportation and marketing\. We allocate the consideration received from these sales of mileage credits based on the relative selling price of each product or service delivered\.

Our most significant partner agreements are our co\-branded credit card agreements with Citi and Barclaycard US that we entered into in 2016\. We identified the following revenue elements in these co\-branded credit card agreements: the transportation component; and the use of intellectual property, including the American brand and access to loyalty program member lists, which is the predominant element in the agreements, as well as advertising (collectively, the marketing component)\. Accordingly, we recognize the marketing component in other revenue in the period of the mileage sale following the sales\-based royalty method\.

The transportation component represents the estimated selling price of future travel awards and is determined using the same equivalent ticket value approach described above\. The portion of each mileage credit sold attributable to transportation is initially deferred and then recognized in passenger revenue when mileage credits are redeemed and transportation is provided\.

For the portion of our outstanding mileage credits that we estimate will not be redeemed, we recognize the associated value proportionally as the remaining mileage credits are redeemed\. Our estimates are based on analysis of historical redemptions\. For the year ended December 31, 2018, a hypothetical 10% increase in our estimate of miles not expected to be redeemed would have increased revenues by approximately $100 million\.

*Cargo Revenue*

Cargo revenue is recognized when we provide the transportation\.

72


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

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

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

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

**Other Postretirement Benefits** |
|                                                  | **2019**                 | **2018**                 | **2019**                                                          | **2018**                                                          |
|                                                  | **(In millions)**        | **(In millions)**        | **(In millions)**                                                 | **(In millions)**                                                 |
| Fair value of plan assets at beginning of period | $10,053                  | $11,395                  | $225                                                              | $295                                                              |
| Actual return (loss) on plan assets              | 2,305                    | (1,151

)          | 41                                                                | (24

)                                                      |
| Employer contributions  ^(3)^                    | 1,230                    | 475                      | 12                                                                | 35                                                                |
| Settlements                                      | (2

)              | (4

)              | —                                                                 | —                                                                 |
| Benefit payments                                 | (689

)            | (662

)            | (74

)                                                      | (81

)                                                      |
| Fair value of plan assets at end of period       | $12,897                  | $10,053                  | $204                                                              | $225                                                              |
| Funded status at end of period                   | $

(5,461

) | $

(6,325

) | $

(620

)                                            | $

(612

)                                            |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| ^(1)^ | The  2019  and  2018  pension actuarial (gain) loss primarily relates to changes in our weighted average discount rate and mortality assumption and, in  2018 , changes to our retirement rate assumptions\. |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | The  2019  retiree medical and other postretirement benefits actuarial loss primarily relates to changes in our weighted average discount rate assumption and plan experience adjustments\.  |

The  2018  retiree medical and other postretirement benefits actuarial gain primarily relates to changes in our weighted average discount rate, medical trend and per capita claims assumptions\.

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(3)^ | During  2019 , we contributed   $1\.2 billion  to our defined benefit pension plans, including supplemental contributions of   $444 million  and a   $786 million  minimum required contribution\. During  2018 , we contributed   $475 million  to our defined benefit pension plans, including supplemental contributions of   $433 million  and a   $42 million  minimum required contribution\. |

Balance Sheet Position

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

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

**Other Postretirement Benefits** |
|                      | **2019**             | **2018**             | **2019**                                                          | **2018**                                                          |
|                      | **(In millions)**    | **(In millions)**    | **(In millions)**                                                 | **(In millions)**                                                 |
| As of December 31,   |                      |                      |                                                                   |                                                                   |
| Current liability    | $5                   | $7                   | $24                                                               | $23                                                               |
| Noncurrent liability | 5,456                | 6,318                | 596                                                               | 589                                                               |
| Total liabilities    | $5,461               | $6,325               | $620                                                              | $612                                                              |

|                                                               |        |        |                        |                        |
| ------------------------------------------------------------- | ------ | ------ | ---------------------- | ---------------------- |
| Net actuarial loss (gain)                                     | $5,680 | $5,356 | $

(426

) | $

(452

) |
| Prior service cost (benefit)                                  | 104    | 131    | (120

)          | (362

)          |
| Total accumulated other comprehensive loss (income), pre\-tax | $5,784 | $5,487 | $

(546

) | $

(814

) |

99


Annual Report of Southwest Airlines Co\. for year 2018

The following tables present the impact of derivative instruments and their location within the Consolidated Statement of Income for the year ended December 31, 2018 and 2017:

|                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |
| ------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- |
| **Location and amount of (gain) loss recognized in income on cash flow and fair value hedging relationships** | **Location and amount of (gain) loss recognized in income on cash flow and fair value hedging relationships** | **Location and amount of (gain) loss recognized in income on cash flow and fair value hedging relationships** | **Location and amount of (gain) loss recognized in income on cash flow and fair value hedging relationships** | **Location and amount of (gain) loss recognized in income on cash flow and fair value hedging relationships** |
|                                                                                | **Year ended December 31, 2018**                                                                              | **Year ended December 31, 2018**                                                                              | **Year ended December 31, 2017**                                                                              | **Year ended December 31, 2017**                                                                              |
| **(in millions)**                                                                                | **Fuel and oil**                                                                                | **Interest expense**                                                                                | **Fuel and oil**                                                                                | **Interest expense**                                                                                |
| Total                                                                                | $(33)                                                                                | $37                                                                                | $552                                                                                | $33                                                                                |
| (Gain) loss on cash flow hedging relationships:                                                               |                                                                                |                                                                                |                                                                                |                                                                                |
|  Commodity contracts:                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |
|  Amount of (gain) loss reclassified from AOCI into income                                                     | (33)                                                                                | —                                                                                | 552                                                                                | —                                                                                |
|  Interest contracts:                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |
|  Amount of loss reclassified from AOCI into income                                                            | —                                                                                | 6                                                                                | —                                                                                | 11                                                                                |
| Impact of fair value hedging relationships:                                                                   |                                                                                |                                                                                |                                                                                |                                                                                |
|  Interest contracts:                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |
|  Hedged items                                                                                | —                                                                                | 23                                                                                | —                                                                                | 23                                                                                |
|  Derivatives designated as hedging instruments                                                                | —                                                                                | 8                                                                                | —                                                                                | (1)                                                                                |

|                                                                             |                                                                             |                                                                             |                                                                             |                                                                             |                                                                              |                                                                              |
| --------------------------------------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ---------------------------------------------------------------------------- |
| **Derivatives designated and qualified in cash flow hedging relationships** | **Derivatives designated and qualified in cash flow hedging relationships** | **Derivatives designated and qualified in cash flow hedging relationships** | **Derivatives designated and qualified in cash flow hedging relationships** | **Derivatives designated and qualified in cash flow hedging relationships** | **Derivatives designated and qualified in cash flow hedging relationships**  | **Derivatives designated and qualified in cash flow hedging relationships**  |
|                                                                             | **(Gain) loss recognized in AOCI on derivatives**                           | **(Gain) loss recognized in AOCI on derivatives**                           | **(Gain) loss recognized in AOCI on derivatives**                           |                                                                             | **(Gain) loss recognized in income on derivatives (ineffective portion)(a)** | **(Gain) loss recognized in income on derivatives (ineffective portion)(a)** |
|                                                                             | **Year ended**                                                              | **Year ended**                                                              | **Year ended**                                                              |                                                                             | **Year ended**                                                               | **Year ended**                                                               |
|                                                                             | **December 31,**                                                            | **December 31,**                                                            | **December 31,**                                                            |                                                                             | **December 31,**                                                             | **December 31,**                                                             |
| **(in millions)**                                                           | **2018**                                                                    |                                                                             | **2017**                                                                    |                                                                             | **2018**                                                                     | **2017**                                                                     |
| Fuel derivative contracts                                                   | $1                                                                          | \*                                                                          | $32                                                                         | \*                                                                          | $—                                                                           | $31                                                                          |
| Interest rate derivatives                                                   | (1)                                                                         | \*                                                                          | —                                                                           | \*                                                                          | —                                                                            | 1                                                                            |
| Total                                                                       | $—                                                                          |                                                                             | $32                                                                         |                                                                             | $—                                                                           | $32                                                                          |

\*Net of tax

(a) Amounts are included in Other (gains) losses, net\.

|                                          |                                          |                                          |                                          |
| ---------------------------------------- | ---------------------------------------- | ---------------------------------------- | ---------------------------------------- |
| **Derivatives not designated as hedges** | **Derivatives not designated as hedges** | **Derivatives not designated as hedges** | **Derivatives not designated as hedges** |
|                                          | **(Gain) loss**                          | **(Gain) loss**                          |                                          |
|                                          | **recognized in income on**              | **recognized in income on**              |                                          |
|                                          | **derivatives**                          | **derivatives**                          |                                          |
|                                          | **Year ended**                           | **Year ended**                           | **Location of (gain) loss**              |
|                                          | **December 31,**                         | **December 31,**                         | **recognized in income**                 |
| **(in millions)**                        | **2018**                                 | **2017**                                 | **on derivatives**                       |
| Fuel derivative contracts                | $—                                       | $75                                      | Other (gains) losses, net                |
| Interest rate derivatives                | (2)                                      | (4)                                      | Interest Expense                         |
| Total                                    | $(2)                                     | $71                                      |                                          |

The Company also recorded expense associated with premiums paid for fuel derivative contracts that settled/expired during 2018, 2017, and 2016 of $135 million, $136 million, and $154 million, respectively\. These amounts are

102


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

Cash Equivalents\.  These investments primarily consist of high\-quality, short\-term obligations that are a part of institutional money market mutual funds that are valued using current market quotations or an appropriate substitute that reflects current market conditions\.

Fixed Income and Fixed Income\-Related Instruments\.  These investments include corporate bonds, government bonds, collateralized mortgage obligations and other asset\-backed securities, and are generally valued at the bid price or the average of the bid and ask price\. Prices are based on pricing models, quoted prices of securities with similar characteristics, or broker quotes\. Fixed income\-related instruments include investments in securities traded on exchanges, including listed futures and options, which are valued at the last reported sale prices on the last business day of the year, or if not available, the last reported bid prices\. Over\-the\-counter securities are valued at the bid prices or the average of the bid and ask prices on the last business day of the year from published sources or, if not available, from other sources considered reliable, generally broker quotes\.

The following table summarizes investments measured at fair value based on NAV per share as a practical expedient:

|                                                                                |                       |                          |                              |                       |                          |                              |
| ------------------------------------------------------------------------------ | --------------------- | ------------------------ | ---------------------------- | --------------------- | ------------------------ | ---------------------------- |
|                                                                                | **December 31, 2018** | **December 31, 2018**    | **December 31, 2018**        | **December 31, 2017** | **December 31, 2017**    | **December 31, 2017**        |
| **(in millions)**                                                              | **Fair Value**        | **Redemption Frequency** | **Redemption Notice Period** | **Fair Value**        | **Redemption Frequency** | **Redemption Notice Period** |
| Hedge funds and hedge fund\-related strategies                                 | $5,264                | (4)                      | 2\-180 Days                  | $4,768                | (4)                      | 2\-120 Days                  |
| Commingled funds, private equity and private equity\-related instruments ^(5)^ | 1,591                 | (4)                      | 2\-30 Days                   | 1,375                 | (1) (3)                  | 10\-30 Days                  |
| Fixed income and fixed income\-related instruments ^(5)^                       | 769                   | (2)                      | 15\-90 Days                  | 311                   | (2)                      | 3\-15 Days                   |
| Real assets ^(5)^                                                              | 807                   | (3)                      | N/A                          | 924                   | (3)                      | N/A                          |
| Other                                                                          | 705                   | (1) (2)                  | 2\-90 Days                   | —                     | (1)                      | 30 Days                      |
| Total investments measured at NAV                                              | $9,136                |
                   |
                       | $7,378                |
                   |
                       |

|       |         |
| ----- | ------- |
| ^(1)^ | Monthly |

|       |               |
| ----- | ------------- |
| ^(2)^ | Semi\-monthly |

|       |                             |
| ----- | --------------------------- |
| ^(3)^ | Semi\-annually and annually |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(4)^ | Various\. Includes funds with weekly, monthly, semi\-monthly, quarterly and custom redemption frequencies as well as funds with a redemption window following the anniversary of the initial investment\. |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(5)^ | Unfunded commitments were   $490 million  for commingled funds, private equity and private equity\-related instruments,   $256 million  for fixed income and fixed income\-related instruments, and   $227 million  for real assets at December 31, 2018\. |

Hedge Funds and Hedge Fund\-Related Strategies\.  These investments are primarily made through shares of limited partnerships or similar structures for which a liquid secondary market does not exist\. Investments in these strategies are typically valued monthly by third\-party administrators or valuation agents with an annual audit performed by an independent third party\.

Commingled Funds, Private Equity and Private Equity\-Related Instruments\.  These investments include commingled funds invested in common stock, as well as private equity and private equity\-related instruments\. Commingled funds are valued based on quoted market prices of the underlying assets owned by the fund\. Private equity and private equity\-related strategies are typically valued quarterly by the fund managers using valuation models where one or more of the significant inputs into the model cannot be observed and which require the development of assumptions\. There is an annual audit performed by an independent third party\.

Fixed Income and Fixed Income\-Related Instruments\.  These investments include commingled funds invested in debt obligations\. Commingled funds are valued based on quoted market prices of the underlying assets owned by the fund\. Private fixed income strategies are typically valued monthly or quarterly by the fund managers or third\-party valuation agents using valuation models where one or more of significant inputs into the model cannot be observed and which require the development of assumptions\. There is an annual audit performed by an independent third party\.

Real Assets\.  These investments include real estate, energy, timberland, agriculture and infrastructure\. The valuation of real assets requires significant judgment due to the absence of quoted market prices as well as the inherent lack of liquidity and the long\-term nature of these assets\. Real assets are typically valued quarterly by the fund managers using valuation models where one or more of the significant inputs into the model cannot be observed and which require the development of assumptions\. There is an annual audit performed by an independent third party\.

 86