Table of ~~key personnel upon whom we depend to operate our business or the inability to attract additional qualified personnel could adversely affect our business.~~Contents

We believe that our future success will depend in large part on our ability to retain or attract highly qualified management, technical and other personnel. We may not be successful in retaining key personnel or in attracting other highly qualified personnel. Any inability to retain or attract significant numbers of qualified management and other personnel would have a material adverse effect on our business, results of operations and financial condition.

~~We may be adversely affected by conflicts overseas or terrorist attacks; the travel industry continues to face ongoing security concerns.~~

Acts of terrorism or fear of such attacks, including elevated national threat warnings, wars or other military conflicts, may depress air travel, particularly on international routes, and cause declines in revenues and increases in costs. The attacks of September 11, 2001 and continuing terrorist threats, attacks and attempted attacks materially impacted and continue to impact air travel. Increased security procedures introduced at airports since the attacks of September 11, 2001 and any other such measures that may be introduced in the future generate higher operating costs for airlines. The Aviation and Transportation Security Act mandated improved flight deck security, deployment of federal air marshals on board flights, improved airport perimeter access security, airline crew security training, enhanced security screening of passengers, baggage, cargo, mail, employees and vendors, enhanced training and qualifications of security screening personnel, additional provision of passenger data to the U.S. Customs and Border Protection Agency and enhanced background checks. A concurrent increase in airport security charges and procedures, such as restrictions on carry-on baggage, has also had and may continue to have a disproportionate impact on short-haul travel, which constitutes a significant portion of our flying and revenue. Implementation of and compliance with increasingly-complex security and customs requirements will continue to result in increased costs for us and our passengers, and have caused and likely will continue to cause periodic service disruptions and delays. We have at times found it necessary or desirable to make significant expenditures to comply with security-related requirements while seeking to reduce their impact on our customers, such as expenditures for automated security screening lines at airports. As a result of competitive pressure, and the need to improve security screening throughput

to support the pace of our operations, it is unlikely that we will be able to capture all security-related costs through increased fares. In addition, we cannot forecast what new security requirements may be imposed in the future, or their impact on our business.

We operate a global business with international operations that are subject to economic and political instability and have been, and in the future may continue to be, adversely affected by numerous events, circumstances or government actions beyond our control.

We operate a global business with significant operations outside of the U.S. Our current international activities and prospects have been and in the future could be adversely affected by government policies, reversals or delays in the opening of foreign markets, increased competition in international markets, the performance of our alliance, joint business and codeshare partners in a given market, exchange controls or other restrictions on repatriation of funds, currency and political risks (including changes in exchange rates and currency devaluations), environmental regulation, increases in taxes and fees and changes in international government regulation of our operations, including the inability to obtain or retain needed route authorities and/or slots. Fluctuations in foreign currencies, including devaluations, exchange controls and other restrictions on the repatriation of funds, have significantly affected and may continue to significantly affect our operating performance, liquidity and the value of any cash held outside the U.S. in local currency. Such fluctuations in foreign currencies, including devaluations, cannot be predicted by us and can significantly affect the value of our assets located outside the United States. These conditions, as well as any further delays, devaluations or imposition of more stringent repatriation restrictions, may materially adversely affect our business, results of operations and financial condition.

More generally, much of the demand for international air travel is the result of business travel in support of global trade. Should protectionist governmental policies, such as increased tariff barriers, travel limitation and other actions, have the effect of reducing global commercial activity, the result could be a material decrease in the demand for international air travel.

The United Kingdom held a referendum in June 2016 regarding its membership in the EU in which a majority of the United Kingdom electorate voted in favor of the British government taking the necessary action for the United Kingdom to leave the EU, an event commonly referred to as Brexit. In March 2017, the United Kingdom served notice of its decision to withdraw from the EU, formally initiating the withdrawal process. Serving this notice began the two-year period for the United Kingdom to negotiate the terms for its withdrawal from the EU, currently scheduled to occur on March 29, 2019. We face risks associated with the uncertainty following the referendum and the consequences that may flow from the decision to exit the EU, notably given the extent of our passenger and cargo traffic and that of our joint business partners that flows through LHR in the United Kingdom. Absent an approved withdrawal agreement between the United Kingdom and the EU (resulting in the so-called “No Deal Brexit” scenario), our expectation is that air services (including those involving our joint business and code share partners) will continue substantially as we currently conduct them, at least for a transition period, in reliance on reciprocal “basic connectivity” traffic rights proposed by the EU and the United Kingdom and the new air services agreements between the U.S. and United Kingdom concluded on November 29, 2018. However, the precise scope of traffic rights between the EU and the United Kingdom remains uncertain and therefore the continuation is not assured and could be subject to disruption. If Brexit is accomplished pursuant to a withdrawal agreement consistent with the agreement presently being discussed between the United Kingdom and the EU, but which has yet to be approved by the United Kingdom, our current air services would continue as we currently conduct them during a transition period running through the end of 2020, with a potential extension of up to two years. During that transition period, the United Kingdom and the EU would seek to implement a new air services agreement. We cannot predict the terms of any such successor air services agreement or whether changes in the relationship between the United Kingdom and the EU, including whether or not the United Kingdom withdraws from the EU with or without an agreement, could materially adversely affect our business, results of operations and financial condition.

Moreover, the exit of the United Kingdom from the EU could adversely affect European or worldwide economic or market conditions and could contribute to further instability in global financial markets. In addition, the exit of the United Kingdom from the EU has created uncertainty as to the future trade relationship between the EU and the United Kingdom, including air traffic services. LHR is presently a very important element of our international network, however it may become less desirable as a destination or as a hub location after Brexit when compared to other airports in Europe. The exit of the United Kingdom from the EU could also lead to legal and regulatory uncertainty such as the identity of the relevant regulators, new regulatory action and/or potentially divergent treaties, laws and regulations as the United Kingdom determines which EU treaties, laws and regulations to replace or replicate, including those governing aviation, labor, environmental, data protection/privacy, competition and other matters applicable to the provision of air transportation services by us or our alliance, joint business or codeshare partners. For example, in light of Brexit and the related possibility that the EC would no longer have regulatory responsibility for the United Kingdom when existing regulatory commitments are scheduled to expire in 2020, the United Kingdom CMA in October 2018 opened an investigation into our transatlantic JBA. We are cooperating fully with the CMA. The impact on our business of any treaties, laws and regulations that replace the existing EU counterparts, or other

governmental or regulatory actions taken by the United Kingdom or the EU in connection with or subsequent to Brexit, cannot be predicted, including whether or not regulators will continue to approve or impose material conditions on our business activities. Any of these effects, and others we cannot anticipate, could materially adversely affect our business, results of operations and financial condition.

~~We are subject to many forms of environmental and noise regulation and may incur substantial costs as a result.~~

We are subject to increasingly stringent federal, state, local and foreign laws, regulations and ordinances relating to the protection of the environment and noise reduction, including those relating to emissions to the air, discharges to surface and subsurface waters, safe drinking water, and the management of hazardous substances, oils and waste materials. Compliance with environmental laws and regulations can require significant expenditures, and violations can lead to significant fines and penalties.

We are also subject to other environmental laws and regulations, including those that require us to investigate and remediate soil or groundwater to meet certain remediation standards. Under federal law, generators of waste materials, and current and former owners or operators of facilities, can be subject to liability for investigation and remediation costs at locations that have been identified as requiring response actions. Liability under these laws may be strict, joint and several, meaning that we could be liable for the costs of cleaning up environmental contamination regardless of fault or the amount of waste directly attributable to us. We have liability for investigation and remediation costs at various sites, although such costs currently are not expected to have a material adverse effect on our business.

We have various leases and agreements with respect to real property, tanks and pipelines with airports and other operators. Under these leases and agreements, we have agreed to indemnify the lessor or operator against environmental liabilities associated with the real property or operations described under the agreement, in some cases even if we are not the party responsible for the initial event that caused the environmental damage. We also participate in leases with other airlines in fuel consortiums and fuel committees at airports, where such indemnities are generally joint and several among the participating airlines.

Governmental authorities in several U.S. and foreign cities are also considering, or have already implemented, aircraft noise reduction programs, including the imposition of nighttime curfews and limitations on daytime take offs and landings. We have been able to accommodate local noise restrictions imposed to date, but our operations could be adversely affected if locally-imposed regulations become more restrictive or widespread.

Our intellectual property rights, particularly our branding rights, are valuable, and any inability to protect them may adversely affect our business and financial results.

We consider our intellectual property rights, particularly our branding rights such as our trademarks applicable to our airline and AAdvantage loyalty program, to be a significant and valuable aspect of our business. We protect our intellectual property rights through a combination of trademark, copyright and other forms of legal protection, contractual agreements and policing of third-party misuses of our intellectual property. Our failure to obtain or adequately protect our intellectual property or any change in law that lessens or removes the current legal protections of our intellectual property may diminish our competitiveness and adversely affect our business and financial results. Any litigation or disputes regarding intellectual property may be costly and time-consuming and may divert the attention of our management and key personnel from our business operations, either of which may adversely affect our business and financial results.

~~We are subject to risks associated with climate change, including increased regulation to reduce emissions of greenhouse gases.~~

There is increasing global regulatory focus on climate change and GHG emissions. Efforts by the EU in 2009 to regulate flights arriving from or departing for airports outside of the EU have been postponed as members of ICAO are negotiating a global agreement on GHG emissions from the aviation sector. In 2016, ICAO passed a resolution adopting CORSIA, which is a global, market-based emissions offset program intended to encourage carbon-neutral growth beyond 2020. CORSIA was supported by the board of Airlines for America (the principal U.S. airline trade association) and IATA (the principal international airline trade association), and by American and many other U.S. and foreign airlines. In March 2017, ICAO also adopted new aircraft certification standards to reduce carbon dioxide emissions from aircraft, which will apply to new aircraft type designs in 2020, and to aircraft type designs already in production as of 2023. On June 27, 2018, ICAO adopted standards pertaining to the collection and sharing of information on international aviation emissions beginning in 2019. Airline operators must prepare GHG monitoring plans by February 2019. CORSIA will increase operating costs for American and most other airlines, including other U.S. airlines that operate internationally, but the implementation of a global program, as compared to regional emission reduction schemes, should ensure that these costs will be more evenly applied to American and its

competitors since there will be a common global regulatory regime. CORSIA is expected to be implemented in phases, with information collection and sharing beginning in 2019, a pilot phase beginning in 2021, and the first phase beginning in 2024. Certain details still need to be developed and the impact of CORSIA cannot be fully predicted. While we do not anticipate any significant emissions allowance expenditures in 2019, compliance with CORSIA or similar emissions-related requirements could significantly increase our operating costs beginning in 2021 and beyond. Separately, the EU has established the ETS to regulate GHG emissions in the EU. The EU adopted a directive in 2008 under which each EU member state is required to extend the ETS to aviation operations. However, the EU ETS has never fully been imposed, in large part due to the effort to adopt CORSIA. The EU has extended its stay on the extra-territorial application of the EU ETS as applied to international flights to/from the EEA through year-end 2023, contingent on successful implementation of CORSIA. Thereafter, the EU will assess CORSIA implementation and decide the future status of the EU ETS as applied to international aviation to/from the EEA. The potential impact of CORSIA or other emissions-related requirements on our costs will ultimately depend on a number of factors, including baseline emissions, the price of emission allowances or offsets that American would need to acquire, ~~the GHG efficiency of the American fleet, and the number of future American flights subject to such emissions-related requirements. These costs have not been completely defined and could fluctuate.~~

In 2019, the EPA could finalize a rule implementing aircraft engine GHG emission standards developed initially through ICAO. It is anticipated that the EPA rule will closely align with recent ICAO carbon dioxide emission standards. The new standards, which were supported by the airline industry and manufacturers, would apply to new type aircraft certified beginning in 2020, and would be phased in for newly manufactured existing aircraft type designs starting in 2023.

In addition, ~~several states~~we have adopted or are considering initiatives to regulate GHG emissions, primarily through the planned development of GHG emissions inventories, regional GHG cap and trade programs or low carbon fuels programs. Depending on the scope of such regulation,used certain of our ~~facilities~~branding and ~~operations, or~~AAdvantage loyalty program intellectual property as collateral for various financings (including the ~~operations~~AAdvantage Financing), which contain covenants that impose restrictions on the use of ~~our suppliers, may be subject to additional operating and other permit requirements, likely resulting in increased operating costs.~~

In addition, in December 2015, at the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change, over 190 countries, including the United States, reached an agreement (the Paris Agreement) to reduce GHG emissions. While the United States has since announced that it will withdraw from the Paris Agreement and there is no express reference to aviation in the Paris Agreement, to the extent countries implement the Paris Agreement or impose other climate change regulations, either with respect to the aviation industry or with respect to related industries such ~~as the aviation fuel industry, it could have an adverse direct or indirect effect on our business.~~

~~These regulatory efforts, both internationally~~intellectual property and, in the ~~U.S. at~~case of the federal and state levels, are still developing, and we cannot yet determine what the final regulatory programs or their impact will be in the U.S., the EU or in other areas in which we do business. However, such climate change-related regulatory activity in the future may adversely affect our business and financial results by requiring us to reduce our emissions, purchase allowances or otherwise pay for our emissions. Such activity may also impact us indirectly by increasing our operating costs, including fuel costs.

~~Any damage to our reputation or brand image could adversely affect our business or financial results.~~

Maintaining a good reputation globally is critical to our business. Our reputation or brand image could be adversely impacted by any failure to maintain high ethical, social and environmental sustainability practices for all of our operations and activities, our impactAAdvantage Financing, on the environment, public pressure from investors or policy groups to change our policies, such as movements to institute a “living wage,” customer perceptions of our advertising campaigns, sponsorship arrangements or marketing programs, customer perceptions of our use of social media, or customer perceptions of statements made by us, our employees and executives, agents or other third parties. Damage to our reputation or brand image or loss of customer confidence in our services could adversely affect our business and financial results, as well as require additional resources to rebuild our reputation.

~~We face challenges in integrating our computer, communications and other technology systems.~~

Among the principal risks of integrating our businesses and operations are the risks relating to integrating various computer, communications and other technology systems that are necessary to operate US Airways and American as a single integrated business and to achieve cost synergies by eliminating redundancies. While we have to date successfully integrated many of our systems, including our customer reservations system and our pilot, flight attendant and fleet scheduling system, we still have to complete several additional important system integration or replacement projects. In a number of prior airline mergers, the integration of these systems or deployment of replacement systems has taken longer, been more disruptive and cost more than originally forecasted. The implementation process to integrate or replace these various systems will involve a number of risks that could adversely impact our business, results of operations and financial condition. New systems will replace multiple legacy systems and the related implementation will be a complex and time-consuming project involving substantial expenditures for implementation consultants, system hardware, software and implementation activities, as well as the transformation of business and financial processes.

We cannot assure you that our security measures, change control procedures or disaster recovery plans will be adequate to prevent disruptions or delays in connection with systems integration or replacement. Disruptions incertain amendments or changes to ~~these systems could result in a disruption to~~ our ~~business and the loss of important data. Any of the foregoing could result in a material~~AAdvantage loyalty program. These covenants may have an adverse effect on our ~~business, results of operations and financial condition.~~

~~We rely heavily on technology and automated systems to operate our business, and any failure of these technologies or systems could harm our business, results of operations and financial condition.~~

We are highly dependent on existing and emerging technology and automated systems to operate our business. These technologies and systems include our computerized airline reservation system, flight operations systems, financial planning, management and accounting systems, telecommunications systems, website, maintenance systems and check-in kiosks. In order for our operations to work efficiently, our website and reservation system must be able to accommodate a high volume of traffic, maintain secure information and deliver flight information, as well as issue electronic tickets and process critical financial information in a timely manner. Substantially all of our tickets are issued to passengers as electronic tickets. We depend on our reservation system, which is hosted and maintained under a long-term contract by a third-party service provider, to be able to issue, track and accept these electronic tickets. If our technologies or automated systems are not functioning or if our third-party service providers were to fail to adequately provide technical support, system maintenance or timely software upgrades for any one of our key existing systems, we could experience service disruptions or delays, which could harm our business and result in the loss of important data, increase our expenses and decrease our revenues. In the event that one or more of our primary technology or systems vendors goes into bankruptcy, ceases operations or fails to perform as promised, replacement services may not be readily available on a timely basis, at competitive rates or at all, and any transition time to a new system may be significant.

Our technologies and automated systems cannot be completely protected against events that are beyond our control, including natural disasters, power failures, terrorist attacks, cyber-attacks, data theft, equipment and software failures, computer viruses or telecommunications failures. Substantial or sustained system failures could cause service delays or failures and result in our customers purchasing tickets from other airlines. We cannot assure you that our security measures, change control procedures or disaster recovery plans are adequate to prevent disruptions or delays. Disruption in or changes to these technologies or systems could result in a disruption to our business and the loss of important data. Any of the foregoing could result in a material adverse effect on our business, results of operations and financial condition.

We are at risk of losses and adverse publicity stemming from any public incident involving our company, our people or our brand, including any accident or other public incident involving our personnel or aircraft, or the personnel or aircraft of our regional, codeshare or joint business operators.

In a modern world where news can be captured and travel rapidly, we are at risk of adverse publicity stemming from any public incident involving our company, our people or our brand. Such an incident could involve the actual or alleged behavior of any of our more than 125,000 employees. Further, if our personnel or one of our aircraft, or personnel of, or an aircraft that is operated under our brand by, one of our regional operators or an airline with which we have a marketing alliance, joint business or codeshare relationship, were to be involved in a public incident, accident or catastrophe, we could be exposed to significant reputational harm and potential legal liability. The insurance we carry may be inapplicable or inadequate to cover any such incident, accident or catastrophe. In the event that our insurance is inapplicable or not adequate, we may be forced to bear substantial losses from an incident or accident. In addition, any such incident, accident or catastrophe involving our personnel or one of our aircraft (or personnel and aircraft of our regional operators and our codeshare partners) could create an adverse public perception, which could harm our reputation, result in air travelers being reluctant to fly on our

~~aircraft or those of our regional operators or codeshare partners, and adversely impact our business, results of operations and financial condition.~~

Delays in scheduled aircraft deliveries or other loss of anticipated fleet capacity, and failure of new aircraft to perform as expected, may adversely impact our business, results of operations and financial condition.

The success of our business depends on, among other things, effectively managing the number and types of aircraft we operate. If for any reason we are unable to accept or secure deliveries of new aircraft on contractually scheduled delivery dates, this could have a negative impact on our business, results of operations and financial condition. Our failure to integrate newly purchased aircraft into our fleet as planned might require us to seek extensions of the terms for some leased aircraft or otherwise delay the exit of certain aircraft from our fleet. Such unanticipated extensions or delays may require us to operate existing aircraft beyond the point at which it is economically optimal to retire them, resulting in increased maintenance costs. If new aircraft orders are not filled on a timely basis, we could face higher operating costs than planned. In addition, if the aircraft we receive do not meet expected performance or quality standards, including with respect to fuel efficiency and reliability, our business, results of operations and financial condition could be adversely impacted.

~~We depend on a limited number of suppliers for aircraft, aircraft engines and parts.~~

We depend on a limited number of suppliers for aircraft, aircraft engines and many aircraft and engine parts. For example, under our current fleet plan, by 2020 all of our mainline aircraft will have been manufactured by either Airbus or Boeing and all of our regional aircraft will have been manufactured by either Bombardier or Embraer. Further, our supplier base continues to consolidate as evidenced by the recent acquisition of Rockwell Collins by United Technologies, the recently completed transaction involving Airbus and Bombardier and the pending transaction involving Boeing and Embraer. Due to the limited number of these suppliers, we are vulnerable to any problems associated with the performance of their obligation to supply key aircraft, parts and engines, including design defects, mechanical problems, contractual performance by suppliers, adverse perception by the public that would result in customer avoidance of any of our aircraft or any action by the FAA or any other regulatory authority resulting in an inability to operate our aircraft, even temporarily.

Our business has been and will continue to be affected by many changing economic and other conditions beyond our control, including global events that affect travel behavior, and our results of operations could be volatile and fluctuate due to seasonality.

~~Our business, results of operations and financial condition have been and will continue to be affected by many changing economic and other conditions beyond our control, including, among others:~~

actual or potential changes in international, national, regional and local economic, business and financial conditions, including recession, inflation, higher interest rates, wars, terrorist attacks and political instability;

~~changes in consumer preferences, perceptions, spending patterns and demographic trends;~~

~~changes in the competitive environment due to industry consolidation, changes in airline alliance affiliations, and other factors;~~

~~actual or potential disruptions to the ATC systems;~~

~~increases in costs of safety, security, and environmental measures;~~

~~outbreaks of diseases that affect travel behavior; and~~

~~weather and natural disasters, including increases in such disasters and related costs caused by more severe weather due to climate change.~~

In particular, an outbreak of a contagious disease such as the Ebola virus, Middle East Respiratory Syndrome, Severe Acute Respiratory Syndrome, H1N1 influenza virus, avian flu, Zika virus or any other similar illness, if it were to become associated with air travel or persist for an extended period, could materially affect the airline industry and us by reducing revenues and adversely impacting our operations and passengers’ travel behavior. As a result of these or other conditions beyond our control, our results of operations could be volatile and subject to rapid and unexpected change. In addition, due to generally weaker demand for air travel during the winter, our revenues in the first and fourth quarters of the year could be weaker than revenues in the second and third quarters of the year.

A higher than normal number of pilot retirements, more stringent duty time regulations, increased flight hour requirement for commercial airline pilots, reductions in the number of military pilots entering the commercial workforce and other factors have caused a shortage of pilots that could materially adversely affect our business.

We currently have a higher than normal number of pilots eligible for retirement. Large numbers of pilots in the industry are approaching the FAA’s mandatory retirement age of 65. Our pilots and other employees are subject to rigorous certification standards, and our pilots and other crew members must adhere to flight time and rest requirements. Commencing in 2013, the minimum flight hour requirement to achieve a commercial pilot’s license in the United States (an Air Transport Pilot’s certificate) increased from 250 to 1,500 hours, thereby significantly increasing the time and cost commitment required to become licensed to fly commercial aircraft. Additionally, the number of military pilots being trained by the U.S. armed forces and available as commercial pilots upon their retirement from military service has been decreasing. These and other factors have contributed to a shortage of qualified, entry-level pilots and increased compensation costs, particularly for our regional subsidiaries and our other regional partners who are being required by market conditions to pay significantly increased wages and large signing bonuses to their pilots in an attempt to achieve desired staffing levels. The foregoing factors have also led to increased competition from large, mainline carriers attempting to meet their hiring needs. We believe that this industry-wide pilot shortage is becoming an increasing problem for airlines in the United States. Our regional partners have recently been unable to hire adequate numbers of pilots to meet their needs, resulting in a reduction in the number of flights offered, disruptions, increased costs of operations, financial difficulties and other adverse effects, and these circumstances may become more severe in the future and thereby cause a material adverse effect on our business.

~~Increases in insurance costs or reductions in insurance coverage may adversely impact our operations and financial results.~~

The terrorist attacks of September 11, 2001 led to a significant increase in insurance premiums and a decrease in the insurance coverage available to commercial air carriers. Accordingly, our insurance costs increased significantly, and our ability to continue to obtain insurance even at current prices remains uncertain. If we are unable to maintain adequate insurance coverage, our business could be materially and adversely affected. Additionally, severe disruptions in the domestic and global financial markets could adversely impact the claims paying ability of some insurers. Future downgrades in the ratings of enough insurers could adversely impact both the availability of appropriate insurance coverage and its cost. Because of competitive pressures in our industry, our ability to pass along additional insurance costs to passengers is limited. As a result, further increases in insurance costs or reductions in available insurance coverage could have an adverse impact on our financial results.use such intellectual property.

We may be a party to litigation in the normal course of business or otherwise, which could affect our financial position and liquidity.

From time to time, we are a party to or otherwise involved in legal proceedings, claims and government inspections or investigations and other legal matters, both inside and outside the United States, arising in the ordinary course of our business or otherwise. We are currently involved in various legal proceedings and claims that have not yet been fully resolved, and additional claims may arise in the future. 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. Litigation is subject to significant uncertainty and may be expensive, time-consuming, and disruptive to our operations. Although we will vigorously defend ourselves in such legal proceedings, their ultimate resolution and potential financial and other impacts on us are uncertain. For these and other reasons, we may choose to settle legal proceedings and claims, regardless of their actual merit. If a legal proceeding is resolved against us, it could result in significant compensatory damages, and in certain circumstances punitive or trebled damages, disgorgement of revenue or profits, remedial corporate measures or injunctive relief imposed on us. If our existing insurance does not cover the amount or types of damages awarded, or if other resolution or actions taken as a result of the legal proceeding were to restrain our ability to operate or market our services, our consolidated financial position, results of operations or cash flows could be materially adversely affected. In addition, legal proceedings, and any adverse resolution thereof, can result in adverse publicity and damage to our reputation, which could adversely impact our business. Additional information regarding certain legal matters in which we are involved can be found in Note 11(e) to AAG’s Consolidated Financial Statements in Part I,II, Item ~~3. Legal Proceedings.~~

8A and Note 10(e) to American’s Consolidated Financial Statements in Part II, Item 8B.

Our ability to utilize our ~~NOL Carryforwards~~NOLs and other carryforwards may be limited.

Under the Internal Revenue Code of 1986, as amended (the Code), a corporation is generally allowed a deduction for ~~NOLs~~net operating losses (NOLs) carried over from prior taxable ~~years (NOL Carryforwards).~~years. As of December 31, ~~2018,~~2021, we had approximately $17.2 billion of gross federal NOLs and $3.0 billion of other carryforwards available ~~NOL Carryforwards~~to reduce future federal taxable income, of ~~approximately $10.2~~which $6.9 billion ~~for regular federal income tax purposes that~~ will expire beginning in 2024 if unused ~~beginning in 2022,~~ and $13.3 billion can be carried forward indefinitely. We also had approximately ~~$3.2~~$6.0 billion ~~for~~of NOL carryforwards to reduce future state taxable income ~~tax purposes that~~at December 31, 2021, which will expire in taxable years 2021 through 2041 if ~~unused, between 2019 and 2038.~~unused. Our NOL ~~Carryforwards~~carryforwards are subject to adjustment on audit by the Internal Revenue Service and the respective state taxing authorities. Additionally, due to the COVID-19 pandemic and other economic factors, the NOL carryforwards may expire before we can generate sufficient taxable income to use them.

Our ability to use our NOLs and other carryforwards will depend on the amount of taxable income generated in future periods. We presently have a $34 million valuation allowance on certain net deferred tax assets related to state NOL carryforwards. If our financial results continue to be adversely impacted by the COVID-19 pandemic, there can be no assurance that an additional valuation allowance on our net deferred tax assets will not be required. Such valuation allowance could be material. A corporation’s ability to deduct its federal NOL ~~Carryforwards~~carryforwards and to utilize certain other available tax attributes can be substantially constrained under the general annual limitation rules of Section 382 of the Code (Section 382) if it undergoes an “ownership change” as defined in Section 382 (generally where cumulative stock ownership changes among material stockholders exceed ~~50 percent~~50% during a rolling three-year period). WeIn 2013, we experienced an ownership change in connection with our emergence from ~~the Chapter 11 Cases~~bankruptcy and US Airways Group experienced an ownership change in connection with the Merger. The general limitation rules for a debtor in a bankruptcy case are liberalized where the ownership change occurs upon emergence from bankruptcy. We elected to be covered by certain

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special rules for federal income tax purposes that permitted approximately $9.0 billion (with ~~$8.4~~$5.4 billion of unlimited ~~NOL~~NOLs still remaining at December 31, ~~2018)~~2021) of our federal NOL ~~Carryforwards~~carryforwards to be utilized without regard to the annual limitation generally imposed by Section 382. If the special rules are determined not to apply, our ability to utilize such federal NOL ~~Carryforwards~~carryforwards may be subject to limitation. In addition, under the loan program of the CARES Act, the warrants (and common stock issuable upon exercise thereof) we issued to Treasury did not and will not result in an “ownership change” for purposes of Section 382. This exception does not apply for companies issuing warrants, stock options, common or preferred stock or other equity pursuant to PSP1, PSP2 and PSP3 and accordingly will not apply to the warrants issued by us under PSP1, PSP2 and PSP3. Substantially all of our remaining federal NOL ~~Carryforwards~~carryforwards attributable to US Airways Group and its subsidiaries are subject to limitation under Section 382 as a result of the Merger; however, our ability to utilize such NOL ~~Carryforwards~~carryforwards is not anticipated to be effectively constrained as a result of such limitation. Similar limitations may apply for state income tax purposes.

Notwithstanding the foregoing, an ownership change subsequent to our emergence from ~~the Chapter 11 Cases~~bankruptcy may severely limit or effectively eliminate our ability to utilize our NOL ~~Carryforwards~~carryforwards and other tax attributes. ~~To reduce~~In connection with the ~~risk~~expiration in December 2021 of ~~a potential adverse effect on our ability~~certain transfer restrictions applicable to ~~utilize our NOL Carryforwards,~~substantial shareholders contained in our Certificate of Incorporation, ~~contains transfer restrictions applicable~~the Board of Directors of AAG adopted a tax benefits preservation plan (the Tax Benefits Preservation Plan) in order to preserve our ability to use our NOLs and certain ~~substantial stockholders. These restrictions~~other tax attributes to reduce potential future income tax obligations. The Tax Benefits Preservation Plan is designed to reduce the likelihood that we experience an ownership change by deterring certain acquisitions of AAG common stock. There is no assurance, however, that the deterrent mechanism will be effective, and such acquisitions may still occur. In addition, the Tax Benefits Preservation Plan may adversely affect the ~~ability of certain holders~~marketability of AAG common stock ~~to dispose of~~by discouraging existing or ~~acquire~~potential investors from acquiring AAG common stock or additional shares of AAG common ~~stock. Although~~stock, because any non-exempt third party that acquires 4.9% or more of the ~~purpose~~then-outstanding shares of AAG common stock would suffer substantial dilution of its ownership interest in AAG. We intend to submit the Tax Benefits Preservation Plan for ratification to AAG stockholders at the 2022 Annual Meeting of Stockholders of American Airlines Group Inc.

New U.S. tax legislation may adversely affect our financial condition, results of operations and cash flows.

The U.S. government may enact significant changes to the taxation of business entities including, among others, an increase in the corporate income tax rate, the imposition of minimum taxes or surtaxes on certain types of income, significant changes to the taxation of income derived from international operations, and an addition of further limitations on the deductibility of business interest. While certain draft legislation has been publicly released and is under development in Congress at this time, the likelihood of these ~~transfer restrictions~~changes being enacted or implemented is unclear. We are currently unable to ~~prevent an ownership change from occurring,~~predict whether such changes will occur. If such changes are enacted or implemented, we are currently unable to predict the ultimate impact on our business and therefore there can be no assurance ~~can be given that an ownership change~~our business will not ~~occur even with these restrictions in place.~~

Our ability to use our NOL Carryforwards also will depend on the amount of taxable income generated in future periods. The NOL Carryforwards may expire before we can generate sufficient taxable income to use them.be adversely affected.

We have a significant amount of goodwill, which is assessed for impairment at least annually. In addition, we may never realize the full value of our intangible assets or long-lived assets, causing us to record material impairment charges.

Goodwill and indefinite-lived intangible assets are not amortized, but are assessed for impairment at least annually, or more frequently if conditions indicate that an impairment may have occurred. In accordance with applicable accounting standards, we first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. In addition, we are required to assess certain of our other long-lived assets for impairment if conditions indicate that an impairment may have occurred.

Future impairment of goodwill or other long-lived assets could be recorded in results of operations as a result of changes in assumptions, estimates, or circumstances, some of which are beyond our control. There can be no assurance that a material impairment charge of goodwill or tangible or intangible assets will be avoided. The value of our aircraft could be impacted in future periods by changes in supply and demand for these aircraft. Such changes in supply and demand for certain aircraft types could result from grounding of aircraft by us or other ~~airlines. An~~airlines, including as a result of significant or prolonged declines in demand for air travel and corresponding reductions to capacity. We can provide no assurance that a material impairment ~~charge~~loss of tangible or intangible assets will not occur in a future period; we have previously incurred significant impairment charges associated with our decision to retire certain aircraft as a result of the severe decline in demand for air travel due to the COVID-19 pandemic, and the risk of future material impairments remains significantly heightened as a result of the effects of the COVID-19 pandemic on our flight schedules and business. Such impairment charges could have a material adverse effect on our business, results of operations and financial condition.

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Risks Related to the Airline Industry

The airline industry is intensely competitive and dynamic.

Our competitors include other major domestic airlines and foreign, regional and new entrant airlines, as well as joint ventures formed by some of these airlines, many of which have more financial or other resources and/or lower cost structures than ours, as well as other forms of transportation, including rail and private automobiles or alternatives to commuting or business travel including remote or flexible working policies and communication alternatives such as videoconferencing. In many of our markets, we compete with at least one low-cost carrier (including so-called ultra-low-cost carriers). Our revenues are sensitive to the actions of other carriers in many areas, including pricing, scheduling, capacity, fees (including cancellation, change and baggage fees), amenities, loyalty benefits and promotions, which can have a substantial adverse impact not only on our revenues, but on overall industry revenues. These factors may become even more significant in periods when the industry experiences large losses (such as the current one caused by the COVID-19 pandemic), as airlines under financial stress, or in bankruptcy, may institute pricing or fee structures intended to attract more customers to achieve near term survival at the expense of long-term viability.

Low-cost carriers (including so-called ultra-low-cost carriers) have a profound impact on industry revenues. Using the advantage of low unit costs, these carriers offer lower fares in order to shift demand from larger, more established airlines, and represent significant competitors, particularly for customers who fly infrequently, are price sensitive and therefore tend not to be loyal to any one particular carrier. A number of these low-cost carriers have recently commenced operations, and several new entrants have announced their intention to start up new ultra-low-cost carriers. Many of these new and existing carriers have announced growth strategies including commitments to acquire significant numbers of new aircraft for delivery in the next few years. These low-cost carriers are attempting to continue to increase their market share through growth and, potentially, consolidation, and are expected to continue to have an impact on our revenues and overall performance. We and several other large network carriers have implemented “Basic Economy” fares designed to more effectively compete against low-cost carriers, but we cannot predict whether these initiatives will be successful. While historically these carriers have provided competition in domestic markets, we have recently experienced new competition from low-cost carriers on international routes, including low-cost airlines executing international long-haul expansion strategies, a trend likely to continue with the delivery of planned, long-range narrowbody aircraft. The actions of existing or future low-cost carriers, including those described above, could have a material adverse effect on our operations and financial performance.

We provide air travel internationally, directly as well as through joint businesses, alliances, codeshare and similar arrangements to which we are a party. While our network is comprehensive, compared to some of our key global competitors, we generally have somewhat greater relative exposure to certain regions (for example, Latin America) and somewhat lower relative exposure to others (for example, China). Our financial performance relative to our key competitors will therefore be influenced significantly by macro-economic conditions in particular regions around the world and the relative exposure of our network to the markets in those regions, including the duration of declines in demand for travel to specific regions as a result of the continuing outbreak of COVID-19 and the speed with which demand for travel to these regions returns.

Our international service exposes us to foreign economies and the potential for reduced demand when any foreign country we serve suffers adverse local economic conditions or if governments restrict commercial air service to or from any of these markets. For example, the COVID-19 pandemic has resulted in a precipitous decline in demand for air travel, in particular international travel, in part as a result of the imposition by the U.S. and foreign governments of restrictions on travel from certain regions. In addition, open skies agreements, which are now in place with a substantial number of countries around the world, provide international airlines with open access to U.S. markets, potentially subjecting us to increased competition on our international routes. See also “Our business is subject to extensive government regulation, which may result in increases in our costs, disruptions to our operations, limits on our operating flexibility, reductions in the demand for air travel, and competitive disadvantages.”

Certain airline alliances, joint ventures and joint businesses have been, or may in the future be, granted immunity from antitrust regulations by governmental authorities for specific areas of cooperation, such as joint pricing decisions. To the extent alliances formed by our competitors can undertake activities that are not available to us, our ability to effectively compete may be hindered. Our ability to attract and retain customers is dependent upon, among other things, our ability to offer our customers convenient access to desired markets. Our business could be adversely affected if we are unable to maintain or obtain alliance and marketing relationships with other air carriers in desired markets.

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American has established a transatlantic joint business with British Airways, Aer Lingus, Iberia and Finnair, a transpacific joint business with Japan Airlines and a joint business relating to Australia and New Zealand with Qantas, each of which has been granted antitrust immunity. The transatlantic joint business benefits from a grant of antitrust immunity from the DOT and was reviewed by the EC in July 2010. In connection with this review, we provided certain commitments to the EC regarding, among other things, the availability of take-off and landing slots at LHR or LGW airports. The commitments accepted by the EC were binding for 10 years. In October 2018, in anticipation of the exit of the United Kingdom from the EU, commonly referred to as Brexit, and the expiry of the EC commitments in July 2020, the CMA opened an investigation into the transatlantic joint business. We continue to fully cooperate with the CMA and, in September 2020, the CMA adopted interim measures that effectively extend the EC commitments for an additional three years until March 2024 in light of the uncertainty created by the COVID-19 pandemic. The CMA plans to complete its investigation before the interim measures expire. The foregoing arrangements are important aspects of our international network and we are dependent on the performance and continued cooperation of the other airlines party to those arrangements.

In 2021, we began implementing key aspects of our marketing relationship with JetBlue. This arrangement includes an alliance agreement with reciprocal codesharing on certain domestic and international routes from New York (JFK, LGA, and EWR) and BOS, and provides for reciprocal loyalty program benefits. The arrangement does not include JetBlue’s transatlantic flying. Pursuant to federal law, American and JetBlue submitted this proposed alliance arrangement to the DOT for review. After American, JetBlue and the DOT agreed to a series of commitments, the DOT terminated its review of the proposed alliance in January 2021. The commitments include growth commitments to ensure capacity expansion, slot divestitures at JFK and at DCA near Washington, D.C. and antitrust compliance measures. Beyond the DOT Agreement, American and JetBlue will also refrain from certain kinds of coordination on certain city pair markets. Upon the DOT’s termination of its review of the proposed alliance, American and JetBlue implemented the proposed alliance subject to these commitments. On September 21, 2021, the DOJ, joined by Attorneys General from six states and the District of Columbia, filed an antitrust complaint against American and JetBlue alleging that American and JetBlue violated U.S. antitrust laws in connection with the NEA. We believe the complaint is without merit and intend to defend against it vigorously.

Notwithstanding the DOT’s termination of its reviews of the NEA and certain other alliances, the DOT maintains authority to conduct investigations under the scope of its existing statutes and regulations, including conduct related to this alliance. On September 21, 2021, the DOT published a Clarification Notice relating to the DOT Agreement. The DOT Clarification Notice stated, among other things, that the DOT Agreement remains in force during the pendency of the DOJ action against the NEA and, while the DOT retains independent statutory authority to prohibit unfair methods of competition in air transportation, the DOT intends to defer to DOJ to resolve the antitrust concerns that DOJ has identified with respect to the NEA. The DOT simultaneously published a Notice Staying Proceeding in relation to a complaint by Spirit Airlines, Inc. regarding the NEA, pending resolution of the DOJ action described above.

No assurances can be given as to any benefits that we may derive from any of the foregoing arrangements or any other arrangements that may ultimately be implemented, or whether regulators will, or if granted continue to, approve or impose material conditions on our business activities.

Additional mergers and other forms of industry consolidation, including antitrust immunity grants, may take place and may not involve us as a participant. Depending on which carriers combine and which assets, if any, are sold or otherwise transferred to other carriers in connection with any such combinations, our competitive position relative to the post-combination carriers or other carriers that acquire such assets could be harmed. In addition, as carriers combine through traditional mergers or antitrust immunity grants, their route networks will grow, and that growth will result in greater overlap with our network, which in turn could decrease our overall market share and revenues. Such consolidation is not limited to the U.S., but could include further consolidation among international carriers in Europe and elsewhere.

Additionally, our AAdvantage loyalty program, which is an important element of our sales and marketing programs, faces significant and increasing competition from the loyalty programs offered by other travel companies, as well as from similar loyalty benefits offered by banks and other financial services companies. Competition among loyalty programs is intense regarding the rewards, fees, required usage, and other terms and conditions of these programs. In addition, we have used certain assets from our AAdvantage loyalty program as collateral for the AAdvantage Financing, which contains covenants that impose restrictions on certain amendments or changes to certain of our AAdvantage Agreements and other aspects of the AAdvantage loyalty program. These competitive factors and covenants (to the extent applicable) may affect our ability to attract and retain customers, increase usage of our loyalty program and maximize the revenue generated by our loyalty program.

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The commercial relationships that we have with other companies, including any related equity investments, may not produce the returns or results we expect.

An important part of our strategy to expand our network has been to initiate or expand our commercial relationships with other airlines, such as by entering into global alliance, joint business and codeshare relationships, and, in certain instances, including China Southern Airlines and our previously announced proposed investments in GOL and JetSMART, by making a significant equity investment in another airline in connection with initiating or expanding such a commercial relationship. We may explore additional investments in, and joint ventures and strategic alliances with, other carriers as part of our global business strategy. We face competition in forming and maintaining these commercial relationships since there are a limited number of potential arrangements and other airlines are looking to enter into similar relationships, and our inability to form or maintain these relationships or inability to form as many of these relationships as our competitors may have an adverse effect on our business. Any such existing or future investment could involve significant challenges and risks, including that we may not realize a satisfactory return on our investment or that they may not generate the expected revenue synergies, and they may distract management focus from our operations or other strategic options. We may also be subject to consequences from any illegal conduct of joint business partners as well as to any political or regulatory change that negatively impacts or prohibits our arrangements with any such business partners. In addition, as a result of the global spread of COVID-19, the industry has experienced a precipitous decline in demand for air travel both internationally and domestically, which is expected to continue into the foreseeable future and could materially disrupt our partners' abilities to provide air service, the timely execution of our strategic operating plans, including the finalization, approval and implementation of new strategic relationships or the maintenance or expansion of existing relationships. If any carriers with which we partner or in which we hold an equity stake were to cease trading or be declared insolvent, we could lose the value of any such investment or experience significant operational disruption. These events could have a material adverse effect on our business, results of operations and financial condition.

We may also from time to time pursue commercial relationships with companies outside the airline industry, which relationships may include equity investments or other financial commitments. Any such relationship or related investment, could involve unique risks, particularly where these relationships involve new industry participants, emerging technologies or industries with which we are unfamiliar.

Our business is very dependent on the price and availability of aircraft fuel. Continued periods of high volatility in fuel costs, increased fuel prices or significant disruptions in the supply of aircraft fuel could have a significant negative impact on consumer demand, our operating results and liquidity.

Our operating results are materially impacted by changes in the availability, price volatility and cost of aircraft fuel, which represents one of the largest single cost items in our business and thus is a significant factor in the price of airline tickets. Market prices for aircraft fuel have fluctuated substantially over the past several years and prices continue to be highly volatile, with market spot prices ranging from a low of approximately $0.37 per gallon to a high of approximately $2.35 per gallon during the period from January 1, 2019 to December 31, 2021. In particular, fuel prices rose substantially in 2021, and price increases have continued in early 2022.

Because of the amount of fuel needed to operate our business, even a relatively small increase or decrease in the price of fuel can have a material effect on our operating results and liquidity. Due to the competitive nature of the airline industry and unpredictability of the market for air travel, we can offer no assurance that we may be able to increase our fares, impose fuel surcharges or otherwise increase revenues or decrease other operating costs sufficiently to offset fuel price increases. Similarly, we cannot predict actions that may be taken by our competitors in response to changes in fuel prices.

We cannot predict the future availability, price volatility or cost of aircraft fuel. Natural disasters (including hurricanes or similar events in the U.S. Southeast and on the Gulf Coast where a significant portion of domestic refining capacity is located), political disruptions or wars involving oil-producing countries, economic sanctions imposed against oil-producing countries or specific industry participants, changes in fuel-related governmental policy, the strength of the U.S. dollar against foreign currencies, changes in the cost to transport or store petroleum products and any related staffing or transportation equipment shortages, changes in access to petroleum product pipelines and terminals, speculation in the energy futures markets, changes in aircraft fuel production capacity, environmental concerns and other unpredictable events, may result in fuel supply shortages, distribution challenges, additional fuel price volatility and cost increases in the future. Any of these factors or events could cause a disruption in or increased demands on oil production, refinery operations, pipeline capacity or terminal access and possibly result in significant increases in the price of aircraft fuel and diminished availability of aircraft fuel supply.

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Our aviation fuel purchase contracts generally do not provide meaningful price protection against increases in fuel costs. Our current policy is not to enter into transactions to hedge our fuel consumption, although we review this policy from time to time based on market conditions and other factors. Accordingly, as of December 31, 2021, we did not have any fuel hedging contracts outstanding to hedge our fuel consumption. As such, and assuming we do not enter into any future transactions to hedge our fuel consumption, we will continue to be fully exposed to fluctuations in fuel prices. See also the discussion in Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk – “Aircraft Fuel.”

Our business is subject to extensive government regulation, which may result in increases in our costs, disruptions to our operations, limits on our operating flexibility, reductions in the demand for air travel, and competitive disadvantages.

Airlines are subject to extensive domestic and international regulatory requirements. In the last several years, Congress and state and local governments have passed laws and regulatory initiatives, and the DOT, the FAA, the TSA and several of their respective international counterparts have issued regulations and a number of other directives, that affect the airline industry. These requirements impose substantial costs on us and restrict the ways we may conduct our business.

For example, the FAA from time to time issues directives and other regulations relating to the maintenance and operation of aircraft that require significant expenditures or operational restrictions. These requirements can be issued with little or no notice, or can otherwise impact our ability to efficiently or fully utilize our aircraft, and in some instances have resulted in the temporary and prolonged grounding of aircraft types altogether (including, for example, the March 2019 grounding of all Boeing 737 MAX Family aircraft, which remained in place for over a year and was not lifted in the United States until November 2020), or otherwise caused substantial disruption and resulted in material costs to us and lost revenues. The FAA also exercises comprehensive regulatory authority over nearly all technical aspects of our operations. Our failure to comply with such requirements has in the past and may in the future result in fines and other enforcement actions by the FAA or other regulators. In the future, any new regulatory requirements, particularly requirements that limit our ability to operate or price our products, could have a material adverse effect on us and the industry.

DOT consumer rules, and rules promulgated by certain analogous agencies in other countries we serve, dictate procedures for customer handling during long onboard delays, further regulate airline interactions with passengers, including passengers with disabilities, through the ticketing process, at the airport, and onboard the aircraft, and require disclosures concerning airline fares and ancillary fees such as baggage fees. Other DOT rules apply to post-ticket purchase price increases and an expansion of tarmac delay regulations to international airlines. In 2022, the DOT is expected to propose or implement a number of new regulations that will impact us, including disability rules for accessible lavatories and wheelchair assistance, refund requirements, display of ancillary fees during initial flights search, and refunds for checked bag fees in the event of certain delays in delivery.

The Aviation and Transportation Security Act mandates the federalization of certain airport security procedures and imposes additional security requirements on airports and airlines, most of which are funded by a per-ticket tax on passengers and a tax on airlines. Present and potential future security requirements can have the effect of imposing costs and inconvenience on travelers, potentially reducing the demand for air travel.

Similarly, there are a number of legislative and regulatory initiatives and reforms at the state and local levels. These initiatives include increasingly stringent laws to protect the environment, wage/hour requirements, mandatory paid sick or family leave, and healthcare mandates. These laws could affect our relationship with our workforce and the vendors that serve our airlines and cause our expenses to increase without an ability to pass through these costs. In recent years, the airline industry has experienced an increase in litigation over the application of state and local employment laws, particularly in California. Application of these laws may result in operational disruption, increased litigation risk and impact our negotiated labor agreements. Additionally, in September 2021, the Biden Administration issued an executive order mandating a COVID-19 vaccination requirement for federal contractors.Due to a number of our agreements, American is classified as a government contractor. Consistent with this executive order and guidance from the Safer Federal Workforce Task Force responsible for implementing the order, we announced in that the federal vaccine mandate would require all of American’s U.S.-based team members and certain international crew members to be vaccinated or be exempt due to an accommodation for a medical disability or sincerely held religious belief. Lawsuits have been filed in multiple jurisdictions challenging the order, and the U.S. District Court for the Southern District of Georgia in one of these cases issued a nationwide stay of enforcement of the executive order.The cases are currently before several U.S. Courts of Appeal and may ultimately be decided by the U.S. Supreme Court. Given the uncertainty of its viability in the courts, the timing of implementation and availability of accommodations, we cannot predict the impact of this federal vaccination

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requirement on our business. Moreover, we may be subject to state and local vaccine mandates and other COVID-19-related requirements governing airports where we operate. While OSHA has withdrawn its overarching COVID-19 Emergency Temporary Standard, the U.S. Supreme Court has acknowledged that OSHA may potentially issue a revised COVID-19 standard targeted to high-risk occupations or workplaces, which could impact our regional carriers and other service providers.

The results of our operations, demand for air travel, and the manner in which we conduct business each may be affected by changes in law and future actions taken by governmental agencies, including:

•changes in law that affect the services that can be offered by airlines in particular markets and at particular airports, or the types of fares offered or fees that can be charged to passengers;

•the granting and timing of certain governmental approvals (including antitrust or foreign government approvals) needed for codesharing alliances, joint businesses and other arrangements with other airlines, and the imposition of regulatory investigations or commencement of litigation related to any of the foregoing (including our arrangements with JetBlue);

•restrictions on competitive practices (for example, court orders, or agency regulations or orders, that would curtail an airline’s ability to respond to a competitor);

•the adoption of new passenger security standards or regulations that impact customer service standards;

•restrictions on airport operations, such as restrictions on the use of slots at airports or the auction or reallocation of slot rights currently held by us;

•the adoption of more restrictive locally-imposed noise restrictions; and

•restrictions on travel or special guidelines regarding aircraft occupancy or hygiene related to COVID-19, including the imposition of preflight testing regimes or vaccination confirmation requirements which to date have, and may in the future have, the effect of reducing demand for air travel in the markets where such requirements are imposed.

Each additional regulation or other form of regulatory oversight increases costs and adds greater complexity to airline operations and, in some cases, may reduce the demand for air travel. There can be no assurance that the increased costs or greater complexity associated with our compliance with new rules, anticipated rules or other forms of regulatory oversight will not have a material adverse effect on us.

Any significant reduction in air traffic capacity at and in the airspace serving key airports in the U.S. or overseas could have a material adverse effect on our business, results of operations and financial condition. In addition, the ATC system is not successfully modernizing to meet the growing demand for U.S. air travel. Air traffic controllers rely on outdated procedures and technologies that routinely compel airlines, including ourselves, to fly inefficient routes or take significant delays on the ground. The ATC system’s inability to manage existing travel demand has led government agencies to implement short-term capacity constraints during peak travel periods or adverse weather conditions in certain markets, resulting in delays and disruptions of air traffic. The outdated technologies also cause the ATC system to be less resilient in the event of a failure. For example, an automation failure and an evacuation, in 2015 and 2017, respectively, at the Washington Air Route Control Center resulted in cancellations and delays of hundreds of flights traversing the greater Washington, D.C. airspace.

In the early 2000s, the FAA embarked on a path to modernize the national airspace system, including migration from the current radar-based ATC system to a GPS-based system. This modernization of the ATC system, generally referred to as “NextGen,” has been plagued by delays and cost overruns, and it remains uncertain when the full array of benefits expected from this modernization will be available to the public and the airlines, including ourselves. Failure to update the ATC system and the substantial costs that may be imposed on airlines, including ourselves, to fund a modernized ATC system may have a material adverse effect on our business.

Further, our business has been adversely impacted when government agencies have ceased to operate as expected including due to partial shut-downs, sequestrations or similar events and the COVID-19 pandemic. These events have resulted in, among other things, reduced demand for air travel, an actual or perceived reduction in air traffic control and security screening resources and related travel delays, as well as disruption in the ability of the FAA to grant required regulatory approvals, such as those that are involved when a new aircraft is first placed into service.

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Our operating authority in international markets is subject to aviation agreements between the U.S. and the respective countries or governmental authorities, such as the EU, and in some cases, fares and schedules require the approval of the DOT and/or the relevant foreign governments. Moreover, alliances with international carriers may be subject to the jurisdiction and regulations of various foreign agencies. The U.S. government has negotiated “open skies” agreements with 130 trading partners, which agreements allow unrestricted route authority access between the U.S. and the foreign markets. While the U.S. has worked to increase the number of countries with which open skies agreements are in effect, a number of markets important to us, including China, do not have open skies agreements. For example, the open skies air services agreement between the U.S. and the EU, which took effect in March 2008, provides airlines from the U.S. and EU member states open access to each other’s markets, with freedom of pricing and unlimited rights to fly from the U.S. to any airport in the EU. As a result of the agreement and a subsequent open skies agreement involving the U.S. and the United Kingdom, which was agreed in anticipation of Brexit, we face increased competition in these markets, including LHR. Bilateral and multilateral agreements among the U.S. and various foreign governments of countries we serve but which are not covered by an open skies treaty are subject to periodic renegotiation. We currently operate a number of international routes under government arrangements that limit the number of airlines permitted to operate on the route, the capacity of the airlines providing services on the route, or the number of airlines allowed access to particular airports. If an open skies policy were to be adopted for any of these markets, it could have a material adverse impact on us and could result in the impairment of material amounts of our related tangible and intangible assets. In addition, competition from foreign airlines, revenue-sharing joint ventures, joint business agreements, and other alliance arrangements by and among other airlines could impair the value of our business and assets on the open skies routes.

On May 1, 2021 the EU and United Kingdom entered into a new trade and cooperation agreement (The EU-UK Trade and Cooperation Agreement) to govern certain aspects of their relationship following Brexit. We face risks associated with Brexit, notably given the extent of our passenger and cargo traffic and that of our joint business partners that flows through LHR in the United Kingdom. The EU-UK Trade and Cooperation Agreement includes provisions in relation to commercial air service that we expect to be sufficient to sustain our current services under the transatlantic joint business. However, the scope of traffic rights under the EU-UK Trade and Cooperation Agreement is less extensive than before Brexit and therefore the full impact of the EU-UK Trade and Cooperation Agreement is uncertain. As a result, the continuation of our current services, and those of our partners could be disrupted. This could materially adversely affect our business, results of operations and financial condition. More generally, changes in U.S. or foreign government aviation policies could result in the alteration or termination of such agreements, diminish the value of route authorities, slots or other assets located abroad, or otherwise adversely affect our international operations.

We operate a global business with significant operations outside of the U.S. Our current international activities and prospects have been, and in the future could be, adversely affected by government policies, reversals or delays in the opening of foreign markets, increased competition in international markets, the performance of our alliance, joint business and codeshare partners in a given market, exchange controls or other restrictions on repatriation of funds, currency and political risks (including changes in exchange rates and currency devaluations), environmental regulation, increases in taxes and fees and changes in international government regulation of our operations, including the inability to obtain or retain needed route authorities and/or slots. In particular, the outbreak and global spread of COVID-19 have severely impacted the demand for international travel and have resulted in the imposition of significant governmental restrictions on commercial air service to or from certain regions. We responded by temporarily suspending a significant portion of our long-haul international flights and delaying the introduction of certain new long-haul international routes. We can provide no assurance as to when such restrictions will be eased or lifted, when demand for international travel will return to pre-COVID-19 pandemic levels, if at all, or whether certain international destinations we previously served will be economical in the future.

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More generally, our industry may be affected by any deterioration in global trade relations, including shifts in the trade policies of individual nations. For example, much of the demand for international air travel is the result of business travel in support of global trade. Should protectionist governmental policies, such as increased tariff or other trade barriers, travel limitations and other regulatory actions, have the effect of reducing global commercial activity, the result could be a material decrease in the demand for international air travel. Additionally, certain of the products and services that we purchase, including certain of our aircraft and related parts, are sourced from suppliers located outside the U.S., and the imposition of new tariffs, or any increase in existing tariffs, by the U.S. government in respect of the importation of such products could materially increase the amounts we pay for them. In particular, in October 2019, the Office of the U.S. Trade Representative (USTR), as part of an ongoing dispute with the EU before the World Trade Organization (WTO) concerning, among other things, aircraft subsidies, was authorized by an arbitration tribunal of the WTO to impose up to $7.5 billion per year in import tariffs on certain goods originating from the EU. The USTR subsequently imposed tariffs of up to 15% on certain imports from the EU, including on certain Airbus aircraft that we previously contracted to purchase and certain imported aircraft parts. In June 2021, the United States, the EU and the UK announced agreements to suspend the imposition of these tariffs, contingent upon each party remaining satisfied that subsidies do not arise. However, if and to the extent any of these tariffs are reimposed on us without any available means for us to mitigate or pass on the burden of these tariffs to Airbus, the effective cost of new Airbus aircraft required to implement our fleet plan would increase.

We face risks associated with Brexit, notably given the extent of our passenger and cargo traffic and that of our joint business partners that flows through LHR in the United Kingdom. The EU-UK Trade and Cooperation Agreement includes provisions in relation to commercial air service that we expect to be sufficient to sustain our current services under the transatlantic joint business. However, the scope of traffic rights under the EU-UK Trade and Cooperation Agreement is less extensive than before Brexit and therefore the full impact of the EU-UK Trade and Cooperation Agreement is uncertain. As a result, the continuation of our current services, and those of our partners could be disrupted. Moreover, Brexit has created uncertainty as to the future trade relationship between the EU and the United Kingdom, including air traffic services. LHR is presently a very important element of our international network, however it may become less desirable as a destination or as a hub location after Brexit when compared to other airports in Europe. This could materially adversely affect our business, results of operations and financial condition.

Brexit has also led to legal and regulatory uncertainty such as the identity of the relevant regulators, new regulatory action and/or potentially divergent treaties, laws and regulations as the United Kingdom determines which EU treaties, laws and regulations to replace or replicate, including those governing aviation, labor, environmental, data protection/privacy, competition and other matters applicable to the provision of air transportation services by us or our alliance, joint business or codeshare partners. For example, in October 2018, in anticipation of Brexit and the expiry of the EC commitments in July 2020, the CMA opened an investigation into the transatlantic joint business. We continue to fully cooperate with the CMA and, in September 2020, the CMA adopted interim measures that effectively extend the EC commitments for an additional three years until March 2024 in light of the uncertainty created by the COVID-19 pandemic. The CMA plans to complete its investigation before the interim measures expire. The impact on our business of any treaties, laws and regulations that replace the existing EU counterparts, or other governmental or regulatory actions taken by the United Kingdom or the EU in connection with or subsequent to Brexit, cannot be predicted, including whether or not regulators will continue to approve or impose material conditions on our business activities. Any of these effects, and others we cannot anticipate, could materially adversely affect our business, results of operations and financial condition.

Additionally, fluctuations in foreign currencies, including devaluations, exchange controls and other restrictions on the repatriation of funds, have significantly affected and may continue to significantly affect our operating performance, liquidity and the value of any cash held outside the U.S. in local currency. Such fluctuations in foreign currencies, including devaluations, cannot be predicted by us and can significantly affect the value of our assets located outside the United States. These conditions, as well as any further delays, devaluations or imposition of more stringent repatriation restrictions, may materially adversely affect our business, results of operations and financial condition.

We may be adversely affected by conflicts overseas or terrorist attacks; the travel industry continues to face ongoing security concerns.

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board flights, improved airport perimeter access security, airline crew security training, enhanced security screening of passengers, baggage, cargo, mail, employees and vendors, enhanced training and qualifications of security screening personnel, additional provision of passenger data to the U.S. Customs and Border Protection Agency and enhanced background checks. A concurrent increase in airport security charges and procedures, such as restrictions on carry-on baggage, has also had and may continue to have a disproportionate impact on short-haul travel, which constitutes a significant portion of our flying and revenue. Implementation of and compliance with increasingly complex security and customs requirements will continue to result in increased costs for us and our passengers, and have caused and likely will continue to cause periodic service disruptions and delays. We have at times found it necessary or desirable to make significant expenditures to comply with security-related requirements while seeking to reduce their impact on our customers, such as expenditures for automated security screening lines at airports. As a result of competitive pressure, and the need to improve security screening throughput to support the pace of our operations, it is unlikely that we will be able to capture all security-related costs through increased fares. In addition, we cannot forecast what new security requirements may be imposed in the future, or their impact on our business.

We are subject to risks associated with climate change, including increased regulation of our CO2 emissions, changing consumer preferences and the potential increased impacts of severe weather events on our operations and infrastructure.

Efforts to transition to a low-carbon future have increased the focus by global, regional and national regulators on climate change and GHG emissions, including CO2 emissions. In particular, ICAO has adopted rules, including those pertaining to the CORSIA, which will require American to address the growth in CO2 emissions of a significant majority of our international flights. For more information on CORSIA, see “Aircraft Emissions and Climate Change Requirements” under Item 1. Business – Domestic and Global Regulatory Landscape – Environmental Matters.

At this time, the costs of complying with our future obligations under CORSIA are uncertain, primarily because it is difficult to estimate the return of demand for international air travel during and in the recovery from the COVID-19 pandemic. There is also significant uncertainty with respect to the future supply and price of carbon offset credits and sustainable or lower carbon aircraft fuels that could allow us to reduce our emissions of CO2. In addition, we will not directly control our CORSIA compliance costs through 2029 because those obligations are based on the growth in emissions of the global aviation sector and begin to incorporate a factor for individual airline operator emissions growth beginning in 2030. Due to the competitive nature of the airline industry and unpredictability of the market for air travel, we can offer no assurance that we may be able to increase our fares, impose surcharges or otherwise increase revenues or decrease other operating costs sufficiently to offset our costs of meeting obligations under CORSIA.

In the event that CORSIA does not come into force as expected, American and other airlines could become subject to an unpredictable and inconsistent array of national or regional emissions restrictions, creating a patchwork of complex regulatory requirements that could affect global competitors differently without offering meaningful aviation environmental improvements. Concerns over climate change are likely to result in continued attempts by municipal, state, regional, and federal agencies to adopt requirements or change business environments related to aviation that, if successful, may result in increased costs to the airline industry and us. In addition, several countries and U.S. states have adopted or are considering adopting programs, including new taxes, to regulate domestic GHG emissions. Finally, certain airports have adopted, and others could in the future adopt, GHG emission or climate-related goals that could impact our operations or require us to make changes or investments in our infrastructure.

In January 2021, the EPA adopted GHG emission standards for new aircraft engines, which are aligned with the 2017 ICAO aircraft engine GHG emission standards. Like the ICAO standards, the final EPA standards for new aircraft engines would not apply retroactively to engines already on in-service aircraft. These final standards have been challenged by several states and environmental groups, and the Biden Administration has issued an executive order requiring a review of these final standards. On November 15, 2021, the EPA announced that it will not rewrite the existing aircraft engine GHG emissions standards but will press for ambitious new aircraft GHG emission standards at international negotiations organized by the ICAO in 2022. The outcome of the legal challenge and the development of new aircraft GHG emissions standards cannot be predicted at this time. In addition, on September 9, 2021, the Biden Administration launched the Sustainable Aviation Fuel Grand Challenge to scale up the production of sustainable aviation fuel, aiming to reduce GHG emissions from aviation by 20% by 2030 and to replace all traditional aviation fuel with sustainable aviation fuel by 2050. Whether these goals will be achieved and the potential effects on our business cannot be predicted at this time.

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In 2021, the EC proposed legislation that would expand the application of and increase the stringency of the EU ETS to include flights into and out of the Europe Economic Area beginning in 2027 under certain circumstances. Further, the European Commission is considering the creation of a SAF blending mandate for aviation fuel suppliers beginning in 2025, among other requirements. Individual EU member states have been developing their own requirements including, for example, a SAF mandate in France that came into force on January 1, 2022.

All such climate change-related regulatory activity and developments may adversely affect our business and financial results by requiring us to reduce our emissions before cost-effective emissions reduction technologies are available, for example through requirements to make capital investments to purchase specific types of equipment or technologies, purchase carbon offset credits, or otherwise incur additional costs related to our emissions. Such activity may also impact us indirectly by increasing our operating costs, including fuel costs.

Growing recognition among consumers of the dangers of climate change may mean some customers choose to fly less frequently or fly on an airline they perceive as operating in a manner that is more sustainable to the climate. Business customers may choose to use alternatives to travel, such as virtual meetings and workspaces. Greater development of high-speed rail in markets now served by short-haul flights could provide passengers with lower-carbon alternatives to flying with us. Our collateral to secure loans, in the form of aircraft, spare parts and airport slots, could lose value as customer demand shifts and economies move to low-carbon alternatives, which may increase our financing cost.

Finally, the potential acute and chronic physical effects of climate change, such as increased frequency and severity of storms, floods, fires, sea-level rise, excessive heat, longer-term changes in weather patterns and other climate-related events, could affect our operations, infrastructure and financial results. Operational impacts, such as the canceling of flights, could result in loss of revenue. We could incur significant costs to improve the climate resiliency of our infrastructure and otherwise prepare for, respond to, and mitigate such physical effects of climate change. We are not able to predict accurately the materiality of any potential losses or costs associated with the physical effects of climate change.

We are subject to many forms of environmental and noise regulation and may incur substantial costs as a result.

We are subject to a number of increasingly stringent federal, state, local and foreign laws, regulations and ordinances relating to the protection of human health and the environment and noise reduction, including those relating to emissions to the air, discharges to land and surface and subsurface waters, safe drinking water, and the management of hazardous substances, oils and waste materials. This universe of substances is evolving to encompass many substances not previously regulated. Compliance with environmental laws and regulations can require significant expenditures, and violations can lead to significant fines and penalties, as well as civil liability.

We are also subject to other environmental laws and regulations, including those that require us to investigate and remediate soil or groundwater to meet certain remediation standards. Under federal law, generators of waste materials, and current and former owners or operators of facilities, can be subject to liability for investigation and remediation costs at locations that have been identified as requiring response actions. Liability under these laws may be retroactive, strict, joint and several, meaning that we could be liable for the costs of cleaning up environmental contamination regardless of when it occurred, fault or the amount of waste directly attributable to us. We have liability for investigation and remediation costs at various sites, although such costs currently are not expected to have a material adverse effect on our business.

Governmental authorities in the U.S. and abroad are increasingly focused on potential contamination resulting from the use of so-called “forever chemicals,” most notably per- and polyfluoroalkyl, substances (PFAS). Products containing PFAS have been used in manufacturing, industrial, and consumer applications over many decades, including those related to aviation. We may incur costs in connection with obligations to transition away from the usage of PFAS-containing products, to dispose of PFAS-containing waste or to remediate any PFAS contamination.

We have various leases and agreements with respect to real property, tanks and pipelines with airports and other operators. Under these leases and agreements, we have agreed to indemnify the lessor or operator against environmental liabilities associated with the real property or operations described under the agreement, even in certain cases where we are not the party responsible for the initial event that caused the environmental damage. We also participate in leases with other airlines in fuel consortiums and fuel committees at airports, and such indemnities are generally joint and several among the participating airlines.

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affected if locally-imposed regulations become more restrictive or widespread. The FAA is also currently evaluating possible changes to how aircraft noise is measured, and the resulting standards that are based on them. Ultimately, these changes could have an impact on, or limit, our operations, or make it more difficult for the FAA to modernize and increase the efficiency of airspace and airports we utilize.

A higher than normal number of pilot retirements, more stringent duty time regulations, increased flight hour requirement for commercial airline pilots, reductions in the number of military pilots entering the commercial workforce, increased training requirements and other factors have caused a shortage of pilots that could materially adversely affect our business.

Large numbers of pilots in the industry accepted early retirement during the COVID-19 pandemic or are approaching the FAA’s mandatory retirement age of 65. Our pilots and other employees are subject to rigorous certification standards, and our pilots and other crew members must adhere to flight time and rest requirements. Commencing in 2013, the minimum flight hour requirement to achieve a commercial pilot’s license in the United States increased from 250 to 1,500 hours, thereby significantly increasing the time and cost commitment required to become licensed to fly commercial aircraft. Additionally, the number of military pilots being trained by the U.S. armed forces and available as commercial pilots upon their retirement from military service has been decreasing. Further, in the course of the domestic airline industry rapidly restoring capacity during the recovery from the COVID-19 pandemic, the significant training requirements to return large numbers of pilots to active flying have been time consuming and disruptive.

These and other factors have contributed to a significant shortage of qualified, entry-level pilots, shortages of experienced pilots trained and ready for duty, and increased compensation costs, particularly for our regional subsidiaries and our other regional partners who are being required by market conditions to pay significantly increased wages and large signing and other bonuses to their pilots in an attempt to achieve desired staffing levels. The foregoing factors have also led to increased competition from large, mainline carriers attempting to meet their hiring needs. We believe that this industry-wide pilot shortage is becoming an increasing problem for airlines in the United States. Our regional airline subsidiaries and other regional partners have recently been unable to hire adequate numbers of pilots to meet their needs, resulting in a reduction in the number of flights offered, disruptions, increased compensation expense and costs of operations, financial difficulties and other adverse effects, and these circumstances may become more severe in the future and thereby cause a material adverse effect on our business.

We depend on a limited number of suppliers for aircraft, aircraft engines and parts.

We depend on a limited number of suppliers for aircraft, aircraft engines and many aircraft and engine parts. For example, as of the end of 2021, all of our mainline aircraft were manufactured by either Airbus or Boeing and all of our regional aircraft were manufactured by either Bombardier or Embraer. Further, our supplier base continues to consolidate as evidenced by the acquisition of Rockwell Collins by United Technologies and the transactions involving Airbus and Bombardier and Mitsubishi and Bombardier. Due to the limited number of these suppliers, we are vulnerable to any problems associated with the performance of their obligation to supply key aircraft, parts and engines, including design defects, mechanical problems, contractual performance by suppliers, adverse perception by the public that would result in customer avoidance of any of our aircraft or any action by the FAA or any other regulatory authority resulting in an inability to operate our aircraft, even temporarily. For instance, in March 2019, the FAA ordered the grounding of all Boeing 737 MAX Family aircraft, which remained in place for over a year and was not lifted in the United States until November 2020, and in April 2021, we removed from operations, pending ongoing inspection and investigation, a subset of our Boeing 737 MAX Family aircraft after receipt of notice from Boeing of a potential electrical power system issue relating to those aircraft. More recently, Boeing has been unable to deliver 787 aircraft that we have on order due to regulatory concerns raised by the FAA, as a result of which we have been forced, on more than one occasion, to significantly reduce our previously scheduled long-haul flying and suspend or delay our service to certain long-haul markets. The limited number of these suppliers may also result in reduced competition and potentially higher prices than if the supplier base was less concentrated.

The success of our business depends on, among other things, effectively managing the number and types of aircraft we operate. If, for any reason, we are unable to accept or secure deliveries of new aircraft on contractually scheduled delivery dates, this could have negative impacts on our business, results of operations and financial condition. Our failure to integrate newly purchased aircraft into our fleet as planned might require us to seek extensions of the terms for some leased aircraft or otherwise delay the exit of certain aircraft from our fleet. Such unanticipated extensions or delays may

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require us to operate existing aircraft beyond the point at which it is economically optimal to retire them, resulting in increased maintenance costs, or reductions to our schedule, thereby reducing revenues. If new aircraft orders are not filled on a timely basis, we could face higher financing and operating costs than planned. In addition, if the aircraft we receive do not meet expected performance or quality standards, including with respect to fuel efficiency, safety and reliability, we could face higher financing and operating costs than planned and our business, results of operations and financial condition could be adversely impacted. For instance, in March 2019, the FAA grounded all Boeing 737 MAX Family aircraft, including the 24 aircraft in our fleet at the time of the grounding, and which caused us to be unable to take delivery of the Boeing 737 MAX Family aircraft we had on order from Boeing. More recently, Boeing has been unable to deliver 787 aircraft that we have on order due to regulatory concerns raised by the FAA, as a result of which we have been forced, on more than one occasion, to significantly reduce our previously scheduled long-haul flying and suspend or delay our service to certain long-haul markets. Repeated or prolonged delays in the production, delivery or induction of our new aircraft could require us to scale back our growth plans, reduce frequencies or forgo service entirely to certain markets, which could adversely affect our business, financial condition and results of operations.

We rely heavily on technology and automated systems to operate our business, and any failure of these technologies or systems could harm our business, results of operations and financial condition.

Our aircraft employ a number of sophisticated radio and satellite-based navigation and safety technologies, and we are subject to risks associated with the introduction or expansion of technologies that could interfere with the safe operation of these flight systems. For example, telecommunications companies are expanding and increasing the commercial and consumer applications of 5G cellular communication networks, and regulators, manufacturers and operators have expressed concerns that certain 5G applications could interfere with certain flight systems. On December 23, 2021, the FAA issued a special airworthiness information bulletin (SAIB), in which it indicated that further testing and assessment is needed regarding the effects of 5G on certain aircraft equipped with radar altimeters, which measure the aircraft’s altitude and guide pilots during landings. If it were determined that 5G signals posed an interference risk to these altimeters or other systems, the FAA indicated in its SAIB that it could restrict flight operations in areas where such interference could occur. On January 18, 2022, major U.S. telecommunications companies agreed to delay the implementation of 5G near airports while working with the FAA to develop long-term mitigations to support safe aviation operations. While the telecommunications industry agreed to delay the activation of 5G transmitters in close proximity to airports, it did move forward with the activation of a vast majority of 5G transmitters away from airports, and we expect that companies will continue expanding their 5G networks through the winter and spring of 2022. As a result, the FAA has taken precautionary steps to mitigate any remaining interference risks, which have resulted in minimal impacts to our operations, particularly in low-visibility conditions at certain airports and with our regional carriers. While we are working closely with the FAA and other aviation industry participants to develop a long-term strategy that permits the full implementation of the 5G spectrum without disruption to safe aviation operations, any new restrictions imposed to mitigate interference risks would require us to adjust our operating procedures and could impact our ability to operate certain aircraft or to serve certain markets.

Our technologies and automated systems are not completely protected against events that are beyond our control, including natural disasters, power failures, terrorist attacks, cyber-attacks, data theft, equipment and software failures, computer viruses or telecommunications failures. When service interruptions occur as a result of any of the aforementioned events, we address them in accordance with applicable laws, rules and regulations. However, substantial or sustained system failures could cause service delays or failures and result in our customers purchasing tickets from other airlines. We cannot assure that our security measures, change control procedures or disaster recovery plans are

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adequate to prevent disruptions or delays. Disruption in or changes to these technologies or systems could result in a disruption to our business and the loss of important data. Any of the foregoing could result in a material adverse effect on our business, results of operations and financial condition.

Evolving data security and privacy requirements could increase our costs, and any significant data security or privacy incident could disrupt our operations, harm our reputation, expose us to legal risks and otherwise materially adversely affect our business, results of operations and financial condition.

Our business requires the secure processing and storage of personal information relating to our customers, employees, business partners and others. However, like any global enterprise operating in today’s digital business environment, we have experienced cybersecurity incidents and data breaches. The threat of cybersecurity incidents continues to increase as the frequency, intensity and sophistication of attacks and intrusions increase around the world. We and our business partners have been the target of cybersecurity attacks and data breaches in the past and expect that we will continue to be in the future. We react and respond to these cybersecurity attacks in accordance with the applicable legal requirements, our own approved cybersecurity protocols, as well as our commercial partners’ standards, but we cannot ensure that our responses will be sufficient to prevent or mitigate the potential adverse impacts of these incidents, which may be material.

There has been heightened legislative and regulatory focus on data privacy and cybersecurity in the U.S., the EU and elsewhere, particularly with respect to critical infrastructure providers, including those in the transportation sector. As a result, we must comply with a proliferating and fast-evolving set of legal requirements in this area, including substantive data privacy and cybersecurity standards as well as requirements for notifying regulators and affected individuals in the event of a data security incident. This regulatory environment is increasingly challenging and may present material obligations and risks to our business, including significantly expanded compliance burdens, costs and enforcement risks. For example, in May 2018, the EU’s General Data Protection Regulation, commonly referred to as GDPR, came into effect, which imposes a host of data privacy and security requirements, imposing significant costs on us and carrying substantial penalties for non-compliance.

In addition, many of our commercial partners, including credit card companies, have imposed data security standards that we must meet. In particular, we are required by the Payment Card Industry Security Standards Council, founded by the credit card companies, to comply with their highest level of data security standards. While we continue our efforts to meet these standards, new and revised standards may be imposed that may be difficult for us to meet and could increase our costs.

A significant cybersecurity incident involving us or one of our AAdvantage partners or other business partners have in the past and may in the future result in a range of potentially material negative consequences for us, including unauthorized access to, disclosure, modification, misuse, loss or destruction of company systems or data; theft of sensitive, regulated or confidential data, such as personal information or our intellectual property; the loss of functionality of critical systems through ransomware, denial of service or other attacks; a deterioration in our relationships with business partners and other third parties; and business delays, service or system disruptions, damage to equipment and injury to persons or property. For example, in March 2021, a sub-set of AAdvantage members as well as members of several other major airline loyalty programs received a notification about a security incident involving a limited amount of loyalty data held by a service provider. The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are constantly evolving and may be difficult to anticipate or to detect for long periods of time. The constantly changing nature of the threats means that we cannot and have not been able to prevent all data security breaches or misuse of data. Similarly, we depend on the ability of our key commercial partners, including AAdvantage partners, other business partners, our regional carriers, distribution partners and technology vendors, to conduct their businesses in a manner that complies with applicable security standards and assures their ability to perform on a timely basis. A security failure, including a failure to meet relevant payment security standards, breach or other significant cybersecurity incident affecting one of our partners could result in potentially material negative consequences for us. In addition, we use third-party service providers to help us deliver services to customers. These service providers may store personal information, credit card information and/or other confidential information. Such information may be the target of unauthorized access or subject to security breaches as a result of third-party action, employee error, malfeasance or otherwise. Any of these could (a) result in the loss of information, litigation, indemnity obligations, damage to our reputation and other liability, or (b) have a material adverse effect on our business, financial condition and results of operations.

The costs and operational consequences of defending against, preparing for, responding to and remediating an incident of cybersecurity breach may be substantial. As cybersecurity threats become more frequent, intense and

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sophisticated, costs of proactive defense measures are increasing. Further, we could be exposed to litigation, regulatory enforcement or other legal action as a result of an incident, carrying the potential for damages, fines, sanctions or other penalties, as well as injunctive relief and enforcement actions requiring costly compliance measures. A significant number of recent privacy and data security incidents, including those involving other large airlines, have resulted in very substantial adverse financial consequences to those companies. A cybersecurity incident could also impact our brand, including that of the AAdvantage program, harm our reputation and adversely impact our relationship with our customers, employees and stockholders. The increased regulatory focus on data privacy practices apart from how personal data is secured, such as how personal data is collected, used for marketing purposes, and shared with third parties, also increases the risk on our business in the event of a significant violation. Accordingly, failure to appropriately address data privacy and cybersecurity issues could result in material financial and other liabilities and cause significant reputational harm to our company.

We rely on third-party distribution channels and must manage effectively the costs, rights and functionality of these channels.

We rely on third-party distribution channels, including those provided by or through global distribution systems (GDSs) (e.g., Amadeus, Sabre and Travelport), conventional travel agents, travel management companies and online travel agents (OTAs) (e.g., Expedia, including its booking sites Orbitz and Travelocity, and Booking Holdings, including its booking sites Kayak and Priceline), to distribute a significant portion of our airline tickets, and we expect in the future to continue to rely on these channels. We are also dependent upon the ability and willingness of these distribution channels to expand their ability to distribute and collect revenues for ancillary products (e.g., fees for selective seating). These distribution channels are more expensive and at present have less functionality in respect of ancillary product offerings than those we operate ourselves, such as our website at www.aa.com. Certain of these distribution channels also effectively restrict the manner in which we distribute our products generally. In addition, our agreements with GDSs and other distribution channels are subject to periodic renegotiation, and our efforts to control our distribution costs depend on our ability to renew or continue these agreements on favorable terms. We cannot assure that we will be able to renew our distribution agreements on commercially acceptable terms, and any failure to do so could materially increase our costs, thereby adversely impacting our business, financial condition and results of operations.

To remain competitive, we will need to manage successfully our distribution costs and rights, increase our distribution flexibility and improve the functionality of our distribution channels, while maintaining an industry-competitive cost structure. Further, as distribution technology changes we will need to continue to update our technology by acquiring new technology from third parties, building the functionality ourselves, or a combination, which in any event will likely entail significant technological and commercial risk and involve potentially material investments. These imperatives may affect our relationships with conventional travel agents, travel management companies, GDSs and OTAs, including if consolidation of conventional travel agents, travel management companies, GDSs or OTAs continues, or should any of these parties seek to acquire other technology providers thereby potentially limiting our technology alternatives. Any inability to manage our third-party distribution costs, rights and functionality at a competitive level or any material diminishment or disruption in the distribution of our tickets could have a material adverse effect on our business, results of operations and financial condition.

If we are unable to obtain and maintain adequate facilities and infrastructure throughout our system and, at some airports, adequate slots, we may be unable to operate our existing flight schedule and to expand or change our route network in the future, which may have a material adverse impact on our operations.

In order to operate our existing and proposed flight schedule and, where desirable, add service along new or existing routes, we must be able to maintain and/or obtain adequate gates, check-in counters, operations areas, operations control facilities and administrative support space. As airports around the world become more congested, it may not be possible for us to ensure that our plans for new service can be implemented in a commercially viable manner, given operating constraints at airports throughout our network, including those imposed by inadequate facilities at desirable airports.

In light of constraints on existing facilities, there is presently a significant amount of capital spending underway at major airports in the United States, including large projects underway at a number of airports where we have significant operations, such as Dallas/Fort Worth International Airport, JFK, ORD, LAX and LGA. This spending is expected to result in increased costs to airlines and the traveling public that use those facilities as the airports seek to recover their investments through increased rental, landing and other facility costs. In some circumstances, such costs could be imposed by the relevant airport authority without our approval. Accordingly, our operating costs are expected to increase significantly at many airports at which we operate, including a number of our hubs and gateways, as a result of capital spending projects currently underway and additional projects that we expect to commence over the next several years.

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In addition, operations at three major domestic airports, certain smaller domestic airports and many foreign airports we serve are regulated by governmental entities through allocations of slots or similar regulatory mechanisms that limit the rights of carriers to conduct operations at those airports. Each slot represents the authorization to land at or take off from the particular airport during a specified time period and may impose other operational restrictions as well. In the U.S., the DOT and the FAA currently regulate the allocation of slots or slot exemptions at DCA and two New York City airports: JFK and LGA. Our operations at these airports generally require the allocation of slots or similar regulatory authority. In addition to slot restrictions, operations at DCA and LGA are also limited based on a so-called “perimeter rule” which generally limits the stage length of the flights that can be operated from those airports to 1,250 and 1,500 miles, respectively. Similarly, our operations at LHR, international airports in Beijing, Frankfurt, Paris, Tokyo and other airports outside the U.S. are regulated by local slot authorities pursuant to the International Airline Trade Association Worldwide Scheduling Guidelines and/or applicable local law. Termination of slot controls at some or all of the foregoing airports could affect our operational performance and competitive position. We currently have sufficient slots or analogous authorizations to operate our existing flights and we have generally, but not always, been able to obtain the rights to expand our operations and to change our schedules. However, there is no assurance that we will be able to obtain sufficient slots or analogous authorizations in the future or as to the cost of acquiring such rights because, among other reasons, such allocations are often sought after by other airlines and are subject to changes in governmental policies. Due to the dramatic reduction in air travel resulting from the COVID-19 pandemic, we are in many instances relying on exemptions granted by applicable authorities from the requirement that we continuously use certain slots, gates and routes or risk having such operating rights revoked, and depending on the applicable authority these exemptions can vary in the way they are structured and applied. We cannot predict whether such exemptions will continue to be granted, whether they will be granted on the same or similar terms, or whether we ultimately could be at risk of losing valuable operating rights. If we are forced to surrender slots, we may be unable to provide our desired level of service to or from certain destinations in the future. We cannot provide any assurance that regulatory changes resulting in changes in the application of slot controls or the allocation of or any reallocation of existing slots, the continued enforcement or termination of a perimeter rule or similar regulatory regime will not have a material adverse impact on our operations.

Our ability to provide service can also be impaired at airports, such as LAX and ORD where the airport gates and other facilities are currently inadequate to accommodate all of the service that we would like to provide, or airports such as Dallas Love Field Airport where we have no access to gates at all.

Any limitation on our ability to acquire or maintain adequate gates, ticketing facilities, operations areas, operations control facilities, slots (where applicable), or office space could have a material adverse effect on our business, results of operations and financial condition.

Interruptions or disruptions in service at one of our key facilities could have a material adverse impact on our operations.

We operate principally through our hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington, D.C. and partner gateways including in London Heathrow (among others). Substantially all of our flights either originate at or fly into one of these locations. A significant interruption or disruption in service at one of our hubs, gateways or other airports where we have a significant presence, resulting from air traffic control delays, weather conditions, natural disasters, growth constraints, performance by third-party service providers (such as electric utility or telecommunications providers), failure of computer systems, disruptions at airport facilities or other key facilities used by us to manage our operations (such as occurred in the United Kingdom at LGW on December 20, 2018 and LHR on January 8, 2019 due to unauthorized drone activity), labor relations, power supplies, fuel supplies, terrorist activities, or otherwise could result in the cancellation or delay of a significant portion of our flights and, as a result, could have a severe impact on our business, results of operations and financial condition. We have limited control, particularly in the short term, over the operation, quality or maintenance of many of the services on which our operations depend and over whether vendors of such services will improve or continue to provide services that are essential to our business.

Increases in insurance costs or reductions in insurance coverage may adversely impact our operations and financial results.

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downgrades in the ratings of enough insurers could adversely impact both the availability of appropriate insurance coverage and its cost. Because of competitive pressures in our industry, our ability to pass along additional insurance costs to passengers is limited. As a result, further increases in insurance costs or reductions in available insurance coverage could have an adverse impact on our financial results.

The airline industry is heavily taxed.

The airline industry is subject to extensive government fees and taxation that negatively impact our revenue and profitability. The U.S. airline industry is one of the most heavily taxed of all industries. These fees and taxes have grown significantly in the past decade for domestic flights, and various U.S. fees and taxes also are assessed on international flights. For example, as permitted by federal legislation, most major U.S. airports impose a per-passenger facility charge on us. In addition, the governments of foreign countries in which we operate impose on U.S. airlines, including us, various fees and taxes, and these assessments have been increasing in number and amount in recent years. Moreover, we are obligated to collect a federal excise tax, commonly referred to as the “ticket tax,” on domestic and international air transportation. We collect the excise tax, along with certain other U.S. and foreign taxes and user fees on air transportation (such as passenger security fees), and pass along the collected amounts to the appropriate governmental agencies. Although these taxes and fees are not our operating expenses, they represent an additional cost to our customers. There are continuing efforts in Congress and in other countries to raise different portions of the various taxes, fees, and charges imposed on airlines and their passengers, including the passenger facility charge, and we may not be able to recover all of these charges from our customers. Increases in such taxes, fees and charges could negatively impact our business, results of operations and financial condition.

Under DOT regulations, all governmental taxes and fees must be included in the prices we quote or advertise to our customers. Due to the competitive revenue environment, many increases in these fees and taxes have been absorbed by the airline industry rather than being passed on to the customer. Further increases in fees and taxes may reduce demand for air travel, and thus our revenues.

Risks Related to Ownership of AAG Common Stock and Convertible Notes

The price of AAG common stock has ~~recently~~ been and may in the future be volatile.

The market price of AAG common stock has fluctuated substantially in the past, and may fluctuate substantially in the future, due to a variety of factors, many of which are beyond our control, including:

•the effects of the COVID-19 pandemic on our business or the U.S. and global economies;

•macro-economic conditions, including the price of fuel;

•changes in market values of airline companies as well as general market conditions;

•our operating and financial results failing to meet the expectations of securities analysts or investors;

•changes in financial estimates or recommendations by securities analysts;

•changes in our level of outstanding indebtedness and other obligations;

•changes in our credit ~~rating;~~ratings;

•material announcements by us or our competitors;

•expectations regarding our capital deployment program, including any existing or potential future share repurchase programs and any future dividend payments that may be declared by our Board of Directors, or any determination to cease repurchasing stock or paying ~~dividends;~~dividends (which we have suspended for an indefinite period in accordance with the applicable requirements under the CARES Act, the PSP Extension Law and the ARP);

•new regulatory pronouncements and changes in regulatory guidelines;

•general and industry-specific economic conditions;

•changes in our key personnel;

~~distributions~~

Table of ~~shares of AAG common stock pursuant to the Plan, including distributions from the Disputed Claims Reserve established under the Plan;~~Contents

•public or private sales of a substantial number of shares of AAG common stock or issuances of AAG common stock upon the exercise or conversion of restricted stock unit awards, stock appreciation rights, or other securities that may be issued from time to ~~time;~~time, including warrants we have issued in connection with our receipt of funds under the CARES Act, the PSP Extension Law and the ARP;

•increases or decreases in reported holdings by insiders or other significant stockholders; ~~and~~

•fluctuations in trading ~~volume.~~volume; and

•technical factors in the public trading market for our stock that may produce price movements that may or may not comport with macro, industry or company-specific fundamentals, including, without limitation, the sentiment of retail investors (including as may be expressed on financial trading and other social media sites), the amount and status of short interest in our securities, access to margin debt, trading in options and other derivatives on our common stock and any related hedging and other technical trading factors.

The closing price of our common stock on Nasdaq varied from $15.00 to $25.82 during 2021 and $15.64 to $19.34 during 2022 year-to-date through February 18, 2022. At times during this period, fluctuations in our stock price have been rapid, imposing risks on investors due to the possibility of significant, short-term price volatility. While we believe that this wide range of trading prices is broadly indicative of the changing prospects for a large airline facing the challenges imposed by the COVID-19 pandemic, we also believe, based in part on the commentary of market analysts, that the trading price of our common stock has at times been influenced by the technical trading factors discussed in the last bullet above. On some occasions, market analysts have explained fluctuations in our stock price by reference to purported “short squeeze” activity. A “short squeeze” is a technical market condition that occurs when the price of a stock increases substantially, forcing market participants who had taken a position that its price would fall (i.e., who had sold the stock “short”), to buy it, which in turn may create significant, short-term demand for the stock not for fundamental reasons, but rather due to the need for such market participants to acquire the stock in order to forestall the risk of even greater losses. A “short squeeze” condition in the market for a stock can lead to short-term conditions involving very high volatility and trading that may or may not track fundamental valuation models.

We have ceased making repurchases of our common stock and paying dividends on our common stock as required by the CARES Act, the PSP Extension Law and the ARP. Following the end of those restrictions, if we do decide to make repurchases of or pay dividends on our common stock, we cannot guarantee that we will continue to ~~repurchase our common stock or pay dividends on our common stock~~do so or that our capital deployment program will enhance long-term stockholder value. ~~Our capital deployment program could increase~~

In connection with the ~~volatility of the price of our common stock~~financial assistance provided under PSP1, PSP2 and ~~diminish our cash reserves.~~

Since July 2014, as part of our capital deployment program, our Board of Directors has approved seven share repurchase programs aggregating $13.0 billion of authority. As of December 31, 2018, there was $1.7 billion remaining authorityPSP3, we agreed not to repurchase shares ~~under our~~of AAG common stock through September 30, 2022. If we determine to make any share ~~repurchase programs. Share~~repurchases in the future, such repurchases under our repurchase programs may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades or accelerated share repurchase transactions. These share repurchase programs do not obligate us to acquire any specific number of shares or to repurchase any specific number of shares for any fixed period, and may be suspended again at any time at our discretion and without prior notice. The timing and amount of repurchases, if any, will be subject to market and economic conditions, applicable legal requirements, such as the requirements of the CARES Act, the PSP Extension Law, the ARP and other relevant factors. Our repurchase of AAG common stock may be limited, suspended or discontinued at any time at our discretion and without prior notice.

~~Our Board of Directors commenced declaring quarterly cash~~In connection with the financial assistance provided under PSP1, PSP2 and PSP3, we agreed not to pay dividends on AAG common stock through September 30, 2022. If we determine to make any dividends in ~~July 2014 as part of our capital deployment program. However, any~~the future, such dividends that may be declared and paid from time to time will be subject to market and economic conditions, applicable legal requirements and other relevant factors. We are not obligated to continue a dividend for any fixed period, and the payment of dividends may be suspended or discontinued again at any time at our discretion and without prior notice. We will continue to retain future earnings to develop our business, as opportunities arise, and evaluate on a quarterly basis the amount and timing of future dividends based on our operating results, financial condition, capital requirements and general business conditions. The amount and timing of any future dividends may vary, and the payment of any dividend does not assure that we will pay dividends in the future.

In addition, any future repurchases of AAG common stock or payment of dividends, or any determination to cease repurchasing stock or paying dividends, could affect our stock price and increase its volatility. The existence of a share repurchase program and any future dividends could cause our stock price to be higher than it would otherwise be and could potentially reduce the market liquidity for our stock. Additionally, any future repurchases of AAG common stock or

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payment of dividends will diminish our cash reserves, which may impact our ability to finance future growth and to pursue possible future strategic opportunities and acquisitions. Further, our repurchase of AAG common stock may fluctuate such that our cash flow may be insufficient to fully cover our share repurchases. Although our share repurchase programs are intended to enhance long-term stockholder value, there is no assurance that itthey will do ~~so because the market price~~so.

AAG’s Certificate of Incorporation and Bylaws include provisions that limit voting and acquisition and disposition of our equity interests and specify an exclusive forum for certain stockholder disputes.

Our Certificate of Incorporation and Bylaws include significant provisions that limit voting and ownership and disposition of our equity interests as described in Part II, Item 5. Market for American Airlines Group’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities - “Ownership Restrictions” and AAG’s Description of the Registrants’ Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, which is filed as Exhibit 4.1 hereto. These restrictions may adversely affect the ability of certain holders of AAG common stock ~~may decline below~~and our other equity interests to vote such interests and adversely affect the ~~levels at which we repurchased~~ability of persons to acquire shares of AAG common stock and ~~short-term stock price fluctuations could reduce~~our other equity interests.

Our Certificate of Incorporation also specifies that the ~~program’s effectiveness.~~

Court of Chancery of the State of Delaware shall be the exclusive forum for substantially all disputes between us and our stockholders. Because the applicability of the exclusive forum provision is limited to the extent permitted by applicable law, we do not intend for the exclusive forum provision to apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction, and acknowledge that federal courts have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act. We note that there is uncertainty as to whether a court would enforce the provision as it applies to the Securities Act and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. This provision may have the effect of discouraging lawsuits against our directors and officers.

Certain provisions of AAG’s Certificate of Incorporation and Bylaws make it difficult for stockholders to change the composition of our Board of Directors and may discourage takeover attempts that some of our stockholders might consider beneficial.

Certain provisions of our Certificate of Incorporation and Bylaws, as currently in effect, may have the effect of delaying or preventing changes in control if our Board of Directors determines that such changes in control are not in our best interest and the best interest of our stockholders. These provisions include, among other things, the following:

•advance notice procedures for stockholder proposals to be considered at stockholders’ meetings;

•the ability of our Board of Directors to fill vacancies on the board;

•a prohibition against stockholders taking action by written consent;

•stockholders are restricted from calling a special meeting unless they hold at least 20% of our outstanding shares and follow the procedures provided for in the amended Bylaws;

•a requirement that holders of at least 80% of the voting power of the shares entitled to vote in the election of directors approve any amendment of our Bylaws submitted to stockholders for approval; and

•super-majority voting requirements to modify or amend specified provisions of our Certificate of Incorporation.

These provisions are not intended to prevent a takeover, but are intended to protect and maximize the value of the interests of our stockholders. While these provisions have the effect of encouraging persons seeking to acquire control of our company to negotiate with our Board of Directors, they could enable our Board of Directors to prevent a transaction that some, or a majority, of our stockholders might believe to be in their best interest and, in that case, may prevent or discourage attempts to remove and replace incumbent directors. In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which prohibits business combinations with interested stockholders. Interested stockholders do not include stockholders whose acquisition of our securities is approved by the Board of Directors prior to the investment under Section 203.

~~AAG’s Certificate~~

Table of ~~Incorporation and Bylaws include provisions that limit voting and acquisition and disposition~~Contents

The issuance or sale of shares of our ~~equity interests.~~

Our Certificate of Incorporation and Bylaws include provisions that limit voting and ownership and disposition of our equity interests, as described in Part II, Item 5. Market for American Airlines Group’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities - “~~Ownership Restrictions.” These restrictions may adversely affect the ability of certain holders of AAG~~ common stock, ~~and our other equity interests to vote such interests and adversely affect the ability of persons~~rights to acquire shares of ~~AAG~~our common stock, or warrants issued to Treasury under the CARES Act, the PSP Extension Law, the ARP, PSP1, PSP2 and PSP3, could depress the trading price of our common stock and the Convertible Notes.

We may conduct future offerings of material amounts of our common stock, preferred stock or other ~~equity interests.~~securities that are convertible into or exercisable for our common stock to finance our operations, to fund acquisitions, or for any other purposes at any time and from time to time (including as compensation to the U.S. Government for the proceeds received pursuant to PSP1, PSP2 or PSP3). If these additional shares or securities are issued or sold, or if it is perceived that they will be sold, into the public market or otherwise, the price of our common stock and Convertible Notes could decline substantially. If we issue additional shares of our common stock or rights to acquire shares of our common stock, if any of our existing stockholders sells a substantial amount of our common stock, or if the market perceives that such issuances or sales may occur, then the trading price of our common stock and Convertible Notes could decline substantially.

ITEM 1B. UNRESOLVED STAFF COMMENTS

We had no unresolved Securities and Exchange Commission staff comments that were issued 180 days or more preceding December 31, ~~2018.~~2021.

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ITEM 2. PROPERTIES

Flight Equipment and Fleet Renewal

As of December 31, ~~2018,~~2021, American operated a mainline fleet of ~~956~~865 aircraft. ~~In 2018, we continued our extensive fleet renewal program, which has provided us with the youngest fleet of the major U.S. network carriers.~~ During ~~2018,~~2021, American ~~took~~accepted delivery of 2325 mainline aircraft, temporarily parked 14 mainline aircraft and retired 15one mainline aircraft. We are supported by our wholly-owned and third-party regional carriers that fly under capacity purchase agreements operating as American Eagle. As of December 31, ~~2018,~~2021, American Eagle operated ~~595~~567 regional aircraft. During ~~2018,~~2021, we ~~reduced~~increased our regional fleet by a net of ~~two~~23 aircraft, including the addition of 6052 regional aircraft, the retirement of 26 regional aircraft and ~~retirement of 62~~temporarily parking three regional aircraft.

Mainline

As of December 31, ~~2018,~~2021, American’s mainline fleet consisted of the following aircraft:


	Average Seating Capacity	Average Age (Years)	Owned	Leased	Total
Airbus A319	128	17.7	21	112	133
Airbus A320	150	20.7	10	38	48
Airbus A321	182	9.4	164	54	218
Airbus A321neo	196	1.3	9	35	44


Boeing 737-800 (1)	172	10.7	96	171	267
Boeing 737-8 MAX	172	2.4	9	33	42


Boeing 777-200ER	273	21.0	44	3	47
Boeing 777-300ER	304	7.8	18	2	20
Boeing 787-8	234	5.3	20	4	24
Boeing 787-9	285	4.2	17	5	22

Total		11.3	408	457	865

(1)Excluded from the total operating aircraft count above are36owned Boeing 737-800 that are being held in temporary storage.

Average Seating
Capacity

Average
Age
(Years)
Owned Leased Total
Airbus A319 128
14.7
21
105
126
Airbus A320 150
17.7
10
38
48
Airbus A321 178
6.4
165
54
219
Airbus A330-200 247
7.0
15
—
15
Airbus A330-300 291
18.4
4
5
9
Boeing 737-800 161
9.1
132
172
304
Boeing 737-8 MAX 172
0.6
11
9
20
Boeing 757-200 180
19.1
31
3
34
Boeing 767-300ER 209
20.1
24
—
24
Boeing 777-200ER 273
18.0
44
3
47
Boeing 777-300ER 304
4.8
18
2
20
Boeing 787-8 226
3.1
20
—
20
Boeing 787-9 285
1.3
15
5
20
Embraer 190 99
11.1
20
—
20
McDonnell Douglas MD-80 140
20.6
3
27
30
Total 10.6
533
423
956

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Regional

As of December 31, ~~2018,~~2021, the fleet of our wholly-owned and third-party regional carriers operating as American Eagle consisted of the following aircraft:

Average Seating
Capacity
Owned Leased
Owned or Leased
by Third Party
Regional Carrier
Total
Operating Regional
Carrier

Number of
Aircraft
Operated ⁽¹⁾
Bombardier CRJ 200 50
12
23
—
35
PSA 35

Bombardier CRJ 700 68
54
7
58
119
SkyWest 50
PSA 46
Envoy 15

ExpressJet ⁽²⁾
8
Total 119

Bombardier CRJ 900 78
54
—
64
118
Mesa 64
PSA 54
Total 118

Embraer E175 76
69
—
85
154
Republic 85
Envoy 49
Compass 20
Total 154

Embraer ERJ 140 44
51
—
—
51
Envoy 51

Embraer ERJ 145 50
118
—
—
118
Envoy 62
Piedmont 56
Total 118
Total 358
30
207
595
595


	Average Seating Capacity	Owned	Leased	Owned or Leased by Third Party Regional Carrier	Total	Operating Regional Carrier	Number of Aircraft Operated


Bombardier CRJ 700	65	54	7	82	143	SkyWest	82
						PSA	61
						Total	143

Bombardier CRJ 900	76	69	—	40	109	PSA	69
						Mesa	40
						Total	109

Embraer 170 (1)	65	—	6	8	14	Envoy	6
						Republic	8
						Total	14

Embraer 175	76	98	—	96	194	Envoy	98
						Republic	88
						SkyWest	8
						Total	194

Embraer 145 (1)	50	107	—	—	107	Piedmont	50
						Envoy	57
						Total	107
Total		328	13	226	567		567


⁽¹⁾ (1)Excluded from the total operating aircraft count above are 10 regional aircraft that are being held in temporary storage as follows:eight owned Embraer 145s and two owned Embraer 170s.	~~Excluded from the total operating aircraft count above areeightowned Embraer ERJ 140s that are being held in temporary storage.~~


⁽²⁾	~~ExpressJet operated regional jet aircraft for us in 2018; however, this capacity purchase arrangement ended in January 2019.~~

See Note 1211 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 10 to American’s Consolidated Financial Statements in Part II, Item 8B for additional information on our capacity purchase agreements with third-party regional carriers.

Aircraft and Engine Purchase Commitments

As of December 31, ~~2018,~~2021, we had definitive purchase agreements ~~with Airbus, Boeing, Embraer and Bombardier~~ for the acquisition of the following ~~mainline~~aircraft (1):


	2022	2023	2024	2025	2026	2027 and Thereafter	Total
Airbus
A320neo Family	26	5	18	22	5	—	76
Boeing (2)
737 MAX Family	—	27	21	20	20	—	88
787 Family	10	7	8	9	4	5	43
Embraer
175	3	—	—	—	—	—	3


Total	39	39	47	51	29	5	210

(1)Delivery schedule represents our most current estimate as of the date of this report. Actual delivery dates are subject to change, which could be material, based on various potential factors including production delays by the manufacturer and ~~regional aircraft:~~regulatory concerns, such as those that have recently prevented The Boeing Company (Boeing) from timely delivering 787 Family aircraft.

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2019 2020 2021 2022 2023 2024 and Thereafter Total
Airbus

A320neo Family 17
15
18
20
8
22
100
Boeing
737 MAX Family 20
10
10
—
—
40
80
787 Family 2
12
10
—
6
19
49
Embraer
E175 20
15
—
—
—
—
35
Bombardier
CRJ900 11
4
—
—
—
—
15
Total 70
56
38
20
14
81
279
(2)On January 31, 2022, we entered into an amended purchase agreement with Boeing pursuant to which we agreed to purchase 23 additional Boeing 737 MAX Family aircraft through the conversion of existing purchase options. We also intend to exercise purchase options for an additional seven aircraft in 2022, bringing our total incremental firm order of Boeing 737 MAX Family aircraft to 30, with 15 of such aircraft scheduled to be delivered in 2023 and 15 scheduled to be delivered in 2024. In addition, we entered into an amended purchase agreement with Boeing to defer the delivery of certain Boeing 787 Family aircraft previously scheduled to be delivered beginning in January 2023. Pursuant to this amendment, deliveries of these aircraft are now scheduled to commence in the fourth quarter of 2023 and will continue into 2027. The table above and the table in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – “Contractual Obligations” reflect our purchase commitments after giving effect to these amendments and assumes our exercise of the seven 737 MAX Family aircraft purchase options mentioned above.

We also have agreements for 3539 spare engines to be delivered in ~~2019~~2022 and beyond.

We currently have financing commitments in place for all aircraft ~~currently on order and scheduled to be delivered through June 2019. We do not have financing commitments for the following aircraft currently~~ on order and scheduled to be delivered in ~~the second half of 2019: seven Embraer E175 aircraft,~~2022 except for five Airbus A320neo Family aircraft and three ~~Boeing 737 MAX Family~~Embraer 175 aircraft. Our ability to draw on the financing commitments we have in place is subject to (1) the satisfaction of various terms and conditions including, in some cases, on our acquisition of the aircraft by a certain date and (2) the performance by the counterparty providing such financing commitments of its obligations thereunder. We do not have financing commitments in place for ~~remaining~~any of the aircraft ~~currently on order and~~ scheduled to be delivered in ~~2020~~2023 and beyond, ~~with the exception of four Bombardier CRJ900 aircraft.~~except for seven Boeing 787 Family aircraft scheduled to be delivered in 2023 and one Boeing 787 Family aircraft scheduled to be delivered in 2024. See Part I, Item 1A. Risk Factors –“We will need to obtain sufficient financing or other capital to operate successfully” for additional discussion.

Ground Properties

At each airport where we conduct flight operations, we have agreements, generally with a governmental unit or authority, for the use of passenger, operations and baggage handling space as well as runways and taxiways. These agreements, particularly in the U.S., often contain provisions for periodic adjustments to rates and charges applicable under such agreements. These rates and charges also vary with our level of operations and the operations of the airport. Additionally, at our hub locations and in certain other cities we serve, we lease administrative offices, catering, cargo, training, maintenance and other facilities.

We ~~own our corporate headquarters buildings in Fort Worth, Texas. We~~ lease or have built on leased property our headquarters and training facilities in Fort Worth, Texas, our principal overhaul and maintenance base in Tulsa, Oklahoma, our regional reservation offices, and administrative offices throughout the U.S. and abroad. ~~Construction continues on a new, five-building headquarters on the corporate campus in Fort Worth, Texas, which is scheduled for completion and move-in in phases over the second half of 2019.~~

ITEM 3. LEGAL PROCEEDINGS

~~Chapter~~See Note 11 ~~Cases. On November 29, 2011, AMR, American,~~to AAG’s Consolidated Financial Statements in Part II, Item 8A and ~~certain of AMR’s other direct and indirect domestic subsidiaries (the Debtors) filed voluntary petitions~~Note 10 to American’s Consolidated Financial Statements in Part II, Item 8B for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court). On October 21, 2013, the Bankruptcy Court entered an order approving and confirming the Debtors’ fourth amended joint plan of reorganization (as amended, the Plan). On the Effective Date, December 9, 2013, the Debtors consummated their reorganization pursuant to the Plan and completed the Merger.information on legal proceedings.

Pursuant to rulings of the Bankruptcy Court, the Plan established the Disputed Claims Reserve to hold shares of AAG common stock reserved for issuance to disputed claimholders at the Effective Date that ultimately become holders of allowed claims. The shares of AAG common stock issued to the Disputed Claims Reserve were originally issued on December 13, 2013 and have at all times since been included in the number of shares issued and outstanding as reported from time to time in our quarterly and annual reports, including for purposes of calculating earnings per share. As disputed claims are resolved, the claimants will receive distributions of shares from the Disputed Claims Reserve. However, we are not required to distribute additional shares above the limits contemplated by the Plan, even if the shares remaining for distribution in the Disputed Claims Reserve are not sufficient to fully pay any additional allowed unsecured claims. To the extent that any of the reserved shares remain undistributed upon resolution of all remaining disputed claims, such shares will not be returned to us but rather will be distributed to former AMR stockholders and former convertible noteholders treated as stockholders under the Plan. On February 12, 2019, in accordance with the approval granted by the Bankruptcy Court on December 6, 2018, an aggregate of approximately 17.3 million shares of AAG common stock were distributed from the Disputed Claims Reserve to former AMR shareholders and convertible noteholders. After giving effect to this distribution, the Disputed Claims Reserve holds approximately 7.2 million shares of AAG common stock.

~~Private Party Antitrust Action Related to Passenger Capacity.~~ We, along with Delta Air Lines, Inc., Southwest Airlines Co., United Airlines, Inc. and, in the case of litigation filed in Canada, Air Canada, have been named as defendants in approximately 100 putative class action lawsuits alleging unlawful agreements with respect to air passenger capacity. The U.S. lawsuits have been consolidated in the Federal District Court for the District of Columbia (the DC Court). On June 15, 2018, we reached a preliminary settlement agreement with the plaintiffs in the amount of $45 million that, once approved, will resolve all claims in the U.S. lawsuits. That settlement received preliminary approval from the DC Court on June 18, 2018.

~~Private Party Antitrust Action Related to the Merger~~. On August 6, 2013, a lawsuit captioned Carolyn Fjord, et al., v. AMR Corporation, et al., was filed in the United States Bankruptcy Court for the Southern District of New York. The complaint named as defendants US Airways Group, US Airways, AMR and American, alleged that the effect of the Merger may be to create a monopoly in violation of Section 7 of the Clayton Antitrust Act, and sought injunctive relief and/or divestiture. On November 27, 2013, the Bankruptcy Court denied plaintiffs’ motion to preliminarily enjoin the Merger. On August 29, 2018, the Court denied in part defendants' motion for summary judgment, and fully denied plaintiffs' cross-motion for summary judgment. A bench trial is presently scheduled for March 2019. We believe this lawsuit is without merit and intend to vigorously defend against the allegations.

~~DOJ Investigation Related to the United States Postal Service~~. In April 2015, the Department of Justice (DOJ) informed us of an inquiry regarding American’s 2009 and 2011 contracts with the United States Postal Service for the international transportation of mail by air. In October 2015, we received a Civil Investigative Demand from the DOJ seeking certain information relating to these contracts and the DOJ has also sought information concerning certain of the airlines that transport mail on a codeshare basis. The DOJ has indicated it is investigating potential violations of the False Claims Act or other statutes. We are cooperating fully with the DOJ with regard to its investigation.

~~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.~~

applicable.

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PART II


~~ITEM 5.~~	~~MARKET FOR AMERICAN AIRLINES GROUP’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES~~

ITEM 5. MARKET FOR AMERICAN AIRLINES GROUP’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Stock Exchange Listing

Our common stock is listed on ~~the NASDAQ~~The Nasdaq Global Select Market ~~(NASDAQ)~~ under the trading symbol “AAL.” There is no trading market for the common stock of American, which is a wholly-owned subsidiary of AAG.

As of February ~~20, 2019, the closing price~~18, 2022, there were approximately 13,000 holders of record of our common ~~stock was $35.06 and there were 13,685 holders of record.~~stock. However, because many of the shares of our common stock are held by brokers and other institutions on behalf of stockholders, we believe there are substantially more beneficial holders of our common stock than record holders.

Information on securities authorized for issuance under our equity compensation plans will be set forth in our Proxy Statement for the ~~2019~~2022 Annual Meeting of Stockholders of American Airlines Group Inc. (the Proxy Statement) under the caption “Equity Compensation Plan ~~Information”~~Information�� and is incorporated by reference into this Annual Report on Form 10-K.

Dividends ofon Common Stock

~~In January 2019, we announced that our Board of Directors declared a $0.10 per share~~There were no cash dividend ~~for stockholders of record on February 6, 2019, and payable on February 20, 2019.~~

payments during the year ended December 31, 2021. The total cash payment for dividends during the ~~years~~year ended December 31, ~~2018~~2020 was $43 million. In connection with our receipt of financial assistance under PSP1, PSP2 and ~~2017 was $186 million and $198 million, respectively. Any~~PSP3, we agreed not to pay dividends on AAG common stock through at least September 30, 2022. If we determine to make any dividends in the future, such dividends that may be declared and paid from time to time will be subject to market and economic conditions, applicable legal requirements and other relevant factors. We are not obligated to continue a dividend for any fixed period, and the payment of dividends may be suspended or discontinued again at any time at our discretion and without prior notice.

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Stock Performance Graph

The following stock performance graph and related information shall not be deemed “soliciting material” or “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filings under the Securities Act of 1933 or the Exchange Act, each as amended, except to the extent that we specifically incorporate it by reference into such filing.

The following stock performance graph compares the cumulative total stockholder returns during the period from December 31, ~~2013~~2016 to December 31, ~~2018~~2021 of our common stock to ~~the Standard and Poor’s (S&P) 500 Stock Index and~~ the New York Stock Exchange (NYSE) ARCA Airline Index and the Standard and Poor’s Financial Services, LLC (S&P) 500 Stock Index. The comparison assumes $100 was invested on December 31, ~~2013~~2016 in our common stock and in each of the foregoing indices and assumes that all dividends were reinvested. The stock performance shown on the following graph represents historical stock performance and is not necessarily indicative of future stock price performance.


	12/31/2013		12/31/2014		12/31/2015		12/31/2016		12/31/2017		12/31/2018			12/31/2016		12/31/2017		12/31/2018		12/31/2019		12/31/2020		12/31/2021
American Airlines Group Inc. (AAL)	$	100	$	213	$	170	$	189	$	213	$	133	American Airlines Group Inc. (AAL)	$	100	$	112	$	70	$	63	$	35	$	40
NYSE ARCA Airline Index (XAL)	100		149		125		159		167		130		NYSE ARCA Airline Index (XAL)	100		105		82		99		75		74
S&P 500 Index (GSPC)	100		111		111		121		145		136		S&P 500 Index (GSPC)	100		119		112		144		168		213

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The authority to repurchase $420 million of remaining shares under our most recent $2.0 billion share repurchase program expired on December 31, 2020. In ~~2018,~~connection with our receipt of financial assistance under PSP1, PSP2 and PSP3, we ~~repurchased 16.6 million~~agreed not to repurchase shares of AAG common stock ~~for $800 million~~through at a weighted average cost per share of $48.15. In 2017, we repurchased 33.9 million shares of AAG common stock for $1.6 billion at a weighted average cost per share of $45.68. Since the inception of our share repurchase programs in July 2014 through December 31, 2018, we have repurchased 278.9 million shares of AAG common stock for $11.3 billion at a weighted average cost per share of $40.69.least September 30, 2022.

~~We did not make any purchases of shares of AAG common stock during the three months ended December 31, 2018.~~

Share repurchases under our repurchase programs may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades or accelerated share repurchase transactions. Any such repurchases that may be made from time to time will be subject to market and economic conditions, applicable legal requirements and other relevant factors. We are not obligated to repurchase any specific number of shares and our repurchase of AAG common stock may be limited, suspended or discontinued at any time at our discretion and without prior notice.

See Part I, Item 1A. Risk Factors – “We have ceased making repurchases of our common stock and paying dividends on our common stock as required by the CARES Act, the PSP Extension Law and the ARP. Following the end of those restrictions, if we do decide to make repurchases of or pay dividends on our common stock, we cannot guarantee that we will continue to ~~repurchase our common stock or pay dividends on our common stock~~do so or that our capital deployment program will enhance long-term stockholder value. ~~Our capital deployment program could increase the volatility~~”

Table of ~~the price of our common stock and diminish our cash reserves~~.”Contents

Ownership Restrictions

AAG’s Certificate of Incorporation and Bylaws provide that, consistent with the requirements of Subtitle VII of Title 49 of the United States Code, as amended (the Aviation Act), any persons or entities who are not a “citizen of the United States” (as defined under the Aviation Act and administrative interpretations issued by the DOT, its predecessors and successors, from time to time), including any agent, trustee or representative of such persons or entities (a non-citizen), shall not, in the aggregate, own (beneficially or of record) and/or control more than (a) 24.9% of the aggregate votes of all of our outstanding equity securities or (b) 49.0% of our outstanding equity securities. Our Certificate of Incorporation and Bylaws further specify that it is the duty of each stockholder who is a non-citizen to register his, her or its equity securities on our foreign stock record and provide for remedies applicable to stockholders that exceed the voting and ownership caps described above.

In addition, to reduce the risk of a potential adverse effect on our ability to use our NOL ~~Carryforwards~~carryforwards and certain other tax attributes for federal income tax purposes, and in connection with the expiration in December 2021 of certain transfer restrictions applicable to substantial shareholders contained in our Certificate of Incorporation, ~~contains~~the Board of Directors of AAG adopted the Tax Benefits Preservation Plan in order to preserve our ability to use our NOLs and certain ~~restrictions on~~other tax attributes to reduce potential future income tax obligations. The Tax Benefits Preservation Plan is designed to reduce the ~~acquisition~~likelihood that we experience an "ownership change” for purposes of Section 382 by deterring certain acquisitions of AAG common stock. There is no assurance, however, that the deterrent mechanism will be effective, and ~~disposition~~such acquisitions may still occur. In addition, the Tax Benefits Preservation Plan may adversely affect the marketability of ~~our~~AAG common stock by discouraging existing or potential investors from acquiring AAG common stock or additional shares of AAG common stock, because any non-exempt third party that acquires 4.9% or more of the then-outstanding shares of AAG common stock would suffer substantial dilution of its ownership interest in AAG. We intend to submit the Tax Benefits Preservation Plan for ratification to our stockholders ~~(generally holders~~at the 2022 Annual Meeting of ~~more than 4.75%).~~Stockholders of American Airlines Group Inc.

See Part I, Item 1A. Risk Factors – “AAG’s Certificate of Incorporation and Bylaws include provisions that limit voting and acquisition and disposition of our equity ~~interests.~~interests and specify an exclusive forum for certain stockholder disputes” and “Our ability to utilize our NOLs and other carryforwards may be limited.”Also see AAG’s Certification of Incorporation and Bylaws, which are filed as Exhibits 3.1, 3.2 and 3.3 hereto, for the full text of the foregoing ~~restrictions.~~

restrictions and AAG’s Description of the Registrants’ Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, which is filed as Exhibit 4.1 hereto, for a more detailed description.

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

We adopted three new accounting standards as of January 1, 2018: Accounting Standards Update (ASU) 2016-02: Leases (Topic 842) (the New Lease Standard), ASU 2014-09: Revenue from Contracts with Customers (the New Revenue Standard) and ASU 2017-07: Compensation - Retirement Benefits (the New Retirement Standard). The 2017 and 2016 financial information presented within Item 6. Selected Consolidated Financial Data has been recast to reflect the impact of the adoption of the New Revenue Standard and the New Retirement Standard. The New Lease Standard did not require the recast of prior periods. See Note 1(b) to AAG’s and American’s Consolidated Financial Statements in Part II, Items 8A and 8B, respectively, for further information on the impacts of these new accounting standards.

Selected Consolidated Financial Data of AAG

Year Ended December 31,
2018 2017 2016 2015 2014
(In millions, except share and per share data)
Consolidated Statements of Operations data:
Total operating revenues $ 44,541
$ 42,622
$ 40,142
$ 40,990
$ 42,650
Total operating expenses 41,885
38,391
35,082
34,786
38,401
Operating income 2,656
4,231
5,060
6,204
4,249
Net income 1,412
1,282
2,584
7,610
2,882
Earnings per common share:
Basic $ 3.04
$ 2.62
$ 4.68
$ 11.39
$ 4.02
Diluted 3.03
2.61
4.65
11.07
3.93
Shares used for computation (in thousands):
Basic 464,236
489,164
552,308
668,393
717,456
Diluted 465,660
491,692
556,099
687,355
734,016
Cash dividends declared per common share $ 0.40
$ 0.40
$ 0.40
$ 0.40
$ 0.20

Consolidated Balance Sheet data
(at end of period):

Total assets $ 60,580
$ 52,785
$ 53,610
$ 48,415
$ 43,225
Debt and finance leases 24,473
25,065
24,344
20,561
17,720
Pension and postretirement obligations ⁽¹⁾
6,937
7,596
7,946
7,566
7,689
Operating lease liabilities 9,556
—
—
—
—
Stockholders’ equity (deficit) (169 ) (780 ) (286 ) 5,635
2,021


	Year Ended December 31,
	2021		2020		2019
	(In millions, except share and per share amounts)
Consolidated Statements of Operations data:
Total operating revenues	$	29,882	$	17,337	$	45,768
Total operating expenses	30,941		27,758		42,703
Operating income (loss)	(1,059)		(10,421)		3,065
Net income (loss)	(1,993)		(8,885)		1,686
Earnings (loss) per common share:
Basic	$	(3.09)	$	(18.36)	$	3.80
Diluted	(3.09)		(18.36)		3.79
Shares used for computation (in thousands):
Basic	644,015		483,888		443,363
Diluted	644,015		483,888		444,269
Cash dividends declared per common share	$	—	$	0.10	$	0.40

Consolidated Balance Sheet data (at end of period):
Total assets	$	66,467	$	62,008	$	59,995
Debt and finance leases	38,060		32,593		24,315
Pension and postretirement obligations (1)	5,150		7,131		6,081
Operating lease liabilities	8,117		8,428		9,129
Stockholders’ deficit	(7,340)		(6,867)		(118)


(1)Substantially all defined benefit pension plans were frozen effective November 1, 2012. See Note 9 to AAG's Consolidated Financial Statements in Part II, Item 8A for further information on pension and postretirement benefits. ⁽¹⁾	Substantially all defined benefit pension plans were frozen effective November 1, 2012. See Note 10 to AAG's Consolidated Financial Statements in Part II, Item 8A for further information on pension and postretirement benefits.

Reconciliation of GAAP to Non-GAAP Financial Measures

We sometimes use financial measures that are derived from the consolidated financial statements but that are not presented in accordance with ~~GAAP~~accounting principles generally accepted in the U.S. (GAAP) to understand and evaluate our current operating performance and to allow for period-to-period comparisons. We believe these non-GAAP financial measures may also provide useful information to investors and others. These non-GAAP measures may not be comparable to similarly titled non-GAAP measures of other companies, and should be considered in addition to, and not as a substitute for or superior to, any measure of performance, cash flow or liquidity prepared in accordance with GAAP. We are providing a reconciliation of reported non-GAAP financial measures to their comparable financial measures on a GAAP basis.

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The following table presents the components of our total net special items and the reconciliation of pre-tax ~~income~~loss and net ~~income~~loss (GAAP measures) to pre-tax ~~income~~loss excluding net special items and net ~~income~~loss excluding net special items (non-GAAP measures). Management uses ~~pre-tax income excluding special items and net income excluding special items~~these non-GAAP financial measures to evaluate our current operating performance and to allow for period-to-period comparisons. As net special items may vary from period-to-period in nature and amount, the adjustment to exclude net special items allows management an additional tool to understand our core operating performance.

Year Ended December 31,
2018 2017 2016
(In millions)
Components of Total Special Items, Net: ⁽¹⁾

Fleet restructuring expenses ⁽²⁾
$ 422
$ 232
$ 177
Merger integration expenses ⁽³⁾
268
273
514
Severance expenses ⁽⁴⁾
58
—
—
Litigation settlement ⁽⁵⁾
45
—
—
Intangible asset impairment ⁽⁶⁾
26
—
—
Labor contract expenses 13
46
—
Mark-to-market adjustments on bankruptcy obligations, net ⁽⁷⁾
(76 ) 27
25
Employee 2017 Tax Act bonus expense ⁽⁸⁾
—
123
—
Other operating charges (credits), net 31
11
(7 )
Mainline operating special items, net 787
712
709
Regional operating special items, net 6
22
14
Operating special items, net 793
734
723
Mark-to-market adjustments on equity investments, net ⁽⁹⁾
104
—
—
Debt refinancing and extinguishment charges 13
22
49
Other nonoperating credits, net (4 ) —
—
Nonoperating special items, net 113
22
49
Pre-tax special items, net 906
756
772
Income tax special items ⁽¹⁰⁾
18
—
—
Impact of the 2017 Tax Act ⁽¹¹⁾
—
823
—
Income tax special items, net 18
823
—
Total special items, net $ 924
$ 1,579
$ 772

Reconciliation of Pre-Tax Income Excluding Special Items:
Pre-tax income – GAAP $ 1,884
$ 3,395
$ 4,152
Adjusted for: Pre-tax special items, net 906
756
772
Pre-tax income excluding special items $ 2,790
$ 4,151
$ 4,924

Reconciliation of Net Income Excluding Special Items:
Net income – GAAP $ 1,412
$ 1,282
$ 2,584
Adjusted for: Total special items, net 924
1,579
772
Adjusted for: Net tax effect of special items (219 ) (269 ) (275 )
Net income excluding special items $ 2,117
$ 2,592
$ 3,081


	Year Ended December 31,
	2021		2020
	(In millions)
Components of Total Special Items, Net: (1)
PSP Financial Assistance (2)	$	(4,162)	$	(3,710)
Severance expenses (3)	168		1,408
Litigation reserve adjustments	(19)		—
Mark-to-market adjustments on bankruptcy obligations, net (4)	(3)		(49)
Fleet impairment (5)	—		1,484
Labor contract expenses (6)	—		228
Other operating special items, net	10		(18)
Mainline operating special items, net	(4,006)		(657)

PSP Financial Assistance (2)	(539)		(444)
Regional pilot retention program (7)	61		—
Fleet impairment (5)	27		117
Severance expenses (3)	2		18

Regional operating special items, net	(449)		(309)
Operating special items, net	(4,455)		(966)

Mark-to-market adjustments on equity and other investments, net (8)	31		135
Debt refinancing, extinguishment and other, net	29		35

Nonoperating special items, net	60		170
Pre-tax special items, net	(4,395)		(796)
Total special items, net	$	(4,395)	$	(796)

Reconciliation of Pre-Tax Loss Excluding Net Special Items:
Pre-tax loss – GAAP	$	(2,548)	$	(11,453)
Adjusted for: Pre-tax special items, net	(4,395)		(796)
Pre-tax loss excluding net special items	$	(6,943)	$	(12,249)

Reconciliation of Net Loss Excluding Net Special Items:
Net loss – GAAP	$	(1,993)	$	(8,885)
Adjusted for: Total special items, net	(4,395)		(796)
Adjusted for: Net tax effect of net special items	993		170
Net loss excluding net special items	$	(5,395)	$	(9,511)


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


⁽²⁾	~~Fleet restructuring expenses principally included accelerated depreciation and rent expense for aircraft and related equipment grounded or expected to be grounded earlier than planned.~~


⁽³⁾	~~Merger integration expenses included costs associated with integration projects, principally our flight attendant, human resources and payroll, and technical operations systems.~~

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


⁽⁴⁾	~~Severance expenses primarily included costs associated with reductions of management and support staff team members.~~


⁽⁵⁾	~~Settlement of a private party antitrust lawsuit. See Part I, Item 3. Legal Proceedings - “Private Party Antitrust Action Related to Passenger Capacity”~~ ~~for further discussion.~~


⁽⁶⁾	~~Intangible asset impairment includes a non-cash charge to write-off our Brazil route authority as a result of the U.S.-Brazil open skies agreement.~~


⁽⁷⁾	~~Bankruptcy obligations that will be settled in shares of our common stock are marked-to-market based on our stock price.~~


⁽⁸⁾	Employee bonus expense included costs related to the $1,000 cash bonus and associated payroll taxes granted to mainline employees as of December 31, 2017 in recognition of H.R. 1, the 2017 Tax Cuts and Jobs Act (the 2017 Tax Act).


⁽⁹⁾	~~Mark-to-market adjustments on equity investments relate to net unrealized losses primarily associated with our equity investments in China Southern Airlines and Mesa Air Group, Inc.~~


⁽¹⁰⁾	~~Income tax special items for 2018 included an $18 million charge related to an international income tax matter.~~


⁽¹¹⁾	Impact of the 2017 Tax Act includes an $823 million non-cash charge to income tax expense to reflect the impact of lower corporate income tax rates on our deferred tax asset and liabilities resulting from the 2017 Tax Act, which reduced the federal corporate income tax rate from 35% to 21%.

(2)The 2021 PSP Financial Assistance represents recognition of a portion of the financial assistance received from Treasury pursuant to the PSP2 and PSP3 Agreements. See Note 1(b) to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information. The 2020 PSP Financial Assistance represents recognition of a portion of the financial assistance received from Treasury pursuant to the PSP1 Agreement.

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(3)Severance expenses include salary and medical costs primarily associated with certain team members who opted into voluntary early retirement programs offered as a result of reductions to our operation due to the COVID-19 pandemic. Cash payments primarily associated with our voluntary early retirement programs were approximately $520 million and $365 million in 2021 and 2020, respectively.

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

(5)Fleet impairment charges resulted from the retirement of certain aircraft earlier than planned driven by the severe decline in air travel due to the COVID-19 pandemic. In 2021, we retired our remaining Embraer 140 fleet resulting in a non-cash write-down of these regional aircraft. See Note 1(g) to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information related to these charges.

In 2020, we retired our entire Airbus A330-200, Boeing 757, Boeing 767, Airbus A330-300 and Embraer 190 fleets as well as certain Embraer 140 and Bombardier CRJ200 aircraft resulting in a $1.5 billion non-cash write-down of mainline and regional aircraft and associated spare parts and $109 million in cash charges primarily for impairment of right-of-use (ROU) assets and lease return costs.

(6)The 2020 labor contract expenses primarily related to one-time charges due to the ratification of a new contract with the TWU-IAM Association for our maintenance and fleet service team members, including signing bonuses and adjustments to vacation accruals resulting from pay rate increases.

(7)Our regional pilot retention program provides for, among other things, a cash retention bonus paid in the fourth quarter of 2021 to eligible captains at our wholly-owned regional airlines included on the pilot seniority list as of September 1, 2021.

(8)Mark-to-market adjustments on equity and other investments, net primarily related to net unrealized gains and losses associated with our equity investments in China Southern Airlines and in 2021, Vertical Aerospace Ltd. (Vertical), and certain treasury rate lock derivative instruments.

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

Year Ended December 31,
2018 2017 2016
Reconciliation of Total Operating Costs per Available Seat
Mile (CASM) Excluding Special Items and Fuel:

(In millions)
Total operating expenses - GAAP $ 41,885
$ 38,391
$ 35,082
Special items ⁽¹⁾:

Special items, net (787 ) (712 ) (709 )
Regional operating special items, net (6 ) (22 ) (14 )
Fuel:
Aircraft fuel and related taxes - mainline (8,053 ) (6,128 ) (5,071 )
Aircraft fuel and related taxes - regional (1,843 ) (1,382 ) (1,109 )
Total operating expenses, excluding special items and fuel $ 31,196
$ 30,147
$ 28,179
(In millions)
Total Available Seat Miles (ASM) 282,054
276,493
273,410
(In cents)
Total operating CASM 14.85
13.88
12.83
Special items per ASM ⁽¹⁾:

Special items, net (0.28 ) (0.26 ) (0.26 )
Regional operating special items, net —
(0.01 ) (0.01 )
Fuel per ASM:
Aircraft fuel and related taxes - mainline (2.86 ) (2.22 ) (1.85 )
Aircraft fuel and related taxes - regional (0.65 ) (0.50 ) (0.41 )
Total CASM, excluding special items and fuel 11.06
10.90
10.31


	Year Ended December 31,
	2021		2020
Reconciliation of CASM Excluding Net Special Items and Fuel:
(In millions)
Total operating expenses – GAAP	$	30,941	$	27,758
Operating net special items (1):
Mainline operating special items, net	4,006		657
Regional operating special items, net	449		309
Aircraft fuel and related taxes	(6,792)		(3,402)
Total operating expenses, excluding net special items and fuel	$	28,604	$	25,322
(In millions)
Total Available Seat Miles (ASM)	214,535		143,167
(In cents)
CASM	14.42		19.39
Operating net special items per ASM (1):
Mainline operating special items, net	1.87		0.46
Regional operating special items, net	0.21		0.22
Aircraft fuel and related taxes per ASM	(3.17)		(2.38)
CASM, excluding net special items and fuel	13.33		17.69


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

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

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Selected Consolidated Financial Data of American

The selected consolidated financial data presented below under the captions “Consolidated Statements of Operations data” and “Consolidated Balance Sheet data” for the years ended and as of December 31, ~~2018, 2017, 2016, 2015~~2021, 2020 and ~~2014~~2019, are derived from American’s audited consolidated financial statements. On December 30, 2015, US Airways merged with and into American, with American as the surviving corporation. For financial reporting purposes, this transaction constituted a transfer of assets between entities under common control and is reflected in American’s consolidated financial statements as though the transaction had occurred on December 9, 2013, when a subsidiary of AMR merged with and into US Airways Group, which represents the earliest date that American and US Airways were under common control.

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

Consolidated Balance Sheet data
(at end of period):

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


	Year Ended December 31,
	2021		2020		2019
	(In millions)
Consolidated Statements of Operations data:
Total operating revenues	$	29,880	$	17,335	$	45,761
Total operating expenses	30,841		27,559		42,714
Operating income (loss)	(961)		(10,224)		3,047
Net income (loss)	(1,777)		(8,450)		1,972

Consolidated Balance Sheet data (at end of period):
Total assets	$	71,145	$	69,215	$	71,890
Debt and finance leases	32,094		28,982		23,042
Pension and postretirement obligations (1)	5,117		7,089		6,037
Operating lease liabilities	8,074		8,380		9,083
Stockholder’s equity	3,826		4,348		13,422


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

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

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~Background~~

Together with our wholly-owned regional airline subsidiaries and third-party regional carriers operating as American Eagle, we operate an average of nearly 6,700 flights per day to nearly 350 destinations in more than 50 countries through hubs and gateways in Charlotte, Chicago, Dallas/Fort Worth, London Heathrow, Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington, D.C. In 2018, approximately 204 million passengers boarded our flights.

~~2018~~2021 Financial Overview

~~Fuel Costs~~Impact of COVID-19

COVID-19 has been declared a global health pandemic by the World Health Organization. COVID-19 has surfaced in nearly all regions of the world, which has driven the implementation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, testing regimes, closing of borders, “stay at home” orders and business closures. Ongoing global vaccination efforts and the ~~U.S. Airline Industry~~

~~While 2018 marked another profitable year~~corresponding lifting of government restrictions in and between many markets resulted in a partial recovery in demand for ~~the U.S. airline industry, higher fuel costs significantly impacted industry results. With respect to fuel costs, the price of Brent crude oil per barrel,~~air travel in 2021, which ~~jet fuel prices tend to follow, was on average approximately 33% higher in 2018~~improved our revenues as compared to ~~2017.~~2020. However, the return of demand was weaker than previous expectations and the speed and strength of this recovery remain uncertain, primarily due to the global rise in COVID-19 cases associated with the delta and omicron variants and the potential for continuation or reimposition of restrictions on global travel. The ~~average daily spot price for Brent crude oil during 2018 was $72 per barrel~~continued impact of the COVID-19 pandemic, including any increases in infection rates, new variants and renewed governmental action to slow the spread of COVID-19 cannot be estimated.

We have taken aggressive actions since the beginning of the COVID-19 pandemic to mitigate its effects on our business, including capacity reductions, structural changes to our fleet, cost reductions including implementing voluntary leave and early retirement programs, and steps to preserve cash and improve our overall liquidity position, consistent with the terms of the financial assistance we have received from the U.S. Government under the CARES Act, the PSP Extension Law and the ARP.

Capacity Reductions

Our capacity (as measured by available seat miles) continues to be reduced compared to pre-COVID-19 pandemic levels, with total capacity in 2021 down 24.7% as compared to ~~an average daily spot price~~2019. Domestic capacity in 2021 was down 14.5% while international capacity was down 44.9% as compared to 2019.

We currently expect our first quarter of ~~$54 per barrel during 2017. On a daily basis, Brent crude oil prices fluctuated during 2018 between a high~~2022 system capacity to be down 8% to 10% as compared to the first quarter of $86 per barrel to a low of $50 per barrel, and closed the year on December 31, 2018 at $54 per barrel. Brent crude oil prices were higher in the 2018 period due principally to reductions of global inventories driven by strong demand and continued production restraint led primarily by the Organization of Petroleum Exporting Countries (OPEC). U.S. sanctions against Iran, coupled with declining output from Venezuela further limited supply. Concerns about slowing global growth and lower2019. While demand for oil surfaced in the fourth quarter of 2018 causing Brent crude oil prices to drop. With respect to revenue, the network U.S. airlines reported positive unit revenue growth in 2018 driven by strong demanddomestic and ~~higher yields as airlines attempted to pass along the cost of rising fuel prices. The positive unit revenue growth in 2018 was led by~~short-haul international markets ~~primarily in~~has largely recovered to 2019 levels, uncertainty remains regarding the ~~Atlantic market, with the domestic market also contributing to the growth.~~

~~See Part I, Item 1A. Risk Factors –~~ “~~Downturns in economic conditions could adversely affect our business~~,”“~~Our business is very dependent on the price and availability~~timing of ~~aircraft fuel. Continued periods of high volatility in fuel costs, increased fuel prices or significant disruptions in the supply of aircraft fuel could have~~ a ~~significant negative impact on our operating results and liquidity~~” ~~and~~ “~~Our business has been and~~full recovery. We will continue to ~~be affected~~match our forward capacity with observed booking trends for future travel and make further adjustments to our capacity as needed.

Cost Reductions

In aggregate, we have reduced our 2021 operating expenditures by ~~many changing economic~~approximately $1.3 billion, which are permanent non-volume cost reductions and other ~~conditions beyond~~efficiency measures. These reductions include approximately $600 million in labor productivity enhancements, $500 million in management salaries and benefits and $200 million in other permanent cost reductions. Also, during the first quarter of 2021, approximately 1,600 represented team members opted into a voluntary early retirement program.

Liquidity

As of December 31, 2021, we had $15.8 billion in total available liquidity, consisting of $12.4 billion in unrestricted cash and short-term investments, $2.8 billion in undrawn capacity under revolving credit facilities and a total of $568 million in undrawn short-term revolving and other facilities.

During 2021, we completed the following financing transactions (see Note 4 to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information):

•issued $3.5 billion in aggregate principal amount of 5.50% Senior Secured Notes due 2026 and $3.0 billion in aggregate principal amount of 5.75% Senior Secured Notes due 2029 and entered into the $3.5 billion AAdvantage Term Loan Facility of which the full amount of term loans was drawn at closing;

•repaid in full $750 million under the 2013 Revolving Facility, $1.6 billion under the 2014 Revolving Facility and $450 million under the April 2016 Revolving Facility, all of which was borrowed in the second quarter of 2020 in response to the COVID-19 pandemic;

•repaid the $550 million of outstanding loans under, and terminated, the $7.5 billion secured term loan facility with Treasury (the Treasury Loan Agreement);

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•issued 24.2 million shares of AAG common stock at an average price of $19.26 per share pursuant to an at-the-market offering for net proceeds of $460 million (approximately $650 million of at-the-market authorization remains available at December 31, 2021);

•issued approximately $150 million in special facility revenue bonds related to JFK, of which $62 million was used to fund the redemption of other bonds related to JFK;

•repaid in full $950 million of the outstanding balance under, and terminated, the April 2016 Spare Parts Term Loan Facility;

•received approximately $94 million in proceeds from enhanced equipment trust certificates (EETCs) and other aircraft and flight equipment financing, all of which was used to repay existing indebtedness; and

•received approximately $193 million of cash proceeds from the sale of property and equipment primarily related to aircraft fleets retired in 2020 and raised $181 million principally from aircraft sale-leaseback transactions.

In addition to the foregoing financings, during 2021, we received an aggregate of approximately $3.5 billion in financial assistance through the payroll support program (PSP2) established under the PSP Extension Law. In connection with our ~~control, including global events that affect travel behavior,~~receipt of this financial assistance, AAG issued a promissory note (the PSP2 Promissory Note) to Treasury for $1.0 billion in aggregate principal amount and warrants to purchase up to an aggregate of approximately 6.6 million shares (the PSP2 Warrant Shares) of AAG common stock.

Also in 2021, we received an aggregate of approximately $3.3 billion in financial assistance through the payroll support program (PSP3) established under the ARP. In connection with our receipt of this financial assistance, AAG issued a promissory note (the PSP3 Promissory Note) to Treasury for $946 million in aggregate principal amount and warrants to purchase up to an aggregate of approximately 4.4 million shares (the PSP3 Warrant Shares) of AAG common stock. See Note 1(b) to AAG’s Consolidated Financial Statements in Part II, Item 8A for further discussion on PSP2 and PSP3.

A significant portion of our debt financing agreements contain covenants requiring us to maintain an aggregate of at least $2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities and/or contain loan to value, collateral coverage and/or peak debt service coverage ratio covenants.

Given the above actions and our ~~results~~current assumptions about the future impact of ~~operations~~the COVID-19 pandemic on travel demand, which could be ~~volatile and fluctuate~~materially different due to ~~seasonality.~~”the inherent uncertainties of the current operating environment, we expect to meet our cash obligations as well as remain in compliance with the debt covenants in our existing financing agreements for the next 12 months based on our current level of unrestricted cash and short-term investments, our anticipated access to liquidity (including via proceeds from financings), and projected cash flows from operations.

See Note 4 to AAG’s Consolidated Financial Statements in Part II, Item 8A for additional information on our debt obligations.

Table of Contents

AAG’s ~~2018~~2021 Results

The selected financial data presented below is derived from AAG’s audited consolidated financial statements included in Part II, Item 8A of this report and should be read in conjunction with those financial statements and the related notes thereto.

~~We adopted three new accounting standards~~Beginning in the first quarter of 2021, aircraft fuel and related taxes as well as certain salaries, wages and benefits, other rent and landing fees, selling and other expenses are no longer allocated to regional expenses on our statements of ~~January 1, 2018:~~operations. The 2020 consolidated statement of operations has been recast to conform to the ~~New Lease Standard, the New Revenue Standard and the New Retirement Standard. The 2017 and 2016 financial information presented~~2021 presentation within this Item 7. ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of ~~Operations~~Operations. This statement of operations presentation change has ~~been recast~~no impact on total operating expenses or net loss.


	Year Ended December 31,				Increase (Decrease)		Percent Increase (Decrease) (2)
	2021		2020
	(In millions, except percentage changes)
Passenger revenue	$	26,063	$	14,518	$	11,545	79.5
Cargo revenue	1,314		769		545		70.8
Other operating revenue	2,505		2,050		455		22.2
Total operating revenues	29,882		17,337		12,545		72.4
Aircraft fuel and related taxes	6,792		3,402		3,390		99.6
Salaries, wages and benefits	11,817		11,229		588		5.2
Total operating expenses	30,941		27,758		3,183		11.5
Operating loss	(1,059)		(10,421)		(9,362)		(89.8)
Pre-tax loss	(2,548)		(11,453)		(8,905)		(77.7)
Income tax benefit	(555)		(2,568)		(2,013)		(78.4)
Net loss	(1,993)		(8,885)		(6,892)		(77.6)

Pre-tax loss – GAAP	$	(2,548)	$	(11,453)	$	(8,905)	(77.7)
Adjusted for: pre-tax net special items (1)	(4,395)		(796)		3,599		nm (3)
Pre-tax loss excluding net special items	$	(6,943)	$	(12,249)	$	(5,306)	(43.3)

(1)See Part II, Item 6. Selected Consolidated Financial Data – “Reconciliation of GAAP to ~~reflect the impact of the adoption of the New Revenue Standard~~Non-GAAP Financial Measures” and ~~the New Retirement Standard. The New Lease Standard did not require the recast of prior periods. See~~ Note ~~1(b)~~2 to AAG’s ~~and American’s~~ Consolidated Financial Statements in Part II, ~~Items~~Item 8A ~~and 8B, respectively,~~ for ~~further information~~details on the ~~impacts~~components of ~~these new accounting standards.~~pre-tax net special items.

Year Ended
December 31,

Increase
(Decrease)

Percent
Increase
(Decrease)
2018 2017
(In millions, except percentage changes)
Passenger revenue $ 40,676
$ 39,131
$ 1,545
3.9
Cargo revenue 1,013
890
123
13.8
Other operating revenue 2,852
2,601
251
9.7
Total operating revenues 44,541
42,622
1,919
4.5
Mainline and regional aircraft fuel and related taxes 9,896
7,510
2,386
31.8
Salaries, wages and benefits 12,251
11,954
297
2.5
Total operating expenses 41,885
38,391
3,494
9.1
Operating income 2,656
4,231
(1,575 ) (37.2 )
Pre-tax income 1,884
3,395
(1,511 ) (44.5 )
Income tax provision 472
2,113
(1,641 ) (77.7 )
Net income 1,412
1,282
130
10.2

Pre-tax income – GAAP $ 1,884
$ 3,395
$ (1,511 ) (44.5 )
Adjusted for: Pre-tax special items, net ⁽¹⁾
906
756
150
19.8
Pre-tax income excluding special items $ 2,790
$ 4,151
$ (1,361 ) (32.8 )
(2)Fluctuations may not be meaningful due to the volatility caused by the COVID-19 pandemic.

(3)Not meaningful or greater than 100% change.


⁽¹⁾	~~See Part II, Item 6. Selected Consolidated Financial Data –~~ “~~Reconciliation of GAAP to Non-GAAP Financial Measures~~” ~~and Note 2 to AAG’s Consolidated Financial Statements in Part II, Item 8A for details on the components of special items.~~

Pre-Tax ~~Income~~Loss and Net ~~Income~~Loss

Pre-tax ~~income~~loss and net ~~income~~loss were ~~$1.9~~$2.5 billion and ~~$1.4~~$2.0 billion, respectively, in ~~2018, respectively.~~2021. This compares to ~~2017~~2020 pre-tax ~~income~~loss and net ~~income~~loss of ~~$3.4~~$11.5 billion and ~~$1.3~~$8.9 billion, respectively. Excluding the effects of pre-tax net special items, pre-tax ~~income~~loss was ~~$2.8~~$6.9 billion and ~~$4.2~~$12.2 billion in ~~2018~~2021 and ~~2017,~~2020, respectively.

The year-over-year ~~declines~~improvement in our pre-tax ~~income~~loss, on both a GAAP basis and excluding pre-tax net special items, ~~were~~was principally due to higher revenues driven by ~~a 29.0% increase in the average price per gallon of fuel. This increase was~~domestic and short-haul international leisure demand, offset in part by ~~higher revenues driven by strong demand.~~an increase in our operating expenses due to a 49.8% increase in our capacity as compared to 2020 as demand returned from the trough of the COVID-19 pandemic.

Table of Contents

Revenue

In ~~2018,~~2021, we reported total operating revenues of ~~$44.5~~$29.9 billion, an increase of ~~$1.9~~$12.5 billion, or ~~4.5%~~72.4%, as compared to ~~2017.~~2020. Passenger ~~revenues were $40.7~~revenue was $26.1 billion, an increase of ~~$1.5~~$11.5 billion, or ~~3.9%~~79.5%, as compared to ~~2017.~~2020. The increase in passenger ~~revenues~~revenue in 2021 was due to a ~~2.1%~~75.9% increase in revenue passenger miles (RPMs) and ~~a 1.8%~~an 11.2 point increase in ~~yields~~passenger load factor. These increases were principally driven by ~~strong demand. Domestic yields increased 0.9%~~a significant recovery in domestic and short-haul international ~~yields rose 4.2%, led by a 5.3% increase in yield in the Atlantic market.~~leisure demand as compared to 2020.

In ~~2018,~~2021, cargo revenue was ~~$1.0~~$1.3 billion, an increase of ~~$123~~$545 million, or ~~13.8%~~70.8%, as compared to ~~2017,~~2020, primarily ~~driven by increases~~due to a 50.5% increase in ~~domestic~~cargo ton miles reflecting higher freight volumes as a result of adding international widebody capacity and ~~international freight yields and international freight volume.~~ the continuation of cargo-only flights, as well as a 13.4% increase in cargo yield as a result of higher rates.

Other ~~revenue, driven by higher loyalty~~operating revenue increased ~~$251~~$455 million, or ~~9.7%~~22.2%, in ~~2018~~2021 as compared to ~~2017.~~

2020, driven primarily by higher revenue associated with our loyalty program.

Our total revenue per available seat mile (TRASM) was ~~15.79~~13.93 cents in ~~2018,~~2021, a ~~2.4%~~15.0% increase as compared to ~~15.42~~12.11 cents in ~~2017.~~2020.

Fuel

~~Our mainline and regional~~In 2021, aircraft fuel expense totaled ~~$9.9~~$6.8 billion, ~~in 2018, which was $2.4~~an increase of $3.4 billion, or ~~31.8%~~99.6%, ~~higher~~ as compared to ~~2017.~~2020. This increase was primarily driven ~~primarily~~ by a ~~29.0%~~44.7% increase in fuel consumption as a result of increased capacity and a 37.9% increase in the average price per gallon of aircraft fuel including related taxes to ~~$2.23~~$2.04 in ~~2018~~2021 from ~~$1.73~~$1.48 in ~~2017.~~2020.

As of December 31, ~~2018,~~2021, we did not have any fuel hedging contracts outstanding to hedge our fuel consumption. ~~As such, and assuming we do not enter into any future transactions to hedge our fuel consumption, we will continue to be fully exposed to fluctuations in fuel prices.~~ Our current policy is not to enter into transactions to hedge our fuel consumption, although we review that policy from time to time based on market conditions and other factors. As such, and assuming we do not enter into any future transactions to hedge our fuel consumption, we will continue to be fully exposed to fluctuations in fuel prices.

Other Costs

We remain committed to actively managing our cost structure, which we believe is necessary in an industry whose economic prospects are heavily dependent upon two variables we cannot control: ~~the health of the economy~~general economic conditions and the price of fuel. In particular, the onset of the COVID-19 pandemic resulted in a very rapid deterioration in general economic conditions.

Our ~~2018 total cost per available seat mile (CASM)~~2021 CASM was ~~14.85~~14.42 cents, ~~an increase~~a decrease of ~~6.9%~~25.6%, from ~~13.88~~19.39 cents in ~~2017. The increase~~2020. This decrease in CASM was primarily driven by higher capacity due to increased passenger demand and cost reduction and efficiency initiatives discussed above, offset in part by an increase in fuel ~~costs as described above.~~price.

Our ~~2018~~2021 CASM excluding net special items and fuel was ~~11.06~~13.33 cents, ~~an increase~~a decrease of ~~1.4%~~24.6%, from ~~10.90~~17.69 cents in ~~2017. The increase~~2020. This decrease in CASM excluding net special items and fuel was primarily driven by higher ~~salaries, wages~~capacity due to increased passenger demand and ~~benefits.~~cost reduction and efficiency initiatives as previously discussed.

For a reconciliation of total operatingCASM to total operating CASM excluding net special items and fuel, see Part II, Item 6. Selected Consolidated Financial Data – “Reconciliation of GAAP to Non-GAAP Financial Measures.”

~~Liquidity~~

Table of December 31, 2018, we had approximately $7.6 billion in total available liquidity, consisting of $4.8 billion in unrestricted cash and short-term investments and $2.8 billion in undrawn revolving credit facilities. We also had restricted cash and short-term investments of $154 million.Contents

~~During 2018, we completed the following financing transactions:~~

~~Refinanced a $1.8 billion term loan facility at a lower interest rate and extended the maturity from 2020 to 2025;~~

~~Raised $1.9 billion in proceeds from aircraft and pre-delivery purchase deposit debt financing, of which approximately $513 million was used to repay existing indebtedness;~~

~~Raised approximately $1.1 billion in proceeds from aircraft sale-leaseback transactions;~~

~~Raised an incremental $500 million on a term loan facility; and~~

~~Increased our revolving credit facility commitments by $343 million, extended their maturities from 2022 to 2023 and improved their undrawn economics.~~

See Note 5 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 3 to American’s Consolidated Financial Statements in Part II, Item 8B for additional information on our debt obligations.

Additionally, we returned $986 million to our stockholders in 2018, consisting of $186 million in dividend payments and the repurchase of $800 million of AAG common stock, or 16.6 million shares at a weighted average cost per share of $48.15.

AAG’s Results of Operations

For a comparison of the 2020 to 2019 reporting periods, see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – “AAG’s Results of Operations” of our 2020 Form 10-K.

Operating Statistics

The table below sets forth selected operating data for the years ended December 31, ~~2018, 2017~~2021 and ~~2016.~~2020.

Year Ended December 31, Increase (Decrease) 2018-2017 Increase (Decrease) 2017-2016
2018 2017 2016
Revenue passenger miles (millions) ^(a)
231,160
226,346
223,477
2.1% 1.3%
Available seat miles (millions) ^(b)
282,054
276,493
273,410
2.0% 1.1%
Passenger load factor (percent) ^(c)
82.0
81.9
81.7
0.1pts 0.2pts
Yield (cents) ^(d)
17.60
17.29
16.58
1.8% 4.3%
Passenger revenue per available seat mile (cents) ^(e)
14.42
14.15
13.55
1.9% 4.5%
Total revenue per available seat mile (cents) ^(f)
15.79
15.42
14.68
2.4% 5.0%
Aircraft at end of period 1,551
1,545
1,536
0.4% 0.6%
Fuel consumption (gallons in millions) 4,447
4,352
4,347
2.2% 0.1%
Average aircraft fuel price including related taxes (dollars per gallon) 2.23
1.73
1.42
29.0% 21.4%
Full-time equivalent employees at end of period 128,900
126,600
122,300
1.8% 3.5%
Operating cost per available seat mile (cents) ^(g)
14.85
13.88
12.83
6.9% 8.2%


	Year Ended December 31,		Increase (Decrease)
	2021	2020
Revenue passenger miles (millions) (a)	161,538	91,825	75.9%
Available seat miles (millions) (b)	214,535	143,167	49.8%
Passenger load factor (percent) (c)	75.3	64.1	11.2pts
Yield (cents) (d)	16.13	15.81	2.0%
Passenger revenue per available seat mile (cents) (e)	12.15	10.14	19.8%
Total revenue per available seat mile (cents) (f)	13.93	12.11	15.0%
Fuel consumption (gallons in millions)	3,324	2,297	44.7%
Average aircraft fuel price including related taxes (dollars per gallon)	2.04	1.48	37.9%
Total operating cost per available seat mile (cents) (g)	14.42	19.39	(25.6)%
Aircraft at end of period (h)	1,432	1,399	2.4%
Full-time equivalent employees at end of period	123,400	102,700	20.2%


^(a)	(a)Revenue passenger mile (RPM) – A basic measure ~~of sales volume. One RPM represents one passenger flown one mile.~~


^(b)	~~Available seat mile (ASM) – A basic measure of production. One ASM represents one seat flown one mile.~~


^(c)	~~Passenger load factor – The percentage of available seats that are filled with revenue passengers.~~


^(d)	~~Yield – A measure of airline revenue derived by dividing passenger revenue by RPMs.~~


^(e)	~~Passenger revenue per available seat mile (PRASM) – Passenger revenues divided by ASMs.~~


^(f)	~~Total revenue per available seat mile (TRASM) – Total revenues divided by ASMs.~~


^(g)	~~Operating cost per available seat mile (CASM) – Operating expenses divided by ASMs.~~

~~Results~~ of ~~Operations~~sales volume. One RPM represents one passenger flown one mile.

(b)Available seat mile (ASM) – ~~2018 Compared to 2017~~A basic measure of production. One ASM represents one seat flown one mile.

~~Pre-tax income~~(c)Passenger load factor – The percentage of available seats that are filled with revenue passengers.

(d)Yield – A measure of airline revenue derived by dividing passenger revenue by RPMs.

(e)Passenger revenue per available seat mile (PRASM) – Passenger revenue divided by ASMs.

(f)Total revenue per available seat mile (TRASM) – Total revenues divided by ASMs.

(g)Total operating cost per available seat mile (CASM) – Total operating expenses divided by ASMs.

(h)Includes aircraft owned and ~~net income were $1.9 billion~~leased by American as well as aircraft operated by third-party regional carriers under capacity purchase agreements. Excludes 36 mainline and ~~$1.4 billion~~10 regional aircraft that are in ~~2018, respectively. This compares to 2017 pre-tax income~~temporary storage at December 31, 2021 as follows: 36 Boeing 737-800, eight Embraer 145 and net income of $3.4 billion and $1.3 billion, respectively. Excluding the effects of pre-tax net special items, pre-tax income was $2.8 billion and $4.2 billion in 2018 and 2017, respectively. For reconciliation of pre-tax income excluding special items to their comparable measures on a GAAP basis, see Part II, Item 6. Selected Consolidated Financial Data –~~“Reconciliation of GAAP to Non-GAAP Financial Measures~~.”

The year-over-year declines in our pre-tax income on both a GAAP basis and excluding pre-tax net special items were principally driven by an increase in fuel costs, which was offset in part by higher revenues driven by strong demand.two Embraer 170.

Operating Revenues


	Year Ended December 31,				Increase		Percent Increase
	2021		2020
	(In millions, except percentage changes)
Passenger	$	26,063	$	14,518	$	11,545	79.5
Cargo	1,314		769		545		70.8
Other	2,505		2,050		455		22.2
Total operating revenues	$	29,882	$	17,337	$	12,545	72.4

Year Ended December 31,
Increase
(Decrease)

Percent
Increase
(Decrease)
2018 2017
(In millions, except percentage changes)
Passenger $ 40,676
$ 39,131
$ 1,545
3.9
Cargo 1,013
890
123
13.8
Other 2,852
2,601
251
9.7
Total operating revenues $ 44,541
$ 42,622
$ 1,919
4.5

Table of Contents

This table presents our ~~total~~ passenger revenue and the year-over-year change in certain operating statistics:

Increase
vs. Year Ended December 31, 2020

Year Ended December 31, 2021

Passenger
Revenue

RPMs

ASMs

Load
Factor

Passenger
Yield

PRASM

(In millions)

Passenger revenue

26,063

79.5%

75.9%

49.8%

11.2pts

2.0%

19.8%

Increase (Decrease)
vs. Year Ended December 31, 2017
Year Ended December 31, 2018
Passenger
Revenue
RPMs ASMs
Load
Factor

Passenger
Yield
PRASM
(In millions)
Passenger revenue $ 40,676
3.9% 2.1% 2.0% 0.1pts 1.8% 1.9%

Passenger revenue increased ~~$1.5~~$11.5 billion, or ~~3.9%~~79.5%, in ~~2018~~2021 from ~~2017~~2020 primarily due to a ~~2.1%year-over-year~~75.9% increase in RPMs ~~and a1.8% increase in yields~~ driven by ~~continued strong demand. Domestic yield increased 0.9%~~a significant recovery in domestic and short-haul international ~~yields increased 4.2%, led by~~leisure demand, resulting in a ~~5.3% increase~~75.3% load factor in ~~yield in the Atlantic market.~~2021.

Cargo revenue increased ~~$123~~$545 million, or ~~13.8%~~70.8%, in 2021 from ~~2017~~2020 primarily due to a 50.5% increase in cargo ton miles reflecting higher freight volumes as a result of adding international widebody capacity and the continuation of cargo-only flights, as well as a 13.4% increase in cargo yield as a result of higher rates.

Other operating revenue increased $455 million, or 22.2%, in 2021 from 2020 driven primarily ~~by increases in domestic and international freight yields and international freight volume.~~

~~Other revenue increased $251 million, or 9.7%, in 2018 from 2017 primarily driven~~ by higher revenue associated with our loyalty program. ~~In 2018 and 2017, loyalty revenue included in other revenue was $2.4 billion and $2.1 billion, respectively.~~

Total operating revenues in ~~2018~~2021 increased ~~$1.9~~$12.5 billion, or ~~4.5%~~72.4%, from ~~2017~~2020 driven principally by ~~a 3.9%~~the increase in passenger revenue as described above. Our TRASM ~~was 15.79~~increased 15.0% to 13.93 cents in ~~2018, a 2.4% increase as compared to 15.42~~2021 from 12.11 cents in ~~2017.~~2020.

Operating Expenses


	Year Ended December 31,				Increase (Decrease)		Percent Increase (Decrease)		Year Ended December 31,				Increase (Decrease)		Percent Increase (Decrease)
	2018		2017						2021		2020
	(In millions, except percentage changes)								(In millions, except percentage changes)
Aircraft fuel and related taxes	$	8,053	$	6,128	$	1,925	31.4	Aircraft fuel and related taxes	$	6,792	$	3,402	$	3,390	99.6
Salaries, wages and benefits	12,251		11,954		297		2.5	Salaries, wages and benefits	11,817		11,229		588		5.2
Regional expenses								Regional expenses	3,204		2,962		242		8.2
Maintenance, materials and repairs	2,050		1,959		91		4.7	Maintenance, materials and repairs	1,979		1,585		394		24.8
Other rent and landing fees	1,900		1,806		94		5.2	Other rent and landing fees	2,619		2,004		615		30.7
Aircraft rent	1,264		1,197		67		5.6	Aircraft rent	1,425		1,341		84		6.2
Selling expenses	1,520		1,477		43		2.9	Selling expenses	1,098		666		432		65.0
Depreciation and amortization	1,839		1,702		137		8.1	Depreciation and amortization	2,019		2,040		(21)		(1.1)
Special items, net	787		712		75		10.5
Other	5,088		4,910		178		3.6
Regional expenses:
Aircraft fuel and related taxes	1,843		1,382		461		33.4
Mainline operating special items, net								Mainline operating special items, net	(4,006)		(657)		(3,349)		nm
Other	5,290		5,164		126		2.5	Other	3,994		3,186		808		25.4
Total operating expenses	$	41,885	$	38,391	$	3,494	9.1	Total operating expenses	$	30,941	$	27,758	$	3,183	11.5

Total operating expenses increased ~~$3.5~~$3.2 billion, or ~~9.1%~~11.5%, in ~~2018~~2021 from ~~2017. The increase~~2020 primarily due to increases in ~~operating expenses was primarily driven by an increase in fuel costs. See detailed explanations below relating to changes in total CASM.~~

~~Total CASM~~

We sometimes use financial measures that are derived from the consolidated financial statements but that are not presented in accordance with GAAP to understand and evaluate our current operating performance to allow for period-to-period comparisons. We believe these non-GAAP financial measures may also provide useful information to investors and others. These non-GAAP measures may not be comparable to similarly titled non-GAAP measures of other companies, and should be considered in addition to, and not as a substitute for or superior to, any measure of performance, cash flow or liquidity prepared in accordance with GAAP. We are providing a reconciliation of reported non-GAAP financial measures to their comparable financial measures on a GAAP basis.

The table below presents the reconciliation of total operating expenses (GAAP measure) to total operating costs excluding special items and fuel (non-GAAP measure). Management uses total operating costs excluding special items and fuel to evaluate our current operating performance and for period-to-period comparisons. The price of fuel, over which we have no control, impacts the comparability of period-to-period financial performance. The adjustment to exclude aircraft fuel and related taxes and other costs due to our increased capacity, offset in part by a $3.5 billion increase in net operating special credits and cost reduction actions as described above. See further discussion of operating special items, ~~allows management an additional tool to understand and analyze our non-fuel costs and core operating performance.~~

~~The major components of our total CASM and our total CASM excluding special items and fuel for the years ended December 31, 2018 and 2017 are as follows (amounts may not recalculate due to rounding):~~

Year Ended December 31,
Percent
Increase
(Decrease)
2018 2017
(In cents, except percentage changes)
Total CASM:
Aircraft fuel and related taxes 2.86
2.22
28.8
Salaries, wages and benefits 4.34
4.32
0.5
Maintenance, materials and repairs 0.73
0.71
2.6
Other rent and landing fees 0.67
0.65
3.1
Aircraft rent 0.45
0.43
3.5
Selling expenses 0.54
0.53
0.9
Depreciation and amortization 0.65
0.62
5.9
Special items, net 0.28
0.26
8.3
Other 1.80
1.78
1.6
Regional expenses:
Aircraft fuel and related taxes 0.65
0.50
30.7
Other 1.88
1.87
0.4
Total CASM 14.85
13.88
6.9
Special items, net:

Special items, net (0.28 ) (0.26 ) 8.3
Regional operating special items, net —
(0.01 )
nm ⁽¹⁾
Aircraft fuel and related taxes

Aircraft fuel and related taxes - mainline (2.86 ) (2.22 ) 28.8
Aircraft fuel and related taxes - regional (0.65 ) (0.50 ) 30.7
Total CASM, excluding special items and fuel 11.06
10.90
1.4

⁽¹⁾ ~~Not meaningful.~~

~~Significant changes in the components of total CASM are as follows:~~net below.

Aircraft fuel and related taxes ~~per ASM~~ increased ~~28.8%~~$3.4 billion, or 99.6%, in 2021 from 2020 primarily due to a ~~29.1%~~44.7% increase in fuel consumption as a result of increased capacity and a 37.9% increase in the average price per gallon of aircraft fuel including related taxes to ~~$2.21~~$2.04 in ~~2018~~2021 from ~~$1.71~~$1.48 in ~~2017, as well~~2020.

Other rent and landing fees increased $615 million, or 30.7%, in 2021 from 2020 primarily due to an increase in landing fees and variable rent as a ~~1.8%~~result of our increased capacity.

Aircraft rent increased $84 million, or 6.2%, in 2021 from 2020 primarily due to the delivery of 25 new leased mainline aircraft in 2021.

Table of Contents

Selling expenses increased $432 million, or 65.0%, in 2021 from 2020 due to higher credit card fees and higher commission expense driven by the overall increase in ~~gallons of fuel consumed.~~revenues.

Depreciation and amortization ~~per ASM increased 5.9% due~~decreased $21 million, or 1.1%, in part to our fleet renewal program, as we took delivery of eight owned mainline aircraft in 2018. The continued rollout of Premium Economy and harmonization of seating configurations across our fleet as well as information technology and software development projects associated with our merger integration also drove higher depreciation and amortization expense.

~~Regional aircraft fuel and related taxes per ASM~~ ~~increased 30.7%~~2021 from 2020 primarily due to ~~a 28.3%~~ ~~increase~~ in the ~~average price per gallon~~early retirement of ~~fuel to $2.30 in 2018 from $1.79 in 2017 as well~~aircraft as a ~~4.0%~~ ~~increase~~result of the COVID-19 pandemic, offset in ~~gallons~~part by a write down of ~~fuel consumed.~~

excess spare parts inventory.

Operating Special Items, Net

Year Ended December 31,
2018 2017
(In millions)
Fleet restructuring expenses ⁽¹⁾
$ 422
$ 232
Merger integration expenses ⁽²⁾
268
273
Severance expenses ⁽³⁾
58
—
Litigation settlement ⁽⁴⁾
45
—
Intangible asset impairment ⁽⁵⁾
26
—
Labor contract expenses 13
46
Mark-to-market adjustments on bankruptcy obligations, net ⁽⁶⁾
(76 ) 27
Employee 2017 Tax Act bonus expense ⁽⁷⁾
—
123
Other operating charges, net 31
11
Total mainline operating special items, net 787
712
Regional operating special items, net 6
22
Total operating special items, net $ 793
$ 734


	Year Ended December 31,
	2021		2020
	(In millions)
PSP Financial Assistance (1)	$	(4,162)	$	(3,710)
Severance expenses (2)	168		1,408
Litigation reserve adjustments	(19)		—
Mark-to-market adjustments on bankruptcy obligations, net (3)	(3)		(49)
Fleet impairment (4)	—		1,484
Labor contract expenses (5)	—		228


Other operating special items, net	10		(18)
Mainline operating special items, net	(4,006)		(657)

PSP Financial Assistance (1)	(539)		(444)
Regional pilot retention program (6)	61		—
Fleet impairment (4)	27		117
Severance expenses (2)	2		18

Regional operating special items, net	(449)		(309)
Operating special items, net	$	(4,455)	$	(966)

(1)The 2021 PSP Financial Assistance represents recognition of a portion of the financial assistance received from Treasury pursuant to the PSP2 and PSP3 Agreements. See Note 1(b) to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information. The 2020 PSP Financial Assistance represents recognition of a portion of the financial assistance received from Treasury pursuant to the PSP1 Agreement.

⁽¹⁾

(2)Severance expenses include salary and medical costs primarily associated with certain team members who opted into voluntary early retirement programs offered as a result of reductions to our operation due to the COVID-19 pandemic. Cash payments primarily associated with our voluntary early retirement programs were approximately $520 million and $365 million in 2021 and 2020, respectively.

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

(4)Fleet impairment charges resulted from the retirement of certain aircraft earlier than planned driven by the severe decline in air travel due to the COVID-19 pandemic. In 2021, we retired our remaining Embraer 140 fleet resulting in a non-cash write-down of these regional aircraft. See Note 1(g) to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information related to these charges.

(5)The 2020 labor contract expenses primarily related to one-time charges due to the ratification of a new contract with the TWU-IAM Association for our maintenance and fleet service team members, including signing bonuses and adjustments to vacation accruals resulting from pay rate increases.

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(6)Our regional pilot retention program provides for, among other things, a cash retention bonus paid in the fourth quarter of 2021 to eligible captains at our wholly-owned regional airlines included on the pilot seniority list as of September 1, 2021.

~~Fleet restructuring expenses principally included accelerated depreciation and rent expense for aircraft and related equipment grounded or expected to be grounded earlier than planned.~~


⁽²⁾	~~Merger integration expenses included costs associated with integration projects, principally our flight attendant, human resources and payroll, and technical operations systems.~~


⁽³⁾	~~Severance expenses primarily included costs associated with reductions of management and support staff team members.~~


⁽⁴⁾	~~Settlement of a private party antitrust lawsuit. See Note 12(e) - “Private Party Antitrust Action Related to Passenger Capacity” to AAG’s Consolidated Financial Statements in Part II, Item 8A for further discussion.~~


⁽⁵⁾	~~Intangible asset impairment includes a non-cash charge to write-off our Brazil route authority as a result of the U.S.-Brazil open skies agreement.~~


⁽⁶⁾	~~Bankruptcy obligations that will be settled in shares of our common stock are marked-to-market based on our stock price.~~


⁽⁷⁾	Employee bonus expense included costs related to the $1,000 cash bonus and associated payroll taxes granted to mainline employees as of December 31, 2017 in recognition of H.R. 1, the 2017 Tax Cuts and Jobs Act (the 2017 Tax Act).

Nonoperating Results


	Year Ended December 31,				Increase (Decrease)		Percent Increase (Decrease)
	2021		2020
	(In millions, except percentage changes)
Interest income	$	18	$	41	$	(23)	(55.2)
Interest expense, net	(1,800)		(1,227)		(573)		46.8
Other income, net	293		154		139		89.6
Total nonoperating expense, net	$	(1,489)	$	(1,032)	$	(457)	44.4

Year Ended December 31,
Increase
(Decrease)

Percent
Increase
(Decrease)
2018 2017
(In millions, except percentage changes)
Interest income $ 118
$ 94
$ 24
25.8
Interest expense, net (1,056 ) (1,053 ) (3 ) 0.3
Other income, net 166
123
43
35.0
Total nonoperating expense, net $ (772 ) $ (836 ) $ 64
(7.7 )

~~Our short-term investments in each period consisted of highly liquid investments that provided nominal returns.~~ Interest income decreased in 2021 compared to 2020 primarily as a result of lower returns on our short-term investments. Interest expense, net increased ~~$24 million, or 25.8%,~~ in ~~2018 principally~~2021 compared to 2020 primarily due to ~~a 103 basis point increase~~the issuance of debt, including $10.0 billion associated with the AAdvantage Financing, to improve our liquidity position in ~~average yields~~response to the COVID-19 pandemic. See Note 4 to AAG’s Consolidated Financial Statements in ~~2018 as compared to 2017.~~

Part II, Item 8A for further information on the AAdvantage Financing.

In ~~2018,~~2021, other nonoperating income, net ~~principally~~ included $308 million of non-service related pension and other postretirement benefit plan income, which reflects an increase in the expected return on pension plan assets in 2018 as compared to 2017. This income was offset in part by a $104 million net special charge for mark-to-market unrealized losses associated with certain of our equity investments, $55 million of net foreign currency losses principally associated with certain Latin American currencies and $13 million of net special charges associated with debt refinancings and extinguishments.

~~In 2017, other nonoperating income, net principally included $138~~$337 million of non-service related pension and other postretirement benefit plan income, offset in part by ~~$22~~$60 million of net special charges principally for mark-to-market net unrealized losses associated with our equity investments in China Southern Airlines and Vertical and certain treasury rate lock derivative instruments and non-cash charges associated with debt refinancings and ~~extinguishments~~extinguishments.

In 2020, other nonoperating income, net included $329 million of non-service related pension and $4other postretirement benefit plan income. This income was offset in part by $170 million of net special charges principally for mark-to-market unrealized losses associated with our equity investment in China Southern Airlines and certain treasury rate lock derivative instruments and $24 million of net foreign currency ~~losses.~~losses, primarily associated with losses from Latin American currencies.

Income Taxes

In ~~2018,~~2021, we recorded an income tax ~~provision~~benefit of ~~$472~~$555 million at an effective rate of approximately ~~25%~~22%, which was substantially non-cash. ~~This provision included an $18 million special income tax charge related to an international income tax matter.~~ Substantially all of our ~~income~~loss before income taxes is attributable to the United States. At December 31, ~~2018,~~2021, we had approximately ~~$10.2~~$17.2 billion of gross federal NOLs and ~~$3.2~~$3.0 billion of ~~state NOLs, substantially all of which we expect to be~~other carryforwards available ~~in 2019~~ to reduce future federal taxable income, of which $6.9 billion will expire beginning in 2024 if unused and $13.3 billion can be carried forward indefinitely. We also had approximately $6.0 billion of NOL carryforwards to reduce future state taxable ~~income.~~income at December 31, 2021, which will expire in taxable years 2021 through 2041 if unused.

In ~~2017,~~2020, we recorded an income tax ~~provision~~benefit of ~~$2.1~~$2.6 billion at an effective rate of approximately 22%, which was substantially non-cash. This provision included a special, non-cash income tax charge of $823 million to reflect the impact of lower corporate income tax rates on our deferred tax asset and liabilities due to the 2017 Tax Act, which reduced the federal corporate income tax rate from 35% to 21%.

See Note 76 to AAG’s Consolidated Financial Statements in Part II, Item 8A for additional information on income taxes.

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American’s Results of Operations

For a comparison of the 2020 to 2019 reporting periods, see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – ~~2017 Compared to 2016~~

~~Pre-tax income and net income were $3.4 billion and $1.3 billion in 2017, respectively. This compares to 2016 pre-tax income and net income~~“American’s Results of ~~$4.2 billion and $2.6 billion, respectively. Excluding the effects~~Operations” of pre-tax net special items, pre-tax income was $4.2 billion and $4.9 billion in 2017 and 2016, respectively. For reconciliation of pre-tax income excluding special items to their comparable measures on a GAAP basis, see Part II, Item 6. Selected Consolidated Financial Data –~~“Reconciliation of GAAP to Non-GAAP Financial Measures~~.”

~~The year-over-year declines in our pre-tax income on both a GAAP basis and excluding pre-tax net special items were principally driven by an increase in fuel costs and higher wage rates.~~American’s 2020 Form 10-K.

Operating Revenues

Year Ended December 31,
Increase
(Decrease)

Percent
Increase
(Decrease)
2017 2016
(In millions, except percentage changes)
Passenger $ 39,131
$ 37,045
$ 2,086
5.6
Cargo 890
785
105
13.3
Other 2,601
2,312
289
12.5
Total operating revenues $ 42,622
$ 40,142
$ 2,480
6.2

~~This table presents our total passenger revenue and the year-over-year change in certain operating statistics:~~

Increase (Decrease)
vs. Year Ended December 31, 2016
Year Ended
December 31, 2017 Passenger
Revenue RPMs ASMs Load
Factor Passenger
Yield PRASM
(In millions)
Passenger revenue $ 39,131
5.6% 1.3% 1.1% 0.2pts 4.3% 4.5%


	Year Ended December 31,				Increase		Percent Increase
	2021		2020
	(In millions, except percentage changes)
Passenger	$	26,063	$	14,518	$	11,545	79.5
Cargo	1,314		769		545		70.8
Other	2,503		2,048		455		22.2
Total operating revenues	$	29,880	$	17,335	$	12,545	72.4

Passenger revenue increased ~~$2.1~~$11.5 billion, or ~~5.6%~~79.5%, in ~~2017~~2021 from ~~2016~~2020 primarily due to ~~a 4.3% year-over-year~~an increase in ~~yields~~RPMs driven by ~~strong~~a significant recovery in domestic and short-haul international leisure demand. ~~Domestic yield increased 4.8% and international yields rose 4.0%, due principally to improved performance in Latin America.~~

Cargo revenue increased ~~$105~~$545 million, or ~~13.3%~~70.8%, in ~~2017~~2021 from ~~2016 driven~~2020 primarily bydue to an increase in cargo ton miles reflecting higher freight ~~volume.~~volumes as a result of adding international widebody capacity and the continuation of cargo-only flights, as well as an increase in cargo yield as a result of higher rates.

Other operating revenue increased ~~$289~~$455 million, or ~~12.5%~~22.2%, in ~~2017~~2021 from ~~2016~~2020 driven primarily by higher revenue associated with ~~our~~American’s loyalty program. ~~In 2017 and 2016, loyalty revenue included in other revenue was $2.1 billion and $1.9 billion, respectively.~~

Total operating revenues in ~~2017~~2021 increased ~~$2.5~~$12.5 billion, or ~~6.2%~~72.4%, from ~~2016~~2020 driven principally by ~~a 5.6%~~the increase in passenger revenue as described above. ~~Our TRASM was 15.42 cents in 2017, a 5.0% increase as compared to 14.68 cents in 2016.~~

Operating Expenses


	Year Ended December 31,				Increase (Decrease)			Percent Increase (Decrease)			Year Ended December 31,				Increase (Decrease)		Percent Increase (Decrease)
	2017		2016								2021		2020
	(In millions, except percentage changes)										(In millions, except percentage changes)
Aircraft fuel and related taxes	$	6,128	$	5,071	$	1,057		20.8		Aircraft fuel and related taxes	$	6,792	$	3,402	$	3,390	99.6
Salaries, wages and benefits	11,954		10,967		987			9.0		Salaries, wages and benefits	11,811		11,224		587		5.2
Regional expenses										Regional expenses	3,111		2,746		365		13.3
Maintenance, materials and repairs	1,959		1,834		125			6.8		Maintenance, materials and repairs	1,979		1,585		394		24.8
Other rent and landing fees	1,806		1,772		34			1.9		Other rent and landing fees	2,619		2,004		615		30.7
Aircraft rent	1,197		1,203		(6		)	(0.4	)	Aircraft rent	1,425		1,341		84		6.2
Selling expenses	1,477		1,323		154			11.6		Selling expenses	1,098		666		432		65.0
Depreciation and amortization	1,702		1,525		177			11.6		Depreciation and amortization	2,019		2,040		(21)		(1.1)
Special items, net	712		709		3			0.5
Other	4,910		4,634		276			5.9
Regional expenses:
Aircraft fuel and related taxes	1,382		1,109		273			24.6
Mainline operating special items, net										Mainline operating special items, net	(4,006)		(657)		(3,349)		nm
Other	5,164		4,935		229			4.6		Other	3,993		3,208		785		24.5
Total operating expenses	$	38,391	$	35,082	$	3,309		9.4		Total operating expenses	$	30,841	$	27,559	$	3,282	11.9

Total operating expenses increased $3.3 billion, or ~~9.4%~~11.9%, in ~~2017~~2021 from ~~2016. The increase~~2020 primarily due to increases in ~~operating expenses was primarily driven by an increase in fuel costs and higher wage rates. See detailed explanations below relating to changes in total CASM.~~

~~Total CASM~~

The table below presents the reconciliation of total operating expenses (GAAP measure) to total operating costs excluding special items and fuel (non-GAAP measure). Management uses total operating costs excluding special items and fuel to evaluate our current operating performance and for period-to-period comparisons. The price of fuel, over which we have no control, impacts the comparability of period-to-period financial performance. The adjustment to exclude aircraft fuel and related taxes and other costs due to American’s increased capacity, offset in part by a $3.5 billion increase in net operating special credits and cost reduction actions as described above. See further discussion of operating special items, ~~allows management an additional tool to understand and analyze our non-fuel costs and core operating performance.~~

~~The major components of our total CASM and our total CASM excluding special items and fuel for the years ended December 31, 2017 and 2016 are as follows (amounts may not recalculate due to rounding):~~

Year Ended December 31,
Percent
Increase
(Decrease)
2017 2016
(In cents, except percentage changes)
Total CASM:
Aircraft fuel and related taxes 2.22
1.85
19.5
Salaries, wages and benefits 4.32
4.01
7.8
Maintenance, materials and repairs 0.71
0.67
5.6
Other rent and landing fees 0.65
0.65
0.8
Aircraft rent 0.43
0.44
(1.6 )
Selling expenses 0.53
0.48
10.3
Depreciation and amortization 0.62
0.56
10.4
Special items, net 0.26
0.26
0.6
Other 1.78
1.69
4.8
Regional expenses:
Aircraft fuel and related taxes 0.50
0.41
23.2
Other 1.87
1.80
3.5
Total CASM 13.88
12.83
8.2
Special items, net:
Special items, net (0.26 ) (0.26 ) (0.6 )
Regional operating special items, net (0.01 ) (0.01 ) 48.4
Aircraft fuel and related taxes
Aircraft fuel and related taxes - mainline (2.22 ) (1.85 ) 19.5
Aircraft fuel and related taxes - regional (0.50 ) (0.41 ) 23.2
Total CASM, excluding special items and fuel 10.90
10.31
5.8

~~Significant changes in the components of total CASM are as follows:~~net below.

Aircraft fuel and related taxes ~~per ASM~~ increased ~~19.5%~~$3.4 billion, or 99.6%, in 2021 from 2020 primarily due to a ~~21.4%~~44.7% increase in fuel consumption as a result of increased capacity and a 37.9% increase in the average price per gallon of aircraft fuel including related taxes to ~~$1.71~~$2.04 in ~~2017~~2021 from ~~$1.41~~$1.48 in ~~2016, offset~~2020.

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Other rent and landing fees increased $615 million, or 30.7%, in part by a 0.5% decrease in gallons of fuel consumed. The decrease in fuel consumption was primarily driven by the operation of more fuel efficient aircraft during 2017 in connection with our fleet renewal program.

~~Salaries, wages and benefits per ASM increased 7.8%~~2021 from 2020 primarily due to ~~mid-contract pay rate increases for pilots~~an increase in landing fees and ~~flight attendants effective~~variable rent as a result of American’s increased capacity.

Aircraft rent increased $84 million, or 6.2%, in ~~the second quarter of 2017, as well as rate increases for maintenance and fleet service work groups, which became effective in the third quarter of 2016.~~

~~Maintenance, materials and repairs per ASM~~ ~~increase~~d ~~5.6% as compared to 2016~~2021 from 2020 primarily due to ~~a contract change that accelerated~~ the ~~timing~~delivery of ~~certain maintenance expenses incurred. Certain flight equipment was transitioned to a~~25 new flight hour based contract (referred to as power by the hour) where expense is incurred and recognized based on actual hours flown. Previously, this flight equipment was covered by a time and materials based contract where expense is incurred and recognized as maintenance is performed.

leased mainline aircraft in 2021.

Selling expenses ~~per ASM~~ increased ~~10.3% primarily~~$432 million, or 65.0%, in 2021 from 2020 due to higher ~~commissions~~credit card fees and higher commission expense driven by the overall increase in ~~revenues as well as an increase in flown premium tickets, which are subject to higher commissions.~~revenues.

Depreciation and amortization ~~per ASM increased 10.4%~~decreased $21 million, or 1.1%, in 2021 from 2020 primarily due to ~~our fleet renewal program, as we took delivery~~the early retirement of ~~57 owned mainline~~ aircraft ~~in 2017.~~

~~Regional aircraft fuel and related taxes per ASM~~ ~~increase~~d ~~23.2% primarily due to a~~ ~~21.2%increase~~ ~~in the average price per gallon of fuel to~~ ~~$1.79~~ ~~in 2017 from $1.48 in 2016 as well~~ as a ~~2.8% increase~~result of the COVID-19 pandemic, offset in ~~gallons~~part by a write down of ~~fuel consumed.~~

excess spare parts inventory.

Operating Special Items, Net

Year Ended December 31,
2017 2016
(In millions)
Merger integration expenses ⁽¹⁾
$ 273
$ 514
Fleet restructuring expenses ⁽²⁾
232
177
Employee 2017 Tax Act bonus expense ⁽³⁾
123
—
Labor contract expenses 46
—
Mark-to-market adjustments on bankruptcy obligations, net ⁽⁴⁾
27
25
Other operating charges (credits), net 11
(7 )
Total mainline operating special items, net 712
709
Regional operating special items, net 22
14
Total operating special items, net $ 734
$ 723


	Year Ended December 31,
	2021		2020
	(In millions)
PSP Financial Assistance (1)	$	(4,162)	$	(3,710)
Severance expenses (2)	168		1,408
Litigation reserve adjustments	(19)		—
Mark-to-market adjustments on bankruptcy obligations, net (3)	(3)		(49)
Fleet impairment (4)	—		1,484
Labor contract expenses (5)	—		228


Other operating special items, net	10		(18)
Mainline operating special items, net	(4,006)		(657)

PSP Financial Assistance (1)	(539)		(444)
Fleet impairment (4)	27		106
Regional operating special items, net	(512)		(338)
Operating special items, net	$	(4,518)	$	(995)


⁽¹⁾	Merger integration expenses included costs related to information technology, professional fees, re-branding of aircraft and airport facilities and training, and in 2016, also included costs related to alignment of labor union contracts and the launch of re-branded uniforms, both of which drove the $241 million year-over-year decrease in these expenses.


⁽²⁾	~~Fleet restructuring expenses principally included accelerated depreciation and remaining lease payments for aircraft and related equipment grounded or expected to be grounded earlier than planned.~~


⁽³⁾	~~Employee bonus expense included costs related to the $1,000 cash bonus and associated payroll taxes granted to mainline employees as of December 31, 2017 in~~ (1)The 2021 PSP Financial Assistance represents recognition ~~of the 2017 Tax Act.~~


⁽⁴⁾	~~Bankruptcy obligations that will be settled in shares of our common stock are marked-to-market based on our stock price.~~

~~Nonoperating Results~~

Year Ended December 31,
Increase
(Decrease)

Percent
Increase
(Decrease)
2017 2016
(In millions, except percentage changes)
Interest income $ 94
$ 63
$ 31
47.8
Interest expense, net (1,053 ) (991 ) (62 ) 6.2
Other income, net 123
20
103
nm
Total nonoperating expense, net $ (836 ) $ (908 ) $ 72
(7.9 )

~~Our short-term investments in each period consisted~~ of ~~highly liquid investments that provided nominal returns. Interest income increased $31 million, or 47.8%, principally due to~~ a ~~50 basis point increase in average yields in 2017 as compared to 2016.~~

~~Interest expense, net increased $62 million in 2017 primarily due to higher outstanding debt as a result~~portion of ~~aircraft financings associated with our fleet renewal program.~~

Other nonoperating income, net in 2017 and 2016, principally included $138 million and $77 million, respectively, of non-service related pension and other postretirement benefit plan income, which reflects an increase in the expected return on pension plan assets in 2017 as compared to 2016. In 2017 and 2016, this income was offset in part by $22 million and $49 million, respectively, of net special charges associated with debt refinancings and extinguishments.

~~Income Taxes~~

In 2017 and 2016, we recorded an income tax provision of $2.1 billion and $1.6 billion, respectively, which was substantially non-cash. Substantially all of our income before income taxes was attributablefinancial assistance received from Treasury pursuant to the ~~United States.~~

~~In 2017, we recorded a special, non-cash income tax charge of $823 million to reflect the impact of lower corporate income tax rates on our deferred tax asset~~PSP2 and ~~liabilities due to the 2017 Tax Act, which reduced the federal corporate income tax rate from 35% to 21%.~~

PSP3 Agreements. See Note 71(b) to ~~AAG’s~~American’s Consolidated Financial Statements in Part II, Item 8A8B for ~~additional information~~further information. The 2020 PSP Financial Assistance represents recognition of a portion of the financial assistance received from Treasury pursuant to the PSP1 Agreement.

(2)Severance expenses include salary and medical costs primarily associated with certain team members who opted into voluntary early retirement programs offered as a result of reductions to American's operation due to the COVID-19 pandemic. Cash payments primarily associated with American's voluntary early retirement programs were approximately $520 million and $365 million in 2021 and 2020, respectively.

(3)Bankruptcy obligations that will be settled in shares of AAG common stock are marked-to-market based on ~~income taxes.~~AAG’s stock price.

~~American’s Results~~(4)Fleet impairment charges resulted from the retirement of ~~Operations~~

~~Results of Operations – 2018 Compared to 2017~~

~~American realized pre-tax income of $2.2 billion and net income of $1.7 billion in 2018. This compares to 2017 pre-tax income of $3.6 billion and net income of $1.3 billion.~~

~~The year-over-year~~certain aircraft earlier than planned driven by the severe decline in ~~American’s pre-tax income was principally driven by an increase in fuel costs, which was offset in part by higher revenues driven by strong demand.~~

~~Operating Revenues~~

Year Ended December 31,
Increase
(Decrease)

Percent
Increase
(Decrease)
2018 2017
(In millions, except percentage changes)
Passenger $ 40,676
$ 39,131
$ 1,545
3.9
Cargo 1,013
890
123
13.8
Other 2,841
2,589
252
9.7
Total operating revenues $ 44,530
$ 42,610
$ 1,920
4.5

~~Passenger revenue increased $1.5 billion, or 3.9%, in 2018 from 2017~~air travel due to the COVID-19 pandemic. In 2021, American retired its remaining Embraer 140 fleet resulting in a ~~year-over-year increase~~non-cash write-down of these regional aircraft. See Note 1(g) to American’s Consolidated Financial Statements in ~~RPMs~~Part II, Item 8B for further information related to these charges.

In 2020, American retired its entire Airbus A330-200, Boeing 757, Boeing 767, Airbus A330-300 and ~~yields driven by continued strong demand. Domestic and international yields increased, led by an increase in yield in the Atlantic market.~~

~~Cargo revenue increased $123 million, or 13.8%, from 2017 driven primarily by increases in domestic and international freight yields and international freight volume.~~

Other revenue increased $252 million, or 9.7%, in 2018 from 2017 primarily driven by higher revenue associated with American’s loyalty program. In 2018 and 2017, loyalty revenue included in other revenue was $2.4 billion and $2.1 billion, respectively.

~~Total operating revenues in 2018 increased $1.9 billion, or 4.5%, from 2017 driven principally by a 3.9% increase in passenger revenue as described above.~~

~~Operating Expenses~~

Year Ended
December 31,

Increase
(Decrease)

Percent
Increase
(Decrease)
2018 2017
(In millions, except percentage changes)
Aircraft fuel and related taxes $ 8,053
$ 6,128
$ 1,925
31.4
Salaries, wages and benefits 12,240
11,942
298
2.5
Maintenance, materials and repairs 2,050
1,959
91
4.7
Other rent and landing fees 1,900
1,806
94
5.2
Aircraft rent 1,264
1,197
67
5.6
Selling expenses 1,520
1,477
43
2.9
Depreciation and amortization 1,839
1,702
137
8.1
Special items, net 787
712
75
10.5
Other 5,090
4,910
180
3.6
Regional expenses:
Aircraft fuel and related taxes 1,843
1,382
461
33.4
Other 5,221
5,190
31
0.6
Total operating expenses $ 41,807
$ 38,405
$ 3,402
8.9

~~Total operating expenses increased $3.4 billion, or 8.9%, in 2018 from 2017. The increase in operating expenses was primarily driven by an increase in fuel costs.~~

~~Significant changes in the components of American’s total operating expenses are as follows:~~

~~Aircraft fuel and related taxes increased 31.4% primarily due to a 29.1% increase in the average price per gallon of fuel to $2.21 in 2018 from $1.71 in 2017,~~Embraer 190 fleets as well as certain Embraer 140 and Bombardier CRJ200 aircraft resulting in a ~~1.8% increase~~$1.5 billion non-cash write-down of mainline and regional aircraft and associated spare parts and $109 million in ~~gallons~~cash charges primarily for impairment of ~~fuel consumed.~~ROU assets and lease return costs.

~~Depreciation and amortization increased 8.1% due in part~~(5)The 2020 labor contract expenses primarily related to American’s fleet renewal program, as American took delivery of eight owned mainline aircraft in 2018. The continued rollout of Premium Economy and harmonization of seating configurations across American’s fleet as well as information technology and software development projects associated with its merger integration also drove higher depreciation and amortization expense.

~~Regional aircraft fuel and related taxes increased 33.4% primarily~~one-time charges due to the ratification of a ~~28.3% increase in~~new contract with the ~~average price per gallon of fuel~~TWU-IAM Association for American's maintenance and fleet service team members, including signing bonuses and adjustments to ~~$2.30 in 2018~~vacation accruals resulting from ~~$1.79 in 2017 as well as a 4.0% increase in gallons of fuel consumed.~~

~~Operating Special Items, Net~~pay rate increases.

Year Ended December 31,
2018 2017
(In millions)
Fleet restructuring expenses ⁽¹⁾
$ 422
$ 232
Merger integration expenses ⁽²⁾
268
273
Severance expenses ⁽³⁾
58
—
Litigation settlement ⁽⁴⁾
45
—
Intangible asset impairment ⁽⁵⁾
26
—
Labor contract expenses 13
46
Mark-to-market adjustments on bankruptcy obligations, net ⁽⁶⁾
(76 ) 27
Employee 2017 Tax Act bonus expense ⁽⁷⁾
—
123
Other operating charges, net 31
11
Total mainline operating special items, net 787
712
Regional operating special items, net —
3
Total operating special items, net $ 787
$ 715

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⁽¹⁾	~~Fleet restructuring expenses principally included accelerated depreciation and rent expense for aircraft and related equipment grounded or expected to be grounded earlier than planned.~~


⁽²⁾	~~Merger integration expenses included costs associated with integration projects, principally American's flight attendant, human resources and payroll, and technical operations systems.~~


⁽³⁾	~~Severance expenses primarily included costs associated with reductions of management and support staff team members.~~


⁽⁴⁾	~~Settlement of a private party antitrust lawsuit. See Note 10(e) - “Private Party Antitrust Action Related to Passenger Capacity” to American’s Consolidated Financial Statements in Part II, Item 8B for further discussion.~~


⁽⁵⁾	~~Intangible asset impairment includes a non-cash charge to write-off American’s Brazil route authority as a result of the U.S.-Brazil open skies agreement.~~


⁽⁶⁾	~~Bankruptcy obligations that will be settled in shares of AAG common stock are marked-to-market based on AAG’s stock price.~~


⁽⁷⁾	~~Employee bonus expense included costs related to the $1,000 cash bonus and associated payroll taxes granted to mainline employees as of December 31, 2017 in recognition of the 2017 Tax Act.~~

Nonoperating Results


	Year Ended December 31,				Increase (Decrease)		Percent Increase (Decrease)
	2021		2020
	(In millions, except percentage changes)
Interest income	$	34	$	337	$	(303)	(90.0)
Interest expense, net	(1,642)		(1,171)		(471)		40.3
Other income, net	292		155		137		87.7
Total nonoperating expense, net	$	(1,316)	$	(679)	$	(637)	94.0

Year Ended
December 31,

Increase
(Decrease)

Percent
Increase
(Decrease)
2018 2017
(In millions, except percentage changes)
Interest income $ 330
$ 215
$ 115
53.4
Interest expense, net (1,028 ) (988 ) (40 ) 4.1
Other income, net 167
123
44
35.3
Total nonoperating expense, net $ (531 ) $ (650 ) $ 119
(18.2 )

~~American’s short-term investments in each period consisted of highly liquid investments that provided nominal returns.~~ Interest income ~~increased $115 million, or 53.4%, due~~decreased in 2021 compared to ~~higher~~2020 primarily as a result of lower interest-bearing related party receivables from ~~American’s~~American's parent company, AAG ~~as well as a 103 basis point increase~~and lower returns on American's short-term investments. Interest expense, net increased in ~~average yields in 2018 as~~2021 compared to ~~2017.~~2020 primarily due to the issuance of debt, including $10.0 billion associated with the AAdvantage Financing, to improve American’s liquidity position in response to the COVID-19 pandemic. See Note 3 to American’s Consolidated Financial Statements in Part II, Item 8B for further information on the AAdvantage Financing.

In ~~2018,~~2021, other nonoperating income, net ~~principally~~ included ~~$309 million of non-service related pension and other postretirement benefit plan income, which reflects an increase in the expected return on pension plan assets in 2018 as~~

compared to 2017. This income was offset in part by a $104 million net special charge for mark-to-market unrealized losses associated with certain of American’s equity investments, $54 million of net foreign currency losses principally associated with certain Latin American currencies and $13 million of net special charges associated with debt refinancings and extinguishments.

~~In 2017, other nonoperating income, net principally included $138~~$335 million of non-service related pension and other postretirement benefit plan income, offset in part by ~~$22~~$60 million of net special charges principally for mark-to-market net unrealized losses associated with American’s equity investments in China Southern Airlines and Vertical and certain treasury rate lock derivative instruments and non-cash charges associated with debt refinancings and ~~extinguishments~~extinguishments.

In 2020, other nonoperating income, net included $329 million of non-service related pension and $4other postretirement benefit plan income. This income was offset in part by $170 million of net special charges principally for mark-to-market unrealized losses associated with American’s equity investment in China Southern Airlines and certain treasury rate lock derivative instruments and $24 million of net foreign currency ~~losses.~~losses, primarily associated with losses from Latin American currencies.

Income Taxes

American is ~~part~~a member of ~~the AAG~~AAG’s consolidated federal and certain state income tax ~~return.~~returns.

In ~~2018,~~2021, American recorded an income tax ~~provision~~benefit of ~~$534~~$500 million at an effective rate of approximately ~~24%~~22%, which was substantially non-cash. ~~This provision included an $18 million special income tax charge related to an international income tax matter.~~ Substantially all of American’s ~~income~~loss before income taxes is attributable to the United States. At December 31, ~~2018,~~2021, American had approximately ~~$10.6~~$17.1 billion of gross federal NOLs and ~~$3.1~~$2.4 billion of ~~state NOLs, substantially all of which American expects to be~~other carryforwards available ~~in 2019~~ to reduce future federal taxable income, of which $7.3 billion will expire beginning in 2024 if unused and $12.2 billion can be carried forward indefinitely. American also had approximately $6.0 billion of NOL carryforwards to reduce future state taxable ~~income.~~income at December 31, 2021, which will expire in taxable years 2021 through 2041 if unused.

In ~~2017,~~2020, American recorded an income tax ~~provision~~benefit of ~~$2.3~~$2.5 billion at an effective rate of approximately 22%, which was substantially non-cash. This provision included a special, non-cash income tax charge of $924 million to reflect the impact of lower corporate income tax rates on the Company’s deferred tax asset and liabilities due to the 2017 Tax Act, which reduced the federal corporate income tax rate from 35% to 21%.

See Note 5 to American’s Consolidated Financial Statements in Part II, Item 8B for additional information on income taxes.

~~Results of Operations – 2017 Compared to 2016~~

~~American realized pre-tax income of $3.6 billion and net income of $1.3 billion in 2017. This compares to $4.3 billion of pre-tax income and $2.7 billion of net income in 2016.~~

~~The year-over-year decline in American’s pre-tax income was principally driven by an increase in fuel costs and higher wage rates.~~

~~Operating Revenues~~

Year Ended
December 31,

Increase
(Decrease)

Percent
Increase
(Decrease)
2017 2016
(In millions, except percentage changes)
Passenger $ 39,131
$ 37,045
$ 2,086
5.6
Cargo 890
785
105
13.3
Other 2,589
2,295
294
12.8
Total operating revenues $ 42,610
$ 40,125
$ 2,485
6.2

~~Passenger revenue increased $2.1 billion, or 5.6%, in 2017 from 2016 primarily due to a year-over-year increase in yields driven by strong demand.~~

~~Cargo revenue increased $105 million, or 13.3%, in 2017 from 2016 driven primarily by an increase in freight volume.~~

Other revenue increased $294 million, or 12.8%, in 2017 from 2016 driven by higher revenue associated with American’s loyalty program. In 2017 and 2016, loyalty revenue included in other revenue was $2.1 billion and $1.9 billion, respectively.

~~Total operating revenues in 2017 increased $2.5 billion, or 6.2%, from 2016 driven principally by a 5.6% increase in passenger revenue as described above.~~

~~Operating Expenses~~

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Year Ended
December 31,

Increase
(Decrease)

Percent
Increase
(Decrease)
2017 2016
(In millions, except percentage changes)
Aircraft fuel and related taxes $ 6,128
$ 5,071
$ 1,057
20.8
Salaries, wages and benefits 11,942
10,958
984
9.0
Maintenance, materials and repairs 1,959
1,834
125
6.8
Other rent and landing fees 1,806
1,772
34
1.9
Aircraft rent 1,197
1,203
(6 ) (0.4 )
Selling expenses 1,477
1,323
154
11.6
Depreciation and amortization 1,702
1,525
177
11.6
Special items, net 712
709
3
0.5
Other 4,910
4,641
269
5.8
Regional expenses:
Aircraft fuel and related taxes 1,382
1,109
273
24.6
Other 5,190
4,900
290
5.9
Total operating expenses $ 38,405
$ 35,045
$ 3,360
9.6

~~Total operating expenses increased $3.4 billion, or 9.6%, in 2017 from 2016. The increase in operating expenses was primarily driven by an increase in fuel costs and higher wage rates.~~

~~Significant changes in the components of American’s total operating expenses are as follows:~~

Aircraft fuel and related taxes increased 20.8% primarily due to a 21.4% increase in the average price per gallon of fuel to $1.71 in 2017 from $1.41 in 2016, offset in part by a 0.5% decrease in gallons of fuel consumed. The decrease in fuel consumption was primarily driven by the operation of more fuel efficient aircraft during 2017 in connection with American’s fleet renewal program.

Salaries, wages and benefits increased 9.0% primarily due to mid-contract pay rate increases for pilots and flight attendants effective in the second quarter of 2017, as well as rate increases for maintenance and fleet service work groups, which became effective in the third quarter of 2016.

Maintenance, materials and repairs increased 6.8% as compared to 2016 primarily due to a contract change that accelerated the timing of certain maintenance expenses incurred. Certain flight equipment was transitioned to a new flight hour based contract (referred to as power by the hour) where expense is incurred and recognized based on actual hours flown. Previously, this flight equipment was covered by a time and materials based contract where expense is incurred and recognized as maintenance is performed.

Selling expenses increased 11.6% primarily due to higher commissions driven by the overall increase in revenues as well as an increase in flown premium tickets, which are subject to higher commissions.

~~Depreciation and amortization increased 11.6% primarily due to American’s fleet renewal program, as American took delivery of 57 owned mainline aircraft in 2017.~~

~~Regional aircraft fuel and related taxes~~ ~~increase~~d ~~24.6% primarily due to a~~ ~~21.2~~% ~~increase~~ ~~in the average price per gallon of fuel to~~ ~~$1.79~~ ~~in 2017 from $1.48 in 2016 as well as a 2.8% increase in gallons of fuel consumed.~~

~~Operating Special Items, Net~~

Year Ended December 31,
2017 2016
(In millions)
Merger integration expenses ⁽¹⁾
$ 273
$ 514
Fleet restructuring expenses ⁽²⁾
232
177
Employee 2017 Tax Act bonus expense ⁽³⁾
123
—
Labor contract expenses 46
—
Mark-to-market adjustments on bankruptcy obligations, net ⁽⁴⁾
27
25
Other operating charges (credits), net 11
(7 )
Total mainline operating special items, net 712
709
Regional operating special items, net 3
13
Total operating special items, net $ 715
$ 722


⁽¹⁾	Merger integration expenses included costs related to information technology, professional fees, re-branding of aircraft and airport facilities and training, and in 2016, also included costs related to alignment of labor union contracts and the launch of re-branded uniforms, both of which drove the $241 million year-over-year decrease in these expenses.


⁽²⁾	~~Fleet restructuring expenses principally included accelerated depreciation and remaining lease payments for aircraft and related equipment grounded or expected to be grounded earlier than planned.~~


⁽³⁾	~~Employee bonus expense included costs related to the $1,000 cash bonus and associated payroll taxes granted to mainline employees as of December 31, 2017 in recognition of the 2017 Tax Act.~~


⁽⁴⁾	~~Bankruptcy obligations that will be settled in shares of AAG common stock are marked-to-market based on AAG’s stock price.~~

~~Nonoperating Results~~

Year Ended
December 31,

Increase
(Decrease)

Percent
Increase
(Decrease)
2017 2016
(In millions, except percentage changes)
Interest income $ 215
$ 104
$ 111
nm
Interest expense, net (988 ) (906 ) (82 ) 9.1
Other income, net 123
18
105
nm
Total nonoperating expense, net $ (650 ) $ (784 ) $ 134
(17.1 )

American’s short-term investments in each period consisted of highly liquid investments that provided nominal returns. Interest income increased $111 million due to higher interest-bearing related party receivables from American’s parent company, AAG, as well as a 50 basis point increase in average yields in 2017 as compared to 2016.

~~Interest expense, net increased $82 million in 2017 primarily due to higher outstanding debt as a result of aircraft financings associated with American’s fleet renewal program.~~

~~Income Taxes~~

~~American is part of the AAG consolidated income tax return.~~

In 2017 and 2016, American recorded an income tax provision of $2.3 billion and $1.6 billion, respectively, which was substantially non-cash. Substantially all of American’s income before income taxes was attributable to the United States.

In 2017, American recorded a special, non-cash income tax charge of $924 million to reflect the impact of lower corporate income tax rates on the Company’s deferred tax asset and liabilities due to the 2017 Tax Act, which reduced the federal corporate income tax rate from 35% to 21%.

~~See Note 5 to American’s Consolidated Financial Statements in Part II, Item 8B for additional information on income taxes.~~

Liquidity and Capital Resources

Liquidity

~~As of~~At December 31, ~~2018,~~2021, AAG had ~~approximately $7.6~~$15.8 billion in total available liquidity and ~~$154~~$990 million in restricted cash and short-term investments. Additional detail ofregarding our available liquidity is provided in the table below (in millions):


	AAG				American
	December 31,				December 31,
	2021		2020		2021		2020
Cash	$	273	$	245	$	265	$	231
Short-term investments	12,158		6,619		12,155		6,617
Undrawn facilities	3,411		7,396		3,411		7,396
Total available liquidity	$	15,842	$	14,260	$	15,831	$	14,244

AAG American
December 31, December 31,
2018 2017 2018 2017
Cash $ 275
$ 295
$ 265
$ 287
Short-term investments 4,485
4,771
4,482
4,768
Undrawn revolving credit facilities 2,843
2,500
2,843
2,500
Total available liquidity $ 7,603
$ 7,566
$ 7,590
$ 7,555

~~Share Repurchase Programs~~Given the actions we have taken in response to the COVID-19 pandemic and our assumptions about its future impact on travel demand, which could be materially different due to the inherent uncertainties of the current operating environment, we expect to meet our cash obligations as well as remain in compliance with the debt covenants in our existing financing agreements for the next 12 months based on our current level of unrestricted cash and short-term investments, our anticipated access to liquidity (including via proceeds from financings) and projected cash flows from operations.

In ~~April 2018,~~the ordinary course of our business, we ~~announced that~~or our ~~Board of Directors authorized a new $2.0 billion share~~affiliates may, at any time and from time to time, seek to prepay, retire or repurchase ~~program that expires on December 31, 2020. Since July 2014,~~ our Board of Directors has approved seven share repurchase programs aggregating $13.0 billion of authority. As of December 31, 2018, there was $1.7 billion remaining authority to repurchase shares under our new $2.0 billion share repurchase program. Share repurchases under our repurchase programs may be madeoutstanding debt through ~~a variety of methods, which may include open market~~cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions ~~block trades~~ or ~~accelerated share repurchase transactions. Any~~otherwise. Such repurchases, prepayments, retirements or exchanges, if any, will be conducted on such ~~repurchases that~~terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be made from time to time will be subject to market and economic conditions, applicable legal requirements and other relevant factors. We are not obligated to repurchase any specific number of shares and our repurchase of AAG common stock may be limited, suspended or discontinued at any time at our discretion and without prior notice.material.

In 2018, we repurchased 16.6 million shares of AAG common stock for $800 million at a weighted average cost per share of $48.15. Since the inception of our share repurchase programs in July 2014 through December 31, 2018, we have repurchased 278.9 million shares of AAG common stock for $11.3 billion at a weighted average cost per share of $40.69.

~~Cash Dividends~~

~~Our Board of Directors declared the following cash dividends during 2018:~~

Period Per share For stockholders of record as of Payable on
Total
(millions)
First Quarter $ 0.10
February 6, 2018 February 20, 2018 $ 48
Second Quarter 0.10
May 8, 2018 May 22, 2018 46
Third Quarter 0.10
August 7, 2018 August 21, 2018 46
Fourth Quarter 0.10
November 6, 2018 November 20, 2018 46
Total $ 0.40
$ 186

~~In January 2019, we announced that our Board of Directors declared a $0.10 per share cash dividend for stockholders of record on February 6, 2019, and payable on February 20, 2019.~~

Any future dividends that may be declared and paid from time to time will be subject to market and economic conditions, applicable legal requirements and other relevant factors. We are not obligated to continue a dividend for any fixed period, and the payment of dividends may be suspended or discontinued at any time at our discretion and without prior notice.

~~Collateral-Related~~Certain Covenants

Certain of our debt financing agreements (including our secured notes, term loans, revolving credit facilities and spare engine EETCs) contain loan to value (LTV), collateral coverage or peak debt service coverage ratio covenants and certain agreements require us to appraise the related collateral ~~annually.~~annually or semiannually. Pursuant to such agreements, if the ~~loan to value~~applicable LTV, collateral coverage or peak debt service coverage ratio exceeds or falls below a specified threshold, as the case may be, we ~~are~~will be required, as applicable, to pledge additional qualifying collateral (which in some cases may include cash ~~collateral)~~or investment securities), withhold additional cash in certain accounts, or to pay down such financing, in whole or in ~~part.~~part, or the interest rate for the relevant financing will be increased. As of ~~December 31, 2018,~~the most recent applicable measurement dates, we were in compliance with each of the foregoing LTV, collateral coverage ~~tests for~~and peak debt service coverage tests. Additionally, a significant portion of our ~~term loans~~debt financing agreements contain covenants requiring us to maintain an aggregate of at least $2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities, asand our AAdvantage Financing contains a peak debt service coverage ratio, pursuant to which failure to comply with a certain threshold may result in early repayment, in whole or in part, of the ~~most recent measurement dates.~~AAdvantage Financing. For further information regarding our ~~collateral-related~~debt covenants, see Note 54 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 3 to American’s Consolidated Financial Statements in Part II, Item 8B.

Table of Contents

Sources and Uses of Cash

~~AAG~~For a comparison of the 2020 and 2019 reporting periods, see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – “Sources and Uses of Cash” of our 2020 Form 10-K.

~~2018 Compared to 2017~~AAG

Operating Activities

Our net cash provided by operating activities was ~~$3.5~~$704 million in 2021 as compared to net cash used in operating activities of $6.5 billion in 2020, a $7.2 billion year-over-year increase. In 2021 and 2020, we received cash proceeds of approximately $4.7 billion and ~~$4.7~~$4.2 billion ~~in 2018 and 2017, respectively, a year-over-year decrease of $1.2 billion. This decrease in~~associated with the PSP Financial Assistance, respectively. Excluding the PSP Financial Assistance, our operating cash flows ~~was primarily due~~increased $6.7 billion compared to ~~lower profitability in 2018~~2020 driven by ~~an increase~~a decrease in ~~fuel costs, which was offset~~our pre-tax loss as well as working capital increases principally in ~~part by higher revenues.~~our air traffic liability as demand for travel returned. In addition, during 2021, we made $247 million in contributions to our pension plans and approximately $520 million in cash payments associated with our voluntary early retirement programs. Excluding the enhanced healthcare benefits provided to eligible team members, we estimate cash payments under these programs to be approximately $170 million in 2022 and approximately $20 million in 2023 and beyond.

Investing Activities

Our net cash used in investing activities was ~~$2.0~~$6.0 billion and ~~$3.6~~$4.3 billion in ~~2018~~2021 and ~~2017,~~2020, respectively.

Our principal investing activities in ~~2018~~2021 included $5.5 billion in net purchases of short-term investments as well as a $401 million increase in restricted short-term investments primarily related to collateral associated with the AAdvantage Financing and collateral held to support workers’ compensation obligations. We had capital expenditures of ~~$3.7 billion for property~~$208 million, net of aircraft purchase deposit returns of $996 million, which expenditures principally related to the harmonization of interior configurations across the mainline fleet and ~~equipment, including 16 Boeing 737-8 MAX aircraft, six Boeing 787 family aircraft~~the purchase of two Airbus A321neo aircraft. Additionally, we incurred $204 million related to airport construction projects, net of reimbursements, principally in connection with the renovation and ~~five Embraer E175 aircraft.~~expansion of Terminal 8 at JFK and the modernization of Terminals 4 and 5 at LAX. These cash outflows were offset in part by ~~$1.4 billion~~$193 million of ~~net~~proceeds from the sale of property and equipment principally related to our retired aircraft fleet and $181 million of proceeds primarily from aircraft sale-leaseback ~~transactions and $293 million in net sales of short-term investments.~~transactions.

Our principal investing activities in ~~2017~~2020 included $3.1 billion in net purchases of short-term investments, capital expenditures of ~~$6.0~~$2.0 billion for property and equipment, including 2016 Airbus ~~A321~~A321neo aircraft, ~~20 Boeing 737-800~~eight Embraer 175 aircraft, ~~16 Embraer E175 aircraft, 13 Boeing 787 family~~three Bombardier CRJ900 aircraft and ~~four Boeing 737-8 MAX aircraft. We also made~~the harmonization of interior configurations across the mainline fleet as well as a ~~$203~~$308 million ~~equity investment~~increase in ~~China Southern Airlines.~~restricted short-term investments primarily related to cash proceeds from special facility revenue bonds related to JFK. These cash outflows were offset in part by ~~$1.3 billion in net sales of short-term investments, $947~~$665 million of ~~net~~ proceeds primarily from aircraft sale-leaseback transactions, $351 million of proceeds from the sale of property and equipment and $90 million of proceeds from a ~~$309 million decrease in restricted short-term investments.~~vendor.

Financing Activities

Our ~~net cash used in financing activities was $1.7 billion and $1.1 billion in 2018 and 2017, respectively.~~

Our principal financing activities in 2018 included $2.9 billion in debt repayments, consisting of $2.4 billion in scheduled debt repayments and $513 million in the prepayment of secured loans. We also had $837 million in share repurchases and $186 million in dividend payments. These cash outflows were offset in part by net proceeds of $2.4 billion from the issuance of debt, consisting of $1.9 billion in connection with the issuance of equipment notes related to enhanced equipment trust certificates (EETCs) and the financing of certain aircraft and pre-delivery purchase deposits, as well as an incremental $500 million on a term loan facility.

Our principal financing activities in 2017 included $2.3 billion in scheduled debt repayments, $1.6 billion in share repurchases and $198 million in dividend payments. These cash outflows were offset in part by net proceeds of $3.1 billion from the issuance of debt, including the issuance of $2.0 billion of EETCs and $1.0 billion borrowed in connection with the financing of certain aircraft.

~~2017 Compared to 2016~~

~~Operating Activities~~

Our net cash provided by operating activities was $4.7 billion and $6.5 billion in 2017 and 2016, respectively, a year-over-year decrease of $1.8 billion. This decrease in operating cash flows was primarily due to lower profitability in 2017 driven by higher fuel costs and wage rates, which were offset in part by higher revenues.

~~Investing Activities~~

~~Our net cash used in investing activities was $3.6 billion and $5.7 billion in 2017 and 2016, respectively.~~

Our principal investing activities in 2017 included expenditures of $6.0 billion for property and equipment, including 20 Airbus A321 aircraft, 20 Boeing 737-800 aircraft, 16 Embraer E175 aircraft, 13 Boeing 787 family aircraft and four Boeing 737-8 MAX aircraft. We also made a $203 million equity investment in China Southern Airlines. These cash outflows were offset in part by $1.3 billion in net sales of short-term investments, $947 million of net proceeds primarily from aircraft sale-leaseback transactions, and a $309 million decrease in restricted short-term investments.

Our principal investing activities in 2016 included expenditures of $5.7 billion for property and equipment, including 25 Airbus A321 aircraft, 24 Embraer E175 aircraft, 20 Boeing 737-800 aircraft, 18 Bombardier CRJ 900 aircraft, eight Boeing 787 aircraft and two Boeing 777 aircraft.

~~Financing Activities~~

~~Our net cash used in financing activities was $1.1 billion and $894 million in 2017 and 2016, respectively.~~

Our principal financing activities in 2016 included $4.5 billion in share repurchases, $3.8 billion in debt repayments, including the repayment of $588 million and $970 million in remaining principal of the tranche B-2 and tranche B-1 term loans, respectively, under a credit facility for which Citicorp was the Administrative Agent (the 2013 Citicorp Credit Facility), and $224 million in dividend payments. These cash outflows were offset in part by net proceeds of $7.7 billion from the issuance of debt, including the issuance of $2.8 billion of EETCs, $2.3 billion provided under term loan facilities and $1.8 billion borrowed in connection with the financing of certain aircraft.

~~American~~

~~2018 Compared to 2017~~

~~Operating Activities~~

American’s net cash provided by operating activities was $1.9 billion and $2.9 billion in 2018 and 2017, respectively, a year-over-year decrease of $927 million. This decrease in operating cash flows was primarily due to lower profitability in 2018 driven by an increase in fuel costs, which was offset in part by higher revenues.

~~Investing Activities~~

~~American’s net cash used in investing activities was $1.9 billion and $3.6 billion in 2018 and 2017, respectively.~~

American’s principal investing activities in 2018 included expenditures of $3.7 billion for property and equipment, including 16 Boeing 737-8 MAX aircraft, six Boeing 787 family aircraft and five Embraer E175 aircraft. These cash outflows were offset in part by $1.4 billion of net proceeds primarily from aircraft sale-leaseback transactions and $293 million in net sales of short-term investments.

American’s principal investing activities in 2017 included expenditures of $5.9 billion for property and equipment, including 20 Airbus A321 aircraft, 20 Boeing 737-800 aircraft, 16 Embraer E175 aircraft, 13 Boeing 787 family aircraft and four Boeing 737-8 MAX aircraft. American also made a $203 million equity investment in China Southern Airlines. These cash outflows were offset in part by $1.3 billion in net sales of short-term investments, $922 million of net proceeds primarily from aircraft sale-leaseback transactions, and a $309 million decrease in restricted short-term investments.

~~Financing Activities~~

~~American’s net cash used in financing activities was $147 million in 2018 and~~ net cash provided by financing activities was ~~$668 million~~$5.3 billion and $11.0 billion in ~~2017.~~2021 and 2020, respectively.

~~American’s~~Our principal financing activities in ~~2018~~2021 included ~~$2.4~~$12.2 billion in proceeds from the issuance of debt, ~~repayments, consisting of $1.9~~including approximately $10.0 billion associated with the AAdvantage Financing, $1.0 billion in ~~scheduled debt repayments and $513~~aggregate principal amount under the PSP2 Promissory Note, $946 million in aggregate principal amount under the ~~prepayment~~PSP3 Promissory Note and the $150 million issuance of ~~secured loans.~~special facility revenue bonds related to JFK. We also received $460 million in net proceeds from the issuance of equity pursuant to an at-the-market offering. These cash ~~outflows~~inflows were offset in part by ~~net~~$7.3 billion in debt repayments, including prepayments totaling $2.8 billion for our revolving credit facilities, $950 million for the April 2016 Spare Parts Term Loan Facility and $550 million of outstanding loans under the Treasury Loan Agreement and $2.9 billion in scheduled debt repayments. In addition, we had $209 million of deferred financing cost cash outflows.

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Our principal financing activities in 2020 included $11.8 billion in proceeds ~~of $2.4 billion~~ from the issuance of debt ~~consisting~~and $3.0 billion in proceeds from the issuance of ~~$1.9~~equity. These proceeds principally include $2.8 billion borrowed under the 2014 Revolving Facility, the 2013 Revolving Facility and the April 2016 Revolving Facility, $2.5 billion in aggregate principal amount of 11.75% senior secured notes, $1.8 billion in aggregate principal amount under the PSP1 Promissory Note, $1.2 billion in aggregate principal amount of two series of 10.75% senior secured notes due 2026, $1.0 billion in aggregate principal amount of AAG’s 6.50% convertible senior notes, $1.0 billion under the Delayed Draw Term Loan Credit Facility, $600 million in connection with the issuance of equipment notes related to EETCs and the financing of certain aircraft, $550 million under the Treasury Term Loan Facility, $500 million in aggregate principal amount of 3.75% unsecured senior notes due 2025 and ~~pre-delivery purchase deposits,~~the $360 million issuance of special facility revenue bonds as well as ~~an incremental $500 million on a term loan facility.~~

~~American’s principal financing activities in 2017 included~~$1.7 billion of net proceeds from two underwritten public offerings of ~~$3.1 billion~~common stock and $869 million of net proceeds from ~~the issuance~~an at-the-market offering of ~~debt, including the issuance of $2.0 billion of EETCs and $1.0 billion borrowed in connection with the financing of certain aircraft.~~common stock. These cash inflows were offset in part by ~~$2.3~~$3.5 billion in debt repayments, consisting of approximately $2.5 billion in scheduled debt ~~repayments.~~repayments, including repayment of $500 million of 4.625% senior notes, and the prepayment of the $1.0 billion Delayed Draw Term Loan Credit Facility, as well as $216 million in share repurchases and dividend payments (which occurred in the first quarter of 2020).

~~2017 Compared to 2016~~American

Operating Activities

American’s net cash provided by operating activities was ~~$2.9~~$3.2 billion in 2021 as compared to net cash used in operating activities of $1.4 billion in 2020, a $4.6 billion year-over-year increase. In 2021 and 2020, American received cash proceeds of approximately $4.2 billion and ~~$1.8~~$3.7 billion ~~in 2017 and 2016, respectively,~~associated with the PSP Financial Assistance, respectively. American also had a ~~year-over-year increase of $1.1 billion. AAG has the ability to move funds freely between its subsidiaries to support its cash requirements. The increase in operating cash flows was primarily due to a~~$2.3 billion net decrease in intercompany cash ~~transfers~~receipts principally from ~~American to AAG. This increase~~AAG's financing transactions. Excluding the PSP Financial Assistance and decrease in AAG's financing transactions, American's operating cash flows ~~was offset in part by lower profitability in 2017~~increased $6.4 billion compared to 2020 driven by ~~higher fuel costs~~a decrease in its pre-tax loss as well as working capital increases principally in American's air traffic liability as demand for travel returned. In addition, during 2021, American made $247 million in contributions to its pension plans and ~~wage rates, which were offset~~approximately $520 million in ~~part by higher revenues.~~cash payments associated with American's voluntary early retirement programs. Excluding the enhanced healthcare benefits provided to eligible team members, American estimates cash payments under these programs to be approximately $170 million in 2022 and approximately $20 million in 2023 and beyond.

Investing Activities

American’s net cash used in investing activities was ~~$3.6~~$5.9 billion and ~~$5.6~~$4.3 billion in ~~2017~~2021 and ~~2016,~~2020, respectively.

American’s principal investing activities in ~~2017~~2021 included $5.5 billion in net purchases of short-term investments as well as a $401 million increase in restricted short-term investments primarily related to collateral associated with the AAdvantage Financing and collateral held to support workers’ compensation obligations. American had capital expenditures of ~~$5.9 billion for property~~$169 million, net of aircraft purchase deposit returns of $996 million, which expenditures principally related to the harmonization of interior configurations across the mainline fleet and ~~equipment, including 20~~the purchase of two Airbus ~~A321 aircraft, 20 Boeing 737-800 aircraft, 16 Embraer E175 aircraft, 13 Boeing 787 family aircraft~~A321neo aircraft. Additionally, American incurred $204 million related to airport construction projects, net of reimbursements, principally in connection with the renovation and ~~four Boeing 737-8 MAX aircraft. American also made a $203 million equity investment in China Southern Airlines.~~expansion of Terminal 8 at JFK and the modernization of Terminals 4 and 5 at LAX. These cash outflows were offset in part by ~~$1.3~~$192 million of proceeds from the sale of property and equipment principally related to American's retired aircraft fleet and $181 million of proceeds primarily from aircraft sale-leaseback transactions.

American’s principal investing activities in 2020 included $3.1 billion in net ~~sales~~purchases of short-term investments, ~~$922~~capital expenditures of $1.9 billion for property and equipment, including 16 Airbus A321neo aircraft, eight Embraer 175 aircraft, three Bombardier CRJ900 aircraft and the harmonization of interior configurations across the mainline fleet as well as a $308 million increase in restricted short-term investments primarily related to cash proceeds from special facility revenue bonds related to JFK. These cash outflows were offset in part by $665 million of ~~net~~ proceeds primarily from aircraft sale-leaseback transactions, ~~and a $309~~$351 million ~~decrease in restricted short-term investments.~~

~~American’s principal investing activities in 2016 included expenditures~~ of ~~$5.7 billion for~~proceeds from the sale of property and equipment ~~including 25 Airbus A321 aircraft, 24 Embraer E175 aircraft, 20 Boeing 737-800 aircraft, 18 Bombardier CRJ 900 aircraft, eight Boeing 787 aircraft~~ and ~~two Boeing 777 aircraft.~~$90 million of proceeds from a vendor.

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Financing Activities

American’s net cash provided by financing activities was ~~$668 million~~$2.8 billion and ~~$3.8~~$5.8 billion in ~~2017~~2021 and ~~2016, respectively~~.2020, respectively.

American’s principal financing activities in ~~2017~~2021 included ~~net~~$10.2 billion in proceeds ~~of $3.1 billion~~ from the issuance of debt, including approximately $10.0 billion associated with the AAdvantage Financing and the $150 million issuance of ~~$2.0 billion of EETCs and $1.0 billion borrowed in connection with the financing of certain aircraft.~~special facility revenue bonds related to JFK. These cash inflows were offset in part by ~~$2.3~~$7.3 billion in debt repayments, including prepayments totaling $2.8 billion for American’s revolving credit facilities, $950 million for the April 2016 Spare Parts Term Loan Facility and $550 million of outstanding loans under the Treasury Loan Agreement and $2.9 billion in scheduled debt repayments. In addition, American had $207 million of deferred financing cost cash outflows.

American’s principal financing activities in ~~2016~~2020 included ~~net~~$9.0 billion in proceeds ~~of $7.7 billion~~ from the issuance of debt, including ~~the issuance of~~ $2.8 billion borrowed under the 2014 Revolving Facility, the 2013 Revolving Facility and the April 2016 Revolving Facility, $2.5 billion in aggregate principal amount of ~~EETCs, $2.3~~11.75% senior secured notes, $1.2 billion ~~provided~~in aggregate principal amount of two series of 10.75% senior secured notes due 2026, $1.0 billion under ~~term loan facilities and $1.8 billion borrowed~~the Delayed Draw Term Loan Credit Facility, $600 million in connection with the issuance of equipment notes related to EETCs and the financing of certain ~~aircraft.~~aircraft, $550 million under the Treasury Term Loan Facility and the $360 million issuance of special facility revenue bonds. These cash inflows were offset in part by ~~$3.8~~$3.0 billion in debt repayments, ~~including~~consisting of approximately $2.0 billion in scheduled debt repayments and the ~~repayment of $588 million and $970 million in remaining principal~~prepayment of the ~~2013 Citicorp~~$1.0 billion Delayed Draw Term Loan Credit ~~Facility tranche B-2 and tranche B-1 term loans, respectively.~~Facility.

Commitments

For further information regarding our commitments, see the Notes to AAG’s Consolidated Financial Statements in Part II, Item 8A and the Notes to American’s Consolidated Financial Statements in Part II, Item 8B at the referenced footnotes below.



	AAG	American
Long-term debt and debt covenants	Note 54	Note 3
Leases	Note 65	Note 4
Employee benefit plans	Note 109	Note 8
Commitments, contingencies and guarantees	Note 1211	Note 10

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 to us, or that engages in leasing, hedging or research and development arrangements with us.

We have no off-balance sheet arrangements of the types described in the first three categories above that we believe may have a material current or future effect on financial condition, liquidity or results of operations. Certain guarantees that we do not expect to have a material current or future effect on our financial condition, liquidity or results of operations are disclosed in Note 12(d) to AAG’s Consolidated Financial Statements included in Part II, Item 8A and Note 10(d) to American’s Consolidated Financial Statements in Part II, Item 8B.

Pass-Through Trusts

~~We have financed certain~~American currently has 344 owned aircraft, 11 leased aircraft and 60 owned spare aircraft engines, which in each case were financed with EETCs issued by pass-through trusts. These trusts are off-balance sheet entities, the primary purpose of which is to finance the acquisition of flight equipment or to permit issuance of debt backed by existing flight equipment. ~~Rather~~In the case of aircraft EETCs, rather than finance each aircraft separately when such aircraft is purchased, delivered or refinanced, these trusts allow American to raise the financing for a number of aircraft at one time and, if applicable, place such funds in escrow pending a future purchase, delivery or refinancing of the relevant aircraft. Similarly, in the case of the spare engine EETCs, the trusts allow American to use its existing pool of spare engines to raise financing under a single facility. The trusts have also been structured to provide for certain credit enhancements, such as liquidity facilities to cover certain interest payments, that reduce the risks to the purchasers of the trust certificates and, as a result, reduce the cost of aircraft financing to American.

Each trust covers a set number of aircraft or spare engines scheduled to be delivered, financed or refinanced upon the issuance of the EETC or within a specific period of time thereafter. At the time of each covered aircraft or spare engine financing, the relevant trust used the proceeds of the issuance of the EETC (which may have been available at the time of issuance thereof or held in escrow until financing of the applicable aircraft following its delivery) to purchase equipment

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notes relating to the financed ~~aircraft.~~aircraft or engines. The equipment notes are issued, at American’s election, in connection with a mortgage financing of the aircraft or spare engines or, in certain cases, by a separate owner trust in connection with a leveraged lease financing of the aircraft. In the case of a leveraged lease financing, the owner trust then leases the aircraft to American. In both cases, the equipment notes are secured by a security interest in the ~~aircraft.~~aircraft or engines, as applicable. The pass-through trust certificates are not direct obligations of, nor are they guaranteed by, AAG or American. However, in the case of mortgage financings, the equipment notes issued to the trusts are direct obligations of American and, in certain instances, have been guaranteed by AAG. As of December 31, ~~2018, $11.6~~2021, $9.4 billion associated with these mortgage financings is reflected as debt in the accompanying consolidated balance sheet.

With respect to leveraged leases, American evaluated whether the leases had characteristics of a variable interest entity. American concluded the leasing entities met the criteria for variable interest entities. American generally is not the primary beneficiary of the leasing entities if the lease terms are consistent with market terms at the inception of the lease and do not include a residual value guarantee, fixed-price purchase option or similar feature that obligates American to absorb decreases in value or entitles American to participate in increases in the value of the aircraft. American does not provide residual value guarantees to the bondholders or equity participants in the trusts. Some leases have a fair market value or a fixed price purchase option that allows American to purchase the aircraft at or near the end of the lease term. However, the option price approximates an estimate of the aircraft’s fair value at the option date. Under this feature, American does not participate in any increases in the value of the aircraft.entities; however, American concluded it is not the primary beneficiary under these ~~arrangements. Therefore, American~~leasing arrangements and accounts for the majority of its EETC leveraged lease financings as operating leases. American’s total future payments to the trusts of each of the relevant EETCs under these leveraged lease financings are$~~352~~20 million as of December 31, ~~2018~~2021, which are reflected in the operating lease obligations in Note 5 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 4 to American’s Consolidated Financial Statements in Part II, Item 8B.

Letters of Credit and Other

We provide financial assurance, such as letters of credit, surety bonds or restricted cash and investments, primarily to support projected workers’ compensation obligations and airport commitments. As of December 31, ~~2018,~~2021, we had ~~$460~~$439 million of letters of credit and surety bonds securing various ~~obligations.~~obligations, of which $94 million is collateralized with our restricted cash. The letters of credit and surety bonds that are subject to expiration will expire on various dates through ~~2022.~~

2025.

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Contractual Obligations

The following table provides details of our ~~future~~material cash requirements from known contractual obligations as of December 31, ~~2018. The~~2021 (in millions). Except to the extent set forth in the applicable accompanying footnotes, the table does not include commitments that are contingent on events or other factors that are uncertain or unknown at this time.

Payments Due by Period
2019 2020 2021 2022 2023 2024 and Thereafter Total
American ^(a)

Long-term debt:
Principal amount ^{(b), (d)}(See Note 3)
$ 2,508
$ 1,815
$ 3,409
$ 1,344
$ 3,892
$ 9,754
$ 22,722
Interest obligations ^{(c), (d)}
939
837
731
598
511
1,121
4,737
Finance lease obligations (See Note 4) 124
120
118
122
105
282
871
Aircraft and engine purchase commitments ^(e) (See Note 10(a))
2,906
1,683
994
1,378
1,450
6,047
14,458
Operating lease commitments ^(f)(See Note 4)
1,894
1,824
1,625
1,428
1,250
3,611
11,632
Regional capacity purchase agreements ^(g) (See Note 10(b))
1,101
930
765
618
487
1,043
4,944
Minimum pension obligations ^(h)(See Note 8)
801
625
671
939
909
1,263
5,208
Retiree medical and other postretirement benefits (See Note 8) 23
17
17
17
23
280
377
Other purchase obligations ⁽ⁱ⁾(See Note 10(a))
1,873
1,068
1,009
32
7
92
4,081
Total American Contractual Obligations $ 12,169
$ 8,919
$ 9,339
$ 6,476
$ 8,634
$ 23,493
$ 69,030

AAG Parent and Other AAG Subsidiaries ^(a)

Long-term debt:
Principal amount ^(b)(See Note 5)
$ 750
$ 505
$ 2
$ 2
$ 2
$ 18
$ 1,279
Interest obligations ^(c)
67
14
2
2
1
4
90
Minimum pension obligations ^(h)(See Note 10)
6
4
5
5
5
13
38
Operating lease commitments (See Note 6) 18
14
11
10
5
9
67
Total AAG Contractual Obligations $ 13,010
$ 9,456
$ 9,359
$ 6,495
$ 8,647
$ 23,537
$ 70,504


	Payments Due by Period
	2022		2023		2024		2025		2026		2027 and Thereafter		Total
American (a)
Long-term debt:
Principal amount (b), (d) (See Note 3)	$	1,637	$	4,167	$	3,467	$	7,749	$	4,412	$	10,353	$	31,785
Interest obligations (c), (d)	1,544		1,537		1,373		1,180		618		762		7,014
Finance lease obligations (See Note 4)	215		183		180		113		87		77		855
Aircraft and engine purchase commitments (e) (See Note 10(a))	1,987		1,851		3,358		3,535		1,663		688		13,082
Operating lease commitments (See Note 4)	1,957		1,899		1,576		1,210		936		4,684		12,262
Regional capacity purchase agreements (f) (See Note 10(b))	1,495		1,834		1,875		1,729		1,123		2,317		10,373
Minimum pension obligations (g) (See Note 8)	—		31		23		—		—		—		54
Retiree medical and other postretirement benefits (See Note 8)	94		89		84		81		78		312		738
Other purchase obligations (h) (See Note 10(a))	4,364		1,758		1,416		154		610		942		9,244
Total American Contractual Obligations	$	13,293	$	13,349	$	13,352	$	15,751	$	9,527	$	20,135	$	85,407

AAG Parent and Other AAG Subsidiaries (a)
Long-term debt:
Principal amount (b) (See Note 4)	$	750	$	—	$	—	$	1,500	$	—	$	3,746	$	5,996
Interest obligations (c)	140		121		121		133		125		649		1,289
Operating lease commitments (See Note 5)	16		14		12		7		5		14		68
Minimum pension obligations (g) (See Note 9)	—		1		—		—		—		1		2
Total AAG Contractual Obligations	$	14,199	$	13,485	$	13,485	$	17,391	$	9,657	$	24,545	$	92,762


^(a)	~~For additional information, see the Notes to AAG’s and American’s Consolidated Financial Statements in Part II, Items 8A and 8B, respectively, referenced in the table above.~~


^(b)	Amounts represent contractual amounts due. Excludes $219 million and $3 million of unamortized debt discount, premium and issuance costs as of December 31, 2018 for American and AAG Parent, respectively.


^(c)	~~For variable-rate debt, future interest obligations are estimated using the current forward rates at December 31, 2018.~~


^(d)	Includes $11.6 billion of future principal payments and $2.4 billion of future interest payments, respectively, as of December 31, 2018, related to EETCs associated with mortgage financings for the purchase of certain aircraft.


^(e)	~~See Part I, Item 2. Properties –~~ ~~“Aircraft and Engine Purchase Commitments”~~ for additional information about the firm commitment aircraft delivery schedule. Boeing has committed to provide sale-leaseback financing (in the form of operating leases) for 22 787-8 aircraft to be delivered in 2020 and 2021. This financing is reflected in the operating lease commitments line above.


^(f)	~~Includes $352 million of future minimum lease payments related to EETC leveraged lease financings of certain aircraft as of December 31, 2018.~~

^(g)

Represents minimum payments under capacity purchase agreements with third-party regional carriers. These commitments are estimates of costs based on assumed minimum levels of flying under the capacity purchase agreements and our actual payments could differ materially. Rental payments under operating leases for certain aircraft flown under these capacity purchase agreements is reflected in the operating lease commitments line above.

(a)For additional information, see the Notes to AAG’s and American’s Consolidated Financial Statements in Part II, Items 8A and 8B, respectively, referenced in the table above.

(b)Amounts represent contractual amounts due. Excludes $428 million and $30 million of unamortized debt discount, premium and issuance costs as of December 31, 2021 for American and AAG Parent, respectively.

(c)For variable-rate debt, future interest obligations are estimated using the current forward rates at December 31, 2021.

(d)Includes $9.4 billion of future principal payments and $1.5 billion of future interest payments as of December 31, 2021, related to EETCs associated with mortgage financings of certain aircraft and spare engines.

(e)See Part I, Item 2. Properties – “Aircraft and Engine Purchase Commitments” for additional information about the firm commitment aircraft delivery schedule, in particular the footnote to the table thereunder as to potential changes to such delivery schedule. Due to uncertainty surrounding the timing of delivery of certain aircraft, the amounts in the table represent our most current estimate; however, the actual delivery schedule may differ from the table above, potentially materially. Additionally, the amounts in the table exclude 10 and three Boeing 787-8 aircraft scheduled to be delivered in 2022 and 2023, respectively, as well as four and one Boeing 787-9 aircraft scheduled to be delivered in 2023 and 2024, respectively, in each case, for which we have obtained committed lease financing. This financing is reflected in the operating lease commitments line above.

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(f)Represents minimum payments under capacity purchase agreements with third-party regional carriers. These commitments are estimates of costs based on assumed minimum levels of flying under the capacity purchase agreements and our actual payments could differ materially. Rental payments under operating leases for certain aircraft flown under these capacity purchase agreements are reflected in the operating lease commitments line above.

(g)Represents minimum pension contributions based on actuarially determined estimates as of December 31, 2021 and is based on estimated payments through 2031. On March 11, 2021, the ARP was enacted, which included funding relief provisions benefiting single employer qualified retirement benefit pension plans such as those sponsored by American.

(h)Includes purchase commitments for aircraft fuel, flight equipment maintenance, construction projects and information technology support.

^(h)

Includes minimum pension contributions based on actuarially determined estimates and is based on estimated payments through 2028. The total AAG expected pension contribution of $807 million in 2019 assumes a supplemental contribution of $21 million in addition to the $786 million minimum required contribution.


⁽ⁱ⁾	~~Includes purchase commitments for jet fuel, construction projects and information technology support.~~

Capital Raising Activity and Other Possible Actions

In light of the cash needs imposed by the current operating losses due to reduced demand in response to the COVID-19 pandemic as well as our significant financial commitments related to, among other things, ~~new aircraft,~~ the servicing and amortization of existing debt and equipment leasing arrangements, new flight equipment and ~~future~~ pension funding obligations, we and our subsidiaries will regularly consider, and enter into negotiations related to, capital raising and liability management activity, which may include the entry into leasing transactions and future issuances of, and transactions designed to manage the timing and amount of, secured or unsecured debt obligations or additional equity securities in public or private offerings or otherwise. The cash available from operations (if any) and these sources, however, may not be sufficient to cover our cash ~~contractual~~ obligations because economic factors may reduce the amount of cash generated by operations or increase costs. For instance, an economic downturn or general global instability caused by military actions, terrorism, disease outbreaks (in particular the ongoing global outbreak of COVID-19), natural disasters or other causes could reduce the demand for air travel, which would reduce the amount of cash generated by operations. See Part I, Item 1A. Risk Factors – "The outbreak and global spread of COVID-19 has resulted in a severe decline in demand for air travel which has adversely impacted our business, operating results, financial condition and liquidity. The duration and severity of the COVID-19 pandemic, and similar public health threats that we may face in the future, could result in additional adverse effects on our business, operating results, financial condition and liquidity" for additional discussion. An increase in costs, either due to an increase in borrowing costs caused by a reduction in credit ratings or a general increase in interest rates, or due to an increase in the cost of fuel, maintenance, or aircraft, aircraft engines or parts, could decrease the amount of cash available to cover cash contractual obligations. Moreover, certain of our financing arrangements contain significant minimum cash balance or similar liquidity requirements. As a result, we cannot use all of our available cash to fund operations, capital expenditures and cash obligations without violating these requirements. See Note 54 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 3 to American’s Consolidated Financial Statements in Part II, Item 8B for information regarding our financing arrangements.

In the past, we have from time to time refinanced, redeemed or repurchased our debt and taken other steps to reduce or otherwise manage the aggregate amount and cost of our debt, or lease and other obligations or otherwise improve our balance sheet. Going forward, depending on market conditions, our cash position and other considerations, we may continue to take such actions.

~~Our Board~~

Table of ~~Directors has from time to time authorized programs to repurchase shares of our common stock, one of which is currently in effect, and may authorize additional share repurchase programs in the future.~~Contents

OTHER INFORMATION

Basis of Presentation

See Note 1 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 1 to American’s Consolidated Financial Statements in Part II, Item 8B for information regarding the basis of presentation.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. We believe our estimates and assumptions are reasonable; however, actual results could differ from those estimates. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and could potentially result in materially different results under different assumptions and conditions. We have identified the following critical accounting policies that impact the preparation of our consolidated financial statements. See the “Basis of Presentation and Summary of Significant Accounting Policies” included in Note 1 to each of AAG’s and American’s Consolidated Financial Statements in Part II, Item 8A and ~~Note 1 to American’s Consolidated Financial Statements in Part II, Item~~ 8B, respectively, for additional discussion of the application of these estimates and other accounting policies.

Passenger Revenue

We recognize all revenues generated from transportation on American and our regional flights operated under the brand name American Eagle, including associated baggage ~~fees, ticketing change~~ fees and other inflight services, as passenger revenue when transportation is provided. Ticket and other related sales for transportation that has not yet been provided are initially deferred and recorded as air traffic liability on our consolidated balance sheets. The air traffic liability principally represents tickets sold for future travel on American and partner airlines, as well as estimated future refunds and exchanges of tickets sold for past travel.

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~~unused 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. While the contract duration of passenger tickets is generally one year, in response to the COVID-19 pandemic, we extended the contract duration for certain tickets to March 31, 2022, principally those tickets which were scheduled to expire from March 1, 2020 through March 31, 2021. Additionally, tickets to certain international destinations have extended contract duration to December 31, 2022. We also have eliminated change fees for most domestic and international tickets providing more flexibility for customers to change travel plans. Given these changes and the uncertainty surrounding the future demand for air travel, our estimates of revenue that will be recognized from the air traffic liability for future flown or unused tickets as well as our estimates of refunds may be subject to variability and differ from historical experience.

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.

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Loyalty Revenue

We currently operate the loyalty program, AAdvantage. This program awards mileage credits to passengers who fly on American, any oneworld airline or other partner airlines, or by using the services of other program participants, such as ~~the Citi and Barclaycard US~~our co-branded credit cards, and certain 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~~method. In response to the ~~New Revenue Standard.~~COVID-19 pandemic, we suspended the expiration of mileage credits through March 31, 2022 and eliminated mileage reinstatement fees for canceled award tickets.

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~~mileage credits that will not be redeemed using a statistical model based on historical redemption ~~patterns.~~patterns to develop an estimate of the likelihood of future redemption. Given the inherent uncertainty of the current operating environment due to the COVID-19 pandemic, we will continue to monitor redemption patterns and may adjust our estimates in the future. For the year ended December 31, ~~2018,~~2021, a hypothetical 10% increase in the estimated selling price of miles would have decreased revenues by approximately ~~$100~~$55 million as a result of additional amounts deferred from passenger ticket ~~sales.~~sales to be recognized in future periods.

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~~five 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.~~US. 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~~use a statistical model based on ~~analysis~~historical redemption patterns to develop an estimate of ~~historical redemptions.~~the likelihood of future redemption. For the year ended December 31, ~~2018,~~2021, a hypothetical 10% increase in our estimate of miles not expected to be redeemed would have increased revenues by approximately ~~$100~~$70 million.

~~Cargo Revenue~~

~~Cargo revenue is recognized when we provide the transportation.~~

~~Other Revenue~~

~~Other revenue includes revenue associated with our loyalty program, which is comprised principally~~Table of the marketing component of mileage sales to co-branded credit card and other partners and other marketing related payments. The accounting and recognition for the loyalty program marketing services are discussed above in “~~Loyalty Revenue.” The remaining amounts included within other revenue relate to airport clubs, advertising and vacation-related services.~~Contents

~~Long-lived Assets~~

Long-lived assets consist of flight equipment, as well as other fixed assets and finite-lived intangible assets such as certain domestic airport slots, customer relationships, marketing agreements, tradenames and airport gate leasehold rights. In addition to the original cost, the recorded value of our fixed assets is impacted by a number of estimates made, including estimated useful lives, salvage values and our determination as to whether aircraft are temporarily or permanently grounded. Finite-lived intangible assets are originally recorded at their acquired fair values and are subsequently amortized over their estimated useful lives. See Note 1 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 1 to American’s Consolidated Financial Statements in Part II, Item 8B for further information.

We assess impairment on long-lived assets used in operations when events and circumstances indicate that the assets may be impaired. An asset or group of assets is considered impaired when the undiscounted cash flows estimated to be generated by the assets are less than the carrying amount of the assets and the net book value of the assets exceeds their estimated fair value. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Estimates of fair value represent management’s best estimate based on appraisals, industry trends and reference to market rates and transactions.

The majority of American’s aircraft fleet types are depreciated over 25-30 years. It is possible that the ultimate lives of our aircraft will be significantly different than the current estimate due to unforeseen events in the future that impact our fleet plan, including positive or negative developments in the areas described above. For example, operating the aircraft for a longer period will result in higher maintenance, fuel and other operating costs than if we replaced the aircraft.

~~Leases~~

~~We adopted ASU 2016-02: Leases (Topic 842) (the New Lease Standard) as of January 1, 2018. See “Recent Accounting Pronouncements~~” below for further discussion about the New Lease Standard and its impact on our consolidated balance sheet. We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (ROU) assets, current operating lease liabilities and noncurrent operating lease liabilities in our consolidated balance sheet. Finance leases are included in property and equipment, current maturities of long-term debt and finance leases and long-term debt and finance leases, net of current maturities, in our consolidated balance sheet.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

~~We use our estimated incremental borrowing rate, which is derived from information available at the lease commencement date~~, in determining the present value of lease payments. We give consideration to our recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates. A 100 basis point decrease in our estimate of the incremental borrowing rate at January 1, 2018 (the date of our adoption of the New Lease Standard) would increase our operating lease liability by approximately $275 million.

Our lease term includes options to extend the lease when it is reasonably certain that we will exercise that option. Leases with a term of 12 months or less are not recorded on the balance sheet. Our lease agreements do not contain any residual value guarantees.

Under certain of our capacity purchase agreements with third-party regional carriers, we do not own the underlying aircraft. However, since we control the marketing, scheduling, ticketing, pricing and seat inventories of these aircraft and therefore control the asset, the aircraft is deemed to be leased for accounting purposes. For these capacity purchase agreements, we account for the lease and non-lease components separately. The lease component consists of the aircraft and the non-lease components consist of services, such as the crew and maintenance. We allocate the consideration in the capacity purchase agreements to the lease and non-lease components using their estimated relative standalone prices. See Note 12(b) to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 10(b) to American’s Consolidated Financial Statements in Part II, Item 8B for additional information on our capacity purchase agreements.

~~For real estate, we account for the lease and non-lease components as a single lease component.~~

~~Goodwill and Indefinite-lived Assets~~

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired and liabilities assumed. Goodwill is not amortized but assessed for impairment annually on October 1^st ~~or more frequently if events or circumstances indicate that goodwill may be impaired. We have one consolidated reporting unit.~~

Indefinite-lived intangible assets other than goodwill include certain domestic airport slots at our hubs and international slots and route authorities. Indefinite-lived intangible assets are not amortized but instead are assessed for impairment annually on October 1^st ~~or more frequently if events or circumstances indicate that the asset may be impaired.~~

~~In the second quarter of 2018, American recorded a $26 million impairment charge on a Brazil route authority as a result of the U.S.-Brazil open skies agreement.~~

Goodwill and indefinite-lived intangible assets are assessed for impairment by initially performing a qualitative assessment. Under the qualitative approach, we analyze the following factors, among others, to determine if events and circumstances have affected the fair value of goodwill and indefinite-lived intangible assets: (1) negative trends in our market capitalization, (2) an increase in fuel prices, (3) declining per mile passenger yields, (4) lower passenger demand as a result of a weakened U.S. and global economy and (5) changes to the regulatory environment.

~~Based upon our annual assessment, there were no impairments of our goodwill and no additional impairments of our indefinite-lived assets in 2018 other than the Brazil route authority described above.~~

Pensions and Retiree Medical and Other Postretirement Benefits

We recognize the funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligations) of our pension and retiree medical and other postretirement benefits plans inon the consolidated balance sheets with a corresponding adjustment to accumulated other comprehensive income (loss).

Our pension and retiree medical and other postretirement benefits costs and liabilities are calculated using various actuarial assumptions and methodologies. We use certain assumptions including, but not limited to, the selection of the: (1) discount rate and (2) expected return on plan assets ~~(3) expected health care cost trend rate and (4) estimated age of pilot retirement~~ (as discussed below). These assumptions as of December 31 were:


	2021		2020
Pension weighted average discount rate (1)	3.0	%	2.7	%
Retiree medical and other postretirement benefits weighted average discount rate (1)	2.8	%	2.4	%
Expected rate of return on plan assets (2)	8.0	%	8.0	%

2018 2017
Pension weighted average discount rate ⁽¹⁾
4.40 % 3.80 %
Retiree medical and other postretirement benefits weighted average discount rate ⁽¹⁾
4.30 % 3.60 %
Expected rate of return on plan assets ⁽²⁾
8.00 % 8.00 %
Weighted average health care cost trend rate assumed for next year ⁽³⁾:

Initial 3.91 % 4.19 %
Ultimate (2026) 3.45 % 3.76 %
Assumed Pilot Retirement Age 63
62

⁽¹⁾

When establishing our discount rate to measure our obligations, we match high quality corporate bonds available in the marketplace whose cash flows approximate our projected benefit disbursements. Lowering the discount rate by 50 basis points as of December 31, 2018 would increase our pension and retiree medical and other postretirement benefits obligations by approximately $1.1 billion and $37 million, respectively, and increase both estimated 2019 pension expense and estimated 2019 retiree medical and other postretirement benefits expense by $2 million and less than $1 million, respectively.

⁽²⁾

The expected rate of return on plan assets is based upon an evaluation of our historical trends and experience, taking into account current and expected market conditions and our target asset allocation of 30% U.S. stocks, 22% developed international stocks, 20% fixed income securities, 20% alternative (private) investments and 8% emerging market stocks. The expected rate of return on plan assets component of our net periodic benefit cost is calculated based on the fair value of plan assets and our target asset allocation. Lowering the expected long-term rate of return on plan assets by 50 basis points as of December 31, 2018 would increase estimated 2019 pension expense and retiree medical and other postretirement benefits expense by approximately $51 million and $1 million, respectively.

(1)When establishing our discount rate to measure our obligations, we match high quality corporate bonds available in the marketplace whose cash flows approximate our projected benefit disbursements. Lowering the discount rate by 50 basis points as of December 31, 2021 would increase our pension and retiree medical and other postretirement benefits obligations by approximately $1.2 billion and $40 million, respectively, and decrease estimated 2022 pension and retiree medical and other postretirement benefits expense by approximately $10 million and $1 million, respectively.

(2)The expected rate of return on plan assets is based upon an evaluation of our historical trends and experience, taking into account current and expected market conditions and our target asset allocation of 30% fixed income securities, 24% U.S. stocks, 22% alternative (private) investments, 16% developed international stocks and 8% emerging market stocks. The expected rate of return on plan assets component of our net periodic benefit cost is calculated based on the fair value of plan assets and our target asset allocation. Lowering the expected long-term rate of return on plan assets by 50 basis points as of December 31, 2021 would increase estimated 2022 pension expense and retiree medical and other postretirement benefits expense by approximately $70 million and $1 million, respectively.


⁽³⁾	The assumed health care cost trend rate is based upon an evaluation of our historical trends and experience, taking into account current and expected market conditions. Increasing the assumed health care cost trend rate by 100 basis points would increase estimated 2019 retiree medical and other postretirement benefits expense by $6 million.

During ~~2018,~~2021, we reviewed and revised certain economic and demographic assumptions including the pension and retiree medical and other postretirement benefits discount rates ~~retirement rates~~ and health care cost ~~and~~ trend rates. The net effect of changing these assumptions for the pension plans resulted in a decrease of ~~$1.8 billion~~$720 million in the projected benefit obligation at December 31, ~~2018.~~2021. The net effect of changing these assumptions for retiree medical and other postretirement benefits plans resulted in a decrease of ~~$126~~$32 million in the ~~projected~~accumulated postretirement benefit obligation at December 31, ~~2018.~~2021. We also revised our mortality assumptions to incorporate the new ~~mortality~~ improvement scale issued by the Society of Actuaries. This resulted in ~~a decrease~~an increase in ~~the projected benefit obligations of~~ our pension and retiree medical and other postretirement ~~benefits plans of $58~~benefit obligations by $57 million and less than $1 million, respectively.

See Note 109 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 8 to American’s Consolidated Financial Statements in Part II, Item 8B for additional information regarding our employee benefit plans.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are recorded net as noncurrent deferred income taxes.

Our ability to use our NOLs and other carryforwards depends on the amount of taxable income generated in future periods. We provide a valuation allowance for our deferred tax assets when it is more likely than not that some portion, or all of our deferred tax assets, will not be realized. We consider all available positive and negative evidence and make certain assumptions in evaluating the realizability of our deferred tax assets. Many factors are considered that impact our assessment of future profitability, including conditions which are beyond our control, such as the health of the economy, the availability and price volatility of aircraft fuel and travel demand.

We presently have a $34 million valuation allowance on certain net deferred tax assets related to state NOL carryforwards. There can be no assurance that an additional valuation allowance on our net deferred tax assets will not be required. Such valuation allowance could be material.

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Recent Accounting Pronouncements

Accounting Standards ~~Adopted in 2018~~Update (ASU) 2020-06: Accounting for Convertible Instruments and Contracts In An Entity's Own Equity (the New Convertible Debt Standard)

~~Effective January 1, 2018, we adopted~~The New Convertible Debt Standard simplifies the accounting ~~pronouncements described below.~~

~~ASU 2014-09: Revenue from Contracts~~for certain convertible instruments by removing the separation models for convertible debt with ~~Customers (Topic 606) (the New Revenue Standard)~~

~~The New Revenue Standard applies to all companies that enter into contracts~~a cash conversion feature and for convertible instruments with ~~customers to transfer goods or services. We adopted the New Revenue Standard using the full retrospective method, which resulted in the recast of prior reporting periods.~~

~~The adoption of the New Revenue Standard impacted our~~a beneficial conversion feature. As a result, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for outstanding mileage credits earned through travel by AAdvantage loyalty program members. There was no change in accounting for sales of mileage credits to co-branded credit card or other partners. Prior to the adoption of the New Revenue Standard, we used the incremental cost method to account for the portion of our loyalty program liability related to mileage credits earned through travel, which were valued based on the estimated incremental cost of carrying one additional passenger. The New Revenue Standard required us to change our policy to the deferred revenue method and apply a relative selling price approach whereby a portion of each passenger ticket sale attributable to mileage credits earned is deferred and recognized in passenger revenue upon future mileage redemption. The value of the earned mileage credits is materially greater under the deferred revenue method than the value attributed to these mileage credits under the incremental cost method.

The New Revenue Standard also required certain reclassifications, principally the reclassification of certain ancillary revenues previously classified and reported as other revenue to passenger revenue and as applicable to cargo revenue.embedded conversion features. Additionally, the New ~~Revenue~~Convertible Debt Standard ~~required a gross presentation on~~amends the ~~face of our consolidated statements of operations~~diluted earnings per share calculation for ~~certain revenues and expenses that had previously been presented on a net basis.~~

~~See~~ ~~“Impacts to 2017 Results”~~ ~~and~~ ~~“Impacts to 2016 Results”~~ ~~below for~~convertible instruments by requiring the ~~impact to our consolidated statements of operations data for 2017 and 2016, respectively, and our consolidated balance sheet as of December 31, 2017 related to the adoption~~use of the ~~New Revenue Standard.~~

~~ASU 2017-07: Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (the New Retirement Standard)~~

if-converted method. The New Retirement Standard required all components of our net periodic benefit cost (income), with the exception of service cost, previously reported within operating expenses as salaries, wages and benefits, to be reclassified and reported within nonoperating income (expense). The New Retirement Standard was applied retrospectively, which resulted in the recast of each prior reporting period presented. The adoption of the New Retirement Standard hadtreasury stock method is no ~~impact on pre-tax income or net income reported.~~

~~See~~ ~~“Impacts to 2017 Results”~~ ~~and~~ ~~“Impacts to 2016 Results”~~ ~~below for the impact to our consolidated statements of operations data for 2017 and 2016, respectively, related to the adoption of the New Retirement Standard.~~

~~ASU 2016-02: Leases (Topic 842) (the New Lease Standard)~~

The New Lease Standard requires lessees to recognize a lease liability and a right-of-use (ROU) asset on the balance sheet for operating leases. Accounting for finance leases is substantially unchanged. The New Lease Standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted.

~~In the fourth quarter of 2018, we elected to early~~longer available. Entities may adopt the New ~~Lease~~Convertible Debt Standard ~~as of January 1, 2018~~ using either a full or modified retrospective transition, with the cumulative-effect adjustment to the opening balance of retained earnings as of the effective date (the effective date method). Under the effective date method, financial results reported in periods prior to 2018 are unchanged. We also elected the package of practical expedients, which among other things, does not require reassessment of lease classification.

The adoption of the New Lease Standard had a significant impact on our consolidated balance sheet due to the recognition of approximately $10 billion of lease liabilities with corresponding right-of-use assets for operating leases.

~~Finally, our 2018 pre-tax income decreased by $16 million as a result of adoption of the New Lease Standard.~~

~~ASU 2016-01: Financial Instruments - Overall (Subtopic 825-10)~~

~~This ASU made several modifications to Subtopic 825-10, including the elimination of the available-for-sale classification of equity investments, and~~ it required equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income. This standard was adopted prospectively as of January 1, 2018 and resulted in a $60 million cumulative effect adjustment credit to retained earnings, net of tax, related to our investment in China Southern Airlines, which was previously accounted for under the cost method.

~~ASU 2016-18: Statement of Cash Flows (Topic 230): Restricted Cash~~

This ASU required that the change in the total cash balance, cash at the beginning of the period and cash at the end of the period on the statement of cash flows include restricted cash, and also required companies that report cash and restricted cash separately on the balance sheet to reconcile those amounts to the statement of cash flows. This standard was applied retrospectively, which resulted in the recast of prior reporting periods in the statement of cash flows. For the years ended December 31, 2018, 2017 and 2016, $11 million, $103 million and $113 million, respectively, of restricted cash is included in the total cash and restricted cash balance at the end of the period. A reconciliation of cash and restricted cash reported on our consolidated statements of cash flows to the amounts reported on our consolidated balance sheets is provided in a table below the Consolidated Statements of Cash Flows in Part II, Item 8A - AAG’s Consolidated Financial Statements.

~~Impacts to 2017 Results~~

The effects of the adoption of the New Revenue Standard and New Retirement Standard to our consolidated statement of operations for the twelve months ended December 31, 2017 were as follows (in millions):

New Revenue Standard New Retirement Standard
Year Ended
December 31, 2017 As Reported Deferred Revenue Method Ancillary Revenue Reclassifications Gross Versus Net Presentation Reclassifications As Recast
Operating revenues:
    Passenger $ 36,133
$ 311
$ 2,648
$ 39
$ —
$ 39,131
    Cargo 800
—
42
48
—
890
    Other 5,274
—
(2,690 ) 17
—
2,601
    Total operating revenues 42,207
311
—
104
—
42,622
    Total operating expenses 38,149
—
—
104
138
38,391
Operating income 4,058
311
—
—
(138 ) 4,231
Total nonoperating expense, net (974 ) —
—
—
138
(836 )
Income before income taxes 3,084
311
—
—
—
3,395
Income tax provision ⁽¹⁾
1,165
948
—
—
—
2,113
Net income $ 1,919
$ (637 ) $ —
$ —
$ —
$ 1,282
Diluted earnings per common share $ 3.90
$ 2.61


⁽¹⁾	The adjustment to the 2017 income tax provision includes an $823 million special charge to reduce our deferred tax asset associated with loyalty program liabilities as a result of the 2017 Tax Act enacted in December 2017 that reduced the federal corporate income tax rate from 35% to 21%.

~~The effects of the adoption of the New Revenue Standard to our December 31, 2017 consolidated balance sheet were as follows (in millions):~~

As Reported New Revenue Standard As Recast
Deferred tax asset $ 427
$ 1,389
$ 1,816
Air traffic liability 3,978
64
4,042
Current loyalty program liability 2,791
330
3,121
Noncurrent loyalty program liability —
5,701
5,701
Total stockholders’ equity (deficit) 3,926
(4,706 ) (780 )

~~Impacts to 2016 Results~~

The effects of the adoption of the New Revenue Standard and New Retirement Standard to our consolidated statement of operations for the twelve months ended December 31, 2016 were as follows (in millions):

New Revenue Standard New Retirement Standard
Year Ended
December 31, 2016 As Reported Deferred Revenue Method Ancillary Revenue Reclassifications Gross Versus Net Presentation Reclassifications As Recast
Operating revenues:
    Passenger $ 34,579
$ (147 ) $ 2,571
$ 42
$ —
$ 37,045
    Cargo 700
—
36
49
—
785
    Other 4,901
—
(2,607 ) 18
—
2,312
    Total operating revenues 40,180
(147 ) —
109
—
40,142
    Total operating expenses 34,896
—
—
109
77
35,082
Operating income 5,284
(147 ) —
—
(77 ) 5,060
Total nonoperating expense, net (985 ) —
—
—
77
(908 )
Income before income taxes 4,299
(147 ) —
—
—
4,152
Income tax provision 1,623
(55 ) —
—
—
1,568
Net income $ 2,676
$ (92 ) $ —
$ —
$ —
$ 2,584
Diluted earnings per common share $ 4.81
$ 4.65

~~Standards Effective for 2019 Reporting Periods~~

~~ASU 2018-02: Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~

This ASU provides financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings due to the U.S. federal corporate income tax rate change as a result of the 2017 Tax Act. The amount of the reclassification is the difference between the amount initially charged or credited directly to other comprehensive income at the previously enacted U.S. federal corporate income tax rate that remains in accumulated other comprehensive income and the amount that would have been charged or credited directly to other comprehensive income using the newly enacted U.S. federal corporate income tax rate, excluding the effect of any valuation allowance previously charged to income from continuing operations. This standard is effective for interim and annual reporting periods beginning after December 15, ~~2018,~~2021. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2020. The New Convertible Debt Standard is applicable to our 6.50% convertible senior notes due 2025 (the Convertible Notes). We early adopted the New Convertible Debt Standard as of January 1, 2021 using the modified retrospective method to recognize the Convertible Notes as a single liability instrument. As of January 1, 2021, we recorded a $415 million ($320 million net of tax) reduction to additional paid-in capital to remove the equity component of the Convertible Notes from our consolidated balance sheet and a $19 million cumulative effect adjustment credit, net of tax, to retained deficit related to non-cash debt discount amortization recognized in periods prior to adoption resulting in a corresponding reduction of $389 million to the debt discount associated with the Convertible Notes. See Note 4(h) to AAG’s Consolidated Financial Statements in Part II, Item 8A for additional information on the Convertible Notes.

ASU 2019-12: Simplifying the Accounting for Income Taxes (Topic 740)

This standard simplifies the accounting and disclosure requirements for income taxes by clarifying the existing guidance to improve consistency in the application of Accounting Standards Codification 740. This standard also removed the requirement to calculate income tax expense for the stand-alone financial statements of wholly-owned subsidiaries that are not subject to income tax. We adopted this standard effective January 1, 2021, and it did not have a material impact on our consolidated financial statements.

ASU 2021-10: Disclosures by Business Entities about Government Assistance (Topic 832)

This standard provides guidance on the disclosure requirements for business entities receiving government assistance. Specifically, entities are required to disclose information about the nature of the assistance received, including the related accounting, the affected line items on the financial statements and amounts, and the significant terms and conditions, including any commitments and contingencies. This standard is effective for annual periods beginning after December 15, 2021, and early adoption is permitted. We ~~will adopt~~adopted this standard ~~effective January 1, 2019. The adoption~~as of ~~the standard may impact tax amounts stranded~~December 31, 2021. See Note 1(b) in ~~accumulated other comprehensive income~~each of AAG’s and American’s Consolidated Financial Statements in Part II, Items 8A and 8B, respectively, for disclosure related to ~~our pension and retiree medical and other postretirement benefit plans.~~the financial assistance we have received from Treasury.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The risk inherent in our market risk sensitive instruments and positions is the potential loss arising from adverse changes in the price of fuel, foreign currency exchange rates and interest rates as discussed below. The sensitivity analyses presented do not consider the effects that such adverse changes may have on overall economic activity, nor do they consider additional actions we may take to mitigate our exposure to such changes. Therefore, actual results may differ. See Note 87 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 6 to American’s Consolidated Financial Statements in Part II, Item 8B for additional discussion regarding risk management matters.

Aircraft Fuel

Our operating results are materially impacted by changes in the availability, price volatility and cost of aircraft fuel, which represents one of the largest single cost items in our business. Because of the amount of fuel needed to operate our ~~airlines,~~business, even a relatively small increase or decrease in the price of aircraft fuel can have a material effect on our ~~costs~~operating results and liquidity. Market prices for ~~jet~~aircraft fuel ~~have fluctuated substantially over the past several years~~can be volatile, with market spot prices ranging from a low of approximately ~~$0.80~~$0.37 per gallon to a high of approximately $2.35 per gallon during the period from January 1, ~~2016~~2019 to December 31, ~~2018.~~2021.

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Foreign Currency

We are exposed to the effect of foreign exchange rate fluctuations on the U.S. dollar value of foreign currency-denominated ~~operating revenues and expenses.~~transactions. Our largest exposure comes from the British pound sterling, Euro, Chinese yuan, Canadian dollar and various Latin American currencies, primarily the Brazilian real. We do not currently have a foreign currency hedge program. AWe estimate a uniform 10% strengthening in the value of the U.S. dollar from ~~2018~~2021 levels relative to each of the currencies in which we have foreign currency exposure would have resulted in ~~a decrease~~an increase in ~~operating income~~pre-tax loss of approximately ~~$200~~$90 million for the year ended December 31, ~~2018.~~2021.

Generally, fluctuations in foreign currencies, including devaluations, cannot be predicted by us and can significantly affect the value of our assets located outside the United States. These conditions, as well as any further delays, devaluations or imposition of more stringent repatriation restrictions, may materially adversely affect our business, results of operations and financial condition. See Part I, Item 1A. Risk Factors – “We operate a global business with international operations that are subject to economic and political instability and have been, and in the future may continue to be, adversely affected by numerous events, circumstances or government actions beyond our control” for additional discussion of this and other currency risks.

Interest

Our earnings and cash flow are affected by changes in interest rates due to the impact those changes have on our interest expense from ~~variable rate~~variable-rate debt instruments and our interest income from short-term, ~~interest bearing~~interest-bearing investments.

Our largest exposure with respect to ~~variable rate~~variable-rate debt comes from changes in LIBOR. We had ~~variable rate~~variable-rate debt instruments representing approximately ~~40%~~30% of our total long-term debt at December 31, ~~2018.~~2021. We currently do not have an interest rate hedge ~~program.~~program to hedge our exposure to floating interest rates on our variable-rate debt obligations. If annual interest rates increase 100 basis points, based on our December 31, ~~2018~~2021 variable-rate debt and short-term investments balances, annual interest expense on ~~variable rate~~variable-rate debt would increase by approximately ~~$100~~$109 million and annual interest income on short-term investments would increase by approximately ~~$50~~$124 million. Additionally, the fair value of fixed-rate debt would have decreased by approximately ~~$565 million~~$1.1 billion for AAG and ~~$550~~$860 million for American.

On July 27, 2017, the U.K. Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The discontinuation date for submission and publication of rates for certain tenors of USD LIBOR (1-month, 3-month, 6-month, and 12-month) was subsequently extended by the ICE Benchmark Administration (the administrator of LIBOR) until June 30, 2023. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2023. Similarly, it is not possible to predict whether LIBOR will continue to be viewed as an acceptable market benchmark, what rate or rates may become acceptable alternatives to LIBOR, or what effect these changes in views or alternatives may have on financial markets for LIBOR-linked financial instruments. While the U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, has chosen SOFR as the recommended risk-free reference rate for the U.S. (calculated based on repurchase agreements backed by treasury securities), we cannot currently predict the extent to which this index will gain widespread acceptance as a replacement for LIBOR. It is not possible to predict the effect of these changes, other reforms or the establishment of alternative reference rates in the United Kingdom, the United States or elsewhere.

We may in the future pursue amendments to our LIBOR-based debt transactions to provide for a transaction mechanism or other reference rate in anticipation of LIBOR’s discontinuation, but we may not be able to reach agreement with our lenders on any such amendments. As of December 31, 2021, we had $10.9 billion of borrowings based on LIBOR. The replacement of LIBOR with a comparable or successor rate could cause the amount of interest payable on our long-term debt to be different or higher than expected.

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ITEM 8A. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF AMERICAN AIRLINES GROUP INC.

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

American Airlines Group Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of American Airlines Group Inc. and subsidiaries (the Company) as of December 31, ~~2018~~2021 and ~~2017,~~2020, the related consolidated statements of operations, comprehensive income (loss), cash flows, and stockholders’ equity (deficit), for each of the years in the ~~three‑year~~three-year period ended December 31, ~~2018,~~2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, ~~2018~~2021 and ~~2017,~~2020, and the results of its operations and its cash flows for each of the years in the ~~three‑year~~three-year period ended December 31, ~~2018,~~2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, ~~2018,~~2021, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February ~~25, 2019~~22, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

~~Change in Accounting Principle~~

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for revenue from contracts with customers and leases in 2018 due to the full retrospective adoption of Accounting Standards Update (ASU) 2014-09, ~~Revenue from Contracts with Customers (Topic 606)~~,~~as amended, and the modified retrospective adoption of ASU 2016-02,~~ ~~Leases (Topic 842), as amended.~~

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

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Estimate of mileage credits not expected to be redeemed

As discussed in Note 1(l) to the consolidated financial statements, the Company’s loyalty program awards mileage credits to passengers for flights on the Company’s airline, flights on a partner airline, or for using the services of other program participants. The Company uses a statistical model based on historical redemption patterns to develop an estimate of mileage credits not expected to be redeemed. The associated value of mileage credits not expected to be redeemed is recognized as revenue proportionally as the remaining mileage credits are redeemed. The Company’s loyalty program liability was $9.1 billion as of December 31, 2021 and the associated passenger revenue for mileage credits redeemed for travel was $2.2 billion for the year ended December 31, 2021.

We identified the evaluation of the estimation of mileage credits not expected to be redeemed as a critical audit matter. Evaluating the application of the statistical model used to develop the estimate involved complex auditor judgment and the use of actuarial professionals with specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s loyalty program accounting process, including a control related to the evaluation of the application of the statistical model used to develop the estimate of mileage credits not expected to be redeemed. We involved actuarial professionals with specialized skills and knowledge, who assisted in developing a statistical model to derive an independent expectation of mileage credits not expected to be redeemed. We compared this independent expectation to the Company’s estimate to evaluate the appropriateness of the amount of the loyalty program liability and associated passenger revenue.

Sufficiency of audit evidence over realizability of tax operating loss and other carryforwards

As discussed in Notes 1(i) and 6 to the consolidated financial statements, the Company had $4.6 billion of tax operating loss and other carryforwards, which are recorded as deferred tax assets at December 31, 2021. Deferred tax assets are recognized related to tax operating loss and other carryforwards that will reduce future taxable income. The Company provides a valuation allowance for deferred tax assets when it is more likely than not that some portion, or all of the deferred tax assets, will not be realized. In evaluating the need for a valuation allowance, management considers the weighting of all available positive and negative evidence.

We identified the evaluation of the sufficiency of audit evidence over the realizability of tax operating loss and other carryforwards as a critical audit matter. Evaluating the sufficiency of audit evidence required subjective auditor judgment in order to assess the extent of procedures performed in assessing the realizability of the tax operating loss and other carryforwards.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s deferred tax asset valuation allowance process, including controls related to the realizability of tax operating loss and other carryforwards. We evaluated positive and negative evidence used in assessing whether the tax operating loss and other carryforwards were more likely than not to be realized in the future. We evaluated the reasonableness of management’s projections of future profitability considering historical profitability of the Company, and consistency with industry data and economic trends. We involved tax professionals with specialized skills and knowledge, who assisted in evaluating the application of tax law. We assessed the sufficiency of audit evidence obtained over the realizability of the tax operating loss and other carryforwards by evaluating the cumulative results of the audit procedures.

/s/ KPMG LLP

We have served as the Company’s auditor since 2014.

Dallas, Texas

February ~~25, 2019~~

22, 2022

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AMERICAN AIRLINES GROUP INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except ~~shares~~share and per share amounts)


	Year Ended December 31,										Year Ended December 31,
	2018			2017			2016				2021		2020		2019
Operating revenues:										Operating revenues:
Passenger	$	40,676		$	39,131		$	37,045		Passenger	$	26,063	$	14,518	$	42,010
Cargo	1,013			890			785			Cargo	1,314		769		863
Other	2,852			2,601			2,312			Other	2,505		2,050		2,895
Total operating revenues	44,541			42,622			40,142			Total operating revenues	29,882		17,337		45,768
Operating expenses:										Operating expenses:
Aircraft fuel and related taxes	8,053			6,128			5,071			Aircraft fuel and related taxes	6,792		3,402		9,395
Salaries, wages and benefits	12,251			11,954			10,967			Salaries, wages and benefits	11,817		11,229		12,895
Regional expenses	7,133			6,546			6,044			Regional expenses	3,204		2,962		3,985
Maintenance, materials and repairs	2,050			1,959			1,834			Maintenance, materials and repairs	1,979		1,585		2,381
Other rent and landing fees	1,900			1,806			1,772			Other rent and landing fees	2,619		2,004		2,672
Aircraft rent	1,264			1,197			1,203			Aircraft rent	1,425		1,341		1,326
Selling expenses	1,520			1,477			1,323			Selling expenses	1,098		666		2,004
Depreciation and amortization	1,839			1,702			1,525			Depreciation and amortization	2,019		2,040		1,982
Special items, net	787			712			709			Special items, net	(4,006)		(657)		635
Other	5,088			4,910			4,634			Other	3,994		3,186		5,428
Total operating expenses	41,885			38,391			35,082			Total operating expenses	30,941		27,758		42,703
Operating income	2,656			4,231			5,060
Operating income (loss)										Operating income (loss)	(1,059)		(10,421)		3,065
Nonoperating income (expense):										Nonoperating income (expense):
Interest income	118			94			63			Interest income	18		41		127
Interest expense, net	(1,056		)	(1,053		)	(991		)	Interest expense, net	(1,800)		(1,227)		(1,095)
Other income, net	166			123			20			Other income, net	293		154		159
Total nonoperating expense, net	(772		)	(836		)	(908		)	Total nonoperating expense, net	(1,489)		(1,032)		(809)
Income before income taxes	1,884			3,395			4,152
Income tax provision	472			2,113			1,568
Net income	$	1,412		$	1,282		$	2,584
Income (loss) before income taxes										Income (loss) before income taxes	(2,548)		(11,453)		2,256
Income tax provision (benefit)										Income tax provision (benefit)	(555)		(2,568)		570
Net income (loss)										Net income (loss)	$	(1,993)	$	(8,885)	$	1,686

Earnings per common share:
Earnings (loss) per common share:										Earnings (loss) per common share:
Basic	$	3.04		$	2.62		$	4.68		Basic	$	(3.09)	$	(18.36)	$	3.80
Diluted	$	3.03		$	2.61		$	4.65		Diluted	$	(3.09)	$	(18.36)	$	3.79
Weighted average shares outstanding (in thousands):										Weighted average shares outstanding (in thousands):
Basic	464,236			489,164			552,308			Basic	644,015		483,888		443,363
Diluted	465,660			491,692			556,099			Diluted	644,015		483,888		444,269
Cash dividends declared per common share	$	0.40		$	0.40		$	0.40		Cash dividends declared per common share	$	—	$	0.10	$	0.40

See accompanying notes to consolidated financial statements.

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AMERICAN AIRLINES GROUP INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)


											Year Ended December 31,
	Year Ended December 31,										2021		2020		2019
	2018			2017			2016
Net income	$	1,412		$	1,282		$	2,584
Net income (loss)										Net income (loss)	$	(1,993)	$	(8,885)	$	1,686
Other comprehensive income (loss), net of tax:										Other comprehensive income (loss), net of tax:
Pension, retiree medical and other postretirement benefits	(117		)	(70		)	(358		)	Pension, retiree medical and other postretirement benefits	1,161		(772)		(438)

Investments	(3		)	(1		)	7			Investments	—		—		3
Total other comprehensive loss, net of tax	(120		)	(71		)	(351		)
Total comprehensive income	$	1,292		$	1,211		$	2,233
Total other comprehensive income (loss), net of tax										Total other comprehensive income (loss), net of tax	1,161		(772)		(435)
Total comprehensive income (loss)										Total comprehensive income (loss)	$	(832)	$	(9,657)	$	1,251

See accompanying notes to consolidated financial statements.

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AMERICAN AIRLINES GROUP INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except ~~shares~~share and par value)


	December 31,							December 31,
	2018			2017				2021		2020
ASSETS							ASSETS
Current assets							Current assets
Cash	$	275		$	295		Cash	$	273	$	245
Short-term investments	4,485			4,771			Short-term investments	12,158		6,619
Restricted cash and short-term investments	154			318			Restricted cash and short-term investments	990		609
Accounts receivable, net	1,706			1,752			Accounts receivable, net	1,505		1,342
Aircraft fuel, spare parts and supplies, net	1,522			1,359			Aircraft fuel, spare parts and supplies, net	1,795		1,614
Prepaid expenses and other	495			651			Prepaid expenses and other	615		666
Total current assets	8,637			9,146			Total current assets	17,336		11,095
Operating property and equipment							Operating property and equipment
Flight equipment	41,499			40,318			Flight equipment	37,856		37,816
Ground property and equipment	8,764			8,267			Ground property and equipment	9,335		9,194
Equipment purchase deposits	1,278			1,217			Equipment purchase deposits	517		1,446
Total property and equipment, at cost	51,541			49,802			Total property and equipment, at cost	47,708		48,456
Less accumulated depreciation and amortization	(17,443		)	(15,646		)	Less accumulated depreciation and amortization	(18,171)		(16,757)
Total property and equipment, net	34,098			34,156			Total property and equipment, net	29,537		31,699
Operating lease right-of-use assets	9,151			—			Operating lease right-of-use assets	7,850		8,039
Other assets							Other assets
Goodwill	4,091			4,091			Goodwill	4,091		4,091
Intangibles, net of accumulated amortization of $663 and $622, respectively	2,137			2,203
Intangibles, net of accumulated amortization of $786 and $745, respectively							Intangibles, net of accumulated amortization of $786 and $745, respectively	1,988		2,029
Deferred tax asset	1,145			1,816			Deferred tax asset	3,556		3,239
Other assets	1,321			1,373			Other assets	2,109		1,816
Total other assets	8,694			9,483			Total other assets	11,744		11,175
Total assets	$	60,580		$	52,785		Total assets	$	66,467	$	62,008

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)							LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities							Current liabilities
Current maturities of long-term debt and finance leases	$	3,294		$	2,554		Current maturities of long-term debt and finance leases	$	2,489	$	2,797
Accounts payable	1,773			1,688			Accounts payable	1,772		1,196
Accrued salaries and wages	1,427			1,672			Accrued salaries and wages	1,489		1,716
Air traffic liability	4,339			4,042			Air traffic liability	6,087		4,757
Loyalty program liability	3,267			3,121			Loyalty program liability	2,896		2,033
Operating lease liabilities	1,654			—			Operating lease liabilities	1,507		1,651
Other accrued liabilities	2,342			2,281			Other accrued liabilities	2,766		2,419
Total current liabilities	18,096			15,358			Total current liabilities	19,006		16,569
Noncurrent liabilities							Noncurrent liabilities
Long-term debt and finance leases, net of current maturities	21,179			22,511			Long-term debt and finance leases, net of current maturities	35,571		29,796
Pension and postretirement benefits	6,907			7,497			Pension and postretirement benefits	5,053		7,069
Loyalty program liability	5,272			5,701			Loyalty program liability	6,239		7,162
Operating lease liabilities	7,902			—			Operating lease liabilities	6,610		6,777
Other liabilities	1,393			2,498			Other liabilities	1,328		1,502
Total noncurrent liabilities	42,653			38,207			Total noncurrent liabilities	54,801		52,306
Commitments and contingencies (Note 12)
Commitments and contingencies (Note 11)							Commitments and contingencies (Note 11)	0		0
Stockholders' equity (deficit)							Stockholders' equity (deficit)
Common stock, $0.01 par value; 1,750,000,000 shares authorized, 460,610,870 shares issued and outstanding at December 31, 2018; 475,507,887 shares issued and outstanding at December 31, 2017	5			5
Common stock, $0.01 par value; 1,750,000,000 shares authorized, 647,727,595 shares issued and outstanding at December 31, 2021; 621,479,522 shares issued and outstanding at December 31, 2020							Common stock, $0.01 par value; 1,750,000,000 shares authorized, 647,727,595 shares issued and outstanding at December 31, 2021; 621,479,522 shares issued and outstanding at December 31, 2020	6		6
Additional paid-in capital	4,964			5,714			Additional paid-in capital	7,234		6,894
Accumulated other comprehensive loss	(5,274		)	(5,154		)	Accumulated other comprehensive loss	(5,942)		(7,103)
Retained earnings (deficit)	136			(1,345		)
Retained deficit							Retained deficit	(8,638)		(6,664)
Total stockholders' deficit	(169		)	(780		)	Total stockholders' deficit	(7,340)		(6,867)
Total liabilities and stockholders’ equity (deficit)	$	60,580		$	52,785		Total liabilities and stockholders’ equity (deficit)	$	66,467	$	62,008

See accompanying notes to consolidated financial statements.

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AMERICAN AIRLINES GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)


	Year Ended December 31,
	2021		2020		2019
Cash flows from operating activities:
Net income (loss)	$	(1,993)	$	(8,885)	$	1,686
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	2,335		2,370		2,318
Net gains from sale of property and equipment and sale-leaseback transactions	(22)		(95)		(112)
Special items, net non-cash	83		1,599		376
Pension and postretirement	(321)		(319)		(178)
Deferred income tax provision (benefit)	(555)		(2,568)		560
Share-based compensation	98		91		94
Other, net	38		47		(62)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable	(304)		538		73
Increase in other assets	(402)		(38)		(373)
Increase (decrease) in accounts payable and accrued liabilities	461		(626)		327
Increase (decrease) in air traffic liability	1,454		(51)		469
Increase (decrease) in loyalty program liability	(60)		580		76
Contributions to pension plans	(247)		(9)		(1,230)
Increase (decrease) in other liabilities	139		823		(209)
Net cash provided by (used in) operating activities	704		(6,543)		3,815
Cash flows from investing activities:
Capital expenditures, net of aircraft purchase deposit returns	(208)		(1,958)		(4,268)
Airport construction projects, net of reimbursements	(204)		(173)		(98)
Proceeds from sale of property and equipment	193		351		54
Proceeds from sale-leaseback transactions	181		665		850
Purchases of short-term investments	(19,454)		(5,873)		(3,184)
Sales of short-term investments	13,923		2,803		4,144
Increase in restricted short-term investments	(401)		(308)		(3)
Purchase of equity investment	(28)		—		—
Proceeds on sale of equity investment	5		41		—
Proceeds from vendor	—		90		250
Other investing activities	10		20		12
Net cash used in investing activities	(5,983)		(4,342)		(2,243)
Cash flows from financing activities:
Proceeds from issuance of long-term debt	12,190		11,780		3,960
Payments on long-term debt and finance leases	(7,343)		(3,535)		(4,190)
Proceeds from issuance of equity	460		2,970		—
Deferred financing costs	(209)		(93)		(61)
Treasury stock repurchases and shares withheld for taxes pursuant to employee stock plans	(18)		(173)		(1,097)
Dividend payments	—		(43)		(178)
Other financing activities	208		88		(2)
Net cash provided by (used in) financing activities	5,288		10,994		(1,568)
Net increase in cash and restricted cash	9		109		4
Cash and restricted cash at beginning of year	399		290		286
Cash and restricted cash at end of year (a)	$	408	$	399	$	290

December 31,
2018 2017 2016
Cash flows from operating activities:
Net income $ 1,412
$ 1,282
$ 2,584
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 2,159
2,017
1,818
Debt discount and lease amortization (92 ) (114 ) (119 )
Special items, non-cash 458
272
270
Pension and postretirement (300 ) (132 ) (68 )
Deferred income tax provision 440
2,089
1,556
Share-based compensation 86
90
100
Other, net (64 ) (39 ) (18 )
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 222
(190 ) (160 )
Increase in other assets (390 ) (433 ) (184 )
Increase (decrease) in accounts payable and accrued liabilities (147 ) 299
307
Increase in air traffic liability 297
65
158
Increase (decrease) in loyalty program liability (283 ) (308 ) 417
Contributions to pension plans (475 ) (286 ) (32 )
Increase (decrease) in other liabilities 210
132
(105 )
Net cash provided by operating activities 3,533
4,744
6,524
Cash flows from investing activities:
Capital expenditures and aircraft purchase deposits (3,745 ) (5,971 ) (5,731 )
Proceeds from sale of property and equipment and sale-leaseback transactions 1,207
947
125
Purchases of short-term investments (3,412 ) (4,633 ) (6,241 )
Sales of short-term investments 3,705
5,915
6,092
Proceeds from sale of investments 207
—
—
Decrease in restricted short-term investments 72
309
53
Purchase of equity investment —
(203 ) —
Other investing activities (7 ) —
—
Net cash used in investing activities (1,973 ) (3,636 ) (5,702 )
Cash flows from financing activities:
Proceeds from issuance of long-term debt 2,354
3,058
7,701
Payments on long-term debt and finance leases (2,941 ) (2,332 ) (3,827 )
Deferred financing costs (59 ) (85 ) (77 )
Treasury stock repurchases (837 ) (1,615 ) (4,500 )
Dividend payments (186 ) (198 ) (224 )
Other financing activities (3 ) 27
33
Net cash used in financing activities (1,672 ) (1,145 ) (894 )
Net decrease in cash and restricted cash (112 ) (37 ) (72 )
Cash and restricted cash at beginning of year 398
435
507
Cash and restricted cash at end of year ^(a)
$ 286
$ 398
$ 435

^(a)The following table provides a reconciliation of cash and restricted cash to amounts reported within the consolidated balance sheets:


Cash	$	275	$	295	$	322	Cash	$	273	$	245	$	280
Restricted cash included in restricted cash and short-term investments	11		103		113		Restricted cash included in restricted cash and short-term investments	135		154		10
Total cash and restricted cash	$	286	$	398	$	435	Total cash and restricted cash	$	408	$	399	$	290

See accompanying notes to consolidated financial statements.

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AMERICAN AIRLINES GROUP INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(In millions, except share amounts)

Common
Stock

Additional
Paid-in
Capital

Accumulated
Other
Comprehensive
Loss

Retained
Earnings
(Deficit)
Total
Balance at December 31, 2015 $ 6
$ 11,591
$ (4,732 ) $ (1,230 ) $ 5,635
Net income —
—
—
2,584
2,584
Other comprehensive loss —
—
(351 ) —
(351 )
Cash tax withholding on shares issued —
(56 ) —
—
(56 )
Purchase and retirement of 119,823,621 shares of AAG common stock (1 ) (4,415 ) —
—
(4,416 )
Dividends declared on AAG common stock ($0.40 per share) —
—
—
(224 ) (224 )
Issuance of 2,506,067 shares of AAG common stock pursuant to employee stock plans —
—
—
—
—
Settlement of single-dip unsecured claims held in distributed claims reserve —
3
—
—
3
Share-based compensation expense —
100
—
—
100
Impact of adoption of Accounting Standards Update (ASU) 2016-09 related to share-based compensation —
—
—
418
418
Impact of adoption of ASU 2014-09 related to revenue recognition (See Note 1(b)) —
—
—
(3,977 ) (3,977 )
Balance at December 31, 2016 5
7,223
(5,083 ) (2,429 ) (284 )
Net income —
—
—
1,282
1,282
Other comprehensive loss —
—
(71 ) —
(71 )
Cash tax withholding on shares issued —
(51 ) —
—
(51 )
Purchase and retirement of 33,953,127 shares of AAG common stock —
(1,563 ) —
—
(1,563 )
Dividends declared on AAG common stock ($0.40 per share) —
—
—
(198 ) (198 )
Issuance of 2,166,861 shares of AAG common stock pursuant to employee stock plans —
—
—
—
—
Settlement of single-dip unsecured claims held in distributed claims reserve —
15
—
—
15
Share-based compensation expense —
90
—
—
90
Balance at December 31, 2017 5
5,714
(5,154 ) (1,345 ) (780 )
Net income —
—
—
1,412
1,412
Other comprehensive loss —
—
(120 ) —
(120 )
Cash tax withholding on shares issued —
(37 ) —
—
(37 )
Purchase and retirement of 16,606,157 shares of AAG common stock —
(799 ) —
—
(799 )
Dividends declared on AAG common stock ($0.40 per share) —
—
—
(188 ) (188 )
Issuance of 1,709,140 shares of AAG common stock pursuant to employee stock plans —
—
—
—
—
Share-based compensation expense —
86
—
—
86
Impact of adoption of ASU 2016-01 related to financial instruments (See Note 1(b)) —
—
—
60
60
Impact of adoption of ASU 2016-02 related to leases (See Note 1(b)) —
—
—
197
197
Balance at December 31, 2018 $ 5
$ 4,964
$ (5,274 ) $ 136
$ (169 )


	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Retained Earnings (Deficit)		Total
Balance at December 31, 2018	$	5	$	4,964	$	(5,896)	$	758	$	(169)
Net income	—		—		—		1,686		1,686
Other comprehensive loss, net	—		—		(435)		—		(435)
Issuance of 1,682,202 shares of AAG common stock pursuant to employee stock plans net of shares withheld for cash taxes	—		(25)		—		—		(25)
Purchase and retirement of 34,090,566 shares of AAG common stock	(1)		(1,095)		—		—		(1,096)
Dividends declared on AAG common stock ($0.40 per share)	—		—		—		(180)		(180)
Settlement of single-dip unsecured claims held in Disputed Claims Reserve (DCR)	—		7		—		—		7
Share-based compensation expense	—		94		—		—		94
Balance at December 31, 2019	4		3,945		(6,331)		2,264		(118)
Net loss	—		—		—		(8,885)		(8,885)
Other comprehensive loss, net	—		—		(772)		—		(772)
Issuance of PSP1 Warrants (see Note 1(b))	—		63		—		—		63
Issuance of Treasury Loan Warrants (see Note 1(b))	—		25		—		—		25
Issuance of 1,603,554 shares of AAG common stock pursuant to employee stock plans net of shares withheld for cash taxes	—		(15)		—		—		(15)
Issuance of 129,490,000 shares of AAG common stock pursuant to public stock offerings, net of offering costs	1		1,686		—		—		1,687
Issuance of 68,561,487 shares of AAG common stock pursuant to an at-the-market offering, net of offering costs	1		868		—		—		869
Equity component of convertible debt issued, net of tax and offering costs	—		320		—		—		320
Purchase and retirement of 6,378,025 shares of AAG common stock	—		(145)		—		—		(145)
Dividends declared on AAG common stock ($0.10 per share)	—		—		—		(43)		(43)
Settlement of single-dip unsecured claims held in DCR	—		56		—		—		56
Share-based compensation expense	—		91		—		—		91
Balance at December 31, 2020	6		6,894		(7,103)		(6,664)		(6,867)
Net loss	—		—		—		(1,993)		(1,993)
Other comprehensive income, net	—		—		1,161		—		1,161
Issuance of 24,150,764 shares of AAG common stock pursuant to an at-the-market offering, net of offering costs	—		460		—		—		460
Impact of adoption of Accounting Standards Update (ASU) 2020-06 related to convertible instruments (see Note 1(c))	—		(320)		—		19		(301)
Issuance of PSP2 and PSP3 Warrants (see Note 1(b))	—		121		—		—		121
Issuance of 2,357,187 shares of AAG common stock pursuant to employee stock plans net of shares withheld for cash taxes	—		(18)		—		—		(18)
Settlement of single-dip unsecured claims held in DCR and retirement of 259,878 shares of AAG common stock	—		(1)		—		—		(1)
Share-based compensation expense	—		98		—		—		98
Balance at December 31, 2021	$	6	$	7,234	$	(5,942)	$	(8,638)	$	(7,340)

See accompanying notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

1. Basis of Presentation and Summary of Significant Accounting Policies

(a) Basis of Presentation

American Airlines Group Inc. (we, us, our and similar terms, or AAG), a Delaware corporation, is a holding company whose primary business activity is the operation of a major network air carrier, providing scheduled air transportation for passengers and cargo through its mainline operating subsidiary, American Airlines, Inc. (American) and its wholly-owned regional airline subsidiaries, Envoy Aviation Group Inc. ~~(Envoy)~~, PSA Airlines, Inc. ~~(PSA)~~ and Piedmont Airlines, Inc. ~~(Piedmont)~~, that operate under the brand American Eagle. On December 9, 2013, a subsidiary of AMR Corporation (AMR) merged with and into US Airways Group, Inc. (US Airways Group), a Delaware corporation, which survived as a wholly-owned subsidiary of AAG, and AAG emerged from Chapter 11 (the Merger). Upon closing of the Merger and emergence from Chapter 11, AMR changed its name to American Airlines Group Inc. All significant intercompany transactions have been eliminated.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States (GAAP) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The most significant areas of judgment relate to passenger revenue recognition, ~~impairment of goodwill, impairment of long-lived and intangible assets,~~ the loyalty program, deferred tax assets, as well as pension and retiree medical and other postretirement benefits. Certain prior period amounts have been reclassified to conform to the current year presentation. See (r) Regional Expenses below for further information.

(b) ~~Recent Accounting Pronouncements~~Impact of Coronavirus (COVID-19)

~~Standards Adopted~~COVID-19 has been declared a global health pandemic by the World Health Organization. COVID-19 has surfaced in ~~2018~~

~~Effective January 1, 2018, we adopted~~nearly all regions of the ~~accounting pronouncements described below.~~

~~ASU 2014-09: Revenue from Contracts with Customers (Topic 606) (the New Revenue Standard)~~

~~The New Revenue Standard applies~~world, which has driven the implementation of significant, government-imposed measures to ~~all companies that enter into contracts with customers to transfer goods~~prevent or ~~services. We adopted~~reduce its spread, including travel restrictions, testing regimes, closing of borders, “stay at home” orders and business closures. Ongoing global vaccination efforts and the ~~New Revenue Standard using the full retrospective method, which~~corresponding lifting of government restrictions in and between many markets resulted in a partial recovery in demand for air travel in 2021, which improved our revenues as compared to 2020. However, the ~~recast~~return of ~~prior reporting periods.~~

demand was weaker than previous expectations and the speed and strength of this recovery remain uncertain, primarily due to the global rise in COVID-19 cases associated with the delta and omicron variants and the potential for continuation or reimposition of restrictions on global travel. The ~~adoption~~continued impact of the ~~New Revenue Standard impacted our accounting for outstanding mileage credits earned through travel by AAdvantage loyalty program members. There was no change~~COVID-19 pandemic, including any increases in ~~accounting for sales~~infection rates, new variants and renewed governmental action to slow the spread of ~~mileage credits to co-branded credit card or other partners. Prior to~~COVID-19 cannot be estimated.

We have taken aggressive actions since the ~~adoption~~beginning of the ~~New Revenue Standard, we used~~COVID-19 pandemic to mitigate its effects on our business, including capacity reductions, structural changes to our fleet, cost reductions including implementing voluntary leave and early retirement programs, and steps to preserve cash and improve our overall liquidity position, consistent with the incremental cost method to account for the portion of our loyalty program liability related to mileage credits earned through travel, which were valued based on the estimated incremental cost of carrying one additional passenger. The New Revenue Standard required us to change our policy to the deferred revenue method and apply a relative selling price approach whereby a portion of each passenger ticket sale attributable to mileage credits earned is deferred and recognized in passenger revenue upon future mileage redemption. The valueterms of the ~~earned mileage credits is materially greater~~financial assistance we have received from the U.S. Government under the ~~deferred revenue method than~~Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Subtitle A of Title IV of Division N of the ~~value attributed~~Consolidated Appropriations Act, 2021 (PSP Extension Law) and Section 7301 of the American Rescue Plan Act of 2021 (the ARP).

Capacity Reductions

Our capacity (as measured by available seat miles) continues to ~~these mileage credits under~~be reduced compared to pre-COVID-19 pandemic levels, with total capacity in 2021 down 24.7% as compared to 2019. Domestic capacity in 2021 was down 14.5% while international capacity was down 44.9% as compared to 2019.

While demand for domestic and short-haul international markets has largely recovered to 2019 levels, uncertainty remains regarding the ~~incremental cost method.~~

~~The New Revenue Standard also required certain reclassifications, principally the reclassification~~timing of ~~certain ancillary revenues previously classified~~a full recovery. We will continue to match our forward capacity with observed booking trends for future travel and reported as other revenue to passenger revenue and as applicable to cargo revenue. Additionally, the New Revenue Standard required a gross presentation on the face of our consolidated statements of operations for certain revenues and expenses that had previously been presented on a net basis.

~~See~~ ~~“Impacts to 2017 Results”~~ ~~and~~ ~~“Impacts to 2016 Results”~~ ~~below for the impact~~make further adjustments to our ~~consolidated statements~~capacity as needed.

Cost Reductions

We have reduced our 2021 operating expenditures as a result of ~~operations data for 2017~~permanent non-volume cost reductions and ~~2016, respectively, and our consolidated balance sheet as of December 31, 2017 related to the adoption of the New Revenue Standard.~~

~~ASU 2017-07: Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (the New Retirement Standard)~~

~~The New Retirement Standard required all components of our net periodic benefit cost (income), with the exception of service cost, previously reported within operating expenses as~~other efficiency measures. These reductions include labor productivity enhancements, management salaries ~~wages~~ and benefits ~~to be reclassified~~ and ~~reported within nonoperating income (expense). The New Retirement Standard was applied retrospectively, which resulted in~~other permanent cost reductions. Also, during the ~~recast~~first quarter of ~~each prior reporting period presented. The adoption of the New Retirement Standard had no impact on pre-tax income or net income reported.~~2021, approximately 1,600 represented team members opted into a voluntary early retirement program.

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

Liquidity

~~See~~ ~~“Impacts~~As of December 31, 2021, we had $15.8 billion in total available liquidity, consisting of $12.4 billion in unrestricted cash and short-term investments, $2.8 billion in undrawn capacity under revolving credit facilities and a total of $568 million in undrawn short-term revolving and other facilities.

During 2021, we completed the following financing transactions (see Note 4 for further information):

•repaid the $550 million of outstanding loans under, and ~~“Impacts~~terminated, the $7.5 billion secured term loan facility with the U.S. Department of the Treasury (Treasury) (the Treasury Loan Agreement);

•issued approximately $150 million in special facility revenue bonds related to John F. Kennedy International Airport (JFK), of which $62 million was used to fund the redemption of other bonds related to JFK;

•repaid in full $950 million of the outstanding balance under, and terminated, the April 2016 ~~Results”~~Spare Parts Term Loan Facility;

In addition to the foregoing financings, during 2021, we received an aggregate of approximately $3.5 billion in financial assistance through the payroll support program (PSP2) established under the PSP Extension Law. In connection with our receipt of this financial assistance, AAG issued a promissory note (the PSP2 Promissory Note) to Treasury for $1.0 billion in aggregate principal amount and warrants to purchase up to an aggregate of approximately 6.6 million shares (the PSP2 Warrant Shares) of AAG common stock.

Given the ~~impact to~~above actions and our ~~consolidated statements of operations data for 2017 and 2016, respectively, related to~~current assumptions about the ~~adoption~~future impact of the ~~New Retirement Standard.~~

~~ASU 2016-02: Leases (Topic 842) (the New Lease Standard)~~

~~The New Lease Standard requires lessees to recognize a lease liability and a right-of-use (ROU) asset~~COVID-19 pandemic on the balance sheet for operating leases. Accounting for finance leases is substantially unchanged. The New Lease Standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted.

In the fourth quarter of 2018, we elected to early adopt the New Lease Standard as of January 1, 2018 using a modified retrospective transition, with the cumulative-effect adjustment to the opening balance of retained earnings as of the effective date (the effective date method). Under the effective date method, financial results reported in periods prior to 2018 are unchanged. We also elected the package of practical expedients,travel demand, which ~~among other things, does not require reassessment of lease classification.~~

~~The adoption of the New Lease Standard had a significant impact on our consolidated balance sheet~~could be materially different due to the ~~recognition of approximately $10 billion of lease liabilities with corresponding right-of-use assets for operating leases.~~

Additionally, we recognized a $197 million cumulative effect adjustment credit, net of tax, to retained earnings. The adjustment to retained earnings was driven principally by sale-leaseback transactions including the recognition of unamortized deferred aircraft sale-leaseback gains. Prior to the adoptioninherent uncertainties of the ~~New Lease Standard, gains~~current operating environment, we expect to meet our cash obligations as well as remain in compliance with the debt covenants in our existing financing agreements for the next 12 months based on ~~sale-leaseback transactions were generally deferred~~our current level of unrestricted cash and ~~recognized in the income statement over the lease term. Under the New Lease Standard, gains on sale-leaseback transactions (subject~~short-term investments, our anticipated access to ~~adjustment for off-market terms) are recognized immediately.~~

~~ASU 2016-01: Financial Instruments - Overall (Subtopic 825-10)~~

~~This ASU made several modifications to Subtopic 825-10, including the elimination of the available-for-sale classification of equity investments,~~liquidity (including via proceeds from financings), and it required equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income. This standard was adopted prospectively as of January 1, 2018 and resulted in a $60 millioncumulative effect adjustment credit to retained earnings, net of tax, related to our investment in China Southern Airlines Company Limited (China Southern Airlines), which was previously accounted for under the cost method.

~~ASU 2016-18: Statement of Cash Flows (Topic 230): Restricted Cash~~

~~This ASU required that the change in the total cash balance, cash at the beginning of the period and cash at the end of the period on the statement of~~projected cash flows ~~include restricted cash, and also required companies that report cash and restricted cash separately on the balance sheet to reconcile those amounts to the statement~~from operations.

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Table of cash flows. This standard was applied retrospectively, which resulted in the recast of prior reporting periods in the statement of cash flows. For the years ended December 31, 2018, 2017 and 2016, $11 million, $103 million and $113 million, respectively, of restricted cash is included in the total cash and restricted cash balance at the end of the period. A reconciliation of cash and restricted cash reported on our consolidated statements of cash flows to the amounts reported on our consolidated balance sheets is provided in a table below the Consolidated Statements of Cash Flows.Contents

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

PSP1

~~Impacts~~On April 20, 2020 (the PSP1 Closing Date), American, Envoy Air Inc. (Envoy), Piedmont Airlines, Inc. (Piedmont) and PSA Airlines, Inc. (PSA and together with American, Envoy and Piedmont, the Subsidiaries), entered into a Payroll Support Program Agreement (the PSP1 Agreement) with Treasury, with respect to ~~2017 Results~~PSP1 provided pursuant to the CARES Act. In connection with our entry into the PSP1 Agreement, on the PSP1 Closing Date, AAG also entered into a warrant agreement (the PSP1 Warrant Agreement) with Treasury and issued the PSP1 Promissory Note to Treasury, with the Subsidiaries as guarantors (the Guarantors).

~~The effects~~PSP1 Agreement

In connection with PSP1, we are required to comply with the relevant provisions of the ~~adoption~~CARES Act, including the requirement that funds provided pursuant to the PSP1 Agreement be used exclusively for the continuation of payment of eligible employee wages, salaries and benefits, the prohibition against involuntary furloughs and reductions in employee pay rates and benefits, which expired on September 30, 2020, the requirement that certain levels of commercial air service be maintained and the provisions that prohibit the repurchase of AAG common stock and the payment of common stock dividends through at least September 30, 2021, as well as the provisions that restrict the payment of certain executive compensation until March 24, 2022. The PSP1 Agreement also imposes substantial reporting obligations on us. These provisions were subsequently extended upon our entry into PSP2 and PSP3. In addition, we have entered into the Treasury Loan Agreement (as defined below) and, as a result, the stock repurchase, dividend and executive compensation restrictions imposed by the Treasury Loan Agreement will remain in place through the date that is one year after the secured loan provided under the Treasury Loan Agreement is fully repaid, which was in March 2021. See below for additional information on the Treasury Loan Agreement.

Pursuant to the PSP1 Agreement, Treasury provided us financial assistance in an aggregate of approximately $6.0 billion. As partial compensation to the U.S. Government for the provision of financial assistance under PSP1, AAG issued the PSP1 Promissory Note in the aggregate principal amount of $1.8 billion and issued warrants (each a PSP1 Warrant and, collectively, the PSP1 Warrants) to Treasury to purchase up to an aggregate of approximately 14.1 million shares (the PSP1 Warrant Shares) of AAG common stock for an exercise price of $12.51 per share, subject to adjustment. See Note 4(g) for further information on the PSP1 Promissory Note and below for more information on the PSP1 Warrant Agreement and the PSP1 Warrants.

For accounting purposes, the $6.0 billion of aggregate financial assistance we received pursuant to the PSP1 Agreement is allocated to the PSP1 Promissory Note, the PSP1 Warrants and other PSP1 financial assistance (the PSP1 Financial Assistance). The $1.8 billion aggregate principal amount of the ~~New Revenue Standard~~PSP1 Promissory Note was recorded as unsecured long-term debt, and ~~New Retirement Standard~~the $63 million total fair value of the PSP1 Warrants, estimated using a Black-Scholes option pricing model, was recorded in stockholders' deficit in the consolidated balance sheet. The remaining amount of approximately $4.2 billion of PSP1 Financial Assistance was recognized as a credit to ~~our~~special items, net in the consolidated statement of operations in the second and third quarters of 2020, the period over which the continuation of payment of eligible employee wages, salaries and benefits was required.

PSP1 Warrant Agreement and PSP1 Warrants

As partial compensation to the U.S. Government for the ~~twelve months ended December 31, 2017 were as follows (in millions):~~


⁽¹⁾	The adjustment to the 2017 income tax provision includes an $823 million special charge to reduce our deferred tax asset associated with loyalty program liabilities as a result of H.R. 1, the 2017 Tax Cuts and Jobs Act (the 2017 Tax Act), enacted in December 2017 that reduced the federal corporate income tax rate from 35% to 21%.

provision of financial assistance under the PSP1 Agreement, and pursuant to the PSP1 Warrant Agreement, AAG issued the PSP1 Warrants to Treasury to purchase PSP1 Warrant Shares. The ~~effects~~exercise price of the ~~adoption~~PSP1 Warrant Shares is $12.51 per share, subject to certain anti-dilution provisions provided for in the PSP1 Warrants.

Pursuant to the PSP1 Warrant Agreement, AAG issued to Treasury PSP1 Warrants to purchase up to an aggregate of approximately 14.1 million shares of AAG common stock for an exercise price of $12.51 per share, subject to adjustment.

The PSP1 Warrants do not have any voting rights and are freely transferrable, with registration rights. Each PSP1 Warrant expires on the fifth anniversary of the ~~New Revenue Standard~~date of issuance of such PSP1 Warrant. The PSP1 Warrants will be exercisable either through net share settlement or cash, at our option. The PSP1 Warrants were issued solely as compensation to ~~our December 31, 2017 consolidated balance sheet~~the U.S. Government related to entry into the PSP1 Agreement. No separate proceeds (apart from the financial assistance described above) were ~~as follows (in millions):~~received upon issuance of the PSP1 Warrants or will be received upon exercise thereof.

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

Treasury Loan Agreement

~~Impacts~~On September 25, 2020 (the Treasury Loan Closing Date), AAG and American entered into a Loan and Guarantee Agreement (the Treasury Loan Agreement) with Treasury, which provided for a secured term loan facility (the Treasury Term Loan Facility) that permitted American to ~~2016 Results~~borrow up to $5.5 billion. Subsequently, on October 21, 2020, AAG and American entered into an amendment to the Treasury Loan Agreement, which increased the borrowing amount to up to $7.5 billion. In connection with our entry into the Treasury Loan Agreement, on the Treasury Loan Closing Date, AAG also entered into a warrant agreement (the Treasury Loan Warrant Agreement) with Treasury.

In September 2020, American borrowed $550 million under the Treasury Term Loan Facility and on March 24, 2021, used proceeds from the AAdvantage Financing to prepay in full the $550 million of outstanding loans under the Treasury Term Loan Facility. Pursuant to the Treasury Loan Agreement, AAG issued to Treasury warrants (Treasury Loan Warrants) to purchase up to an aggregate of approximately 4.4 million shares of AAG common stock (the Treasury Loan Warrant Shares). The ~~effects~~exercise price of the ~~adoption~~Treasury Loan Warrant Shares is $12.51 per share, subject to certain anti-dilution provisions provided for in the Treasury Loan Warrant Agreement. For accounting purposes, the fair value for the Treasury Loan Warrant Shares is estimated using a Black-Scholes option pricing model and recorded in stockholders' equity with an offsetting debt discount to the Treasury Term Loan Facility in the consolidated balance sheet. The provisions of the ~~New Revenue Standard~~Treasury Loan Warrants are substantially similar to the PSP1 Warrants.

PSP2

On January 15, 2021 (the PSP2 Closing Date), the Subsidiaries, entered into a Payroll Support Program Extension Agreement (the PSP2 Agreement) with Treasury, with respect to PSP2 as provided pursuant to the PSP Extension Law. In connection with our entry into the PSP2 Agreement, on the PSP2 Closing Date, AAG also entered into a warrant agreement (the PSP2 Warrant Agreement) with Treasury and ~~New Retirement Standard~~issued the PSP2 Promissory Note to ~~our~~Treasury, with the Subsidiaries as guarantors.

PSP2 Agreement

In connection with PSP2, we are required to comply with the relevant provisions of the PSP Extension Law, which are substantially similar to the restrictions contained in the Payroll Support Program Agreement entered into by the Subsidiaries with Treasury in connection with the payroll support program established under the CARES Act (the PSP1 Agreement), but are in effect for a longer time period. These provisions include the requirement that funds provided pursuant to the PSP2 Agreement be used exclusively for the continuation of payment of eligible employee wages, salaries and benefits, the prohibition against involuntary furloughs and reductions in employee pay rates and benefits, which expired on March 31, 2021, the provisions that prohibit the repurchase of AAG common stock and the payment of common stock dividends through at least March 31, 2022, the provisions that restrict the payment of certain executive compensation until at least October 1, 2022, and a requirement to recall employees involuntarily terminated or furloughed after September 30, 2020. As was the case with PSP1, the PSP2 Agreement also imposes substantial reporting obligations on us.

Pursuant to the PSP2 Agreement, Treasury provided us financial assistance in an aggregate of approximately $3.5 billion. As partial compensation to the U.S. Government for the provision of financial assistance under PSP2, AAG issued the PSP2 Promissory Note in the aggregate principal amount of $1.0 billion and issued warrants (each a PSP2 Warrant and, collectively, the PSP2 Warrants) to Treasury to purchase up to an aggregate of approximately 6.6 million shares of AAG common stock for an exercise price of $15.66 per share, subject to adjustment. See Note 4(g) for further information on the PSP2 Promissory Note and below for more information on the PSP2 Warrant Agreement and PSP2 Warrants.

For accounting purposes, the $3.5 billion of aggregate financial assistance we received pursuant to the PSP2 Agreement is allocated to the PSP2 Promissory Note, the PSP2 Warrants and other PSP2 financial assistance (the PSP2 Financial Assistance). The $1.0 billion aggregate principal amount of the PSP2 Promissory Note was recorded as unsecured long-term debt, and the $76 million total fair value of the PSP2 Warrants, estimated using a Black-Scholes option pricing model, was recorded in stockholders' deficit in the consolidated balance sheet. The remaining amount of approximately $2.4 billion of PSP2 Financial Assistance was recognized as a credit to special items, net in the consolidated statement of operations ~~for~~in the ~~twelve months ended December 31, 2016 were as follows (in millions):~~first and second quarters of 2021, the period over which the continuation of payment of eligible employee wages, salaries and benefits was required.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

~~Standards Effective for 2019 Reporting Periods~~

~~ASU 2018-02: Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~

~~This ASU provides financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings due~~As partial compensation to the U.S. ~~federal corporate income tax rate change as a result~~Government for the provision of financial assistance under the PSP2 Agreement, and pursuant to the PSP2 Warrant Agreement, AAG issued the PSP2 Warrants to Treasury to purchase PSP2 Warrant Shares. The exercise price of the ~~2017 Tax Act.~~ PSP2 Warrant Shares is $15.66 per share, subject to certain anti-dilution provisions provided for in the PSP2 Warrants.

Pursuant to the PSP2 Warrant Agreement, AAG issued to Treasury PSP2 Warrants to purchase up to an aggregate of approximately 6.6 million shares of AAG common stock for an exercise price of $15.66 per share, subject to adjustment.

The PSP2 Warrants do not have any voting rights and are freely transferrable, with registration rights. Each PSP2 Warrant expires on the fifth anniversary of the date of issuance of such PSP2 Warrant. The PSP2 Warrants will be exercisable either through net share settlement or cash, at our option. The PSP2 Warrants were issued solely as compensation to the U.S. Government related to entry into the PSP2 Agreement. No separate proceeds (apart from the financial assistance described above) were received upon issuance of the PSP2 Warrants or will be received upon exercise thereof.

PSP3

On April 23, 2021 (the PSP3 Closing Date), the Subsidiaries, entered into a Payroll Support Program 3 Agreement (the PSP3 Agreement) with Treasury, with respect to PSP3 as provided pursuant to the ARP. In connection with our entry into the PSP3 Agreement, on the PSP3 Closing Date, AAG also entered into a warrant agreement (the PSP3 Warrant Agreement) with Treasury and issued the PSP3 Promissory Note to Treasury, with the Subsidiaries as guarantors.

PSP3 Agreement

In connection with PSP3, we are required to comply with the relevant provisions of the ARP, which are substantially similar to the restrictions contained in the PSP1 Agreement, but are in effect for a longer time period. These provisions include the requirement that funds provided pursuant to the PSP3 Agreement be used exclusively for the continuation of payment of eligible employee wages, salaries and benefits, the prohibition against involuntary furloughs and reductions in employee pay rates and benefits, which expired on September 30, 2021, the provisions that prohibit the repurchase of AAG common stock and the payment of common stock dividends through at least September 30, 2022, and the provisions that restrict the payment of certain executive compensation until April 1, 2023. As was the case with PSP1 and PSP2, the PSP3 Agreement also imposes substantial reporting obligations on us.

Pursuant to the PSP3 Agreement, Treasury provided us financial assistance in an aggregate of approximately $3.3 billion. As partial compensation to the U.S. Government for the provision of financial assistance under PSP3, AAG issued the PSP3 Promissory Note in the aggregate principal amount of $946 million and issued warrants (each a PSP3 Warrant and, collectively, the PSP3 Warrants) to Treasury to purchase up to an aggregate of approximately 4.4 million shares of AAG common stock for an exercise price of $21.75 per share, subject to adjustment. See Note 4(g) for further information on the PSP3 Promissory Note and below for more information on the PSP3 Warrant Agreement and PSP3 Warrants.

For accounting purposes, the $3.3 billion of aggregate financial assistance we received pursuant to the PSP3 Agreement is allocated to the PSP3 Promissory Note, the PSP3 Warrants and other PSP3 financial assistance (the PSP3 Financial Assistance). The $946 million aggregate principal amount of the reclassification is the difference between the amount initially charged or credited directly to other comprehensive income at the previously enacted U.S. federal corporate income tax rate that remains in accumulated other comprehensive incomePSP3 Promissory Note was recorded as unsecured long-term debt, and the $46 million total fair value of the PSP3 Warrants, estimated using a Black-Scholes option pricing model, was recorded in stockholders' deficit in the consolidated balance sheet. The remaining amount ~~that would~~of approximately $2.3 billion of PSP3 Financial Assistance was recognized as a credit to special items, net in the consolidated statements of operations in the second and third quarters of 2021, the period over which the continuation of payment of eligible employee wages, salaries and benefits was required.

PSP3 Warrant Agreement and PSP3 Warrants

As partial compensation to the U.S. Government for the provision of financial assistance under the PSP3 Agreement, and pursuant to the PSP3 Warrant Agreement, AAG issued the PSP3 Warrants to Treasury to purchase PSP3 Warrant Shares. The exercise price of the PSP3 Warrant Shares is $21.75 per share, subject to certain anti-dilution provisions provided for in the PSP3 Warrants.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

Pursuant to the PSP3 Warrant Agreement, AAG issued to Treasury PSP3 Warrants to purchase up to an aggregate of approximately 4.4 million shares of AAG common stock for an exercise price of $21.75 per share, subject to adjustment.

The PSP3 Warrants do not have ~~been charged~~any voting rights and are freely transferrable, with registration rights. Each PSP3 Warrant expires on the fifth anniversary of the date of issuance of such PSP3 Warrant. The PSP3 Warrants will be exercisable either through net share settlement or ~~credited directly~~cash, at our option. The PSP3 Warrants were issued solely as compensation to ~~other comprehensive income~~the U.S. Government related to entry into the PSP3 Agreement. No separate proceeds (apart from the financial assistance described above) were received upon issuance of the PSP3 Warrants or will be received upon exercise thereof.

ASU 2020-06: Accounting for Convertible Instruments and Contracts In An Entity's Own Equity (the New Convertible Debt Standard)

The New Convertible Debt Standard simplifies the accounting for certain convertible instruments by removing the separation models for convertible debt with a cash conversion feature and for convertible instruments with a beneficial conversion feature. As a result, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. Additionally, the New Convertible Debt Standard amends the diluted earnings per share calculation for convertible instruments by requiring the use of the if-converted method. The treasury stock method is no longer available. Entities may adopt the New Convertible Debt Standard using ~~the newly enacted U.S. federal corporate income tax rate, excluding the effect of any valuation allowance previously charged to income from continuing operations. This standard~~either a full or modified retrospective approach, and it is effective for interim and annual reporting periods beginning after December 15, ~~2018,~~2021. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2020. The New Convertible Debt Standard is applicable to our 6.50% convertible senior notes due 2025 (the Convertible Notes). We early adopted the New Convertible Debt Standard as of January 1, 2021 using the modified retrospective method to recognize the Convertible Notes as a single liability instrument. As of January 1, 2021, we recorded a $415 million ($320 million net of tax) reduction to additional paid-in capital to remove the equity component of the Convertible Notes from our consolidated balance sheet and a $19 million cumulative effect adjustment credit, net of tax, to retained deficit related to non-cash debt discount amortization recognized in periods prior to adoption resulting in a corresponding reduction of $389 million to the debt discount associated with the Convertible Notes. See Note 4(h) for additional information on the Convertible Notes.

ASU 2019-12: Simplifying the Accounting for Income Taxes (Topic 740)

ASU 2021-10: Disclosures by Business Entities about Government Assistance (Topic 832)

This standard provides guidance on the disclosure requirements for business entities receiving government assistance. Specifically, entities are required to disclose information about the nature of the assistance received, including the related accounting, the affected line items on the financial statements and amounts, and the significant terms and conditions, including any commitments and contingencies. This standard is effective for annual periods beginning after December 15, 2021, and early adoption is permitted. We ~~will adopt~~adopted this standard ~~effective January 1, 2019. The adoption~~as of ~~the standard may impact tax amounts stranded in accumulated other comprehensive income~~December 31, 2021. See (b) Impact of COVID-19 above for disclosure related to ~~our pension and retiree medical and other postretirement benefit plans.~~the financial assistance we have received from Treasury.

~~(c) Short-term~~(d) Investments

Short-term investments primarily include debt securities and are classified as available-for-sale and stated at fair value. Realized gains and losses are recorded in nonoperating expense on our consolidated statements of operations. Unrealized gains and losses are recorded in accumulated other comprehensive loss on our consolidated balance sheets. For investments in an unrealized loss position, we determine whether a credit loss exists by considering information about the collectability of the instrument, current market conditions and reasonable and supportable forecasts of economic conditions. There have been no credit losses.

~~(d)~~

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Equity investments are accounted for under the equity method if we are able to exercise significant influence over an investee. Equity investments for which we do not have significant influence are recorded at fair value or at cost, if fair value is not readily determinable, with adjustments for observable changes in price or impairments (referred to as the measurement alternative). Our share of equity method investee’s financial results and changes in fair value are recorded in nonoperating other income, net on the consolidated statements of operations. See Note 8 for additional information related to our investments.

(e) Restricted Cash and Short-term Investments

We have restricted cash and short-term investments related primarily to collateral held to support workers’ compensation ~~obligations.~~obligations, collateral associated with the payment of interest for the AAdvantage Financing and money market funds to be used to finance a substantial portion of the cost of the renovation and expansion of the Terminal at JFK.

~~(e)~~(f) Aircraft Fuel, Spare Parts and Supplies, Net

Aircraft fuel is recorded on a first-in, first-out basis. Spare parts and supplies are recorded at average costs less an allowance for ~~obsolescence. These items~~obsolescence, which is recognized over the weighted average remaining useful life of the related fleet. We also provide an allowance for spare parts and supplies identified as excess or obsolete to reduce the carrying cost to the lower of cost or net realizable value. Aircraft fuel, spare parts and supplies are expensed when used.

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

~~(f)~~(g) Operating Property and Equipment

Operating property and equipment is recorded at cost and depreciated or amortized to residual values over the asset’s estimated useful life or the lease term, whichever is less, using the straight-line method. Residual values for aircraft, engines and related rotable parts are generally 5% to 10% of original cost. Costs of major improvements that enhance the usefulness of the asset are capitalized and depreciated or amortized over the estimated useful life of the asset or the lease term, whichever is less. The estimated useful lives for the principal property and equipment classifications are as follows:



Principal Property and Equipment Classification			Estimated Useful Life
Aircraft, engines and related rotable parts			20 – 30 years
Buildings and improvements			5 – 30 years
Furniture, fixtures and other equipment			3 – 10 years
Capitalized software			5 – 10 years

Total depreciation and amortization expense was $2.3 billion, $2.4 billion and $2.6 billion for the years ended December 31, 2021, 2020 and 2019, respectively.

We assess impairment onof operating property and equipment when events and circumstances indicate that the assets may be impaired. An impairment of an asset or group of assets ~~is considered impaired~~exists only when the sum of the estimated undiscounted cash flows ~~estimated~~expected to be generated directly by the assets are less than the carrying ~~amount of the assets and the net book~~ value of the assets. We group assets ~~exceeds their estimated fair value.~~principally by fleet-type when estimating future cash flows, which is generally the lowest level for which identifiable cash flows exist. Estimates of future cash flows are based on historical results adjusted to reflect management’s best estimate of future market and operating conditions, including our current fleet plan. If such assets are ~~considered to be~~ impaired, the impairment ~~to be~~charge recognized is ~~measured by~~ the amount by which the carrying ~~amount~~value of the assets ~~exceeds~~exceed their fair value. Fair value reflects management’s best estimate including inputs from published pricing guides and bids from third parties as well as contracted sales agreements when applicable. In 2021, we retired our remaining Embraer 140 fleet and recorded $27 million in non-cash special impairment charges reflecting the difference between the carrying values of these assets and their fair ~~value~~values.

At December 31, 2021 and 2020, prepaid expense and other on the consolidated balance sheets included $29 million and $164 million, respectively, of ~~the assets. Assets~~retired aircraft that are expected to be ~~disposed~~sold in the next year, and other assets on the consolidated balance sheets included $383 million and $401 million, respectively, of ~~are reported at the lower~~nonoperating retired aircraft.

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~~Total depreciation and amortization expense was $2.4 billion, $2.2 billion and $1.9 billion for the years ended December 31, 2018, 2017 and 2016, respectively.~~

~~(g)~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

(h) Leases

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease ~~ROU~~right-of-use (ROU) assets, current operating lease liabilities and noncurrent operating lease liabilities inon our consolidated balance ~~sheet.~~sheets. Finance leases are included in property and equipment, current maturities of long-term debt and finance leases and long-term debt and finance leases, net of current maturities, inon our consolidated balance ~~sheet.~~sheets.

We use our estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. We give consideration to our recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates.

Our lease term includes options to extend the lease when it is reasonably certain that we will exercise that option. Leases with a term of 12 months or less are not recorded on ~~the~~our consolidated balance ~~sheet.~~sheets. Our lease agreements do not contain any residual value guarantees.

Under certain of our capacity purchase agreements with third-party regional carriers, we do not own the underlying aircraft. However, since we control the marketing, scheduling, ticketing, pricing and seat inventories of these aircraft and therefore control the asset, the aircraft is deemed to be leased for accounting purposes. For these capacity purchase agreements, we account for the lease and non-lease components separately. The lease component consists of the aircraft and the non-lease components consist of services, such as the crew and maintenance. We allocate the consideration in the capacity purchase agreements to the lease and non-lease components using their estimated relative standalone prices. See Note ~~12(b)~~11(b) for additional information on our capacity purchase agreements.

For real estate, we account for the lease and non-lease components as a single lease component.

~~(h)~~(i) Income Taxes

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

We provide a valuation allowance for our deferred tax assets when it is more likely than not that some portion, or all of our deferred tax assets, will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. We consider all available positive and negative evidence and make certain assumptions in evaluating the realizability of our deferred tax assets. Many factors are considered that impact our assessment of future profitability, including conditions which are beyond our control, such as the health of the economy, the ~~level~~availability and price volatility of aircraft fuel ~~prices~~ and travel demand.

~~(i)~~(j) Goodwill

Goodwill represents the ~~excess of the~~ purchase price ~~over~~in excess of the fair value of the net assets acquired and liabilities ~~assumed. Goodwill is not amortized but assessed~~assumed in connection with the merger with US Airways Group. We have 1 reporting unit. We assess goodwill for impairment annually ~~on October 1~~^st or more frequently if events or circumstances indicate that the fair value of goodwill may be ~~impaired. We have one consolidated reporting unit.~~lower than the carrying value. Our annual assessment date is October 1.

Goodwill is assessed for impairment by initially performing a qualitative ~~assessment and, if necessary, then comparing~~assessment. If we determine that it is more likely than not that our goodwill may be impaired, we use a quantitative approach to assess the asset’s fair value and the amount of the reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit is less than the carrying value, a second step is performed to determine the implied fair value of goodwill. If the implied fair value of goodwill is lower than its carrying value, an impairment, ~~charge equal to the difference is recorded.~~if any. Based upon our annual assessment, there was no goodwill impairment in ~~2018.~~2021. The carrying value of ~~the~~our goodwill on our consolidated balance sheets was $4.1 billion as of December 31, ~~2018~~2021 and ~~2017.~~2020.

~~(j)~~(k) Other Intangibles, Net

Intangible assets consist primarily of certain domestic airport slots and gate leasehold rights, customer relationships, marketing agreements, international slots and route authorities ~~airport gate leasehold rights~~ and tradenames.

~~Finite-Lived~~

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Definite-Lived Intangible Assets

~~Finite-lived~~Definite-lived intangible assets are originally recorded at their acquired fair values, subsequently amortized over their respective estimated useful lives and ~~reviewed~~are assessed for impairment whenever events ~~or changes in~~and circumstances indicate that the ~~carrying value~~assets may ~~not~~ be ~~recoverable.~~impaired.

The following table provides information relating to our amortizable intangible assets as of December 31, ~~2018~~2021 and ~~2017~~2020 (in millions):


	December 31,							December 31,
	2018			2017				2021		2020
Domestic airport slots	$	365		$	365		Domestic airport slots	$	365	$	365
Customer relationships	300			300			Customer relationships	300		300
Marketing agreements	105			105			Marketing agreements	105		105
Tradenames	35			35			Tradenames	35		35
Airport gate leasehold rights	137			137			Airport gate leasehold rights	137		137
Accumulated amortization	(663		)	(622		)	Accumulated amortization	(786)		(745)
Total	$	279		$	320		Total	$	156	$	197

Certain domestic airport slots and airport gate leasehold rights are amortized on a straight-line basis over 25 years. The customer relationships and marketing agreements were identified as intangible assets subject to amortization and are amortized on a straight-line basis over approximately nine years and 30 years, respectively. Tradenames are fully amortized.

We recorded amortization expense related to these intangible assets of $41 million ~~$44 million and $76 million~~ for each of the years ended December 31, ~~2018, 2017~~2021, 2020 and ~~2016, respectively.~~2019. We expect to record annual amortization expense for these intangible assets as follows (in millions):

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

2019 $ 41
2020 41
2021 41
2022 41
2023 7
2024 and thereafter 108
Total $ 279


2022	$	41
2023	7
2024	7
2025	7
2026	6
2027 and thereafter	88
Total	$	156

Indefinite-Lived Intangible Assets

Indefinite-lived intangible assets include certain domestic airport slots ~~at our hubs~~ and international slots and route authorities. ~~Indefinite-lived~~We assess indefinite-lived intangible assets ~~are not amortized but instead are assessed~~ for impairment annually ~~on October 1~~^st or more frequently if events or circumstances indicate that the ~~asset may be impaired. For both periods as of December 31, 2018 and 2017, we had $1.9 billion~~fair values of indefinite-lived intangible assets ~~on our consolidated balance sheets.~~

~~In the second quarter of 2018, we recorded a $26 million impairment charge on a Brazil route authority as a result of the U.S.-Brazil open skies agreement, which~~may be lower than their carrying values. Our annual assessment date is ~~included within special items, net on our consolidated statement of operations.~~October 1.

Indefinite-lived intangible assets are assessed for impairment by initially performing a qualitative ~~assessment to~~assessment. If we determine ~~whether we believe~~that it is more likely than not that ~~an asset has been impaired. If~~our indefinite-lived intangible assets may be impaired, we ~~believe impairment has occurred, we then evaluate for impairment by comparing~~use a quantitative approach to assess the ~~estimated~~asset’s fair value and the amount of ~~assets to~~ the ~~carrying value. An~~ impairment, ~~charge is recognized~~ if ~~the asset’s estimated fair value is less than its carrying value.~~any. Based upon our annual assessment, there were no ~~additional~~ indefinite-lived intangible asset impairments in ~~2018 other than the Brazil route authority described above.~~

~~(k) Revenue Recognition~~

~~Revenue~~

~~Effective January 1, 2018, we adopted the New Revenue Standard using the full retrospective method, which resulted in the recast~~2021. We had $1.8 billion of ~~prior reporting periods. Refer to “Recent Accounting Pronouncements”~~ ~~in Note 1(b) for the effects of the adoption on our consolidated statements of operations for the years ended December 31, 2017 and 2016 and~~indefinite-lived intangible assets on our consolidated balance ~~sheet~~sheets as of December 31, ~~2017.Under the New~~2021 and 2020.

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(l) Revenue Standard, revenue is recognized upon the transfer of control of promised products or services to our customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.Recognition

Revenue

The following are the significant categories comprising our reported operating revenues (in millions):


	Year Ended December 31,
	2021		2020		2019
Passenger revenue:
Passenger travel	$	23,896	$	13,456	$	38,831
Loyalty revenue - travel (1)	2,167		1,062		3,179
Total passenger revenue	26,063		14,518		42,010
Cargo	1,314		769		863
Other:
Loyalty revenue - marketing services (2)	2,166		1,825		2,361
Other revenue	339		225		534
Total other revenue	2,505		2,050		2,895
Total operating revenues	$	29,882	$	17,337	$	45,768

2018 2017 2016
Passenger revenue:
Passenger travel $ 37,457
$ 36,152
$ 34,278
Loyalty revenue - travel ⁽¹⁾
3,219
2,979
2,767
Total passenger revenue 40,676
39,131
37,045
Cargo 1,013
890
785
Other:
Loyalty revenue - marketing services 2,352
2,124
1,872
Other revenue 500
477
440
Total other revenue 2,852
2,601
2,312
Total operating revenues $ 44,541
$ 42,622
$ 40,142


⁽¹⁾	Loyalty revenue included in passenger revenue is principally comprised of mileage credit redemptions earned through travel and mileage credits sold to co-branded credit card and other partners. See “~~Loyalty Revenue” below for further discussion on these mileage credits.~~

(1)Loyalty revenue included in passenger revenue is principally comprised of mileage credit redemptions, which were earned from travel or co-branded credit card and other partners. See “Loyalty Revenue” below for further discussion on these mileage credits.

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

(2)During the years ended December 31, 2021, 2020 and 2019, cash payments from co-branded credit card and other partners were $3.4 billion, $2.9 billion and $3.9 billion, respectively.

The following is our total passenger revenue by geographic region (in millions):


								Year Ended December 31,
	2018		2017		2016			2021		2020		2019
Domestic	$	29,573	$	28,749	$	27,202	Domestic	$	21,453	$	11,765	$	30,881
Latin America	5,125		4,840		4,676		Latin America	3,506		1,852		5,047
Atlantic	4,376		4,028		3,873		Atlantic	965		654		4,624
Pacific	1,602		1,514		1,294		Pacific	139		247		1,458
Total passenger revenue	$	40,676	$	39,131	$	37,045	Total passenger revenue	$	26,063	$	14,518	$	42,010

We attribute passenger revenue by geographic region based upon the origin and destination of each flight segment.

Passenger Revenue

The majority of tickets sold are nonrefundable. A small percentage of tickets, some of which are partially used tickets, expire unused. Due to complex pricing structures, refund and exchange policies, and interline agreements with other airlines, 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~~unused 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.

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Loyalty Revenue

Mileage credits earned through travel

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

patterns to develop an estimate of the likelihood of future redemption. Given the inherent uncertainty of the current operating environment due to the COVID-19 pandemic, we will continue to monitor redemption patterns and may adjust our estimates in the future.

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~~five 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~~2 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.

Cargo Revenue

Cargo revenue is recognized when we provide the transportation.

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Other Revenue

Other revenue includes revenue associated with our loyalty program, which is comprised principally of the marketing component of mileage sales to co-branded credit card and other partners and other marketing related payments. ~~For the years ended December 31, 2018, 2017 and 2016, loyalty~~Loyalty revenue included in other revenue was $2.2 billion, $1.8 billion and $2.4 billion ~~$2.1 billion~~for the years ended December 31, 2021, 2020 and ~~$1.9 billion,~~2019, respectively. The accounting and recognition for the loyalty program marketing services are discussed above in “Loyalty Revenue.” The remaining amounts included within other revenue relate to airport clubs, advertising and vacation-related services.

Contract Balances

Our significant contract liabilities are comprised of (1) outstanding loyalty program mileage credits that may be redeemed for future travel and other non-air travel awards, reported as loyalty program liability on our consolidated balance ~~sheet~~sheets and (2) ticket sales for transportation that has not yet been provided, reported as air traffic liability on our consolidated balance ~~sheet.~~sheets.

December 31, 2018 December 31, 2017
(in millions)
Loyalty program liability $ 8,539
$ 8,822
Air traffic liability 4,339
4,042
Total $ 12,878
$ 12,864

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


	December 31,
	2021		2020
	(in millions)
Loyalty program liability	$	9,135	$	9,195
Air traffic liability	6,087		4,757
Total	$	15,222	$	13,952

The balance of the loyalty program liability fluctuates based on seasonal patterns, which impact the volume of mileage credits issued through travel or sold to co-branded credit card and other partners (deferral of revenue) and mileage credits redeemed (recognition of revenue). Changes in loyalty program liability are as follows (in millions):

Balance at December 31, 2017 $ 8,822
Deferral of revenue 3,083
Recognition of revenue ⁽¹⁾
(3,366 )
Balance at December 31, 2018 ⁽²⁾
$ 8,539


Balance at December 31, 2020	$	9,195
Deferral of revenue	2,161
Recognition of revenue (1)	(2,221)
Balance at December 31, 2021 (2)	$	9,135

⁽¹⁾

(1)Principally relates to revenue recognized from the redemption of mileage credits for both air and non-air travel awards. Mileage credits are combined in one homogenous pool and are not separately identifiable. As such, the revenue is comprised of miles that were part of the loyalty program deferred revenue balance at the beginning of the period, as well as miles that were issued during the period.

(2)Mileage credits can be redeemed at any time and generally do not expire as long as that AAdvantage member has any type of qualifying activity at least every 18 months. In response to the COVID-19 pandemic, we suspended the expiration of mileage credits through March 31, 2022 and eliminated mileage reinstatement fees for canceled award tickets. As of December 31, 2021, our current loyalty program liability was $2.9 billion and represents our current estimate of revenue expected to be recognized in the next 12 months based on historical as well as projected trends, with the balance reflected in long-term loyalty program liability expected to be recognized as revenue in periods thereafter. Given the inherent uncertainty of the current operating environment due to the COVID-19 pandemic, we will continue to monitor redemption patterns and may adjust our estimates in the future.

Principally relates to revenue recognized from the redemption of mileage credits for both air and non-air travel awards. Mileage credits are combined in one homogenous pool and are not separately identifiable. As such, the revenue is comprised of miles that were part of the loyalty program deferred revenue balance at the beginning of the period, as well as miles that were issued during the period.

⁽²⁾

Mileage credits can be redeemed at any time and do not expire as long as that AAdvantage member has any type of qualifying activity at least every 18 months. As of December 31, 2018, our current loyalty program liability was $3.3 billion and represents our current estimate of revenue expected to be recognized in the next twelve months based on historical trends, with the balance reflected in long-term loyalty program liability expected to be recognized as revenue in periods thereafter.

The air traffic liability principally represents tickets sold for future travel on American and partner airlines, as well as estimated future refunds and exchanges of tickets sold for past travel. The balance in our air traffic liability also fluctuates with seasonal travel patterns. The contract duration of passenger tickets is generally one year. Accordingly, any revenue associated with tickets sold for future travel will be recognized within ~~twelve~~12 months. For ~~2018, $3.1~~2021, $1.7 billion of revenue was recognized in passenger revenue that was included in our air traffic liability at December 31, ~~2017.~~2020. In response to the COVID-19 pandemic, we extended the contract duration for certain tickets to March 31, 2022, principally those tickets which were scheduled to expire from March 1, 2020 through March 31, 2021. Additionally, tickets to certain international destinations have extended contract duration to December 31, 2022. We also have eliminated change fees for most domestic and international tickets providing more flexibility for customers to change travel plans. Given these changes and the uncertainty surrounding the future demand for air travel, our estimates of revenue that will be recognized from the air traffic liability for future flown or unused tickets as well as our estimates of refunds may be subject to variability and differ from historical experience.

~~With respect to~~

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Our ticket contract receivables relate to ticket sales to individual passengers primarily through the use of major credit cards and are reflected as accounts receivable, net on the accompanying consolidated balance ~~sheet, these primarily include receivables for tickets sold to individual passengers through the use of major credit cards.~~sheets. These receivables are short-term, mostly settled within seven days after sale. ~~Bad debt~~All accounts receivable are reported net of an allowance for credit losses, which have been ~~minimal in~~minimal. We consider past and future financial and qualitative factors when establishing the ~~past, have been considered in establishing allowances~~allowance for ~~doubtful accounts.~~credit losses.

~~(l)~~(m) Maintenance, Materials and Repairs

Maintenance and repair costs for owned and leased flight equipment are charged to operating expense as incurred, except costs incurred for maintenance and repair under flight hour maintenance contract agreements, which are accrued based on contractual terms when an obligation exists.

~~(m)~~(n) Selling Expenses

Selling expenses include credit card fees, commissions, ~~computerized reservations systems~~third party distribution channel fees and advertising. Selling expenses associated with passenger revenue are expensed when the transportation or service is provided. Advertising costs are expensed as incurred. Advertising expense was ~~$128~~$105 million, ~~$135~~$57 million and ~~$116~~$144 million for the years ended December 31, ~~2018, 2017~~2021, 2020 and ~~2016,~~2019, respectively.

~~(n)~~(o) Share-based Compensation

We account for our share-based compensation expense based on the fair value of the stock award at the time of grant, which is recognized ratably over the vesting period of the stock award. ~~Certain~~The majority of our stock awards ~~have performance conditions that must be achieved prior to vesting~~are time vested restricted stock units, and ~~are expensed based on~~ the ~~expected achievement at each reporting period. The~~ fair value of ~~stock appreciation rights is estimated using a Black-Scholes option pricing model. The fair value of restricted stock units~~such awards is based on the market price of the underlying shares of AAG common stock on the date of grant. See Note 1514 for further discussion of share-based compensation.

~~(o)~~(p) Foreign Currency Gains and Losses

Foreign currency gains and losses are recorded as part of other income, net within total nonoperating expense, net inon our consolidated statements of operations. ~~Foreign~~For the years ended December 31, 2021, 2020 and 2019, respectively, foreign currency losses ~~for 2018 and 2017~~were$554 million, $24 million and ~~$4 million, respectively, and for 2016, foreign currency gains were $1~~$32 million.

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

~~(p)~~(q) Other Operating Expenses

Other operating expenses includes costs associated with ground and cargo handling, crew travel, aircraft food and catering, aircraft cleaning, passenger accommodation, ~~airport security,~~ international navigation fees and certain general and administrative expenses.

~~(q)~~(r) Regional Expenses

Our regional carriers provide scheduled air transportation under the brand name “American Eagle.” The American Eagle carriers include our wholly-owned regional carriers as well as third-party regional carriers. Substantially all of our regional carrier arrangements are in the form of capacity purchase agreements. Expenses associated with American Eagle operations are classified as regional expenses on the consolidated statements of operations.

Beginning in the first quarter of 2021, aircraft fuel and related taxes as well as certain salaries, wages and benefits, other rent and landing fees, selling and other expenses are no longer allocated to regional expenses on our consolidated statements of operations. The 2020 consolidated statement of operations has been recast to conform to the 2021 presentation. This statement of operations presentation change has no impact on total operating expenses or net loss.

Regional expenses ~~consist~~for the years ended December 31, 2021, 2020, and 2019 include $316 million, $325 million and $336 million of depreciation and amortization, respectively, and $6 million, $13 million and $29 million of aircraft rent, respectively.

In 2021, 2020, and 2019, we recognized $495 million, $438 million and $590 million, respectively, of expense under our capacity purchase agreement with Republic Airways Inc. (Republic). We hold a 25% equity interest in Republic Airways Holdings Inc. (Republic Holdings), the ~~following (in millions):~~parent company of Republic.

Year Ended December 31,
2018 2017 2016
Aircraft fuel and related taxes $ 1,843
$ 1,382
$ 1,109
Salaries, wages and benefits 1,591
1,452
1,333
Capacity purchases from third-party regional carriers ⁽¹⁾
1,431
1,581
1,538
Maintenance, materials and repairs 340
281
345
Other rent and landing fees 610
625
564
Aircraft rent 32
35
36
Selling expenses 369
361
347
Depreciation and amortization 318
315
301
Special items, net 6
22
14
Other 593
492
457
Total regional expenses $ 7,133
$ 6,546
$ 6,044

113

Table of cash flows include restricted cash, and also required companies that report cash and restricted cash separately on the balance sheet to reconcile those amounts to the statement of cash flows. This standard was applied retrospectively, which resulted in the recast of prior reporting periods in the statement of cash flows. For the years ended December 31, 2018, 2017 and 2016, $11 million, $103 million and $113 million, respectively, of restricted cash is included in the total cash and restricted cash balance at the end of the period. A reconciliation of cash and restricted cash reported on American's consolidated statements of cash flows to the amounts reported on its consolidated balance sheets is provided in a table below the Consolidated Statements of Cash Flows.Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

PSP1 Agreement

~~Impacts~~In connection with PSP1, AAG and the Subsidiaries are required to ~~2017 Results~~

~~The effects~~comply with the relevant provisions of the ~~adoption~~CARES Act, including the requirement that funds provided pursuant to the PSP1 Agreement be used exclusively for the continuation of payment of eligible employee wages, salaries and benefits, the prohibition against involuntary furloughs and reductions in employee pay rates and benefits, which expired on September 30, 2020, the requirement that certain levels of commercial air service be maintained and the provisions that prohibit the repurchase of AAG common stock and the payment of common stock dividends through at least September 30, 2021, as well as the provisions that restrict the payment of certain executive compensation until March 24, 2022. The PSP1 Agreement also imposes substantial reporting obligations on AAG and the Subsidiaries. These provisions were subsequently extended upon the entry of AAG and its Subsidiaries into PSP2 and PSP3. In addition, AAG and the Subsidiaries have entered into the Treasury Loan Agreement (as defined below) and, as a result, the stock repurchase, dividend and executive compensation restrictions imposed by the Treasury Loan Agreement will remain in place through the date that is one year after the secured loan provided under the Treasury Loan Agreement is fully repaid, which was in March 2021. See below for additional information on the Treasury Loan Agreement.

Pursuant to the PSP1 Agreement, Treasury provided to AAG and the Subsidiaries financial assistance in an aggregate of approximately $6.0 billion. As partial compensation to the U.S. Government for the provision of financial assistance under PSP1, AAG issued the PSP1 Promissory Note in the aggregate principal amount of $1.8 billion and issued warrants (each a PSP1 Warrant and, collectively, the PSP1 Warrants) to Treasury to purchase up to an aggregate of approximately 14.1 million shares (the PSP1 Warrant Shares) of AAG common stock for an exercise price of $12.51 per share, subject to adjustment. See below for more information on the PSP1 Warrant Agreement and the PSP1 Warrants.

For accounting purposes, the $6.0 billion of aggregate financial assistance AAG and the Subsidiaries received pursuant to the PSP1 Agreement is allocated to the PSP1 Promissory Note, the PSP1 Warrants and other PSP1 financial assistance (the PSP1 Financial Assistance). The $1.8 billion aggregate principal amount of the ~~New Revenue Standard~~PSP1 Promissory Note was recorded as unsecured long-term debt, and ~~New Retirement Standard~~the $63 million total fair value of the PSP1 Warrants, estimated using a Black-Scholes option pricing model, was recorded in stockholders' deficit in the consolidated balance sheet. The remaining amount of approximately $4.2 billion of PSP1 Financial Assistance was recognized as a credit to ~~American’s~~special items, net in the consolidated statement of operations in the second and third quarters of 2020, the period over which the continuation of payment of eligible employee wages, salaries and benefits was required.

PSP1 Warrant Agreement and PSP1 Warrants

As partial compensation to the U.S. Government for the ~~twelve months ended December 31, 2017 were as follows (in millions):~~

New Revenue Standard New Retirement Standard
Year Ended
December 31, 2017 As Reported Deferred Revenue Method Ancillary Revenue Reclassifications Gross Versus Net Presentation Reclassifications As Recast
Operating revenues:
    Passenger $ 36,133
$ 311
$ 2,648
$ 39
$ —
$ 39,131
    Cargo 800
—
42
48
—
890
    Other 5,262
—
(2,690 ) 17
—
2,589
    Total operating revenues 42,195
311
—
104
—
42,610
    Total operating expenses 38,163
—
—
104
138
38,405
Operating income 4,032
311
—
—
(138 ) 4,205
Total nonoperating expense, net (788 ) —
—
—
138
(650 )
Income before income taxes 3,244
311
—
—
—
3,555
Income tax provision ⁽¹⁾
1,322
948
—
—
—
2,270
Net income $ 1,922
$ (637 ) $ —
$ —
$ —
$ 1,285


⁽¹⁾	The adjustment to the 2017 income tax provision includes a $924 million special charge to reduce American’s deferred tax asset associated with loyalty program liabilities as a result of H.R. 1, the 2017 Tax Cuts and Jobs Act (the 2017 Tax Act), enacted in December 2017 that reduced the federal corporate income tax rate from 35% to 21%.

The PSP1 Warrants do not have any voting rights and are freely transferrable, with registration rights. Each PSP1 Warrant expires on the fifth anniversary of the ~~New Revenue Standard~~date of issuance of such PSP1 Warrant. The PSP1 Warrants will be exercisable either through net share settlement or cash, at AAG’s option. The PSP1 Warrants were issued solely as compensation to ~~American’s December 31, 2017 consolidated balance sheet~~the U.S. Government related to entry into the PSP1 Agreement. No separate proceeds (apart from the financial assistance described above) were ~~as follows (in millions):~~received upon issuance of the PSP1 Warrants or will be received upon exercise thereof.

Treasury Loan Agreement

On September 25, 2020 (the Treasury Loan Closing Date), AAG and American entered into a Loan and Guarantee Agreement (the Treasury Loan Agreement) with Treasury, which provided for a secured term loan facility (the Treasury Term Loan Facility) that permitted American to borrow up to $5.5 billion. Subsequently, on October 21, 2020, AAG and American entered into an amendment to the Treasury Loan Agreement, which increased the borrowing amount to up to $7.5 billion. In connection with AAG’s entry into the Treasury Loan Agreement, on the Treasury Loan Closing Date, AAG also entered into a warrant agreement (the Treasury Loan Warrant Agreement) with Treasury.

162

As Reported New Revenue Standard As Recast
Deferred tax asset $ 682
$ 1,389
$ 2,071
Air traffic liability 3,978
64
4,042
Current loyalty program liability 2,791
330
3,121
Noncurrent loyalty program liability —
5,701
5,701
Total stockholders’ equity (deficit) 14,594
(4,706 ) 9,888

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

~~Impacts~~In September 2020, American borrowed $550 million under the Treasury Term Loan Facility and on March 24, 2021, used proceeds from the AAdvantage Financing to ~~2016 Results~~

prepay in full the $550 million of outstanding loans under the Treasury Term Loan Facility. Pursuant to the Treasury Loan Agreement, AAG issued to Treasury warrants (Treasury Loan Warrants) to purchase up to an aggregate of approximately 4.4 million shares of AAG common stock (the Treasury Loan Warrant Shares). The ~~effects~~exercise price of the ~~adoption~~Treasury Loan Warrant Shares is $12.51 per share, subject to certain anti-dilution provisions provided for in the Treasury Loan Warrant Agreement. For accounting purposes, the fair value for the Treasury Loan Warrant Shares is estimated using a Black-Scholes option pricing model and recorded in stockholders' equity with an offsetting debt discount to the Treasury Term Loan Facility in the consolidated balance sheet. The provisions of the ~~New Revenue Standard~~Treasury Loan Warrants are substantially similar to the PSP1 Warrants.

PSP2

On January 15, 2021 (the PSP2 Closing Date), the Subsidiaries, entered into a Payroll Support Program Extension Agreement (the PSP2 Agreement) with Treasury, with respect to PSP2 as provided pursuant to the PSP Extension Law. In connection with AAG and ~~New Retirement Standard~~the Subsidiaries’ entry into the PSP2 Agreement, on the PSP2 Closing Date, AAG also entered into a warrant agreement (the PSP2 Warrant Agreement) with Treasury and issued the PSP2 Promissory Note to ~~American’s~~Treasury, with the Subsidiaries as guarantors.

PSP2 Agreement

In connection with PSP2, AAG and the Subsidiaries are required to comply with the relevant provisions of the PSP Extension Law, which are substantially similar to the restrictions contained in the Payroll Support Program Agreement entered into by the Subsidiaries with Treasury in connection with the payroll support program established under the CARES Act (the PSP1 Agreement), but are in effect for a longer time period. These provisions include the requirement that funds provided pursuant to the PSP2 Agreement be used exclusively for the continuation of payment of eligible employee wages, salaries and benefits, the prohibition against involuntary furloughs and reductions in employee pay rates and benefits, which expired on March 31, 2021, the provisions that prohibit the repurchase of AAG common stock and the payment of common stock dividends through at least March 31, 2022, the provisions that restrict the payment of certain executive compensation until at least October 1, 2022, and a requirement to recall employees involuntarily terminated or furloughed after September 30, 2020. As was the case with PSP1, the PSP2 Agreement also imposes substantial reporting obligations on AAG and its Subsidiaries.

Pursuant to the PSP2 Agreement, Treasury provided AAG and its Subsidiaries financial assistance in an aggregate of approximately $3.5 billion. As partial compensation to the U.S. Government for the provision of financial assistance under PSP2, AAG issued the PSP2 Promissory Note in the aggregate principal amount of $1.0 billion and issued warrants (each a PSP2 Warrant and, collectively, the PSP2 Warrants) to Treasury to purchase up to an aggregate of approximately 6.6 million shares of AAG common stock for an exercise price of $15.66 per share, subject to adjustment. See below for more information on the PSP2 Warrant Agreement and PSP2 Warrants.

For accounting purposes, the $3.5 billion of aggregate financial assistance AAG and the Subsidiaries received pursuant to the PSP2 Agreement is allocated to the PSP2 Promissory Note, the PSP2 Warrants and other PSP2 financial assistance (the PSP2 Financial Assistance). The $1.0 billion aggregate principal amount of the PSP2 Promissory Note was recorded as unsecured long-term debt, and the $76 million total fair value of the PSP2 Warrants, estimated using a Black-Scholes option pricing model, was recorded in stockholders' deficit in AAG’s consolidated balance sheet. The remaining amount of approximately $2.4 billion of PSP2 Financial Assistance was recognized as a credit to special items, net in the consolidated statement of operations ~~for~~in the ~~twelve months ended December 31, 2016 were as follows (in millions):~~first and second quarters of 2021, the period over which the continuation of payment of eligible employee wages, salaries and benefits was required.

PSP2 Warrant Agreement and PSP2 Warrants

New Revenue Standard New Retirement Standard
Year Ended
December 31, 2016 As Reported Deferred Revenue Method Ancillary Revenue Reclassifications Gross Versus Net Presentation Reclassifications As Recast
Operating revenues:
    Passenger $ 34,579
$ (147 ) $ 2,571
$ 42
$ —
$ 37,045
    Cargo 700
—
36
49
—
785
    Other 4,884
—
(2,607 ) 18
—
2,295
    Total operating revenues 40,163
(147 ) —
109
—
40,125
    Total operating expenses 34,859
—
—
109
77
35,045
Operating income 5,304
(147 ) —
—
(77 ) 5,080
Total nonoperating expense, net (861 ) —
—
—
77
(784 )
Income before income taxes 4,443
(147 ) —
—
—
4,296
Income tax provision 1,662
(55 ) —
—
—
1,607
Net income $ 2,781
$ (92 ) $ —
$ —
$ —
$ 2,689

~~Standards Effective for 2019 Reporting Periods~~

~~ASU 2018-02: Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

The PSP2 Warrants do not have any voting rights and are freely transferrable, with registration rights. Each PSP2 Warrant expires on the fifth anniversary of the date of issuance of such PSP2 Warrant. The PSP2 Warrants will be exercisable either through net share settlement or cash, at AAG’s option. The PSP2 Warrants were issued solely as compensation to the U.S. Government related to entry into the PSP2 Agreement. No separate proceeds (apart from the financial assistance described above) were received upon issuance of the PSP2 Warrants or will be received upon exercise thereof.

PSP3

On April 23, 2021 (the PSP3 Closing Date), the Subsidiaries, entered into a Payroll Support Program 3 Agreement (the PSP3 Agreement) with Treasury, with respect to PSP3 as provided pursuant to the ARP. In connection with AAG and the Subsidiaries’ entry into the PSP3 Agreement, on the PSP3 Closing Date, AAG also entered into a warrant agreement (the PSP3 Warrant Agreement) with Treasury and issued the PSP3 Promissory Note to Treasury, with the Subsidiaries as guarantors.

PSP3 Agreement

In connection with PSP3, AAG and the Subsidiaries are required to comply with the relevant provisions of the ARP, which are substantially similar to the restrictions contained in the PSP1 Agreement, but are in effect for a longer time period. These provisions include the requirement that funds provided pursuant to the PSP3 Agreement be used exclusively for the continuation of payment of eligible employee wages, salaries and benefits, the prohibition against involuntary furloughs and reductions in employee pay rates and benefits, which expired on September 30, 2021, the provisions that prohibit the repurchase of AAG common stock and the payment of common stock dividends through at least September 30, 2022, and the provisions that restrict the payment of certain executive compensation until April 1, 2023. As was the case with PSP1 and PSP2, the PSP3 Agreement also imposes substantial reporting obligations on AAG and the Subsidiaries.

Pursuant to the PSP3 Agreement, Treasury provided AAG and the Subsidiaries financial assistance in an aggregate of approximately $3.3 billion. As partial compensation to the U.S. Government for the provision of financial assistance under PSP3, AAG issued the PSP3 Promissory Note in the aggregate principal amount of $946 million and issued warrants (each a PSP3 Warrant and, collectively, the PSP3 Warrants) to Treasury to purchase up to an aggregate of approximately 4.4 million shares of AAG common stock for an exercise price of $21.75 per share, subject to adjustment. See below for more information on the PSP3 Warrant Agreement and PSP3 Warrants.

For accounting purposes, the $3.3 billion of aggregate financial assistance AAG and the Subsidiaries received pursuant to the PSP3 Agreement is allocated to the PSP3 Promissory Note, the PSP3 Warrants and other PSP3 financial assistance (the PSP3 Financial Assistance). The $946 million aggregate principal amount of the ~~reclassification~~PSP3 Promissory Note was recorded as unsecured long-term debt, and the $46 million total fair value of the PSP3 Warrants, estimated using a Black-Scholes option pricing model, was recorded in stockholders' deficit in AAG’s consolidated balance sheet. The remaining amount of approximately $2.3 billion of PSP3 Financial Assistance was recognized as a credit to special items, net in the consolidated statements of operations in the second and third quarters of 2021, the period over which the continuation of payment of eligible employee wages, salaries and benefits was required.

PSP3 Warrant Agreement and PSP3 Warrants

Pursuant to the ~~amount initially charged~~PSP3 Warrant Agreement, AAG issued to Treasury PSP3 Warrants to purchase up to an aggregate of approximately 4.4 million shares of AAG common stock for an exercise price of $21.75 per share, subject to adjustment.

The PSP3 Warrants do not have any voting rights and are freely transferrable, with registration rights. Each PSP3 Warrant expires on the fifth anniversary of the date of issuance of such PSP3 Warrant. The PSP3 Warrants will be exercisable either through net share settlement or ~~credited directly~~cash, at AAG’s option. The PSP3 Warrants were issued solely as compensation to ~~other comprehensive~~the U.S. Government related to entry into the PSP3 Agreement. No separate proceeds (apart from the financial assistance described above) were received upon issuance of the PSP3 Warrants or will be received upon exercise thereof.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Accounting Standards Update (ASU) 2019-12: Simplifying the Accounting for Income Taxes (Topic 740)

This standard simplifies the accounting and disclosure requirements for income attaxes by clarifying the ~~previously enacted U.S. federal corporate~~existing guidance to improve consistency in the application of Accounting Standards Codification 740. This standard also removed the requirement to calculate income tax ~~rate~~expense for the stand-alone financial statements of wholly-owned subsidiaries that ~~remains in accumulated other comprehensive~~are not subject to income tax. American adopted this standard effective January 1, 2021, and it did not have a material impact on its consolidated financial statements.

ASU 2021-10: Disclosures by Business Entities about Government Assistance (Topic 832)

This standard provides guidance on the disclosure requirements for business entities receiving government assistance. Specifically, entities are required to disclose information about the nature of the assistance received, including the related accounting, the affected line items on the financial statements and amounts, and the ~~amount that would have been charged or credited directly to other comprehensive income using the newly enacted U.S. federal corporate income tax rate, excluding the effect of~~significant terms and conditions, including any ~~valuation allowance previously charged to income from continuing operations.~~commitments and contingencies. This standard is effective for ~~interim and~~ annual ~~reporting~~ periods beginning after December 15, ~~2018,~~2021, and early adoption is permitted. American ~~will adopt~~adopted this standard ~~effective January 1, 2019. The adoption~~as of ~~the standard may impact tax amounts stranded in accumulated other comprehensive income~~December 31, 2021. See (b) Impact of COVID-19 above for disclosure related to ~~American's pension and retiree medical and other postretirement benefit plans.~~the financial assistance American received from Treasury.

~~(c) Short-term~~(d) Investments

Short-term investments primarily include debt securities and are classified as available-for-sale and stated at fair value. Realized gains and losses are recorded in nonoperating expense on American’s consolidated statements of operations. Unrealized gains and losses are recorded in accumulated other comprehensive loss on American’s consolidated balance sheets. For investments in an unrealized loss position, American determines whether a credit loss exists by considering information about the collectability of the instrument, current market conditions and reasonable and supportable forecasts of economic conditions. There have been no credit losses.

~~(d)~~Equity investments are accounted for under the equity method if American is able to exercise significant influence over an investee. Equity investments for which American does not have significant influence are recorded at fair value or at cost, if fair value is not readily determinable, with adjustments for observable changes in price or impairments (referred to as the measurement alternative). American’s share of equity method investee’s financial results and changes in fair value are recorded in nonoperating other income, net on the consolidated statements of operations. See Note 7 for additional information related to American’s investments.

(e) Restricted Cash and Short-term Investments

American has restricted cash and short-term investments related primarily to collateral held to support workers’ compensation ~~obligations.~~obligations, collateral associated with the payment of interest for the AAdvantage Financing and money market funds to be used to finance a substantial portion of the cost of the renovation and expansion of the Terminal at JFK.

~~(e)~~(f) Aircraft Fuel, Spare Parts and Supplies, Net

Aircraft fuel is recorded on a first-in, first-out basis. Spare parts and supplies are recorded at average costs less an allowance for ~~obsolescence. These items~~obsolescence, which is recognized over the weighted average remaining useful life of the related fleet. American also provides an allowance for spare parts and supplies identified as excess or obsolete to reduce the carrying cost to the lower of cost or net realizable value. Aircraft fuel, spare parts and supplies are expensed when used.

~~(f)~~

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

(g) Operating Property and Equipment

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

of the asset are capitalized and depreciated or amortized over the estimated useful life of the asset or the lease term, whichever is less. The estimated useful lives for the principal property and equipment classifications are as follows:



Principal Property and Equipment Classification			Estimated Useful Life
Aircraft, engines and related rotable parts			20 – 30 years
Buildings and improvements			5 – 30 years
Furniture, fixtures and other equipment			3 – 10 years
Capitalized software			5 – 10 years

Total depreciation and amortization expense was $2.3 billion for each of the years ended December 31, 2021 and 2020, and $2.5 billion for the year ended December 31, 2019.

American assesses impairment onof operating property and equipment when events and circumstances indicate that the assets may be impaired. An impairment of an asset or group of assets ~~is considered impaired~~exists only when the sum of the estimated undiscounted cash flows ~~estimated~~expected to be generated directly by the assets are less than the carrying ~~amount of the assets and the net book~~ value of the assets. American groups assets ~~exceeds their estimated fair value.~~principally by fleet-type when estimating future cash flows, which is generally the lowest level for which identifiable cash flows exist. Estimates of future cash flows are based on historical results adjusted to reflect management’s best estimate of future market and operating conditions, including American’s current fleet plan. If such assets are ~~considered to be~~ impaired, the impairment ~~to be~~charge recognized is ~~measured by~~ the amount by which the carrying ~~amount~~value of the assets ~~exceeds~~exceed their fair value. Fair value reflects management’s best estimate including inputs from published pricing guides and bids from third parties as well as contracted sales agreements when applicable. In 2021, American retired its remaining Embraer 140 fleet and recorded $27 million in non-cash special impairment charges reflecting the difference between the carrying values of these assets and their fair ~~value~~values.

At December 31, 2021 and 2020, prepaid expense and other on the consolidated balance sheets included $29 million and $164 million, respectively, of ~~the assets. Assets~~retired aircraft that are expected to be ~~disposed~~sold in the next year, and other assets on the consolidated balance sheets included $382 million and $400 million, respectively, of ~~are reported at the lower of the carrying amount or fair value less the cost to sell.~~nonoperating retired aircraft.

~~Total depreciation and amortization expense was $2.4 billion, $2.1 billion and $1.8 billion for the years ended December 31, 2018, 2017 and 2016, respectively.~~

~~(g)~~(h) Leases

American determines if an arrangement is a lease at inception. Operating leases are included in operating lease ~~ROU~~right-of-use (ROU) assets, current operating lease liabilities and noncurrent operating lease liabilities inon American’s consolidated balance ~~sheet.~~sheets. Finance leases are included in property and equipment, current maturities of long-term debt and finance leases and long-term debt and finance leases, net of current maturities, inon American’s consolidated balance ~~sheet.~~sheets.

ROU assets represent American’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

American uses its estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. American gives consideration to its recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating its incremental borrowing rates.

American’s lease term includes options to extend the lease when it is reasonably certain that it will exercise that option. Leases with a term of 12 months or less are not recorded on ~~the~~its consolidated balance ~~sheet.~~sheets. American’s lease agreements do not contain any residual value guarantees.

Under certain of American’s capacity purchase agreements with third-party regional carriers, American does not own the underlying aircraft. However, since American controls the marketing, scheduling, ticketing, pricing and seat inventories of these aircraft and therefore control the asset, the aircraft is deemed to be leased for accounting purposes. For these capacity purchase agreements, American accounts for the lease and non-lease components separately. The lease

166

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

component consists of the aircraft and the non-lease components consist of services, such as the crew and maintenance. American allocates the consideration in the capacity purchase agreements to the lease and non-lease components using their estimated relative standalone prices. See Note 10(b) for additional information on its capacity purchase agreements.

For real estate, American accounts for the lease and non-lease components as a single lease component.

~~(h)~~(i) Income Taxes

American provides a valuation allowance for its deferred tax assets when it is more likely than not that some portion, or all of its deferred tax assets, will not be realized. The ultimate realization of deferred tax assets is dependent upon the

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

generation of future taxable income. American considers all available positive and negative evidence and makes certain assumptions in evaluating the realizability of its deferred tax assets. Many factors are considered that impact American’s assessment of future profitability, including conditions which are beyond American’s control, such as the health of the economy, the ~~level~~availability and price volatility of aircraft fuel ~~prices~~ and travel demand.

~~(i)~~(j) Goodwill

Goodwill represents the ~~excess of the~~ purchase price ~~over~~in excess of the fair value of the net assets acquired and liabilities ~~assumed. Goodwill is not amortized but assessed~~assumed in connection with the merger with US Airways Group. American has 1 reporting unit. American assesses goodwill for impairment annually ~~on October 1~~^st or more frequently if events or circumstances indicate that the fair value of goodwill may be ~~impaired. American has one consolidated reporting unit.~~lower than the carrying value. American’s annual assessment date is October 1.

Goodwill is assessed for impairment by initially performing a qualitative ~~assessment and, if necessary, then comparing~~assessment. If American determines that it is more likely than not that its goodwill may be impaired, it uses a quantitative approach to assess the asset’s fair value and the amount of the reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit is less than the carrying value, a second step is performed to determine the implied fair value of goodwill. If the implied fair value of goodwill is lower than its carrying value, an impairment, ~~charge equal to the difference is recorded.~~if any. Based upon American’s annual assessment, there was no goodwill impairment in ~~2018.~~2021. The carrying value of ~~the~~American’s goodwill on ~~American’s~~its consolidated balance sheets was $4.1 billion as of December 31, ~~2018~~2021 and ~~2017.~~2020.

~~(j)~~(k) Other Intangibles, Net

~~Finite-Lived~~Definite-Lived Intangible Assets

The following table provides information relating to American’s amortizable intangible assets as of December 31, ~~2018~~2021 and ~~2017~~2020 (in millions):


	December 31,
	2021		2020
Domestic airport slots	$	365	$	365
Customer relationships	300		300
Marketing agreements	105		105
Tradenames	35		35
Airport gate leasehold rights	137		137
Accumulated amortization	(786)		(745)
Total	$	156	$	197

167

December 31,
2018 2017
Domestic airport slots $ 365
$ 365
Customer relationships 300
300
Marketing agreements 105
105
Tradenames 35
35
Airport gate leasehold rights 137
137
Accumulated amortization (663 ) (622 )
Total $ 279
$ 320

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

American recorded amortization expense related to these intangible assets of $41 million ~~$44 million and $76 million~~ for each of the years ended December 31, ~~2018, 2017~~2021, 2020 and ~~2016, respectively.~~2019. American expects to record annual amortization expense for these intangible assets as follows (in millions):

2019 $ 41
2020 41
2021 41
2022 41
2023 7
2024 and thereafter 108
Total $ 279

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


2022	$	41
2023	7
2024	7
2025	7
2026	6
2027 and thereafter	88
Total	$	156

Indefinite-Lived Intangible Assets

Indefinite-lived intangible assets include certain domestic airport slots ~~at American’s hubs~~ and international slots and route authorities. ~~Indefinite-lived~~American assesses indefinite-lived intangible assets ~~are not amortized but instead are assessed~~ for impairment annually ~~on October 1~~^st or more frequently if events or circumstances indicate that the ~~asset may be impaired. For both periods as of December 31, 2018 and 2017, American had $1.9 billion~~fair values of indefinite-lived intangible assets ~~on its consolidated balance sheets.~~

~~In the second quarter of 2018, American recorded a $26 million impairment charge on a Brazil route authority as a result of the U.S.-Brazil open skies agreement, which~~may be lower than their carrying values. American’s annual assessment date is ~~included within special items, net on its consolidated statement of operations.~~October 1.

Indefinite-lived intangible assets are assessed for impairment by initially performing a qualitative ~~assessment to determine whether~~assessment. If American ~~believes~~determines that it is more likely than not that ~~an asset has been impaired. If~~its indefinite-lived intangible assets may be impaired, American ~~believes impairment has occurred, American then evaluates for impairment by comparing~~uses a quantitative approach to assess the ~~estimated~~asset’s fair value and the amount of ~~assets to~~ the ~~carrying value. An~~ impairment, ~~charge is recognized~~ if ~~the asset’s estimated fair value is less than its carrying value.~~any. Based upon American’s annual assessment, there were no ~~additional~~ indefinite-lived intangible asset impairments in ~~2018 other than the Brazil route authority described above.~~

~~(k) Revenue Recognition~~

~~Revenue~~

~~Effective January 1, 2018,~~2021. American ~~adopted the New Revenue Standard using the full retrospective method, which resulted in the recast~~had $1.8 billion of ~~prior reporting periods. Refer to “Recent Accounting Pronouncements”~~ ~~in Note 1(b) for the effects of the adoption~~indefinite-lived intangible assets on ~~American’s consolidated statements of operations for the years ended December 31, 2017 and 2016 and on American’s~~its consolidated balance ~~sheet~~sheets as of December 31, ~~2017.Under the New~~2021 and 2020.

(l) Revenue Standard, revenue is recognized upon the transfer of control of promised products or services to American’s customers in an amount that reflects the consideration it expects to receive in exchange for those products or services.Recognition

Revenue

The following are the significant categories comprising American’s reported operating revenues (in millions):


	Year Ended December 31,
	2021		2020		2019
Passenger revenue:
Passenger travel	$	23,896	$	13,456	$	38,831
Loyalty revenue - travel (1)	2,167		1,062		3,179
Total passenger revenue	26,063		14,518		42,010
Cargo	1,314		769		863
Other:
Loyalty revenue - marketing services (2)	2,166		1,825		2,361
Other revenue	337		223		527
Total other revenue	2,503		2,048		2,888
Total operating revenues	$	29,880	$	17,335	$	45,761

2018 2017 2016
Passenger revenue:
Passenger travel $ 37,457
$ 36,152
$ 34,278
Loyalty revenue - travel ⁽¹⁾
3,219
2,979
2,767
Total passenger revenue 40,676
39,131
37,045
Cargo 1,013
890
785
Other:
Loyalty revenue - marketing services 2,352
2,124
1,872
Other revenue 489
465
423
Total other revenue 2,841
2,589
2,295
Total operating revenues $ 44,530
$ 42,610
$ 40,125


⁽¹⁾ (2)During the years ended December 31, 2021, 2020 and 2019, cash payments from co-branded credit card and other partners were $3.4 billion, $2.9 billion and $3.9 billion, respectively. 168 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.	Loyalty revenue included in passenger revenue is principally comprised of mileage credit redemptions earned through travel and mileage credits sold to co-branded credit card and other partners. See “~~Loyalty Revenue”~~ ~~below for further discussion on these mileage credits.~~

The following is American’s total passenger revenue by geographic region (in millions):

2018 2017 2016
Domestic $ 29,573
$ 28,749
$ 27,202
Latin America 5,125
4,840
4,676
Atlantic 4,376
4,028
3,873
Pacific 1,602
1,514
1,294
Total passenger revenue $ 40,676
$ 39,131
$ 37,045

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


	Year Ended December 31,
	2021		2020		2019
Domestic	$	21,453	$	11,765	$	30,881
Latin America	3,506		1,852		5,047
Atlantic	965		654		4,624
Pacific	139		247		1,458
Total passenger revenue	$	26,063	$	14,518	$	42,010

American attributes passenger revenue by geographic region based upon the origin and destination of each flight segment.

Passenger Revenue

American recognizes all revenues generated from transportation on American and its regional flights operated under the brand name American Eagle, including associated baggage ~~fees, ticketing change~~ fees and other inflight services, as passenger revenue when transportation is provided. Ticket and other related sales for transportation that has not yet been provided are initially deferred and recorded as air traffic liability on American’s consolidated balance sheets. The air traffic liability principally represents tickets sold for future travel on American and partner airlines, as well as estimated future refunds and exchanges of tickets sold for past travel.

The majority of tickets sold are nonrefundable. A small percentage of tickets, some of which are partially used tickets, expire unused. Due to complex pricing structures, refund and exchange policies, and interline agreements with other airlines, 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 American’s historical data. American has consistently applied this accounting method to estimate revenue from ~~forfeited~~unused 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 American’s 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 American 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

American currently operates the loyalty program, AAdvantage. This program awards mileage credits to passengers who fly on American, any oneworld airline or other partner airlines, or by using the services of other program participants, such as ~~the Citi and Barclaycard US~~American’s co-branded credit cards, and certain 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, American applies the deferred revenue ~~method in accordance with~~method. In response to the ~~New Revenue Standard.~~COVID-19 pandemic, American suspended the expiration of mileage credits through March 31, 2022 and eliminated mileage reinstatement fees for canceled award tickets.

Mileage credits earned through travel

For mileage credits earned through travel, American applies 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~~mileage credits that will not be redeemed using a statistical model based on historical redemption ~~patterns.~~patterns to develop an estimate of the likelihood of future redemption. Given the inherent uncertainty of the current operating environment due to the COVID-19 pandemic, American will continue to monitor redemption patterns and may adjust its estimates in the future.

169

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

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

American sells mileage credits to participating airline partners and non-airline business partners, including American’s co-branded credit card partners, under contracts with terms extending generally for one to ~~nine~~five 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~~2 components, transportation and marketing. American allocates the consideration received from these sales of mileage credits based on the relative selling price of each product or service delivered.

American’s most significant partner agreements are its co-branded credit card agreements with Citi and Barclaycard ~~US that American entered into in 2016.~~US. American 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, American recognizes the marketing component in other revenue in the period of the mileage sale following the sales-based royalty method.

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

For the portion of American’s outstanding mileage credits that it estimates will not be redeemed, American recognizes the associated value proportionally as the remaining mileage credits are redeemed. American’s estimates ~~are~~use a statistical model based on ~~analysis~~historical redemption patterns to develop an estimate of ~~historical redemptions.~~the likelihood of future redemption.

Cargo Revenue

Cargo revenue is recognized when American provides the transportation.

Other Revenue

Other revenue includes revenue associated with American’s loyalty program, which is comprised principally of the marketing component of mileage sales to co-branded credit card and other partners and other marketing related payments. ~~For the years ended December 31, 2018, 2017 and 2016, loyalty~~Loyalty revenue included in other revenue was $2.2 billion, $1.8 billion and $2.4 billion ~~$2.1 billion~~for the years ended December 31, 2021, 2020 and ~~$1.9 billion,~~2019, respectively. The accounting and recognition for the loyalty program marketing services are discussed above in “Loyalty Revenue.” The remaining amounts included within other revenue relate to airport clubs, advertising and vacation-related services.

Contract Balances

American’s significant contract liabilities are comprised of (1) outstanding loyalty program mileage credits that may be redeemed for future travel and other non-air travel awards, reported as loyalty program liability on American’s consolidated balance ~~sheet~~sheets and (2) ticket sales for transportation that has not yet been provided, reported as air traffic liability on American’s consolidated balance ~~sheet.~~sheets.


	December 31,
	2021		2020
	(in millions)
Loyalty program liability	$	9,135	$	9,195
Air traffic liability	6,087		4,757
Total	$	15,222	$	13,952

170

December 31, 2018 December 31, 2017
(in millions)
Loyalty program liability $ 8,539
$ 8,822
Air traffic liability 4,339
4,042
Total $ 12,878
$ 12,864

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Balance at December 31, 2017 $ 8,822
Deferral of revenue 3,083
Recognition of revenue ⁽¹⁾
(3,366 )
Balance at December 31, 2018 ⁽²⁾
$ 8,539


Balance at December 31, 2020	$	9,195
Deferral of revenue	2,161
Recognition of revenue (1)	(2,221)
Balance at December 31, 2021 (2)	$	9,135

⁽¹⁾

(2)Mileage credits can be redeemed at any time and generally do not expire as long as that AAdvantage member has any type of qualifying activity at least every 18 months. In response to the COVID-19 pandemic, American suspended the expiration of mileage credits through March 31, 2022 and eliminated mileage reinstatement fees for canceled award tickets. As of December 31, 2021, American’s current loyalty program liability was $2.9 billion and represents American’s current estimate of revenue expected to be recognized in the next 12 months based on historical as well as projected trends, with the balance reflected in long-term loyalty program liability expected to be recognized as revenue in periods thereafter. Given the inherent uncertainty of the current operating environment due to the COVID-19 pandemic, American will continue to monitor redemption patterns and may adjust its estimates in the future.

⁽²⁾

Mileage credits can be redeemed at any time and do not expire as long as that AAdvantage member has any type of qualifying activity at least every 18 months. As of December 31, 2018, American’s current loyalty program liability was $3.3 billion and represents American’s current estimate of revenue expected to be recognized in the next twelve months based on historical trends, with the balance reflected in long-term loyalty program liability expected to be recognized as revenue in periods thereafter.

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

fluctuates with seasonal travel patterns. The contract duration of passenger tickets is generally one year. Accordingly, any revenue associated with tickets sold for future travel will be recognized within ~~twelve~~12 months. For ~~2018, $3.1~~2021, $1.7 billion of revenue was recognized in passenger revenue that was included in American’s air traffic liability at December 31, ~~2017.~~2020. In response to the COVID-19 pandemic, American extended the contract duration for certain tickets to March 31, 2022, principally those tickets which were scheduled to expire from March 1, 2020 through March 31, 2021. Additionally, tickets to certain international destinations have extended contract duration to December 31, 2022. American also has eliminated change fees for most domestic and international tickets providing more flexibility for customers to change travel plans. Given these changes and the uncertainty surrounding the future demand for air travel, American’s estimates of revenue that will be recognized from the air traffic liability for future flown or unused tickets as well as its estimates of refunds may be subject to variability and differ from historical experience.

~~With respect to~~American’s ticket contract receivables relate to ticket sales to individual passengers primarily through the use of major credit cards and are reflected as accounts receivable, net on the accompanying consolidated balance ~~sheet, these primarily include receivables for tickets sold to individual passengers through the use of major credit cards.~~sheets. These receivables are short-term, mostly settled within seven days after sale. ~~Bad debt~~All accounts receivable are reported net of an allowance for credit losses, which have been ~~minimal in~~minimal. American considers past and future financial and qualitative factors when establishing the ~~past, have been considered in establishing allowances~~allowance for ~~doubtful accounts.~~credit losses.

~~(l)~~(m) Maintenance, Materials and Repairs

~~(m)~~(n) Selling Expenses

~~(n)~~

171

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

(o) Share-based Compensation

American accounts for its share-based compensation expense based on the fair value of the stock award at the time of grant, which is recognized ratably over the vesting period of the stock award. ~~Certain~~The majority of American’s stock awards ~~have performance conditions that must be achieved prior to vesting~~are time vested restricted stock units, and ~~are expensed based on~~ the ~~expected achievement at each reporting period. The~~ fair value of ~~stock appreciation rights is estimated using a Black-Scholes option pricing model. The fair value of restricted stock units~~such awards is based on the market price of the underlying shares of AAG common stock on the date of grant. See Note 13 for further discussion of share-based compensation.

~~(o)~~(p) Foreign Currency Gains and Losses

Foreign currency gains and losses are recorded as part of other income, net within total nonoperating expense, net inon American’s consolidated statements of operations. ~~Foreign~~For the years ended December 31, 2021, 2020 and 2019, respectively, foreign currency losses ~~for 2018 and 2017~~ were ~~$54 millionand~~ $4 million, ~~respectively,~~$24 million and ~~for 2016, foreign currency gains were $1~~$32 million.

~~(p)~~(q) Other Operating Expenses

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

~~(q)~~(r) Regional Expenses

American's regional carriers provide scheduled air transportation under the brand name “American Eagle.” The American Eagle carriers include AAG's wholly-owned regional carriers as well as third-party regional carriers. Substantially all of American's regional carrier arrangements are in the form of capacity purchase agreements. Expenses associated with American Eagle operations are classified as regional expenses on ~~American’s~~the consolidated statements of operations.

Beginning in the first quarter of 2021, aircraft fuel and related taxes as well as certain salaries, wages and benefits, other rent and landing fees, selling and other expenses are no longer allocated to regional expenses on American's consolidated statements of operations. The 2020 consolidated statement of operations has been recast to conform to the 2021 presentation. This statement of operations presentation change has no impact on total operating expenses or net loss.

Regional expenses ~~consist~~for the years ended December 31, 2021, 2020, and 2019 include $263 million, $273 million and $286 million of depreciation and amortization, respectively, and $6 million, $13 million and $29 million of aircraft rent, respectively.

In 2021, 2020, and 2019, American recognized $495 million, $438 million and $590 million, respectively, of expense under its capacity purchase agreement with Republic Airways Inc. (Republic). American holds a 25% equity interest in Republic Airways Holdings Inc. (Republic Holdings), the ~~following (in millions):~~parent company of Republic.

172

Year Ended December 31,
2018 2017 2016
Aircraft fuel and related taxes $ 1,843
$ 1,382
$ 1,109
Salaries, wages and benefits 338
356
327
Capacity purchases from third-party regional carriers ⁽¹⁾
3,267
3,283
3,186
Maintenance, materials and repairs 8
7
4
Other rent and landing fees 583
602
487
Aircraft rent 27
27
28
Selling expenses 369
361
347
Depreciation and amortization 267
262
237
Special items, net —
3
13
Other 362
289
271
Total regional expenses $ 7,064
$ 6,572
$ 6,009

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.


⁽¹⁾	In 2018, American recognized $565 million of expense under its capacity purchase agreement with Republic Airline Inc. (Republic). American holds a 25% equity interest in Republic Airways Holdings Inc. (Republic Holdings), the parent company of Republic.

2. Special Items, Net

Special items, net on American’s consolidated statements of operations consisted of the following (in millions):

Year Ended December 31,
2018 2017 2016
Fleet restructuring expenses ⁽¹⁾
$ 422
$ 232
$ 177
Merger integration expenses ⁽²⁾
268
273
514
Severance expenses ⁽³⁾
58
—
—
Litigation settlement ⁽⁴⁾
45
—
—
Intangible asset impairment ⁽⁵⁾
26
—
—
Labor contract expenses 13
46
—
Mark-to-market adjustments on bankruptcy obligations, net ⁽⁶⁾
(76 ) 27
25
Employee 2017 Tax Act bonus expense ⁽⁷⁾
—
123
—
Other operating charges (credits), net 31
11
(7 )
Mainline operating special items, net 787
712
709
Regional operating special items, net —
3
13
Operating special items, net 787
715
722

Mark-to-market adjustments on equity investments, net ⁽⁸⁾
104
—
—
Debt refinancing and extinguishment charges 13
22
49
Other nonoperating credits, net (4 ) —
—
Nonoperating special items, net 113
22
49

Income tax special items ⁽⁹⁾
18
—
—
Impact of the 2017 Tax Act ⁽¹⁰⁾
—
924
—
Income tax special items, net 18
924
—


	Year Ended December 31,
	2021		2020		2019
PSP Financial Assistance (1)	$	(4,162)	$	(3,710)	$	—
Severance expenses (2)	168		1,408		11
Litigation reserve adjustments	(19)		—		(53)
Mark-to-market adjustments on bankruptcy obligations, net (3)	(3)		(49)		(11)
Fleet impairment (4)	—		1,484		213
Labor contract expenses (5)	—		228		—
Fleet restructuring expenses (6)	—		—		271
Merger integration expenses (7)	—		—		191
Other operating special items, net	10		(18)		13
Mainline operating special items, net	(4,006)		(657)		635

PSP Financial Assistance (1)	(539)		(444)		—
Fleet impairment (4)	27		106		—
Regional operating special items, net	(512)		(338)		—
Operating special items, net	(4,518)		(995)		635

Mark-to-market adjustments on equity and other investments, net (8)	31		135		(5)
Debt refinancing, extinguishment and other, net	29		35		16
Nonoperating special items, net	60		170		11

(1)The 2021 PSP Financial Assistance represents recognition of a portion of the financial assistance received from Treasury pursuant to the PSP2 and PSP3 Agreements. See Note 1(b) for further information. The 2020 PSP Financial Assistance represents recognition of a portion of the financial assistance received from Treasury pursuant to the PSP1 Agreement.

(2)The 2021 and 2020 severance expenses include salary and medical costs primarily associated with certain team members who opted into voluntary early retirement programs offered as a result of reductions to American's operation due to the COVID-19 pandemic. Cash payments primarily associated with American's voluntary early retirement programs were approximately $520 million and $365 million in 2021 and 2020, respectively.

The 2019 severance expenses primarily included costs associated with reductions of management and support staff team members.

(3)Bankruptcy obligations that will be settled in shares of AAG common stock are marked-to-market based on AAG’s stock price.

(4)Fleet impairment charges resulted from the retirement of certain aircraft earlier than planned driven by the severe decline in air travel due to the COVID-19 pandemic. In 2021, American retired its remaining Embraer 140 fleet resulting in a non-cash write-down of these regional aircraft. See Note 1(g) for further information related to these charges.

In 2020, American retired its entire Airbus A330-200, Boeing 757, Boeing 767, Airbus A330-300 and Embraer 190 fleets as well as certain Embraer 140 and Bombardier CRJ200 aircraft resulting in a $1.5 billion non-cash write-down of mainline and regional aircraft and associated spare parts and $109 million in cash charges primarily for impairment of ROU assets and lease return costs.

The 2019 fleet impairment principally included a non-cash write-down of aircraft related to the retirement of American’s Embraer 190 fleet.

(5)The 2020 labor contract expenses primarily related to one-time charges due to the ratification of a new contract with the Transport Workers Union and International Association of Machinists & Aerospace Workers (TWU-IAM

173

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Association) for American's maintenance and fleet service team members, including signing bonuses and adjustments to vacation accruals resulting from pay rate increases.

(6)Fleet restructuring expenses principally included accelerated depreciation and rent expense for aircraft and related equipment expected to be retired earlier than planned.

(7)Merger integration expenses included costs associated with integration projects, principally American's technical operations, flight attendant, human resources and payroll systems.

(8)Mark-to-market adjustments on equity and other investments, net primarily related to net unrealized gains and losses associated with American’s equity investments in China Southern Airlines Company Limited (China Southern Airlines) and in 2021, Vertical Aerospace Ltd. (Vertical), and certain treasury rate lock derivative instruments.

⁽¹⁾

~~Fleet restructuring expenses principally included accelerated depreciation and rent expense for aircraft and related equipment grounded or expected to be grounded earlier than planned.~~


⁽²⁾	~~Merger integration expenses included costs associated with integration projects, principally American's flight attendant, human resources and payroll, and technical operations systems.~~


⁽³⁾	~~Severance expenses primarily included costs associated with reductions of management and support staff team members.~~


⁽⁴⁾	~~Settlement of a private party antitrust lawsuit. See Note 10(e) - “Private Party Antitrust Action Related to Passenger Capacity” for further discussion.~~


⁽⁵⁾	~~Intangible asset impairment includes a non-cash charge to write-off American’s Brazil route authority as a result of the U.S.-Brazil open skies agreement.~~


⁽⁶⁾	~~Bankruptcy obligations that will be settled in shares of AAG common stock are marked-to-market based on AAG’s stock price.~~


⁽⁷⁾	~~Employee bonus expense included costs related to the $1,000 cash bonus and associated payroll taxes granted to mainline employees as of December 31, 2017 in recognition of the 2017 Tax Act.~~


⁽⁸⁾	~~Mark-to-market adjustments on equity investments relate to net unrealized losses primarily associated with American’s equity investments in China Southern Airlines and Mesa Air Group, Inc.~~


⁽⁹⁾	~~Income tax special items for 2018 included an $18 million charge related to an international income tax matter.~~


⁽¹⁰⁾	Impact of the 2017 Tax Act includes a $924 million non-cash charge to income tax expense to reflect the impact of lower corporate income tax rates on the Company’s deferred tax asset and liabilities resulting from the 2017 Tax Act, which reduced the federal corporate income tax rate from 35% to 21%.

3. Debt

Long-term debt included ~~in the~~on American’s consolidated balance sheets consisted of (in millions):

December 31,
2018 2017
Secured
2013 Credit Facilities, variable interest rate of 4.26%, installments through 2025 ^(a)
$ 1,825
$ 1,825
2014 Credit Facilities, variable interest rate of 4.39%, installments through 2021 ^(a)
1,215
728
April 2016 Credit Facilities, variable interest rate of 4.52%, installments through 2023 ^(a)
980
990
December 2016 Credit Facilities, variable interest rate of 4.46%, installments through 2023 ^(a)
1,225
1,238
Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 3.00% to 9.01%, averaging 4.21%, maturing from 2019 to 2029 ^(b)
11,648
11,881
Equipment loans and other notes payable, fixed and variable interest rates ranging from 2.34% to 8.48%, averaging 4.26%, maturing from 2019 to 2030 ^(c)
5,060
5,259
Special facility revenue bonds, fixed interest rates of 5.00%, maturing from 2019 to 2031 769
828
Other secured obligations —
1
Total long-term debt 22,722
22,750
Less: Total unamortized debt discount, premium and issuance costs 219
227
Less: Current maturities 2,466
1,980
Long-term debt, net of current maturities $ 20,037
$ 20,543

~~The table below shows the maximum availability under revolving credit facilities, all of which were undrawn, as of December 31, 2018 (in millions):~~


	December 31,
	2021		2020
Secured
2013 Term Loan Facility, variable interest rate of 1.85%, installments through 2025 (a)	$	1,770	$	1,788
2013 Revolving Facility (a)	—		750
2014 Term Loan Facility, variable interest rate of 1.85%, installments through 2027 (a)	1,208		1,220
2014 Revolving Facility (a)	—		1,643
April 2016 Spare Parts Term Loan Facility (a)	—		960
April 2016 Revolving Facility (a)	—		450
December 2016 Term Loan Facility, variable interest rate of 2.11%, installments through 2023 (a)	1,188		1,200
11.75% senior secured notes, interest only payments until due in July 2025 (b)	2,500		2,500
10.75% senior secured IP notes, interest only payments until due in February 2026 (b)	1,000		1,000
10.75% senior secured LGA/DCA notes, interest only payments until due in February 2026 (b)	200		200
Treasury Term Loan Facility (c)	—		550
5.50% senior secured notes, installments beginning in July 2023 until due in April 2026 (d)	3,500		—
5.75% senior secured notes, installments beginning in July 2026 until due in April 2029 (d)	3,000		—
AAdvantage Term Loan Facility, variable interest rate of 5.50%, installments beginning in July 2023 through April 2028 (d)	3,500		—
Enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 2.88% to 8.39%, averaging 3.84%, maturing from 2022 to 2034 (e)	9,357		11,013
Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.27% to 4.64%, averaging 1.82%, maturing from 2022 to 2032	3,433		4,417
Special facility revenue bonds, fixed interest rates ranging from 2.25% to 5.38%, maturing from 2026 to 2036 (f)	1,129		1,040

Total long-term debt	31,785		28,731
Less: Total unamortized debt discount, premium and issuance costs	428		321
Less: Current maturities	1,568		2,700
Long-term debt, net of current maturities	$	29,789	$	25,710

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

As of December 31, 2021, the maximum availability under American’s revolving credit and other facilities is as follows (in millions):


2013 Revolving Facility	$	750
2014 Revolving Facility	1,643
April 2016 Revolving Facility	450
Short-term Revolving and Other Facilities	568
Total	$	3,411

2013 Revolving Facility $ 1,000
2014 Revolving Facility 1,543
April 2016 Revolving Facility 300
Total $ 2,843
American has an undrawn $500 million short-term revolving credit facility, which was set to expire at the beginning of January 2022 but which has been extended through the beginning of January 2023. Beginning January 2, 2022, the available amount thereunder decreased to $150 million. American also currently has approximately $68 million of available borrowing base under a cargo receivables facility that was entered into in December 2020 and is set to expire in December 2022. The December 2016 Credit Facilities provide for a revolving credit facility that may be established thereunder in the future.

Secured financings, including revolving credit and other facilities, are collateralized by assets, consisting primarily of aircraft, engines, simulators, aircraft spare parts, airport gate leasehold rights, route authorities, airport slots, certain receivables, certain intellectual property and ~~pre-delivery payments.~~certain loyalty program assets.

At December 31, ~~2018,~~2021, the maturities of long-term debt are as follows (in millions):

2019 $ 2,508
2020 1,815
2021 3,409
2022 1,344
2023 3,892
2024 and thereafter 9,754
Total $ 22,722


2022	$	1,637
2023	4,167
2024	3,467
2025	7,749
2026	4,412
2027 and thereafter	10,353
Total	$	31,785

(a) 2013, 2014, April 2016 and December 2016 Credit Facilities

2013 Credit Facilities

In ~~May 2018,~~November 2019, American and AAG entered into ~~a Fourth~~the Sixth Amendment ~~(the Fourth Amendment~~ to ~~the 2013 Credit Agreement) to the~~ Amended and Restated Credit and Guaranty Agreement, amending the Amended and Restated Credit and Guaranty Agreement dated as of May 21, 2015 ~~which amended and restated the Credit and Guaranty Agreement dated as of June 27, 2013~~ (as previously amended, the 2013 Credit ~~Agreement,~~Agreement; the revolving credit facility established thereunder, the 2013 Revolving ~~Facility,~~Facility; the term loan facility established thereunder, the 2013 Term Loan ~~Facility,~~Facility; and the 2013 Revolving Facility together with the 2013 Term Loan Facility, the 2013 Credit Facilities), ~~pursuant to~~ which American refinanced $1.8 billion of the existing term loans outstanding under the 2013 Credit Facilities with proceeds of term loans incurred under the Fourth Amendment to the 2013 Credit Agreement (the 2013 Replacement Term Loans). The LIBOR margin on the 2013 Replacement Term Loans was reduced from 2.00% to 1.75% and the base rate margin on the 2013 Replacement Term Loans was reduced from 1.00% to 0.75%. Additionally, the maturity date of the 2013 Replacement Term Loans was extended to June 2025 pursuant to the Fourth Amendment to the 2013 Credit Agreement.

In December 2018, American and AAG entered into a Fifth Amendment (the Fifth Amendment to the 2013 Credit Agreement) to the 2013 Credit Agreement, as previously amended by the Fourth Amendment to the 2013 Credit Agreement. Pursuant to the Fifth Amendment to the 2013 Credit Agreement, adjustments to the 2013 Revolving Facility were made, including reducing the total aggregate commitments under the 2013 Revolving Facility ~~by $200~~to $750 million ~~extending~~from $1.0 billion. In addition, certain lenders party to the 2013 Credit Agreement extended the maturity date ~~for~~of their commitments under the ~~revolver loans thereunder~~2013 Revolving Facility to October 2024 from October ~~2022~~2023.

In March 2021, American repaid in full the $750 million of outstanding revolving loans under the 2013 Revolving Facility that was drawn in April 2020. Following the March 2021 repayment, American is able to ~~October 2023 and reducing~~draw upon the ~~LIBOR margin from 2.25% to 2.00% and~~commitment under the ~~base rate margin from 1.25% to 1.00% for certain~~2013 Revolving Facility again as needed upon the terms of the ~~lenders of the revolver loans thereunder.~~2013 Credit Agreement or leave it undrawn, in each case, until such commitment expires, which is currently scheduled to occur in October 2024. As of December 31, ~~2018,~~2021, there were no borrowings or letters of credit outstanding under the 2013 Revolving Facility.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

2014 Credit Facilities

In ~~September 2018,~~November 2019, American and AAG entered into ~~a Fifth~~the Seventh Amendment ~~(the Fifth Amendment~~ to ~~the 2014 Credit Agreement) to the~~ Amended and Restated Credit and Guaranty Agreement, amending the Amended and Restated Credit and Guaranty Agreement dated as of April 20, 2015, ~~which amended and restated the Credit and Guaranty Agreement dated as of October 10, 2014~~ (as previously amended, the 2014 Credit ~~Agreement,~~Agreement; the revolving credit facility established thereunder, the 2014 Revolving ~~Facility,~~Facility; the term loan facility established thereunder, the 2014 Term Loan ~~Facility,~~Facility; and the 2014 Revolving Facility together with the 2014 Term Loan Facility, the 2014 Credit Facilities). The Fifth Amendment to the 2014 Credit Agreement provides for incremental term loans in the amount of $500 million under the 2014 Term Loan Facility. The terms of such incremental term loans are substantially similar to the terms of the existing term loans under the 2014 Term Loan Facility, including those with regard to maturity and interest rate margins. As of December 31, 2018, approximately $1.2 billion was outstanding under the 2014 Term Loan Facility.

In December 2018, American and AAG entered into a Sixth Amendment (the Sixth Amendment to the 2014 Credit Agreement) to the 2014 Credit Agreement, as previously amended by the Fifth Amendment to the 2014 Credit Agreement.

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

~~Pursuant to the Sixth Amendment to the 2014 Credit Agreement~~, ~~adjustments to the 2014 Revolving Facility were made, including increasing~~ which increased the total aggregate commitments under the 2014 Revolving Facility ~~by approximately $543 million, extending~~to $1.6 billion from $1.5 billion. In addition, certain lenders party to the 2014 Credit Agreement extended the maturity date of their commitments under the 2014 Revolving Facility to October 2024 from October 2023.

In January 2020, American and AAG entered into the Eighth Amendment to the 2014 Credit Agreement, pursuant to which American refinanced the 2014 Term Loan Facility, increasing the total aggregate principal amount outstanding to $1.2 billion, reducing the LIBOR margin from 2.00% to 1.75%, with a LIBOR floor of 0%, and reducing the base rate margin from 1.00% to 0.75%. In addition, the maturity date for the ~~revolver loans thereunder~~2014 Term Loan Facility was extended to January 2027 from October ~~2022~~2021.

In March 2021, American repaid in full the $1.6 billion of outstanding revolving loans under the 2014 Revolving Facility that was drawn in April and May 2020. Following the March 2021 repayment, American is able to ~~October 2023 and reducing~~draw upon the ~~LIBOR margin from 2.25% to 2.00% and~~commitment under the ~~base rate margin from 1.25% to 1.00% for certain~~2014 Revolving Facility again as needed upon the terms of ~~the lenders of the revolver loans thereunder. In addition to the slots, gates and routes (SGR) between airports in the United States and LHR previously pledged as collateral for~~ the 2014 Credit ~~Facilities, SGR between airports~~Agreement or leave it undrawn, in ~~the United States and other countries~~each case, until such commitment expires, which is currently scheduled to occur in ~~the European Union were added as collateral under the 2014 Credit Facilities pursuant to the Sixth Amendment to the 2014 Credit Agreement.~~October 2024. As of December 31, ~~2018,~~2021, there were no borrowings or letters of credit outstanding under the 2014 Revolving ~~Facility~~.Facility.

April 2016 Credit Facilities

In ~~December 2018,~~November 2019, American and AAG entered into ~~a Fourth~~the Fifth Amendment ~~(the Fourth Amendment~~ to ~~the April 2016 Credit Agreement) to the~~ Credit and Guaranty Agreement, amending the Credit and Guaranty Agreement dated as of April 29, 2016 (as previously amended, the April 2016 Credit ~~Agreement~~, ~~and~~Agreement; the revolving credit facility established thereunder, the April 2016 Revolving ~~Facility,~~Facility; the term loan facility established thereunder, the April 2016 Spare Parts Term Loan ~~Facility~~Facility; and the April 2016 ~~April~~ Revolving Facility together with the April 2016 Spare Parts Term Loan Facility, the April 2016 Credit Facilities)~~. Pursuant~~, which increased the total aggregate commitments under the April 2016 Revolving Facility to ~~the Fourth Amendment~~$450 million from $300 million. In addition, certain lenders party to the April 2016 Credit Agreement ~~adjustments to~~extended the maturity date of their commitments under the April 2016 Revolving Facility ~~were made, including extending the maturity date~~to October 2024 from October ~~2022~~2023.

In March 2021, American repaid in full the $450 million of outstanding revolving loans under the April 2016 Revolving Facility that was drawn in April 2020. Following the March 2021 repayment, American is able to ~~October 2023 for~~draw upon the ~~revolver loans established thereunder and reducing~~commitment under the ~~LIBOR margin from 2.25% to 2.00% and~~April 2016 Revolving Facility again as needed upon the ~~base rate margin from 1.25% to 1.00% for certain~~terms of the ~~lenders~~April 2016 Credit Agreement or leave it undrawn, in each case, until such commitment expires, which is currently scheduled to occur in October 2024.

On July 22, 2021, American repaid in full the $950 million aggregate principal amount of outstanding term loans under, and terminated, the ~~revolver loans thereunder.~~April 2016 Spare Parts Term Loan Facility. The April 2016 Revolving Facility, in an available aggregate principal amount of $450 million, remains in place. As of December 31, ~~2018,~~2021, there were no borrowings ~~or letters of credit~~ outstanding under the April 2016 Revolving Facility.

December 2016 Credit Facilities

In ~~November 2017,~~December 2016, American and AAG entered into ~~the First Amendment to the Amended and Restated Credit and Guaranty Agreement, amending~~ the Amended and Restated Credit and Guaranty Agreement, dated as of December 15, 2016 ~~pursuant to which American refinanced~~(as amended, the ~~$1.3 billion~~December 2016 Credit Agreement; the term loan facility ~~due December 2023~~ established thereunder, ~~(the~~the December 2016 Term Loan ~~Facility,~~Facility; and together with athe revolving credit facility that may be established thereunder in the future, the December 2016 Credit Facilities)~~, to reduce the LIBOR margin from 2.50% to 2.00% and the base rate margin from 1.50% to 1.00%~~.

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Certain details of American’s 2013 Credit Facilities, 2014 Credit Facilities, April 2016 Credit Facilities and December 2016 Credit Facilities (collectively referred to as the Credit Facilities) are shown in the table below as of December 31, ~~2018:~~2021:


	2013 Credit Facilities		2014 Credit Facilities		April 2016 Credit Facilities		December 2016 Credit Facilities		2013 Credit Facilities		2014 Credit Facilities		April 2016 Credit Facilities	December 2016 Credit Facilities
	2013 Replacement Term Loan	2013 Revolving Facility	2014 Term Loan	2014 Revolving Facility	April 2016 Term Loan	April 2016 Revolving Facility	December 2016 Term Loan		2013 Term Loan	2013 Revolving Facility	2014 Term Loan	2014 Revolving Facility	April 2016 Revolving Facility	December 2016 Term Loan
Aggregate principal issued or credit facility availability (in millions)	$1,900	$1,000	$1,250	$1,543	$1,000	$300	$1,250	Aggregate principal issued or credit facility availability (in millions)	$1,919	$750	$1,280	$1,643	$450	$1,250
Principal outstanding or drawn (in millions)	$1,825	$—	$1,215	$—	$980	$—	$1,225	Principal outstanding or drawn (in millions)	$1,770	$—	$1,208	$—	$—	$1,188
Maturity date	June 2025	October 2023	October 2021	October 2023	April 2023	October 2023	December 2023	Maturity date	June 2025	October 2024	January 2027	October 2024	October 2024	December 2023
LIBOR margin	1.75%	2.00%	2.00%	2.00%	2.00%	2.00%	2.00%	LIBOR margin	1.75%	2.00%	1.75%	2.00%	2.00%	2.00%

The term loans under each of the Credit Facilities are repayable in annual installments in an amount equal to 1.00% of the aggregate principal amount issued, with any unpaid balance due on the respective maturity dates. Voluntary prepayments may be made by American at any time.

The 2013 Revolving Facility, 2014 Revolving Facility and April 2016 Revolving Facility provide that American may from time to time borrow, repay and reborrow loans thereunder. The 2013 Revolving Facility and 2014 Revolving Facility have the ability to issue letters of credit thereunder in an aggregate amount outstanding at any time up to $100 million and $200 million, respectively. The 2013 Revolving Facility, 2014 Revolving Facility and April 2016 Revolving Facility are each subject to an undrawn annual fee of 0.63%. As of December 31, 2018, there were no borrowings or letters of credit outstanding under the 2013 Revolving Facility, 2014 Revolving Facility or April 2016 Revolving Facility. The December 2016 Credit Facilities provide for a revolving credit facility that may be established thereunder in the future.

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

Subject to certain limitations and exceptions, the Credit Facilities are secured by collateral, including certain spare parts, ~~certain~~ slots, ~~certain~~ route authorities, ~~certain~~ simulators and ~~certain~~ leasehold rights. American has the ability to make future modifications to the collateral pledged, subject to certain restrictions. American’s obligations under the Credit Facilities are guaranteed by AAG. American is required to maintain a certain minimum ratio of appraised value of the collateral to the outstanding loans as further described below in “~~Collateral-Related~~Certain Covenants.”

The Credit Facilities contain events of default customary for similar financings, including cross default to other material indebtedness. Upon the occurrence of an event of default, the outstanding obligations may be accelerated and become due and payable immediately. In addition, if a “change of control” occurs, American will (absent an amendment or waiver) be required to repay at par the loans outstanding under the Credit Facilities and terminate the 2013 Revolving Facility, 2014 Revolving Facility and April 2016 Revolving Facility and any revolving credit facility established under the December 2016 Credit Facilities. The Credit Facilities also include covenants that, among other things, require AAG to maintain ~~a minimum~~an aggregate ~~liquidity (as defined in the Credit Facilities)~~ of ~~not less than~~at least $2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities and limit the ability of AAG and its restricted subsidiaries to pay dividends and make certain other payments, make certain investments, incur additional indebtedness, incur liens on the collateral, dispose of the collateral, enter into certain affiliate transactions and engage in certain business activities, in each case subject to certain exceptions.

(b) ~~EETCs~~Senior Secured Notes

~~Below~~11.75% Senior Secured Notes

In June 2020, American issued $2.5 billion aggregate principal amount of 11.75% senior secured notes due 2025 (the 11.75% Senior Secured Notes) at a price equal to 99% of their aggregate principal amount. The 11.75% Senior Secured Notes bear interest at a rate of 11.75% per annum (subject to increase if the collateral coverage ratio described below is not met). Interest on the 11.75% Senior Secured Notes is payable semiannually in arrears on January 15 and July 15 of each year, which began on January 15, 2021. The 11.75% Senior Secured Notes will mature on July 15, 2025. The obligations of American under the 11.75% Senior Secured Notes are fully and unconditionally guaranteed on a ~~discussion~~senior unsecured basis by AAG.

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The 11.75% Senior Secured Notes were issued pursuant to an indenture, dated as of June 30, 2020 (the 11.75% Senior Secured Notes Indenture), by and among American, AAG and Wilmington Trust, National Association, as trustee (the 11.75% Senior Secured Notes Trustee). The 11.75% Senior Secured Notes are American’s senior secured obligations. Subject to certain limitations and exceptions, the 11.75% Senior Secured Notes are secured on a first-lien basis by security interests in certain assets, rights and properties utilized by American in providing its scheduled air carrier services to and from certain airports in the United States and certain airports in Australia, Canada, the Caribbean, Central America, China, Hong Kong, Japan, Mexico, South Korea, and Switzerland (collectively, the First Lien 11.75% Senior Secured Notes Collateral). American’s obligations with respect to the 11.75% Senior Secured Notes are also secured on a second-lien basis by security interests in certain assets, rights and properties utilized by American in providing its scheduled air carrier services to and from certain airports in the United States and certain airports in the European Union and the United Kingdom (collectively, the Second Lien 11.75% Senior Secured Notes Collateral and together with the First Lien 11.75% Senior Secured Notes Collateral, the 11.75% Senior Secured Notes Collateral). American may be required to pledge additional collateral in the future under the terms of the ~~2018 aircraft financing activities resulting~~11.75% Senior Secured Notes, and in certain circumstances may elect to pledge additional collateral as a replacement for existing collateral. The Second Lien 11.75% Senior Secured Notes Collateral also secures the 2014 Credit Facilities on a first-lien basis.

American may redeem the 11.75% Senior Secured Notes, in whole at any time or in part from ~~EETC issuances.~~

~~2017-2 EETCs~~time to time, at a redemption price equal to 100% of the principal amount of the 11.75% Senior Secured Notes being redeemed plus a make whole premium, together with accrued and unpaid interest thereon, if any, to (but not including) the redemption date.

In the event of a specified change of control, each holder of 11.75% Senior Secured Notes may require American to repurchase its 11.75% Senior Secured Notes in whole or in part at a repurchase price of 101% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, if any, to (but not including) the repurchase date.

American is required to deliver an appraisal of the First Lien 11.75% Senior Secured Notes Collateral and officer’s certificate on a semi-annual basis demonstrating the calculation of a collateral coverage ratio in relation to the First Lien 11.75% Senior Secured Notes Collateral as of the end of each semi-annual period based on such appraisal. If American fails to deliver the officer’s certificate in a timely manner or the collateral coverage ratio is less than 1.6 to 1.0 as of the end of the semi-annual period, then, subject to an opportunity to cure the deficiency in the collateral coverage ratio, American will be required to pay special interest in an additional amount equal to 2.0% per annum of the outstanding principal amount of the 11.75% Senior Secured Notes until the collateral coverage ratio is established to be at least 1.6 to 1.0.

The 11.75% Senior Secured Notes Indenture contains covenants that, among other things, restrict the ability of AAG and the ability of its restricted subsidiaries (including American) to: (i) pay dividends, redeem or repurchase stock or make other distributions or restricted payments, (ii) incur liens on the 11.75% Senior Secured Notes Collateral and dispose of or release the 11.75% Senior Secured Notes Collateral, (iii) repay subordinated indebtedness, (iv) make certain loans and investments, (v) incur indebtedness or issue preferred stock, (vi) merge, consolidate or sell assets, (vii) undergo certain change of control transactions, and (viii) designate subsidiaries as unrestricted. These covenants are subject to a number of important exceptions and qualifications set forth in the 11.75% Senior Secured Notes Indenture.

Upon the occurrence of any event of default (other than certain bankruptcy or insolvency or reorganization events affecting AAG or certain of its subsidiaries, including American), the 11.75% Senior Secured Notes may be declared to be due and payable immediately. Upon the occurrence of certain bankruptcy, insolvency or reorganization events affecting American or certain of its subsidiaries (including American), all outstanding 11.75% Senior Secured Notes will become due and payable immediately without further action or notice on the part of the 11.75% Senior Secured Notes Trustee or any holder of the 11.75% Senior Secured Notes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

10.75% Senior Secured Notes

On September 25, 2020 (the 10.75% Senior Secured Notes Closing Date), American issued $1.0 billion in initial principal amount of senior secured IP notes (the IP Notes) and $200 million in initial principal amount of senior secured LGA/DCA notes (the LGA/DCA Notes and together with the IP Notes, the 10.75% Senior Secured Notes). The obligations of American under the 10.75% Senior Secured Notes are fully and unconditionally guaranteed (the 10.75% Senior Secured Notes Guarantees) on a senior unsecured basis by AAG. The 10.75% Senior Secured Notes bear interest at a rate of 10.75% per annum in cash. For any interest period on or prior to September 1, 2022, American may, at its election, pay interest at a rate of 12.00% per annum payable one-half in cash and one-half in kind. Interest on the 10.75% Senior Secured Notes is payable semiannually in arrears on September 1 and March 1 of each year, which began on March 1, 2021. The 10.75% Senior Secured Notes will mature on February 15, 2026.

The 10.75% Senior Secured Notes were each issued pursuant to a separate indenture, dated as of September 25, 2020 (individually, the IP Notes Indenture and the LGA/DCA Notes Indenture and collectively, the 10.75% Senior Secured Notes Indentures), by and among American, AAG and Wilmington Trust, National Association, as trustee and as collateral trustee (the 10.75% Senior Secured Notes Trustee). The IP Notes are secured by a first lien security interest on certain intellectual property of American, including the “American Airlines” trademark and the “aa.com” domain name in the United States and certain foreign jurisdictions (the IP Collateral), and a second lien on certain slots related to American’s operations at New York LaGuardia and Ronald Reagan Washington National airports and certain other assets (the LGA/DCA Collateral and together with the IP Collateral, the 10.75% Senior Secured Notes Collateral). Subject to certain conditions, American will be permitted to incur up to $4.0 billion of additional pari passu debt and unlimited second lien debt secured by the IP Collateral securing the IP Notes. The LGA/DCA Notes are secured by a first lien security interest in the LGA/DCA Collateral. American may be required to pledge additional collateral in the future under the terms of the 10.75% Senior Secured Notes, and in certain circumstances may elect to pledge additional collateral including as a replacement for existing collateral. The LGA/DCA Collateral also secures on a first-lien basis the December 2016 Credit Facilities.

On or prior to the fourth anniversary of the 10.75% Senior Secured Notes Closing Date, American may redeem all or any part of the 10.75% Senior Secured Notes, at its option, at a redemption price equal to 100% of the principal amount of the 10.75% Senior Secured Notes redeemed plus a make whole premium, together with accrued and unpaid interest thereon, if any. After the fourth anniversary of the 10.75% Senior Secured Notes Closing Date and on or prior to the fifth anniversary of the 10.75% Senior Secured Notes Closing Date, American may redeem all or any part of the 10.75% Senior Secured Notes, at its option, at a redemption price equal to 105.375% of the principal amount of the 10.75% Senior Secured Notes redeemed, together with accrued and unpaid interest thereon, if any. After the fifth anniversary of the 10.75% Senior Secured Notes Closing Date, American may redeem all or any part of the 10.75% Senior Secured Notes, at its option, at par, together with accrued and unpaid interest thereon, if any.

In the event of a specified change of control, each holder of 10.75% Senior Secured Notes may require American to repurchase its 10.75% Senior Secured Notes, in whole or in part, at a repurchase price of 101% of the aggregate principal amount of the 10.75% Senior Secured Notes so repurchased, plus accrued and unpaid interest thereon, if any, to (but not including) the repurchase date.

The 10.75% Senior Secured Notes Indentures contain covenants that, among other things, restrict the ability of AAG and the ability of its restricted subsidiaries (including American) to: (i) pay dividends, redeem or repurchase stock or make other distributions or restricted payments, (ii) incur liens on the 10.75% Senior Secured Notes Collateral and dispose of or release the 10.75% Senior Secured Notes Collateral, (iii) repay subordinated indebtedness, (iv) make certain loans and investments, (v) incur indebtedness or issue preferred stock, (vi) merge, consolidate or sell assets, and (vii) designate subsidiaries as unrestricted. In addition, the 10.75% Senior Secured Notes Indentures include covenants that require AAG to maintain (a) an aggregate of at least $2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities and (b) a certain minimum ratio of appraised value of the collateral to outstanding debt secured thereby on a first lien basis as further described below in “Certain Covenants.” These covenants are subject to a number of important exceptions and qualifications set forth in the 10.75% Senior Secured Notes Indentures.

Upon the occurrence of any event of default (other than certain bankruptcy or insolvency or reorganization events affecting AAG or certain of its subsidiaries, including American), the 10.75% Senior Secured Notes may be declared to be due and payable immediately. Upon the occurrence of certain bankruptcy, insolvency or reorganization events affecting AAG or certain of its subsidiaries (including American), all outstanding 10.75% Senior Secured Notes will become due and payable immediately without further action or notice on the part of the 10.75% Senior Secured Notes Trustee or any holder of the 10.75% Senior Secured Notes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

On September 25, 2020, American and AAG entered into a Loan and Guarantee Agreement (the Treasury Loan Agreement) with Treasury, which provided for a secured term loan facility (the Treasury Term Loan Facility) that permitted American to borrow up to $5.5 billion. Subsequently, on October 21, 2020, American and AAG entered into an amendment to the Treasury Loan Agreement, which increased the borrowing amount to up to $7.5 billion.

In September 2020, American borrowed $550 million under the Treasury Term Loan Facility, and on March 24, 2021, used proceeds from the AAdvantage Financing to prepay in full the $550 million of outstanding loans under the Treasury Term Loan Facility and terminated the Treasury Loan Agreement.

(d) AAdvantage Financing

On March 24, 2021 (the AAdvantage Financing Closing Date), American and AAdvantage Loyalty IP Ltd., a Cayman Islands exempted company incorporated with limited liability and an indirect wholly-owned subsidiary of American (Loyalty Issuer and, together with American, the AAdvantage Issuers), completed the offering of $3.5 billion aggregate principal amount of 5.50% Senior Secured Notes due 2026 (the 2026 Notes) and $3.0 billion aggregate principal amount of 5.75% Senior Secured Notes due 2029 (the 2029 Notes, and together with the 2026 Notes, the AAdvantage Notes). The AAdvantage Notes are fully and unconditionally guaranteed (the AAdvantage Note Guarantees) on a senior unsecured basis by AAG and fully and unconditionally guaranteed on a senior secured basis, jointly and severally, by AAdvantage Holdings 1, Ltd., a Cayman Islands exempted company incorporated with limited liability and a direct wholly-owned subsidiary of American, and AAdvantage Holdings 2, Ltd., a Cayman Islands exempted company incorporated with limited liability and an indirect wholly-owned subsidiary of American and the direct parent of Loyalty Issuer (HoldCo2, and together with AAdvantage Holdings 1, Ltd., the Original SPV Guarantors), and as of August 27, 2021, certain Luxembourg limited liability companies and partnerships that are direct or indirect subsidiaries of Loyalty Issuer including Madrid IP Lux HoldCo SCS, a Luxembourg common limited partnership (Madrid IP SCS) (collectively, the Madrid SPV Guarantors and, together with the Original SPV Guarantors, the SPV Guarantors, and the SPV Guarantors together with AAG, the AAdvantage Guarantors). The AAdvantage Notes were issued pursuant to an indenture, dated as of March 24, 2021 (the AAdvantage Indenture), by and among the AAdvantage Issuers, the AAdvantage Guarantors and Wilmington Trust, National Association, as trustee and as collateral custodian.

Concurrent with the issuance of the AAdvantage Notes, the AAdvantage Issuers, as co-borrowers, entered into a term loan credit and guaranty agreement, dated March 24, 2021, with Barclays Bank PLC, as administrative agent, Wilmington Trust, National Association, as collateral administrator, and the lenders party thereto, providing for a $3.5 billion term loan facility (the AAdvantage Term Loan Facility and collectively with the AAdvantage Notes, the AAdvantage Financing) and pursuant to which the full $3.5 billion of term loans (the AAdvantage Loans) were drawn on the AAdvantage Financing Closing Date. The AAdvantage Loans are fully and unconditionally guaranteed (together with the AAdvantage Note Guarantees, the AAdvantage Guarantees) by the AAdvantage Guarantors.

Subject to certain permitted liens and other exceptions, the AAdvantage Notes, AAdvantage Loans and AAdvantage Guarantees provided by the SPV Guarantors will be secured by a first-priority security interest in, and pledge of, various agreements with respect to the AAdvantage program (the AAdvantage Agreements) (including all payments thereunder) and certain IP Licenses (as defined below), certain deposit accounts that will receive cash under the AAdvantage Agreements, certain reserve accounts, the equity of each of Loyalty Issuer and the SPV Guarantors and substantially all other assets of Loyalty Issuer and the SPV Guarantors including Transferred AAdvantage IP (as defined below) (collectively, the AAdvantage Collateral).

Payment Terms of the AAdvantage Notes and AAdvantage Loans under the AAdvantage Term Loan Facility

Interest on the AAdvantage Notes is payable in cash, quarterly in arrears on the 20th day of each January, April, July and October ~~2017,~~(each, an AAdvantage Payment Date), which began on July 20, 2021. The 2026 Notes will mature on April 20, 2026, and the 2029 Notes will mature on April 20, 2029. The outstanding principal on the 2026 Notes will be repaid in quarterly installments of $292 million on each AAdvantage Payment Date, beginning on July 20, 2023. The outstanding principal on the 2029 Notes will be repaid in quarterly installments of $250 million on each AAdvantage Payment Date, beginning on July 20, 2026.

The AAdvantage Issuers may redeem the AAdvantage Notes, at their option, in whole at any time or in part from time to time, at a redemption price equal to 100% of the principal amount of the AAdvantage Notes redeemed plus a “make-whole” premium, together with accrued and unpaid interest to the date of redemption.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

The scheduled maturity date of the AAdvantage Loans under the AAdvantage Term Loan Facility is April 20, 2028. The AAdvantage Loans bear interest at a variable rate equal to LIBOR (but not less than 0.75% per annum), plus a margin of 4.75% per annum, payable on each AAdvantage Payment Date. The outstanding principal on the AAdvantage Loans will be repaid in quarterly installments of $175 million, on each AAdvantage Payment Date beginning with the AAdvantage Payment Date in July 2023. These amortization payments (as well as those for the AAdvantage Notes) will be subject to the occurrence of certain early amortization events, including the failure to satisfy a minimum debt service coverage ratio at specified determination dates.

Prepayment of some or all of the AAdvantage Loans outstanding under the AAdvantage Term Loan Facility is permitted, although payment of an applicable premium is required as specified in the AAdvantage Term Loan Facility.

The AAdvantage Indenture and the AAdvantage Term Loan Facility contain mandatory prepayment provisions triggered upon (i) the issuance or incurrence by Loyalty Issuer or the SPV Guarantors of certain indebtedness or (ii) the receipt by American or its subsidiaries of net proceeds from pre-paid frequent flyer (i.e., AAdvantage) mile sales exceeding $505 million. Each of these prepayments would also require payment of an applicable premium. Certain other events, including the occurrence of a change of control with respect to AAG and certain AAdvantage Collateral sales exceeding a specified threshold, will also trigger mandatory repurchase or mandatory prepayment provisions under the AAdvantage Indenture and the AAdvantage Term Loan Facility, respectively.

Other Terms of the AAdvantage Indenture and the AAdvantage Term Loan Facility

The AAdvantage Indenture and the AAdvantage Term Loan Facility contain certain covenants that limit the ability of Loyalty Issuer, the SPV Guarantors and, in certain circumstances, American and AAG, to among other things, (i) incur additional indebtedness and make restricted payments, (ii) incur certain liens on the AAdvantage Collateral, (iii) merge, consolidate or sell substantially all of their assets, (iv) dispose of the AAdvantage Collateral, (v) sell pre-paid frequent flyer (i.e. AAdvantage) miles in excess of $550 million in the aggregate, and (vi) terminate, amend, waive, supplement or modify the IP Licenses, or exercise rights and remedies thereunder, except under certain circumstances. American and Loyalty Issuer are also prohibited from substantially reducing the AAdvantage program business or modifying the terms of the AAdvantage program in a manner that would reasonably be expected to materially impair repayment of the AAdvantage Financing obligations (described as a Payment Material Adverse Effect in each of the AAdvantage Indenture and the AAdvantage Term Loan Facility), and AAG and its subsidiaries are prohibited from changing the policies and procedures of the AAdvantage program in a manner that would reasonably be expected to have a Payment Material Adverse Effect or operating a competing loyalty program. Notwithstanding these restrictions, the AAdvantage program is expected to operate as it has in the past, and the entry into the AAdvantage Financing is not expected to have any impact on the benefits offered to AAdvantage members.

The AAdvantage Indenture and the AAdvantage Term Loan Facility also require the AAdvantage Issuers to comply with certain affirmative covenants, including the requirement to use commercially reasonable efforts to cause sufficient counterparties to AAdvantage Agreements to direct at least 90% of payments with respect to the AAdvantage program on a quarterly basis into a collections account, for application to the payment of fees, principal and interest on the AAdvantage Notes and the AAdvantage Loans pursuant to a payment waterfall described in the AAdvantage Indenture and the AAdvantage Term Loan Facility, respectively. In addition, the AAdvantage Indenture and the AAdvantage Term Loan Facility require AAG to maintain minimum liquidity, defined as the sum of (a) unrestricted cash and cash equivalents and (b) the aggregate principal amount committed and available to be drawn under all of AAG's revolving credit and other facilities, at the close of any business day of at least $2.0 billion.

Subject to certain materiality thresholds, qualifications, exceptions, “baskets” and grace and cure periods, the AAdvantage Indenture and the AAdvantage Term Loan Facility contain various events of default, including payment defaults, covenant defaults, cross-defaults to certain other indebtedness, termination of certain agreements related to the AAdvantage program, bankruptcy events of Loyalty Issuer or any SPV Guarantor, and a change of control of Loyalty Issuer or any SPV Guarantor. A bankruptcy event of American is not itself an event of default; following an American bankruptcy, an event of default would only occur if American failed to satisfy certain enumerated bankruptcy case milestones, including an assumption of the AAdvantage Financing by a certain date. Upon the occurrence of an event of default, the outstanding obligations under the AAdvantage Indenture and the AAdvantage Term Loan Facility may (or, with respect to the bankruptcy events noted above, shall) be accelerated and become due and payable immediately.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Terms of Certain Intercompany Agreements Related to the AAdvantage Financing

In connection with the issuance of the AAdvantage Notes and entry into the AAdvantage Term Loan Facility, American, Loyalty Issuer and the SPV Guarantors entered into a series of transactions that resulted in the transfer to Loyalty Issuer or Madrid IP SCS of, among other things, American’s rights to certain data and other intellectual property used in the AAdvantage program (subject to certain exceptions) (such assets, the Transferred AAdvantage IP) and certain rights of American under specified AAdvantage Agreements. Loyalty Issuer, the SPV Guarantors and American have entered into a series of intercompany license agreements (collectively, the IP Licenses) pursuant to which Loyalty Issuer has indirectly granted to American an exclusive, irrevocable (subject to certain termination rights), perpetual, worldwide, royalty-bearing sublicense to use the Transferred AAdvantage IP. The IP Licenses would be terminated, and American’s right to use the Transferred AAdvantage IP would cease, upon specified termination events, including, but not limited to, the occurrence of an event of default under the AAdvantage Indenture or the AAdvantage Term Loan Facility. In certain circumstances, such a termination would trigger a liquidated damages payment in an amount that is greater than the initial principal amount of the AAdvantage Notes and the AAdvantage Loans.

In addition, proceeds from the AAdvantage Financing were loaned by Loyalty Issuer to American pursuant to an intercompany note that was guaranteed by AAG. The borrowings under this intercompany note are payable on demand by Loyalty Issuer or, after the occurrence and during the continuance of an event of default under the AAdvantage Financing, by the master collateral agent under the AAdvantage Financing.

(e) EETCs

2021-1 Aircraft EETCs

In November 2021, American created ~~three~~two pass-through trusts which issued approximately ~~$1.0 billion~~$960 million aggregate face amount of Series ~~2017-2 Class AA,~~2021-1 Class A and Class B EETCs (the ~~2017-2~~2021-1 Aircraft EETCs) in connection with the financing of 3026 aircraft previously delivered or to be delivered to American through ~~May 2018~~September 2022 (the ~~2017-2~~2021-1 Aircraft). ~~In 2017,~~As of December 31, 2021, approximately ~~$735~~$94 million of the ~~net~~ proceeds ~~were~~had been used to purchase equipment notes issued by American in connection with the financing of 245 aircraft ~~financed~~ under the ~~2017-2 EETC. During the first six months~~2021-1 Aircraft EETCs, all of ~~2018, the remaining $283 million of net proceeds~~which was used to ~~purchase equipment notes issued by American in connection with the financing of the remaining six aircraft financed under the 2017-2 EETCs.~~repay existing indebtedness. Interest and principal payments on equipment notes issued in connection with the ~~2017-2~~2021-1 Aircraft EETCs are payable semi-annually in ~~April~~January and ~~October of~~July each year, with interest payments ~~that began~~scheduled to begin in ~~April 2018~~July 2022 and with principal payments ~~that began~~scheduled to begin in ~~October 2018. These~~January 2023. The remaining proceeds of approximately $866 million as of December 31, 2021 were being held in escrow with a depositary for the benefit of the holders of the 2021-1 Aircraft EETCs until such time as American issues additional equipment notes with respect to the remaining 2021-1 Aircraft to the pass-through trusts, which will purchase such additional equipment notes with the escrowed funds. These escrowed funds are ~~secured~~not guaranteed by ~~liens~~American and are not reported as debt on its consolidated balance sheet because the ~~2017-2 Aircraft.~~proceeds held by the depositary for the benefit of the holders of the 2021-1 Aircraft EETCs are not American’s assets.

Certain information regarding the ~~2017-2~~2021-1 Aircraft EETC equipment notes, as of December 31, ~~2018,~~2021, is set forth in the table below.


	2021-1 Aircraft EETCs
	Series A	Series B
Aggregate principal issued	$758 million	$202 million
Remaining escrowed proceeds	$684 million	$182 million
Fixed interest rate per annum	2.875%	3.95%
Maturity date	July 2034	July 2030

2017-2 EETCs
Series AA Series A Series B
Aggregate principal issued $545 million $252 million $221 million
Fixed interest rate per annum 3.35% 3.60% 3.70%
Maturity date October 2029 October 2029 October 2025
(f) Special Facility Revenue Bonds

~~2012-2C(R) EETCs~~

~~On May 15, 2018,~~In January 2020, American ~~created a pass-through trust~~and British Airways announced the start of construction projects to upgrade New York's JFK Terminal 8 (the Terminal). The construction project is currently scheduled to be completed in 2023 and is estimated to cost $439 million, of which ~~issued $100~~$298 million ~~aggregate face amount~~was funded with proceeds of the ~~Series 2012-2 Class C(R) EETCs~~special facility revenue bonds issued by the New York Transportation Development Corporation (NYTDC) on behalf of American in June 2020 (the ~~2012-2C(R) EETCs). Interest~~2020 JFK Bonds) and ~~principal payments on equipment notes~~approximately $84 million of which was funded with proceeds of the approximately $150 million of special facility revenue bonds NYTDC issued in ~~connection with the 2012-2C(R) EETCs are payable semi-annually in~~ June ~~and December of each year, which began in December 2018.~~

~~American had previously issued $100 million aggregate face amount of Series 2012-2 Class C Certificates on June 6, 2013~~2021 (the 2012-2C Certificates) in connection with the financing of 11 aircraft previously delivered to American between May 2013 and October 2013. On June 1, 2018, American redeemed the Series C Equipment Notes relating to such 2012-2C Certificates (the 2012-2C Equipment Notes), which were scheduled to mature on June 3, 2018. The proceeds received from the 2012-2C(R) EETCs were used for the redemption of the 2012-2 Series C Equipment Notes and the repayment of the 2012-2C Certificates.

~~Certain information regarding the 2012-2 Class C(R) EETC equipment notes, as of December 31, 2018, is set forth in the table below.~~2021 JFK Bonds).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

American is required to pay debt service on the 2021 JFK Bonds through payments under a loan agreement with NYTDC (as amended), and American and AAG guarantee the 2021 JFK Bonds. American continues to pay debt service on the outstanding bonds issued by NYTDC on behalf of American in 2016 and 2020 (the 2016 and 2020 JFK Bonds) and American and AAG continue to guarantee the 2016 and 2020 JFK Bonds. American’s and AAG’s obligations under these guarantees are secured by a leasehold mortgage on American’s lease of the Terminal and related property from the Port Authority of New York and New Jersey.



	~~2012-2C(R) EETCs~~
	~~Series C(R)~~
~~Aggregate principal issued~~	~~$100 million~~
~~Fixed interest rate per annum~~	~~4.70%~~
~~Maturity date~~	~~June~~The 2021 JFK Bonds, in aggregate, were priced at par value. The gross proceeds from the issuance of the 2021 JFK Bonds were approximately $150 million. Of this amount, $4 million was used to fund the costs of issuance of the 2021 JFK Bonds, $62 million was used to fund the redemption of the 2016 and 2020 JFK Bonds due August 2021,

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

~~In 2018, American entered into agreements under which it borrowed $1.5 billion in connection~~ with the ~~financing~~remaining amount of ~~certain aircraft~~proceeds received to be held in restricted cash and ~~certain pre-delivery purchase deposits. Debt incurred under these agreements matures in~~short-term investments on the consolidated balance sheet and to be used to finance a portion of the cost of the renovation and expansion of the Terminal. The 2021 ~~through 2030 and bears~~JFK Bonds are comprised of term bonds, $70 million of which bear interest at ~~fixed~~2.25% per annum and ~~variable rates~~mature on August 1, 2026, and $80 million of ~~LIBOR plus an applicable margin averaging 4.28%~~which bear interest at 3.00% per annum and mature on August 1, 2031. As of December 31, ~~2018.~~2021, $236 million of proceeds funded by the issuance of the 2020 and 2021 JFK Bonds are included in restricted cash and short-term investments on the accompanying consolidated balance sheet.

Guarantees

As of December 31, ~~2018,~~2021, American had issued guarantees covering AAG’s $1.8 billion aggregate principal amount of the PSP1 Promissory Note due April 2030, $1.0 billion aggregate principal amount of the PSP2 Promissory Note due January 2031, $946 million aggregate principal amount of the PSP3 Promissory Note due April 2031, $1.0 billion aggregate principal amount of 6.50% convertible senior notes due July 2025, $750 million aggregate principal amount of ~~5.50%~~5.000% senior notes due ~~2019~~June 2022 and $500 million aggregate principal amount of ~~4.625%~~3.75% senior notes due ~~2020.~~March 2025.

~~Collateral-Related~~Certain Covenants

Certain of American’s debt financing agreements (including its secured notes, term loans, revolving credit facilities and spare engine EETCs) contain loan to value (LTV), collateral coverage or peak debt service coverage ratio covenants and certain agreements require American to ~~annually~~ appraise the related ~~collateral.~~collateral annually or semiannually. Pursuant to such agreements, if the applicable LTV, collateral coverage or peak debt service coverage ratio exceeds or falls below a specified threshold, as the case may be, American iswill be required, as applicable, to pledge additional qualifying collateral (which in some cases may include cash ~~collateral)~~or investment securities), withhold additional cash in certain accounts, or to pay down such financing, in whole or in ~~part.~~part, or the interest rate for the relevant financing will be increased. Additionally, a significant portion of American’s debt financing agreements contain covenants requiring it to maintain an aggregate of at least $2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities, and its AAdvantage Financing contains a peak debt service coverage ratio, pursuant to which failure to comply with a certain threshold may result in early repayment, in whole or in part, of the AAdvantage Financing.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Specifically, American is required to meet certain collateral coverage tests ~~on an annual basis~~ for its Credit Facilities, 10.75% Senior Secured Notes and 11.75% Senior Secured Notes, as described below:

2013 Credit Facilities

2014 Credit Facilities

April 2016 Credit

Facilities

December 2016

Credit Facilities

2013 Credit Facilities

2014 Credit Facilities

April 2016 Credit
Facilities

December 2016
Credit Facilities

10.75% Senior Secured Notes

11.75% Senior Secured Notes

Frequency of Appraisals

of Appraised Collateral

Annual

Frequency of Appraisals of Appraised Collateral

Annual

Semi-Annual

LTV Requirement

1.6x Collateral valuation to amount of debt outstanding (62.5% LTV)

LTV Requirement

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%

LTV as of Last Measurement Date

38.4%

18.0%

Not Applicable

53.5%

33.5%

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

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 LaGuardia Airport (LGA) slots, certain simulators and certain leasehold rights

Generally, certain DCA slots, certain LGA slots, certain simulators and certain leasehold rights and, in the case of the IP Notes, certain intellectual property of American

Generally, certain slots, route authorities and airport gate leasehold rights used by American to operate certain services between the U.S. and the Caribbean, Central America and various other countries

At December 31, ~~2018,~~2021, American was in compliance with the applicable collateral coverage tests as of the most recent measurement dates.

4. Leases

American leases certain aircraft and engines, including aircraft under capacity purchase agreements. As of December 31, ~~2018,~~2021, American ~~had 660~~operated 696 leased aircraft, with remaining terms ranging from less than one year to 12 years.

At each airport where American conducts flight operations, American has agreements, generally with a governmental unit or authority, for the use of passenger, operations and baggage handling space as well as runways and taxiways. These

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

agreements, particularly in the U.S., often contain provisions for periodic adjustments to rates and charges applicable under such agreements. These rates and charges also vary with American’s level of operations and the operations of the airport. Because of the variable nature of these rates, these leases are not recorded on American’s consolidated balance sheets as a ROU asset or a lease liability. Additionally, at American’s hub locations and in certain other cities it serves, American leases administrative offices, catering, cargo, training, maintenance and other facilities.

The components of lease expense were as follows (in millions):


				Year Ended December 31,
	Year Ended December 31, 2018			2021		2020		2019
Operating lease cost	$	1,889	Operating lease cost	$	1,998	$	1,943	$	2,012
Finance lease cost:			Finance lease cost:
Amortization of assets	78		Amortization of assets	107		92		79
Interest on lease liabilities	48		Interest on lease liabilities	44		38		43
Variable lease cost	2,353		Variable lease cost	2,461		1,786		2,542
Total net lease cost	$	4,368	Total net lease cost	$	4,610	$	3,859	$	4,676

Included in the table above is ~~$226~~$190 million, $172 million and $236 million of operating lease cost under American’s capacity purchase agreement with ~~Republic.~~Republic for the years ended December 31, 2021, 2020 and 2019, respectively. American holds a 25% equity interest in Republic Holdings, the parent company of Republic.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Additionally, not included in the table above, American recognized $109 million in cash special charges in 2020 related to the impairment of ROU assets and lease return costs resulting from its decision to retire certain leased aircraft earlier than planned driven by the severe decline in air travel due to the COVID-19 pandemic.

Supplemental balance sheet information related to leases was as follows (in millions, except lease term and discount rate):

December 31, 2018
Operating leases:
Operating lease ROU assets $ 9,094

Current operating lease liabilities 1,639
Noncurrent operating lease liabilities 7,857
Total operating lease liabilities $ 9,496

Finance leases:
Property and equipment, at cost $ 936
Accumulated amortization (391 )
Property and equipment, net $ 545

Current obligations of finance leases $ 81
Finance leases, net of current obligations 613
Total finance lease liabilities $ 694

Weighted average remaining lease term (in years):
Operating leases 7.6
Finance leases 7.4

Weighted average discount rate:
Operating leases 4.6 %
Finance leases 6.5 %

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


	December 31,
	2021			2020
Operating leases:
Operating lease ROU assets	$	7,810		$	7,994

Current operating lease liabilities	$	1,496		$	1,641
Noncurrent operating lease liabilities	6,578			6,739
Total operating lease liabilities	$	8,074		$	8,380

Finance leases:
Property and equipment, at cost	$	1,201		$	1,021
Accumulated amortization	(653)			(539)
Property and equipment, net	$	548		$	482

Current finance lease liabilities	$	174		$	100
Noncurrent finance lease liabilities	563			472
Total finance lease liabilities	$	737		$	572

Weighted average remaining lease term (in years):
Operating leases	7.6			7.4
Finance leases	4.6			5.4

Weighted average discount rate:
Operating leases	6.2		%	5.6		%
Finance leases	6.1		%	6.3		%

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


	Year Ended December 31,
	2021		2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,040	$	2,015	$	1,996
Operating cash flows from finance leases	37		39		43
Financing cash flows from finance leases	126		114		83

Non-cash transactions:
ROU assets acquired through operating leases	1,381		898		1,144
Property and equipment acquired through finance leases	180		11		20
Operating lease conversion to finance lease	102		5		41

Gain on sale leaseback transactions, net	25		107		107

185

Year Ended
December 31, 2018
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 1,914
Operating cash flows from finance leases 48
Financing cash flows from finance leases 78

ROU assets obtained in exchange for lease liabilities:
Operating leases 1,258

Gain on sale leaseback transactions, net 59

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

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


								December 31, 2021
	December 31, 2018							Operating Leases		Finance Leases
	Operating Leases			Finance Leases
2019	$	1,894		$	124
2020	1,824			120
2021	1,625			118
2022	1,428			122			2022	$	1,912	$	215
2023	1,250			105			2023	1,777		183
2024 and thereafter	3,611			282
2024							2024	1,398		180
2025							2025	1,032		113
2026							2026	757		87
2027 and thereafter							2027 and thereafter	3,600		77
Total lease payments	11,632			871			Total lease payments	10,476		855
Less: Imputed interest	(2,136		)	(177		)	Less: Imputed interest	(2,402)		(118)
Total lease obligations	9,496			694			Total lease obligations	8,074		737
Less: Current obligations	(1,639		)	(81		)	Less: Current obligations	(1,496)		(174)
Long-term lease obligations	$	7,857		$	613		Long-term lease obligations	$	6,578	$	563

As of December 31, ~~2018,~~2021, American ~~has~~had additional operating lease commitments that have not yet commenced of approximately ~~$1.9~~$1.8 billion for ~~22 787-8~~18 Boeing 787 Family aircraft scheduled to be delivered in ~~2020 and 2021~~2022 through 2024 with lease terms of 10 years.

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

~~Disclosures related to periods prior to adoption of the New Lease Standard~~

Operating lease rent expense, excluding landing fees, was approximately $3.2 billion and $3.1 billion in 2017 and 2016, respectively, which includes the lease of certain aircraft under capacity purchase agreements. As of December 31, 2017, future minimum lease payment obligations under noncancellable operating leases, including payments for the lease of certain aircraft under capacity purchase agreements, as well as payments under capital lease obligations were as follows (in millions):

December 31, 2017
Operating Leases Capital Leases
2018 $ 2,555
$ 126
2019 2,321
123
2020 2,096
120
2021 1,613
118
2022 1,394
122
2023 and thereafter 3,952
387
Total lease payments $ 13,931
996
Less: Imputed interest (225 )
Total lease obligations 771
Less: Current obligations (78 )
Long-term lease obligations $ 693

5. Income Taxes

The significant components of the income tax provision (benefit) were (in millions):

Year Ended December 31,
2018 2017 2016
Current income tax provision:
State and Local $ 3
$ 14
$ 1
Foreign 28
10
9
Current income tax provision 31
24
10
Deferred income tax provision:
Federal 453
2,176
1,507
State and Local 50
70
90
Deferred income tax provision 503
2,246
1,597
Total income tax provision $ 534
$ 2,270
$ 1,607

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


	Year Ended December 31,
	2021		2020		2019
Current income tax provision:
State and Local	$	—	$	—	$	2
Foreign	—		—		8
Current income tax provision	—		—		10
Deferred income tax provision (benefit):
Federal	(453)		(2,224)		567
State and Local	(47)		(229)		56
Deferred income tax provision (benefit)	(500)		(2,453)		623
Total income tax provision (benefit)	$	(500)	$	(2,453)	$	633

The income tax provision (benefit) differed from amounts computed at the statutory federal income tax rate as follows (in millions):


	Year Ended December 31,
	2021		2020		2019
Statutory income tax provision (benefit)	$	(478)	$	(2,290)	$	547
State income tax provision (benefit), net of federal tax effect	(37)		(181)		41
Book expenses not deductible for tax purposes	21		20		29
Foreign income taxes, net of federal tax effect	—		—		8
Change in valuation allowance	—		—		5
Other, net	(6)		(2)		3
Income tax provision (benefit)	$	(500)	$	(2,453)	$	633

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Year Ended December 31,
2018 2017 2016
Statutory income tax provision $ 460
$ 1,244
$ 1,504
State income tax provision, net of federal tax effect 46
53
61
Foreign income taxes, net of federal tax effect 22
6
6
Book expenses not deductible for tax purposes 10
30
32
Bankruptcy administration expenses —
1
1
2017 Tax Act —
�� 924
—
Change in valuation allowance (6 ) 4
(1 )
Other, net 2
8
4
Income tax provision $ 534
$ 2,270
$ 1,607
The components of American’s deferred tax assets and liabilities were (in millions):


	December 31,
	2021		2020
Deferred tax assets:
Operating loss and other carryforwards	$	4,476	$	3,944
Loyalty program liability	1,903		1,977
Leases	1,822		1,904
Pensions	934		1,397
Postretirement benefits other than pensions	215		203
Rent expense	92		96
Reorganization items	24		28

Other	710		796
Total deferred tax assets	10,176		10,345
Valuation allowance	(24)		(24)
Net deferred tax assets	10,152		10,321
Deferred tax liabilities:
Accelerated depreciation and amortization	(4,715)		(4,992)
Leases	(1,758)		(1,809)
Other	(279)		(294)
Total deferred tax liabilities	(6,752)		(7,095)
Net deferred tax asset	$	3,400	$	3,226

At December 31, 2021, American had approximately $17.1 billion of gross federal net operating losses (NOLs) and $2.4 billion of other carryforwards available to reduce future federal taxable income, of which $7.3 billion will expire beginning in 2024 if unused and $12.2 billion can be carried forward indefinitely. American is a member of AAG’s consolidated federal and certain state income tax returns. American also had approximately $6.0 billion of NOL carryforwards to reduce future state taxable income at December 31, 2021, which will expire in taxable years 2021 through 2041 if unused.

American’s ability to use its NOLs and other carryforwards depends on the amount of taxable income generated in future periods. American provides a valuation allowance for its deferred tax assets, which include the ~~net operating losses (NOLs),~~NOLs, when it is more likely than not that some portion, or all of its deferred tax assets, will not be realized. ~~The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income.~~ American considers all available positive and negative evidence and makes certain assumptions in evaluating the realizability of its deferred tax assets. Many factors are considered that impact American’s assessment of future profitability, including conditions which are beyond its control, such as the health of the economy, the ~~level~~availability and price volatility of aircraft fuel ~~prices~~ and travel demand.

~~The total decrease to the~~ American presently has a $24 million valuation allowance was $6 million in 2018. In 2017, the total increase to the valuation allowance was $12 million, $8 million of which is included in the 2017 Tax Act amount in the table above. In 2016, the total decrease to the valuation allowance was $1 million.

~~The components of American’s~~on certain net deferred tax assets ~~and liabilities were (in millions):~~related to state NOL carryforwards. There can be no assurance that an additional valuation allowance on American’s net deferred tax assets will not be required. Such valuation allowance could be material.

December 31,
2018 2017
Deferred tax assets:
Operating loss carryforwards $ 2,420
$ 2,409
Leases 2,176
107
Pensions 1,421
1,549
Loyalty program liability 1,770
1,809
Alternative minimum tax (AMT) credit carryforwards 231
457
Postretirement benefits other than pensions 145
170
Rent expense 136
160
Reorganization items 33
35
Other 588
638
Total deferred tax assets 8,920
7,334
Valuation allowance (19 ) (25 )
Net deferred tax assets 8,901
7,309
Deferred tax liabilities:
Accelerated depreciation and amortization (5,243 ) (4,999 )
Leases (2,068 ) —
Other (321 ) (274 )
Total deferred tax liabilities (7,632 ) (5,273 )
Net deferred tax asset $ 1,269
$ 2,036

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

At December 31, 2018, American had approximately $10.6 billion of federal NOLs carried over from prior taxable years (NOL Carryforwards) to reduce future federal taxable income, substantially all of which American expects to be available for use in 2019. American is a member of AAG’s consolidated federal and certain state income tax returns. The amount of federal NOL Carryforwards available in those returns is $10.2 billion, substantially all of which is expected to be available for use in 2019. The federal NOL Carryforwards will expire beginning in 2022 if unused. American also had approximately $3.1 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2018, which will expire in years 2019 through 2038 if unused. American’s ability to deduct its NOL ~~Carryforwards~~carryforwards and to utilize certain other available tax attributes can be substantially constrained under the general annual limitation rules of Section 382 where an “ownership change” has occurred. Substantially all of American’s remaining federal NOL ~~Carryforwards~~carryforwards attributable to US Airways Group are subject to limitation under Section 382; however, American’s ability to utilize such NOL ~~Carryforwards~~carryforwards is not anticipated to be effectively constrained as a result of such limitation. American elected to be covered by certain special rules for federal income tax purposes that permitted approximately $9.5 billion (with $8.6 billion of unlimited NOL still remaining at December 31, 2018) of its federal NOL Carryforwards to be utilized without regard to the annual limitation generally imposed by Section 382. Similar limitations may apply for state income tax purposes. American’s ability to utilize any new NOL ~~Carryforwards~~carryforwards arising after the ownership changes is not affected by the annual limitation rules imposed by Section 382 unless another ~~future~~ ownership change occurs. Under the Section 382 limitation, cumulative stock ownership changes among material stockholders exceeding 50% during a rolling three-year period can potentially limit ~~a company’s~~American’s future use of NOLs and tax credits. ~~See Part I, Item 1A. Risk Factors –~~ ~~“Our ability to utilize our NOL Carryforwards may be limited”~~ ~~for unaudited additional discussion of this risk.~~

At December 31, 2018, American had an AMT credit carryforward of approximately $452 million available for federal income tax purposes, which is now expected to be fully refundable over the next several years as a result of the repeal of corporate AMT.

In ~~2018,~~2021, American recorded an income tax ~~provision~~benefit of ~~$534~~$500 million, with an effective rate of approximately ~~24%~~22%, which was substantially non-cash. ~~American’s income tax provision included an $18 million special income tax charge related to an international income tax matter.~~ Substantially all of American’s ~~income~~loss before income taxes is attributable to the United States.

~~American is part~~

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Table of ~~the AAG consolidated income tax return.~~ Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

American files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. American’s ~~2015~~2018 through ~~2017~~2020 tax years are still subject to examination by the Internal Revenue Service. Various state and foreign jurisdiction tax years remain open to examination and American is under examination, in administrative appeals, or engaged in tax litigation in certain jurisdictions. American believes that the effect of any assessments will not be material to its consolidated financial statements.

The amount of, and changes to, American’s uncertain tax positions were not material in any of the years presented. American accrues interest and penalties related to unrecognized tax benefits in interest expense and operating expense, respectively.

The 2017 Tax Act was enacted on December 22, 2017. The 2017 Tax Act is the most comprehensive tax change in more than 30 years. American has completed its evaluation of the 2017 Tax Act and American has reflected the impact of its effects, including the impact of lower corporate income tax rates (21% vs. 35%) on its deferred tax assets and liabilities and the one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. For the year ended December 31, 2017, American recognized a special income tax provision of $924 million to reflect these impacts of the 2017 Tax Act.

6. Risk Management

American’s economic prospects are heavily dependent upon two variables it cannot control: ~~the health of the economy~~general economic conditions and the price of fuel.

Due to the discretionary nature of business and leisure travel spending and the highly competitive nature of the airline industry, American’s revenues are heavily influenced by the condition of the U.S. economy and economies in other regions of the world. Unfavorable conditions in these broader economies have resulted, and may result in the future, in decreased passenger demand for air travel, changes in booking practices and related reactions by American’s competitors, all of which in turn have had, and may have in the future, a strong negative effect on American’s business. In particular, the ongoing COVID-19 pandemic and associated decline in economic activity and increase in unemployment levels have had and are expected to continue to have a severe and prolonged effect on the global economy generally and, in turn, is expected to depress demand for air travel into the foreseeable future. Due to the uncertainty surrounding the duration and severity of this pandemic, American can provide no assurance as to when and at what pace demand for air travel will return to pre-COVID-19 pandemic levels, if at all. Accordingly, American cannot predict the ultimate impact of the COVID-19 pandemic on its business, financial condition and results of operations. In addition, during challenging economic times, actions by its competitors to increase their revenues can have an adverse impact on American’s revenues.

American’s operating results are materially impacted by changes in the availability, price volatility and cost of aircraft fuel, which represents one of the largest single cost items in American’s business. ~~Market~~Aircraft fuel prices ~~for jet fuel~~ have ~~fluctuated substantially over~~in the past, ~~several years~~ and ~~prices continue to be highly volatile.~~may in the future, experience substantial volatility. Because of the amount of fuel needed to

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

operate American’s business, even a relatively small increase or decrease in the price of aircraft fuel can have a material effect on American’s operating results and liquidity.

These additional factors could impact American’s results of operations, financial performance and liquidity:

(a) Credit Risk

~~Most of~~ American’s ~~receivables~~accounts receivable relate primarily to its contracts with airline and non-airline business partners, including its co-branded credit card partners, and to tickets sold to individual passengers primarily through the use of major credit ~~cards or to tickets sold by other airlines and used by passengers on American. These receivables~~cards. Receivables from American’s business partners are typically settled within 30 days. Receivables from ticket sales are short-term, mostly settled within seven days after sale. ~~Bad debt~~All accounts receivable are reported net of an allowance for credit losses, which have been ~~minimal in~~minimal. American considers past and future financial and qualitative factors when establishing the ~~past, have been considered in establishing allowances~~allowance for ~~doubtful accounts.~~credit losses. American does not believe it is subject to any significant concentration of credit risk.

(b) Interest Rate Risk

American has exposure to market risk associated with changes in interest rates related primarily to its ~~variable rate~~LIBOR variable-rate debt obligations. Interest rates on ~~$9.9~~$10.9 billion principal amount of long-term debt as of December 31, ~~2018~~2021 are subject to adjustment to reflect changes in floating interest rates. The weighted average effective interest rate on American’s ~~variable rate~~variable-rate debt was ~~4.3%~~3.0% at December 31, ~~2018.~~2021. American currently does not ~~currently~~ have an interest rate hedge ~~program.~~program to hedge its exposure to floating interest rates on its variable-rate debt obligations.

188

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

On July 27, 2017, the U.K. Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The discontinuation date for submission and publication of rates for certain tenors of USD LIBOR (1-month, 3-month, 6-month, and 12-month) was subsequently extended by the ICE Benchmark Administration (the administrator of LIBOR) until June 30, 2023. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2023. Similarly, it is not possible to predict whether LIBOR will continue to be viewed as an acceptable market benchmark, what rate or rates may become acceptable alternatives to LIBOR, or what effect these changes in views or alternatives may have on financial markets for LIBOR-linked financial instruments. The replacement of LIBOR with a comparable or successor rate could cause the amount of interest payable on American’s long-term debt to be different or higher than expected.

American is exposed to the effect of foreign exchange rate fluctuations on the U.S. dollar value of foreign currency-denominated ~~operating revenues and expenses.~~transactions. American’s largest exposure comes from the British pound sterling, Euro, Chinese yuan, Canadian dollar and various Latin American currencies, primarily the Brazilian real. American does not currently have a foreign currency hedge program. ~~See Part I, Item 1A. Risk Factors –~~ “We operate a global business with international operations that are subject to economic and political instability and have been, and in the future may continue to be, adversely affected by numerous events, circumstances or government actions beyond our control” ~~for unaudited additional discussion of this risk.~~

7. Fair Value Measurements and Other Investments

Assets Measured at Fair Value on a Recurring Basis

Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability (i.e. an exit price) on the measurement date in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability. Accounting standards include disclosure requirements around fair values used for certain financial instruments and establish a fair value hierarchy. The hierarchy prioritizes valuation inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of three levels:

•Level 1 – Observable inputs such as quoted prices in active markets;

•Level 2 – Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

•Level 3 – Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

When available, American uses quoted market prices to determine the fair value of its financial assets. If quoted market prices are not available, American measures fair value using valuation techniques that use, when possible, current market-based or independently-sourced market parameters, such as interest rates and currency rates.

American utilizes the market approach to measure the fair value ~~for~~of its financial assets. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. American’s short-term investments, restricted cash and restricted short-term investments classified as Level 2 primarily utilize broker quotes in a non-active market for valuation of these securities. No changes in valuation techniques or inputs occurred during the year ended December 31, ~~2018.~~

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

2021.

Assets measured at fair value on a recurring basis are summarized below (in millions):


	Fair Value Measurements as of December 31, 2021
	Total		Level 1		Level 2		Level 3
Short-term investments (1), (2):
Money market funds	$	106	$	106	$	—	$	—
Corporate obligations	8,665		—		8,665		—
Bank notes/certificates of deposit/time deposits	2,194		—		2,194		—
Repurchase agreements	1,190		—		1,190		—
	12,155		106		12,049		—
Restricted cash and short-term investments (1), (3)	990		654		336		—
Long-term investments (4)	239		239		—		—
Total	$	13,384	$	999	$	12,385	$	—

189

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Fair Value Measurements as of December 31, 2018
Total Level 1 Level 2 Level 3
Short-term investments ⁽¹⁾ ⁽²⁾:

Money market funds $ 14
$ 14
$ —
$ —
Corporate obligations 1,658
—
1,658
—
Bank notes/certificates of deposit/time deposits 2,435
—
2,435
—
Repurchase agreements 375
—
375
—
4,482
14
4,468
—
Restricted cash and short-term investments ⁽¹⁾
154
12
142
—
Long-term investments ⁽³⁾
189
189
—
—
Total $ 4,825
$ 215
$ 4,610
$ —


	Fair Value Measurements as of December 31, 2020
	Total		Level 1		Level 2		Level 3
Short-term investments (1):
Money market funds	$	245	$	245	$	—	$	—
Corporate obligations	3,449		—		3,449		—
Bank notes/certificates of deposit/time deposits	2,168		—		2,168		—
Repurchase agreements	755		—		755		—
	6,617		245		6,372		—
Restricted cash and short-term investments (1), (3)	609		448		161		—
Long-term investments (4)	161		161		—		—
Total	$	7,387	$	854	$	6,533	$	—


⁽¹⁾	~~Unrealized gains or losses on short-term investments are recorded in accumulated other comprehensive loss at each measurement date.~~


⁽²⁾	All short-term investments are classified as available-for-sale and stated at fair value. American’s short-term investments mature in one year or less except for $877 million of bank notes/certificates of deposit/time deposits and $101 million of corporate obligations.


⁽³⁾	Long-term investments primarily include American's equity investment in China Southern Airlines, in which American presently owns a 2.2% equity interest, and are classified in other assets on the consolidated balance sheets.

(1)All short-term investments are classified as available-for-sale and stated at fair value. Unrealized gains and losses are recorded in accumulated other comprehensive loss at each reporting period. There were no credit losses.

Fair Value Measurements as of December 31, 2017
Total Level 1 Level 2 Level 3
Short-term investments ⁽¹⁾ ⁽²⁾:

Money market funds $ 186
$ 186
$ —
$ —
Corporate obligations 1,620
—
1,620
—
Bank notes/certificates of deposit/time deposits 2,662
—
2,662
—
Repurchase agreements 300
—
300
—
4,768
186
4,582
—
Restricted cash and short-term investments ⁽¹⁾
318
108
210
—
Total $ 5,086
$ 294
$ 4,792
$ —
(2)American’s short-term investments as of December 31, 2021 mature in one year or less.

(3)Restricted cash and short-term investments primarily include collateral held to support workers' compensation obligations and money market funds to be used to finance a substantial portion of the cost of the renovation and expansion of the Terminal at JFK, and as of December 31, 2021, also include collateral associated with the payment of interest for the AAdvantage Financing.

(4)Long-term investments primarily include American's equity investment in China Southern Airlines and as of December 31, 2021, American’s long-term investments also include Vertical. These investments are reflected in other assets on American’s consolidated balance sheets. See “Other Investments” below for further information on American’s equity investments.


⁽¹⁾	~~Unrealized gains or losses on short-term investments are recorded in accumulated other comprehensive loss at each measurement date.~~


⁽²⁾	All short-term investments are classified as available-for-sale and stated at fair value. American’s short-term investments mature in one year or less except for $700 million of bank notes/certificates of deposit/time deposits and $341 million of corporate obligations.

Fair Value of Debt

The fair value of American’s long-term debt was estimated using quoted market prices or discounted cash flow analyses based on American’s current estimated incremental borrowing rates for similar types of borrowing arrangements. If American’s long-term debt was measured at fair value, it would have been classified as Level 2 except for $550 million as of December 31, 2020, which would have been classified as Level 3 in the fair value hierarchy.

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

The carrying value and estimated fair value of American’s long-term debt, including current maturities, were as follows (in millions):


	December 31, 2021				December 31, 2020
	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, including current maturities	$	31,357	$	32,999	$	28,410	$	27,193

Other Investments

An important part of American’s strategy to expand its network has been to initiate or expand its commercial relationships with other airlines, such as by entering into global alliance, joint business and codeshare relationships, and, in certain instances, by making an equity investment in another airline or other companies.

Republic Holdings

American has an approximate 25% ownership interest in Republic Holdings, which it received in 2017 in consideration for its unsecured claim in the Republic Holdings bankruptcy case. This ownership interest is accounted for under the equity method and American’s portion of Republic Holdings’ financial results is recognized within nonoperating other income, net on the consolidated statements of operations and the investment is reflected within other assets on its consolidated balance sheets.

190

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

December 31, 2018 December 31, 2017

Carrying
Value

Fair
Value

Carrying
Value

Fair
Value
Long-term debt, including current maturities $ 22,503
$ 22,497
$ 22,523
$ 23,165
China Southern

In the third quarter of 2017, American acquired 2.7% of the outstanding shares of China Southern for $203 million. At December 31, 2021, American owned a 1.8% equity interest in China Southern. This ownership interest is accounted for at fair value based on China Southern’s stock price and mark-to-market adjustments are recorded to nonoperating other income, net on the consolidated statement of operations.

Vertical

In the fourth quarter of 2021, American invested $25 million to acquire 5.4%, or 11.25 million, of the outstanding shares of Vertical with an initial aggregate value of $113 million, of which $88 million was non-cash. In connection with this investment, American entered into a memorandum of understanding (MOU) with Vertical to pre-order (subject to certain conditions and future agreed upon milestones) up to 250 electric vertical take-off and landing (eVTOL) aircraft, with an option to order an additional 100 eVTOL aircraft. Pursuant to the MOU, American received warrants to purchase 1.75 million shares of Vertical common stock at $0.0001 per share each time American places a legally binding commitment for 50 eVTOL aircraft, up to a maximum aggregate amount of 8.75 million shares. American’s investment in Vertical is reflected within other assets on its consolidated balance sheet. The $88 million non-cash portion of the fair value of equity securities received from Vertical is included as a deferred credit within other liabilities on the consolidated balance sheet and will be recognized as a reduction to the cost of eVTOL aircraft received in future periods or, if no legally binding commitment for eVTOL aircraft is entered into, will be recognized into income. American’s investment in Vertical is accounted for at fair value based on Vertical’s stock price and mark-to-market adjustments are recorded to nonoperating other income, net on the consolidated statement of operations.

8. Employee Benefit Plans

American sponsors defined benefit and defined contribution pension plans for eligible employees. The defined benefit pension plans provide benefits for participating employees based on years of service and average compensation for a specified period of time before retirement. Effective November 1, 2012, substantially all of American’s defined benefit pension plans were frozen and American began providing enhanced benefits under its defined contribution pension plans for certain employee groups. American uses a December 31 measurement date for all of its defined benefit pension plans. American also provides certain retiree medical and other postretirement benefits, including health care and life insurance benefits, to retired employees. Effective November 1, 2012, American modified its retiree medical and other postretirement benefits plans to eliminate the company subsidy for employees who retire on or after November 1, 2012. As a result of modifications to its retiree medical and other postretirement benefits plans in 2012, American recognized a negative plan amendment of $1.9 billion, which iswas included as a component of prior service benefit in accumulated other comprehensive income (loss) (AOCI) and ~~will be~~was amortized over the future service life of the active plan participants for whom the benefit was ~~eliminated,~~eliminated. This prior service benefit was fully amortized as of December 31, 2020.

Effective January 1, 2021, health coverage under American’s retiree medical benefit program that is currently provided to certain retirees age 65 and over who retired prior to November 1, 2012, transitioned from a self-insured plan to a fully-insured Medicare Advantage plan. Benefits coverage has not been reduced and cost shared has not changed as a result of this transition. Due to this transition, as of December 31, 2020, American recognized a negative plan amendment of $313 million to reduce its benefit obligation, which was included as a component of prior service cost in AOCI and will be amortized over the average remaining life expectancy of all retirees, or approximately ~~eight~~13 years. As of December 31, ~~2018, $390~~2021, $195 million of prior service ~~benefit~~cost remains to be amortized.

191

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, 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~~2021 and ~~2017:~~2020:


														Pension Benefits				Retiree Medical and Other Postretirement Benefits
	Pension Benefits						Retiree Medical and Other Postretirement Benefits							2021		2020		2021		2020
	2018			2017			2018			2017
	(In millions)													(In millions)
Benefit obligation at beginning of period	$	18,175		$	17,148		$	1,010		$	990		Benefit obligation at beginning of period	$	19,690	$	18,246	$	1,046	$	824
Service cost	2			2			5			4			Service cost	3		2		12		8
Interest cost	670			717			35			39			Interest cost	523		611		30		30
Actuarial (gain) loss ^{(1) (2)}	(1,905		)	1,007			(132		)	49
Actuarial (gain) loss (1), (2)													Actuarial (gain) loss (1), (2)	(606)		1,603		(57)		46
Special termination benefits (3)													Special termination benefits (3)	—		—		139		410
Plan amendments (4)													Plan amendments (4)	—		—		—		(195)
Settlements	(4		)	(4		)	—			—			Settlements	(1)		(36)		—		—
Benefit payments	(659		)	(723		)	(81		)	(80		)	Benefit payments	(818)		(736)		(72)		(77)
Other	3			28			—			8

Benefit obligation at end of period	$	16,282		$	18,175		$	837		$	1,010		Benefit obligation at end of period	$	18,791	$	19,690	$	1,098	$	1,046


Fair value of plan assets at beginning of period	$	11,340		$	9,968		$	295		$	266		Fair value of plan assets at beginning of period	$	13,477	$	12,829	$	170	$	204
Actual return on plan assets	(1,148		)	1,788			(24		)	37			Actual return on plan assets	1,700		1,414		21		13
Employer contributions ⁽³⁾	472			286			35			72
Employer contributions (5)													Employer contributions (5)	247		6		48		30
Settlements	(4		)	(4		)	—			—			Settlements	(1)		(36)		—		—
Benefit payments	(659		)	(723		)	(81		)	(80		)	Benefit payments	(818)		(736)		(72)		(77)
Other	—			25			—			—
Fair value of plan assets at end of period	$	10,001		$	11,340		$	225		$	295		Fair value of plan assets at end of period	$	14,605	$	13,477	$	167	$	170
Funded status at end of period	$	(6,281	)	$	(6,835	)	$	(612	)	$	(715	)	Funded status at end of period	$	(4,186)	$	(6,213)	$	(931)	$	(876)



~~Delaware~~		~~75-1825172~~
~~(State or other jurisdiction of~~ ~~incorporation or organization)~~	~~(I.R.S. Employer~~ ~~Identification No.)~~
~~4333 Amon Carter Blvd., Fort Worth, Texas 76155~~	~~(817) 963-1234~~
~~(Address of principal executive offices, including zip code)~~	~~Registrant’s telephone number, including area code~~



~~Delaware~~		~~13-1502798~~
~~(State or other jurisdiction of~~ ~~incorporation or organization)~~	~~(I.R.S. Employer~~ ~~Identification No.)~~
~~4333 Amon Carter Blvd., Fort Worth, Texas 76155~~	~~(817) 963-1234~~
~~(Address of principal executive offices, including zip code)~~	~~Registrant’s telephone number, including area code~~



~~American Airlines Group Inc.~~	☒
~~American Airlines, Inc.~~	☒



~~American Airlines Group Inc.~~	~~Yes~~	☒	No	☐
~~American Airlines, Inc.~~	~~Yes~~	☒	No	☐



		Page
PART I
Item 1.	Business	57
Item 1A.	Risk Factors	1631
Item 1B.	Unresolved Staff Comments	3559
Item 2.	Properties	3660
Item 3.	Legal Proceedings	3962
Item 4.	Mine Safety Disclosures	3962

PART II
Item 5.	Market for American Airlines Group’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities	4063
Item 6.	Selected Consolidated Financial Data	4366
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4871
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	7892
Item 8A.	Consolidated Financial Statements and Supplementary Data of American Airlines Group Inc.	8094
Item 8B.	Consolidated Financial Statements and Supplementary Data of American Airlines, Inc.	~~129~~153
Item 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	~~174~~208
Item 9A.	Controls and Procedures	~~174~~208
Item 9B.	Other Information	212
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	212

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	~~178~~212
Item 11.	Executive Compensation	~~178~~212
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~178~~212
Item 13.	Certain Relationships and Related Transactions, and Director Independence	~~178~~212
Item 14.	Principal Accountant Fees and Services	~~178~~212

PART IV
Item 15.	Exhibits and Financial Statement Schedules	~~179~~213
Item 16.	Form 10-K Summary	~~199~~237
SIGNATURES		~~200~~238


☒			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




American Airlines Group Inc.
(Exact name of registrant as specified in its charter)




American Airlines, Inc.
(Exact name of registrant as specified in its charter)


Union	Class or Craft	Employees (1)	Contract Amendable Date
Mainline:
Allied Pilots Association (APA)	Pilots	12,700	2020
Association of Professional Flight Attendants (APFA)	Flight Attendants	22,000	2019
Airline Customer Service Employee Association – Communications Workers of America and International Brotherhood of Teamsters (CWA-IBT)	Passenger Service	13,800	2020
Transport Workers Union and International Association of Machinists & Aerospace Workers (TWU-IAM Association)	Mechanics and Related	11,550	2025
TWU-IAM Association	Fleet Service	17,400	2025
TWU-IAM Association	Stock Clerks	1,750	2025
TWU-IAM Association	Flight Simulator Engineers	130	2021
TWU-IAM Association	Maintenance Control Technicians	170	2025
TWU-IAM Association	Maintenance Training Instructors	90	2025
Professional Airline Flight Control Association (PAFCA)	Dispatchers	450	2021
Transport Workers Union (TWU)	Flight Crew Training Instructors	320	2021
Envoy:
Air Line Pilots Associations (ALPA)	Pilots	2,100	2024
Association of Flight Attendants-CWA (AFA)	Flight Attendants	1,450	2026
TWU	Ground School Instructors	10	2023
TWU	Mechanics and Related	1,200	2020
TWU	Stock Clerks	120	2020
TWU	Simulator Instructors	20	2026
TWU	Fleet Service	3,400	2026
TWU	Dispatchers	70	2025
Communications Workers of America (CWA)	Passenger Service	5,550	2026



Union	Class or Craft	Employees ⁽¹⁾	Contract Amendable Date
Mainline:
Allied Pilots Association (APA)	Pilots	13,600	2020
Association of Professional Flight Attendants (APFA)	Flight Attendants	24,800	2019
Airline Customer Service Employee Association – Communications Workers of America and International Brotherhood of Teamsters (CWA-IBT)	Passenger Service	15,050	2020
Transport Workers Union and International Association of Machinists & Aerospace Workers (TWU-IAM Association)	Mechanics and Related	12,450	2018
TWU-IAM Association	Fleet Service	16,800	2018
TWU-IAM Association	Stock Clerks	1,900	2018
TWU-IAM Association	Flight Simulator Engineers	150	2021
TWU-IAM Association	Maintenance Control Technicians	200	2018
TWU-IAM Association	Maintenance Training Instructors	50	2018
Professional Airline Flight Control Association (PAFCA)	Dispatchers	400	2021
Transport Workers Union (TWU)	Flight Crew Training Instructors	300	2021
Envoy:
Air Line Pilots Associations (ALPA)	Pilots	2,300	2024
Association of Flight Attendants-CWA (AFA)	Flight Attendants	1,400	2020
TWU	Ground School Instructors	10	2019
TWU	Mechanics and Related	1,350	2020
TWU	Stock Clerks	150	2020
TWU	Fleet Service Clerks	3,700	2019
TWU	Dispatchers	70	2019
Communications Workers of America (CWA)	Passenger Service	4,800	Tentative Initial Agreement Reached


⁽¹⁾	~~Approximate number of active full-time equivalent employees as of December 31, 2018.~~



Year	Gallons	Average Price per Gallon	Aircraft Fuel Expense	Percent of Total Operating Expenses
2018	4,447	$2.23	$9,896	23.6%
2017	4,352	1.73	7,510	19.6%
2016	4,347	1.42	6,180	17.6%



	Year Ended December 31,			Increase (Decrease) 2018-2017	Increase (Decrease) 2017-2016
	2018	2017	2016	Increase (Decrease) 2018-2017	Increase (Decrease) 2017-2016
Revenue passenger miles (millions) ^(a)	231,160	226,346	223,477	2.1%	1.3%
Available seat miles (millions) ^(b)	282,054	276,493	273,410	2.0%	1.1%
Passenger load factor (percent) ^(c)	82.0	81.9	81.7	0.1pts	0.2pts
Yield (cents) ^(d)	17.60	17.29	16.58	1.8%	4.3%
Passenger revenue per available seat mile (cents) ^(e)	14.42	14.15	13.55	1.9%	4.5%
Total revenue per available seat mile (cents) ^(f)	15.79	15.42	14.68	2.4%	5.0%
Aircraft at end of period	1,551	1,545	1,536	0.4%	0.6%
Fuel consumption (gallons in millions)	4,447	4,352	4,347	2.2%	0.1%
Average aircraft fuel price including related taxes (dollars per gallon)	2.23	1.73	1.42	29.0%	21.4%
Full-time equivalent employees at end of period	128,900	126,600	122,300	1.8%	3.5%
Operating cost per available seat mile (cents) ^(g)	14.85	13.88	12.83	6.9%	8.2%



Period	Per share		For stockholders of record as of	Payable on	Total (millions)
First Quarter	$	0.10	February 6, 2018	February 20, 2018	$	48
Second Quarter	0.10		May 8, 2018	May 22, 2018	46
Third Quarter	0.10		August 7, 2018	August 21, 2018	46
Fourth Quarter	0.10		November 6, 2018	November 20, 2018	46
Total	$	0.40			$	186




~~FORM 10-K~~



☒FORM			10-K



	2018		2017
Pension weighted average discount rate ⁽¹⁾	4.40	%	3.80	%
Retiree medical and other postretirement benefits weighted average discount rate ⁽¹⁾	4.30	%	3.60	%
Expected rate of return on plan assets ⁽²⁾	8.00	%	8.00	%
Weighted average health care cost trend rate assumed for next year ⁽³⁾:
Initial	3.91	%	4.19	%
Ultimate (2026)	3.45	%	3.76	%
Assumed Pilot Retirement Age	63		62



				New Revenue Standard								New Retirement Standard
Year Ended December 31, 2017	As Reported			Deferred Revenue Method			Ancillary Revenue Reclassifications			Gross Versus Net Presentation		Reclassifications			As Recast
Operating revenues:
Passenger	$	36,133		$	311		$	2,648		$	39	$	—		$	39,131
Cargo	800			—			42			48		—			890
Other	5,274			—			(2,690		)	17		—			2,601
Total operating revenues	42,207			311			—			104		—			42,622
Total operating expenses	38,149			—			—			104		138			38,391
Operating income	4,058			311			—			—		(138		)	4,231
Total nonoperating expense, net	(974		)	—			—			—		138			(836		)
Income before income taxes	3,084			311			—			—		—			3,395
Income tax provision ⁽¹⁾	1,165			948			—			—		—			2,113
Net income	$	1,919		$	(637	)	$	—		$	—	$	—		$	1,282
Diluted earnings per common share	$	3.90													$	2.61



				New Revenue Standard								New Retirement Standard
Year Ended December 31, 2016	As Reported			Deferred Revenue Method			Ancillary Revenue Reclassifications			Gross Versus Net Presentation		Reclassifications			As Recast
Operating revenues:
Passenger	$	34,579		$	(147	)	$	2,571		$	42	$	—		$	37,045
Cargo	700			—			36			49		—			785
Other	4,901			—			(2,607		)	18		—			2,312
Total operating revenues	40,180			(147		)	—			109		—			40,142
Total operating expenses	34,896			—			—			109		77			35,082
Operating income	5,284			(147		)	—			—		(77		)	5,060
Total nonoperating expense, net	(985		)	—			—			—		77			(908		)
Income before income taxes	4,299			(147		)	—			—		—			4,152
Income tax provision	1,623			(55		)	—			—		—			1,568
Net income	$	2,676		$	(92	)	$	—		$	—	$	—		$	2,584
Diluted earnings per common share	$	4.81													$	4.65



	December 31, 2018		December 31, 2017
	(in millions)
Loyalty program liability	$	8,539	$	8,822
Air traffic liability	4,339		4,042
Total	$	12,878	$	12,864



Balance at December 31, 2017	$	8,822
Deferral of revenue	3,083
Recognition of revenue ⁽¹⁾	(3,366		)
Balance at December 31, 2018 ⁽²⁾	$	8,539


⁽¹⁾	In 2018, we recognized $565 million of expense under our capacity purchase agreement with Republic Airline Inc. (Republic). We hold a 25% equity interest in Republic Airways Holdings Inc. (Republic Holdings), the parent company of Republic.



2019	$	3,258
2020	2,320
2021	3,411
2022	1,346
2023	3,894
2024 and thereafter	9,772
Total	$	24,001


2022	$	2,387
2023	4,167
2024	3,467
2025	9,249
2026	4,412
2027 and thereafter	14,099
Total	$	37,781



	2017-2 EETCs
	Series AA	Series A	Series B
Aggregate principal issued	$545 million	$252 million	$221 million
Fixed interest rate per annum	3.35%	3.60%	3.70%
Maturity date	October 2029	October 2029	October 2025



	December 31, 2017
	Operating Leases		Capital Leases
2018	$	2,572	$	126
2019	2,329		123
2020	2,104		120
2021	1,621		118
2022	1,398		122
2023 and thereafter	3,965		387
Total lease payments	$	13,989	996
Less: Imputed interest			(225		)
Total lease obligations			771
Less: Current obligations			(78		)
Long-term lease obligations			$	693


Fair value of plan assets at beginning of period	$	11,395		$	10,017		$	295		$	266		Fair value of plan assets at beginning of period	$	13,557	$	12,897	$	170	$	204
Actual return on plan assets	(1,151		)	1,797			(24		)	37			Actual return on plan assets	1,710		1,427		21		13
Employer contributions ⁽³⁾	475			286			35			72
Employer contributions (5)													Employer contributions (5)	247		9		48		30
Settlements	(4		)	(4		)	—			—			Settlements	(1)		(36)		—		—
Benefit payments	(662		)	(726		)	(81		)	(80		)	Benefit payments	(822)		(740)		(72)		(77)
Other	—			25			—			—
Fair value of plan assets at end of period	$	10,053		$	11,395		$	225		$	295		Fair value of plan assets at end of period	$	14,691	$	13,557	$	167	$	170
Funded status at end of period	$	(6,325	)	$	(6,880	)	$	(612	)	$	(716	)	Funded status at end of period	$	(4,219)	$	(6,255)	$	(931)	$	(876)


⁽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.


Net actuarial loss (gain)	$	5,252	$	6,700	$	(396)	$	(358)
Prior service cost (benefit)	47		75		(167)		(181)
Total accumulated other comprehensive loss (income), pre-tax	$	5,299	$	6,775	$	(563)	$	(539)



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


⁽¹⁾ (1)The weighted average health care cost trend rate at December 31, 2021 is assumed to decline gradually to 3.9% by 2028 and remain level thereafter.	~~The weighted average health care cost trend rate at December 31, 2018 is assumed to decline gradually to 3.45% by 2026 and remain level thereafter.~~



	1% Increase		1% Decrease
Increase (decrease) on 2018 service and interest cost	$	2	$	(2	)
Increase (decrease) on benefit obligation as of December 31, 2018	47		(43		)



Asset Class/Sub-Class		Allowed Range
Equity		~~60%~~45% - ~~85%~~80%
Public:
U.S. Large		~~20%~~10% - ~~50%~~40%
U.S. Small/Mid		2% - 10%
International		10% - 25%
International Small/Mid		0% - 10%
~~International~~Emerging Markets		~~17%~~2% - ~~27%~~15%
~~Emerging Markets~~Alternative Investments		5% ~~- 11%~~
~~Alternative Investments~~	~~5% - 20%~~
~~Fixed Income~~	~~15% - 40%~~
~~Public:~~
~~U.S. Long Duration~~	~~15%~~ - 30%
Fixed Income		20% - 55%
Public:
U.S. Long Duration		15% - 45%
High Yield and Emerging Markets		0% - 10%
Private Income		0% - ~~10%~~15%
~~Cash Equivalents~~Other		0% - 5%
Cash Equivalents		0% - 20%



	Fair Value Measurements as of December 31, 2018
Asset Category	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Cash and cash equivalents	$	23		$	—	$	—	$	23
Equity securities:
International markets ^(a) ^(b)	3,181			—		—		3,181
Large-cap companies ^(b)	2,021			—		—		2,021
Mid-cap companies ^(b)	583			—		—		583
Small-cap companies ^(b)	122			—		—		122
Mutual funds ^(c)	52			—		—		52
Fixed income:
Corporate debt ^(d)	—			2,116		—		2,116
Government securities ^(e)	—			228		—		228
U.S. municipal securities	—			40		—		40
Alternative instruments:
Private market partnerships ^(f)	—			—		7		7
Private market partnerships measured at net asset value ^{(f) (h)}	—			—		—		1,188
Common/collective trusts ^(g)	—			218		—		218
Common/collective trusts and 103-12 Investment Trust measured at net asset value ^{(g) (h)}	—			—		—		227
Insurance group annuity contracts	—			—		2		2
Dividend and interest receivable	47			—		—		47
Due to/from brokers for sale of securities – net	5			—		—		5
Other liabilities – net	(7		)	—		—		(7		)
Total	$	6,027		$	2,602	$	9	$	10,053


^(b)	~~There are no significant concentrations of holdings by company or industry.~~