UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

 

 

þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 20142015

 

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From                      to                     

Commission file number 1-8400

 

 

American Airlines Group Inc.

(Exact name of registrant as specified in its charter)

 

 

 

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

 

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

 

   

Name of Exchange on Which Registered

Common Stock, $0.01 par value per share NASDAQ

Securities registered pursuant to Section 12(g) of the Act: None

Commission file number 1-2691

 

 

American Airlines, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

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

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

American Airlines Group Inc.

  

Yesþ

  No¨

American Airlines, Inc.

  

Yesþ

  No¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

 

American Airlines Group Inc.

  

Yes¨

  Noþ

American Airlines, Inc.

  

Yes¨

  Noþ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

American Airlines Group Inc.

  

Yesþ

  No¨

American Airlines, Inc.

  

Yesþ

  No¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

American Airlines Group Inc.

  

Yesþ

  No¨

American Airlines, Inc.

  

Yesþ

  No¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

 

American Airlines Group Inc.  

¨

American Airlines, Inc.  

þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

 

American Airlines Group Inc.

þ Large Accelerated Filer

  

Large¨ Accelerated Filer¨

  

Accelerated Filer ¨ Non-accelerated Filer

 

Non-accelerated Filer¨ Smaller Reporting Company

American Airlines, Inc.

  

Smaller Reporting Company

American Airlines, Inc.¨ Large Accelerated Filer

  

Large¨ Accelerated Filer¨

  

Accelerated Filer þ Non-accelerated Filer

 

Non-accelerated Filer¨

Smaller Reporting Company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

 

American Airlines Group Inc.

  

Yes¨

  Noþ

American Airlines, Inc.

  

Yes¨

  Noþ

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

 

American Airlines Group Inc.

  

Yesþ

  No¨

American Airlines, Inc.

  

Yesþ

  No¨

As of February 20, 2015,19, 2016, there were 696,649,850603,018,015 shares of American Airlines Group Inc. common stock outstanding. The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2014,2015, was approximately $31$27 billion.

As of February 20, 2015,19, 2016, there were 1,000 shares of American Airlines, Inc. common stock outstanding, all of which were held by American Airlines Group Inc.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement related to American Airlines Group Inc.’s 20152016 Annual Meeting of Stockholders, which proxy statement will be filed under the Securities Exchange Act of 1934 within 120 days of the end of American Airlines Group Inc.’s fiscal year ended December 31, 2014,2015, are incorporated by reference into Part III of this Annual Report on Form 10-K.

 

 

 


American Airlines Group Inc.

American Airlines, Inc.

Form 10-K

Year Ended December 31, 20142015

Table of Contents

 

     Page 
PART I  

Item 1.        

 Business   5  

Item 1A.    

 Risk Factors   3022  

Item 1B.     

 Unresolved Staff Comments   5244  

Item 2.        

 Properties   5345  

Item 3.        

 Legal Proceedings   5648  

Item 4.        

 Mine Safety Disclosures   5749  
PART II  

Item 5.        

 Market for American Airlines Group’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities   5850  

Item 6.        

 Selected Consolidated Financial Data   6254  

Item 7.        

 Management’s Discussion and Analysis of Financial Condition and Results of Operations   6759  

Item 7A.    

 Quantitative and Qualitative Disclosures About Market Risk   115100  

Item 8A.    

 Consolidated Financial Statements and Supplementary Data of American Airlines Group Inc.   119103  

Item 8B.     

 Consolidated Financial Statements and Supplementary Data of American Airlines, Inc.   190172  

Item 9.        

 Changes inIn and Disagreements with Accountants on Accounting and Financial Disclosure   247229  

Item 9A.    

 Controls and Procedures   247229  
PART III  

Item 10.      

 Directors, Executive Officers and Corporate Governance   251233  

Item 11.      

 Executive Compensation   251233  

Item 12.      

 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   251233  

Item 13.      

 Certain Relationships and Related Transactions, and Director Independence   251233  

Item 14.      

 Principal Accountant Fees and Services   251233  
PART IV  

Item 15.      

 Exhibits and Financial Statement Schedules   252234  

SIGNATURES

   253235  

This combined Annual Report on Form 10-K is filed by American Airlines Group Inc. (formerly named AMR Corporation) (AAG) and its wholly-owned subsidiary American Airlines, Inc. (American). References in this Annual Report on Form 10-K to “we,” “us,” “our,” the “Company” and similar terms refer to AAG and its consolidated subsidiaries. As more fully described below, on December 9, 2013, a subsidiary of AMR Corporation merged with and into US Airways Group, Inc. (US Airways Group), which survived as a wholly-owned subsidiary of AAG (the Merger). Accordingly,On December 30, 2015, in order to simplify AAG’s internal corporate structure and as part of the integration efforts following the business combination of AAG and US Airways Group, AAG caused US Airways Group to be merged with and into AAG, with AAG as the surviving corporation, and, immediately thereafter, US Airways, Inc. (US Airways), a subsidiary of US Airways Group, merged with and into American, with American as the surviving corporation. As a result of the Merger, unless otherwise indicated, information in this Annual Report on Form 10-K regarding the Company’s consolidated results of operations includes the results of US Airways Group and itsGroup’s wholly-owned subsidiaries includingbeginning on December 9, 2013, the effective date of the Merger. In addition, unless otherwise indicated, information in this Annual Report on Form 10-K regarding American’s consolidated results of operations includes the results of US Airways Inc. (US Airways) for the post-Merger period from December 9, 2013, which is the earliest date that American and US Airways were under common control, to December 31, 2013 and for the yearyears ended December 31, 2014.2014 and 2015. “AMR” or “AMR Corporation” refers to the Company during the period of time prior to its emergence from Chapter 11 and its acquisition of US Airways Group. References to “US Airways Group” and “US Airways” represent the entities during the period of time prior to December 30, 2015. References in this Annual Report on Form 10-K to “mainline” refer to the operations of American, and US Airways, as applicable, and exclude regional operations.

Glossary of Terms

For the convenience of the reader, the definitions of certain capitalized industry and other terms used in this report have been consolidated into a Glossary beginning on page 23.

Note Concerning Forward-Looking Statements

Certain of the statements contained in this report should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “could,” “should,” “would,” “continue,” “seek,” “target,” “guidance,” “outlook,” “if current trends continue,” “optimistic,” “forecast” and other similar words. Such statements include, but are not limited to, statements about the benefits of the Merger, including future financial and operating results, our plans, objectives, expectations and intentions, and other statements that are not historical facts, such as, without limitation, statements that discuss the possible future effects of current known trends or uncertainties, or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. These forward-looking statements are based on our current objectives, beliefs and expectations, and they are subject to significant risks and uncertainties that may cause actual results and financial position and timing of certain events to differ materially from the information in the forward-looking statements. These risks and uncertainties include, but are not limited to, those described below under Part I, Item 1A. Risk Factors and the following: significant operating losses in the future; downturns in economic conditions that adversely affect our business; the impact of continued periods of high volatility in fuel costs, increased fuel prices and significant disruptions in the supply of aircraft fuel; competitive practices in the industry, including the impact of low cost carriers, airline alliances and industry consolidation; the challenges and costs of integrating operations and realizing anticipated synergies and other benefits of the Merger; costs of ongoing data security compliance requirements and the impact of any significant data security breach; our substantial indebtedness and other obligations and the effect they could have on our business and liquidity; an inability to obtain sufficient financing or other capital to operate successfully and in accordance with our current business plan; increased costs of financing, a reduction in the availability of financing and fluctuations in interest rates; the effect our high level of fixed obligations may have on our ability to fund general corporate requirements, obtain additional financing and respond to competitive developments and adverse economic and industry conditions; our significant pension and other post-employmentpostretirement benefit funding obligations; the impact of any failure to comply with the covenants contained in financing arrangements; provisions in credit card processing and other commercial agreements that may materially reduce our liquidity; the limitations of our historical consolidated financial information, which is not directly comparable to our financial information for prior or future periods; the impact of union disputes, employee strikes and other labor-related disruptions; any inability to maintain labor costs at competitive levels; interruptions or disruptions in service at one or more of our hub airports; costs of ongoing data security compliance requirements and the impact of any significant data security breach; any inability

to obtain and maintain adequate facilities, infrastructure and Slotsslots to operate our flight schedule and expand or change our route network; our reliance on third-party regional operators or third-party service providers that have the ability to affect our revenue and the

public’s perception about our services; any inability to effectively manage the costs, rights and functionality of third-party distribution channels on which we rely; 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; the impact of the heavy taxation on the airline industry; changes to our business model that may not successfully increase revenues and may cause operational difficulties or decreased demand; the loss of key personnel or inability to attract and retain additional qualified personnel; the impact of conflicts overseas, terrorist attacks and ongoing security concerns; the global scope of our business and any associated economic and political instability or adverse effects of events, circumstances or government actions beyond our control, including the impact of foreign currency exchange rate fluctuations and limitations on the repatriation of cash held in foreign countries; the impact of environmental and noise regulation; the impact associated with climate change, including increased regulation to reduce emissions of greenhouse gases; our reliance on technology and automated systems and the impact of any failure of these technologies or systems; challenges in integrating our computer, communications and other technology systems; losses and adverse publicity stemming from any accident involving any of our aircraft or the aircraft of our regional or codeshare operators; delays in scheduled aircraft deliveries, or other loss of anticipated fleet capacity, and failure of new aircraft to perform as expected; our dependence on a limited number of suppliers for aircraft, aircraft engines and parts; the impact of changing economic and other conditions beyond our control, including global events that affect travel behavior such as an outbreak of a contagious disease, and volatility and fluctuations in our results of operations due to seasonality; the effect of a higher than normal number of pilot retirements and a potential shortage of pilots; the impact of possible future increases in insurance costs or reductions in available insurance coverage; the effect on our financial position and liquidity of a lawsuit that was filedbeing party to or involved in connection with the Merger remains pending;litigation; an inability to use net operating losses (NOLs) carried over from prior taxable years (NOL Carryforwards); any impairment in the amount of goodwill we recorded as a result of the application of the acquisition method of accounting and an inability to realize the full value of AAG’s and American’s respective intangible or long-lived assets and any material impairment charges that would be recorded as a result; price volatility of our common stock; the effects of our capital deployment program and the limitation, suspension or discontinuation of our share repurchase program or dividend payments thereunder; delay or prevention of stockholders’ ability to change the composition of our Board of Directors and the effect this may have on takeover attempts that some of our stockholders might consider beneficial; the effect of provisions of our Restated Certificate of Incorporation (the Certificate of Incorporation) and Amended and Restated Bylaws (the Bylaws) that limit ownership and voting of our equity interests, including our common stock; the effect of limitations in our Certificate of Incorporation on acquisitions and dispositions of our common stock designed to protect our NOL Carryforwards and certain other tax attributes, which may limit the liquidity of our common stock; the limitations of our historical consolidated financial information, which is not directly comparable to our financial information for prior or future periods; other economic, business, competitive, and/or regulatory factors affecting our business, including those set forth in this Annual Report on Form 10-K (especially in Part I, Item 1A. Risk Factors and Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations) and in our other filings with the Securities and Exchange Commission (the SEC), and other risks and uncertainties listed from time to time in our filings with the SEC.

All of the forward-looking statements are qualified in their entirety by reference to the factors discussed in Part I, Item 1A. Risk Factors and elsewhere in this report. There may be other factors of which we are not currently aware that may affect matters discussed in the forward-looking statements and may also cause actual results to differ materially from those discussed. We do not assume any obligation to publicly update or supplement any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting such statements other than as required by law. Forward-looking statements speak only as of the date of this Annual Report on Form 10-K or as of the dates indicated in the statements.

PART I

 

ITEM 1.  BUSINESS

Overview

American Airlines Group Inc. (AAG), a Delaware corporation, is a holding company and its principal, wholly-owned subsidiaries are American Airlines, Inc. (American), US Airways Group, Inc. (US Airways Group) and Envoy Aviation Group Inc. (Envoy, formerly known as AMR Eagle Holding Corporation). US Airways Group’s principal subsidiary is US Airways, Inc. (US Airways) and its other wholly-owned subsidiaries include(Envoy), Piedmont Airlines, Inc. (Piedmont), and PSA Airlines, Inc. (PSA). AAG was formed in 1982 under the name AMR Corporation (AMR) as the parent company of American, which was founded in 1934. On December 9, 2013, a subsidiary of 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. Upon closing of the Merger and emergence from Chapter 11, AMR changed its name to American Airlines Group Inc. On December 30, 2015, in order to simplify AAG’s internal corporate structure and as part of the integration efforts following the business combination of AAG and US Airways Group, AAG caused US Airways Group to be merged with and into AAG, with AAG as the surviving corporation, and, immediately thereafter, US Airways, Inc. (US Airways), a Delaware corporation and wholly-owned subsidiary of US Airways Group, merged with and into American, with American as the surviving corporation. As a result of the merger of US Airways and American, US Airways transferred all of its assets, liabilities and off-balance sheet commitments to American. For financial reporting purposes, this transaction constituted a transfer of assets between entities under common control and was accounted for at historical cost. Certain employees of American continue to work under the terms of separate collective bargaining agreements that were applicable to them as employees of US Airways. Virtually all of AAG’s operations fall within the airline industry.

AAG’s and American’s principal executive offices are located at 4333 Amon Carter Boulevard, Fort Worth, Texas 76155. AAG’s and American’s telephone number is 817-963-1234, and their Internet address iswww.aa.com. Information contained on AAG’s and American’s website is not and should not be deemed a part of this report or any other report or filing filed with or furnished to the SEC.

Airline Operations

As noted above, AAG is a holding company whose primary business activity is the operation of a major network carrier through its principal wholly-owned mainline operating subsidiary, American.

Together with our wholly-owned regional airline subsidiaries and third-party regional carriers operating as American Eagle, our airline operates an average of nearly 6,700 flights per day to nearly 350 destinations in more than 50 countries from our hubs in Charlotte, Chicago, Dallas/Fort Worth (DFW), Los Angeles (LAX), Miami, New York, Philadelphia, Phoenix and Washington, D.C. In 2015, approximately 201 million passengers boarded our mainline and regional flights. As of December 31, 2015, we operated 946 mainline aircraft and are supported by our regional airline subsidiaries and third-party regional carriers, which operated an additional 587 regional aircraft.

American is a founding member of theoneworld alliance, whose members and members-elect serve nearly 1,000 destinations with 14,250 daily flights to 150 countries.

Our cargo division provides a wide range of freight and mail services, with facilities and interline connections available across the globe.

See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – “American Airlines Group – Year in Review,” “AAG’s Results of Operations” and“American’s Results of Operations” for further discussion of AAG’s and American’s operating results and operating performance. Also, see Note 17 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 15 to American’s

Consolidated Financial Statements in Part II, Item 8B for information regarding our operating segments and operating revenue in principal geographic areas.

Regional Operations

Our wholly-owned regional carriers, Envoy, Piedmont and PSA, as well as certain third-party regional carriers have arrangements with us to provide regional feed under the trade name “American Eagle.” American Eagle carriers are an integral component of our operating network. We rely heavily on feeder traffic from these regional carriers, which carry passengers to our hubs from low-density markets that are uneconomical for us to serve with large jets. In addition, regional carriers offer complementary service in our existing mainline markets by operating flights during off-peak periods between mainline flights. During 2015, approximately 54 million passengers boarded our regional carriers’ planes, approximately 47% of whom connected to or from our mainline flights. Of these passengers, approximately 24 million were enplaned by our wholly-owned regional carriers and approximately 30 million were enplaned by third-party regional carriers operating under capacity purchase agreements.

The American Eagle arrangements are principally in the form of capacity purchase agreements. The capacity purchase agreements provide that all revenues, including passenger, mail and freight revenues, go to us. In return, we agree to pay predetermined fees to these airlines for operating an agreed-upon number of aircraft, without regard to the number of passengers on board. In addition, these agreements provide that we will reimburse 100% of certain variable costs, such as airport landing fees and passenger liability insurance. We control marketing, scheduling, ticketing, pricing and seat inventories. A very small number of regional aircraft are operated for us under prorate agreements, under which the regional carriers receive a prorated share of ticket revenue and pay certain service fees to us. The prorate carriers are responsible for all costs incurred operating the applicable aircraft. All American Eagle carriers have logos, service marks, aircraft paint schemes and uniforms similar to our mainline operations.

Chapter 11 Reorganization

On November 29, 2011 (the Petition Date), AMR Corporation, its principal subsidiary, American, and certain of AMR’s other direct and indirect domestic subsidiaries (collectively, the Debtors), filed voluntary petitions for relief (the Chapter 11 Cases) under Chapter 11 of the United States Bankruptcy Code (the 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 (the Confirmation Order) approving and confirming the Debtors’ fourth amended joint plan of reorganization (as amended, the Plan).

On December 9, 2013 (the Effective Date), the Debtors consummated their reorganization pursuant to the Plan, principally through the transactions contemplated by an Agreement and Plan of Merger (as amended, the Merger Agreement), dated as of February 13, 2013, by and among AMR, AMR Merger Sub, Inc. (Merger Sub) and US Airways Group, pursuant to which Merger Sub merged with and into US Airways Group (the Merger), with US Airways Group surviving as a wholly-owned subsidiary of AMR following the Merger.

In connection with the Chapter 11 Cases, trading in AMR’s common stock and certain debt securities on the New York Stock Exchange (NYSE) was suspended on January 5, 2012, and AMR’s common stock and such debt securities were delisted by the SEC from the NYSE on January 30, 2012. On January 5, 2012, AMR’s common stock began trading under the symbol “AAMRQ” (CUSIP 001765106) on the OTCQB marketplace, operated by OTC Markets Group.marketplace. Pursuant to the Plan, on the Effective Date (i) all existing shares of AAG’s old common stock formerly traded under the symbol “AAMRQ” were canceled and (ii) the Company was authorized to issue up to approximately 544 million shares of common stock, par value $0.01 per share, of AAG (AAG Common Stock) by operation of the Plan (excluding shares of AAG Common Stock issuable pursuant to the Merger Agreement). On the Effective Date, the AAG Common Stock was listed on the NASDAQ Global Select Market under the symbol “AAL,” and AAMRQ ceased trading on the OTCQB marketplace.

Upon emergence from Chapter 11, AAG issued approximately 53 million shares of AAG Common Stock to AMR’s old equity holders and certain of the Debtors’ employees, and issued 168 million shares of AAG Series A Convertible Preferred Stock, par value $0.01 per share (the AAG Series A Preferred Stock), which was mandatorily convertible into new AAG Common Stock during the 120-day period after the Effective Date, to

certain creditors and employees of the Debtors (including shares deposited in the Disputed Claims Reserve (as defined in the Plan)). In accordance with the terms of the Plan, former holders of AMR common stock (previously traded under the symbol “AAMRQ”) received, for each share of AMR common stock, an initial distribution of approximately 0.0665 shares of the AAG Common Stock as of the Effective Date. Following the Effective Date, former holders of AMR common stock and those deemed to be treated as such in connection with the elections made pursuant to the Plan have received through December 31, 2014,2015, additional aggregate distributions of shares of AAG Common Stock of approximately 0.6776 shares of AAG Common Stock for each share of AMR common stock previously held, and may continue to receive additional distributions. As of the Effective Date, the adjusted total Double-Dip General Unsecured Claims (as defined in the Plan) were approximately $2.45$2.5 billion and the Allowed Single-Dip General Unsecured Claims (as defined in the Plan) were approximately $2.45$2.5 billion. The Disputed Claims Reserve established under the Plan was initially was issued 30.4 million shares, which shares are reserved for distributions to holders of disputed Single-Dip Unsecured Claims (Single-Dip Equity Obligations) whose claims ultimately become allowed as well as to certain AMR labor groups and employees who received a deemed claim amount based upon a fixed percentage of the distributions to be made to general unsecured claimholders. As of December 31, 2014,2015, the Disputed Claims Reserve held 26.825.3 million shares of AAG Common Stock pending distribution of those shares in accordance with the Plan.

See Part II, Item 5. Market for American Airlines Group’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities, Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Note 2 and Note 4 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 2 and Note 4 to American’s Consolidated Financial Statements in Part II, Item 8B for further information regarding the Chapter 11 Cases, the Merger and the Disputed Claims Reserve.

Merger

Pursuant to the Merger Agreement and consistent with the Plan, each share of common stock, par value $0.01 per share, of US Airways Group (the US Airways Group Common Stock) was converted into the right to receive one share of AAG Common Stock. The aggregate number of shares of AAG Common Stock issuable in the Merger to holders of US Airways Group equity instruments (including stockholders, holders of convertible notes, optionees, and holders of restricted stock units (RSUs)) represented 28% of the diluted equity ownership of AAG. The remaining 72% diluted equity ownership in AAG (up to approximately 544 million shares) was or is distributable, pursuant to the Plan (see “Chapter 11 Reorganization” above), to stakeholders, labor unions, certain employees of AMR and the other Debtors, and former holders of AMR common stock (previously traded under the symbol “AAMRQ”) such that the aggregate number of shares of AAG Common Stock issuable under the Plan will not exceed 72% of the diluted equity ownership of AAG as of the time of the Merger.

In connection with the completion of the Merger, the NYSE suspended trading in the US Airways Group Common Stock prior to the opening of the market on December 9, 2013. The US Airways Group Common Stock was delisted from the NYSE and registration of the US Airways Group Common Stock under Section 12(b) of the Exchange Act was terminated.

See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations –American Airlines Group – Year in Review,” Management’s Discussion and Analysis of Financial Condition and Results of Operations – “AAGAAG’s Results of Operations,” Note 2 and Note 4 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 2 and Note 4 to American’s Consolidated Financial Statements in Part II, Item 8B for further information regarding the Chapter 11 Cases and the Merger.

Airline Operations

As noted above, AAG is a holding company whose primary business activity is the operation of two major network carriers through its principal, wholly-owned mainline operating subsidiaries: American and, as of December 9, 2013, US Airways.

We continue to move toward operating under the single brand name of “American Airlines” through our mainline operating subsidiaries. We have made substantial progress towards integrating the operations of our mainline operating subsidiaries and towards obtaining a single operating certificate, which we expect to obtain in 2015. We are the largest airline in the world as measured by revenue passenger miles (RPMs) and available seat miles (ASMs). Together with our wholly-owned regional airline subsidiaries and third-party regional carriers operating as American Eagle and US Airways Express, our airlines operate an average of nearly 6,700 flights per day to 339 destinations in 54 countries from our hubs in Charlotte, Chicago, Dallas/Fort Worth (DFW), Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington, D.C. In 2014, we had approximately 197 million passengers boarding our mainline and regional flights. As of December 31, 2014, we operated 983 mainline jets and were supported by our regional airline subsidiaries and third-party regional carriers, which operated an additional 566 regional aircraft.

American and US Airways are members of theoneworld® alliance whose members and members-elect serve nearly 1,000 destinations with 14,250 daily flights to 150 countries.

See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations –“American Airlines Group – Year in Review,” “AAG Results of Operations” and “American’s Results of Operations” for further discussion of AAG’s and American’s operating results and operating performance. Also, see Note 17 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 14 to American’s Consolidated Financial Statements in Part II, Item 8B for information regarding our operating segments and operating revenue in principal geographic areas.

Regional Operations

Certain air carriers, including our wholly-owned regional carriers, Envoy, Piedmont and PSA, and third-party regional carriers, have arrangements with us to provide regional feed under the trade name “American Eagle” or “US Airways Express.” American Eagle and US Airways Express carriers are an integral component of our operating network. We rely heavily on feeder traffic from these regional carriers, which carry passengers to our hubs from low-density markets that are uneconomical for us to serve with large jets. In addition, regional carriers offer complementary service in our existing mainline markets by operating flights during off-peak periods between mainline flights. During 2014, approximately 52 million passengers boarded our regional carriers’ planes, approximately 45% of whom connected to or from our mainline flights. Of these passengers, approximately 25 million were enplaned by our wholly owned regional carriers and approximately 27 million were enplaned by third-party regional carriers operating under capacity purchase agreements.

The American Eagle and US Airways Express arrangements are principally in the form of capacity purchase agreements. The capacity purchase agreements provide that all revenues, including passenger, mail and freight revenues, go to us. In return, we agree to pay predetermined fees to these airlines for operating an agreed-upon number of aircraft, without regard to the number of passengers on board. In addition, these agreements provide that we will reimburse 100% of certain variable costs, such as airport landing fees and passenger liability insurance. We control marketing, scheduling, ticketing, pricing and seat inventories. A very small number of regional aircraft are operated for us under prorate agreements, under which the regional carriers receive a prorated share of ticket revenue and pay certain service fees to us. The prorate carriers are responsible for all costs incurred operating the applicable aircraft. All American Eagle and US Airways Express carriers have logos, service marks, aircraft paint schemes and uniforms similar to our mainline operations.

Cargo

Our cargo division is one of the largest air cargo operations in the world, providing a wide range of freight and mail services, with facilities and interline connections available across the globe.

Other Revenues

Other revenues include revenue from the marketing services related to the sale of mileage credits in the AAdvantage and Dividend Miles programs as discussed below under “Frequent Flyer Program,” membership fees and related revenue from our Admirals Club operations, our US Airways Club operations, and other miscellaneous service revenue, including administrative service charges and baggage handling fees.

The U.S. Airline Industry

In 2014,2015, the U.S. airline industry continued to experience year-over-year growthbenefited significantly from lower fuel prices. However, this benefit was offset in passengerpart by a decline in revenues driven by strong demandreduced yields.

Jet fuel prices closely follow the price of Brent crude oil. Oil prices declined significantly throughout 2015, and in December, the price of Brent crude oil fell below $40 a barrel for air travel.the first time since 2009. On average, the price of Brent crude oil per barrel was approximately 47% lower in 2015 as compared to 2014. The average daily spot price for Brent crude oil during 2015 was $52 per barrel as compared to an average daily spot price of $99 per barrel during 2014. On a daily basis, Brent crude oil prices fluctuated during 2015 between a high of $66 per barrel to a low of $35 per barrel, and closed the year on December 31, 2015 at $37 per barrel.

InWith respect to revenue, in its most recent data available through the third quarter of 2015, Airlines for America, the trade association for U.S. airlines, reported that annual U.S. industry passenger revenues and yields increased 4.2% and 1.8%, respectively,declined as compared to 2013. With respect to international versus domestic performance, Airlines for America reported that2014. Additionally, domestic markets outperformed international markets. Atlanticmarkets (Atlantic, Pacific and Latin America markets experienced year-over-year growthAmerica) in passenger revenues of 2.8%both yield and 3.4%, respectively, while the Pacific market experienced year-over-year declines in passenger revenues of 1.4%.overall revenue performance.

JetWhile jet fuel prices continue to follow the price of Brent crude oil more closely than the price of West Texas Intermediate crude oil. On average, fuel costs were lower in 2014 as compared to 2013, driven by a significant decline in fuel prices in the fourth quarter of 2014. On December 31, 2014, the price of Brent crude oil fell to $55 per barrel, its lowest price since May 2009.

While the U.S. airline industry is currently benefiting from a favorable revenue environment and significantly reduced fuel priceshave declined year-over-year as described above, uncertainty exists regarding the economic conditions driving these factors.declines. See Part I, Item 1A. Risk Factors – “Downturns in economic conditions adversely affect our business” andOur business is dependent on the price and availability of aircraft fuel. Continued periods of high volatility in fuel costs, increased fuel prices and significant disruptions in the supply of aircraft fuel could have a significant negative impact on our operating results and liquidity.”

Competition

The markets in which we operate are highly competitive. Price competition occurs on a market-by-market basis through price discounts, changes in pricing structures, fare matching, target promotions and frequent flyerloyalty program initiatives. On most of our domestic non-stop routes, we currently face competing service from at least one, and sometimes more than one, domestic airline, including: Alaska Airlines, Allegiant Air, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, Southwest Airlines, Spirit Airlines, United Airlines and Virgin America. Competition is even greater between cities that require a connection, where the major airlines compete via their respective hubs. In addition, we face competition on some of our connecting routes from airlines operating point-to-point service on such routes. We also compete with all-cargo and charter airlines and, particularly on shorter segments, ground and rail transportation.

On all of our routes, pricing decisions are affected, in large part, by the need to meet competition from other airlines. Airlines typically use discount fares and other promotions to stimulate traffic during normally slack travel periods, when they begin service to new cities or when they have excess capacity, to generate cash flow, andto maximize revenue per ASMavailable seat mile (ASM) and to establish, increase or preserve market share. Discount and promotional fares are generally non-refundable and may be subject to various restrictions such as minimum stay requirements, advance ticketing, limited seating and change fees. We have often elected to match discount or promotional fares initiated by other air carriers in certain markets in order to compete in those markets. Most airlines will quickly match price reductions in a particular market. Our ability to compete on the basis of price is limited by our fixed costs and depends on our ability to manage our operating costs effectively. Some of our competitors have greater

financial or other resources and/or lower cost structures than we do. In addition, low-fare, low-cost carriers, such as Southwest Airlines and Jet Blue Airways, and so-called ultra low-cost carriers, such as Allegiant Air, Frontier Airlines and Spirit Airlines, compete in many of the markets in which we operate and competition from these carriers is increasing. For example, as a result of divestitures completed in connection with gaining regulatory approval for the Merger, low-fare, low-cost carriers have gained additional accessat our DFW hub and in a number of other markets including Chicago, Dallas and Washington, D.C. Thesewe face more competition (as measured by ASMs) from ultra low-cost carriers generally have lower cost structures than American and US Airways.from major network carriers.

In addition to price competition, airlines compete for market share by increasing the size of their route system and the number of markets they serve. The American Eagle and US Airways Express regional carriers increase the number of markets we serve by flying to lower demand markets and providing connections at our hubs. Many of our competitors also own or have marketing agreements with regional airlines which provide similar services at their hubs and other locations.

We also compete on the basis of scheduling (frequency and flight times), availability of nonstop flights, on-time performance, type of equipment, cabin configuration, amenities provided to passengers, frequent flyerloyalty programs, the automation of travel agent reservation systems, onboard products, markets served and other services. We compete with both major network airlines and low-cost airlinescarriers throughout our network.

In addition to our extensive domestic service, we provide international service to Canada, Mexico, Europe, the Middle East, the Caribbean, Central and South America, Asia, Europe and Asia.Australia. Revenues from foreign operations (flights serving international destinations) were approximately 33%30% of our total operating revenues in 2014.2015. In 2015, we expanded our global footprint by adding 38 new routes, including 20 international and 18 domestic. Notable new routes include DFW to Beijing, LAX to Sydney and LAX to Mexico City. In providing international air transportation, we compete with U.S. airlines to provide scheduled passenger and cargo service between the U.S. and various overseas locations, foreign investor-owned airlines, and foreign state-owned or state-affiliated airlines, including carriers based in the Middle East, the three largest of which we believe benefit from significant government subsidies. During 2014, international capacity grew more quickly than domestic service creating a very competitive operating environment.

Marketing and Alliance Agreements with Other Airlines

In general, carriers that have the greatest ability to seamlessly connect passengers to and from markets beyond the nonstop city pair have a competitive advantage. In some cases, however, foreign governments limit U.S. air carriers’ rights to carry passengers beyond designated gateway cities in foreign countries. To improve access to each other’s markets, various U.S. and foreign air carriers, including American, and US Airways, have established marketing relationships with other airlines and rail companies. American currently has marketing relationships with Air Berlin, Air Tahiti Nui, Alaska Airlines, British Airways, Cape Air, Cathay Pacific, Dragonair, EL AL, Etihad Airways, Fiji Airways, Finnair, Gulf Air, Hainan Airlines, Hawaiian Airlines, Iberia, Interjet, Japan Airlines, Jet Airways, Jetstar Group (includes Jetstar Airways and Jetstar Japan), Korean Air, LANLATAM (includes LAN Airlines, LAN Argentina, LAN Colombia, LAN Ecuador, LAN Peru, TAM Airlines and LAN Peru)TAM Mercosur), Malaysia Airlines, Niki Airlines, Qantas Airways, Qatar Airways, Royal Jordanian, S7 Airlines, Seaborne Airlines, TAM Airlines and WestJet.

American is also a founding member of theoneworld alliance, which includes Air Berlin, British Airways, Cathay Pacific Airways, Finnair, Iberia, Japan Airlines, LAN Airlines, Malaysia Airlines, Qantas Airways, Qatar Airways, Royal Jordanian, S7 Airlines, SriLankan Airlines and TAM Airlines. Theoneworld alliance links the networks of the member carriers to enhance customer service and smooth connections to the destinations served by the alliance, including linking the carriers’ frequent flyerloyalty programs and access to the carriers’ airport lounge facilities. Together,oneworld members and members-elect serve nearly 1,000 destinations with over 14,250 daily flights to 150 countries.

American is party to antitrust-immunized cooperation agreements with British Airways, Iberia, Finnair, Royal Jordanian, Japan Airlines, LAN Airlines and Royal Jordanian. Over the last several years,LAN Peru. American has also established joint business agreements (JBAs) with British Airways, Iberia and Finnair and separately Japan Airlines Qantas Airways and Finnair that enable the carriers to cooperate on flights between particular destinations and allow pooling and sharing of certain revenues and costs, enhanced frequent flyerloyalty program reciprocity and cooperation in other areas. American and its joint business partners received regulatory approval to enter into these JBAs.

On January 23, 2014, In addition, American applied for regulatory approval to enter into a JBA with Qantas Airways and US Airways began offering enhanced connectivity of their respective networks through the implementationhas or will be applying for regulatory approval of a codeshare agreement betweenJBA with LATAM Airlines Group air carriers in the two carriers. Through the codeshare, each airline started selling tickets operatedrelevant jurisdictions affected by the other carrier using its own code and flight number, providing customers the ability to easily combine flights and seamlessly transfer bags when traveling on an itinerary that includes flights operated by both carriers.JBA.

US Airways was previously a member of the Star Alliance® and joinedoneworld on March 31, 2014. As part of this transition, codeshare and frequent flyer reciprocity between US Airways and many members of the Star Alliance ended on March 30, 2014. Some of the largest airlines with whom relationships were phased out at that time included United Airlines, Lufthansa, Swiss, Brussels Airlines, and All Nippon Airways, while relationships with others have been, or are in the process of being, phased out. US Airways also entered the transatlantic joint business on March 31, 2014 and is now pooling and sharing certain revenues and costs and enjoying enhanced frequent flyer program reciprocity and coordinating in other areas with British Airways, Iberia and Finnair in the same manner as American Airlines. In 2014, US Airways also entered into codeshare cooperation with British Airways, Iberia, Finnair and AirBerlin and frequent flyer reciprocity withoneworld members.

Industry Regulation and Airport Access

General

Our airlines are subject to extensive domestic and international regulatory requirements. The Airline Deregulation Act of 1978, as amended, eliminated most domestic economic regulation of passenger and freight transportation. However, the U.S. Department of Transportation (DOT) and the Federal Aviation Administration (FAA) still exercise significant regulatory authority over air carriers. The DOT maintains jurisdiction over the

approval of domestic and international codeshare agreements, international route authorities, and consumer protection and competition matters, such as advertising, denied boarding compensation and baggage liability.

The FAA regulates flying operations,significant aspects of our business, primarily in the areas of flight operations, maintenance, and other operational and safety areas. Pursuant to these regulations, our airline subsidiaries have FAA-approved maintenance programs for each type of aircraft they operate. The programs provide for the ongoing maintenance of such aircraft, ranging from periodic routine inspections to majorunscheduled repairs and comprehensive scheduled overhauls. FAA requirements cover, among other things, retirementrequired technology and maintenancenecessary onboard equipment, systems, procedures and training necessary to ensure continuous airworthiness of olderour fleet of aircraft, safety measures and equipment, advanced navigation and communication gear, advanced collision avoidance and position reporting systems, airborne windshear avoidance systems, noise abatement standards, other environmental concerns, fuel tank inerting, crew scheduling limitations and experience requirements, and aircraftmany other technical aspects of airline operations. We are also progressing toward the completion of numerousobligated to comply with various airworthiness directives, a numberservice bulletins and other requirements designed to safely correct known issues with aircraft or major components that are discovered after original type certification or manufacture. Some of which willthese directives require us to perform significant maintenance and engineering work and to incur substantial additional expenses. Based on the current known requirements and implementation schedule,schedules, we expect to beremain in full compliance with the applicable requirements within the required time periods.these ongoing airworthiness requirements. Our failure to timely comply with these requirements has in the past, and could in the future, result in fines and other enforcement actions by the FAA or other regulators. The FAA also operates the air traffic control (ATC) system in the United States.

Additionally, theThe FAA imposes stringent and complicated mandatory rest requirements for pilots, which are in addition to other limitations on allowable pilot duty times. The FAA also recently implemented rules on pilot flight and duty times and finalized rules onthat increase minimum requirementsqualifications for all pilots operatingto operate commercial aircraft. BothThese requirements and rules have increased our costs and reduced staffing flexibility, particularly during irregular operations. We are also working with the FAA on integrating US Airways and American into a single operating certificate under the American operations specifications.added complication to our crew scheduling.

Airlines are obligated to collect a federal excise tax, commonly referred to as the “ticket tax,” on domestic and international air transportation. Airlines collect the ticket tax, along with certain other U.S. and foreign taxes and user fees on air transportation, and pass along the collected amounts to the appropriate governmental agencies. Although these taxes are not our operating expenses, they represent an additional cost to our customers. Similarly, the U.S. Department of Agriculture’s Animal Plant and Health Inspection Service very recently increased the fees we must pay for arriving international flights, and for certain other related government services, which will increase our incremental costs of providing cargo services. SeeIndustry Regulation and Airport Access – Security, below for a discussion of passenger fees.

Most major U.S. airports impose a passenger facility charge (PFC). The ability of airports to increase this charge (and the ability of airlines to contest such increases) is restricted by federal legislation, DOT regulations

and judicial decisions. With certain exceptions, air carriers passWe and other airlines may be unable to recover all of these additional charges on to passengers. However, our ability to passfrom passengers through the total amount of the PFC to our customers is subject to various factors, including market conditions and competitive factors.increased fares. The current cap on the PFC is $4.50 per passenger, but the industry has faced repeated efforts in Congress to raise the cap to a higher level.

DOT consumer rules that took effect in 2010 require procedures for customer handling during long onboard delays, including additional reporting requirements for airlines, that have increased the cost of airline operations and reduced revenues. The DOT has been aggressively investigating alleged violations of these rules. In addition, the DOT finalized a second set of rules that further regulate airline interactions with passengers through the reservations process, at the airport and on board the aircraft. These rules require airlines to display all fares in an “all in” basis, with the price of the air travel and all taxes and government imposed fees rolled into the displayed fare. Enhanced disclosure of ancillary fees such as baggage fees is also required. Other rules apply to post-ticket purchase price increases and an expansion of tarmac delay regulations to international carriers. A third rulemaking that would further regulate consumer interaction with airlines is pending before the DOT, with a final rule expected in 2015.2016.

The DOT has continued its efforts to further regulate airlines through increased data reporting requirements, expansion of the Air Carrier Access Act and greater oversight of the methods airlines use to describe and sell air transportation and other products and services. Each additional regulation or other form of regulatory oversight increases costs and adds greater complexity to our operation. In this environment, no assurance can be given that compliance with these new rules, anticipated rules or other forms of regulatory oversight from the Department of Justice (DOJ), the FAA or other regulatory bodies, will not have a material adverse effect on our business.

Among its regulatory responsibilities, the DOT also enforces equal access to air transportation for disabled passengers. Over time, a number of carriers, including American, and US Airways, have entered into consent orders with the DOT over their handling of disabled passengers. The DOT has been aggressive in prosecuting disability violations and seeks large penalties. We expect to see continued DOT emphasis in this area through both regulation and enforcement.

The DOT and the Antitrust Division of the DOJ have jurisdiction over airline antitrust matters. The U.S. Postal Service has jurisdiction over certain aspects of the transportation of mail and related services. Labor relations in the air transportation industry are regulated under the Railway Labor Act, which vests in the National Mediation Board (NMB) certain functions with respect to disputes between airlines and labor unions relating to union representation and collective bargaining agreements (CBAs). In addition, as a result of heightened levels of concern regarding data privacy, we are subject to an increasing number of domestic and foreign laws regarding the privacy and security of passenger and employee data.

International

International air transportation is subject to extensive government regulation. 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 European Union (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. Bilateral and multilateral agreements among the U.S. and various foreign governments of countries we serve are periodically subject to renegotiation. 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, Slotsslots or other assets located abroad, or otherwise adversely affect our international operations. The U.S. government has negotiated “open skies” agreements with many countries, which 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 important markets to us do not have open skies agreements, including China, Hong Kong and Mexico. In addition, at some foreign airports, an air carrier needs Slotsslots and other facilities before the air carrier can introduce new service or increase existing service. The availability of Slotsslots is not assured, and our inability to obtain and retain needed Slotsslots and facilities could

therefore inhibit our efforts to compete in certain international markets. SeeIndustry Regulation and Airport Access – Airport Access and Operations, below and Part I, Item 1A. Risk Factors –“If “If we are unable to obtain and maintain adequate facilities and infrastructure throughout our system and, at some airports, adequate Slots,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 operationsoperations” for additional information.

Security

The Aviation and Transportation Security Act (the Aviation Security Act) was enacted in November 2001. Under the Aviation Security Act, substantially all aspects of civil aviation security screening were federalized and a new Transportation Security Administration (TSA) was created under the DOT was created.DOT. The TSA was then transferred to the Department of Homeland Security pursuant to the Homeland Security Act of 2002. The Aviation Security Act, among other matters, mandatesmandates; improved flight deck security; carriage of federal air marshals at no charge; enhanced security screening of passengers, baggage, cargo, mail, employees and vendors;

enhanced security training; fingerprint-based background checks of all employees and vendor employees with access to secure areas of airports pursuant to regulations issued in connection with the Aviation Security Act; and the provision of certain passenger data to the U.S. Customs and Border Protection Agency. Funding for the TSA is provided by a combination of air carrier fees, passenger fees and taxpayer monies. A “passengerTo help finance the cost of aviation security, fee,” which is collected by air carriers from their passengers, was set atare required to collect and remit to the TSA a rate of $2.50 per flight segment but not more than $10 per round trip. However, the Bipartisan Budget Act of 2013 and the Consolidated Appropriations Act of 2014 increased the passenger security fee toof $5.60 per one-way trip effective on July 11, 2014 on qualifying air transportation sold. On December 19, 2014, H.R. 5462 was signed into law, which set the round trip passenger security fee atand not more than $11.20 per round trip on qualifying air transportation sold. The TSA continues to refine its guidance on how to calculate the round trip fee. The TSA’s application of screening fees to one-way trips originating outside of the United States is currently being challenged by industry trade groups, the International Air Transport Association and Airlines for America, as outside the scope of the current legislation. In addition, an air carrier fee, or Aviation Security Infrastructure Fee (ASIF), was previously imposed with an annual cap equivalent to the amount that an individual air carrier paid in calendar year 2000 for the screening of passengers and property. The fee was repealed by federal legislation and the repeal went into effect on October 1, 2014.

Implementation of and compliance with the requirements of the Aviation Security Act have resulted and will continue to result in increased costs for us and our passengers and have resulted and will likely continue to result in service disruptions and delays. As a result of competitive pressure, we and other airlines may be unable to recover all of these additional security costs from passengers through increased fares. In addition, we cannot forecast what new security and safety requirements may be imposed in the future or the costs or financial impact of complying with any such requirements.

Airline Fares

Airlines are permitted to establish their own domestic fares without governmental regulation. The DOT maintains authority over certain international fares, rates and charges, but applies this authority on a limited basis. In addition, international fares and rates are sometimes subject to the jurisdiction of the governments of the foreign countries which we serve. While air carriers are required to file and adhere to international fare and rate tariffs, substantial commissions, fare overrides and discounts to travel agents, brokers and wholesalers characterize many international markets.

Airport Access and Operations

Domestically, any U.S. airline authorized by the DOT is generally free to operate scheduled passenger service between any two points within the U.S. and its territories, with the exception of certain airports that require landing and take-offtake off rights and authorizations (slots) and other facilities, (Slots), and certain airports that impose

geographic limitations on operations or curtail operations based on the time of day. Operations at four major domestic airports and certain foreign airports we serve are regulated by governmental entities through allocations of Slotsslots or similar regulatory mechanisms which limit the rights of carriers to conduct operations at those airports. Each Slotslot represents the authorization to land at or take off from the particular airport during a specified time period. In addition to Slotslot restrictions, operations at LaGuardia Airport in New York City(LGA) and Ronald Reagan Washington National Airport (DCA) are also limited based on the stage length of the flight.

In the U.S., the FAA currently regulates the allocation of Slots, Slotslots, slot exemptions, operating authorizations, or similar capacity allocation mechanisms at DCA in Washington, D.C. and three New York City airports: Newark Liberty International Airport, John F. Kennedy International Airport (JFK) and LaGuardia.LGA. There is currently aan open Notice of Proposed Rulemaking open for public comment concerning the management and use of Slotsslots at the three New York City airports. Our operations at DCA and those New York City airports generally require the allocation of Slotsslots or analogous regulatory authorities. Similarly, our operations at Frankfurt, London, Heathrow, Paris and other international airports outside the U.S. are regulated by local Slotslot authorities pursuant to the International Air Transport Association’s Worldwide Scheduling Guidelines (WSG) and applicable local law. We currently have sufficient Slotsslots 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. For example, we would like to serve Tokyo’s Haneda Airport but are unable to do so because of regulatory restrictions limiting the number of flights available. In addition, pursuant to the Merger clearance process in the EU, we were required to make available to other carriers certain Slots at London Heathrow. There is no assurance that we will be able to obtain sufficient slots or analogous authorizations in the future because, among other reasons, such allocations are often sought after by other airlines and are subject to changes in governmental policies.

In connection with the settlement of litigation relating to the Merger brought by the DOJ and certain states, we entered into settlement agreements that provided for certain asset divestitures, including 52 Slotslot pairs at DCA, 17 Slotslot pairs at LaGuardiaLGA and gates and related ground facilities necessary to operate those Slotslot pairs, and two gates at each of Boston Logan International Airport, Chicago O’Hare International Airport (ORD), Dallas Love Field

Airport (DAL), Los Angeles International AirportLAX and Miami International Airport. OurThe settlement agreements also require our airlinesus to maintain certain hub operations and continue to provide service to certain specified communities for limited periods of time. In addition, we entered into a related settlement with the DOT related to small community service from DCA. Further, as a consequence of the Merger clearance process in the EU, we made one pair of London Heathrow Slotsslots available for use by another carrier and, along with our JBA partners, we made one pair of London Heathrow Slotsslots available to competitors for use for up to six years in different markets.

Our ability to provide service can also be impaired at airports, such as Chicago O’HareORD and Los Angeles International,LAX, where the airport gate and other facilities are inadequate to accommodate all of the service that we would like to provide.

The Wright Amendment Reform Act of 2006 (the Wright Amendment Reform Act) reduced, and has now eliminated, all domestic non-stop geographic restrictions on operations at DAL. Although we held two gates at DAL, we did not operate from there in 2014 or 2013 and instead, operated solely at DFW. An element of our settlement of the antitrust litigation brought by the U.S. Department of Justice and certain states relating to the Merger included our divestiture of the two gates we held at DAL. Service from DAL competes with our hub at DFW Airport.

The DOT allows local airport authorities to implement procedures designed to abate special noise problems, provided such procedures do not unreasonably interfere with interstate or foreign commerce or the national transportation system. Certain locales, including Boston, Washington D.C., Chicago, San Diego and San Francisco, among others, have established airport restrictions to limit noise, including restrictions on aircraft types to be used and limits on the number of hourly or daily operations or the time of these operations. In some instances, these restrictions have caused curtailments in service or increases in operating costs, and these

restrictions could limit the ability of our airline subsidiaries to expand their operations at the affected airports. Authorities at other airports may adopt similar noise regulations. We are continuing to see an increase in these issues throughout the country. SeeIndustry Regulation and Airport Access – Environmental Matters,,” below.

Civil Reserve Air Fleet

We participate in the Civil Reserve Air Fleet (CRAF) program, which is a voluntary program administered by the U.S. Air Force Air Mobility Command. The General Services Administration of the U.S. Government requires that airlines participate in the CRAF program in order to receive U.S. Government business. We are reimbursed at compensatory rates if aircraft are activated under the CRAF program or when participating in Department of Defense business. If a substantial number of our aircraft are activated for operation under the CRAF program at a time of war or other national emergency, our business operations and financial condition may be adversely affected. In January 2014, the U.S. Air Force proposed a radical restructuring ofsignificant changes to the CRAF program to take effect in October 2015. We dowhich have not support the new proposals as they could adversely affect our business and, togetheryet taken effect. Together with other industry participants, we are working with the U.S. Air Force to address our concerns.concerns with the new proposals.

Environmental Matters

Environmental and noise regulation.The airline industry is subject to various laws and government regulations concerning environmental matters in the U.S. and other countries. U.S. federal laws that have a particular impact on our operations include the Airport Noise and Capacity Act of 1990 (ANCA), the Clean Air Act (CAA), the Resource Conservation and Recovery Act, the Clean Water Act, the Safe Drinking Water Act, and the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or the Superfund Act). The U.S. Environmental Protection Agency (EPA) and other federal agencies have been authorized to promulgate regulations that have an impact on our operations. In addition to these federal activities, various states have been delegated certain authorities under the aforementioned federal statutes. Many state and local governments have adopted environmental laws and regulations which are similar to or stricter than federal requirements.

The ANCA recognizes the rights of airport operators with noise problems to implement local noise abatement programs so long as they do not interfere unreasonably with interstate or foreign commerce or the national air transportation system. Authorities in several cities have promulgated aircraft noise reduction programs, including the imposition of nighttime curfews. The ANCA generally requires FAA approval of local noise restrictions on aircraft. While we have had sufficient scheduling flexibility to accommodate local noise restrictions imposed to date, our operations could be adversely affected if locally-imposed regulations become more restrictive or widespread.

The environmental laws to which we are subject include those related to responsibility for potential soil and groundwater contamination. We are conducting investigation and remediation activities to address soil and groundwater conditions at several sites, including airports and maintenance bases. We anticipate that the ongoing costs of such activities will not have a material impact on our operations. In addition, we have been named as a potentially responsible party (PRP) at certain Superfund sites. Our alleged volumetric contributions at such sites are relatively small in comparison to total contributions of all PRPs; we anticipate that any future payments of costs at such sites will not have a material impact on our operations.

Climate change regulation.Many aspects of our operations are subject to increasingly stringent environmental regulations and concerns about climate change and greenhouse gas (GHG) emissions. For example, the EU has established the Emissions Trading Scheme (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. This directive would have required us, beginning in 2012, to annually submit emission allowances in order to operate flights to and from airports in the European Economic Area (EEA), including flights between the U.S. and EU member states. However, in an effort to allow the International Civil Aviation Organization (ICAO) time to propose an alternate scheme to manage global aviation emissions, in April 2013, the EU suspended for one year the ETS’ application to flights entering and departing the EEA, limiting its application, for flights flown in 2012, to intra-EEA flights only. In October 2013, the ICAO Assembly adopted a resolution calling for the development through ICAO of a global, market-based scheme for aviation GHG emissions, to be finalized in 2016 and implemented in 2020. Subsequently, the EU has amended the EU ETS so that the monitoring, reporting and submission of allowances for aviation GHG emissions will continue to be limited to only intra-EEA flights through 2016, at which time the EU will evaluate the progress made by ICAO and determine what, if any, measures to take related to aviation GHG emissions from 2017 onwards. The U.S. enacted legislation in November 2012 which encourages the DOT

to seek an international solution through ICAO and that will allow the U.S. Secretary of Transportation to prohibit U.S. airlines from participating in the ETS. Ultimately,The effort currently underway through ICAO to reach a global agreement on measures to manage international aviation GHG emission growth could significantly impact our business, particularly to the scopeextent that any final agreement may emphasize a collective cost sharing approach for industry emissions growth over a cost approach based on individual carrier contribution to emission growth.

In addition, in December 2015, at the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC’s COP21), over 190 countries, including the United States, reached an agreement to reduce global GHG emissions. While there is no express reference to aviation in this international agreement, to the extent the United States and application of ETSother countries implement this agreement, either with respect to the aviation industry or other emissions trading schemeswith respect to related industries such as the aviation fuel industry, it could have an adverse direct or indirect effect on our operations, now or in the near future, remains uncertain.business.

Similarly, withinWithin the U.S., there is an increasing trend toward regulating GHG emissions directly under the CAA. In response to a 2012 ruling by the U.S. District Court of Appealsfor the District of Columbia, Circuit requiring the EPA to makeannounced in June 2015 a final determination on whetherproposed endangerment finding that aircraft engine GHG emissions cause or contribute to air pollution whichthat may reasonably be anticipated to endanger public health or welfare, the EPA announced in September 2014 that it is in the process of making a determination regarding aircraft GHG emissions and anticipates proposing an endangerment finding by May 2015.welfare. If the EPA makes a positivefinalizes the endangerment finding, the EPA is obligated under the CAA to set aircraft engine GHG emission standards. It is anticipated that any such standards established by EPA would closely align with emission standards currently being developed by ICAO. In February 2016, the ICAO Committee on Aviation Environmental Protection (CAEP) recommended that ICAO adopt carbon dioxide certification standards that would apply to new type aircraft certified beginning in 2020, and would be phased in for aircraft. Severalnewly manufactured existing aircraft type designs starting in 2023.

In addition, several states are also considering or have adopted or are considering initiatives to regulate emissions of GHGs, primarily through the planned development of GHG emissions inventories and/or regional GHG cap and trade programs.

These regulatory efforts, both internationally and in the U.S. at 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. Depending on the scope of such regulation, certain of our facilities and operations, or the operations of our suppliers, may be subject to additional operating and other permit requirements, potentially resulting in increased operating costs.

The environmental laws to which we are subject include those related to responsibility for potential soil and groundwater contamination. We are conducting investigation and remediation activities to address soil and groundwater conditions at several sites, including airports and maintenance bases. We anticipate that the ongoing costs of such activities will not have a material impact on our operations. In addition, we have been named as a potentially responsible party (PRP) at certain Superfund sites. Our alleged volumetric contributions at such sites are relatively small in comparison to total contributions of all PRPs; we anticipate that any future payments of costs at such sites will not have a material impact on our operations.

Future Regulatory Developments

Future regulatory developments and actions could affect operations and increase operating costs for the airline industry, including our airline subsidiaries. See Part I, Item 1A. Risk Factors –“If “If we are unable to obtain and maintain adequate facilities and infrastructure throughout our system and, at some airports, adequate Slots,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,” “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” and “We are subject to many forms of environmental regulation and may incur substantial costs as a result” for additional information.

Employees and Labor Relations

The airline business is labor intensive. In 2014,2015, salaries, wages and benefits were one of our largest expenses and represented approximately 25%31% of our operating expenses.

The table below presents our approximate number of active full-time equivalent employees as of December 31, 2014.2015.

 

   American   US Airways   Wholly-owned
Regional Carriers
   Total 

Pilots

   8,600     4,400     3,200     16,200  

Flight attendants

   15,900     7,700     1,800     25,400  

Maintenance personnel

   10,800     3,600     1,700     16,100  

Fleet service personnel

   8,600     6,200     2,500     17,300  

Passenger service personnel

   9,100     6,100     7,300     22,500  

Administrative and other

   8,600     4,800     2,400     15,800  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   61,600     32,800     18,900     113,300  
   Mainline
Operations
   Wholly-owned
Regional Carriers
   Total 

Pilots and Flight Crew Training Instructors

   13,100     3,200     16,300  

Flight Attendants

   24,100     1,900     26,000  

Maintenance personnel

   14,400     1,800     16,200  

Fleet Service personnel

   16,100     3,200     19,300  

Passenger Service personnel

   16,500     7,100     23,600  

Administrative and other

   14,700     2,400     17,100  
  

 

 

   

 

 

   

 

 

 

Total

   98,900     19,600     118,500  

As of December 31, 2014,2015, approximately 82% of AAG’s total active employees were represented by various labor unions and covered by CBAs. Employees of American, US Airways and AAG’s regional subsidiaries are covered by labor agreementsCBAs as set forthdetailed in the table below.

 

Union

  

Class or Craft

  Employees (1)   Contract
Amendable Date (2)
   

Class or Craft

  Employees (1)   Contract
Amendable Date (2)
 

New American:

      

Combined American:

      

Allied Pilots Association (APA)

  

Pilots

   12,700     12/31/2019    

Pilots

   12,800     12/31/2019  

Association of Professional Flight Attendants (APFA)

  

Flight Attendants

   23,600     12/13/2019    

Flight Attendants

   24,100     12/13/2019  

Airline Customer Service Employee Association – IBT and CWA

  

Passenger Service

   15,200     (3)  

Airline Customer Service Employee Association – Communications Workers of America and International Brotherhood of Teamsters (CWA-IBT)

  

Passenger Service

   16,500     12/1/2020  

American Mainline:

            

Transport Workers Union (TWU)

  

Mechanics and Related

   9,500     9/12/2018    

Mechanics and Related

   9,300     9/12/2018  

TWU

  

Fleet Service

   8,400     9/12/2018    

Fleet Service

   9,400     9/12/2018  

TWU

  

Stock Clerks

   1,100     9/12/2018    

Stock Clerks

   1,200     9/12/2018  

TWU

  

Simulator Technicians

   80     9/12/2018    

Simulator Technicians

   100     9/12/2018  

TWU

  

Dispatchers

   200     9/12/2018    

Dispatchers

   200     9/12/2018  

TWU

  

Flight Crew Training Instructors

   200     9/12/2018    

Flight Crew Training Instructors

   200     9/12/2018  

TWU

  

Maintenance Control Technicians

   100     9/12/2018    

Maintenance Control Technicians

   100     9/12/2018  

US Airways Mainline:

      

US Airways Mainline (3):

      

TWU

  

Flight Crew Training Instructors

   100     (3)    

Flight Crew Training Instructors

   100     11/11/2011(4) 

TWU

  

Flight Simulator Engineers

   60     (3)    

Flight Simulator Engineers

   100     11/11/2011(4) 

TWU

  

Dispatchers

   200     6/30/2015    

Dispatchers

   200     6/30/2015(4) 

International Association of Machinists & Aerospace Workers (IAM)

  Mechanics, Stock Clerks and Related   3,500     7/18/2018    Mechanics, Stock Clerks and Related   3,500     7/18/2018  

IAM

  

Maintenance Training Instructors

   30     7/18/2018    

Maintenance Training Instructors

   30     7/18/2018  

IAM

  

Fleet Service

   6,000     7/18/2018    

Fleet Service

   6,400     7/18/2018  

Envoy:

            

Air Line Pilots Associations (ALPA)

  

Pilots

   2,100     12/23/2024    

Pilots

   1,800     12/23/2024  

Association of Flight Attendants-CWA (AFA)

  

Flight Attendants

   1,200     7/1/2020    

Flight Attendants

   900     7/1/2020  

TWU

  

Ground School Instructors

   10     1/1/2019  

TWU

  

Ground School Instructors

   10     1/1/2019    

Mechanics and Related

   1,100     12/31/2020  

TWU

  

Mechanics and Related

   1,200     12/31/2020    

Stock Clerks

   100     12/31/2020  

TWU

  

Fleet Service Clerks

   2,400     1/1/2019    

Fleet Service Clerks

   3,100     1/1/2019  

TWU

  

Dispatchers

   100     1/1/2019    

Dispatchers

   100     1/1/2019  

Piedmont:

            

ALPA

  

Pilots

   300     9/19/2024    

Pilots

   400     9/19/2024  

AFA

  

Flight Attendants

   200     9/9/2019    

Flight Attendants

   200     9/9/2019  

International Brotherhood of Teamsters (IBT)

  

Mechanics

   300     8/23/2012    

Mechanics

   300     8/23/2012(4) 

IBT

  

Stock Clerks

   30     4/18/2014    

Stock Clerks

   30     4/18/2014(4) 

Communications Workers of America (CWA)

  

Fleet and Passenger Service

   2,500     2/5/2017    

Fleet and Passenger Service

   2,800     2/5/2017  

IBT

  

Dispatchers

   20     6/16/2014    

Dispatchers

   20     11/30/2019  

PSA:

            

ALPA

  

Pilots

   800     4/1/2023    

Pilots

   1,000     4/1/2023  

AFA

  

Flight Attendants

   400     4/30/2017    

Flight Attendants

   800     4/30/2017  

IAM

  

Mechanics

   200     4/24/2016    

Mechanics

   200     4/24/2016  

TWU

  

Dispatchers

   30     9/4/2014    

Dispatchers

   40     9/4/2014(4) 

 

(1)

Approximate number of active full-time equivalent employees covered by the contract as of December 31, 2014.2015.

(2)

See discussion below regarding the process for combining mainline employee groups post-Merger.

 

(3)

Although US Airways merged with and into American on December 30, 2015, certain employees of American continue to work under the terms of separate CBAs that were applicable to them as employees of US Airways.

(4)

Contracts are currently amendable.

Relations with such labor organizations are governed by the Railway Labor Act (RLA). Under the RLA, the National Mediation Board (NMB) is responsible for determining which union, if any, is designated to represent employees. In an airline merger, when different unions represent the employees at the merging carrier, a union may file an application with the NMB to represent the combined group of post-merger employees. The application is reviewed by the NMB, which considers whether the operations of the merging carriers have been sufficiently integrated to constitute a single transportation system. After the integration process is found to have created a single transportation system, the NMB then conducts an investigation to determine which union, if any, is to be the representative of the post-merger employees. That union then negotiates a joint collective bargaining agreement (JCBA) covering the combined group of post-merger employees.

When an RLA CBA becomes amendable, if either party to the agreement wishes to modify its terms, it must notify the other party in the manner prescribed under the RLA and as agreed by the parties. Under the RLA, the parties must meet for direct negotiations, and, if no agreement is reached, either party may request the NMB to appoint a federal mediator. The RLA prescribes no set timetable for the direct negotiation and mediation process. It is not unusual for those processes to last for many months and even for several years. If no agreement is reached in mediation, the NMB in its discretion may declare under the RLA at some time that an impasse exists, and if an impasse is declared, the NMB proffers binding arbitration to the parties. Either party may decline to submit to binding arbitration. If arbitration is rejected by either party, an initial 30-day “cooling off” period commences. Following the conclusion of that 30-day “cooling off” period, if no agreement has been reached, “self-help” (as described below) can begin unless a Presidential Emergency Board (PEB) is established. A PEB examines the parties’ positions and recommends a solution. The PEB process lasts for 30 days and (if no resolution is reached) is followed by another “cooling off” period of 30 days. At the end of a “cooling off” period (unless an agreement is reached, a PEB is established, or action is taken by Congress), the labor organization may exercise “self-help,” such as a strike, and the airline may resort to its own “self-help,” including the imposition of any or all of its proposed amendments and the hiring of new employees to replace any striking workers.

In 2014 and 2015, we reached agreements with several labor unions. On December 18, 2014, we reached a JCBA with the APFA. The new agreement did not require ratification and was effective immediately with the wage increases under the JCBA becoming effective January 1, 2015.

On January 3, 2015, we reached a tentative agreement with the APA on a five-year JCBA, which was ratified on January 30, 2015. The new, higher pay rates were implemented retroactive to December 2, 2014. We estimate that the ratified contract will increase our

In September 2015, cost of pilot compensation and benefits by approximately $650 million.

On December 18, 2014, we reached a JCBAan agreement with the APFA. On December 23, 2014, the APFACWA-IBT for a new JCBA pay rates were increased by 4% dueapplicable to a corporate wide initiative announced on that day. The new agreement did not require ratification and was effective immediately, with the wage increases under the JCBA becoming effective on January 1, 2015. We estimate that our total flight attendant costs in 2015 will be approximately $200 million higher as a result of this new agreement.

Prior to the Merger, the passenger service employees, of mainline US Airways were represented by the Airline Employees Customer Service Association, CWA-IBT (CWA-IBT). The CBA covering those employees is now amendable. The CWA-IBT filed a single carrier application with the NMB covering both the US Airwayswhich was ratified in November 2015 and the Americanprovided significant pay increases for combined passenger service employees, and, after an NMB election, was certified to represent the combined group. Negotiations for a JCBA are now underway.effective immediately.

Most of the other mainline American ground employees are represented by the TWU and covered by existing TWU agreements that will not become amendable until 2018. The 11,000approximate 10,000 US Airways mechanics, fleet service agents and stores employees are covered by IAM agreements that also become amendable in 2018. In August 2014, the TWU and the IAM together filed single transportation system applications to jointly represent the combined groups of mainline US Airways and mainline American mechanics, fleet service and stores employees. With

The NMB certified the TWU-IAM alliance as the representative of the American mechanics, fleet service and stores employees, and JCBA negotiations for those combined groups are now underway.

respect toThe TWU represented both the mainline American and the mainline US Airways dispatchers, flight simulator engineers and flight crew training instructors all of whom are now represented byprior to the merger, and the NMB has certified the TWU a rival organization,as the National Association of Airline Professionals (NAAP), filed single carrier applications seeking to represent those employees. The NMB will have to determine that a single transportation system exists and will certify a post-merger representative of the combinedeach of those employee groups before the process for negotiating new JCBAs can begin.post-merger.

The Merger had no impact on the CBAs that cover the employees of our wholly-owned subsidiary airlines which are not being merged (Envoy, Piedmont and PSA). For those employees, the RLA provides that CBAs do not expire, but instead become amendable as of a stated date.

In 2014, Envoy pilots ratified a new 10 year collective bargaining agreement, Piedmont pilots ratified a new 10 year collective bargaining agreement and Piedmont flight attendants ratified a new five-year collective bargaining agreement.

With the exception of the passenger service employees who are now engaged in traditional RLA negotiations that are expected to result in a JCBA and the US Airways flight simulator engineers and flight crew training instructors, otherCertain union-represented American mainline employees are covered by agreements that are not currently amendable. Until those agreements become amendable, negotiations for JCBAs will be conducted outside the traditional RLA bargaining process described above, and, in the meantime, no self-help will be permissible. The Piedmont mechanics and stock clerks and the PSA and Piedmont dispatchers also have agreements that are now amendable and are engaged in traditional RLA negotiations.

None of the unions representing our employees presently may lawfully engage in concerted refusals to work, such as strikes, slow-downs, sick-outs or other similar activity, against us. Nonetheless, there is a risk that disgruntled employees, either with or without union involvement, could engage in one or more concerted refusals to work that could individually or collectively harm the operation of our airline and impair our financial performance.

For more discussion, see Part I, Item 1A. Risk Factors –“Union “Union disputes, employee strikes and other labor-related disruptions may adversely affect our operations.”

Aircraft Fuel

Our operations and financial results are significantly affected by the availability and price of jet fuel. Based on our 20152016 forecasted mainline and regional fuel consumption, we estimate that, as of December 31, 2014,2015, a one cent per gallon increase in aviation fuel price would increase our 20152016 annual fuel expense by $43$44 million.

The following table shows annual aircraft fuel consumption and costs, including taxes, for our mainline operations for 2012 through2015 and 2014 (gallons and aircraft fuel expense in millions).

 

Year

  Gallons   Average Price
per Gallon
   Aircraft Fuel
Expense
   Percent of Total
Mainline Operating
Expenses
 

2014

   3,644    $2.91    $10,592     33.2

2013 (a)

   3,608     3.08     11,109     35.4  

2012 (a)

   3,512     3.19     11,194     35.8  

(a)

Represents “combined” financial data, which includes the financial results of American and US Airways Group each on a standalone basis.

Year

  Gallons   Average Price
per Gallon
   Aircraft  Fuel
Expense
   Percent of Total
Mainline Operating

Expenses
 

2015

   3,611    $1.72    $6,226     21.6

2014

   3,644     2.91     10,592     33.2

Total combined fuel expenses for our wholly-owned and third-party regional carriers operating under capacity purchase agreements of American and US Airways Group, each on a standalone basis, were $2.0 billion, $2.1$1.2 billion and $2.1$2.0 billion for the years ended December 31, 2015 and 2014, 2013 and 2012, respectively.

In order to provide a measure of control over price and supply, we trade and ship fuel and maintain fuel storage facilities to support our flight operations.

During the second quarter of 2014, we sold our portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. We have not entered into any transactions to hedge our fuel consumption since December 9, 2013 and, accordingly, asAs of December 31, 2014,2015, we did not have any fuel hedging contracts outstanding.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.

Fuel prices have fluctuated substantially over the past several years. We cannot predict the future availability, price volatility or cost of aircraft fuel. Natural disasters, political disruptions or wars involving oil-producing countries, changes in fuel-related governmental policy, the strength of the U.S. dollar against foreign currencies, 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, additional fuel price volatility and cost increases in the future. See Part I, Item 1A. Risk Factors –“Our “Our business is dependent on the price and availability of aircraft fuel. Continued periods of high volatility in fuel costs, increased fuel prices and significant disruptions in the supply of aircraft fuel could have a significant negative impact on our operating results and liquidity.”

Insurance

We maintain insurance of the types that we believe are customary in the airline industry, including insurance for public liability, passenger liability, property damage, and all-risk coverage for damage to our aircraft. Principal coverage includes liability for injury to members of the public, including passengers, damage to

property of AAG, its subsidiaries and others, and loss of or damage to flight equipment, whether on the ground or in flight. We also maintain other types of insurance such as workers’ compensation and employer’s liability, with limits and deductibles that we believe are standard within the industry.

In addition, insurers significantly increased the premiums for aviation insurance in general following September 11, 2001. While the price of commercial insurance has declined since the period immediately after the terrorist attacks of September 11, 2001, if commercial insurance carriers further reduce the amount of insurance coverage available to us or significantly increase its cost, we would be materially adversely affected. See Part I, Item 1A. Risk Factors –Increases “Increases in insurance costs or reductions in insurance coverage may adversely impact our operations and financial resultsresults.”.”

Customer Service

During 2014, we worked to enhance our customers’ experience by continuing our fleet renewal program, under which we expect to achieve one of the most modern and fuel-efficient fleets in the industry. During 2014, we took delivery of 82 mainline aircraft and retired 69 older legacy mainline aircraft. Additionally, in the fourth quarter of 2014, we announced $2.0 billion in planned customer improvements, including new seats from nose to tail on several aircraft types and fully lie-flat seats on our long-haul international fleet; satellite-based internet access providing connectivity for international flights; a refreshed and modern design for Admirals Club lounges worldwide; onboard power on new aircraft; and improved and updated kiosks to expedite airport check-in.

Most importantly, weWe are committed to consistently delivering safe, reliable and convenient service to our customers in every aspect of our operation. Our 2014The table below summarizes the operating performance was negatively impacted in part by severe weather conditions at our hubs as well as the September 2014 fire at the FAA’s Chicago Air Route Traffic Control Center, which caused significant flight delays and cancellations. Westatistics we reported the following combined operating statistics to the DOT for our mainline operations for the years ended December 31, 20142015 and 2013:2014. We are working to improve these metrics by making investments in our operations, which include the hiring of additional maintenance personnel to reduce the time aircraft are out of service. We are also making capital investments in new baggage handling technology.

 

  December 31,   Better
(Worse)
   December 31,   Better (Worse) 
  2014   2013 (a)     2015   2014   

On-time performance (b)(a)

   77.9     79.3     (1.4)pts    80.1     77.9     2.2pts 

Completion factor (c)(b)

   98.4     98.5     (0.1)pts    98.4     98.4     pts 

Mishandled baggage (d)(c)

   3.85     2.80     (37.5)%    3.97     3.77     (5.3)% 

Customer complaints (e)(d)

   2.12     1.76     (20.5)%    3.22     2.12     (51.9)% 

 

(a)

Represents the combined historical operating statistics for American and US Airways.

(b)

Percentage of reported flight operations arriving on time as defined byless than 15 minutes after the DOT.scheduled arrival time.

 

(c)(b)

Percentage of scheduled flight operations completed.

 

(d)(c)

Rate of mishandled baggage reports per 1,000 passengers.

 

(e)(d)

Rate of customer complaints filed with the DOT per 100,000 enplanements.

Frequent Flyer ProgramsLoyalty Program

American and US Airways currently run two frequent flyer programs,Our loyalty program, AAdvantage® and Dividend Miles, respectively, which werewas established to develop passenger loyalty by offering awards to travelers for their continued patronage. We believe that these programs are one of our competitive strengths. The AAdvantage and Dividend Miles programs benefit from a growing base of members with desirable demographics who have demonstrated a strong willingness to collect AAdvantage and Dividend Miles over other loyalty program incentives and are generally disposed to adjusting their purchasing behavior in order to earn additional miles. AAdvantage and Dividend Miles members earn mileage credits by flying on American, US Airways, the American Eagle and US Airways Express carriers, the third-party regional carriers and other participating airlines or by using services of other participants in these programs. Mileage credits can be redeemed for free or upgraded travel on American, US Airways, the American Eagle carriers or other participating airlines, or for other awards. Once a member accrues sufficient mileage for an award, the member may book award travel. Most travel awards are subject to capacity-controlled seating. A member’s mileage credit does not expire as long as that member has any type of qualifying activity at least once every 18 months.

American andIn 2015, we completed the integration of the US Airways sellDividend Miles program into American’s AAdvantage program. Also, to ensure we are rewarding our most loyal customers, we announced a program change to occur in the second half of 2016, whereby customers will earn award miles based on dollars spent rather than distance flown.

American sells mileage credits and related services to other participantspartners in the AAdvantage program primarily with the purpose of awarding qualifying members based on their usage of our co-branded credit cards or the usage of other services, hotels and Dividend Miles programs.rental cars provided by partners. There are over 1,000 program participants,partners, including leading credit card issuers (Citibank and BarclaycardUS), hotels, car rental companies and other

products and services companies. We believe that program participantspartners benefit from the sustained purchasing behavior of their members, which translates into incremental and recurring streams of revenues for us. Under our agreements with AAdvantage members and program participants,partners, we reserve the right to change the AAdvantage program at any time without notice, and may end the program with six months’ notice. We also reserve the right to terminate the Dividend Miles program or portions of the program at any time. Program rules, partners, special offers, awards and requisite mileage levels for awards are subject to change. As of December 31, 2014,2015, AAdvantage and Dividend Miles had approximately 809.0853.6 billion outstanding award miles. During 2014,2015, AAdvantage and Dividend Miles issued approximately 287.1315 billion miles, of which approximately 61%58% were sold to program participants. partners.

We and other participating airline partners limit the number of seats per flight that are available for redemption by award recipients by using various inventory management techniques. We charge various fees for issuing awards dependent upon destination and booking method and for issuing awards within 21 days of the travel date.

All travel on eligible tickets will count toward qualification for elite status in the AAdvantage program. Elite members can enjoy additional benefits of the AAdvantage program, including First and Business Class check-in, priority security and priority boarding, complimentary access to Preferred Seats, priority baggage delivery, and checked bags at no charge.

See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – “Critical Accounting Policies and Estimates” for more information on AAdvantage and Dividend Miles.AAdvantage.

We and other participating airline partners limit the number of seats per flight that are available for redemption by award recipients by using various inventory management techniques. We charge various fees for issuing awards dependent upon destination and booking method and for issuing awards within 21 days of the travel date.

Effective January 7, 2014, AAdvantage and Dividend Miles members can earn and redeem miles when traveling across either airline’s network. All travel on eligible tickets on both airlines will count toward qualification for elite status in the customer’s program of choice. Elite members of each airline can enjoy select reciprocal benefits of both the AAdvantage and Dividend Miles programs, including First and Business Class check-in, priority security and priority boarding, complimentary access to Preferred Seats, priority baggage delivery, and checked bags at no charge, consistent with the current baggage policies for each carrier.

We plan to complete integration of the Dividend Miles program into American’s AAdvantage program in the second quarter of 2015, creating one of the largest airline loyalty programs in the world.

Ticket Distribution

Passengers can bookpurchase tickets for travel on American or US Airways through several distribution channels including their direct websites (www.aa.com andwww.usairways.com), our reservations centers and third-party distribution channels, including those provided by or through global distribution systems (e.g., Amadeus, Sabre and Travelport), conventional travel agents and online travel agents (e.g., Expedia, Orbitz and Travelocity). To remain competitive, we will need to successfully manage our distribution costs and rights, increase our distribution flexibility and improve the functionality of third-party distribution channels, while maintaining an industry-competitive cost structure. For more discussion, see Part I, Item 1A. Risk Factors –We “We rely on third-party distribution channels and must manage effectively the costs, rights and functionality of these channelschannels.”.”

Seasonality and Other Factors

Due to the greater demand for air and leisure travel during the summer months, revenues in the airline industry in the second and third quarters of the year tend to be greater than revenues in the first and fourth quarters of the year. General economic conditions, fears of terrorism or war, fare initiatives, fluctuations in fuel prices, labor actions, weather, natural disasters, outbreaks of disease, and other factors could impact this seasonal pattern. Accordingly, theTherefore, our quarterly results of operations are not necessarily indicative of operating results for any interimthe entire year, and historical operating results in a quarterly or annual period are not necessarily indicative of those for the entire year.future operating results.

Unaudited quarterly financial data for the two-year period ended December 31, 20142015 is included in Note 20 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 1718 to American’s Consolidated Financial Statements in Part II, Item 8B.

Available Information

The SEC allows AAG and American to incorporate information by reference into this Form 10-K. This means that AAG and American can disclose important information to you by referring you to another document filed separately with the SEC. Any information incorporated by reference into this Form 10-K is considered to be a part of this Form 10-K, except for any information that is superseded by information that is included directly in this Form 10-K or incorporated by reference subsequent to the date of this Form 10-K. AAG and American do not incorporate the contents of their website into this Form 10-K.

A copy of this Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), are available free of charge atwww.aa.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC and at the website maintained by the SEC atwww.sec.gov.

AAG has made and expects to make public disclosures of certain information regarding AAG and its subsidiaries to investors and the general public by means of the investor relations section of our website (www.aa.com) as well as through the use of social media sites, including, but not limited to, Facebook and Twitter and a website maintained by us to provide information regarding AAG’s reorganization

pursuant to the Plan. Investors are encouraged to (i) join American’s circle (@AmericanAir) on Twitter, (ii) “like” American (www.facebook.com/AmericanAirlines) on its Facebook page, (iii) follow American (www.google.com/+americanairlines) on Google+; (iv) follow American (www.instagram.com/americanair) on Instagram; (v) follow American (www.linkedin.com/company/american-airlines) on LinkedIn; (vi) subscribe to American (www.youtube.com/user/americanairlines) on YouTube; (vii) follow American (username AmericanAir) on Snapchat; and (vii)(viii) visitwww.amrcaseinfo.com for updated information regarding the Plan. Neither AAG nor American incorporates the contents of its social media posts or websites into this Annual Report on Form 10-K.

GLOSSARY OF TERMS

“2011 Plan” means the US Airways Group 2011 Incentive Award Plan.

“2013 Citicorp Credit Facility” means the $1.6 billion term loan facility provided for by the loan agreement, as amended, entered into May 23, 2013 among US Airways, certain affiliates of US Airways and certain lenders.

“2013 Credit Agreement” means the Credit and Guaranty Agreement entered into on June 27, 2013 among American, AAG and certain lenders, as amended.

“2013 Credit Facilities” means the 2013 Revolving Facility and 2013 Term Loan Facility provided for by the 2013 Credit Agreement.

“2013 Plan” means AAG 2013 Incentive Award Plan.

“2013 Revolving Facility” means the $1.4 billion revolving credit facility provided for by the 2013 Credit Agreement.

“2013 Term Loan Facility” means the $1.9 billion term loan facility provided for under the 2013 Credit Agreement.

“2014 Credit Agreement” means the Credit and Guaranty Agreement entered into on October 10, 2014 among AAG, American, US Airways Group, US Airways and certain lenders.

“2014 Credit Facilities” means the 2014 Revolving Facility and the 2014 Term Loan Facility provided for by the 2014 Credit Agreement.

“2014 EETC Aircraft” means the 17 aircraft owned by American for which certain financing activities, including the issuance of $957 million aggregate face amount of Series 2014-1 Class A and Class B EETCs, were undertaken in September 2014.

“2014 Revolving Facility” means the $400 million revolving credit facility provided for by the 2014 Credit Agreement.

“2014 Term Loan Facility” means the $750 million term loan facility provided for by the 2014 Credit Agreement.

“5.50% senior notes” means the 5.50% Senior Notes due 2019.

“6.125% senior notes” means the 6.125% Senior Notes due 2018.

“AAdvantage” means the AAdvantage® frequent flyer program.

“AAdvantage Loan” means the arrangement made in 2009 under which Citibank loaned American $1.0 billion that could be repaid either in AAdvantage miles under American’s AAdvantage program or in cash.

“AAG” means American Airlines Group Inc. (formerly named AMR Corporation).

“AAG Common Stock” means AAG’s common stock, par value $0.01 per share.

“AAG Series A Preferred Stock” means AAG’s Series A Convertible Preferred Stock, with a stated value $25.00 per share, and issued in accordance with the Plan.

“ABA” means American Beacon Advisors, Inc.

“ABO” means accumulated benefit obligation.

“AFA” means Association of Flight Attendants-CWA.

“Air Wisconsin” means Air Wisconsin Airlines Corporation.

“ALPA” means Air Line Pilots Association.

“American” means American Airlines, Inc.

“American Eagle” means American Eagle Airlines, Inc.

“AMR” means AMR Corporation and is used to reference AAG prior to December 9, 2013.

“AMT” means alternative minimum tax.

“ANCA” means Airport Noise and Capacity Act of 1990.

“APA” means Allied Pilots Association.

“APBO” means accumulated postretirement benefit obligation.

“APFA” means Association of Professional Flight Attendants.

“ASC” means the FASB Accounting Standards Codification.

“ASIF” means Aviation Security Infrastructure Fee.

“ASM” means available seat mile and is a basic measure of production. One ASM represents one seat flown one mile.

“ASU” means Accounting Standards Update.

“ATC” means air traffic control.

“Average stage length” means the average of the distances flown on each segment of every route.

“Aviation Act” means subtitle VII of Title 49 of the United States Code, as amended.

“Aviation Security Act” means the Aviation and Transportation Security Act enacted in November 2001.

“Bankruptcy Code” means Chapter 11 of the United States Bankruptcy Code.

“Bankruptcy Court” means the United States Bankruptcy Court for the Southern District of New York.

“Block hours” means the hours measured from the moment an aircraft first moves under its own power, including taxi time, for the purposes of flight until the aircraft is docked at the next point of landing and its power is shut down.

“Bylaws” means AAG’s Amended and Restated Bylaws.

“CAA” means the Clean Air Act.

“CASM” means operating cost per available seat mile and is equal to operating expenses divided by ASMs.

“CBAs” means collective bargaining agreements.

“CERCLA” or the “Superfund Act” means Comprehensive Environmental Response, Compensation and Liability Act.

“Certificate of Incorporation” means AAG’s Restated Certificate of Incorporation.

“Chapter 11 Cases” means the voluntary petitions for relief filed on November 29, 2011 by the Debtors.

“Chautauqua” means Chautauqua Airlines, Inc.

“Code” means the Internal Revenue Code of 1986, as amended.

“Company” means AAG and its consolidated subsidiaries.

“Confirmation Order” means the confirmation order entered by the Bankruptcy Court October 21, 2013 in connection with the Chapter 11 Cases.

“COSO” means the Committee of Sponsoring Organizations of the Treadway Commission.

“CRAF” means U.S. Civil Reserve Air Fleet.

“CRSUs” means cash-settled restricted stock unit awards.

“CSARs” means cash-settled stock appreciation rights.

“CWA” means Communications Workers of America.

“CWA-IBT” means the Airline Employees Customer Service Association, CWA-IBT.

“DAL” means Dallas Love Field Airport.

“DCA” means Ronald Reagan Washington National Airport.

“Debtor” means AMR Corporation.

“Debtors” means American, and certain of AMR’s other direct and indirect domestic subsidiaries.

“DFW” means Dallas/Fort Worth International Airport.

“Disputed Claims Reserve” means shares of AAG Common Stock held in reserve for payment to holders of disputed claims at the Effective Date.

“Dividend Miles” means the Dividend Miles® frequent flyer program.

“DOJ” means the U.S. Department of Justice.

“Double-Dip Unsecured Claims” means claims of all creditors holding general unsecured claims against American that are guaranteed by AAG and general unsecured claims against AAG that are guaranteed by American.

“DOT” means the U.S. Department of Transportation.

“EEA” means European Economic Area.

“EETC” means enhanced equipment trust certificate.

“Effective Date” means December 9, 2013.

“Envoy” means Envoy Aviation Group Inc., formerly known as AMR Eagle Holding Corporation.

“EPA” means the U.S. Environmental Protection Agency.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“Ethics Standards” means AAG’s and American’s Standards of Business Conduct.

“ETS” means EU emissions trading scheme.

“EU” means European Union.

“Exchange Act” means Securities Exchange Act of 1934, as amended.

“ExpressJet” means ExpressJet, Inc.

“FAA” means Federal Aviation Administration.

“FASB” means the Financial Accounting Standards Board.

“GAAP” means Generally Accepted Accounting Principles in the U.S.

“GDS” means global distribution systems.

“GHG” means greenhouse gas.

“IAM” means International Association of Machinists & Aerospace Workers.

“IASB” means the International Accounting Standards Board.

“IBT” means International Brotherhood of Teamsters.

“ICAO” means International Civil Aviation Organization.

“IFRS” means the International Financial Reporting Standards.

“Internal Revenue Code” means the Internal Revenue Code of 1986, as amended.

“JBAs” means joint business agreements.

“JCBA” means joint collective bargaining agreement.

“JFK” means John F. Kennedy International Airport.

“LIBOR” means the London interbank offered rate for deposits of U.S. dollars.

“London Heathrow” means London Heathrow Airport.

“Mainline” means the operations of American and US Airways, as applicable, and excludes regional operations.

“Merger” means the merger of Merger Sub with and into US Airways Group in accordance with the Merger Agreement.

“Merger Agreement” means Agreement and Plan of Merger dated as of February 13, 2013, as amended.

“Merger Sub” means AMR Merger Sub, Inc.

“Mesa” means Mesa Airlines, Inc.

“NAAP” means the National Association of Airline Professionals.

“NASDAQ” means NASDAQ Global Select Market.

“NMB” means National Mediation Board.

“NOL” means net operating loss.

“NOL Carryforwards” means a deduction in any taxable year for net operating losses carried over from prior taxable years.

“OCI” means other comprehensive income.

“OPEB” means post-employee benefits (other than pension).

“ORD” means Chicago O’Hare International Airport.

“OTA” means online travel agent.

“Passenger enplanements” means the number of passengers on board an aircraft, including local, connecting and through passengers.

“Passenger load factor” means the percentage of available seats that are filled with revenue passengers.

“PBO” means projected benefit obligation.

“PEB” means Presidential Emergency Board.

“Petition Date” means November 29, 2011, and is the date on which the Debtors filed voluntary petitions for relief in the Chapter 11 Cases.

“PFC” means passenger facility charge.

“Piedmont” means Piedmont Airlines, Inc.

“Plan” means the Debtors’ fourth amended joint plan of reorganization.

“PRASM” means passenger revenue per available seat mile and is equal to passenger revenues divided by ASMs.

“Proxy Statement” means American Airlines Group Inc.’s Proxy Statement for the 2015 Annual Meeting of Stockholders of American Airlines Group Inc.

“PRP” means potentially responsible party.

“PSA” means PSA Airlines, Inc.

“RASM” means the total revenue per available seat mile and is equal to the total revenues divided by total mainline and third-party regional carrier ASMs.

“Republic” means Republic Airline, Inc.

“RLA” means Railway Labor Act.

“RPM” means revenue passenger mile and is a basic measure of sales volume. One RPM represents one passenger flown one mile.

“RSUs” means restricted stock units.

“S&P” means Standard and Poor’s Financial Services, LLC.

“Sabre” means Sabre Holdings Corporation, Sabre Inc. and Sabre Travel International Limited.

“SARs” means stock-settled stock appreciation rights.

“SEC” means Securities and Exchange Commission.

“Second Circuit” means the United States Court of Appeals for the Second Circuit.

“Section 382” means Section 382 of the Internal Revenue Code.

“Securities Act” means Securities Act of 1933, as amended.

“Senior Secured Notes” means 7.50% Senior Secured Notes due 2016.

“Single-Dip Equity Obligations” means obligations owed to holders of Single-Dip Unsecured Claims.

“SkyWest” means SkyWest Airlines, Inc.

“Slots” means landing and take-off rights and authorizations and other facilities.

“Stabilization Act” means Air Transportation Safety and System Stabilization Act.

“Standards of Business Conduct” means AAG’s code of ethics.

“Tranche B-1” means $1.0 billion of tranche B-1 term loans that are part of the 2013 Citicorp Credit Facility.

“Tranche B-2” means $600 million of tranche B-2 term loans that are part of the 2013 Citicorp Credit Facility.

“TSA” means Transportation Security Administration.

“TWU” means Transport Workers Union.

“US Airways” means US Airways, Inc.

“US Airways Express” means the trade name under which AAG offers certain regional flights under arrangements with certain of its subsidiaries and other third-party regional carriers.

“US Airways Group” means US Airways Group, Inc. and its consolidated subsidiaries.

“US Airways Group Code” means US Airways Group Code of Business Conduct and Ethics.

“US Airways Group Common Stock” means US Airways Group common stock, par value $0.01 per share.

“Wright Amendment Reform Act” means Wright Amendment Reform Act of 2006.

“WSG” means International Air Transport Association’s Worldwide Scheduling Guidelines.

“Yield” means a measure of airline revenue derived by dividing passenger revenue by RPMs.

ITEM 1A.  RISK FACTORS

Below are certain risk factors that may affect our business, results of operations and financial condition, or the trading price of our common stock or other securities. We caution the reader that these risk factors may not be exhaustive. We operate in a continually changing business environment, and new risks and uncertainties emerge from time to time. Management cannot predict such new risks and uncertainties, nor can it assess the extent to which any of the risk factors below or any such new risks and uncertainties, or any combination thereof, may impact our business.

Risk FactorsRisks Relating to the Company and Industry-Related Risks

We could experience significant operating losses in the future.

For a number of reasons, including those addressed in these risk factors, we might fail to maintain profitability and might experience significant losses. In particular, the condition of the economy, the level and volatility of fuel prices, the state of travel demand and intense competition in the airline industry have had, and will continue to have an impact on our operating results, and may increase the risk that we will experience losses.

Downturns in economic conditions adversely affect our business.

Due to the discretionary nature of business and leisure travel spending, airline industry 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 and changes in booking practices, both of which in turn have had, and may have in the future, a strong negative effect on our revenues. In addition, during challenging economic times, actions by our competitors to increase their revenues can have an adverse impact on our revenues. SeeThe airline industry is intensely competitive and dynamic” below. Certain labor agreements to which we are a party limit our ability to reduce the number of aircraft in operation, and the utilization of such aircraft, below certain levels. As a result, we may not be able to optimize the number of aircraft in operation in response to a decrease in passenger demand for air travel.

Our business is dependent on the price and availability of aircraft fuel. Continued periods of high volatility in fuel costs, increased fuel prices and significant disruptions in the supply of aircraft fuel could have a significant negative impact on 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. Jet fuel market prices have fluctuated substantially over the past several years and prices continuedcontinue to be volatile in 2014.highly volatile.

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 adverse aggregate effect on our operating results and liquidity. Due to the competitive nature of the airline industry and unpredictability of the market, we can offer no assurance that we may be able to increase our fares, impose fuel surcharges or otherwise increase revenues sufficiently to offset fuel price increases. Similarly, we cannot predict the effect or the actions of our competitors if the current low fuel prices remain in place for a significant period of time.

Although we are currently able to obtain adequate supplies of aircraft fuel, we cannot predict the future availability, price volatility or cost of aircraft fuel. Natural disasters, political disruptions or wars involving oil-producing countries, changes in fuel-related governmental policy, the strength of the U.S. dollar against foreign currencies, 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, additional fuel price volatility and cost increases in the future.

We have a large number of older aircraft in our fleet, and these aircraft are not as fuel efficient as more recent models of aircraft, including those we have on order. We intend to continue to execute our fleet renewal plans to,

among other things, improve the fuel efficiency of our fleet, and we are dependent on a limited number of major aircraft manufacturers to deliver aircraft on schedule. If we experience delays in delivery of the more fuel efficient aircraft that we have on order, we will be adversely affected.

Our aviation fuel purchase contracts generally do not provide meaningful price protection against increases in fuel costs. Prior to the closing of the Merger, we sought to manage the risk of fuel price increases by using derivative contracts. During the second quarter of 2014, we sold our portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. We have not entered into any transactions to hedge our fuel consumption since December 9, 2013 and, accordingly, asAs of December 31, 2014,2015, we did not have any fuel hedging contracts outstanding. 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.

There If in the future we enter into derivative contracts to hedge our fuel consumption, there can be no assurance that, at any given time, we will have derivatives in place to provide any particular level of protection against increased fuel costs or that our counterparties will be able to perform under our derivative contracts. To the extent we use derivative contracts that have the potential to create an obligation to pay upon settlement if prices decline significantly, such derivative contracts may limit our ability to benefit from lower fuel costs in the future. Also, a rapid decline in the projected price of fuel at a time when we have fuel hedging contracts in place could adversely impact our short-term liquidity, because hedge counterparties could require that we post collateral in the form of cash or letters of credit. See also the discussion in Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk –AAG “AAG’s Market Risk Sensitive Instruments and Positions – Aircraft Fuel” andAmerican AirlinesAmerican’s Market Risk Sensitive Instruments and Positions – Aircraft Fuel.”

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. In many of our markets we compete with at least one low-cost air carrier. Our revenues are sensitive to the actions of other carriers in many areas including pricing, scheduling, capacity 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, as airlines under financial stress, or in bankruptcy, may institute pricing structures intended to achieve near-term survival rather than 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.airlines, and represent significant competitors, particularly for customers who fly infrequently and are price sensitive and tend not to be loyal to any one particular carrier. Some low-cost carriers, which have cost structures lower than ours, have better recent financial performance and have announced growth strategies including commitments to acquire significant numbers of aircraft for delivery in the next few years. These low-cost carriers are expected to continue to increase their market share through growth and, potentially, consolidation, and could continue to have an impact on our revenues and overall performance. For example, as a result of divestitures completed in connection with gaining regulatory approval for the Merger, low-fare, low-cost carriers have gained additional access in a number of markets, including DCA, a Slot-controlledslot-controlled airport. In addition, the Wright Amendment Reform Act reduced, and has now eliminated all, domestic non-stop geographic restrictions on operations by Southwest Airlines and other carriers at DAL. The two gates at DAL that we divested as part of our settlement of antitrust litigation related to the Merger have been allocated to Virgin America, a low-cost carrier. The changed operating rules at DAL and that divestiture have increased low-cost carrier competition for our hub at DFW. The actions of the low-cost carriers, including those described above, could have a material adverse effect on our operations and financial performance.

Our presence in international markets is not as extensive as that of some of our competitors. We derived approximately 33%30% of our operating revenues in 20142015 from operations outside of the U.S., as measured and

reported to the DOT. In providing international air transportation, we compete with U.S. airlines to provide scheduled passenger and cargo service between the U.S. and various overseas locations with U.S. airlines, foreign investor-owned airlines, and foreign state-owned or state-affiliated airlines, including carriers based in the Middle East, the three largest of which we believe benefit from significant government subsidies. Our international service exposes us to foreign economies and the potential for reduced demand, such as we have recently experienced in Brazil and Venezuela, when any foreign countries we serve suffer adverse local economic conditions. In addition, open skies agreements with an increasing number of countries around the world provide international airlines with open access to U.S. markets. During 2014, international capacity grew more quickly than domestic service creating a very competitive operating environment. SeeOur 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 disadvantagesdisadvantages.”” below.

Certain airline alliances 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.

We are party to antitrust-immunized cooperation agreements with British Airways, Iberia, Finnair, Royal Jordanian, Japan Airlines, LAN Airlines and LAN Peru. We have implemented aalso established joint business agreement (JBA)agreements (JBAs) with British Airways, Iberia, and Finnair, and antitrust-immunized cooperation with British Airways, Iberia, Finnair and Royal Jordanian.separately Japan Airlines. In addition, we have implemented an antitrust-immunized JBA with Japan Airlines andapplied for regulatory approval to enter into a JBA with Qantas Airways.Airways and have or will be applying for regulatory approval of a JBA with LATAM Airlines Group air carriers in the relevant jurisdictions affected by that JBA. No assurances can be given as to any benefits that we may derive from such arrangements or any other arrangements that may ultimately be implemented.

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 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 result in lower overall market share and revenues for us. Such consolidation is not limited to the U.S., but could include further consolidation among international carriers in Europe and elsewhere.

We may be unable to integrate operations successfully and realize the anticipated synergies and other benefits of the Merger.

The Merger involvesinvolved the combination of two companies that operated as independent public companies prior to the Merger, and each of which operated its own international network airline. Historically, the integration of separate airlines has often proven to be more time consuming and to require more resources than initially estimated. WeAlthough we received a single operating certificate from the FAA for American and US Airways on April 8, 2015, implemented a single integrated reservation system on October 17, 2015 and merged American and US Airways on December 30, 2015, we must continue to devote significant management attention and resources to integrating our business practices, cultures and operations. Potential difficulties we may encounter as part of the integration process include the following:

 

the inability to successfully combine our businesses in a manner that permits us to achieve the synergies and other benefits anticipated to result from the Merger;

 

the challenge of integrating complex systems, operating procedures, regulatory compliance programs, technology, aircraft fleets, networks, and other assets (including, for example, our flight operations systems and technology which supports human resources functions) in a manner that minimizes any adverse impact on customers, suppliers, employees, and other constituencies;

the effects of divestitures and other operational commitments entered into in connection with the settlement of the litigation brought by the Department of Justice (DOJ) and certain states prior to the closing of the Merger, including those involving DAL and DCA;

 

the challenge of forming and maintaining an effective and cohesive management team;

the diversion of the attention of our management and other key employees;

 

the challenge of integrating workforces while maintaining focus on providing consistent, high quality customer service and running an efficient operation;

 

the risks relating to integrating various computer, communications and other technology systems including designing and implementing an integrated customer reservations system, that will be necessary to operate American and US Airways as a single airline and to achieve cost synergies by eliminating redundancies in the businesses;

 

the disruption of, or the loss of momentum in, our ongoing business;

 

branding or rebranding initiatives may involve substantial costs and may not be favorably received by customers; and

 

potential unknown liabilities, liabilities that are significantly larger than we currently anticipate and unforeseen increased expenses or delays associated with the Merger, including costs in excess of the cash transition costs that we currently anticipate.

We have submitted to the FAA a transition plan for merging the day-to-day operations of American and US Airways under a single operating certificate. The issuance of a single operating certificate will occur when the FAA agrees that we have achieved a level of integration that can be safely managed under one certificate. While we currently believe that such approval can be obtained in 2015, the actual time required and cost incurred to receive this approval cannot be predicted. Any delay in the grant of such approval or increase in costs beyond those presently expected could have a material adverse effect on the completion date of our integration plan and receipt of the benefits expected from that plan.

See “We face challenges in integrating our computer, communications and other technology systems”below.

Accordingly, we may not be able to realize the contemplated benefits of the Merger fully, or at all, or it may take longer and cost more than expected to realize such benefits than expected.benefits.

Our indebtedness and other obligations are substantial and could adversely affect our business and liquidity.

We have significant amounts of indebtedness and other obligations, including pension obligations, obligations to make future payments on flight equipment and property leases, and substantial non-cancelable obligations under aircraft and related spare engine purchase agreements. Moreover, currently a substantial portion of our assets are pledged to secure our indebtedness. Our substantial indebtedness and other obligations could have important consequences. For example, they:

may make it more difficult for us to satisfy our obligations under our indebtedness;

may limit our ability to obtain additional funding for working capital, capital expenditures, acquisitions, investments, integration costs, and general corporate purposes, and adversely affect the terms on which such funding can be obtained;

require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness and other obligations, thereby reducing the funds available for other purposes;

make us more vulnerable to economic downturns, industry conditions and catastrophic external events;

limit our ability to respond to business opportunities and to withstand operating risks that are customary in the industry; and

contain restrictive covenants that could:

limit our ability to merge, consolidate, sell assets, incur additional indebtedness, issue preferred stock, make investments and pay dividends;

significantly constrain our ability to respond, or respond quickly, to unexpected disruptions in our own operations, the U.S. or global economies, or the businesses in which we operate, or to take advantage of opportunities that would improve our business, operations, or competitive position versus other airlines;

limit our ability to withstand competitive pressures and reduce our flexibility in responding to changing business and economic conditions; and

result in an event of default under our indebtedness.

We will need to obtain sufficient financing or other capital to operate successfully.

Our business plan contemplates significant investments in modernizing our fleet and integrating the American and US Airways businesses. Significant capital resources will be required to execute this plan. We estimate that, based on our commitments as of December 31, 2014, our planned aggregate expenditures for aircraft purchase commitments and certain engines on a consolidated basis for calendar years 2015-2019 would be approximately $22.6 billion, of which $19.5 billion represents commitments by American. We also currently anticipate cash transition costs to integrate our businesses following the Merger to be approximately $1.2 billion, although these costs could exceed our expectations. Accordingly, we will need substantial financing or other capital resources. In addition, as of the date of this report, we had not secured financing commitments for some of the aircraft that we have on order, and we cannot be assured of the availability or cost of that financing. In particular, as of December 31, 2014, we did not have financing commitments for the following aircraft currently on order and scheduled to be delivered through 2017: 83 Airbus A320 family aircraft, 10 Airbus A320neo aircraft, six Airbus A350 XWB aircraft, 13 Boeing 737 family aircraft, three 737 MAX aircraft, four Boeing 777-300 ER aircraft, and 35 Boeing 787 family aircraft. In addition, we did not have financing commitments in place for aircraft currently on order and scheduled to be delivered in 2018 and beyond. The number of aircraft for which we do not have financing may change as we exercise purchase options or otherwise change our purchase and delivery schedules. If we are unable to arrange financing for such aircraft at customary advance rates and on terms and conditions acceptable to us, we may need to use cash from operations or cash on hand to purchase such aircraft or may seek to negotiate deferrals for such aircraft with the aircraft manufacturers. Depending on numerous factors, many of which are out of our control, such as the state of the domestic and global economies, the capital and credit markets’ view of our prospects and the airline industry in general, and the general availability of debt and equity capital at the time we seek capital, the financing or other capital resources that we will need may not be available to us, or may only be available on onerous terms and conditions. There can be no assurance that we will be successful in obtaining financing or other needed sources of capital to operate successfully. An inability to obtain necessary financing on acceptable terms would have a material adverse impact on our business, results of operations and financial condition.

Increased costs of financing, a reduction in the availability of financing and fluctuations in interest rates could adversely affect our liquidity, results of operations and financial condition.

Concerns about the systemic impact of inflation, the availability and cost of credit, energy costs and geopolitical issues, combined with continued changes in business activity levels and consumer confidence, increased unemployment and volatile oil prices, have in the past and may in the future contribute to volatility in the capital and credit markets. These market conditions could result in illiquid credit markets and wider credit spreads. Any such changes in the domestic and global financial markets may increase our costs of financing and adversely affect our ability to obtain financing needed for the acquisition of aircraft that we have contractual commitments to purchase and for other types of financings we may seek in order to refinance debt maturities, raise capital or fund other types of obligations. Any downgrades to our credit rating may likewise increase the cost and reduce the availability of financing.

Further, a substantial portion of our indebtedness bears interest at fluctuating interest rates, primarily based on the London interbank offered rate for deposits of U.S. dollars (LIBOR). LIBOR tends to fluctuate based on

general economic conditions, general interest rates, rates set by the Federal Reserve and other central banks, and the supply of and demand for credit in the London interbank market. We have not hedged our interest rate exposure with respect to our 2013 Credit Facilities, the 2013 Citicorp Credit Facility, the 2014 Credit Facility and other of our floating rate debt, and accordingly, our interest expense for any particular period may fluctuate based on LIBOR and other variable interest rates. To the extent these interest rates increase, our interest expense will increase, in which event we may have difficulties making interest payments and funding our other fixed costs, and our available cash flow for general corporate requirements may be adversely affected. See also the discussion of interest rate risk in Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk – “AAG Market Risk Sensitive Instruments and Positions – Interest”and “American Airlines Market Risk Sensitive Instruments and Positions – Interest.”

Our high level of fixed obligations may limit our ability to fund general corporate requirements and obtain additional financing, may limit our flexibility in responding to competitive developments and causes our business to be vulnerable to adverse economic and industry conditions.

We have a significant amount of fixed obligations, including debt, pension costs, aircraft leases and financings, aircraft purchase commitments, leases and developments of airport and other facilities and other cash obligations. We also have certain guaranteed costs associated with our regional operations.

As a result of the substantial fixed costs associated with these obligations:

a decrease in revenues results in a disproportionately greater percentage decrease in earnings;

we may not have sufficient liquidity to fund all of these fixed obligations if our revenues decline or costs increase; and

we may have to use our working capital to fund these fixed obligations instead of funding general corporate requirements, including capital expenditures.

These obligations also impact our ability to obtain additional financing, if needed, and our flexibility in the conduct of our business, and could materially adversely affect our liquidity, results of operations and financial condition.

We have significant pension and other post-employment benefit funding obligations, which may adversely affect our liquidity, results of operations and financial condition.

Our pension funding obligations are significant. The amount of these obligations will depend on the performance of investments held in trust by the pension plans, interest rates for determining liabilities and actuarial experience. Currently, our minimum funding obligation for our pension plans is subject to temporary favorable rules that are scheduled to expire at the end of 2017. Upon the expiration of those rules, our funding obligations are likely to increase materially. In addition, we may have significant obligations for other post-employment benefits, the ultimate amount of which depends on, among other things, the outcome of an adversary proceeding related to retiree medical and life insurance obligations filed in the Chapter 11 cases.

Any failure to comply with the covenants contained in our financing arrangements may have a material adverse effect on our business, results of operations and financial condition.

The terms of our 2013 Credit Facilities, the 2013 Citicorp Credit Facility and the 2014 Credit Facilities require us to ensure that AAG and its restricted subsidiaries maintain consolidated unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities in an aggregate amount not less than $2.0 billion, and the 2013 Citicorp Credit Facility also requires us and the other obligors thereunder to hold not less than $750 million (subject to partial reductions upon certain reductions in the outstanding amount of the loan) of that amount in accounts subject to control agreements.

Our ability to comply with these liquidity covenants while paying the fixed costs associated with our contractual obligations and our other expenses, including significant pension and other post-employment funding obligations and cash transition costs associated with the Merger, will depend on our operating performance and cash flow, which are seasonal, as well as factors including fuel costs and general economic and political conditions.

In addition, our credit facilities and certain other financing arrangements include covenants that, among other things, limit our ability to pay dividends and make certain other payments, make certain investments, incur additional indebtedness, enter into certain affiliate transactions and engage in certain business activities, in each case subject to certain exceptions.

The factors affecting our liquidity (and our ability to comply with related liquidity and other covenants) will remain subject to significant fluctuations and uncertainties, many of which are outside our control. Any breach of our liquidity and other covenants or failure to timely pay our obligations could result in a variety of adverse consequences, including the acceleration of our indebtedness, the withholding of credit card proceeds by our credit card processors and the exercise of remedies by our creditors and lessors. In such a situation, we may not be able to fulfill our contractual obligations, repay the accelerated indebtedness, make required lease payments or otherwise cover our fixed costs.

If our financial condition worsens, provisions in our credit card processing and other commercial agreements may adversely affect our liquidity.

We have agreements with companies that process customer credit card transactions for the sale of air travel and other services. These agreements allow these processing companies, under certain conditions (including, with respect to certain agreements, the failure of American to maintain certain levels of liquidity) to hold an amount of our cash (a holdback) equal to some or all of the advance ticket sales that have been processed by that company, but for which we have not yet provided the air transportation. We are not currently required to maintain any holdbacks pursuant to these requirements. These holdback requirements can be modified at the discretion of the processing companies upon the occurrence of specific events, including material adverse changes in our financial condition. An increase in the current holdback balances to higher percentages up to and including 100% of relevant advanced ticket sales could materially reduce our liquidity. Likewise, other of our commercial agreements contain provisions that allow other entities to impose less favorable terms, including the acceleration of amounts due, in the event of material adverse changes in our financial condition.

The historical consolidated financial information contained in this report is not directly comparable to our financial information for prior or future periods.

A number of factors render our historical consolidated financial information not directly comparable to our financial information for prior or future periods, including:

because the Merger was completed on December 9, 2013, AAG’s 2013 consolidated results of operations include the results of US Airways Group and its subsidiaries for only 23 days of 2013;

the Merger was accounted for using the acquisition method of accounting with AAG as the acquiring entity, resulting in an adjustment to the carrying values of the assets and liabilities of US Airways Group compared to its historical carrying values;

during the course of our Chapter 11 Cases and in connection with our emergence from Chapter 11 and the effectiveness of the Plan, we recorded material expenses, charges, costs and other accounting entries related to our restructuring process, many of which generally had not been incurred in the past and are not expected to be incurred in the future; and

certain prior accounting presentations, including the manner in which we report our regional operations, have been changed and historical results restated to conform to the current presentation.

Due to these and other factors largely related to the Merger and the Plan, investors are cautioned as to the limitations of our historical financial statements and urged to review carefully Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Union disputes, employee strikes and other labor-related disruptions may adversely affect our operations.

Relations between air carriers and labor unions in the U.S. are governed by the Railway Labor Act (RLA). Under the RLA, collective bargaining agreements generally contain “amendable dates” rather than expiration dates, and the RLA requires that a carrier maintain the existing terms and conditions of employment following the amendable date through a multi-stage and usually lengthy series of bargaining processes overseen by the National Mediation Board (NMB). For the dates that the CBAs with our major work groups become amendable under the RLA, see Part I, Item 1. Business – “Employees and Labor Relations.”

In the case of a CBA that is amendable under the RLA, if no agreement is reached during direct negotiations between the parties, either party may request that the NMB appoint a federal mediator. The RLA prescribes no timetable for the direct negotiation and mediation processes, and it is not unusual for those processes to last for many months or even several years. If no agreement is reached in mediation, the NMB in its discretion may declare that an impasse exists and proffer binding arbitration to the parties. Either party may decline to submit to arbitration, and if arbitration is rejected by either party, a 30-day “cooling off” period commences. During or after that period, a Presidential Emergency Board (PEB) may be established, which examines the parties’ positions and recommends a solution. The PEB process lasts for 30 days and is followed by another 30-day “cooling off” period. At the end of a “cooling off” period, unless an agreement is reached or action is taken by Congress, the labor organization may exercise “self-help,” such as a strike, which could materially adversely affect our business, results of operations and financial condition.

None of the unions representing our employees presently may lawfully engage in concerted refusals to work, such as strikes, slow-downs, sick-outs or other similar activity, against us. Nonetheless, there is a risk that disgruntled employees, either with or without union involvement, could engage in one or more concerted refusals to work that could individually or collectively harm the operation of our airline and impair our financial performance. See Part I, Item 1. Business –“Employees and Labor Relations.”

The inability to maintain labor costs at competitive levels would harm our financial performance.

Currently, we believe our labor costs are competitive relative to the other large network carriers. However, we cannot provide assurance that labor costs going forward will remain competitive because some of our agreements are amendable now and others may become amendable, competitors may significantly reduce their labor costs or we may agree to higher-cost provisions in our current or future labor negotiations. As of December 31, 2014, approximately 82% of our employees were represented for collective bargaining purposes by labor unions. Some of our unions have brought and may continue to bring grievances to binding arbitration, including those related to wages. Unions may also bring court actions and may seek to compel us to engage in bargaining processes where we believe we have no such obligation. If successful, there is a risk these judicial or arbitral avenues could create material additional costs that we did not anticipate.

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

We operate principally through hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York City, Philadelphia, Phoenix and Washington, D.C. Substantially all of our flights either originate in or fly into one of these locations. A significant interruption or disruption in service at one of our hubs resulting from ATC delays, weather conditions, natural disasters, growth constraints, relations with third-party service providers, failure of computer systems, facility disruptions, 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.

Ongoing data security compliance requirements could increase our costs, and any significant data breach could disrupt our operations and harm our reputation, business, results of operations and financial condition.

Our business requires the appropriate and secure utilization of customer, employee, business partner and other sensitive information. We cannot be certain that advances in criminal capabilities (including cyber-attacks or cyber intrusions over the Internet, malware, computer viruses and the like), discovery of new vulnerabilities or attempts to exploit existing vulnerabilities in our systems, other data thefts, physical system or network break-ins or inappropriate access, or other developments will not compromise or breach the technology protecting the networks that access and store sensitive information. The risk of a security breach or disruption, particularly through cyber-attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Furthermore, there has been heightened legislative and regulatory focus on data security in the U.S. and abroad (particularly in the EU), including requirements for varying levels of customer notification in the event of a data breach.

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 data security breach or our failure to comply with applicable U.S. or foreign data security regulations or other data security standards may expose us to litigation, claims for contract breach, fines, sanctions or other penalties, which could disrupt our operations, harm our reputation and materially and adversely affect our business, results of operations and financial condition. Failure to address these issues appropriately could also give rise to additional legal risks, which, in turn, could increase the size and number of litigation claims and damages asserted or subject us to enforcement actions, fines and penalties and cause us to incur further related costs and expenses.

Our indebtedness and other obligations are substantial and could adversely affect our business and liquidity.

We have significant amounts of indebtedness and other obligations, including pension obligations, obligations to make future payments on flight equipment and property leases, and substantial non-cancelable obligations under aircraft and related spare engine purchase agreements. Moreover, currently a substantial portion of our assets are pledged to secure our indebtedness. Our substantial indebtedness and other obligations could have important consequences. For example, they:

may make it more difficult for us to satisfy our obligations under our indebtedness;

may limit our ability to obtain additional funding for working capital, capital expenditures, acquisitions, investments, integration costs, and general corporate purposes, and adversely affect the terms on which such funding can be obtained;

require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness and other obligations, thereby reducing the funds available for other purposes;

make us more vulnerable to economic downturns, industry conditions and catastrophic external events;

limit our ability to respond to business opportunities and to withstand operating risks that are customary in the industry; and

contain restrictive covenants that could:

limit our ability to merge, consolidate, sell assets, incur additional indebtedness, issue preferred stock, make investments and pay dividends;

significantly constrain our ability to respond, or respond quickly, to unexpected disruptions in our own operations, the U.S. or global economies, or the businesses in which we operate, or to take advantage of opportunities that would improve our business, operations, or competitive position versus other airlines;

limit our ability to withstand competitive pressures and reduce our flexibility in responding to changing business and economic conditions; and

result in an event of default under our indebtedness.

We will need to obtain sufficient financing or other capital to operate successfully.

Our business plan contemplates significant investments in modernizing our fleet and integrating the American and US Airways businesses. Significant capital resources will be required to execute this plan. We estimate that, based on our commitments as of December 31, 2015, our planned aggregate expenditures for aircraft purchase commitments and certain engines on a consolidated basis for calendar years 2016-2020 would be approximately $18.0 billion. Accordingly, we will need substantial financing or other capital resources. In addition, as of the date of this report, we had not secured financing commitments for some of the aircraft that we have on order, and we cannot be assured of the availability or cost of that financing. In particular, as of December 31, 2015, we did not have financing commitments for the following aircraft currently on order and scheduled to be delivered through 2017: 25 Airbus A320 family aircraft in 2016 and 20 Airbus A320 family aircraft in 2017, 8 Boeing 787 family aircraft in 2016 and 13 Boeing 787 family aircraft in 2017, 15 Boeing 737-800 aircraft in 2016, three Boeing 737 MAX family aircraft in 2017 and two Boeing 777-300ER aircraft in 2016. In addition, we do not have financing commitments in place for substantially all aircraft currently on order and scheduled to be delivered in 2018 and beyond. The number of aircraft for which we do not have financing may change as we exercise purchase options or otherwise change our purchase and delivery schedules. If we are unable to arrange financing for such aircraft at customary advance rates and on terms and conditions acceptable to us, we may need to use cash from operations or cash on hand to purchase such aircraft or may seek to negotiate deferrals for such aircraft with the aircraft manufacturers. Depending on numerous factors, many of which are out of our control,

such as the state of the domestic and global economies, the capital and credit markets’ view of our prospects and the airline industry in general, and the general availability of debt and equity capital at the time we seek capital, the financing or other capital resources that we will need may not be available to us, or may only be available on onerous terms and conditions. There can be no assurance that we will be successful in obtaining financing or other needed sources of capital to operate successfully. An inability to obtain necessary financing on acceptable terms would have a material adverse impact on our business, results of operations and financial condition.

Increased costs of financing, a reduction in the availability of financing and fluctuations in interest rates could adversely affect our liquidity, results of operations and financial condition.

Concerns about the systemic impact of inflation, the availability and cost of credit, energy costs and geopolitical issues, combined with continued changes in business activity levels and consumer confidence, increased unemployment and volatile oil prices, have in the past and may in the future contribute to volatility in the capital and credit markets. These market conditions could result in illiquid credit markets and wider credit spreads. Any such changes in the domestic and global financial markets may increase our costs of financing and adversely affect our ability to obtain financing needed for the acquisition of aircraft that we have contractual commitments to purchase and for other types of financings we may seek in order to refinance debt maturities, raise capital or fund other types of obligations. Any downgrades to our credit rating may likewise increase the cost and reduce the availability of financing.

Further, a substantial portion of our indebtedness bears interest at fluctuating interest rates, primarily based on the London interbank offered rate for deposits of U.S. dollars (LIBOR). LIBOR tends to fluctuate based on general economic conditions, general interest rates, rates set by the Federal Reserve and other central banks, and the supply of and demand for credit in the London interbank market. We have not hedged our interest rate exposure with respect to the $1.87 billion term loan facility and the $1.4 billion revolving credit facility provided for by the credit and guaranty agreement, entered into June 27, 2013 between AAG, American and certain lenders (as amended and restated on May 21, 2015 and as otherwise amended, the 2013 Credit Facilities), the $1.6 billion term loan facility entered into on May 23, 2013 between US Airways and US Airways Group and certain lenders (as amended, the 2013 Citicorp Credit Facility), the $750 million term loan facility and the $1.0 billion revolving credit facility entered into October 10, 2014, between AAG and American and certain lenders (as amended and restated on April 20, 2015 and as otherwise amended, the 2014 Credit Facilities) and other of our floating rate debt. Accordingly, our interest expense for any particular period will fluctuate based on LIBOR and other variable interest rates. To the extent these interest rates increase, our interest expense will increase, in which event we may have difficulties making interest payments and funding our other fixed costs, and our available cash flow for general corporate requirements may be adversely affected. See also the discussion of interest rate risk in Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk – “AAG’s Market Risk Sensitive Instruments and Positions – Interest” and“American’s Market Risk Sensitive Instruments and Positions – Interest.”

Our high level of fixed obligations may limit our ability to fund general corporate requirements and obtain additional financing, may limit our flexibility in responding to competitive developments and causes our business to be vulnerable to adverse economic and industry conditions.

We have a significant amount of fixed obligations, including debt, pension costs, aircraft leases and financings, aircraft purchase commitments, leases and developments of airport and other facilities and other cash obligations. We also have certain guaranteed costs associated with our regional operations.

As a result of the substantial fixed costs associated with these obligations:

a decrease in revenues results in a disproportionately greater percentage decrease in earnings;

we may not have sufficient liquidity to fund all of these fixed obligations if our revenues decline or costs increase; and

we may have to use our working capital to fund these fixed obligations instead of funding general corporate requirements, including capital expenditures.

These obligations also impact our ability to obtain additional financing, if needed, and our flexibility in the conduct of our business, and could materially adversely affect our liquidity, results of operations and financial condition.

We have significant pension and other postretirement benefit funding obligations, which may adversely affect our liquidity, results of operations and financial condition.

Our pension funding obligations are significant. The amount of these obligations will depend on the performance of investments held in trust by the pension plans, interest rates for determining liabilities and actuarial experience. Currently, our minimum funding obligation for our pension plans is subject to temporary favorable rules that are scheduled to expire at the end of 2017. Our pension funding obligations are likely to increase materially beginning in 2019, when we will be required to make contributions relating to the 2018 fiscal year. In addition, we may have significant obligations for other postretirement benefits, the ultimate amount of which depends on, among other things, the outcome of an adversary proceeding related to retiree medical and life insurance obligations filed in the Chapter 11 Cases.

Any failure to comply with the covenants contained in our financing arrangements may have a material adverse effect on our business, results of operations and financial condition.

The terms of the 2013 Credit Facilities, the 2013 Citicorp Credit Facility and the 2014 Credit Facilities require AAG and American to ensure that AAG and its restricted subsidiaries maintain consolidated unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities in an aggregate amount not less than $2.0 billion, and the 2013 Citicorp Credit Facility also requires AAG and the other obligors thereunder to hold not less than $750 million (subject to partial reductions upon certain reductions in the outstanding amount of the loan) of that amount in accounts subject to control agreements.

Our ability to comply with these liquidity covenants while paying the fixed costs associated with our contractual obligations and our other expenses, including significant pension and other postretirement funding obligations and cash transition costs associated with the Merger, will depend on our operating performance and cash flow, which are seasonal, as well as factors including fuel costs and general economic and political conditions.

In addition, our credit facilities and certain other financing arrangements include covenants that, among other things, limit our ability to pay dividends and make certain other payments, make certain investments, incur additional indebtedness, enter into certain affiliate transactions and engage in certain business activities, in each case subject to certain exceptions.

The factors affecting our liquidity (and our ability to comply with related liquidity and other covenants) will remain subject to significant fluctuations and uncertainties, many of which are outside our control. Any breach of our liquidity and other covenants or failure to timely pay our obligations could result in a variety of adverse consequences, including the acceleration of our indebtedness, the withholding of credit card proceeds by our credit card processors and the exercise of remedies by our creditors and lessors. In such a situation, we may not be able to fulfill our contractual obligations, repay the accelerated indebtedness, make required lease payments or otherwise cover our fixed costs.

If our financial condition worsens, provisions in our credit card processing and other commercial agreements may adversely affect our liquidity.

We have agreements with companies that process customer credit card transactions for the sale of air travel and other services. These agreements allow these processing companies, under certain conditions (including, with respect to certain agreements, the failure of American to maintain certain levels of liquidity) to hold an amount of our cash (a holdback) equal to some or all of the advance ticket sales that have been processed by that

company, but for which we have not yet provided the air transportation. We are not currently required to maintain any holdbacks pursuant to these requirements. These holdback requirements can be modified at the discretion of the processing companies upon the occurrence of specific events, including material adverse changes in our financial condition. An increase in the current holdback balances to higher percentages up to and including 100% of relevant advanced ticket sales could materially reduce our liquidity. Likewise, other of our commercial agreements contain provisions that allow other entities to impose less-favorable terms, including the acceleration of amounts due, in the event of material adverse changes in our financial condition.

Union disputes, employee strikes and other labor-related disruptions may adversely affect our operations.

Relations between air carriers and labor unions in the U.S. are governed by the Railway Labor Act (RLA). Under the RLA, collective bargaining agreements (CBAs) generally contain “amendable dates” rather than expiration dates, and the RLA requires that a carrier maintain the existing terms and conditions of employment following the amendable date through a multi-stage and usually lengthy series of bargaining processes overseen by the National Mediation Board (NMB). For the dates that the CBAs with our major work groups become amendable under the RLA, see Part I, Item 1. Business – “Employees and Labor Relations.”

In the case of a CBA that is amendable under the RLA, if no agreement is reached during direct negotiations between the parties, either party may request that the NMB appoint a federal mediator. The RLA prescribes no timetable for the direct negotiation and mediation processes, and it is not unusual for those processes to last for many months or even several years. If no agreement is reached in mediation, the NMB in its discretion may declare that an impasse exists and proffer binding arbitration to the parties. Either party may decline to submit to arbitration, and if arbitration is rejected by either party, a 30-day “cooling off” period commences. During or after that period, a Presidential Emergency Board (PEB) may be established, which examines the parties’ positions and recommends a solution. The PEB process lasts for 30 days and is followed by another 30-day “cooling off” period. At the end of a “cooling off” period, unless an agreement is reached or action is taken by Congress, the labor organization may exercise “self-help,” such as a strike, which could materially adversely affect our business, results of operations and financial condition.

None of the unions representing our employees presently may lawfully engage in concerted refusals to work, such as strikes, slow-downs, sick-outs or other similar activity, against us. Nonetheless, there is a risk that disgruntled employees, either with or without union involvement, could engage in one or more concerted refusals to work that could individually or collectively harm the operation of our airline and impair our financial performance. See Part I, Item 1. Business – “Employees and Labor Relations.”

The inability to maintain labor costs at competitive levels would harm our financial performance.

Currently, we believe our labor costs are competitive relative to the other large network carriers. However, we cannot provide assurance that labor costs going forward will remain competitive because some of our agreements are amendable now and others may become amendable, competitors may significantly reduce their labor costs or we may agree to higher-cost provisions in our current or future labor negotiations. As of December 31, 2015, approximately 82% of our employees were represented for collective bargaining purposes by labor unions. Some of our unions have brought and may continue to bring grievances to binding arbitration, including those related to wages. Unions may also bring court actions and may seek to compel us to engage in bargaining processes where we believe we have no such obligation. If successful, there is a risk these judicial or arbitral avenues could create material additional costs that we did not anticipate.

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

We operate principally through hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York City, Philadelphia, Phoenix and Washington, D.C. Substantially all of our flights either originate in or fly

into one of these locations. A significant interruption or disruption in service at one of our hubs resulting from air traffic control (ATC) delays, weather conditions, natural disasters, growth constraints, relations with third-party service providers, failure of computer systems, facility disruptions, 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.

If we are unable to obtain and maintain adequate facilities and infrastructure throughout our system and, at some airports, adequate Slots,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 appropriate, add service along new or existing routes, we must be able to maintain and/or obtain adequate gates, ticketing facilities, operations areas, and office space. As airports around the world become more congested, we will not always be able 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 due to inadequate facilities at desirable airports. Further, our operating costs at airports at which we operate, including our hubs, may increase significantly because of capital improvements at such airports that we may be required to fund, directly or indirectly. In some circumstances, such costs could be imposed by the relevant airport authority without our approval.

In addition, operations at four major domestic airports, certain smaller domestic airports and certain foreign airports served by us are regulated by governmental entities through the use of Slotsslots or similar regulatory mechanisms which limit the rights of carriers to conduct operations at those airports. Each Slotslot represents the authorization to land at or take off from the particular airport during a specified time period and may have other operational restrictions as well. In the U.S., the FAA currently regulates the allocation of Slotslots or Slotslot exemptions at DCA and three New York City airports: Newark Liberty International Airport, JFK and LaGuardia.LGA. Our operations at these airports generally require the allocation of Slotsslots or similar regulatory authority. Similarly, our operations at international airports in Frankfurt, London Heathrow, Paris and other airports outside the U.S. are regulated by local Slotslot authorities pursuant to the International Air Transport Association’s Worldwide Scheduling Guidelines and applicable local law. We cannot provide any assurance that regulatory changes regarding the allocation of Slotsslots or similar regulatory authority will not have a material adverse impact on our operations.

In connection with the settlement of litigation relating to the Merger brought by the DOJ and certain states, we entered into settlement agreements that provide for certain asset divestitures including 52 slot pairs at DCA, 17 Slotslot pairs at LaGuardiaLGA and gates and related ground facilities necessary to operate those Slotslot pairs, and two gates at each of Boston Logan International Airport, Chicago O’Hare International Airport, DAL, Los Angeles International AirportLAX and Miami International Airport. OurThe settlement agreements also require our airlinesus to maintain certain hub operations and continue to provide service to certain specified communities for limited periods of time. In addition, we entered into a related settlement with the U.S. Department of Transportation (DOT)DOT related to small community service from DCA. Further, as a consequence of the Merger clearance process in the EU,European Union (EU), we made one pair of London Heathrow Slotsslots available for use by another carrier and, along with our JBA partners, we made one pair of London Heathrow Slotsslots available to competitors for use for up to six years in different markets.

Our ability to provide service can also be impaired at airports, such as Chicago O’Hare International Airport and Los Angeles International,LAX, where the airport gate and other facilities are inadequate to accommodate all of the service that we would like to provide.provide, or airports such as DAL where we have no access to gates at all.

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

If we incurencounter problems with any of our third-party regional operators or third-party service providers, our operations could be adversely affected by a resulting decline in revenue or negative public perception about our services.

A significant portion of our regional operations are conducted by third-party operators on our behalf, primarily under capacity purchase agreements. Due to our reliance on third parties to provide these essential services, we are subject to the risks of disruptions to their operations, which may result from many of the same risk factors disclosed in this report, such as the impact of adverse economic conditions, the inability of third parties to hire or retain necessary personnel, including in particular pilots, and other risk factors, such as aan out-of-court or bankruptcy restructuring of any of theour regional operators. We may also experience disruption to our regional operations if we terminate the capacity purchase agreement with one or more of our current operators and transition the services to another provider. As our regional segment provides revenues to us directly and indirectly (by providing flow traffic to our hubs), any significant disruption to our regional operations would have a material adverse effect on our business, results of operations and financial condition.

In addition, our reliance upon others to provide essential services on behalf of our operations may result in our relative inability to control the efficiency and timeliness of contract services. We have entered into agreements with contractors to provide various facilities and services required for our operations, including distribution and sale of airline seat inventory, provision of information technology and services, regional operations, aircraft maintenance, ground services and facilities, reservations and baggage handling. Similar agreements may be entered into in any new markets we decide to serve. These agreements are generally subject to termination after notice by the third-party service provider. We are also at risk should one of these service providers cease operations, and there is no guarantee that we could replace these providers on a timely basis with comparably priced providers.providers, or at all. Volatility in fuel prices, disruptions to capital markets and adverse economic conditions in general have subjected certain of these third-party regional carriers to significant financial pressures, which have led to several bankruptcies among these carriers. Any material problems with the efficiency and timeliness of contract services, resulting from financial hardships or otherwise, could have a material adverse effect on our business, results of operations and financial condition.

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 and online travel agents (OTAs) (e.g., Expedia, andincluding its booking sites Orbitz and Travelocity, both of which will be owned by Expedia if previously

announced transactions are completed)and The Priceline Group), to distribute a significant portion of our airline tickets, and we expect in the future to continue to rely on these channels and hope 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 call centers and our website. Certain of these distribution channels also effectively restrict the manner in which we distribute our products generally. To remain competitive, we will need to manage successfully our distribution costs and rights, increase our distribution flexibility and improve the functionality of third-party distribution channels, while maintaining an industry-competitive cost structure. These imperatives may affect our relationships with GDSs and OTAs, including as consolidation of OTAs continues or is proposed to continue. 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.

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 has passed laws, and the DOT, the FAA, the U.S. Transportation Security Administration (TSA) and

the Department of Homeland Security have issued a number of directives and other regulations, 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. Our failure to timely comply with these requirements has in the past and may in the future result in fines and other enforcement actions by the FAA or other regulators. In addition, the FAA recently issued its final regulations governing pilot rest periods and work hours for all airlines certificated under Part 121 of the Federal Aviation Regulations. The rule, which became effective on January 4, 2014, impacts the required amount and timing of rest periods for pilots between work assignments and modifies duty and restfuture, new regulatory requirements based on the time of day, number of scheduled segments, flight types, time zones, and other factors. These regulations, or other regulations, could have a material adverse effect on us and the industry.

DOT consumer rules that took effect in 2010 require procedures for customer handling during long onboard delays, further regulate airline interactions with passengers through the reservations process, at the airport, and onboard the aircraft, and require new disclosures concerning airline fares and ancillary fees such as baggage fees. The DOT has been aggressively investigating alleged violations of these new rules. Other DOT rules apply to post-ticket purchase price increases and an expansion of tarmac delay regulations to international airlines.

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.

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 which affect the services that can be offered by airlines in particular markets and at particular airports, or the types of 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 and other arrangements with other airlines;

 

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 (for example, a “passenger bill of rights”);

 

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

 

the adoption of more restrictive locally-imposed noise restrictions.

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 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 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 managing the growing demand for U.S. air travel. ATC towers are frequently understaffed in certain of our hubs, and air traffic controllers rely on outdated technologies that routinely overwhelm the system and compel airlines to fly inefficient, indirect routes. The ATC system’s inability to handle existing travel demand has led government agencies to implement short-term capacity constraints during peak travel periods in certain markets, resulting in delays and disruptions of air traffic. The outdated technologies also cause the ATC to be less resilient in the event of a failure. For example, in 2014 the ATC systems in Chicago took weeks to recover following a fire in the ATC tower at ORD,Chicago O’Hare International Airport, which resulted in thousands of cancelled flights.

On February 14, 2012, the FAA Modernization and Reform Act of 2012 was signed. The law provides funding for the FAA to rebuild its ATC system, including switching from radar to a GPS-based system. It is uncertain when any improvements to the efficiency of the ATC system will take effect. Failure to update the ATC system in a timely manner and the substantial funding requirements that may be imposed on airlines of a modernized ATC system may have a material adverse effect on our business.

The ability of U.S. airlines to operate international routes is subject to change because the applicable arrangements between the U.S. and foreign governments may be amended from time to time and appropriate Slotsslots or facilities may not be made available. 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 routes, such an event 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 revenue-sharing joint ventures, JBAs, and other alliance arrangements by and among other airlines could impair the value of our business and assets on the open skies routes. 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, including London Heathrow.Heathrow Airport. As a result of the agreement, we face increased competition in these markets, including London Heathrow.Heathrow Airport.

The airline industry is heavily taxed.

The airline industry is subject to extensive government fees and taxation that negatively impact our revenue. 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 passenger facility charge per passenger 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 TSApassenger security screening fees, which were recently increased)fees), and pass along the collected amounts to the appropriate governmental agencies. Although these taxes are not 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. 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.

Changes to our business model that are designed to increase revenues may not be successful and may cause operational difficulties or decreased demand.

We have recently implemented severala number of measures designed to increase revenue and offset costs. These measures include charging separately for services that had previously been included within the price of a ticket and increasing other pre-existing fees. We may introduce additional initiatives in the future; however, as time goes on, we expect that it will be more difficult to identify and implement additional initiatives. We cannot assure you that these measures or any future initiatives will be successful in increasing our revenues. Additionally, the implementation of these initiatives may create logistical challenges that could harm the operational performance of our airline. Also, any new and increased fees might reduce the demand for air travel on our airline or across

the industry in general, particularly if weakened economic conditions make our customers more sensitive to increased travel costs or provide a significant competitive advantage to other carriers that determine not to institute similar charges.

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

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.

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 operations outside of the U.S. from which AAGwe derived approximately 33%30% of itsour operating revenues in 2014,2015, as measured and reported to the DOT. Our current international activities and prospects have been and in the future could be adversely affected by reversals or delays in the opening of foreign markets, increased competition in international markets, exchange controls or other restrictions on repatriation of funds, currency and political risks (including changes in exchange rates and currency devaluations, which are more likely in countries with exchange controls such as Venezuela and Argentina)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.

slots. In particular, 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. For example, the business environment in Venezuela has been challenging, with economic uncertainty fueled by currency devaluation, high inflation and governmental restrictions, including currency exchange and payment controls, price controls and the possibility of expropriation of property or other resources. As of December 31, 2014, approximately $656 million of our unrestricted cash and short-term investment balance was held in Venezuelan bolivars. This balance includes approximately $621 million valued at 6.3 bolivars and approximately $35 million valued at 12.0 bolivars, with the rate depending on the date we submitted our repatriation request to the Venezuelan government. These rates are materially more favorable than the exchange rates currently prevailing for other transactions conducted outside of the Venezuelan government’s currency exchange system. Our cash balance held in Venezuelan bolivars decreased $54 million from the December 31, 2013 balance of $710 million primarily due to $88 million in cash repatriations and $30 million in foreign currency losses as described below, partially offset by additional cash proceeds from ticket sales in early 2014. In the second and third quarters of 2014, we repatriated $65 million including $31 million valued at 6.3 bolivars to the dollar and $34 million valued at 10.6 bolivars to the dollar. In the fourth quarter of 2014, we incurred an $11 million foreign currency loss related to the receipt of $23 million at a rate of 6.3 bolivars to the dollar for one of our 2012 repatriation requests originally valued at a rate of 4.3 bolivars to the dollar. Accordingly, we revalued our remaining pending 2012 repatriation requests from 4.3 to 6.3 bolivars to the dollar resulting in additional foreign currency losses of $19 million. In total, we recognized a $30 million special charge for these foreign currency losses in the fourth quarter of 2014.

During 2014, we significantly reduced capacity in the Venezuelan market and we are no longer accepting bolivars as payment for airline tickets. We are continuing to work with Venezuelan authorities regarding the timing and exchange rate applicable to the repatriation of our funds still held in local currency. However, economic conditions in Venezuela continue to deteriorate with a related adverse effect on the ability of the Venezuelan government to satisfy repatriation requests on a timely basis, or at all. In mid-February 2015, the Venezuelan government announced new foreign exchange regulations, creating three new additional markets, as well as a new exchange rate to be utilized in those markets. The new exchange rate for transactions effected on those markets was to commence at 52 bolivars to the dollar, however, the rate is intended to fluctuate based on supply and demand and was approximately 172 bolivars to the dollar as of February 23, 2015 as reported by the Venezuelan Central Bank. Although the new regulations do not abolish the prior exchange rates at which we are valuing our bolivar balances, it is still uncertain what impact these new regulations will have on the foreign exchange environment or whether the Venezuelan government will announce further changes to the foreign exchange regulations that may have the effect of materially adversely affecting our ability to repatriate the local currency we hold in Venezuela or the exchange rate applicable thereto.

We are monitoring this situation closely and continue to evaluate our holdings of Venezuelan bolivars for additional foreign currency losses, which could be material, particularly in light of the additional uncertainty posed by the February 2015 changes to the foreign exchange regulations and the continued deterioration of

economic conditions in Venezuela. More generally,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.

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.

TheIn June 2015, the U.S. Environmental Protection Agency (EPA) has proposed changes toissued revised underground storage tank regulations that could affect certain airport fuel hydrant systems. A final rule has not yet been issued, but when implemented, airport systems, that fall within threshold requirementsas certain of those systems may need to be modified in order to comply with applicable portions of the revised regulations. Additionally, on June 4, 2015, the EPA has proposedreissued the draft 2013 National Pollutant Discharge Elimination SystemMulti-Sector General Permit for Stormwater Discharges from Industrial Activities. ThisAmong other revisions, the reissued permit would impose new limitations on certain discharges along with mandatory best management practices. Concurrently,incorporates the EPA’s previously issued Airport Deicing Effluent Limitation Guidelines and New Source Performance Standards. In addition, California adopted a revised State Industrial General Permit for Stormwater Discharges on April 1, 2014, which becomesbecame effective July 1, 2015. This permit places additional reporting and monitoring requirements on permittees and requires implementation of mandatory best management practices. Cost estimatesWhile the cost of compliance with these requirements is not expected to comply withbe significant, the above permitting requirements have not been defined, but Americancompany will continue to monitor and US Airways along with other airlines would share a portionevaluate the impact of these costs at applicable airports.requirements on airport operations. In addition to the proposed EPA and state regulations, several U.S. airport authorities are actively engaged in efforts to limit discharges of de-icing fluid to the environment, often by requiring airlines to participate in the building or reconfiguring of airport de-icing facilities. Such efforts are likely to impose additional costs and restrictions on airlines using those airports. We do not believe, however, that such environmental developments will have a material impact on our capital expenditures or otherwise materially adversely affect our operations, operating costs or competitive position.

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 wastes directly attributable to us. We have liability for investigation and remediation costs at various sites, although such costs are currently 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.

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 greenhouse gas (GHG) emissions. For example, the EU has established the Emissions Trading Scheme (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. This directive would have required us, beginning in 2012, to annually submit emission allowances in order to operate flights to and from airports in the European Economic Area (EEA), including flights between the U.S. and EU member states. However, in an effort to allow the International Civil Aviation Organization (ICAO)

time to propose an alternate scheme to manage global aviation GHG emissions, in April 2013, the EU suspended for

one year the ETS’ application to flights entering and departing the EEA, limiting its application, for flights flown in 2012, to intra-EEA flights only. In October 2013, the ICAO Assembly adopted a resolution calling for the development through ICAO of a global, market-based scheme for aviation GHG emissions, to be finalized in 2016 and implemented in 2020. Subsequently, the EU has amended the EU ETS so that the monitoring, reporting and submission of allowances for aviation GHG emissions will continue to be limited to only intra-EEA flights through 2016, at which time the EU will evaluate the progress made by ICAO and determine what, if any, measures to take related to aviation GHG emissions from 2017 onwards. The U.S. enacted legislation in November 2012 which encourages the DOT to seek an international solution through ICAO and that will allow the U.S. Secretary of Transportation to prohibit U.S. airlines from participating in the ETS. The effort currently underway through ICAO to reach a global agreement on measures to manage international aviation GHG emission growth could significantly impact our business, particularly to the extent that any final agreement may emphasize a collective cost sharing approach for industry emissions growth over a cost approach based on individual carrier contribution to emission growth. Ultimately, the scope and application of ETS or other emissions trading schemes to our operations, now or in the near future, remains uncertain. We do not anticipate any significant emissions allowance expenditures in 2015.2016. Beyond 2015,2016, compliance with the ETS or similar emissions-related requirements could significantly increase our operating costs. Further, the potential impact of ETS 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 and the number of future flights subject to ETS or other emissions-related requirements. These costs have not been completely defined and could fluctuate.

Similarly, withinIn addition, in December 2015, at the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC’s COP21), over 190 countries, including the United States, reached an agreement to reduce global greenhouse gas emissions. While there is no express reference to aviation in this international agreement, to the extent the United States and other countries implement this 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.

Within the U.S., there is an increasing trend toward regulating GHG emissions directly under the Clean Air Act (CAA). In response to a 2012 ruling by the U.S. District Court of Appealsfor the District of Columbia, Circuit requiring the EPA to makeannounced in June 2015 a final determination on whetherproposed endangerment finding that aircraft engine GHG emissions cause or contribute to air pollution whichthat may reasonably be anticipated to endanger public health or welfare,welfare. A public hearing regarding the EPA announced in September 2014 that it is in the process of making a determination regarding aircraft GHG emissions and anticipates proposing anproposed endangerment finding by Maywas held in August 2015. If the EPA makes a positivefinalizes the endangerment finding, the EPA is obligated under the CAA to set aircraft engine GHG emission standards. It is anticipated that any such standards established by EPA would closely align with emission standards currently being developed by ICAO. In February 2016, the ICAO Committee on Aviation Environmental Protection (CAEP) recommended that ICAO adopt carbon dioxide certification standards that would apply to new type aircraft certified beginning in 2020, and would be phased in for aircraft. Severalnewly manufactured existing aircraft type designs starting in 2023.

In addition, several states are also considering or have adopted or are considering initiatives to regulate emissions of GHGs, primarily through the planned development of GHG emissions inventories and/or regional GHG cap and trade programs.

These regulatory efforts, both internationally and in the U.S. at 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.

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.

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 technology and automated systems to operate our business and achieve low operating costs. These technologies and systems include our computerized airline reservation systems,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 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 automated systems cannot be completely protected against other 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 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 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 including designing and implementing an integrated customer reservations system, that will be necessary to operate US Airways and American as a single airline and to achieve cost synergies by eliminating redundancies in the businesses. While we have to date successfully integrated several of our systems, including our customer reservations system, we still have to complete several additional important system integration projects. The integration of these systems in a number of prior airline mergers has taken longer, been more disruptive and cost more than originally forecast. The implementation process to integrate 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.

As with any large project, there will be many factors that may materially affect the schedule, cost and execution of the integration of our computer, communications and other technology systems. These factors include, among others: problems during the design, implementation and testing phases; systems delays and/or malfunctions; the risk that suppliers and contractors will not perform as required under their contracts; the diversion of management attention from daily operations to the project; reworks due to unanticipated changes in business processes; challenges in simultaneously activating new systems throughout our global network; difficulty in training employees in the operations of new systems; the risk of security breach or disruption; and other unexpected events beyond our control. We cannot assure you that our security measures, change control procedures or disaster recovery plans will be adequate to prevent disruptions or delays. Disruptions in 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 adverse effect on our business, results of operations and financial condition.

We are at risk of losses and adverse publicity stemming from any accident involving any of our aircraft or the aircraft of our regional or codeshare operators.

If one of our aircraft, an aircraft that is operated under our brand by one of our regional operators, or an aircraft that is operated by an airline with which we have a marketing alliance or codeshare relationship were to be involved in an accident, incident or catastrophe, we could be exposed to significant tort liability. The insurance we carry to cover damages arising from any future accidents may be inadequate. In the event that our insurance is not adequate, we may be forced to bear substantial losses from an accident. In addition, any accident, incident or catastrophe involving an aircraft that we operate, an aircraft that isoperated by us, operated under our brand by one of our regional operators or an aircraft that is operated by an airline that is one of our codeshare partners could create a public perception that our aircraft or those of our regional operators or codeshare partners are not safe or reliable, 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. In many cases, the aircraft we intend to operate are not yet in our fleet, but we have contractual commitments to purchase or lease them. If for any reason we were 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. As a result, we are vulnerable to any problems associated with the supply of those aircraft, parts and engines, including design defects, mechanical problems, contractual performance by the suppliers, or adverse perception by the public that would result in customer avoidance or in actions by the FAA resulting in an inability to operate our aircraft.

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 has 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, or political instability;

 

changes in consumer preferences, perceptions, spending patterns, or 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.

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 influenza-typesimilar illness, if it were to 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 and a potential shortage of pilots could adversely affect us.

We currently have a higher than normal number of pilots eligible for retirement. Among other things, the extension of pilot careers facilitated by the FAA’s 2007 modification of the mandatory retirement age from age 60 to age 65 has now been fully implemented, resulting in large numbers of pilots in the industry approaching the revised mandatory retirement age. If pilot retirements were to exceed normal levels in the future, it may adversely affect us and our regional partners. On January 4, 2014, more stringent pilot flight and duty time requirements under Part 117 of the Federal Aviation Regulations took effect. TheIn addition, in July 2013, the FAA also recently issued regulations that increase the flight experience required for pilots working for airlines certificated under Part 121 of the Federal Aviation Regulations. These and other factors have in the past and could in the future contribute to a shortage of qualified pilots, particularly for our regional partners, which now face increased competition from large, mainline carriers to hire pilots to replace retiring pilots. If we or our regional partners are unable to hire adequate numbers of pilots, we may experience disruptions, increased costs of operations and other adverse effects.

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 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.

A lawsuit filedWe may be a party to litigation in connectionthe 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 Merger remains pending,final outcome depending on a number of variables, some of which are not within our control. Litigation is subject to significant uncertainty and this lawsuit could have a material adverse impact on our business.

US Airways Group, US Airways, AMR and American were named as defendants in a private antitrust lawsuit in connection with the Merger. The complaint alleges that the effect of the Merger may be expensive, time-consuming, and disruptive to substantially lessen competition or tendour 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 createsettle legal proceedings and claims, regardless of their actual merit. If a monopoly in violation of Section 7 of the Clayton Antitrust Act. The relief sought in the complaint includes an injunctionlegal proceeding is resolved against the Merger, or divestiture. In January 2014, the complaint was amended to add a claim for money damages and to request injunctive relief requiring the carriers to hold separate their assets. In March 2014, the Court allowed plaintiffs to add certain allegations but denied plaintiffs’ requests to add a damages claim or seek preliminary injunctive relief requiring the carriers to hold separate their assets, and in June 2014 plaintiffs filed an amended motion for leave to file a second amended and supplemental complaint. This lawsuitus, it could result in an obligation to paysignificant compensatory damages, and in certain circumstances punitive or terms, conditions, requirements, limitations, coststrebled damages, disgorgement of revenue or restrictions that would impose additional material costsprofits, remedial corporate measures or injunctive relief imposed on us. If our existing insurance does not cover the amount or materially limit our revenues,types of damages awarded, or materially limit someif other resolution or actions taken as a result of the synergieslegal 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 other benefitsany 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 anticipate following the Merger.are involved can be found in Part I, Item 3. Legal Proceedings.

Our ability to utilize our NOL Carryforwards may be limited.

Under the Internal Revenue Code of 1986, as amended (the Code), a corporation is generally allowed a deduction for NOL Carryforwards.net operating losses (NOLs) carried over from prior taxable years (NOL Carryforwards). As of December 31, 2014,2015, we had available NOL Carryforwards of approximately $10.1$8.0 billion for regular federal income tax purposes which will expire, if unused, beginning in 2022,2023, and approximately $4.6$4.0 billion for state income tax purposes which will expire, if unused, between 20152016 and 2034. As of December 31, 2014,2015, the amount of NOL Carryforwards for state income tax purposes that will expire, if unused, in 20152016 is $83$136 million. Our NOL Carryforwards are subject to adjustment on audit by the Internal Revenue Service and the respective state taxing authorities.

A corporation’s ability to deduct its federal NOL 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 shareholdersstockholders exceed 50 percent during a rolling three-year period). We experienced an ownership change in connection with our emergence from the Chapter 11 Cases 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 special rules for federal income tax purposes that permitpermitted approximately $9.0 billion (with $6.6 billion of unlimited NOL still remaining at December 31, 2015) of our federal NOL Carryforwards to be utilized without regard to the annual limitation generally imposed by Section 382. If the special rules doare determined not to apply, our ability to utilize such federal NOL Carryforwards may be subject to limitation. Substantially all of our remaining federal NOL 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 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 may severely limit or effectively eliminate our ability to utilize our NOL Carryforwards and other tax attributes. To reduce the risk of a potential adverse effect on our ability to utilize our NOL Carryforwards, our Certificate of Incorporation contains transfer restrictions applicable to certain substantial shareholders.stockholders. Although the purpose of these transfer restrictions is to prevent an ownership change from occurring, no assurance can be given that such an ownership change will not occur, in which case our ability to utilize our NOL Carryforwards and other tax attributes could be severely limited or effectively eliminated.

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.

The application of the acquisition method of accounting resulted in AAG and American recording a significant amount of goodwill, which amount is tested for impairment at least annually. In addition, AAG and American may never realize the full value of their respective intangible assets or long-lived assets, causing them to record material impairment charges.

In accordance with applicable acquisition accounting rules, AAG and American recorded goodwill on itstheir respective consolidated balance sheetsheets to the extent the acquisition purchase price of US Airways Group acquisition purchase priceand US Airways, respectively, exceeded the net fair value of US Airways Group’sthe tangible and intangible assets and liabilities as of the applicable acquisition date. Goodwill is not amortized, but is tested for impairment at least annually. Also, in accordance with applicable accounting standards, AAG and American will be required to test their respective indefinite-lived intangible assets for impairment on an annual basis, or more frequently if conditions indicate that an impairment may have occurred. In addition, AAG and American are required to test certain of their 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. Factors which could result in an impairment could include, but are not limited to: (i) reduced passenger demand as a result of domestic or global economic conditions; (ii) higher prices for jet fuel; (iii) lower fares or passenger yields as a result of increased competition or lower demand; (iv) a significant increase in future capital expenditure commitments; and (v) significant disruptions to our operations as a result of both internal and external events such as terrorist activities, actual or threatened war, labor actions by employees, or further industry regulation. 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 impairment charge could have a material adverse effect on our business, results of operations and financial condition.

Risks Relating to AAG’s Common Stock

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

The market price of AAG Common Stock may fluctuate substantially due to a variety of factors, many of which are beyond our control, including:

 

AAG’s operating and financial results failing to meet the expectations of securities analysts or investors;

 

changes in financial estimates or recommendations by securities analysts;

 

material announcements by us or our competitors;

 

movements in fuel prices;

expectations regarding our capital deployment program, including our share repurchase program and any future dividend payments that may be declared by our Board of Directors;

 

new regulatory pronouncements and changes in regulatory guidelines;

 

general and industry-specific economic conditions;

 

the success or failure of AAG’s integration efforts;

 

changes in our key personnel;

 

distributions of shares of AAG Common Stock pursuant to the Plan, including distributions from the Disputed Claims Reserve established under the plan of reorganization upon the resolution of the underlying claims;

 

public sales of a substantial number of shares of AAG Common Stock or issuances of AAG Common Stock upon the exercise or conversion of convertible securities, options, warrants, RSUs, SARs, or similar rights;

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

 

fluctuations in trading volume;

expectations regarding our capital deployment program, including our share repurchase program and any future dividend payments that may be declared by our Board of Directors; and

 

changes in market values of airline companies as well as general market conditions.

We cannot guarantee that we will repurchase our common stock pursuant to our share repurchase program or continue to pay dividends on our common stock or that our capital deployment program will enhance long-term stockholder value. Our capital deployment program could increase the volatility of the price of our common stock and diminish our cash reserves.

AsSince July 2014, as part of aour capital deployment program, in July 2014, our Board of Directors authorized a $1.0 billionhas approved several share repurchase program,programs aggregating $7.0 billion of authority of which, was completed in 2014, and in Januaryas of December 31, 2015, our Board of Directors authorized a new $2.0$2.4 billion shareremained unused under repurchase programprograms which are to be completed no later than December 31, 2016. Share repurchases under the share repurchase programprograms may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades or accelerated share repurchase transactions. ThisThese share repurchase program doesprograms 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 at any time at management’sour discretion. The timing and amount of repurchases, if any, will be subject to market and economic conditions, applicable legal requirements and other relevant factors. The repurchase program may be limited, suspended or discontinued at any time without prior notice.

Although our Board of Directors declaredcommenced declaring quarterly cash dividends in July 2014 October 2014 and January 2015 as part of theour capital deployment program, any future dividends that may be declared and paid from time to time under our capital deployment program will be subject to market and economic conditions, applicable legal requirements and other relevant factors. Our capital deployment program does not obligate us to continue a

dividend for any fixed period, and payment of dividends may be suspended at any time at management’sour discretion. 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 be able to pay dividends in the future.

In addition, repurchases of AAG Common Stock pursuant to our share repurchase program and any future 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, our share repurchase program and any future dividends couldwill diminish our cash reserves, which may impact our ability to finance future growth and to pursue possible future strategic opportunities and acquisitions. Further, our share repurchase program may fluctuate such that our cash flow may be insufficient to fully cover our share repurchases. Although our share repurchase program is intended to enhance long-term stockholder value, there is no assurance that it will do so because the market price of our common stock may decline below the levels at which we repurchased shares of stock and short-term stock price fluctuations could reduce the program’s effectiveness.

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 Restated Certificate of Incorporation (Certificate of Incorporation) and Amended and Restated Bylaws (Bylaws) 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;board;

 

a prohibition against stockholders taking action by written consent;

 

a prohibition against stockholders calling special meetings of stockholders;

 

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 interests 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 of Incorporation and Bylaws include provisions that limit voting and acquisition and disposition of our equity interests.

Our Certificate of Incorporation and Bylaws include certain provisions that limit voting and ownership and disposition of our equity interests, including AAG Common Stock, AAG Series A Preferred Stock and convertible notes. 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 to acquire shares of AAG Common Stock and our other equity interests.

In order to protect AAG’s NOL Carryforwards and certain other tax attributes, AAG’s Certificate of Incorporation includes certain limitations on acquisitions and dispositions of AAG’s Common Stock, which may limit the liquidity of our common stock.

To reduce the risk of a potential adverse effect on our ability to use our NOL Carryforwards and certain other tax attributes for federal income tax purposes, our Certificate of Incorporation contains certain restrictions on the acquisition and disposition of AAG Common Stock by substantial stockholders. These restrictions may adversely affect the ability of certain holders of AAG Common Stock to dispose of or acquire shares of AAG Common Stock. Although the purpose of these transfer restrictions is to prevent an “ownership change” (as defined in Section 382) from occurring, no assurance can be given that an ownership change will not occur even with these restrictions in place.

The historical consolidated financial information contained in this report is not directly comparable to our financial information for prior or future periods.

A number of factors render our historical consolidated financial information not directly comparable to our financial information for prior or future periods, including:

because the Merger was completed on December 9, 2013, AAG’s 2013 consolidated results of operations include the results of US Airways Group and its subsidiaries for only 23 days of 2013;

the Merger was accounted for using the acquisition method of accounting with AAG as the acquiring entity, resulting in an adjustment to the carrying values of the assets and liabilities of US Airways Group compared to its historical carrying values; and

during the course of our Chapter 11 Cases and in connection with our emergence from Chapter 11 and the effectiveness of the Plan, we recorded material expenses, charges, costs and other accounting entries related to our restructuring process, many of which generally had not been incurred in the past and are not expected to be incurred in the future.

Due to these and other factors largely related to the Merger and the Plan, investors are cautioned as to the limitations of our historical financial statements and urged to review carefully Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

ITEM 1B.   UNRESOLVED STAFF COMMENTS

The Company had no unresolved Securities and Exchange Commission staff comments at December 31, 2014.2015.

ITEM 2.  PROPERTIES

Flight Equipment and Fleet Renewal

As of December 31, 2014,2015, American and US Airways operated a mainline fleet of 643946 aircraft. In 2015, we continued our extensive fleet renewal program, which has provided us with the youngest and 340 aircraft, respectively.most modern fleet of the U.S. network airlines. During 2014,2015, American took delivery of 6175 new mainline aircraft and retired 45 aircraft and US Airways took delivery of 21 new aircraft and retired 24112 aircraft. We are supported by our wholly-owned regional airline subsidiaries and third-party regional carriers operating as American Eagle and US Airways Express under capacity purchase agreements. As of December 31, 2014,2015, American Eagle and US Airways Express operated 264 and 302 regional aircraft, respectively. During 2014, American took delivery of 16 new587 regional aircraft. During 2015, American increased its regional fleet by 52 regional aircraft. We removed and placed in temporary storage 20 Embraer ERJ 140 aircraft and retired 11 other regional aircraft.

We continue retiring MD-80 aircraft from service, which are being replaced by next generation, more fuel efficient Boeing 737- 800 and Airbus 320 family aircraft.

In 2015, we introduced the Boeing 787 Dreamliner to our fleet. As of December 31, 2015, we had received 13 of these aircraft out of our order of 42 aircraft. The Boeing 787 aircraft is also more fuel efficient than similarly sized prior generation aircraft.

Beginning in 2012, American introduced Boeing 777-300ERs to its fleet. At the end of the year, we had received 18 of these aircraft and have 2 aircraft remaining to be delivered in 2016.

We expect to begin to receive the Boeing 737 MAX and Airbus A320neo family aircraft in 2017 and 2019, respectively, each of which will be powered by next generation engine technology and will provide significant fuel efficiency gains.

We are the North America launch customer for Airbus A350 aircraft and expect to receive 22 of these aircraft beginning in 2017.

Mainline

As of December 31, 2014,2015, American’s and US Airways’ combined mainline fleet consisted of the following aircraft:

 

  Average Seating
Capacity
   Operating Aircraft   Non-
Operating
Aircraft (2)
   Average Seating
Capacity
   Operating Aircraft   Non-
Operating

Aircraft (2)
 
  Owned   Capital
Leased
   Operating
Leased
   Total   Average
Age
(Years)
   In
Temporary
Storage (1)
     Owned (1)   Capital
Leased
   Operating
Leased
   Total   Average
Age
(Years)
   

Airbus A319

   125     12          106     118     11               125     19          106     125     12       

Airbus A320

   150     13          51     64     15          1     150     10          45     55     15     4  

Airbus A321

   176     97          42     139     5               177     128          46     174     5       

Airbus A330-200

   258     15               15     3               258     15               15     4       

Airbus A330-300

   291     4          5     9     14               291     4          5     9     15       

Boeing 737-800

   150     86     19     141     246     7               159     103     19     142     264     7       

Boeing 757-200

   182     65     2     39     106     20     8     19     181     46          18     64     19     43  

Boeing 767-200 ER

   204               6     6     25          3  

Boeing 767-300 ER

   218     45          13     58     21            

Boeing 777-200 ER

   247     44     3          47     14            

Boeing 777-300 ER

   310     14          2     16     1            

Boeing 767-300ER

   213     39          6     45     21     10  

Boeing 777-200ER

   249     44     3          47     15       

Boeing 777-300ER

   310     16          2     18     2       

Boeing 787-800

   226     13               13     1       

Embraer 190

   99     20               20     7               99     20               20     8       

McDonnell DouglasMD-80

   140     95     13     31     139     23     2     22     140     59     11     27     97     23     53  
    

 

   

 

   

 

   

 

   

 

   

 

   

 

     

 

   

 

   

 

   

 

   

 

   

 

 

Total

     510     37     436     983     12     10     45       516     33     397     946     11     110  
    

 

   

 

   

 

   

 

   

 

   

 

   

 

     

 

   

 

   

 

   

 

   

 

   

 

 

 

(1)

Aircraft in temporary storageAs of December 31, 2015, 370 owned aircraft are included in the count of operating aircraft.pledged as collateral for various secured financing agreements.

 

(2)

As of December 31, 2014,2015, the majority of all non-operating aircraft are owned.

Regional

As of December 31, 2014,2015, the fleet of our wholly-owned regional subsidiaries consisted of the following aircraft:

 

  Average Seating
Capacity
   Operating Aircraft   Non-
Operating
Aircraft (1)
   Average Seating
Capacity
   Operating Aircraft   Non-
Operating

Aircraft (3)
 
  Owned   Capital
Leased
   Operating
Leased
   Total   Average
Age
(Years)
   In
Temporary
Storage
     Owned (1)   Operating
Leased
   Total   Average
Age
(Years)
   In
Temporary

Storage  (2)
   

Bombardier CRJ 200

   50     12          23     35     12               50     12     23     35     12            

Bombardier CRJ 700

   65     54          7     61     9               65     54     7     61     10            

Bombardier CRJ 900

   78     16               16     9               76     36          36     1            

De Havilland Dash 8-100

   37     27               27     25          5     37     26          26     26          1  

De Havilland Dash 8-300

   50               11     11     23               50          11     11     24            

Embraer ERJ 175

   76     24          24     1            

Embraer ERJ 140

   44     34               34     12          25     44     14          14     13     45       

Embraer ERJ 145

   50     118               118     13               50     118          118     14            

Saab 340B

   34                                   41     34                              29  
    

 

   

 

   

 

   

 

   

 

   

 

   

 

     

 

   

 

   

 

   

 

   

 

   

 

 

Total

     261          41     302     12          71       284     41     325     12     45     30  
    

 

   

 

   

 

   

 

   

 

   

 

   

 

     

 

   

 

   

 

   

 

   

 

   

 

 

 

(1)

As of December 31, 2014,2015, 207 owned aircraft are pledged as collateral for various secured financing agreements.

(2)

Aircraft in temporary storage are excluded in the count of operating aircraft.

(3)

As of December 31, 2015, all non-operating aircraft are owned.

Aircraft Purchase Commitments and Lease Expirations

Our committed mainline and regional aircraft orders and scheduledcontractual lease expirations, for the capital and operating leased flight equipment included in the tables above, as of December 31, 2014,2015, are presented in the table below.

 

   2015   2016   2017   2018   2019   2020 and
Thereafter
 

Firm orders (1):

            

American

   104     104     75     49     45     100  

US Airways

   12          6     10     6       
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   116     104     81     59     51     100  

Scheduled mainline lease expirations:

            

American

   19     10     15     8     3     227  

US Airways

   31     5     26     15     28     86  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   50     15     41     23     31     313  

Scheduled wholly-owned regional subsidiaries lease expirations

             3     3     10     25  
   2016   2017   2018   2019   2020   2021 and
Thereafter
 

Firm orders (1)

   97     72     35     51     47     90  

Contractual mainline lease expirations

   12     33     23     31     19     312  

Contractual wholly-owned regional subsidiaries lease expirations

        3     3     10     15     10  

 

(1)

Includes orders for regional jets as follows: 42 in 2015, 44 in 2016 and 12 in 2017. These aircraft may be operated by wholly-owned regional subsidiaries or leased to third-party regional carriers, which would operate the aircraft under capacity purchase arrangements.

We have agreements for 5549 spare engines to be delivered in 20152016 and beyond.

See Note 15 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 1213 to American’s Consolidated Financial Statements in Part II, Item 8B for additional information on aircraft acquisition commitments, payments and options.

Third-Party Regional Carriers

As of December 31, 2014,2015, aircraft contractually obligated to American and US Airways with third-party regional carriers included:

 

   Number of Aircraft   Type of
Aircraft
 

Carrier

  American   US Airways   

Air Wisconsin

        70     Regional jets  

ExpressJet

   11          Regional jets  

Mesa

        57     Regional jets  

Republic

   42     58     Regional jets  

SkyWest

   12     14     Regional jets  
  

 

 

   

 

 

   
   65     199    
  

 

 

   

 

 

   

Carrier

Number of Aircraft

Air Wisconsin Airlines Corporation

70Regional jets

ExpressJet Airlines, Inc.

11Regional jets

Mesa Airlines, Inc.

64Regional jets

Republic Airline Inc.

105Regional jets

SkyWest Airlines, Inc.

12Regional jets

262

See Note 15 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 1213 to American’s Consolidated Financial Statements in Part II, Item 8B for additional information on our capacity purchase agreements with third-party regional carriers.

Other Information

For information concerning the estimated useful lives and residual values for owned aircraft, lease terms for leased aircraft and amortization relating to aircraft under capital leases, see Note 5 and Note 15 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 45 and Note 1213 to American’s Consolidated Financial Statements in Part II, Item 8B.

Ground Properties

At each airport where we conduct flight operations, we lease passenger, operations and baggage handling space, generally from the airport operator, but in some cases on a subleased basis from other airlines. Our main operational facilities are associated with our hubs. At those locations and in other cities we serve, we maintain administrative offices, terminal, catering, cargo, training, maintenance and other facilities, in each case as necessary to support our operations in the particular city.

We own our corporate headquarters buildings in Fort Worth, Texas. We lease, or have built as leasehold improvements on leased property, most of our airport and terminal facilities in the U.S. and abroad, US Airways’ corporate office building in Tempe, Arizona, our training facilities in Fort Worth, Texas, our principal overhaul and maintenance base in Tulsa, Oklahoma, our regional reservation offices, and local ticket and administration offices throughout the U.S. and abroad. Our American Airlines Integrated Operations Center is located in Fort Worth, Texas and the US Airways Operations Control Center is located near Pittsburgh, Pennsylvania, in a facility leased from the Allegheny County Airport Authority. In 2014,September 2015, we begancompleted construction on a new state-of-the-art Integrated Operations Control Center in Fort Worth, Texas, which will serveserves as the new operations control facility for the combined airline and isairline. In October 2015, we announced plans to build a new headquarters campus in Fort Worth, Texas, with construction presently expected to be completed in the last half of 2015.late 2018.

For information concerning the estimated lives and residual values for owned ground properties, lease terms and amortization relating to ground properties under capital leases, and acquisitions of ground properties, see Note 5 and Note 15 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 45 and Note 1213 to American’s Consolidated Financial Statements in Part II, Item 8B.

ITEM 3.  LEGAL PROCEEDINGS

Chapter 11 Cases. As previously disclosed, onOn the Petition Date, November 29, 2011, the Debtors filed the Chapter 11 Cases. On October 21, 2013, the Bankruptcy Court entered the Confirmation Order confirming the Plan. On the Effective Date, December 9, 2013, the Debtors consummated their reorganization pursuant to the Plan principally throughand completed the transactions contemplated by the Merger Agreement pursuant to which Merger Sub merged with and into US Airways Group, with US Airways Group surviving as a wholly-owned subsidiary of AAG.Merger. From the Petition Date through the Effective Date, pursuant to automatic stay provisions under the Bankruptcy Code and orders granted by the Bankruptcy Court, actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date as well as all pending litigation against the Debtors generally were stayed. Following the Effective Date, actions to enforce or otherwise effect repayment of liabilities preceding the PetitionthePetition Date, generally have been permanently enjoined. Any unresolved claims will continue to be subject to the claims reconciliation process under the supervision of the Bankruptcy Court. However, certain pending litigation related to pre-petition liabilities may proceed in courts other than the Bankruptcy Court to determine the amount, if any, of such litigation claims for purposes of treatment under the Plan.

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 Single-Dip Unsecured Claims. The shares provided for under the Plan were determined based upon a Disputed Claims Reserve amount of claims of approximately $755 million, representing the maximum amount of additional distributions to subsequently allowed Single-Dip Unsecured Claims under the Plan. On July 1, 2014 (the date 180 days after the Effective Date), approximately 2.9 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and shares were withheld or sold on account of related tax obligations. In addition, on July 1, 2014, we repurchased 0.4 million shares of AAG Common Stock for an aggregate of $19 million from the Disputed Claims Reserve at the then prevailing market price in order to fund cash tax obligations resulting from distributions by the Disputed Claims Reserve. On November 4, 2014, approximately 0.7 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and shares were withheld or sold on account of related tax obligations. In addition, on November 4, 2014, we repurchased less than 0.1 million shares of AAG Common Stock for an aggregate of $2 million from the Disputed Claims Reserve at the then prevailing market price in order to fund cash tax obligations resulting from distributions by the Disputed Claims Reserve. As of December 31, 2014,2015, there were approximately 26.825.3 million shares of AAG Common Stock remaining in the Disputed Claims Reserve. On February 10, 2015, approximately 0.8 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and shares were withheld or sold on account of related tax obligations. In addition, on February 10, 2015, we repurchased less than 0.1 million shares of AAG Common Stock for an aggregate of $4 million from the Disputed Claims Reserve at the then prevailing market price in order to fund cash tax obligations resulting from distributions by the Disputed Claims Reserve. As disputed claims are resolved, the claimants will receive distributions of shares from the Disputed Claims Reserve on the same basis as if such distributions had been made on or about the Effective Date. However, we are not required to distribute additional shares above the limits contemplated by the Plan, even if the shares remaining for distribution 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 shareholdersstockholders as of the Effective Date. However, resolution of disputed claims could have a material effect on recoveries by holders of additional allowed Single-Dip Unsecured Claims under the Plan and the amount of additional share distributions, if any, that are made to former AMR shareholdersstockholders as the total number of shares of AAG Common Stock that remain available for distribution upon resolution of disputed claims is limited pursuant to the Plan.

There is also pending in the Bankruptcy Court an adversary proceeding relating to an action brought by American to seek a determination that certain non-pension, post-employeepost-employment benefits (OPEB) are not vested benefits and thus may be modified or terminated without liability to American. On April 18, 2014, the Bankruptcy Court granted American’s motion for summary judgment with respect to certain non-union employees, concluding that their benefits were not vested and could be terminated. The summary judgment motion was denied with respect to all other retirees. The Bankruptcy Court has not yet scheduled a trial on the merits concerning whether those retirees’ benefits are vested, and American cannot predict whether it will receive relief from obligations to provide benefits to any of those retirees. Our financial statements presently reflect these retirement programs without giving effect to any modification or termination of benefits that may ultimately be implemented based upon the outcome of this proceeding. Separately, both the APFA and TWU have filed grievances asserting that American was “successful” in its Chapter 11 with respect to matters related to OPEB and, accordingly, by operation of the underlying collective bargaining agreements, American’s prior contributions to certain OPEB prefunding trusts attributable to active employees should be returned to those active employees. These amounts aggregate approximately $212 million. We have denied both grievances and intend to defend these matters vigorously.

DOJ Antitrust Civil Investigative Demand. In June 2015, we received a Civil Investigative Demand (CID) from the DOJ as part of an investigation into whether there have been illegal agreements or coordination of air passenger capacity. The CID seeks documents and other information from us, and other airlines have announced that they have received similar requests. We are cooperating fully with the DOJ investigation. In addition,

subsequent to announcement of the delivery of CIDs by the DOJ, 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 were the subject of multiple motions to consolidate them in a single forum, and they have now been consolidated in the Federal District Court for the District of Columbia. Both the DOJ investigation and these lawsuits are in their very early stages and we intend to defend the lawsuits vigorously.

Private Party Antitrust Action.Action. On July 2, 2013, a lawsuit captioned Carolyn Fjord, et al., v. US Airways Group, Inc., et al., was filed in the United States District Court for the Northern District of California. The complaint namesnamed as defendants US Airways Group and US Airways, and allegesalleged that the effect of the Merger may be to substantially lessen competition or tend to create a monopoly in violation of Section 7 of the Clayton Antitrust Act. The relief sought in the complaint includesincluded an injunction against the Merger, or divestiture. On August 6, 2013, the plaintiffs re-filed their complaint in the Bankruptcy Court, adding AMR and American as defendants, and on October 2, 2013, dismissed the initial California action. TheOn November 27, 2013, the Bankruptcy Court denied plaintiffs’ motion to preliminarily enjoin the Merger. On January 10, 2014, the plaintiffs movedAugust 19, 2015, after three previous largely unsuccessful attempts to amend their complaint, to add additional factual allegations, a claim for money damages and a request for preliminary injunctive relief requiring the carriers to hold separate their assets. On March 14, 2014, the Court allowed plaintiffs to add certain allegations but denied plaintiffs’ requests to add a damages claim or seek preliminary injunctive relief requiring the carriers to hold separate their assets. On June 2, 2014, plaintiffs filed an amendeda fourth motion for leave to file a secondan amended and supplemental complaint which motion has been fully briefed byto add a claim for damages and demand for jury trial, as well as claims similar to those in the putative class action lawsuits regarding air passenger capacity. Thereafter, plaintiffs filed a request with the Judicial Panel on Multidistrict Litigation (JPML) to consolidate the Fjord matter with the putative class action lawsuits. The JPML denied that request on October 15, 2015 and plaintiffs’ request for further relief from the JPML was denied on February 4, 2016. Accordingly, the parties and is pending resolution bywill continue to litigate the matter in Bankruptcy Court. There is currently no trial date set. We believe this lawsuit is without merit and intend to vigorously defend against the allegations.

US Airways Sabre Matter.DOJ Civil Investigative Demand Related to the United States Postal Service On. In April 21,2015, the DOJ informed us of an inquiry regarding American’s 2009 and 2011 US Airways filed an antitrust lawsuit against Sabre Holdings Corporation, Sabre Inc. and Sabre Travel International Limited (collectively, Sabre) incontracts with the Federal District CourtUnited States Postal Service for the Southern Districtinternational transportation of New York.mail by air. In October 2015, we received a CID from DOJ seeking certain information relating to these contracts. The lawsuit, as amended to date, alleges, among other things, that SabreDOJ has engaged in anticompetitive practices to preserve its market power by restricting our ability to distribute our products to our customers. The lawsuit also alleges that these actions have permitted Sabre to charge supracompetitive booking fees and to use technologies that are not as robust and as efficient as alternatives in a competitive market. The lawsuit seeks money damages. Sabre filed a motion to dismiss the case, which the court denied in part and granted in part in September 2011, allowing twoindicated it is investigating potential violations of the four counts inFalse Claims Act. We are cooperating fully with the complaint to proceed. In January 2015, the court denied in part and granted in part Sabre’s motions for summary judgment. A trial date is expected to be set soon. We intend to pursue our claims against Sabre vigorously, but there can be no assurance of the outcome of this litigation.DOJ investigation.

General.General We. 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.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.”

ITEM 4.  MINE SAFETY DISCLOSURES

Not Applicable.

PART II

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

Stock Exchange Listing

Pursuant to the Plan and in accordance with the Merger Agreement, effective December 9, 2013, all existing shares of AMR Corporation common stock (OTCQB: AAMRQ) were canceled and ceased trading on the OTCQB market. The newly authorized and issued AAG Common Stock began trading on the NASDAQ Global Select Market (NASDAQ) on December 9, 2013 under the 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, 2015,19, 2016, the closing price of AAG Common Stock on NASDAQ was $51.02.$39.76. As of February 20, 2015,19, 2016, there were 12,36511,546 holders of record of AAG Common Stock.

Information on securities authorized for issuance under our equity compensation plans will be set forth in our Proxy Statement for the 20152016 Annual Meeting of Stockholders of American Airlines Group Inc. (the Proxy Statement) under the caption “Equity Compensation Plan Information” and is incorporated by reference into this Annual Report on Form 10-K.

Market Prices of Common Stock

The following table sets forth, for the periods indicated, the high and low sale prices of AAG Common Stock on NASDAQ:

 

Year Ended

December 31

  

Period

  High   Low   

Period

  High   Low 
2015  

Fourth Quarter

  $47.09    $37.42  
  Third Quarter   44.59     34.10  
  Second Quarter   53.47     38.45  
  First Quarter   56.20     45.95  
2014  

Fourth Quarter

  $53.63    $28.58    

Fourth Quarter

  $54.64    $28.10  
  Third Quarter   43.86     35.03    Third Quarter   44.00     34.34  
  

Second Quarter

   44.55     33.37    Second Quarter   44.88     31.86  
  

First Quarter

   39.02     25.36    First Quarter   39.88     25.06  
2013  

December 9-31

  $26.61    $24.60  

Cash Dividends Paid

On July 23, 2014, as part of our capital deployment program, ourOur Board of Directors declared a $0.10 per sharethe following cash dividend for shareholders of record as of August 4, 2014, and payable on August 18, 2014. On October 22, 2014, our Board of Directors declared a $0.10 per share dividend for shareholders of record on November 3, 2014, and payable on November 17, 2014. Ondividends:

Year Ended

December 31

  

Period

  Per share   For stockholders
of record as of
  Payable on
2015  

Fourth Quarter

  $0.10    November 5, 2015  November 19, 2015
  

Third Quarter

   0.10    August 10, 2015  August 24, 2015
  

Second Quarter

   0.10    May 4, 2015  May 18, 2015
  

First Quarter

   0.10    February 9, 2015  February 23, 2015
2014  

Fourth Quarter

  $0.10    November 3, 2014  November 17, 2014
  

Third Quarter

   0.10    August 4, 2014  August 18, 2014

In January 27, 2015,2016, we announced that our Board of Directors had declared a $0.10 per share dividend for shareholdersstockholders of record on February 9, 2015,10, 2016, and payable on February 23, 2015. 24, 2016.

The total cash payment for dividends during the yearyears ended December 31, 2015 and 2014 was $278 million and $144 million. We did not pay any dividends in 2013.

million, respectively. Any future dividends that may be declared and paid from time to time under our

capital deployment program will be subject to market and economic conditions, applicable legal requirements and other relevant factors. Our capital deployment program does not obligate us to continue a dividend for any fixed period, and payment of dividends may be suspended at any time at management’sour discretion.

See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations –“American Airlines Group – Liquidity and Capital Resources – Commitments – Significant Indebtedness,” Note 9 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 a discussion regarding certain limitations on our ability to pay dividends.

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 our cumulative total shareholderstockholder return on an annual basis on our common stock with the cumulative total return on the Standard and Poor’s 500 Stock Index and the AMEX Airline Index from December 9, 2013 (the first trading day of AAG Common Stock) through December 31, 2014.2015. The comparison assumes $100 was invested on December 9, 2013 in AAG Common Stock and in each of the foregoing indices and assumes reinvestment of dividends. The stock performance shown on the graph below represents historical stock performance and is not necessarily indicative of future stock price performance.

 

 

   12/9/2013   12/31/2013   12/31/2014 

American Airlines Group Inc.

  $100    $103    $219  

Amex Airline Index

   100     102     152  

S&P 500

   100     102     114  

   12/9/2013   12/31/2013   12/31/2014   12/31/2015 

American Airlines Group Inc.

  $100    $103    $219    $175  

Amex Airline Index

   100     102     152     127  

S&P 500

   100     102     114     113  

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Since July 2014, our Board of Directors has approved several share repurchase programs aggregating $7.0 billion of authority of which, as of December 31, 2015, $2.4 billion remained unused under repurchase programs

which are to be completed no later than December 31, 2016. Share repurchases under the 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 will be made from time to time subject to market and economic conditions, applicable legal requirements and other relevant factors. The programs do not obligate us to repurchase any specific number of shares and may be suspended at any time at our discretion.

During the year ended December 31, 2015, we repurchased 85.1 million shares of AAG Common Stock for $3.6 billion at a weighted average cost per share of $42.09. During the year ended December 31, 2014, we repurchased 23.4 million shares of AAG Common Stock for $1.0 billion at a weighted average cost per share of $42.72. Since the inception of the share repurchase programs in July 2014, we have repurchased 108.5 million shares of AAG Common Stock for $4.6 billion at a weighted average cost per share of $42.23.

Separate from our share repurchase programs, during 2015, we also withheld approximately 7.0 million shares of AAG Common Stock and paid approximately $306 million in satisfaction of certain tax withholding obligations associated with employee equity awards.

The following table displays information with respect to our purchases of shares of AAG Common Stock during the three months ended December 31, 2014.2015.

 

Period

 Total number of
shares  purchased
  Average
    price paid    
per share
  Total number of shares
purchased as part of publicly
announced  plan or program (a)
  Maximum dollar value  of
shares that may be
purchased under the plan or program

(in millions)
 

October 2014

  3,896,793   $40.41    3,896,793   $729  

November 2014

  16,314,374(b)  $43.75    16,261,766   $18  

December 2014

  367,732   $48.07    367,732   $  

(a)

As part of a capital deployment program, in July 2014 our Board of Directors authorized a $1.0 billion share repurchase program, which was completed in December 2014. On January 27, 2015, we announced that our Board of Directors had authorized a new $2.0 billion share repurchase program to be completed by the end of 2016. Share repurchases under the share repurchase program 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 will be made from time to time subject to market and economic conditions, applicable legal requirements and other relevant factors. This share repurchase program does not obligate us to repurchase any specific number of shares for any fixed period, and may be suspended at any time at management’s discretion.

(b)

Separate from our share repurchase program, in November 2014 we repurchased 52,608 shares of AAG Common Stock for an aggregate of $2 million from the Disputed Claims Reserve at the then prevailing market price in order to fund cash tax obligations resulting from distributions by the Disputed Claims Reserve.

Period

 Total number of
shares purchased
  Average
     price paid    
per share
  Total number of shares
purchased as part of publicly

announced plan or program
  Maximum dollar value of
shares that may be
purchased under the plan or program
(in millions)
 

October 2015

  12,965,702   $41.54    12,965,702   $2,961  

November 2015

  5,623,408   $43.10    5,623,408   $2,718  

December 2015

  7,002,827   $43.07    7,002,827   $2,417  

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, or as the same may be from time to time 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 (as defined, which definition includes our capital stock, securities convertible into or exchangeable for shares of our capital stock, including our outstanding convertible notes, and any options, warrants or other rights to acquire capital stock) (the voting cap amount) or (b) 49.0% of our outstanding equity securities (the absolute cap amount). If non-citizens nonetheless at any time own and/or control more than the voting cap amount, the voting rights of the equity securities in excess of the voting cap amount shall be automatically suspended in accordance with the provisions of our Certificate of Incorporation and Bylaws. Voting rights of equity securities, if any, owned (beneficially or of record) by non-citizens shall be suspended in reverse chronological order based upon the date of registration in the foreign stock record. Further, if at any time a transfer of equity securities to a non-citizen would result in non-citizens owning more than the absolute cap amount, such transfer shall be void and of no effect, in accordance with provisions of AAG’s Certificate of Incorporation and Bylaws. In the event that we determine that the equity securities registered on the foreign stock record or the stock records of the Company exceed the absolute cap amount, sufficient shares shall be removed from the foreign stock record and the stock records of the Company so that the number of shares entered therein does not exceed the absolute cap amount. Shares of equity securities shall be removed from the foreign stock record and the stock records of the Company in reverse chronological order based on the date of registration in the foreign stock record and the stock records of the Company (subject to Article XIII, Section 6 of our Bylaws, which provides special rules applicable to equity securities issued upon effectiveness of the Plan and

consummation of the Merger). Certificates for AAG’s equity securities must bear a legend set forth in our

Certificate of Incorporation stating that such equity securities are subject to the foregoing restrictions. Under our Bylaws, 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. In addition, our Bylaws provide that in the event that non-citizens shall own (beneficially or of record) or have voting control over any equity securities, the voting rights of such persons shall be subject to automatic suspension to the extent required to ensure that we are in compliance with applicable provisions of law and regulations relating to ownership or control of a U.S. air carrier. See AAG’s Certificate of Incorporation and Bylaws, which are filed at Exhibits 3.1 and 3.2 hereto.

In addition, to reduce the risk of a potential adverse effect on our ability to use our NOL Carryforwards and certain other tax attributes for federal income tax purposes, our Certificate of Incorporation contains certain restrictions on the acquisition and disposition of our common stock by substantial stockholders (generally holders of more than 4.75%).

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,,” andIn order to protect AAG’s NOL Carryforwards and certain other tax attributes, AAG’s Certificate of Incorporation includes certain limitations on acquisitions and dispositions of AAG’s Common Stock, which may limit the liquidity of our common stock.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

Selected Consolidated Financial Data of AAG

The selected consolidated financial data presented below under the captions “Consolidated Statements of Operations data” and “Consolidated Balance Sheet data” for the years ended December 31, 2015, 2014 2013 and 20122013 and as of December 31, 20142015 and 20132014 are derived from AAG’s audited consolidated financial statements included elsewhere in this report. The selected consolidated financial data for the years ended December 31, 20112012 and 20102011 and as of December 31, 2013, 2012 2011 and 20102011 are derived from AAG’s audited consolidated financial statements not included in this report. The selected consolidated financial data should be read in conjunction with AAG’s consolidated financial statements for the respective periods, the related notes and the related reports of KPMG LLP for 2015 and 2014 and Ernst & Young LLP for 20102011 to 2013, both independent registered public accounting firms. On December 9, 2013, a subsidiary of AMR Corporation merged with and into US Airways Group, which survived as a wholly-owned subsidiary of AAG. On December 30, 2015, in order to simplify AAG’s internal corporate structure and as part of the integration efforts following the business combination of AAG and US Airways Group, AAG caused US Airways Group to be merged with and into AAG, with AAG as the surviving corporation, and, immediately thereafter, US Airways, a subsidiary of US Airways Group, merged with and into American, with American as the surviving corporation. AAG’s consolidated financial data provided in the tables below include the results of US Airways Group for the post-Merger period frombeginning on December 9, 2013, to December 31, 2013 and for the year ended December 31, 2014.effective date of the Merger.

Pursuant to the Plan and the Merger Agreement, holders of AMR common stock formerly traded under the symbol “AAMRQ” received shares of AAG Common Stock principally over the 120-day distribution period following the Effective Date. In accordance with GAAP,U.S. Generally Accepted Accounting Principles (GAAP), the 2013, 2012 2011, and 2010 period2011 weighted average shares and earnings (loss) per share calculations have been adjusted to retrospectively reflect these distributions, which were each made at the rate of approximately 0.7441 shares of AAG Common Stock per share of AAMRQ. Former holders of AMR common stock as of the Effective Date may in the future receive additional distributions of AAG Common Stock dependent upon the ultimate distribution of shares of AAG Common Stock to holders of disputed claims. Thus, the shares and related earnings per share calculations prior to the Effective Date may change in the future to reflect additional retrospective adjustments for future AAG Common Stock distributions to former holders of AMR common stock.

 

  Year Ended December 31,  Year Ended December 31, 
  2014   2013 2012 2011 2010  2015 2014 2013 2012 2011 
  (In millions, except share and per share data)  (In millions, except share and per share data) 

Consolidated Statements of Operations data:

        

Total operating revenues

  $42,650    $26,743   $24,855   $23,979   $22,170   $40,990   $42,650   $26,743   $24,855   $23,979  

Total operating expenses

   38,401     25,344    24,707    25,016    21,808    34,786    38,401    25,344    24,707    25,016  
  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Operating income (loss)

  $4,249    $1,399   $148   $(1,037 $362   $6,204   $4,249   $1,399   $148   $(1,037

Reorganization items, net (1)

  $    $(2,655 $(2,208 $(118 $   $   $   $(2,655 $(2,208 $(118

Net income (loss)

  $2,882    $(1,834 $(1,876 $(1,979 $(471 $7,610   $2,882   $(1,834 $(1,876 $(1,979

Earnings (loss) per common share:

            

Basic

  $4.02    $(6.54 $(7.52 $(7.95 $(1.90 $11.39   $4.02   $(6.54 $(7.52 $(7.95

Diluted

  $3.93    $(6.54 $(7.52 $(7.95 $(1.90 $11.07   $3.93   $(6.54 $(7.52 $(7.95

Shares used for computation (in thousands):

            

Basic

   717,456     280,213    249,490    249,000    247,825    668,393    717,456    280,213    249,490    249,000  

Diluted

   734,016     280,213    249,490    249,000    247,825    687,355    734,016    280,213    249,490    249,000  

Cash dividends declared per common share

  $0.20    $   $   $   $   $0.40   $0.20   $   $   $  

Consolidated Balance Sheet data (at end of period):

            

Total assets

  $43,771    $42,278   $23,510   $23,848   $25,088   $48,415   $43,225   $41,741   $23,396   $23,719  

Long-term debt and capital leases, net of current maturities

   16,196     15,353    7,116    6,702    9,253    18,330    16,043    15,212    7,019    6,592  

Pension and postretirement benefits (2)

   7,562     5,828    6,780    9,204    7,877    7,450    7,562    5,828    6,780    9,204  

Mandatorily convertible preferred stock and other bankruptcy settlement obligations

   325     5,928                193    325    5,928          

Liabilities subject to compromise

            6,606    4,843                    6,606    4,843  

Stockholders’ equity (deficit)

   2,021     (2,731  (7,987  (7,111  (3,945  5,635    2,021    (2,731  (7,987  (7,111

Consolidated Statements of Operations data excluding special items (3) (Unaudited):

            

Operating income (loss) excluding special items

  $5,073    $1,935   $535   $(238 $444   $7,284   $5,073   $1,935   $535   $(238

Net income (loss) excluding special items

   4,184     1,244    (130  (1,062  (389  6,269    4,184    1,244    (130  (1,062

 

(1)

Reorganization items refer to revenues, expenses (including professional fees), realized gains and losses and provisions for losses that were realized or incurred as a direct result of the Chapter 11 Cases. See Note 2 in Part II, Item 8A to AAG’s Consolidated Financial Statements for further information on reorganization items.

 

(2)

American’sSubstantially all defined benefit pension plans were frozen effective November 1, 2012 and the Pilot B Plan, a defined contribution plan, was terminated on November 30, 2012. Further, Americanwe significantly modified itsour retiree medical plans in 2012 resulting in the recognition of a negative plan amendment. See Note 13 in Part II, Item 8A to AAG’s Consolidated Financial Statements for further information on retirement benefits, including the financial impact of these plan changes.

 

(3)

See reconciliation of GAAP to non-GAAP financial measures below.

A number of factors render AAG’s historical consolidated financial information not directly comparable to its financial information for prior or future periods. See Part I, Item 1A. Risk Factors –The “The historical consolidated financial information contained in this report is not directly comparable to our financial information for prior or future periods,,” and Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the notes to AAG’s Consolidated Financial Statements in Part II, Item 8A.

Reconciliation of GAAP to Non-GAAP Financial Measures

We are providing disclosure of the reconciliation of reported non-GAAP financial measures to their comparable financial measures on a GAAP basis. We believe that the non-GAAP financial measures provide investors the ability to measure financial performance excluding special items, which is more indicative of our ongoing performance and is more comparable to measures reported by other major airlines.

 

  Year Ended December 31,   Year Ended December 31, 
  2014   2013 2012 2011 2010   2015 2014   2013 2012 2011 
  (In millions)   (In millions) 

Operating income (loss) – GAAP

  $4,249    $1,399   $148   $(1,037 $362    $6,204   $4,249    $1,399   $148   $(1,037

Operating special items, net (1)

   824     536    387    799    82     1,080    824     536    387    799  
  

 

   

 

  

 

  

 

  

 

   

 

  

 

   

 

  

 

  

 

 

Operating income (loss) excluding special items

  $5,073    $1,935   $535   $(238 $444    $7,284   $5,073    $1,935   $535   $(238

Net income (loss) – GAAP

  $2,882    $(1,834 $(1,876 $(1,979 $(471  $7,610   $2,882    $(1,834 $(1,876 $(1,979

Operating special items, net (1)

   824     536    387    799    82     1,080    824     536    387    799  

Nonoperating special items, net (2)

   132     211    (280           594    132     211    (280    

Reorganization items, net (3)

        2,655    2,208    118                  2,655    2,208    118  

Income tax special items (4)

   346     (324  (569           (3,015  346     (324  (569    
  

 

   

 

  

 

  

 

  

 

   

 

  

 

   

 

  

 

  

 

 

Net income (loss) excluding special items

  $4,184    $1,244   $(130 $(1,062 $(389  $6,269   $4,184    $1,244   $(130 $(1,062

 

(1)

Includes the following operating special items, net:

 

In 2015, special items principally included $1.1 billion of merger integration expenses related to information technology, alignment of labor union contracts, professional fees, severance, share-based compensation, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training.

In 2014, special items principally included $818 million of Mergermerger integration expenses related to information technology, alignment of labor union contracts, professional fees, severance and retention, share-based compensation, divestiture of London Heathrow Slots,slots, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training. In addition, we recorded a net charge of $81 million for bankruptcy related items principally consisting of fair value adjustments for bankruptcy settlement obligations a $24 million charge due to a new pilot labor contract at our Envoy regional subsidiary, $164 million in other special charges, includingand an $81 million charge to revise prior estimates of certain aircraft residual values and other spare parts asset impairments, as well as $54 million in charges primarily relating to the buyout of certain aircraft leases.impairments. These charges were offset in part by a $309 million gain on the sale of Slotsslots at DCA and an $8 million gain on the sale of certain spare parts.DCA.

In 2013, special items included $449 million of primarily Mergermerger related expenses duerelated to the alignment of labor union contracts, professional fees, severance, share-based compensation and fees for US Airways to exit the Star Alliance and its codeshare agreement with United Airlines. In addition, we recorded a $107 million charge related to American’s pilot long-term disability obligation, a $45 million charge for workers’ compensation claims and a $33 million aircraft impairment charge. These charges were offset in part by a $67 million gain on the sale of slots at LGA and a $31 million special credit related to a change in accounting method resulting from the modification of our AAdvantage miles agreement with Citibank.

recorded a $107 million charge related to American’s pilot long-term disability obligation, a $45 million charge for workers’ compensation claims and a $33 million aircraft impairment charge. These charges were offset in part by a $67 million gain on the sale of Slots at LaGuardia Airport and a $31 million special credit related to a change in accounting method resulting from the modification of our AAdvantage miles agreement with Citibank.

 

In 2012, special items consisted of $387 million of severance and related charges and write-off of leasehold improvements on aircraft and airport facilities that were rejected in connection with the Chapter 11 Cases.

 

In 2011, special items consisted primarily of $725 million related to the impairment of certain aircraft and gates, $31 million of non-recurring non-cash charges related to certain sale/leasebacksale-leaseback transactions and a $43 million revenue reduction as a result of a decrease in the breakage assumption related to the AAdvantage frequent flyerloyalty program liability.

In 2010, special items consisted primarily of the impairment of certain route authorities in Latin America and losses on Venezuelan currency remeasurement.

 

(2)

Includes the following nonoperating special items, net:

In 2015, special items principally included a $592 million charge to write off all of the value of Venezuelan bolivars held by us due to continued lack of repatriations and deterioration of economic conditions in Venezuela.

 

In 2014, special items consisted principally of $43 million for Venezuelan foreign currency losses, $56 million of early debt extinguishment costs related to the prepayment of 7.50% senior secured notes and other indebtedness and $33 million of non-cash interest accretion on bankruptcy settlement obligations. See Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk for further discussion of our cash held in Venezuelan bolivars.

 

In 2013, special items consisted of interest charges of $138 million primarily to recognize post-petition interest expense on unsecured obligations pursuant to the Plan and penalty interest related to 10.5% secured notes and 7.50% senior secured notes, a $54 million charge related to the premium on tender for existing enhanced equipment trust certificatescertificate (EETC) financings and the write-off of debt issuance costs and $19 million in charges related to the repayment of existing EETC financings.

 

In 2012, special items consisted of a $280 million benefit resulting from a settlement of a commercial dispute.

 

(3)

Includes the following reorganization items, net resulting from the filing of voluntary petitions for reorganization under Chapter 11 by certain of AMR’s direct and indirect U.S. subsidiaries on November 29, 2011:

 

In 2013, special items consisted primarily of a $1.7 billion deemed claim to employees pursuant to the Plan as well as professional fees and estimated allowed claim amounts.

 

In 2012 and 2011 special items consisted primarily of estimated claims associated with restructuring the financing arrangements for certain debt, aircraft leases, and rejecting certain special facility revenue bonds, as well as professional fees.

 

(4)

Includes the following income tax special items:

 

In 2015, special items totaled a net credit of $3.0 billion. In connection with the preparation of our financial statements for the fourth quarter of 2015, we determined that it was more likely than not that substantially all of our deferred tax assets, which include our NOLs, would be realized. Accordingly, we reversed $3.0 billion of the valuation allowance as of December 31, 2015, which resulted in a special $3.0 billion non-cash tax benefit recorded in the consolidated statement of operations for 2015.

In 2014, special items consisted of $346 million. During 2014, we sold our portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, we recorded a special non-cash tax provision of $330 million in the second quarter of 2014 that reversed the non-cash tax provision which was recorded in other comprehensive income (OCI), a subset of stockholders’ equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of our fuel hedging contracts. In accordance with GAAP, we retained the $330 million tax provision in OCI until the last contract was settled or terminated. In addition, we recorded a special $16 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets.

In 2013, special items consisted of a $538 million non-cash income tax benefit resulting from gains recorded in OCI, offset in part by a $214 million non-cash charge due to additional valuation allowance required to reduce deferred tax assets.

 

In 2012, special items consisted of a $569 million non-cash income tax benefit resulting from gains recorded in OCI.

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 December 31, 2015, 2014 2013 and 20122013 and as of December 31, 20142015 and 20132014 are derived from American’s audited consolidated financial statements included elsewhere in this report. The selected consolidated financial data for the years ended December 31, 20112012 and 20102011 and as of December 31, 2013, 2012 2011 and 20102011 are derived from American’s audited consolidated financial statements not included in this report. 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. Thus, the full years of 2015 and 2014 and the period from December 9, 2013 to December 31, 2013 are comprised of the financial data of American and US Airways. The periods prior to December 9, 2013 are comprised of the financial data of American only. The selected consolidated financial data should be read in conjunction with American’s consolidated financial statements for the respective periods, the related notes and the related reports of KPMG LLP for 2015 and 2014 and Ernst & Young LLP for 20102011 to 2013, both independent registered public accounting firms.

 

  Year Ended December 31,   Year Ended December 31, 
  2014 2013 2012 2011 2010   2015   2014   2013 2012 2011 
  (In millions)   (In millions) 

Consolidated Statements of Operations data (1):

    

Total operating revenues

  $27,141   $25,760   $24,825   $23,957   $22,151    $41,084    $42,763    $26,701   $24,825   $23,957  

Total operating expenses

   24,803    24,226    24,743    25,111    21,945     34,895     38,497     25,341    24,743    25,111  
  

 

  

 

  

 

  

 

  

 

   

 

   

 

   

 

  

 

  

 

 

Operating income (loss)

  $2,338   $1,534   $82   $(1,154 $206    $6,189    $4,266    $1,360   $82   $(1,154

Reorganization items, net (2)

  $   $(2,640 $(2,179 $(116 $    $    $    $(2,640 $(2,179 $(116

Net income (loss)

  $1,310   $(1,526 $(1,926 $(1,965 $(469  $8,120    $2,948    $(1,717 $(1,926 $(1,965

Consolidated Balance Sheet data (at end of period):

    

Total assets

  $26,292   $25,612   $23,264   $23,589   $22,422    $50,438    $42,786    $41,699   $23,150   $23,460  

Long-term debt and capital leases, net of current maturities

   10,004    9,852    7,143    6,729    6,592     16,592     14,804     14,718    7,046    6,619  

Pension and postretirement benefits (3)

   7,400    5,693    6,780    9,204    7,876     7,410     7,522     5,802    6,780    9,204  

Bankruptcy settlement obligations

   325    5,424                 193     325     5,424          

Liabilities subject to compromise

           5,694    3,952                       5,694    3,952  

Stockholder’s deficit

   (5,572  (9,660  (9,962  (9,037  (6,336

Stockholder’s equity (deficit)

   9,698     1,406     (4,398  (9,962  (9,037

 

(1)

Includes the following special items:

 

In 2015, total special items were a net credit of $1.8 billion and consisted principally of a net special $3.5 billion non-cash tax benefit. In connection with the preparation of American’s financial statements for the fourth quarter of 2015, management determined that it was more likely than not that substantially all of its deferred tax assets, which include its NOLs, would be realized. Accordingly, American reversed $3.5 billion of the valuation allowance as of December 31, 2015, which resulted in a special $3.5 billion non-cash tax benefit recorded in the consolidated statement of operations for 2015. These credits were offset in part by $1.1 billion of merger integration expenses related to information technology, alignment of labor union contracts, professional fees, severance, share-based compensation,

fleet restructuring, re-branding of aircraft and airport facilities, relocation and training. In addition, American recorded a nonoperating charge of $592 million to write off all of the value of Venezuelan bolivars held by American due to continued lack of repatriations and deterioration of economic conditions in Venezuela.

In 2014, total special items were $974 million$1.3 billion and consisted principally of $532$808 million of merger integration expenses related to information technology, alignment of labor union contracts, professional fees, severance and retention, share-based compensation, divestiture of London Heathrow Slots,slots, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training, a $328 million non-cash tax charge relating to the sale of American’s portfolio of fuel hedging contracts, $181 million in other special charges, including an $81 million charge to revise prior estimates of certain aircraft residual values and other spare parts asset impairments and $60 million for bankruptcy related items, $48 million of early debt extinguishment costs, $44 million in charges primarily relating to the buyout of certain aircraft leases, $43 million for Venezuelan foreign currency losses, $29 million of non-cash interest accretion on bankruptcy settlement obligations and a $14 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets.items. These charges were offset in part by a $305$309 million gain on the sale of Slotsslots at DCA.

 

In 2013, total special items were $48$325 million, excluding reorganization items, net and consisted of a $214 million non-cash tax charge due to additional valuation allowance required to reduce deferred tax assets, $166$443 million of primarily merger related expenses duerelated to the alignment of labor union contracts, professional fees, severance and share-based compensation, a $107 million charge related to American’s pilot long-term disability obligation, a $54 million charge related to the premium on tender for existing EETC financings and the write-off of debt issuance costs, $48 million of interest charges primarily to recognize post-petition interest expense on unsecured obligations pursuant to the Plan, a $43 million charge for workers’ compensation claims, a $33 million aircraft impairment charge and $19 million in charges related to the repayment of existing EETC financings. These charges were offset in part by a $538 million non-cash income tax benefit resulting from gains recorded in OCI, a $67 million gain on the sale of slots at LGA and a $31 million special credit related to a change in accounting method resulting from the modification of American’s AAdvantage miles agreement with Citibank.

professional fees, severance and share-based compensation, a $107 million charge related to American’s pilot long-term disability obligation, a $54 million charge related to the premium on tender for existing EETC financings and the write-off of debt issuance costs, $48 million of interest charges primarily to recognize post-petition interest expense on unsecured obligations pursuant to the Plan, a $43 million charge for workers’ compensation claims, a $33 million aircraft impairment charge and $19 million in charges related to the repayment of existing EETC financings. These charges were offset in part by a $538 million non-cash income tax benefit resulting from gains recorded in OCI, a $67 million gain on the sale of Slots at LaGuardia Airport and a $31 million special credit related to a change in accounting method resulting from the modification of American’s AAdvantage miles agreement with Citibank.

 

In 2012, total special items were $463 million, excluding reorganization items, net and consisted primarily of a $569 million non-cash income tax benefit resulting from gains recorded in OCI and a $280 million benefit from a settlement of a commercial dispute, offset in part by $386 million of severance and related charges and write-off of leasehold improvements on aircraft and airport facilities that were rejected in connection with the Chapter 11 Cases.

 

In 2011, total special items were $799 million, excluding reorganization items, net and consisted primarily of $725 million related to the impairment of certain aircraft and gates, $31 million of non-recurring non-cash charges related to certain sale/leasebacksale-leaseback transactions and a $43 million revenue reduction as a result of a decrease in the breakage assumption related to the AAdvantage frequent flyerloyalty program liability.

In 2010, total special items were $81 million and primarily included the impairment of certain route authorities in Latin America and losses on Venezuelan currency remeasurement.

 

(2)

Reorganization items, net refer to revenues, expenses (including professional fees), realized gains and losses and provisions for losses that are realized or incurred as a direct result of the Chapter 11 Cases. See Note 2 in Part II, Item 8B to American’s Consolidated Financial Statements for further information on reorganization items.

 

(3)

American’sSubstantially all defined benefit pension plans were frozen effective November 1, 2012 and the Pilot B Plan, a defined contribution plan, was terminated on November 30, 2012. Further, American significantly modified its retiree medical plans in 2012 resulting in the recognition of a negative plan amendment. See Note 1011 to American’s Consolidated Financial Statements in Part II, Item 8B for further information on retirement benefits, including the financial impact of these plan changes.

A number of factors render American’s historical consolidated financial information not directly comparable to its financial information for prior or future periods. See Part I, Item 1A. Risk Factors –The “The historical consolidated financial information contained in this report is not directly comparable to our financialinformation for prior or future periods,,” and Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the notes to American’s Consolidated Financial Statements in Part II, Item 8B.

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

American Airlines Group

As previously discussed, the Merger was consummated on December 9, 2013. Accordingly, our consolidated results include US Airways Group for the full year ended December 31, 2014. For 2013, our consolidated results include US Airways Group only for the 23 days ended December 31, 2013.

We continue to move toward operating under the single brand name of “American Airlines” through our mainline operating subsidiaries, American Airlines and US Airways. Together with our wholly-owned regional airline subsidiaries and third-party regional carriers operating as American Eagle and US Airways Express, our airlines operateoffer an average of nearly 6,700 flights per day to 339nearly 350 destinations in 54 countries from ourmore than 50 countries. American has hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington, D.C. American is a founding member of theoneworld alliance, whose members and members-elect serve nearly 1,000 destinations with 14,250 daily flights to 150 countries. In 2014, we had2015, approximately 197201 million passengers boardingboarded our mainline and regional flights. As of December 31, 2014,2015, we operated 983946 mainline jetsaircraft and were supported by our regional airline subsidiaries and third-party regional carriers, which operated an additional 566587 regional aircraft. We

As previously discussed, our Merger was consummated on December 9, 2013. Since the Merger, we have made substantialsignificant progress towards integratingcompleting our integration. During 2015, we achieved the operations of our mainline operating subsidiariesfollowing:

Adopted a single reservations system, which when completed, resulted in no operational or customer disruption

Reached ratified contracts with industry-leading pay rates for pilots, flight attendants and towards obtainingcustomer service and reservation agents

Received a single operating certificate which we expectfrom the Federal Aviation Administration, allowing American to obtain in 2015. The following are additional significant integration accomplishments in 2014:

Completed airport co-locations for 75% of the airports where we have joint operations.be regulated as one airline

 

Launched aMerged loyalty programs by moving US Airways codeshare with British Airways, Iberia, Air Berlin and Finnair, fully integrating itDividend Miles members into American’s Trans-Atlantic Joint Business Agreement with British Airways, Iberia and Finnair.AAdvantage

 

Reached aOpened the new five-year joint collective bargaining agreement with the Association of Professional Flight Attendants for the airlines’ combined flight attendants.

Reached a new five-year collective bargaining agreement with the Allied Pilots Association for the airlines’ combined pilots (ratified in January 2015).

Broke ground on the state-of-the-art Robert W. Baker Integrated Operations Center.Center in Fort Worth

See Part I, Item 1. Business – “Chapter 11 Reorganization”

Optimized the airline’s flight schedules at Chicago O’Hare International Airport and Merger” for more information relatedDallas/Fort Worth International Airport

Substantially completed the co-location of our airport operations and consolidated all mainline operations at Dallas/Fort Worth International Airport into three terminals, gaining efficiencies in gate use and line maintenance

Announced plans to masterplan our emergence from Chapter 11Fort Worth campus and Merger.build a new corporate headquarters building to begin the process of modernizing our facilities and co-locate our headquarters staff with our training functions and integrated operations support teams

Year in Review

The U.S. Airline Industry

In 2014,2015, the U.S. airline industry continued to experience year-over-year growthbenefited significantly from lower fuel prices. However, this benefit was offset in passengerpart by a decline in revenues driven by strong demandreduced yields.

Jet fuel prices closely follow the price of Brent crude oil. Oil prices declined significantly throughout 2015, and in December, the price of Brent crude oil fell below $40 a barrel for air travel.the first time since 2009. On average, the price of Brent crude oil per barrel was approximately 47% lower in 2015 as compared to 2014. The average daily spot price for Brent crude oil during 2015 was $52 per barrel as compared to an average daily spot price of $99 per barrel during 2014. On a daily basis, Brent crude oil prices fluctuated during 2015 between a high of $66 per barrel to a low of $35 per barrel, and closed the year on December 31, 2015 at $37 per barrel.

InWith respect to revenue, in its most recent data available through the third quarter of 2015, Airlines for America, the trade association for U.S. airlines, reported that annual U.S. industry passenger revenues and yields increased 4.2% and 1.8%, respectively,declined as compared to 2013. With respect to international versus domestic performance, Airlines for America reported that2014. Additionally, domestic markets outperformed international markets. Atlanticmarkets (Atlantic, Pacific and Latin America markets experienced year-over-year growthAmerica) in passenger revenues of 2.8%both yield and 3.4%, respectively, while the Pacific market experienced year-over-year declines in passenger revenues of 1.4%.

Jet fuel prices continue to follow the price of Brent crude oil more closely than the price of West Texas Intermediate crude oil. On average, fuel costs were lower in 2014 as compared to 2013, driven by a significant decline in fuel prices in the fourth quarter of 2014. On December 31, 2014, the price of Brent crude oil fell to $55 per barrel, its lowest price since May 2009.overall revenue performance.

While the U.S. airline industry is currently benefiting from a favorable revenue environment and significantly reducedjet fuel prices have declined year-over-year as described above, uncertainty exists regarding the economic conditions driving these factors.declines. See Part I, Item 1A. Risk Factors – “Downturns in economic conditions adversely affect our business” andOur business is dependent on the price and availability of aircraft fuel. Continued periods of high volatility in fuel costs, increased fuel prices and significant disruptions in the supply of aircraft fuel could have a significant negative impact on our operating results and liquidity.”

American Airlines Group

Our 2014 GAAP results are not comparableDriven by substantially lower fuel costs, we realized operating income of $6.2 billion and net income of $7.6 billion in 2015. This compares to the GAAP results for 2013 asoperating income of $4.2 billion and net income of $2.9 billion in 2014. As a result of not hedging our fuel consumption, we fully benefited from the Merger, which closed on December 9, 2013. Additionally, US Airways Group applied acquisition accountingdecline in fuel prices.

Excluding the effects of net special charges (credits), we recognized operating income of $7.3 billion and net income of $6.3 billion in 2015 as compared to operating income of December 9, 2013$5.1 billion and its financial statements after December 9, 2013 are deemed not comparable to its financial statements for periods prior to the Merger.

To provide a basis for comparison to prior year results, we have presentednet income of $4.2 billion in the table below certain “combined” 2013 financial data which includes the financial results2014. This represents improvements of AAG44% and US Airways Group, each on a standalone basis. While this is a non-GAAP measure, management believes this presentation provides a more meaningful year-over-year comparison.50%, respectively, in operating income and net income in 2015.

 

  Year Ended
December 31,
2014
   Year Ended December 31, 2013 Percent
Change (1)
   Year Ended
December 31,
   Percent
Increase
(Decrease)
 
  AAG US Airways
Group
 Combined (3)   2015 2014   
(In millions)   (In millions, except percentage
changes)
 

Mainline and regional passenger revenues

  $37,124    $22,521   $13,021   $35,542    4.5    $35,512   $37,124     (4.3

Total operating revenues

   42,650     25,812    14,607    40,419    5.5    $40,990   $42,650     (3.9

Mainline and regional aircraft fuel and related taxes

   12,601     8,684    4,533    13,217    (4.7  $7,456   $12,601     (40.8

Total operating expenses

   38,401     24,236    13,604    37,840    1.5    $34,786   $38,401     (9.4

Operating income

   4,249     1,576    1,003    2,579    64.8    $6,204   $4,249     46.0  

Net income (loss)

   2,882     (1,638  392    (1,233  nm  

Net income

  $7,610   $2,882     nm  

Special items:(1)

            

Operating special charges, net

   824     259    403    662     $1,080   $824    

Nonoperating special charges, net

   132     211    20    218      594    132    

Income tax special charges (credits), net

   346     (324  (29  (353    (3,015  346    

Reorganization items, net

        2,655        2,655   
  

 

   

 

  

 

  

 

    

 

  

 

   

Total net special charges (2)

   1,302     2,801    394    3,182   

Total net special charges (credits)

  $(1,341 $1,302    

 

(1)

Percent change isAAG’s 2015 results were impacted by a comparisonnet special credit of $1.3 billion, consisting principally of a $3.0 billion non-cash tax benefit related to the reversal of the combined results.

(2)

AAG’s 2014 results were significantly impactedCompany’s valuation allowance for its deferred tax assets. This credit was offset in part by net$1.1 billion of operating special charges, of $1.3 billion. Significant components of net special charges include $818 millionconsisting principally of merger integration expenses and a $330$592 million non-cash special income tax charge relating to the sale of our portfolio of fuel hedging contracts, and $132 million of nonoperating special charges primarily related to debt extinguishments, bankruptcy obligations, and Venezuela foreign currency losses.a write off of the value of Venezuelan bolivars held. See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations –AAG’s “AAG’s Results of OperationsOperations” of this report for more information on net special items.

(3)

Combined results exclude $13 million of US Airways Group special nonoperating other, net expense, which was eliminated in consolidation with AAG. This expense represented a non-cash mark-to-market fair value adjustment for US Airways Group’s 7.25% convertible senior notes that were convertible into shares of AAG common stock subsequent to the Merger.

Driven by growth in revenues resulting from strong demand for air travel, we realized operating income of $4.2 billion and net income of $2.9 billion in 2014. This compares to combined operating income of $2.6 billion

and a combined net loss of $1.2 billion for 2013. Our 2014 net income included net operating and total net special charges of $824 million and $1.3 billion, respectively. Excluding the effects of net operating special charges, we recognized operating income of $5.1 billion in 2014, which is a $1.8 billion, or 57%, improvement as compared to combined operating income of $3.2 billion excluding net operating special charges in 2013. Excluding the effects of total net special charges, we recognized net income of $4.2 billion in 2014, which is a $2.2 billion, or 115%, improvement as compared to combined net income of $1.9 billion excluding total net special charges in 2013. See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – “AAG’s Results of Operations” of this report for more information on net special charges.

Revenue

In 2014,2015, we reported operating revenues of $42.7$41.0 billion. Mainline and regional passenger revenues were $37.1$35.5 billion, an increasea decrease of $1.6 billion, or 4.5%4.3%, as compared to the 2013 combined mainline and regional passenger revenues of $35.5 billion.2014. The growthdecline in revenues was driven by a 3.3% increase6.5% decrease in yield due to competitive growth in certain domestic markets, including Dallas/Fort Worth and 1.1% increaseinternational weakness resulting from foreign currency devaluation relative to the U.S. dollar, lower fuel surcharges, and continued economic softness in revenue passenger miles as total capacity increased 2.2%, as compared to 2013.Latin America, particularly in Brazil and Venezuela. Our combined mainline and regional passenger revenue per available seat mile (PRASM) was 13.21 cents in 2015, a 5.4% decrease, as compared to 13.97 cents in 2014, a 2.2% increase, as compared to a combined 13.67 cents in 2013.2014.

Fuel

Mainline and regional fuel expense was $12.6totaled $7.5 billion in 2014,2015, which was $616 million,$5.1 billion, or 4.7%40.8%, lower as compared to the combined mainline and regional fuel expense in 2013.2014. This decrease was driven by a 5.5%40.7% decrease in the average price per gallon of fuel to $1.72 in 2015 from $2.91 in 2014 from a combined average price per gallon of $3.08 in 2013. This decrease was offset in part by a 0.9% increase in consumption.2014.

During the second quarter of 2014, we sold our portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. We have not entered into any transactions to hedge our fuel consumption since December 9, 2013 and, accordingly, asAs of December 31, 2014,2015, we did not have any fuel hedging contracts outstanding.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.

Capacity

Total system capacity for the combined company increased 2.2% in 2014 as compared to the combined 2013 period, primarily due to more active aircraft and larger gauge aircraft replacing smaller legacy aircraft.

Cost Control

We remain committed to actively managing and maintaining a lowour 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 and the price of fuel. Our 20142015 mainline cost per available seat mile (CASM) excluding special items and fuel was 8.63 cents. When8.99 cents, an increase of 4.2% as compared to the 2013 combined results, mainline CASM excluding special items and fuel increased 2.0% in 2014. The increase was primarily due to higher salaries, wages and benefits driven by Merger-relatednew merger related labor contracts and higher maintenance costs driven by an increase in the rate per engine overhaul.with industry-leading pay rates. See below for the“Reconciliation of GAAP Financial Information to Non-GAAP Financial Information.”

Customer Service

During 2014, we worked to enhance our customers’ experience by continuing our fleet renewal program, under which we expect to achieve one of the most modern and fuel-efficient fleets in the industry. During 2014,

we took delivery of 82 mainline aircraft and retired 69 older legacy mainline aircraft. Additionally, in the fourth quarter of 2014, we announced $2.0 billion in planned customer improvements, including new seats from nose to tail on several aircraft types and fully lie-flat seats on our long-haul international fleet; satellite-based internet access providing connectivity for international flights; a refreshed and modern design for Admirals Club lounges worldwide; onboard power on new aircraft; and improved and updated kiosks to expedite airport check-in.

Most importantly, weWe are committed to consistently delivering safe, reliable and convenient service to our customers in every aspect of our operation. Our 2014The table below summarizes the operating performance was negatively impacted in part by severe weather conditions at our hubs as well as the September 2014 fire at the FAA’s Chicago Air Route Traffic Control Center, which caused significant flight delays and cancellations. Westatistics we reported the following combined operating statistics to the DOT for our mainline operations for the years ended December 31, 20142015 and 2013:2014. We are working to improve these metrics by making investments in our operations, which include the hiring of additional maintenance personnel to reduce the time aircraft are out of service. We are also making capital investments in new baggage handling technology.

 

  December 31,   Better
(Worse)
  December 31,   Better
(Worse)
 
  2014   2013 (a)     2015   2014   

On-time performance (b)(a)

   77.9     79.3    (1.4)pts   80.1     77.9     2.2pts 

Completion factor (c)(b)

   98.4     98.5    (0.1)pts   98.4     98.4     pts 

Mishandled baggage (d)(c)

   3.85     2.80    (37.5)%   3.97     3.77     (5.3)% 

Customer complaints (e)(d)

   2.12     1.76    (20.5)%   3.22     2.12     (51.9)% 

 

(a)

Represents the combined historical operating statistics for American and US Airways.

(b)

Percentage of reported flight operations arriving on time as defined byless than 15 minutes after the DOT.scheduled arrival time.

 

(c)(b)

Percentage of scheduled flight operations completed.

 

(d)(c)

Rate of mishandled baggage reports per 1,000 passengers.

 

(e)(d)

Rate of customer complaints filed with the DOT per 100,000 enplanements.

Liquidity Position

As of December 31, 2014,2015, AAG’s total cash, short-term investments and restricted cash and short-term investments were $8.1$6.9 billion, of which $774$695 million was restricted. We also had a $1.8$2.4 billion of undrawn revolving line of credit facility.facilities.

 

  December 31, 
  December 31,
2014
   December 31,
2013
   2015   2014 
  (In millions)   (In millions) 

Cash and short-term investments (1)

  $7,303    $9,251    $6,254    $7,303  

Restricted cash and short-term investments (2)

   774     1,035     695     774  
  

 

   

 

   

 

   

 

 

Total cash, short-term investments and restricted cash and short-term investments

  $8,077    $10,286    $6,949    $8,077  
  

 

   

 

   

 

   

 

 

 

(1)

As of December 31, 2014, approximately $656 million of our unrestricted cash and short-term investment balance was held in Venezuelan bolivars. This balance includes approximately $621 million valued at 6.3 bolivars and approximately $35 million valued at 12.0 bolivars, with the rate depending on the date we submitted our repatriation request to the Venezuelan government. These rates are materially more favorable than the exchange rates currently prevailing for other transactions conducted outside of the Venezuelan government’s currency exchange system that we participate in. Our cash balance held in Venezuelan bolivars decreased $54 million from the December 31, 2013 balance of $710 million primarily due to $88 million in cash repatriations and $30 million in foreign currency losses as described below, partially offset by additional cash proceeds from ticket sales in early 2014. In the second and third quarters of 2014, we repatriated $65 million including $31 million valued at 6.3 bolivars to the dollar and $34 million valued at 10.6 bolivars to the dollar. In the fourth quarter of 2014, we incurred an $11 million foreign currency loss related to the receipt of $23 million at a rate of 6.3 bolivars to the dollar for one of our 2012 repatriation requests originally valued at a rate of 4.3 bolivars to the dollar. Accordingly, we revalued our remaining

pending 2012 repatriation requests from 4.3 to 6.3 bolivars to the dollar resulting in additional foreign currency losses of $19 million. In total,2015, we recognized a $30$592 million special charge for these foreign currency lossesto write off all of the value of Venezuelan bolivars held by us, due to continued lack of repatriations and deterioration of economic conditions in the fourth quarter of 2014.Venezuela. During 2014, we significantly reduced capacity in thisthe Venezuelan market and we are no longer acceptingaccept bolivars as payment for airline tickets. We are continuing to work with Venezuelan authorities regarding the timing and exchange rate applicable to the repatriation of funds held in local currency. We are monitoring this situation closely and continue to evaluate our holdings of Venezuelan bolivars for additional foreign currency losses, which could be material, particularly in light of the uncertainty posed by the new foreign exchange regulations announced in mid-February 2015 and the continued deterioration of economic conditions in Venezuela. 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.

 

(2)

Restricted cash and short-term investments primarily include cash collateral to secure workers’ compensation claims.obligations.

In 2014,2015, we utilized cash generated from operations to pay down certain higher rate debtinvest in our airline. We continued our fleet renewal program by investing more than $5.3 billion in new aircraft, which has provided us with the youngest and lease obligations, to make supplemental contributionsmost modern fleet of the U.S. network airlines. In 2015, we took delivery of 75 new mainline aircraft while retiring 112 aircraft. We also added 52 regional aircraft to our pension plansfleet and to return valueremoved 31 regional aircraft.

In 2015, we returned $3.9 billion to our shareholders by reducing our diluted share count through the payment of $278 million in quarterly dividends and the repurchase program and paying our first cash dividend since 1980. We declared cash dividends of $0.10 per share for shareholders of record on August 4, 2014 and have continued to declare a dividend of $0.10 per share in each quarter thereafter.

These cash outflows were offset in part by certain new debt issuances to strengthen our liquidity position. Further information on our significant transactions affecting our liquidity position in 2014 is as follows:

Debt Repayments

We prepaid $1.0$3.6 billion of American’s 7.50% senior secured notes.

We prepaid approximately $1.2 billion of various high cost aircraft debt and lease obligations. Of this amount, $155common stock, or 85.1 million was a reduction of debt on our balance sheet. The remaining portion of these obligations was accounted for as an operating lease.

We prepaid or repurchased $646 million of obligations associated with special facility revenue bonds issued by municipalities to build or improve certain airport and maintenance facilities. Of this amount, $366 million was a reduction of debt on our balance sheet. The remaining portion of these obligations was accounted for as an operating lease.

Reductionsshares. In addition, in Diluted Share Count

In 2014, we repurchased 23.4 million shares of AAG Common Stock for $1.0 billion, completing the $1.0 billion share repurchase program authorized by our Board of Directors on July 23, 2014. In January 2015 we announced that our Board of Directors authorized a new $2.0 billion share repurchase programelected to be completed by the end of 2016.

In 2014, we withheldpay approximately 9 million shares of AAG Common Stock and paid approximately $325$306 million in satisfaction of certain tax withholding obligations associated with distributions underequity awards, further reducing the Planshare count by 7.0 million.

These cash outflows were offset in part by proceeds from financing transactions, principally aircraft related. We ended the year with $8.7 billion in available liquidity (including available lines of credit). We believe it is important to retain liquidity levels above our network peers as we expect capital expenditures of approximately $4.5 billion in each of 2016 and employee equity awards.

We redeemed US Airways Group’s 7.25% convertible notes2017 as we continue our fleet renewal program. See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – “Commitments for $175 million in cash in lieufurther discussion of issuing 4 million shares of AAG Common Stock.

Pension Prefunding2015 financing transactions and our contractual commitments.

In 2014, we made $639 million in supplemental contributions to fund our pension plans. These contributions are above and beyond the $171 million aggregate amount of minimum required contributions made in 2014.

New Debt Issuances

In September 2014, AAG issued $750 million aggregate principal amount of 5.50% senior notes due 2019 (the 5.50% senior notes). Also in September 2014, American issued $957 million in equipment notes related to the 2014-1 Enhanced Equipment Trust Certificates to finance unencumbered aircraft.

In October 2014, American borrowed $750 million under a new term loan facility due in 2021 and arranged a $400 million revolving credit facility due in 2019. American also increased its existing revolving credit facility from $1.0 billion to $1.4 billion and extended its maturity date from 2018 to 2019.

20152016 Outlook

We have taken significant actions to restore our competitiveness and to complete our integration. Although it is difficult to predict the price of oil or the strength of the economy, we believe that our 20142015 financial results are evidence of the substantial progress we have made and can continue to build on.

Reconciliation of GAAP Financial Information to Non-GAAP Financial Information

We believe that the presentation of mainline CASM excluding fuel is useful to investors as both the cost and availability of fuel are subject to many economic and political factors beyond our control, and the exclusion of special items provides investors the ability to measure financial performance in a way that is more indicative of our ongoing performance and is more comparable to measures reported by other major airlines. Management uses mainline CASM excluding special items and fuel to evaluate our operating performance. Amounts may not recalculate due to rounding.

 

   Year Ended
December 31, 2014
  Year Ended December 31, 2013 
   AAG  US Airways
Group
  Combined 
  (In millions, except per ASM amounts) 

Total operating expenses

  $38,401   $24,236   $13,604   $37,840  

Less: Regional expenses:

   

Fuel

   (2,009  (1,056  (1,052  (2,108

Other

   (4,507  (2,056  (2,253  (4,309
  

 

 

  

 

 

  

 

 

  

 

 

 

Total mainline operating expenses

   31,885    21,124    10,299    31,423  

Less: Special items, net

   (800  (282  (415  (697
  

 

 

  

 

 

  

 

 

  

 

 

 

Mainline operating expenses, excluding special items

   31,085    20,842    9,884    30,726  

Less: Aircraft fuel and related taxes

   (10,592  (7,628  (3,481  (11,109
  

 

 

  

 

 

  

 

 

  

 

 

 

Mainline operating expenses, excluding special items and fuel

  $20,493   $13,214   $6,403   $19,617  
  

 

 

  

 

 

  

 

 

  

 

 

 

Available Seat Miles (ASM)

   237,522    154,499    77,374    231,873  

(In cents)

     

Mainline operating expenses per ASM

  $13.42     $13.55  

Less: Special items, net per ASM

   (0.34    (0.30
  

 

 

    

 

 

 

Mainline operating expenses per ASM, excluding special items

   13.09      13.25  

Less: Aircraft fuel and related taxes per ASM

   (4.46    (4.79
  

 

 

    

 

 

 

Mainline operating expenses per ASM, excluding special items and fuel

  $8.63     $8.46  
  

 

 

    

 

 

 

   Year Ended December 31, 
           2015                  2014         
   (In millions, except per ASM amounts) 

Total operating expenses

  $34,786   $38,401  

Less: Regional expenses:

   

Fuel

   (1,230  (2,009

Other

   (4,753  (4,507
  

 

 

  

 

 

 

Total mainline operating expenses

   28,803    31,885  

Less: Special items, net

   (1,051  (800
  

 

 

  

 

 

 

Mainline operating expenses, excluding special items

   27,752    31,085  

Less: Aircraft fuel and related taxes

   (6,226  (10,592
  

 

 

  

 

 

 

Mainline operating expenses, excluding special items and fuel

  $21,526   $20,493  
  

 

 

  

 

 

 

Available Seat Miles (ASM)

   239,375    237,522  

(In cents)

   

Mainline operating expenses per ASM

   12.03    13.42  

Less: Special items, net per ASM

   (0.44  (0.34
  

 

 

  

 

 

 

Mainline operating expenses per ASM, excluding special items

   11.59    13.09  

Less: Aircraft fuel and related taxes per ASM

   (2.60  (4.46
  

 

 

  

 

 

 

Mainline operating expenses per ASM, excluding special items and fuel

   8.99    8.63�� 
  

 

 

  

 

 

 

AAG’s Results of Operations

In 2015, we realized operating income of $6.2 billion and net income of $7.6 billion. Our 2015 net income included net special operating charges of $1.1 billion and total net special credits of $1.3 billion. Excluding the effects of these special charges and credits, we realized operating income of $7.3 billion and net income of $6.3 billion.

In 2014, we realized operating income of $4.2 billion and net income of $2.9 million.billion. Our 2014 net income included net special operating charges of $824 million and total net special charges of $1.3 billion. Excluding the effects of these special charges, we realized operating income of $5.1 billion and net income of $4.2 billion.

We completed the Merger on December 9, 2013. Under GAAP, AAG’s results do not include the financial results of US Airways Group prior to the closing of the Merger. Accordingly, our 2014 period GAAP results are not comparable to the GAAP results for the 2013 or 2012 periods as those periods exclude2013 excludes the results of US Airways Group except for the 23 day post-Merger period from December 9, 2013 to December 31, 2013.

When compared to the combined separate company resultsIn 2013, we realized operating income of AAG$1.4 billion and US Airways Group fornet loss of $1.8 billion. Our 2013 our 2014 net income excludingincluded net special operating charges of $536 million and total net special charges improved by $2.2of $3.1 billion. In 2013, on a standalone basis, AAG reported a net loss of $1.6 billion and US Airways Group reported net income of $392 million. Excluding the effects of netthese special charges, AAGwe realized operating income of $1.9 billion and US Airways Group reported 2013 net income of $1.2 billion and $786 million, respectively.billion.

When compared to the combined separate company results

The components of AAG and US Airways Group for 2012, our 2013 combined net income excludingtotal net special charges improved by $1.5 billion. In 2012, on a standalone basis, AAG reported a net loss of $1.9 billion and US Airways Group reported net income of $637 million. Excluding the effects of net special charges, AAG reported a 2012 net loss of $130 million and US Airways Group reported net income of $537 million.

The components of net special items(credits) in our accompanying consolidated statements of operations are as follows (in millions):

 

  Year Ended December 31,   Year Ended December 31, 
2014   2013 2012  2015 2014   2013 

Other revenue special item, net (1)

  $    $(31 $    $   $    $(31

Mainline operating special items, net (2)

   800     559    386     1,051    800     559  

Regional operating special items, net(3)

   24     8    1     29    24     8  

Nonoperating special items, net (3)(4)

   132     211    (280   594    132     211  

Reorganization items, net (4)(5)

        2,655    2,208              2,655  

Income tax special items, net (5)(6)

   346     (324  (569   (3,015  346     (324
  

 

   

 

  

 

   

 

  

 

   

 

 

Total

  $1,302    $3,078   $1,746    $(1,341 $1,302    $3,078  
  

 

   

 

  

 

   

 

  

 

   

 

 

 

(1)

In 2013, other revenue special item, net included a credit to other revenues related to a change in accounting method resulting from the modification of AAG’sAmerican’s AAdvantage miles agreement with Citibank.

 

(2)

In 2014,2015, mainline operating special items, net principally included $810 million$1.0 billion of Mergermerger integration expenses related to information technology, alignment of labor union contracts, professional fees, severance, and retention, share-based compensation, divestiture of London Heathrow Slots, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training. In addition, we recorded a net charge of $81 million for bankruptcy related items principally consisting of fair value adjustments for bankruptcy settlement obligations, $164 million in other special charges, including an $81 million charge to revise prior estimates of certain aircraft residual values, and other spare parts asset impairments, as well as $54 million in charges primarily relating to the buyout of certain aircraft leases. These charges were offset in part by a $309 million gain on the sale of Slots

In 2014, mainline operating special items, net principally included $810 million of merger integration expenses related to information technology, alignment of labor union contracts, professional fees, severance and retention, share-based compensation, divestiture of London Heathrow slots, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training. In addition, we recorded a net charge of $81 million for bankruptcy related items principally consisting of fair value adjustments for bankruptcy settlement obligations and an $81 million charge to revise prior estimates of certain aircraft residual values and other spare parts asset impairments. These charges were offset in part by a $309 million gain on the sale of slots at DCA.

In 2013, mainline operating special items, net included $443 million of primarily Mergermerger related expenses duerelated to the alignment of labor union contracts, professional fees, severance, share-based compensation and fees for US Airways to exit the Star Alliance and its codeshare agreement with United Airlines. In addition, we recorded a $107 million charge related to American’s pilot long-term disability obligation, a $43 million

charge for workers’ compensation claims and a $33 million aircraft impairment charge. These charges were offset in part by a $67 million gain on the sale of Slotsslots at LaGuardia Airport.LGA.

In 2012, mainline

(3)

The 2015 regional operating special items, net principally related to merger integration expenses.

The 2014 regional operating special items, net consisted primarily of $386a $24 million charge due to a new pilot labor contract at our Envoy regional subsidiary as well as $7 million of severance and related charges and write-offmerger integration expenses, offset in part by an $8 million gain on the sale of leasehold improvements on aircraft and airport facilities that were rejected in connection with the Chapter 11 Cases.certain spare parts.

 

(3)(4)

In 2014,2015, nonoperating special items, net consisted principally included a $592 million charge to write off all of $43 million forthe value of Venezuelan foreign currency losses, $56 millionbolivars held by us due to continued lack of early debt extinguishment costs related to the prepaymentrepatriations and deterioration of our 7.50% senior secured notes and other indebtedness and $33 million of non-cash interest accretion on bankruptcy settlement obligations. See Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk for further discussion of our cash heldeconomic conditions in Venezuelan bolivars.Venezuela.

In 2014, nonoperating special items, net principally included a $43 million charge for Venezuelan foreign currency losses, $56 million of early debt extinguishment costs primarily related to the prepayment of 7.50% senior secured notes and other indebtedness and $33 million of non-cash interest accretion on bankruptcy settlement obligations.

In 2013, nonoperating special items, net consisted of interest charges of $138 million primarily to recognize post-petition interest expense on unsecured obligations pursuant to the Plan and penalty interest related to 10.5% secured notes and 7.50% senior secured notes, a $54 million charge related to the premium on tender for existing enhanced equipment trust certificatesEETC financings and the write-off of debt issuance costs and $19 million in charges related to the repayment of existing EETC financings.

In 2012, nonoperating special items, net consisted of a $280 million benefit resulting from a settlement of a commercial dispute.

(4)(5)

In 2013, and 2012, we recognized reorganization expenses as a result of the filing of voluntary petitions for relief under Chapter 11. These amounts consisted primarily of estimated allowed claim amounts and professional fees.

 

(5)(6)

In 2014,2015, income tax special items totaled a net were $346 million. During 2014, we sold our portfoliocredit of fuel hedging contracts that were scheduled to settle on or after June 30, 2014.$3.0 billion. In connection with this sale,the preparation of our financial statements for the fourth quarter of 2015, we recordeddetermined that it was more likely than not that substantially all of our deferred tax assets, which include our NOLs, would be realized. Accordingly, we reversed $3.0 billion of the valuation allowance as of December 31, 2015, which resulted in a special $3.0 billion non-cash tax provision of $330 millionbenefit recorded in the second quarterconsolidated statement of 2014 that reversed the non-cash tax provision which was recorded in other comprehensive income (OCI), a subset of stockholders’ equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of our fuel hedging contracts. In accordance with GAAP, we retained the $330 million tax provision in OCI until the last contract was settled or terminated. In addition, we recorded a special $16 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets.operations for 2015.

In 2014, income tax special items, net were $346 million. During 2014, we sold our portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, we recorded a special non-cash tax provision of $330 million in the second quarter of 2014 that reversed the non-cash tax provision which was recorded in other comprehensive income (OCI), a subset of stockholders’ equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of our fuel hedging contracts. In accordance with GAAP, we retained the $330 million tax provision in OCI until the last contract was settled or terminated.

In 2013, and 2012, income tax special items, net included respectively, a $538 million and a $569 million non-cash income tax benefit from continuing operations. We are required to consider all items (including items recorded in other comprehensive income)OCI) in determining the amount of tax benefit that results from a loss from continuing operations and that should be allocated to continuing operations. As a result, we recorded a tax benefit on the loss from continuing operations for the year, which was exactly offset by income tax expense on other comprehensive income.OCI. However, while the income tax benefit from continuing operations is reported on the income statement, the income tax expense on other comprehensive incomeOCI is recorded directly to accumulated other comprehensive income (loss), which is a component of stockholders’ equity. Because the income tax expense on other comprehensive incomeOCI is equal to the income tax benefit from continuing operations, our year-end net deferred tax position is not impacted by this tax allocation. The 2013 tax benefit was offset in part by a $214 million tax charge attributable to additional valuation allowance required to reduce deferred tax assets to the amount we believe isbelieved was more likely than not to be realized.

Income Taxes

At December 31, 2014,2015, we had approximately $10.1$8.0 billion of gross NOL Carryforwards to reduce future federal taxable income, substantially all of which are expected to be available for use in 2015.2016. The federal NOL Carryforwards will expire beginning in 20222023 if unused. These NOL Carryforwards include an unrealized tax benefit of $867 million$1.2 billion related to the implementation of share-based compensation accounting guidance that will

be recorded in equity when realized. We also had approximately $4.6$4.0 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2014,2015, which will expire in years 20152016 through 2034 if unused. Our ability to deduct our NOL 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. We experienced an ownership change in connection with our emergence from the Chapter 11 Cases, and US Airways Group experienced an ownership change in connection with the Merger. As a result of the Merger, US Airways Group is now included in the AAG consolidated federal and state income tax return.returns. The general limitation rules of Section 382 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 special rules for federal income tax purposes that permitpermitted approximately $9.0 billion (with $6.6 billion of unlimited NOL remaining at December 31, 2015) of our federal NOL Carryforwards to be utilized without regard to the Section 382 annual limitation rules.rules unless a second ownership change occurred on or before December 9, 2015. No second ownership change occurred within that period. Substantially all of our remaining federal NOL Carryforwards (attributable to US Airways Group) are subject to limitation under Section 382; however, our ability to utilize such NOL Carryforwards is not anticipated to be effectively constrained as a result of such limitation. Similar limitations may apply for state income tax purposes. Our ability to utilize any new NOL Carryforwards arising after the ownership changes is not affected by the annual limitation rules imposed by Section 382 unless another ownership change occurs.

At December 31, 2014,2015, we had an Alternative Minimum Tax (AMT) credit carryforward of approximately $341 million available for federal income tax purposes, which is available for an indefinite period. Our net deferred tax assets, which include

In connection with the NOL Carryforwards, are subject to a full valuation allowance. At December 31, 2014,preparation of our financial statements for the federal and state valuation allowances were $4.5 billion and $264 million, respectively. In accordance with GAAP, utilizationfourth quarter of the NOL Carryforwards after December 9, 2013 will result in a corresponding decrease in the valuation allowance and offset our tax provision dollar for dollar.

We provide a valuation allowance for deferred tax assets when2015, we determined that it iswas more likely than not that some portion, orsubstantially all of our deferred tax assets, will notwhich include our NOLs, would be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income (primarily reversals of deferred tax liabilities) during the periods in which those temporary differences will become deductible. In making this determination,Accordingly, we consider all available positive and negative evidence and make certain assumptions. We consider many factors in evaluating the realizability of our deferred tax assets including risks associated with merger integration as well as other factors, which continue to be affected by conditions beyond our control, such as the conditionreversed $3.0 billion of the economy, the level and volatility of fuel prices and travel demand. We have concludedvaluation allowance as of December 31, 2014 that2015, which resulted in a special $3.0 billion non-cash tax benefit recorded in the valuation allowance was still needed on our deferredconsolidated statement of operations for 2015.

Beginning in 2016, we expect to record income tax asset based onexpense with an effective rate of approximately 38%, which will be substantially non-cash as we utilize the weight of the factorsNOLs described above.above to offset cash income taxes due.

For the year ended December 31, 2014, we recorded a $330 million tax provision. This provision, which included $346 million of special tax charges as described above. In addition, we recorded $8 million of tax expense principally related to certain states and countries where NOL Carryforwards were limited or unavailable to be used. These charges were offset in part by a $24 million federal income tax benefit resulting from our elections under applicable sections of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 and the Housing and Economic Recovery Act of 2008 (as extended by the Tax Increase Prevention Act of 2014), allowing corporations to accelerate utilization of certain research and AMT credit carryforwards in lieu of applicable bonus depreciation on certain qualifying capital investments.

For the year ended December 31, 2013, we recorded a $346 million tax benefit. This benefit, which included $324 million of net special tax benefits as described above. In addition, we recorded a $22 million federal income tax benefit under the Housing and Economic Recovery Act of 2008 as described above.

For the year ended December 31, 2012, we recorded a $569 million special tax benefit as described above.

Operating Statistics

The table below sets forth selected combined mainline and regional operating data:data for the years ended December 31, 2015 and 2014. Operating statistics for the year ended December 31, 2013 have not been included because they would not be comparable to the years ended December 31, 2015 or 2014 due to US Airways Group results only being included for 23 days ended December 31, 2013.

 

  Year Ended December 31,  Increase
(Decrease)
2014-2013
  Increase
(Decrease)
2013-2012
 
   
 2014  2013 (1)  2012 (1)   

Mainline

     

Revenue passenger miles (millions) (a)

  195,651    194,026    188,841    0.8  2.7

Available seat miles (millions) (b)

 ��237,522    231,873    226,839    2.4  2.2

Passenger load factor (percent) (c)

  82.4    83.7    83.2    (1.3)pts   0.5pts 

Yield (cents) (d)

  15.74    15.08    14.66    4.4  2.9

Passenger revenue per available seat mile (cents) (e)

  12.97    12.62    12.20    2.7  3.4

Operating cost per available seat mile (cents) (f)

  13.42    13.55    13.79    (0.9)%   (1.7)% 

Passenger enplanements (thousands) (g)

  145,574    143,747    140,742    1.3  2.1

Departures (thousands)

  1,144    1,140    1,113    0.3  2.5

Aircraft at end of period

  983    970    954    1.3  1.7

Block hours (thousands) (h)

  3,514    3,454    3,350    1.7  3.1

Average stage length (miles) (i)

  1,205    1,190    1,183    1.3  0.6

Fuel consumption (gallons in millions)

  3,644    3,608    3,512    1.0  2.8

Average aircraft fuel price including related taxes (dollars per gallon)

  2.91    3.08    3.19    (5.6)%   (3.4)% 

Full-time equivalent employees at end of period

  94,400    91,500    95,800    3.2  (4.5)% 

Regional (j)

     

Revenue passenger miles (millions) (a)

  22,219    21,515    21,097    3.3  2.0

Available seat miles (millions) (b)

  28,135    28,041    27,809    0.3  0.8

Passenger load factor (percent) (c)

  79.0    76.7    75.9    2.3pts   0.8pts 

Yield (cents) (d)

  28.46    29.17    29.69    (2.4)%   (1.7)% 

Passenger revenue per available seat mile (cents) (e)

  22.47    22.38    22.52    0.4  (0.6)% 

Operating cost per available seat mile (cents) (f)

  23.16    22.88    22.81    1.2  0.3

Passenger enplanements (thousands) (g)

  51,766    49,993    49,757    3.5  0.5

Aircraft at end of period

  566    558    536    1.4  4.1

Fuel consumption (gallons in millions)

  688    687    658    0.1  4.4

Average aircraft fuel price including related taxes (dollars per gallon)

  2.92    3.07    3.21    (4.7)%   (4.3)% 

Full-time equivalent employees at end of period (k)

  18,900    18,200    18,700    3.8  (2.7)% 

Total Mainline and Regional

     

Revenue passenger miles (millions) (a)

  217,870    215,541    209,938    1.1  2.7

Available seat miles (millions) (b)

  265,657    259,914    254,648    2.2  2.1

Cargo ton miles (millions) (l)

  2,333    2,198    2,105    6.1  4.4

Passenger load factor (percent) (c)

  82.0    82.9    82.4    (0.9)pts   0.5pts 

Yield (cents) (d)

  17.04    16.49    16.17    3.3  2.0

Passenger revenue per available seat mile (cents) (e)

  13.97    13.67    13.33    2.2  2.6

Total revenue per available seat mile (cents) (m)

  16.05    15.54    15.17    3.3  2.5

Cargo yield per ton mile (cents) (n)

  37.50    37.74    39.38    (0.6)%   (4.2)% 

Passenger enplanements (thousands) (g)

  197,340    193,740    190,499    1.9  1.7

Aircraft at end of period

  1,549    1,528    1,490    1.4  2.6

Fuel consumption (gallons in millions)

  4,332    4,295    4,170    0.9  3.0

Average aircraft fuel price including related taxes (dollars per gallon)

  2.91    3.08    3.19    (5.5)%   (3.6)% 

Full-time equivalent employees at end of period

  113,300    109,700    114,500    3.3  (4.2)% 

(1)

Represents the combined historical operating statistics of American and US Airways Group.

  Year Ended December 31,  Increase
(Decrease)
2015-2014
 
  
       2015              2014        

Mainline

   

Revenue passenger miles (millions) (a)

  199,467    195,651    2.0

Available seat miles (millions) (b)

  239,375    237,522    0.8

Passenger load factor (percent) (c)

  83.3    82.4    0.9pts 

Yield (cents) (d)

  14.56    15.74    (7.5)% 

Passenger revenue per available seat mile (cents) (e)

  12.13    12.97    (6.5)% 

Operating cost per available seat mile (cents) (f)

  12.03    13.42    (10.4)% 

Passenger enplanements (thousands) (g)

  146,814    145,574    0.9

Departures (thousands)

  1,114    1,144    (2.6)% 

Aircraft at end of period

  946    983    (3.8)% 

Block hours (thousands) (h)

  3,494    3,514    (0.6)% 

Average stage length (miles) (i)

  1,226    1,205    1.7

Fuel consumption (gallons in millions)

  3,611    3,644    (0.9)% 

Average aircraft fuel price including related taxes (dollars per gallon)

  1.72    2.91    (40.7)% 

Full-time equivalent employees at end of period

  98,900    94,400    4.8

Regional (j)

   

Revenue passenger miles (millions) (a)

  23,543    22,219    6.0

Available seat miles (millions) (b)

  29,361    28,135    4.4

Passenger load factor (percent) (c)

  80.2    79.0    1.2pts 

Yield (cents) (d)

  27.50    28.46    (3.3)% 

Passenger revenue per available seat mile (cents) (e)

  22.05    22.47    (1.9)% 

Operating cost per available seat mile (cents) (f)

  20.38    23.16    (12.0)% 

Passenger enplanements (thousands) (g)

  54,435    51,766    5.2

Aircraft at end of period

  587    566    3.7

Fuel consumption (gallons in millions)

  712    688    3.6

Average aircraft fuel price including related taxes (dollars per gallon)

  1.73    2.92    (40.9)% 

Full-time equivalent employees at end of period (k)

  19,600    18,900    3.7

Total Mainline and Regional

   

Revenue passenger miles (millions) (a)

  223,010    217,870    2.4

Available seat miles (millions) (b)

  268,736    265,657    1.2

Cargo ton miles (millions) (l)

  2,314    2,333    (0.8)% 

Passenger load factor (percent) (c)

  83.0    82.0    1.0pts 

Yield (cents) (d)

  15.92    17.04    (6.5)% 

Passenger revenue per available seat mile (cents) (e)

  13.21    13.97    (5.4)% 

Total revenue per available seat mile (cents)

  15.25    16.05    (5.0)% 

Cargo yield per ton mile (cents) (m)

  32.84    37.50    (12.4)% 

Passenger enplanements (thousands) (g)

  201,249    197,340    2.0

Aircraft at end of period

  1,533    1,549    (1.0)% 

Fuel consumption (gallons in millions)

  4,323    4,332    (0.2)% 

Average aircraft fuel price including related taxes (dollars per gallon)

  1.72    2.91    (40.7)% 

Full-time equivalent employees at end of period

  118,500    113,300    4.6

 

(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)

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

 

(g)

Passenger enplanements – The number of passengers on board an aircraft, including local, connecting and through passengers.

 

(h)

Block hours – The hours measured from the moment an aircraft first moves under its own power, including taxi time, for the purposes of flight until the aircraft is docked at the next point of landing and its power is shut down.

 

(i)

Average stage length – The average of the distances flown on each segment of every route.

 

(j)

Regional statistics include our subsidiaries, Envoy Aviation Group Inc. (Envoy, formerly known as AMR Eagle Holding Corporation)(Envoy), Piedmont Airlines, Inc. (Piedmont) and PSA Airlines, Inc. (PSA), and operating and financial resultsstatistics from our capacity purchase agreements with Air Wisconsin Airlines Corporation, Chautauqua Airlines, Inc., ExpressJet Airlines, Inc., Mesa Airlines, Inc., Republic Airline Inc., SkyWest Airlines, Inc., Compass Airlines, LLC and SkyWestTrans States Airlines, Inc.

 

(k)

Regional full-time equivalent employees only include our wholly ownedwholly-owned regional airline subsidiaries, Envoy, Piedmont and PSA.

 

(l)

Cargo ton miles – A basic measure of cargo transportation. One cargo ton mile represents one ton of cargo transported one mile.

 

(m)

Total revenue per available seat mile (RASM) – Total revenues divided by total mainline and regional ASMs. Total revenues in the 2013 period excludes a $31 million special credit recorded to other revenues related to a change in accounting method resulting from the modification of our AAdvantage miles agreement with Citibank.

(n)

Cargo yield per ton mile – Cargo revenues divided by total mainline and regional cargo ton miles.

2015 Compared to 2014

Operating Revenues

   Year Ended December 31,   Percent
Increase
(Decrease)
 
      2015           2014       
  (In millions, except percentage changes) 

Mainline passenger

  $29,037    $30,802     (5.7

Regional passenger

   6,475     6,322     2.4  

Cargo

   760     875     (13.1

Other

   4,718     4,651     1.4  
  

 

 

   

 

 

   

Total operating revenues

  $40,990    $42,650     (3.9
  

 

 

   

 

 

   

Total operating revenues in 2015 decreased $1.7 billion, or 3.9%, from 2014 principally due to competitive growth and weaker international yields primarily due to foreign currency devaluation relative to the U.S. dollar. Significant changes in the components of operating revenues are as follows:

Mainline passenger revenues were $29.0 billion in 2015 as compared to $30.8 billion in 2014. Mainline RPMs increased 2.0% as mainline capacity, as measured by ASMs, increased 0.8%, resulting in a 0.9 point increase in load factor to 83.3%. Mainline passenger yield decreased 7.5% to 14.56 cents in 2015 from 15.74 cents in 2014. Mainline PRASM decreased 6.5% to 12.13 cents in 2015 from 12.97 cents in 2014.

Regional passenger revenues were $6.5 billion in 2015 as compared to $6.3 billion in 2014. Regional RPMs increased 6.0% as regional capacity, as measured by ASMs, increased 4.4%, resulting in a 1.2

point increase in load factor to 80.2%. Regional passenger yield decreased 3.3% to 27.50 cents in 2015 from 28.46 cents in 2014. Regional PRASM decreased 1.9% to 22.05 cents in 2015 from 22.47 cents in 2014.

Cargo revenue decreased $115 million, or 13.1%, in 2015 from 2014 driven primarily by a decrease in international freight yields.

Operating Expenses

   Year Ended December 31,   Percent
Increase
(Decrease)
 
       2015           2014       
   (In millions, except percentage changes) 

Aircraft fuel and related taxes

  $6,226    $10,592     (41.2

Salaries, wages and benefits

   9,524     8,508     11.9  

Maintenance, materials and repairs

   1,889     2,051     (7.9

Other rent and landing fees

   1,731     1,727     0.2  

Aircraft rent

   1,250     1,250       

Selling expenses

   1,394     1,544     (9.8

Depreciation and amortization

   1,364     1,295     5.4  

Special items, net

   1,051     800     31.3  

Other

   4,374     4,118     6.2  
  

 

 

   

 

 

   

Total mainline operating expenses

   28,803     31,885     (9.7

Regional expenses:

      

Fuel

   1,230     2,009     (38.8

Other

   4,753     4,507     5.4  
  

 

 

   

 

 

   

Total regional operating expenses

   5,983     6,516     (8.2
  

 

 

   

 

 

   

Total operating expenses

  $34,786    $38,401     (9.4
  

 

 

   

 

 

   

Total operating expenses were $34.8 billion in 2015, a decrease of $3.6 billion, or 9.4%, from 2014. The decrease in operating expenses was primarily due to substantially lower aircraft fuel costs, offset in part by higher salaries, wages and benefits driven by new merger related labor contracts. See detailed explanations below relating to changes in operating costs per ASM.

Mainline Operating Expenses per ASM

Our mainline CASM decreased 1.39 cents, or 10.4%, from 13.42 cents in 2014 to 12.03 cents in 2015 on 0.8% increase in capacity primarily due to lower fuel prices. Excluding special items and aircraft fuel and related taxes, our mainline CASM increased 0.36 cents, or 4.2%, from 8.63 cents in 2014 to 8.99 cents in 2015, primarily due to higher salaries, wages and benefits due to new merger related labor contracts.

The table below sets forth the major components of our total mainline CASM and our mainline CASM excluding special items and aircraft fuel and related taxes for the year ended December 31, 2015 and 2014:

   Year Ended December 31,  Percent
Increase
(Decrease)
 
       2015          2014      
   (In cents, except percentage changes) 

Mainline CASM:

    

Aircraft fuel and related taxes

   2.60    4.46    (41.7

Salaries, wages and benefits

   3.98    3.58    11.1  

Maintenance, materials and repairs

   0.79    0.86    (8.6

Other rent and landing fees

   0.72    0.73    (0.5

Aircraft rent

   0.52    0.53    (0.8

Selling expenses

   0.58    0.65    (10.5

Depreciation and amortization

   0.57    0.55    4.6  

Special items, net

   0.44    0.34    30.3  

Other

   1.83    1.73    5.4  
  

 

 

  

 

 

  

Total mainline CASM

   12.03    13.42    (10.4

Special items, net

   (0.44  (0.34  30.3  

Aircraft fuel and related taxes

   (2.60  (4.46  (41.7
  

 

 

  

 

 

  

Mainline operating expenses per ASM, excluding special items and aircraft fuel and related taxes (1)

   8.99    8.63    4.2  
  

 

 

  

 

 

  

(1)

We believe that the presentation of mainline CASM excluding fuel is useful to investors because both the cost and availability of fuel are subject to many economic and political factors beyond our control, and the exclusion of special items provides investors the ability to measure financial performance in a way that is more indicative of our ongoing performance and that is more comparable to measures reported by other major airlines. Management uses mainline CASM excluding special items and fuel to evaluate our operating performance. Amounts may not recalculate due to rounding.

Significant changes in the components of mainline operating expense per ASM are as follows:

Aircraft fuel and related taxes per ASM decreased 41.7% primarily due to a 40.7% decrease in the average price per gallon of fuel to $1.72 in 2015 from an average price per gallon of $2.91 in 2014.

Salaries, wages and benefits per ASM increased 11.1% primarily due to increased costs associated with the new, merger related pilot, flight attendant and customer service and reservation agent joint collective bargaining agreements.

Maintenance, materials and repairs per ASM decreased 8.6% primarily due to fewer engine overhauls in 2015, driven by our fleet renewal program.

Selling expenses per ASM decreased 10.5% primarily due to lower contractually negotiated rates for certain commissions and booking fees as well as lower revenues in 2015.

Other operating expenses per ASM increased 5.4% in 2015 as compared to 2014 primarily due to increases in crew travel and certain information technology projects, as well as enhancements to our aircraft food and catering offerings.

Regional Operating Expenses

Total regional expenses decreased $533 million, or 8.2%, in 2015 to $6.0 billion from $6.5 billion in 2014. The year-over-year decrease was primarily due to a $779 million, or 38.8%, decrease in fuel costs, offset in part by a $246 million, or 5.4%, increase in other regional operating expenses. The average price per gallon of fuel decreased 40.9% to $1.73 in 2015 from $2.92 in 2014. The increase in other regional operating expenses was principally due to increased flying under capacity purchase agreements.

Nonoperating Income (Expense)

   Year Ended December 31,  Percent
Increase
(Decrease)
 
       2015          2014      
   (In millions, except percentage changes) 

Interest income

  $39   $31    26.0  

Interest expense, net of capitalized interest

   (880  (887  (0.8

Other, net

   (747  (181  nm  
  

 

 

  

 

 

  

Total nonoperating expense, net

  $(1,588 $(1,037  53.1  
  

 

 

  

 

 

  

Our short-term investments in each period consisted of highly liquid investments that provided nominal returns.

The following table provides the components of interest expense:

   Year Ended December 31,  Increase
(Decrease)
 
       2015          2014      
   (In millions)    

Special items, net

  $   $33   $(33

Amortization of debt issuance costs and debt discounts

   42    39    3  

Interest expense on debt and capital lease obligations

   890    876    14  
  

 

 

  

 

 

  

 

 

 

Total interest expense

   932    948    (16

Less: capitalized interest

   (52  (61  9  
  

 

 

  

 

 

  

 

 

 

Total interest expense, net of capitalized interest

  $880   $887   $(7
  

 

 

  

 

 

  

 

 

 

Other nonoperating expense, net in 2015 included a net $594 million in other nonoperating special charges and $159 million of foreign currency losses. The other nonoperating special charges were primarily due to a $592 million write off of all of the value of Venezuelan bolivars held by us due to continued lack of repatriations and deterioration of economic conditions in Venezuela and $41 million in charges principally related to non-cash write offs of unamortized debt discount and debt issuance costs associated with refinancing certain of our secured term loan facilities, prepayments of certain aircraft financings and the purchase and subsequent remarketing of certain special facility revenue bonds. These charges were offset in part by a $22 million gain associated with the sale of an investment and a $17 million early debt extinguishment gain associated with the repayment of American’s AAdvantage loan with Citibank. The foreign currency losses were driven primarily by the strengthening of the U.S. dollar relative to other currencies during 2015, principally in Latin American and European markets, including a 34% decrease in the value of the Argentinian peso, a 30% decrease in the value of the Brazilian real, a 14% decrease in the value of the Mexican peso, a 10% decrease in the value of the Euro and a 5% decrease in the value of the British pound.

Other nonoperating expense, net in 2014 consisted of $114 million of net foreign currency losses, including a $43 million special charge for Venezuelan foreign currency losses, and $56 million in other nonoperating special charges primarily due to early debt extinguishment costs related to the prepayment of our 7.50% senior secured notes and other indebtedness. The foreign currency losses were driven primarily by the strengthening of the U.S. dollar relative to other currencies during 2014, principally in the Latin American market, including a 48% decrease in the value of the Venezuelan bolivar and a 14% decrease in the value of the Brazilian real.

2014 Compared to 2013

Operating Revenues

 

  Year Ended December 31,   $ Change   $ Change
due to
Merger
   Change Excluding
Merger Impact
   Year Ended December 31,   $ Change   $ Change
due to
Merger
   Change Excluding
Merger Impact
 
    2014           2013           $           %           2014           2013           $         %     
(In millions, except percentage changes)   (In millions, except percentage changes) 

Mainline passenger

  $30,802    $20,218    $10,584    $9,833    $751     3.8    $30,802    $20,218    $10,584    $9,833    $751    3.8  

Regional passenger

   6,322     3,131     3,191     3,207     (16   (0.5   6,322     3,131     3,191     3,207     (16  (0.5

Cargo

   875     685     190     149     41     6.1     875     685     190     149     41    6.1  

Other

   4,651     2,709     1,942     1,318     624     23.9     4,651     2,709     1,942     1,318     624    23.9  
  

 

   

 

   

 

   

 

   

 

     

 

   

 

   

 

   

 

   

 

  

Total operating revenues

  $42,650    $26,743    $15,907    $14,507    $1,400     5.4    $42,650    $26,743    $15,907    $14,507    $1,400    5.4  
  

 

   

 

   

 

   

 

   

 

     

 

   

 

   

 

   

 

   

 

  

The following discussion of operating revenues excludes the results of US Airways Groupthe Merger in order to provide a more meaningful year-over-year comparison.

Total operating revenues in 2014 increased $1.4 billion, or 5.4%, from the 2013, period, which was driven by strong demand for air travel. Significant changes in the components of operating revenues, excluding the results of US Airways Group,the Merger, are as follows:

 

Mainline passenger revenues increased $751 million, or 3.8%, in 2014 from the 2013 period due to higher yields and ASMs, offset in part by slightly lower load factors.

 

Cargo revenues increased $41 million, or 6.1%, in 2014 from the 2013 period driven primarily by an increase in international freight volumes.

 

Other revenues increased $624 million, or 23.9%, in 2014 from the 2013 period driven primarily by higher revenues associated with our frequent flyerloyalty programs driven by our affinity card agreement with Citibank.

Operating Expenses

 

  Year Ended December 31,   $ Change   $ Change
due to
Merger
  Change Excluding
Merger Impact
   Year Ended December 31,   $ Change   $ Change
due to
Merger
  Change Excluding
Merger Impact
 
    2014           2013            $           %           2014           2013            $         %     
(In millions, except percentage changes)   (In millions, except percentage changes) 

Aircraft fuel and related taxes

  $10,592    $7,839    $2,753    $3,190   $(437   (5.7  $10,592    $7,839    $2,753    $3,190   $(437  (5.7

Salaries, wages and benefits

   8,508     5,460     3,048     2,653    395     7.5     8,508     5,460     3,048     2,653    395    7.5  

Maintenance, materials and repairs

   2,051     1,260     791     679    112     9.2     2,051     1,260     791     679    112    9.2  

Other rent and landing fees

   1,727     1,152     575     547    28     2.5     1,727     1,152     575     547    28    2.5  

Aircraft rent

   1,250     768     482     365    117     15.7     1,250     768     482     365    117    15.7  

Selling expenses

   1,544     1,158     386     424    (38   (3.3   1,544     1,158     386     424    (38  (3.3

Depreciation and amortization

   1,295     853     442     375    67     7.9     1,295     853     442     375    67    7.9  

Special items, net

   800     559     241     (1  242     86.2     800     559     241     (1  242    86.2  

Other

   4,118     2,969     1,149     1,079    70     2.4     4,118     2,969     1,149     1,079    70    2.4  
  

 

   

 

   

 

   

 

  

 

     

 

   

 

   

 

   

 

  

 

  

Total mainline operating expenses

  $31,885    $22,018    $9,867    $9,311   $556     2.6    $31,885    $22,018    $9,867    $9,311   $556    2.6  
  

 

   

 

   

 

   

 

  

 

   

Regional expenses:

                     

Fuel

   2,009     1,120     889     947    (58   (5.4   2,009     1,120     889     947    (58  (5.4

Other

   4,507     2,206     2,301     2,158    143     7.0     4,507     2,206     2,301     2,158    143    7.0  
  

 

   

 

   

 

   

 

  

 

     

 

   

 

   

 

   

 

  

 

  

Total regional operating expenses

   6,516     3,326     3,190     3,105    85     2.8     6,516     3,326     3,190     3,105    85    2.8  
  

 

   

 

   

 

   

 

  

 

     

 

   

 

   

 

   

 

  

 

  

Total operating expenses

  $38,401    $25,344    $13,057    $12,416   $641     2.6    $38,401    $25,344    $13,057    $12,416   $641    2.6  
  

 

   

 

   

 

   

 

  

 

     

 

   

 

   

 

   

 

  

 

  

The following discussion of operating expenses excludes the results of US Airways Groupthe Merger in order to provide a more meaningful year-over-year comparison.

Total operating expenses in 2014 increased $641 million, or 2.6%, from the 2013 period.2013. Significant changes in the components of mainline operating expenses, excluding the results of US Airways Group,the Merger, are as follows:

 

Aircraft fuel and related taxes decreased $437 million, or 5.7%, in 2014 from the 2013 period primarily due to a decrease in the average price per gallon of fuel.

 

Salaries, wages and benefits increased $395 million, or 7.5%, in 2014 from the 2013 period primarily due to increased costs associated with merger related labor contracts.

 

Maintenance, materials and repairs increased $112 million, or 9.2%, in 2014 from the 2013 period primarily due to an increase in the rate per engine overhaul.

 

Aircraft rent increased $117 million, or 15.7%, in 2014 from the 2013 period primarily as a result of new leased aircraft deliveries in 2014 as we continued our fleet renewal program.

Depreciation and amortization increased $67 million, or 7.9%, in 2014 from the 2013 period primarily as a result of new purchased aircraft deliveries since the end of 2013 as we continued our fleet renewal program.

Regional Operating Expenses

Total regional expenses, excluding the results of US Airways Group,the Merger, increased $85 million, or 2.8%, in 2014 from the 2013 period.2013. Other regional operating expenses increased $143 million, or 7.0%, primarily due to higher expenses associated with certain capacity purchase agreements, offset by a $58 million, or 5.4%, decrease in fuel costs as a result of a decrease in the average price per gallon of fuel.

Nonoperating Income (Expense)

 

   Year Ended December 31,  $ Change  $ Change
due to
Merger
  Change Excluding
Merger Impact
 
       2014          2013            $          %     
   (In millions, except percentage changes) 

Interest income

  $31   $20   $11   $6   $5    25.2  

Interest expense, net of capitalized interest

   (887  (856  (31  (280  249    (29.8

Other, net

   (181  (88  (93  (29  (64  73.1  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Total nonoperating expense, net

  $(1,037 $(924 $(113 $(303 $190    (21.0
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Interest income was $31 million and $20 million in 2014 and 2013, respectively. Our short-term investments in each period consisted of highly liquid investments, which provided nominal returns.

The following table provides the components of interest expense, including amortization of debt discounts and debt issue costs, capitalized interest and special items:expense:

 

  Year Ended December 31, 

Increase
(Decrease)

   Year Ended December 31, Increase
(Decrease)
 
      2014         2013           2014         2013     
  (In millions)     (In millions)   

Special items(1)

  $33   $182   $(149  $33   $182   $(149

Amortization of debt issuance costs and debt discounts

   38    33    5     38    33    5  

Interest expense on debt and capital lease obligations(2)

   568    668    (100   568    668    (100
  

 

  

 

  

 

   

 

  

 

  

 

 

Total interest expense

   639    883    (244   639    883    (244

Less: capitalized interest

   (53  (48  (5   (53  (48  (5
  

 

  

 

  

 

   

 

  

 

  

 

 

Total interest expense, net of capitalized interest

   586    835    (249   586    835    (249

US Airways Group total interest expense, net of capitalized interest

   301    21    280     301    21    280  
  

 

  

 

  

 

   

 

  

 

  

 

 

Total AAG interest expense, net of capitalized interest

  $887   $856   $31    $887   $856   $31  
  

 

  

 

  

 

   

 

  

 

  

 

 

The following discussion of nonoperating income and expense excludes the results of US Airways Groupthe Merger in order to provide a more meaningful year-over-year comparison.

Interest expense, net of capitalized interest decreased $249 million or 29.8%, in 2014 from the 2013 period primarily due to a $149 million decrease in special charges recognized period-over-periodyear-over-year as further described below, as well as refinancing activities that resulted in $100 million less interest expense recognized in 2014. In 2014, we recognized $33 million of special charges relating to non-cash interest accretion on bankruptcy settlement obligations. In 2013, we recognized $138 million of special charges relating to post-petition interest expense on unsecured obligations pursuant to the Plan and penalty interest related to American’s 10.5% secured notes and 7.50% senior secured notes. In addition, in 2013 we recorded special charges of $44 million for debt

(1)

In 2014, we recognized $33 million of special charges relating to non-cash interest accretion on bankruptcy settlement obligations. In 2013, we recognized $138 million of special charges relating to post-petition interest expense on unsecured obligations pursuant to the Plan and penalty interest related to American’s 10.5% secured notes and 7.50% senior secured notes. In addition, in 2013 we recorded special charges of $44 million for debt extinguishment costs incurred as a result of the repayment of certain aircraft secured indebtedness, including cash interest charges and non-cash write offs of unamortized debt issuance costs.

extinguishment costs incurred as a result of the repayment of certain aircraft secured indebtedness, including cash interest charges and non-cash write offs of unamortized debt issuance costs. As a result of the 2013 refinancing activities and the early extinguishment of American’s 7.50% senior secured notes in 2014, we recognized $100 million less interest expense in 2014 as compared to the 2013 period.

(2)

As a result of the 2013 refinancing activities and the early extinguishment of American’s 7.50% senior secured notes in 2014, we recognized $100 million less interest expense in 2014 as compared to 2013.

Other nonoperating expense, net in 2014 consisted principallyof $114 million of net foreign currency losses, of $114including a $43 million special charge for Venezuelan foreign currency losses, and $56 million in other nonoperating special charges primarily due to early debt extinguishment chargescosts related to the prepayment of $56 million. our 7.50% senior secured notes and other indebtedness. The foreign currency losses were driven primarily by the strengthening of the U.S. dollar relative to other currencies during 2014, principally in the Latin American market, including a 48% decrease in the value of the Venezuelan bolivar and a 14% decrease in the value of the Brazilian real.

Other nonoperating expense, net in 2013 consisted principally of net foreign currency losses of $56 million and early debt extinguishment charges of $29 million. Other nonoperating expense, net increased $64 million, or 73.1%, during 2014 primarily due to special charges recognized as a result of early debt extinguishment and an increase in foreign currency losses driven by the strengthening of the U.S. dollar in foreign currency transactions, principally in Latin American markets. We recorded a $43 million special charge for Venezuelan foreign currency losses in 2014. See Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk for further discussion of our cash held in Venezuelan bolivars. In addition, our 2014 nonoperating special items included $56 million primarily related to the early extinguishment of American’s 7.50% senior secured notes and other indebtedness.

Reorganization Items, Net

Reorganization items refer to revenues, expenses (including professional fees), realized gains and losses and provisions for losses that are realized or incurred as a direct result of the Chapter 11 Cases. The following table summarizes the components included in reorganization items, net on AAG’s consolidated statement of operations for the year ended December 31, 2013 (in millions):

 

   2013 

Labor-related deemed claim (1)

  $1,733  

Aircraft and facility financing renegotiations and rejections (2), (3)

   325  

Fair value of conversion discount (4)

   218  

Professional fees

   199  

Other

   180  
  

 

 

 

Total reorganization items, net

  $2,655  
  

 

 

 

 

(1)

In exchange for employees’ contributions to the successful reorganization, including agreeing to reductions in pay and benefits, we agreed in the Plan to provide each employee group a deemed claim, which was used to provide a distribution of a portion of the equity of the reorganized entity to those employees. Each employee group received a deemed claim amount based upon a portion of the value of cost savings provided by that group through reductions to pay and benefits as well as through certain work rule changes. The total value of this deemed claim was approximately $1.7 billion.

 

(2)

Amounts include allowed claims (claims approved by the Bankruptcy Court) and estimated allowed claims relating to (i) the rejection or modification of financings related to aircraft and (ii) entry of orders treated as unsecured claims with respect to facility agreements supporting certain issuances of special facility revenue bonds. The Debtors recorded an estimated claim associated with the rejection or modification of a financing or facility agreement when the applicable motion was filed with the Bankruptcy Court to reject or modify such financing or facility agreement and the Debtors believed that it was probable the motion would be approved, and there was sufficient information to estimate the claim. See Note 2 to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information.

(3)

Pursuant to the Plan, the Debtors agreed to allow certain post-petition unsecured claims on obligations. As a result, during the year ended December 31, 2013, we recorded reorganization charges to adjust estimated allowed claim amounts previously recorded on rejected special facility revenue bonds of $180 million, allowed general unsecured claims related to the 1990 and 1994 series of special facility revenue bonds that financed certain improvements at JFK, and rejected bonds that financed certain improvements at ORD, which are included in the table above.

(4)

The Plan allowed unsecured creditors receiving AAG Series A Preferred Stock a conversion discount of 3.5%. Accordingly, we recorded the fair value of such discount upon the confirmation of the Plan by the Bankruptcy Court.

2013 Compared to 2012

Operating Revenues

   Year Ended December 31,   $ Change   $ Change
due to
Merger
   Change Excluding
Merger Impact
 
       2013           2012               $           %     
   (In millions, except percentage changes) 

Mainline passenger

  $20,218    $18,743    $1,475    $624    $851     4.5  

Regional passenger

   3,131     2,914     217     204     13     0.5  

Cargo

   685     675     10     9     1     0.1  

Other

   2,709     2,523     186     94     92     3.6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total operating revenues

  $26,743    $24,855    $1,888    $931    $957     3.8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

The following discussion of operating revenues excludes the results of US Airways Group in order to provide a more meaningful year-over-year comparison.

Total operating revenues in 2013 were $25.8 billion as compared to $24.9 billion in 2012, an increase of $957 million, or 3.8%, which was driven by strong demand for air travel. Significant changes in the components of operating revenues are as follows:

Mainline passenger revenues increased 4.5% to $19.6 billion in 2013 as compared to $18.7 billion in 2012 due to an increase in ASMs and yield.

Regional passenger revenues were $2.9 billion, which was relatively flat as compared to 2012 due to an increase in ASMs, offset by a decrease in yield.

Other revenues were $2.6 billion in 2013, an increase of $92 million, or 3.6%, primarily due to increased revenues associated with the sale of AAdvantage frequent flyer mileage credits and a $31 million special credit related to a change in accounting method resulting from the modification of our AAdvantage miles agreement with Citibank.

Operating Expenses

   Year Ended December 31,   $ Change  $ Change
due to
Merger
   Change Excluding
Merger Impact
 
       2013           2012              $          %     
   (In millions, except percentage changes) 

Aircraft fuel and related taxes

  $7,839    $7,705    $134   $211    $(77  (1.0

Salaries, wages and benefits

   5,460     6,217     (757  184     (941  (15.1

Maintenance, materials and repairs

   1,260     1,158     102    38     64    5.5  

Other rent and landing fees

   1,152     1,083     69    35     34    3.2  

Aircraft rent

   768     553     215    25     190    34.4  

Selling expenses

   1,158     1,058     100    31     69    6.5  

Depreciation and amortization

   853     845     8    23     (15  (1.7

Special items, net

   559     386     173    277     (104  (26.9

Other

   2,969     2,674     295    70     225    8.4  
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

  

Total mainline operating expenses

   22,018     21,679     339    894     (555  (2.6

Regional expenses:

          

Fuel

   1,120     1,012     108    64     44    4.4  

Other

   2,206     2,016     190    150     40    2.0  
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

  

Total regional operating expenses

   3,326     3,028     298    214     84    2.8  
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

  

Total operating expenses

  $25,344    $24,707    $637   $1,108    $(471  (1.9
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

  

The following discussion of operating expenses excludes the results of US Airways Group in order to provide a more meaningful year-over-year comparison.

Total operating expenses in 2013 were $24.2 billion as compared to $24.7 billion in 2012, a decrease of $471 million, or 1.9%. Significant changes in the components of operating expenses are as follows:

Aircraft fuel and related taxes decreased $77 million, or 1.0%, due to a decrease in the average price per gallon of fuel, offset in part by an increase in gallons consumed.

Salaries, wages, and benefits decreased $941 million, or 15.1%, due to the results of voluntary and involuntary terminations in connection with the 2012 restructuring plan as well as effects related to the freezing of American’s pension plans in 2012.

Aircraft rent increased $190 million, or 34.4%, as a result of new leased aircraft deliveries in 2013 as we continued our fleet renewal program.

Selling expenses increased $69 million, or 6.5%, as a result of higher commissions and credit card fees related to the increase in passenger revenues.

Other operating expenses increased $225 million, or 8.4%, primarily due to higher costs associated with outsourced services and enhanced customer product offerings.

Regional Operating Expenses

Total regional expenses, excluding the results of US Airways Group, increased $84 million, or 2.8%, in 2013 to $3.1 billion from $3.0 billion in 2012. The year-over-year increase was primarily driven by a $44 million, or 4.4%, increase in fuel costs and a $40 million, or 2.0%, increase in other regional operating expenses due to an increase in capacity. The increase in fuel costs was driven by higher fuel consumption due to the transition from turboprop to regional jet aircraft.

Nonoperating Income (Expense)

   Year Ended December 31,  $ Change  $ Change
due to
Merger
  Change Excluding
Merger Impact
 
       2013          2012            $          %     
   (In millions, except percentage changes) 

Interest income

  $20   $26   $(6 $   $(6  (21.8

Interest expense, net of capitalized interest

   (856  (632  (224  (20  (204  32.3  

Other, net

   (88  221    (309  1    (310  nm  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Total nonoperating expense, net

  $(924 $(385 $(539 $(19 $(520  nm  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

The following discussion of nonoperating income and expense excludes the results of US Airways Group in order to provide a more meaningful year-over-year comparison.

Interest expense, net of capitalized interest increased $204 million, or 32.3%, to $836 million in 2013 from $632 million in 2012 primarily due to special charges of $138 million to recognize post-petition interest expense on unsecured obligations pursuant to the Plan and penalty interest related to 10.5% secured notes and 7.50% senior secured notes. In addition, in 2013 we recorded special charges of $44 million for debt extinguishment costs incurred as a result of the repayment of certain aircraft secured indebtedness, including cash interest charges and non-cash write offs of unamortized debt issuance costs.

Other nonoperating expense, net of $89 million in 2013 consisted principally of net foreign currency losses of $56 million and early debt extinguishment charges of $29 million. Other nonoperating income in 2012 consisted principally of a $280 million special credit related to the settlement of a commercial dispute partially offset by net foreign currency losses.

Reorganization Items, Net

Reorganization items refer to revenues, expenses (including professional fees), realized gains and losses and provisions for losses that are realized or incurred as a direct result of the Chapter 11 Cases. The following table summarizes the components included in reorganization items, net on AAG’s consolidated statements of operations for the years ended December 31, 2013 and 2012 (in millions):

   2013   2012 

Pension and postretirement benefits

  $    $(66

Labor-related deemed claim (1)

   1,733       

Aircraft and facility financing renegotiations and rejections (2), (3)

   325     1,950  

Fair value of conversion discount (4)

   218       

Professional fees

   199     229  

Other

   180     95  
  

 

 

   

 

 

 

Total reorganization items, net

  $2,655    $2,208  
  

 

 

   

 

 

 

(1)

In exchange for employees’ contributions to the successful reorganization, including agreeing to reductions in pay and benefits, we agreed in the Plan to provide each employee group a deemed claim, which was used to provide a distribution of a portion of the equity of the reorganized entity to those employees. Each employee group received a deemed claim amount based upon a portion of the value of cost savings provided by that group through reductions to pay and benefits as well as through certain work rule changes. The total value of this deemed claim was approximately $1.7 billion.

(2)

Amounts include allowed claims (claims approved by the Bankruptcy Court) and estimated allowed claims relating to (i) the rejection or modification of financings related to aircraft and (ii) entry of orders treated as

 

unsecured claims with respect to facility agreements supporting certain issuances of special facility revenue bonds. The Debtors recorded an estimated claim associated with the rejection or modification of a financing or facility agreement when the applicable motion was filed with the Bankruptcy Court to reject or modify such financing or facility agreement and the Debtors believed that it was probable the motion would be approved, and there was sufficient information to estimate the claim. See Note 2 to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information.

 

(3)

Pursuant to the Plan, the Debtors agreed to allow certain post-petition unsecured claims on obligations. As a result, during the year ended December 31, 2013, we recorded reorganization charges to adjust estimated allowed claim amounts previously recorded on rejected special facility revenue bonds of $180 million, allowed general unsecured claims related to the 1990 and 1994 series of special facility revenue bonds that financed certain improvements at JFK, and rejected bonds that financed certain improvements at ORD, which are included in the table above.

 

(4)

The Plan allowed unsecured creditors receiving AAG Series A Preferred Stock a conversion discount of 3.5%. Accordingly, we recorded the fair value of such discount upon the confirmation of the Plan by the Bankruptcy Court.

American’s Results of Operations

On December 30, 2015, in order to simplify AAG’s internal corporate structure and as part of the integration efforts following the business combination of AAG and US Airways Group, US Airways merged with and into American, with American as the surviving corporation. As a result of the merger of US Airways and American, US Airways transferred all of its assets, liabilities and off-balance sheet commitments to American. For financial reporting purposes, this transaction constituted a transfer of assets between entities under common control and was accounted for at historical cost. As a result, American’s consolidated financial statements as well as this management’s discussion and analysis of financial condition and results of operations in this Annual Report on Form 10-K (unless otherwise indicated) are presented 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. Thus, the full years of 2015 and 2014 and the period from December 9, 2013 to December 31, 2013 are comprised of the financial data of American and US Airways. The periods prior to December 9, 2013 are comprised of the financial data of American only.

In 2014,2015, American realized operating income of $2.3$6.2 billion and net income of $1.3$8.1 billion. American’s 2014 period2015 net income included net special operating charges of $512$1.1 billion and total net special credits of $1.8 billion. Excluding the effects of these special charges and credits, American realized operating income of $7.3 billion and net income of $6.3 billion.

In 2014, American realized operating income of $4.3 billion and net income of $2.9 billion. American’s 2014 net income included net special operating charges of $788 million and total net special charges of $974 million.$1.3 billion. Excluding the effects of these special charges, American realized operating income of $2.9$5.1 billion and net income of $2.3$4.2 billion.

In 2013, American realized operating income of $1.5$1.4 billion and a net loss of $1.5$1.7 billion. American’s 2013 period net loss included net special operating charges of $251$528 million and total net special charges of $2.7$3.0 billion. Excluding the effects of these charges, American realized operating income of $1.8$1.9 billion and net income of $1.2 billion.

In 2012, American realized operating income

The components of $82 million and a net loss of $1.9 billion. American’s 2012 period net loss included net special operating charges of $386 million and total net special charges of $1.7 billion. Excluding the effects of these charges, American realized operating income of $468 million and a net loss of $210 million.

The components of American’s net special charges(credits) included in theAmerican’s accompanying consolidated statements of operations are as follows (in millions):

 

  Year Ended December 31,   Year Ended December 31, 
  2014   2013 2012   2015 2014   2013 

Other revenue special item, net (1)

  $    $(31 $    $   $    $(31

Mainline operating special items, net (2)

   507     282    386     1,051    783     559  

Regional operating special items, net(3)

   5              18    5       

Nonoperating special items, net (3)(4)

   120     121    (280   616    128     121  

Reorganization items, net (4)(5)

        2,640    2,179              2,640  

Income tax special items, net (5)(6)

   342     (324  (569   (3,468  344     (324
  

 

   

 

  

 

   

 

  

 

   

 

 

Total

  $974    $2,688   $1,716    $(1,783 $1,260    $2,965  
  

 

   

 

  

 

   

 

  

 

   

 

 

 

(1)

In 2013, other revenue special item, net included a credit to other revenues related to a change in accounting method resulting from the modification of American’s AAdvantage miles agreement with Citibank.

 

(2)

In 2014,2015, mainline operating special items, net principally included $527 million$1.0 billion of Mergermerger integration expenses related to information technology, alignment of labor union contracts, professional fees, severance,

and retention, share-based compensation, divestiture of London Heathrow Slots, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training. In addition, American recorded a net charge of $60 million for bankruptcy related items principally consisting of fair value adjustments for bankruptcy settlement obligations, as well as $181 million in other special charges, including an $81 million charge to revise prior estimates of certain aircraft residual values, and other spare parts asset impairments, as well as $44 million in charges primarily relating to the buyout of certain aircraft leases. These charges were offset in part by a $305 million gain on the sale of Slots

In 2014, mainline operating special items, net principally included $803 million of merger integration expenses related to information technology, alignment of labor union contracts, professional fees, severance and retention, share-based compensation, divestiture of London Heathrow slots, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training. In addition, American recorded a net charge of $60 million for bankruptcy related items principally consisting of fair value adjustments for bankruptcy settlement obligations and an $81 million charge to revise prior estimates of certain aircraft residual values and other spare parts asset impairments. These charges were offset in part by a $309 million gain on the sale of slots at DCA.

In 2013, mainline operating special items, net principally included $166$443 million of primarily Mergermerger related expenses duerelated to the alignment of labor union contracts, professional fees, severance, share-based compensation and share-based compensation.fees for US Airways to exit the Star Alliance and its codeshare agreement with United Airlines. In addition, American recorded a $107 million charge related to theAmerican’s pilot long-term disability obligation, a $43 million charge for workers’ compensation claims and a $33 million aircraft impairment charge. These charges were offset in part by a $67 million gain on the sale of Slotsslots at LaGuardia Airport.

In 2012, mainline operating special items, net consisted of $386 million of severance and related charges and write-off of leasehold improvements on aircraft and airport facilities that were rejected in connection with the Chapter 11 Cases.LGA.

 

(3)

The 2015 and 2014 regional operating special items, net principally related to merger integration expenses.

(4)

In 2014,2015, nonoperating special items, net consisted principally included a $592 million charge to write off all of $43 million forthe value of Venezuelan foreign currency losses, $48 millionbolivars held by American due to continued lack of early debt extinguishment costs related to the prepaymentrepatriations and deterioration of 7.50% senior secured notes and other indebtedness and $29 million of non-cash interest accretion on bankruptcy settlement obligations. See Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk for further discussion of our cash heldeconomic conditions in Venezuelan bolivars.Venezuela.

In 2014, nonoperating special items, net principally included a $43 million charge for Venezuelan foreign currency losses, $56 million of early debt extinguishment costs primarily related to the prepayment of 7.50% senior secured notes and other indebtedness and $29 million of non-cash interest accretion on bankruptcy settlement obligations.

In 2013, nonoperating special items, net consisted of interest charges of $48 million primarily to recognize post-petition interest expense on unsecured obligations pursuant to the Plan and penalty interest related to 10.5% secured notes and 7.50% senior secured notes, a $54 million charge related to the premium on tender for existing enhanced equipment trust certificatesEETC financings and the write-off of debt issuance costs and $19 million in charges related to the repayment of existing EETC financings.

In 2012, nonoperating special items, net consisted of a $280 million benefit resulting from a settlement of a commercial dispute.

 

(4)(5)

In 2013, and 2012, American recognized reorganization expenses as a result of the filing of voluntary petitions for relief under Chapter 11. These amounts consisted primarily of estimated allowed claim amounts and professional fees.

(5)(6)

In 2014,2015, income tax special items totaled a net were $342 million. During 2014, American sold its portfoliocredit of fuel hedging contracts that were scheduled to settle on or after June 30, 2014.$3.5 billion. In connection with this sale,the preparation of American’s financial statements for the fourth quarter of 2015, management determined that it was more likely than not that substantially all of its deferred tax assets, which include its NOLs, would be realized. Accordingly, American recordedreversed $3.5 billion of the valuation allowance as of December 31, 2015, which resulted in a special $3.5 billion non-cash tax provision of $328 millionbenefit recorded in the second quarterconsolidated statement of 2014 that reversed the non-cash tax provision which was recorded in other comprehensive income (OCI), a subset of stockholder’s equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of American’s fuel hedging contracts. In accordance with GAAP, American retained the $328 million tax provision in OCI until the last contract was settled or terminated. In addition, American recorded a special $14 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets.operations for 2015.

In 2014, income tax special items, net were $344 million. During 2014, American sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, American recorded a special non-cash tax provision of $328 million in the second quarter of 2014 that reversed the non-cash tax provision which was recorded in OCI, a subset of stockholder’s equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of American’s fuel hedging contracts. In accordance with GAAP, American retained the $328 million tax provision in OCI until the last contract was settled or terminated.

In 2013, and 2012, income tax special items, net included respectively, a $538 million and a $569 million non-cash income tax benefit from continuing operations. American is required to consider all items (including items recorded in other comprehensive income)OCI) in determining the amount of tax benefit that results from a loss from continuing operations and that should be allocated to continuing operations. As a result, American recorded a tax benefit on the loss from continuing operations for the year, which was exactly offset by income tax expense on other comprehensive income.OCI. However, while the income tax benefit from continuing operations is reported on the income statement, the income tax expense on other comprehensive incomeOCI is recorded directly to accumulated other comprehensive income (loss), which is a component of stockholder’s equity. Because the income tax expense on other comprehensive incomeOCI is

equal to the income tax benefit from continuing operations, American’s year-end net deferred tax position is not impacted by this tax allocation. The 2013 tax benefit was offset in part by a $214 million tax charge attributable to additional valuation allowance required to reduce deferred tax assets to the amount American believes isbelieved was more likely than not to be realized.

Income Taxes

At December 31, 2014,2015, American had approximately $10.3$8.8 billion of gross NOL Carryforwards to reduce future federal taxable income, substantially all of which are expected to be available for use in 2015.2016. American is a member of AAG’s consolidated federal and certain state income tax returns. The amount of federal and state NOL Carryforwards available in those returns is $10.1$8.0 billion, and $4.6 billion, respectively, substantially all of which is expected to be available for use in 2015.2016. The federal NOL Carryforwards will expire beginning in 20222023 if unused. These NOL Carryforwards include an unrealized tax benefit of $712 million$1.2 billion related to the implementation of share-based compensation accounting guidance that will be recorded in equity when realized. American also had approximately $3.9$3.7 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2014,2015, which will expire in years 20152016 through 2034 if unused. American’s ability to deduct its NOL 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. American experienced an ownership change in connection with its emergence from the Chapter 11 Cases.Cases, and US Airways Group experienced an ownership change in connection with the Merger. As a result of the Merger, US Airways Group is now included in the AAG consolidated federal and state income tax returns. The general limitation rules of Section 382 for a debtor in a bankruptcy case are liberalized where the ownership change occurs upon emergence from bankruptcy. American elected to be covered by certain special rules for federal income tax purposes that permitpermitted approximately $9.5 billion (with $7.3 billion of unlimited NOL remaining at December 31, 2015) of its federal NOL Carryforwards to be utilized without regard to the Section 382 annual limitation rules.rules unless a second ownership change occurred on or before December 9, 2015. No second ownership change occurred within that period. Substantially all of American’s remaining federal NOL Carryforwards (attributable to US Airways Group) are subject to limitation under Section 382; however, American’s ability to utilize such NOL Carryforwards is not anticipated to be effectively constrained as a result of such limitation. Similar limitations may apply for state income tax purposes. American’s ability to utilize any new NOL Carryforwards arising after the ownership changechanges is not affected by the annual limitation rules imposed by Section 382 unless another ownership change occurs.

At December 31, 2014,2015, American had an AMTAlternative Minimum Tax (AMT) credit carryforward of approximately $435$458 million available for federal income tax purposes, which is available for an indefinite period.

In connection with the preparation of American’s net deferred tax assets, which includefinancial statements for the NOL Carryforwards, are subject to a full valuation allowance. At December 31, 2014, the federal and state valuation allowances were $5.1 billion and $208 million, respectively. In accordance with GAAP, utilizationfourth quarter of the NOL Carryforwards after December 9, 2013 will result in a corresponding decrease in the valuation allowance and offset American’s tax provision dollar for dollar.

American provides a valuation allowance for deferred tax assets when2015, management determined that it iswas more likely than not that some portion, orsubstantially all of its deferred tax assets, will notwhich include its NOLs, would be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income (primarily reversals of deferred tax liabilities) during the periods in which those temporary differences will become deductible. In making this determination,Accordingly, American considers all available positive and negative evidence and makes certain assumptions. American considers many factors in evaluating the realizability of its deferred tax assets including risks associated with merger integration as well as other factors, which continue to be affected by conditions beyond American’s control, such as the conditionreversed $3.5 billion of the economy, the level and volatility of fuel prices and travel demand. American has concludedvaluation allowance as of December 31, 2014 that2015, which resulted in a special $3.5 billion non-cash tax benefit recorded in the valuation allowance was still needed on its deferredconsolidated statement of operations for 2015.

Beginning in 2016, American expects to record income tax asset based onexpense with an effective rate of approximately 38%, which will be substantially non-cash as American utilizes the weight of the factorsNOLs described above.above to offset cash income taxes due.

For the year ended December 31, 2014, American recorded a $319$320 million tax provision. This provision, which included $342$344 million of special tax charges as described above. In addition, American recorded $6 million of tax expense principally related to certain states and countries where NOL Carryforwards were limited or unavailable to be used. These charges were offset in part by a $29 million federal income tax benefit resulting from our elections under applicable sections of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 and the Housing and Economic Recovery Act of 2008 (as extended by the Tax Increase Prevention Act of 2014), allowing corporations to accelerate utilization of certain research and AMT credit carryforwards in lieu of applicable bonus depreciation on certain qualifying capital investments.

For the year ended December 31, 2013, American recorded a $354 million tax benefit. This benefit, which included $324 million of net special tax benefits as described above. In addition,

2015 Compared to 2014

Operating Revenues

   Year Ended December 31,   Percent
Increase
(Decrease)
 
       2015           2014       
   (In millions, except percentage changes) 

Mainline passenger

  $29,037    $30,802     (5.7

Regional passenger

   6,475     6,322     2.4  

Cargo

   760     875     (13.1

Other

   4,812     4,764     1.0  
  

 

 

   

 

 

   

Total operating revenues

  $41,084    $42,763     (3.9
  

 

 

   

 

 

   

Total operating revenues in 2015 decreased $1.7 billion, or 3.9%, from 2014 principally due to competitive growth and weaker international yields primarily due to foreign currency devaluation relative to the U.S. dollar. Significant changes in the components of operating revenues are as follows:

Mainline passenger revenues decreased $1.8 billion, or 5.7%, in 2015 from 2014 driven primarily by a decrease in yield.

Regional passenger revenues increased $153 million, or 2.4%, in 2015 from 2014 due primarily to higher ASMs, offset in part by a decrease in yield.

Cargo revenue decreased $115 million, or 13.1%, in 2015 from 2014 driven primarily by a decrease in international freight yields.

Operating Expenses

   Year Ended December 31,   Percent
Increase
(Decrease)
 
       2015           2014       
   (In millions, except percentage changes) 

Aircraft fuel and related taxes

  $6,226    $10,592     (41.2

Salaries, wages and benefits

   9,514     8,499     11.9  

Maintenance, materials and repairs

   1,889     2,051     (7.9

Other rent and landing fees

   1,731     1,727     0.2  

Aircraft rent

   1,250     1,250       

Selling expenses

   1,394     1,544     (9.7

Depreciation and amortization

   1,364     1,301     4.8  

Special items, net

   1,051     783     34.2  

Other

   4,378     4,186     4.6  
  

 

 

   

 

 

   

Total mainline operating expenses

   28,797     31,933     (9.8

Regional expenses:

      

Fuel

   1,230     2,009     (38.8

Other

   4,868     4,555     6.9  
  

 

 

   

 

 

   

Total regional operating expenses

   6,098     6,564     (7.1
  

 

 

   

 

 

   

Total operating expenses

  $34,895    $38,497     (9.4
  

 

 

   

 

 

   

Total operating expenses in 2015 decreased $3.6 billion, or 9.4%, from 2014. Significant changes in the components of mainline operating expenses are as follows:

Aircraft fuel and related taxes decreased $4.4 billion, or 41.2%, in 2015 from 2014 primarily due to a 40.7% decrease in the average price per gallon of fuel to $1.72 in 2015 from an average price per gallon of $2.91 in 2014.

Salaries, wages and benefits increased $1.0 billion, or 11.9%, in 2015 from 2014 primarily due to increased costs associated with the new, merger related pilot, flight attendant and customer service and reservation agent collective bargaining agreements.

Maintenance, materials and repairs decreased $162 million, or 7.9%, in 2015 from 2014 primarily due to fewer engine overhauls in 2015, driven by American’s fleet renewal program.

Selling expenses decreased $150 million, or 9.7%, in 2015 from 2014 primarily due to lower contractually negotiated rates for certain commissions and booking fees as well as lower revenues in 2015.

Regional Operating Expenses

Total regional expenses decreased $466 million, or 7.1%, in 2015 to $6.1 billion from $6.6 billion in 2014. The year-over-year decrease was primarily due to a $779 million, or 38.8%, decrease in fuel costs, offset in part by a $313 million, or 6.9%, increase in other regional operating expenses. The average price per gallon of fuel decreased 40.9% to $1.73 in 2015 from $2.92 in 2014. The increase in other regional operating expenses was principally due to increased flying under capacity purchase agreements.

Nonoperating Income (Expense)

   Year Ended December 31,  Percent
Increase
(Decrease)
 
       2015          2014      
   (In millions, except percentage changes) 

Interest income

  $49   $32    53.1  

Interest expense, net of capitalized interest

   (796  (847  (6.0

Other, net

   (774  (183  nm  
  

 

 

  

 

 

  

Total nonoperating expense, net

  $(1,521 $(998  52.4  
  

 

 

  

 

 

  

American’s short-term investments in each period consisted of highly liquid investments that provided nominal returns.

The following table provides the components of interest expense:

   Year Ended December 31,  Increase
(Decrease)
 
       2015          2014      
   (In millions) 

Special items, net

  $   $29   $(29

Amortization of debt issuance costs and debt discounts

   38    37    1  

Interest expense on debt and capital lease obligations

   810    842    (32
  

 

 

  

 

 

  

 

 

 

Total interest expense

   848    908    (60

Less: capitalized interest

   (52  (61  9  
  

 

 

  

 

 

  

 

 

 

Total interest expense, net of capitalized interest

  $796   $847   $(51
  

 

 

  

 

 

  

 

 

 

Other nonoperating expense, net in 2015 included a net $616 million in other nonoperating special charges and $159 million of foreign currency losses. The other nonoperating special charges consisted of a $592 million write off of all of the value of Venezuelan bolivars held by American recordeddue to continued lack of repatriations and deterioration of economic conditions in Venezuela and $41 million in charges principally related to non-cash write offs of unamortized debt discount and debt issuance costs associated with refinancing certain of our secured term loan facilities, prepayments of certain aircraft financings and the purchase and subsequent remarketing of certain special facility revenue bonds. These charges were offset in part by a $30$17 million federal income tax benefit underearly debt extinguishment gain associated with the Housingrepayment of American’s AAdvantage loan with Citibank. The foreign currency losses were driven primarily by the strengthening of the U.S. dollar relative to other currencies during 2015, principally in Latin American and Economic Recovery ActEuropean markets, including a 34% decrease in the value of 2008 as described above.the Argentinian peso, a 30% decrease in the value of the Brazilian real, a 14% decrease in the value of the Mexican peso, a 10% decrease in the value of the Euro and a 5% decrease in the value of the British pound.

For the year ended December 31, 2012, American recordedOther nonoperating expense, net in 2014 consisted of $114 million of net foreign currency losses, including a $569$43 million special tax benefit as described above.charge for Venezuelan foreign currency losses, and $56 million in other nonoperating special charges primarily due to early debt extinguishment costs related to the prepayment of our 7.50% senior secured notes and other indebtedness. The foreign currency losses were driven primarily by the strengthening of the U.S. dollar relative to other currencies during 2014, principally in the Latin American market, including a 48% decrease in the value of the Venezuelan bolivar and a 14% decrease in the value of the Brazilian real.

2014 Compared to 2013

Operating Revenues

 

  Year Ended December 31,   Percent
Increase
(Decrease)
   Year Ended December 31,   $ Change   $ Change
due to
Merger
   Change Excluding
Merger Impact
 
      2014           2013             2014           2013           $         %     
  (In millions, except percentage changes)   (In millions, except percentage changes) 

Mainline passenger

  $20,345    $19,594     3.8    $30,802    $20,218    $10,584    $9,833    $751    3.8  

Regional passenger

   2,911     2,927     (0.5   6,322     3,131     3,191     3,207     (16  (0.5

Cargo

   717     676     6.1     875     685     190     149     41    6.1  

Other

   3,168     2,563     23.6     4,764     2,667     2,097     1,492     605    23.6  
  

 

   

 

     

 

   

 

   

 

   

 

   

 

  

Total operating revenues

  $27,141    $25,760     5.4    $42,763    $26,701    $16,062    $14,681    $1,381    5.4  
  

 

   

 

     

 

   

 

   

 

   

 

   

 

  

The following discussion of operating revenues excludes the results of US Airways in order to provide a more meaningful year-over-year comparison.

Total operating revenues in 2014 increased $1.4 billion or 5.4%, which was driven by strong demand for air travel. Significant changes in the components of operating revenues, excluding the results of US Airways, are as follows:

 

Mainline passenger revenues increased $751 million, or 3.8%, in 2014 from the 2013 periodprimarily due to higher yields and ASMs, offset in part by slightly lower load factors.

 

Cargo revenues increased $41 million, or 6.1%, in 2014 from the 2013 period driven primarily by an increase in international freight volumes.

 

Other revenues increased $605 million, or 23.6%, in 2014 from the 2013 period driven primarily by higher revenues associated with American’s frequent flyerloyalty program driven by American’s affinity card agreement with Citibank.

Operating Expenses

 

  Year Ended December 31,   Percent
Increase
(Decrease)
   Year Ended December 31,   $ Change   $ Change
due to
Merger
  Change��Excluding
Merger Impact
 
      2014           2013             2014           2013            $         %     
  (In millions, except percentage changes)   (In millions, except percentage changes) 

Aircraft fuel and related taxes

  $7,190    $7,628     (5.7  $10,592    $7,839    $2,753    $3,190   $(437  (5.7

Salaries, wages and benefits

   5,662     5,267     7.5     8,499     5,452     3,047     2,652    395    7.5  

Maintenance, materials and repairs

   1,334     1,222     9.2     2,051     1,260     791     679    112    9.2  

Other rent and landing fees

   1,145     1,117     2.5     1,727     1,152     575     547    28    2.5  

Aircraft rent

   860     743     15.7     1,250     768     482     365    117    15.7  

Selling expenses

   1,091     1,128     (3.3   1,544     1,158     386     423    (37  (3.3

Depreciation and amortization

   896     830     7.9     1,301     853     448     382    66    7.9  

Special items, net

   507     282     80.0     783     559     224     (1  225    80.0  

Other

   3,005     2,935     2.4     4,186     3,007     1,179     1,109    70    2.4  
  

 

   

 

     

 

   

 

   

 

   

 

  

 

  

Total mainline operating expenses

   21,690     21,152     2.5    $31,933    $22,048    $9,885    $9,346   $539    2.5  

Regional expenses:

                

Fuel

   999     1,055     (5.3   2,009     1,119     890     947    (57  (5.3

Other

   2,114     2,019     4.7     4,555     2,174     2,381     2,286    95    4.7  
  

 

   

 

     

 

   

 

   

 

   

 

  

 

  

Total regional operating expenses

   3,113     3,074     1.3     6,564     3,293     3,271     3,233    38    1.3  
  

 

   

 

     

 

   

 

   

 

   

 

  

 

  

Total operating expenses

  $24,803    $24,226     2.4    $38,497    $25,341    $13,156    $12,579   $577    2.4  
  

 

   

 

     

 

   

 

   

 

   

 

  

 

  

The following discussion of operating expenses excludes the results of US Airways in order to provide a more meaningful year-over-year comparison.

Total operating expenses in 2014 increased $577 million, or 2.4%, from the 2013 period.2013. Significant changes in the components of mainline operating expenses, excluding the results of US Airways, are as follows:

 

Aircraft fuel and related taxes decreased $438$437 million, or 5.7%, in 2014 from the 2013 period primarily due to a decrease in the average price per gallon of fuel.

 

Salaries, wages and benefits increased $395 million, or 7.5%, in 2014 from the 2013 period primarily due to increased costs associated with merger related labor contracts.

 

Maintenance, materials and repairs increased $112 million, or 9.2%, in 2014 from the 2013 period primarily due to an increase in the rate per engine overhaul.

 

Aircraft rent increased $117 million, or 15.7%, in 2014 from the 2013 period primarily as a result of new leased aircraft deliveries in 2014 as American continued its fleet renewal program.

 

Depreciation and amortization increased $66 million, or 7.9%, in 2014 from the 2013 period primarily as a result of new purchased aircraft deliveries since the end of 2013 as American continues its fleet renewal program.

Regional Operating Expenses

Total regional expenses increased $39$38 million, or 1.3%, in 2014 from the 2013 period.2013. Other regional operating expenses increased $95 million, or 4.7%, primarily due to higher expenses associated with certain capacity purchase agreements, offset by a $56$57 million, or 5.3%, decrease in fuel costs as a result of a decrease in the average price per gallon of fuel.

Nonoperating Income (Expense)

 

  Year Ended December 31, Percent
Increase
(Decrease)
   Year Ended December 31, $ Change  $ Change
due to
Merger
  Change Excluding
Merger Impact
 
      2014         2013           2014         2013         $         %     
  (In millions, excluding percentage changes)   (In millions, except percentage changes) 

Interest income

  $25   $20    27.7    $32   $20   $12   $7   $5    27.7  

Interest expense, net of capitalized interest

   (581  (710  (18.1   (847  (727  (120  (249  129    (18.1

Other, net

   (153  (84  81.0     (183  (84  (99  (30  (69  81.0  
  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

Total nonoperating expense, net

  $(709 $(774  (8.4  $(998 $(791 $(207 $(272 $65    (8.4
  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

Interest income was $25$32 million and $20 million in 2014 and 2013, respectively. American’s short-term investments in each period consisted of highly liquid investments which provided nominal returns.

The following table provides the components of interest expense, including amortization of debt discounts and debt issue costs, capitalized interest and special items:expense:

 

  Year Ended December 31, Increase
(Decrease)
   Year Ended December 31, Increase
(Decrease)
 
      2014         2013           2014         2013     
  (In millions)     (In millions)   

Special items(1)

  $29   $92   $(63  $29   $92   $(63

Amortization of debt issuance costs and debt discounts

   38    33    5     38    33    5  

Interest expense on debt and capital lease obligations(2)

   567    632    (65   567    632    (65
  

 

  

 

  

 

   

 

  

 

  

 

 

Total interest expense

   634    757    (123   634    757    (123

Less: capitalized interest

   (53  (47  (6   (53  (47  (6
  

 

  

 

  

 

   

 

  

 

  

 

 

Total interest expense, net of capitalized interest

  $581   $710   $(129   581    710    (129

US Airways total interest expense, net of capitalized interest

   266    17    249  
  

 

  

 

  

 

   

 

  

 

  

 

 

Total American interest expense, net of capitalized interest

  $847   $727   $120  
  

 

  

 

  

 

 

The following discussion of nonoperating income and expense excludes the results of US Airways in order to provide a more meaningful year-over-year comparison.

Interest expense, net of capitalized interest decreased $129 million or 18.1%, in 2014 from the 2013 period primarily due to a $63 million decrease in special charges recognized period-over-periodyear-over-year as further described below, as well as refinancing activities that resulted in $65 million less interest expense recognized in 2014. In 2014, American recognized $29 million of special charges relating to non-cash interest accretion on bankruptcy settlement obligations. In 2013, American recognized $48 million of special charges relating to post-petition interest expense on unsecured obligations pursuant to the Plan and penalty interest related to American’s 10.5% secured notes and 7.50% senior secured notes. In addition, in 2013 American recorded special charges of $44 million for debt extinguishment costs incurred as a result of the repayment of certain aircraft secured indebtedness, including cash interest charges and non-cash write offs of unamortized debt issuance costs.

(1)

In 2014, American recognized $29 million of special charges relating to non-cash interest accretion on bankruptcy settlement obligations. In 2013, American recognized $48 million of special charges relating to post-petition interest expense on unsecured obligations pursuant to the Plan and penalty interest related to American’s 10.5% secured notes and 7.50% senior secured notes. In addition, in 2013 American recorded special charges of $44 million for debt extinguishment costs incurred as a result of the repayment of certain aircraft secured indebtedness, including cash interest charges and non-cash write offs of unamortized debt issuance costs.

(2)

As a result of the 2013 refinancing activities and the early extinguishment of American’s 7.50% senior secured notes in 2014, American incurred $65 million less interest expense in 2014 as compared to 2013.

Other nonoperating expense, net in 2014 consisted of $92 million of net foreign currency losses, including a $43 million special charge for Venezuelan foreign currency losses, and $48 million of early debt extinguishment costs related to the prepayment of American’s 7.50% senior secured notes and other indebtedness. The foreign currency losses were driven primarily by the strengthening of the U.S. dollar relative to other currencies during 2014, principally in 2014,the Latin American recognized $65 million less interest expensemarket, including a 48% decrease in 2014 as compared to the 2013 period.value of the Venezuelan bolivar and a 14% decrease in the value of the Brazilian real.

Other nonoperating expense, net of $153 million in 2014 consisted principally of net foreign currency losses of $92 million and early debt extinguishment charges of $48 million. Other nonoperating expense, net of $84 million in 2013 consisted principally of net foreign currency losses of $55 million and early debt extinguishment charges of $29 million. Other nonoperating expense, net increased $69 million, or 81.0%, during 2014 primarily due to special charges recognized as a result of early debt extinguishment and an increase in foreign currency losses driven by the strengthening of the U.S. dollar in foreign currency transactions, principally in Latin American markets. American recorded a $43 million special charge for Venezuelan foreign currency losses in 2014. See Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk for further discussion of our cash held in Venezuelan bolivars. In addition, American’s nonoperating special items included $48 million in special charges in the 2014 primarily related to the early extinguishment of American’s 7.50% senior secured notes and other indebtedness.

Reorganization Items, Net

Reorganization items refer to revenues, expenses (including professional fees), realized gains and losses and provisions for losses that are realized or incurred as a direct result of the Chapter 11 Cases. The following table summarizes the components included in reorganization items, net on American’s consolidated statement of operations for the year ended December 31, 2013 (in millions):

 

   2013 

Labor-related deemed claim (1)

  $1,733  

Aircraft and facility financing renegotiations and rejections (2), (3)

   320  

Fair value of conversion discount (4)

   218  

Professional fees

   199  

Other

   170  
  

 

 

 

Total reorganization items, net

  $2,640  
  

 

 

 

 

(1)

In exchange for employees’ contributions to the successful reorganization, including agreeing to reductions in pay and benefits, American agreed in the Plan to provide each employee group a deemed claim, which was used to provide a distribution of a portion of the equity of the reorganized entity to those employees. Each employee group received a deemed claim amount based upon a portion of the value of cost savings provided by that group through reductions to pay and benefits as well as through certain work rule changes. The total value of this deemed claim was approximately $1.7 billion.

 

(2)

Amounts include allowed claims (claims approved by the Bankruptcy Court) and estimated allowed claims relating to (i) the rejection or modification of financings related to aircraft and (ii) entry of orders treated as unsecured claims with respect to facility agreements supporting certain issuances of special facility revenue bonds. The Debtors recorded an estimated claim associated with the rejection or modification of a financing or facility agreement when the applicable motion was filed with the Bankruptcy Court to reject or modify

 

such financing or facility agreement and the Debtors believed that it was probable the motion would be approved, and there was sufficient information to estimate the claim. See Note 2 to American’s Consolidated Financial Statements in Part II, Item 8B for further information.

(3)

Pursuant to the Plan, the Debtors agreed to allow certain post-petition unsecured claims on obligations. As a result, during the year ended December 31, 2013, American recorded reorganization charges to adjust estimated allowed claim amounts previously recorded on rejected special facility revenue bonds of $180 million, allowed general unsecured claims related to the 1990 and 1994 series of special facility revenue bonds that financed certain improvements at JFK, and rejected bonds that financed certain improvements at ORD, which are included in the table above.

(4)

The Plan allowed unsecured creditors receiving AAG Series A Preferred Stock a conversion discount of 3.5%. Accordingly, American recorded the fair value of such discount upon the confirmation of the Plan by the Bankruptcy Court.

2013 Compared to 2012

Operating Revenues

   Year Ended December 31,   Percent
Increase
(Decrease)
 
       2013           2012       
   (In millions, except percentage changes) 

Mainline passenger

  $19,594    $18,743     4.5  

Regional passenger

   2,927     2,914     0.5  

Cargo

   676     675       

Other

   2,563     2,493     2.8  
  

 

 

   

 

 

   

Total operating revenues

  $25,760    $24,825     3.8  
  

 

 

   

 

 

   

Total operating revenues in 2013 were $25.8 billion as compared to $24.8 billion in 2012, an increase of $935 million or 3.8%, which was driven by strong demand for air travel. Significant changes in the components of operating revenues are as follows:

Mainline passenger revenues increased 4.5% to $19.6 billion in 2013 as compared to $18.7 billion in 2012 due to an increase in ASMs and yield.

Regional passenger revenues were $2.9 billion, which was relatively flat as compared to 2012 due to an increase in ASMs, offset by a decrease in yield.

Other revenues were $2.6 billion in 2013, an increase of $70 million, or 2.8%, primarily due to increased revenues associated with the sale of AAdvantage frequent flyer mileage credits and a $31 million special credit related to a change in accounting method resulting from the modification of American’s AAdvantage miles agreement with Citibank.

Operating Expenses

   Year Ended December 31,   Percent
Increase
(Decrease)
 
       2013           2012       
   (In millions, except percentage changes) 

Aircraft fuel and related taxes

  $7,628    $7,705     (1.0

Salaries, wages and benefits

   5,267     6,208     (15.2

Maintenance, materials and repairs

   1,222     1,158     5.5  

Other rent and landing fees

   1,117     1,083     3.2  

Aircraft rent

   743     554     34.2  

Selling expenses

   1,128     1,059     6.5  

Depreciation and amortization

   830     845     (1.7

Special items, net

   282     386     (26.9

Other

   2,935     2,696     8.9  
  

 

 

   

 

 

   

Total mainline operating expenses

  $21,152    $21,694     (2.5
  

 

 

   

 

 

   

Regional expenses:

      

Fuel

   1,055     1,012     4.2  

Other

   2,019     2,037     (0.9
  

 

 

   

 

 

   

Total regional expenses

  $3,074    $3,049     0.8  
  

 

 

   

 

 

   

Total operating expenses

  $24,226    $24,743     (2.1
  

 

 

   

 

 

   

Total operating expenses in 2013 were $24.2 billion as compared to $24.7 billion in 2012, a decrease of $517 million or 2.1%. Significant changes in the components of operating expenses are as follows:

Salaries, wages and benefits decreased $941 million, or 15.2%, due to the results of voluntary and involuntary terminations in connection with the 2012 restructuring plan, as well as effects related to the freezing of American’s pension plan in 2012.

Aircraft rent increased $189 million, or 34.2%, as a result of new aircraft deliveries in 2013 as American continued its fleet renewal program.

Selling expenses increased $69 million, or 6.5%, as a result of higher commissions and credit card fees related to the increase in passenger revenues.

Other operating expenses increased $239 million, or 8.9%, due to higher costs associated with outsourced services and enhanced customer product offerings.

Regional Operating Expenses

Total regional expenses increased $25 million, or 0.8%, in 2013 to $3.1 billion from $3.0 billion in 2012. The year-over-year increase was primarily driven by a $43 million, or 4.2%, increase in fuel costs driven by higher fuel consumption due to the transition from turboprop to regional jet aircraft.

Nonoperating Income (Expense)

   Year Ended December 31,  Percent
Increase
(Decrease)
 
       2013          2012      
   (In millions, except percentage changes) 

Interest income

  $20   $25    (21.3

Interest expense, net of capitalized interest

   (710  (646  9.8  

Other, net

   (84  223    nm  
  

 

 

  

 

 

  

Total nonoperating expense, net

  $(774 $(398  (94.2
  

 

 

  

 

 

  

Interest expense, net of capitalized interest increased $64 million, or 9.8%, to $710 million in 2013 from $646 million in 2012 primarily due to special charges of $92 million to recognize post-petition interest expense on unsecured obligations pursuant to the Plan and penalty interest related to 10.5% secured notes and 7.50% senior secured notes.

Other nonoperating expense, net of $84 million in 2013 consists principally of net foreign currency losses of $55 million and early debt extinguishment charges of $48 million. Other nonoperating income in 2012 consisted principally of a $280 million special credit related to the settlement of a commercial dispute partially offset by net foreign currency losses.

Reorganization Items, Net

Reorganization items refer to revenues, expenses (including professional fees), realized gains and losses and provisions for losses that are realized or incurred as a direct result of the Chapter 11 Cases. The following table summarizes the components included in reorganization items, net on American’s consolidated statements of operations for the years ended December 31, 2013 and 2012 (in millions):

   2013   2012 

Pension and postretirement benefits

  $    $(66

Labor-related deemed claim (1)

   1,733       

Aircraft and facility financing renegotiations and rejections (2), (3)

   320     1,951  

Fair value of conversion discount (4)

   218       

Professional fees

   199     227  

Other

   170     67  
  

 

 

   

 

 

 

Total reorganization items, net

  $2,640    $2,179  
  

 

 

   

 

 

 

(1)

In exchange for employees’ contributions to the successful reorganization, including agreeing to reductions in pay and benefits, American agreed in the Plan to provide each employee group a deemed claim, which was used to provide a distribution of a portion of the equity of the reorganized entity to those employees. Each employee group received a deemed claim amount based upon a portion of the value of cost savings provided by that group through reductions to pay and benefits as well as through certain work rule changes. The total value of this deemed claim was approximately $1.7 billion.

(2)

Amounts include allowed claims (claims approved by the Bankruptcy Court) and estimated allowed claims relating to (i) the rejection or modification of financings related to aircraft and (ii) entry of orders treated as unsecured claims with respect to facility agreements supporting certain issuances of special facility revenue bonds. The Debtors recorded an estimated claim associated with the rejection or modification of a financing or facility agreement when the applicable motion was filed with the Bankruptcy Court to reject or modify such financing or facility agreement and the Debtors believed that it was probable the motion would be approved, and there was sufficient information to estimate the claim. See Note 2 to American’s Consolidated Financial Statements in Part II, Item 8B for further information.

 

(3)

Pursuant to the Plan, the Debtors agreed to allow certain post-petition unsecured claims on obligations. As a result, during the year ended December 31, 2013, American recorded reorganization charges to adjust estimated allowed claim amounts previously recorded on rejected special facility revenue bonds of $180 million, allowed general unsecured claims related to the 1990 and 1994 series of special facility revenue bonds that financed certain improvements at JFK, and rejected bonds that financed certain improvements at ORD, which are included in the table above.

 

(4)

The Plan allowed unsecured creditors receiving AAG Series A Preferred Stock a conversion discount of 3.5%. Accordingly, American recorded the fair value of such discount upon the confirmation of the Plan by the Bankruptcy Court.

Liquidity and Capital Resources

Cash, Short-Term Investments and Restricted Cash

As of December 31, 2014,2015, AAG’s total cash, short-term investments and restricted cash and short-term investments was $8.1$6.9 billion, of which $774$695 million was restricted. Additional detail is provided in the table below (in millions):

 

  AAG   American   AAG   American 
  December 31,   December 31,   December 31,   December 31, 
  2014   2013   2014   2013   2015   2014   2015   2014 

Cash

  $994    $1,140    $785    $829    $390    $994    $364    $984  

Short-term investments

   6,309     8,111     3,290     5,162  

Short-term investments.

   5,864     6,309     5,862     6,306  

Restricted cash and short-term investments (1)

   774     1,035     650     702     695     774     695     774  
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total cash, short-term investments and restricted cash and short-term investments

  $8,077    $10,286    $4,725    $6,693    $6,949    $8,077    $6,921    $8,064  
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

 

(1)

Our restricted cash and short-term investments related primarily to collateral held to support projected workers’ compensation obligations.

As of December 31, 2015, $150 million of our cash and short-term investment balances were held as foreign currency in foreign bank accounts. In the fourth quarter of 2015, we recognized a $592 million special charge to write off all of the value of Venezuelan bolivars held by us, due to continued lack of repatriations and deterioration of economic conditions in Venezuela. During 2014, we significantly reduced capacity in the Venezuelan market and we no longer accept bolivars as payment for airline tickets.

As of December 31, 2014, $804 million of our cash and short-term investmentsinvestment balances were held as foreign currency in foreign bank accounts, of which approximately $656 million was held in Venezuelan bolivars. This balance includesincluded approximately $621 million valued at 6.3 bolivars and approximately $35 million valued at 12.0 bolivars, with the rate depending on the date we submitted our repatriation request to the Venezuelan government. These rates are materially more favorable than the exchange rates currently prevailing for other transactions conducted outside of the Venezuelan government’s currency exchange system that we participate in. Our cash balance held in Venezuelan bolivars decreased $54 million from the December 31, 2013 balance of $710 million primarily due to $88 million in cash repatriations and $30 million

Generally, fluctuations in foreign currency losses as described below, partially offsetcurrencies, including devaluations, cannot be predicted by additional cash proceeds from ticket sales in early 2014. Inus and can significantly affect the second and third quarters of 2014, we repatriated $65 million including $31 million valued at 6.3 bolivars to the dollar and $34 million valued at 10.6 bolivars to the dollar. In the fourth quarter of 2014, we incurred an $11 million foreign currency loss related to the receipt of $23 million at a rate of 6.3 bolivars to the dollar for onevalue of our 2012cash and short-term investments located outside the United States. These conditions, as well as any further delays, devaluations or imposition of more stringent repatriation requests originally valued at a raterestrictions, may materially adversely affect our business, results of 4.3 bolivars to the dollar. Accordingly, we revalued our remaining pending 2012 repatriation requests from 4.3 to 6.3 bolivars to the dollar resulting in additional foreign currency losses of $19 million. In total, we recognized a $30 million special charge for these foreign currency losses in the fourth quarter of 2014. During 2014, we significantly reduced capacity in this marketoperations and we are no longer accepting bolivars as payment for airline tickets. We are continuing to work with Venezuelan authorities regarding the timing and exchange rate applicable to the repatriation of funds held in local currency. We are monitoring this situation closely and continue to evaluate our holdings of Venezuelan bolivars for additional foreign currency losses, which could be material, particularly in light of the uncertainty posed by the new foreign exchange regulations announced in mid-February 2015 and the continued deterioration of economic conditions in Venezuela.financial condition. See Part I, Item 1A.

Risk Factors –We “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 controlcontrol” for additional discussion of this and other currency risks.

Share Repurchase Programs

In July 2014, as part of a capital deployment program, our Board of Directors authorized a $1.0 billion share repurchase program which was completed in December 2014. During the year ended December 31, 2014, we repurchased 23.4 million shares of AAG Common Stock for $1.0 billion at a weighted average cost per share of $42.72.

On January 27, 2015, we announced that our Board of Directors had authorized a new $2.0 billion share repurchase program to be completed by the end of 2016. Shares repurchased under the program 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 will be made from time to time subject to market and economic conditions, applicable legal requirements and other relevant factors. The program does not obligate us to repurchase any specific number of shares and may be suspended at any time at our discretion.

Separate from our share repurchase programs, during 2014, we also withheld approximately 9 million shares of AAG Common Stock and paid approximately $325 million in satisfaction of certain tax withholding obligations associated with distributions under the Plan and employee equity awards.

Cash Dividends Paid

In July 2014, as part of our capital deployment program, our Board of Directors declared a $0.10 per share cash dividend for shareholders of record as of August 4, 2014, and payable on August 18, 2014.

In October 2014, our Board of Directors declared a $0.10 per share dividend for shareholders of record on November 3, 2014, and payable on November 17, 2014.

In January 2015, our Board of Directors declared a $0.10 per share dividend for shareholders of record on February 9, 2015, and payable on February 23, 2015.

The total cash payment for dividends during the year ended December 31, 2014 was $144 million.

Any future dividends that may be declared and paid from time to time under our capital deployment program will be subject to market and economic conditions, applicable legal requirements and other relevant factors. Our capital deployment program does not obligate us to continue a dividend for any fixed period, and payment of dividends may be suspended at any time at our discretion.

Sources and Uses of Cash

AAG

2015 Compared to 2014

Operating Activities

Net cash provided by operating activities was $6.2 billion and $3.1 billion in 2015 and 2014, respectively, a year-over-year increase of $3.2 billion. The increase was primarily due to increased profitability driven by substantially lower fuel costs. In addition, a decrease in pension contributions from $810 million in 2014 to $6 million in 2015 contributed to increased operating cash flows. Our 2015 profitability was negatively affected by a $592 million charge to write off all of the value of Venezuelan bolivars held by us due to continued lack of repatriations and deterioration of economic conditions in Venezuela.

Investing Activities

Net cash used in investing activities was $5.6 billion and $2.9 billion in 2015 and 2014, respectively.

Principal investing activities in 2015 included expenditures of $6.2 billion for property and equipment, consisting primarily of the purchase of 114 newly delivered aircraft and eight spare engines, including 31 Airbus A321 family aircraft, 24 Embraer 175 aircraft, 20 Bombardier CRJ900 aircraft, 17 Boeing 737-800 aircraft, 13 Boeing 787 aircraft, seven Airbus A319 aircraft and two Boeing 777 aircraft and the purchase of five Boeing 757 aircraft previously being leased. These cash outflows were offset in part by $391 million in net sales of short-term investments and a $79 million decrease in restricted cash and short-term investments primarily due to lower collateral requirements with respect to workers’ compensation obligations.

Principal investing activities in 2014 included expenditures of $5.3 billion for property and equipment, consisting primarily of the purchase of 70 newly delivered aircraft, including 25 Airbus A320 family aircraft, 20 Boeing 737-800 aircraft, 16 Bombardier CRJ900 aircraft, six Boeing 777 aircraft, and three Airbus A330 family aircraft, the purchase of aircraft previously leased, including nine Airbus A320 family aircraft, three Airbus A330 family aircraft and three Boeing 777 aircraft, as well as pre-delivery deposits for certain aircraft on order. These cash outflows were offset in part by $1.8 billion in net sales of short-term investments, $307 million in proceeds from the sale of DCA slots and a $261 million decrease in restricted cash and short-term investments primarily due to lower collateral requirements with respect to workers’ compensation obligations.

Financing Activities

Net cash used in financing activities was $1.3 billion and $315 million in 2015 and 2014, respectively.

Principal financing activities in 2015 included share repurchases of $3.6 billion, debt repayments of $2.2 billion, including the $400 million repayment of American’s AAdvantage loan with Citibank, and $278 million in dividend payments. These cash outflows were offset in part by proceeds from the issuance of $5.0 billion of debt primarily including $4.2 billion of EETC equipment notes and other aircraft related financings and $500 million principal amount of 4.625% senior notes.

Principal financing activities in 2014 included $1.0 billion in stock repurchases and debt repayments of $3.1 billion, including the $1.0 billion prepayment of American’s 7.50% senior secured notes and the $366 million

prepayment of certain airport facility revenue bonds. These cash outflows were offset in part by proceeds from the issuance of $3.3 billion of debt, primarily including $1.8 billion of proceeds from EETC equipment notes and other aircraft related financings, $1.5 billion of proceeds from the issuance of the 5.50% senior notes and the term loan under the 2014 Credit Facilities, as well as $811 million of proceeds from sale-leaseback transactions related to the financing of 20 Boeing 737-800 aircraft.

2014 Compared to 2013

Operating Activities

Net cash provided by operating activities was $3.1 billion and $675 million in 2014 and 2013, respectively, a period-over-periodyear-over-year increase of $2.4 billion. This period-over-period improvement in cash flow generated from operating activitiesyear-over-year increase is principally due to increased profitability and the inclusion of a full year of US Airways Group’s net cash provided by operating activities for the year ended December 31, 2014. These increases were offset in part by higher pension contributions made during 2014. During the yearyears ended December 31, 2014 and 2013, we contributed $810 million and $494 million, respectively, to fund our defined benefit pension plans, representing a $316 million period-over-periodyear-over-year increase in contributions.

Investing Activities

Net cash used in investing activities was $2.9 billion and $3.8 billion in 2014 and 2013, respectively.

Principal investing activities in the 2014 period included expenditures of $5.3 billion for property and equipment, consisting primarily of the purchase of 70 newly delivered aircraft, including 25 Airbus A320 family aircraft, 20 Boeing 737 family737-800 aircraft, 16 Bombardier CRJ900 aircraft, six Boeing 777 aircraft, 25and three Airbus A330 family aircraft, the purchase of aircraft previously leased, including nine Airbus A320 family aircraft, three Airbus A330 family aircraft and 16 Bombardier CRJ900 aircraft, the purchase of aircraft previously leased including three Airbus A330 family

aircraft, three Boeing 777 aircraft and nine Airbus A320 family aircraft, as well as pre-delivery deposits for certain aircraft on order. These cash outflows were offset in part by $1.8 billion in net sales of short-term investments, $307 million in proceeds from the sale of DCA Slotsslots and a $261 million decrease in restricted cash and short-term investments primarily due to lower collateral requirements with respect to projected workers’ compensation obligations.

Principal investing activities in 2013 included expenditures of $3.1 billion for property and equipment, consisting primarily of the purchase of 39 newly delivered aircraft, including 31 Boeing 737737-800 aircraft and eight Boeing 777 aircraft as well as pre-delivery deposits for certain aircraft on order and $1.2 billion in net purchases of short-term investments. These cash outflows were offset in part by proceeds from the sale of certain property and equipment and a $147 million decrease in restricted cash and short-term investments primarily due to lower collateral requirements with respect to projected workers’ compensation obligations.obligations and $128 million in proceeds from the sale of certain property and equipment. Additionally, in connection with the Merger, we acquired the $206 million cash balance of US Airways Group.

Financing Activities

Net cash used in financing activities was $315 million in 2014 as compared to net cash provided by financing activities of $3.8 billion in 2013.

Principal financing activities in the 2014 period included $1.0 billion in stock repurchases and debt repayments of $3.1 billion, including the $1.0 billion prepayment of American’s 7.50% senior secured notes the $175 million cash settlement of US Airways Group’s 7.25% convertible notes, the $155 million prepayment of outstanding debt secured by certain aircraft and the $366 million prepayment of certain airport facility revenue bonds. These cash outflows were offset in part by proceeds from the issuance of $3.3 billion of debt, primarily including the $750 million term loan under the 2014 Credit Facilities, the 5.50% senior notes, $1.8 billion of certainproceeds from EETC equipment notes and other aircraft related financings, $1.5 billion of proceeds from the issuance of the 5.50% senior notes and the term loan under the 2014 Credit Facilities, as well as $811 million of proceeds from sale-leaseback transactions related to the financing of 20 Boeing 737 family737-800 aircraft.

Principal financing activities in 2013 included proceeds of $6.8 billion and consisted primarily offrom the issuance of debt of $5.1 billion, including the $1.9 billion 2013 Citicorp CreditTerm Loan Facility and several EETC financings, and proceeds from sale-leaseback transactions of $1.7 billion. These cash inflows were offset in part by debt repayments of $2.9 billion.

2013American

2015 Compared to 20122014

Operating Activities

Net cash provided by operating activities was $675 million and $1.3flat at $2.6 billion in 2013each of 2015 and 2012, respectively,2014. Cash flows were generated from increased profitability, driven by substantially lower fuel costs and a year-over-year decrease in pension contributions, which were offset in part by American’s funding of $610 million. This year-over-year decreaseshare repurchase activities performed at the AAG parent company level. American’s 2015 profitability was primarilynegatively affected by a $592 million charge to write off all of the value of Venezuelan bolivars held by American due to the inclusioncontinued lack of US Airways Group’s net cash usedrepatriations and deterioration of economic conditions in operating activities of $327 million, for the post-Merger period from December 9, 2013 to December 31, 2013, and our emergence from bankruptcy in 2013 which triggered cash payments for certain liabilities.Venezuela.

Investing Activities

Net cash used in investing activities was $3.8$5.6 billion and $1.6$2.9 billion in 20132015 and 2012,2014, respectively.

Principal investing activities in 20132015 included expenditures of $3.1$6.1 billion for property and equipment, and consistedconsisting primarily of the purchasespurchase of 31 Boeing 737114 newly delivered aircraft and eight spare engines, including 31 Airbus A321 family aircraft, 24 Embraer 175 aircraft, 20 Bombardier CRJ900 aircraft, 17 Boeing 737-800 aircraft, 13 Boeing 787 aircraft, seven Airbus A319 aircraft and two Boeing 777 aircraft and pre-delivery deposits forthe purchase of five Boeing 757 aircraft on order and $1.2 billion in net purchases of short-term investments.previously being leased. These cash outflows were offset in part by proceeds from the sale$391 million in net sales of certain property and equipmentshort-term investments and a $147$79 million decrease in restricted cash and short-term investments. Additionally, in connectioninvestments primarily due to lower collateral requirements with the Merger, the Company acquired the $206 million cash balance of US Airways Group.respect to workers’ compensation obligations.

Principal investing activities in 20122014 included expenditures of $1.9$5.3 billion for property and equipment, and consistedconsisting primarily of the purchase of 2870 newly delivered aircraft, including 25 Airbus A320 family aircraft, 20 Boeing 737737-800 aircraft, and two16 Bombardier CRJ900 aircraft, six Boeing 777 aircraft and three Airbus A330 family aircraft, the purchase of aircraft previously leased, including nine Airbus A320 family aircraft, three Airbus A330 family aircraft and three Boeing 777 aircraft, as well as pre-delivery deposits for certain aircraft on order and $112 million from an increase in restricted cash and short-term investments.order. These cash outflows were offset in part by cash proceeds of $306 million from$1.8 billion in net sales of short-term investments, and $123$307 million in proceeds from the sale of certain propertyDCA slots and equipment.a $261 million decrease in restricted cash and short-term investments primarily due to lower collateral requirements with respect to workers’ compensation obligations.

Financing Activities

Net cash provided by financing activities was $3.8$2.4 billion and $483$143 million in 20132015 and 2012,2014, respectively.

Principal financing activities in 20132015 included proceeds of $6.8 billion and consisted primarily offrom the issuance of $4.5 billion of debt primarily including $4.2 billion of $5.1 billion, including the $1.9 billion Term Loan FacilityEETC equipment notes and proceeds from sale-leaseback transactions of $1.7 billion.other aircraft related financings. These cash inflows were offset in part by debt repayments of $2.9 billion.$2.2 billion, including the $400 million repayment of American’s AAdvantage loan with Citibank.

Principal financing activities in 20122014 included proceeds from the issuance of $2.6 billion of debt, primarily including $1.8 billion of EETC equipment notes and consisted primarilyother aircraft related financings and $750 million of $1.5 billion inproceeds from issuance of the term loan under the 2014 Credit Facilities, as well as $811 million of proceeds from sale-leaseback transactions.transactions related to the financing of 20 Boeing 737-800 aircraft. These proceedscash inflows were offset in part by debt repayments of $1.3 billion.$3.0 billion, including the $1.0 billion prepayment of American’s 7.50% senior secured notes and the $366 million prepayment of certain airport facility revenue bonds.

American

2014 Compared to 2013

Operating Activities

Net cash provided by operating activities was $1.5$2.6 billion and $949$627 million in 2014 and 2013, respectively, a period-over-periodyear-over-year increase of $528 million.$2.0 billion. This period-over-period improvement in cash flow generated from operating activitiesyear-over-year increase is principally due to increased profitability and the inclusion of a full year of US Airways’ net cash provided by operating activities for the year ended December 31, 2014. These increases were offset in part by higher pension contributions made during 2014. During the years ended December 31, 2014 and 2013, American contributed $809 million and $494 million, respectively, to fund its defined benefit pension plans, representing a $315 million period-over-periodyear-over-year increase in contributions.

Investing Activities

Net cash used in investing activities was $1.9$2.9 billion and $4.5$3.8 billion in 2014 and 2013, respectively.

Principal investing activities in the 2014 period included expenditures of $3.9$5.3 billion for property and equipment, consisting primarily of the purchase of 70 newly delivered aircraft, including 25 Airbus A320 family aircraft, 20 Boeing 737 family737-800 aircraft, 16 Bombardier CRJ900 aircraft, six Boeing 777 aircraft sevenand three Airbus A320A330 family aircraft and 16 Bombardier CRJ900 aircraft, the purchase of aircraft previously being leased, including three Boeing 777 aircraft and nine Airbus A320 family aircraft, three Airbus A330 family aircraft and three Boeing 777 aircraft, as well as pre-delivery deposits for certain aircraft on order and $198 million of cash transferred to affiliates.order. These cash outflows were offset in part by $1.9$1.8 billion in net sales of short-term investments, $299$307 million in proceeds from the sale of DCA Slotsslots and a $52$261 million decrease in restricted cash and short-term investments primarily due to lower collateral requirements with respect to projected workers’ compensation obligations.

Principal investing activities in 2013 included expenditures of $3.0$3.1 billion for property and equipment, consisting primarily of the purchase of 39 newly delivered aircraft, including 31 Boeing 737737-800 aircraft and eight Boeing 777 aircraft as well as pre-delivery deposits for certain aircraft on order and $1.8$1.2 billion in net purchases of short-term investments. These cash outflows were offset in part by a $147 million decrease in restricted cash and short-term investments primarily due to lower collateral requirements with respect to workers’ compensation obligations and $115 million in proceeds from the sale of certain property and equipment and a $148equipment. Additionally, in connection with the Merger, American acquired the $200 million decrease in restricted cash and short-term investments.balance of US Airways.

Financing Activities

Net cash provided by financing activities was $368$143 million in 2014 as compared to net cash provided by financing activities ofand $3.9 billion in 2013.2014 and 2013, respectively.

Principal financing activities in the 2014 period included debt repayments of $2.3 billion including the $1.0 billion prepayment of American’s 7.50% senior secured notes, the $293 million prepayment of certain airport facility revenue bonds and the $88 million prepayment of outstanding debt secured by certain aircraft. These cash outflows were offset in part by proceeds from the issuance of $2.0$2.6 billion of debt, primarily including the $750 million term loan under the 2014 Credit Facilities, $1.2$1.8 billion of certain EETC equipment notes and other aircraft related financings and $750 million of proceeds from issuance of the term loan under the 2014 Credit Facilities, as well as $811 million of proceeds from sale-leaseback transactions related to the financing of 20 Boeing 737 family737-800 aircraft. These cash inflows were offset in part by debt repayments of $3.0 billion, including the $1.0 billion prepayment of American’s 7.50% senior secured notes and the $366 million prepayment of certain airport facility revenue bonds.

Principal financing activities in 2013 included proceeds of $6.6 billion and consisted primarily offrom the issuance of debt of $4.8$5.1 billion, including the $1.9 billion 2013 Term Loan Facility and several EETC financings, and proceeds from sale-leaseback transactions of $1.7 billion. These cash inflows were offset in part by debt repayments of $2.6$2.9 billion.

2013 Compared to 2012

Operating Activities

Net cash provided by operating activities was $949 million and $1.2 billion in 2013 and 2012, respectively, a year-over-year decrease of $205 million. This decrease was due principally to emergence from bankruptcy in 2013, which triggered payments for several liabilities.

Investing Activities

Net cash used in investing activities was $4.5 billion and $1.6 billion in 2013 and 2012, respectively.

Principal investing activities in 2013 included expenditures of $3.0 billion for property and equipment and consisted primarily of the purchases of 31 Boeing 737 aircraft and eight Boeing 777 aircraft and pre-delivery deposits for aircraft on order and $1.8 billion in net purchases of short-term investments. These cash outflows were offset in part by $115 million in proceeds from the sale of certain property and equipment and a $148 million decrease in restricted cash and short-term investments.

Principal investing activities in 2012 included expenditures of $1.9 billion for property and equipment and consisted primarily of the purchase of 28 Boeing 737 aircraft and 2 Boeing 777 aircraft and pre-delivery deposits for aircraft on order. These cash outflows were offset in part by cash proceeds of $306 million from net sales of marketable securities and $124 million obtained in the sale of certain property and equipment.

Financing Activities

Net cash provided by financing activities was $3.9 billion and $592 million in 2013 and 2012, respectively.

Principal financing activities in 2013 included proceeds of $6.6 billion and consisted primarily of the issuance of debt of $4.8 billion, including the $1.9 billion Term Loan and several EETC financings, and proceeds from sale-leaseback transactions of $1.7 billion. These cash inflows were offset in part by debt repayments of $2.6 billion.

Principal financing activities in 2012 included proceeds of $1.8 billion and consisted primarily of $1.5 billion in proceeds from sale-leaseback transactions. These proceeds were offset in part by debt repayments of $1.3 billion.

Commitments

Significant Indebtedness

As of December 31, 2014,2015, AAG and American had $18.0$20.8 billion and $11.3$19.1 billion, respectively, in long-term debt and capital leases (including current maturities and before debt discount)of $2.2 billion each). See Note 9 and 22 to AAG’s

Consolidated Financial Statements in Part II, Item 8A and Note 67 and 20 to American’s Consolidated Financial Statements in Part II, Item 8B for further information on all indebtedness as of December 31, 2014. Our significant indebtedness includes2015, as well as the 2013 Credit Facilities, the 2013 Citicorp Credit Facility and the 2014 Credit Facilities described below.

2013 Credit Facilities

On June 27, 2013, American and AAG entered into a Credit and Guaranty Agreement (as amended, the 2013 Credit Agreement) with certain lenders. The 2013 Credit Agreement provides for a term loan facility (the 2013 Term Loan Facility) that is scheduled to mature on June 27, 2019, unless otherwise extended by the applicable parties. As of December 31, 2014, $1.9 billion was outstanding under the 2013 Term Loan Facility.

The 2013 Credit Agreement originally provided for a $1.0 billion revolving credit facility (the 2013 Revolving Facility and, together with the 2013 Term Loan Facility, the 2013 Credit Facilities) scheduled to mature on June 27, 2018, unless otherwise extended by the applicable parties. The 2013 Term Loan Facility is repayable in quarterly installments in an amount equal to 0.25% of the original principal amount thereof with any unpaid balance due on the maturity date of the 2013 Term Loan Facility. The 2013 Revolving Facility provided that American may from time to time borrow, repay and reborrow loans thereunder and have letters of credit issued thereunder in an aggregate amount outstanding at any time of up to $1.0 billion. On October 10, 2014, American and AAG amended the 2013 Credit Agreement to extend the maturity date of the 2013 Revolving Facility to October 10, 2019 and increased the commitments thereunder to an aggregate amount of $1.4 billion while reducing the letter of credit commitments thereunder to $300 million. As of December 31, 2014, there were no borrowings or letters of credit outstanding under the 2013 Revolving Facility.

The 2013 Credit Facilities bear interest at an index rate plus an applicable index margin or, at American’s option, LIBOR (subject to a floor of 0.75%, with respect to the 2013 Term Loan Facility) plus an applicable LIBOR margin. The applicable LIBOR margin is 3.00% for borrowings under both the 2013 Term Loan Facility and the 2013 Revolving Facility.

Upon consummation of the Merger, US Airways Group and US Airways joined the 2013 Credit Facilities as guarantors. Following the joinder, certain minimum dollar-thresholds under the negative and financial covenants in the 2013 Credit Facilities were automatically increased.

Subject to certain limitations and exceptions, the 2013 Credit Facilities are secured by certain collateral, including certain route authorities and certain take-off and landing rights and gate leaseholds at certain airports. American is required to maintain a certain minimum ratio of appraised value of the collateral to the outstanding loans under the 2013 Credit Facilities as more fully described below in “Collateral Related Covenants.

The 2013 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 under the 2013 Credit Facilities may be accelerated and become due and payable immediately. In addition, if a “change of control” (as defined in the 2013 Credit Agreement) occurs, American will (absent an amendment or waiver) be required to repay at par the loans outstanding under the 2013 Credit Facilities and terminate the 2013 Revolving Facility. The 2013 Credit Facilities also include covenants that, among other things, require AAG to maintain a minimum aggregate liquidity (as defined in the 2013 Credit Facilities) of not less than $2.0 billion, 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.

2013 Citicorp Credit Facility

On May 23, 2013, US Airways entered into a term loan credit facility (the 2013 Citicorp Credit Facility) with Citicorp North America, Inc., as administrative agent, and a syndicate of lenders. US Airways Group and certain other subsidiaries of US Airways Group are guarantors of the 2013 Citicorp Credit Facility agreement. In connection with the closing of the Merger, AAG and American entered into a joinder to the 2013 Citicorp Credit Facility loan agreement pursuant to which AAG and American became guarantors under such agreement.

The 2013 Citicorp Credit Facility consists of tranche B-1 term loans (Tranche B-1) and tranche B-2 term loans (Tranche B-2). As of December 31, 2014, $990 million was outstanding under Tranche B-1 and $594 million was outstanding under Tranche B-2. Voluntary prepayments may be made at any time, with a premium of 1.00% applicable to certain prepayments made prior to the date that is six months following January 16, 2014.

As of December 31, 2014, the 2013 Citicorp Credit Facility bears interest at an index rate plus an applicable index margin or, at US Airways’ option, LIBOR (subject to a floor of 0.75%) plus an applicable LIBOR margin. The applicable LIBOR margin is 2.75% for Tranche B-1 and 2.25% for Tranche B-2.

Tranche B-1 and Tranche B-2 mature on May 23, 2019 and November 23, 2016, respectively (unless otherwise extended by the applicable parties), and each is repayable in annual installments to be paid on each anniversary of the closing date in an amount equal to 1.00% of the initial aggregate principal amount of the loans with any unpaid balance due on the maturity date of the respective tranche.

Subject to certain limitations and exceptions, the obligations of US Airways under the 2013 Citicorp Credit Facility are secured by liens on certain take-off and landing rights at certain airports, and certain other assets of US Airways. US Airways is required to maintain a certain minimum ratio of appraised value of the collateral to the outstanding loans under the 2013 Citicorp Credit Facility as more fully described below in “Collateral Related Covenants.

The 2013 Citicorp Credit Facility agreement contains events of default customary for similar financings, including a cross-default provision to certain other material indebtedness of US Airways and certain of its affiliates. Upon the occurrence of an event of default, the outstanding obligations under the 2013 Citicorp Credit Facility may be accelerated and become due and payable immediately. In addition, if a “change of control” (as defined in the 2013 Citicorp Credit Facility agreement) occurs, US Airways will (absent an amendment or waiver) be required to repay the outstanding loans in full together with accrued interest thereon to the date of such prepayment. The 2013 Citicorp Credit Facility agreement includes affirmative, negative and financial covenants that, among other things, (a) require AAG and its restricted subsidiaries to maintain unrestricted liquidity of not less than $2.0 billion, with not less than $750 million held in accounts subject to control agreements, and (b) restrict the ability of US Airways Group, its subsidiaries party to the 2013 Citicorp Credit Facility, AAG and American to make certain investments, pay dividends and make certain other payments, make certain acquisitions, incur liens on the collateral, dispose of collateral, enter into certain affiliate transactions, enter into certain hedging transactions, and engage in certain business activities, in each case subject to certain exceptions.

Senior Secured Notes

In March 2014, American prepaid $100 million of its 7.50% senior secured notes at a redemption price of 103% of their principal amount plus accrued and unpaid interest. In July 2014, American prepaid the remaining outstanding principal balance of $900 million at a redemption price of 103.75% of outstanding principal amount plus accrued and unpaid interest. In connection with the prepayment of the outstanding 7.50% senior secured notes, American paid $37 million of cash premiums and recorded a $5 million non-cash write off of unamortized deferred issuance costs during the year ended December 31, 2014.

7.25% Convertible Notes

In March 2014, we notified the holders of US Airways Group’s 7.25% convertible notes that we had elected to settle solely in cash instead of shares of AAG Common Stock all conversions during the period beginning on March 15, 2014 and ending on, and including, the second scheduled trading day immediately preceding the maturity date of May 15, 2014. In May 2014, we settled all outstanding 7.25% convertible notes in cash for approximately $175 million.

Other Aircraft Financing Transactions

In May 2014, we prepaid $113 million principal amount of outstanding debt secured by certain aircraft.

During 2014, American entered into loan agreements to borrow $286 million in connection with2016-1 EETC financing certain aircraft deliveries. The notes mature in 2026 and bear interest at a rate of LIBOR plus an applicable margin.

2013-1 EETCs

During 2014, US Airways issued $559 million of equipment notes in two series under its 2013-1 EETCs completed in April 2013: Series A equipment notes in the amount of $423 million bearing interest at 3.95% per annum and Series B equipment notes in the amount of $136 million bearing interest at 5.375% per annum. As of December 31, 2014, the full $820 million of the escrowed proceeds from US Airways’ 2013-1 EETCs have been used to purchase Series A and Series B equipment notes issued by US Airways. The equipment notes are secured by liens on aircraft.

2014-1 EETCs

In September 2014, American created two pass-through trusts which issued approximately $957 million aggregate face amount of Series 2014-1 Class A and Class B EETCs in connection with the financing of 17 aircraft recently delivered to, and owned by, American (the 2014 EETC Aircraft).

As of December 31, 2014, the full $957 million of the escrowed proceeds from the 2014-1 EETCs have been used to purchase equipment notes issued by American in two series: Series A equipment notes in the amount of $742 million bearing interest at 3.70% per annum and Series B equipment notes in the amount of $215 million bearing interest at 4.375% per annum. Interest and principal payments on the equipment notes are scheduled to be made in April and October of each year, beginning in April 2015. The final payments on the Series A and Series B equipment notes will be due in October 2026 and October 2022, respectively. The equipment notes are secured by liens on the 2014 EETC Aircraft.

Obligations Associated with Special Facility Revenue Bonds

In 2014, we prepaid $314 million of obligations, of which $135 million was a reduction of debt on our balance sheet, associated with special facility revenue bonds issued by municipalities to build or improve certain airport and maintenance facilities. The remaining portion of these obligations was accounted for as an operating lease.

In addition, in August 2014, American elected to exercise its option to reset the interest rate on approximately $220 million aggregate principal amount of special facility revenue bonds reflected as debt on its balance sheet, related to the Los Angeles International Airport, resulting in the repurchase of these bonds by American in September 2014. American has the option to remarket these bonds in the future. In connection with the repurchase of these bonds, American paid $2 million in cash premiums and recorded a $5 million non-cash write off of unamortized debt discount and issuance costs.

In December 2014, American purchased approximately $112 million aggregate principal amount of special facility revenue bonds related to the Tulsa International Airport, when such bonds were mandatorily tendered to American. Of this amount, $11 million was a reduction of debt on American’s balance sheet. American has the option to remarket these bonds in the future.

5.50% Senior Notes

In September 2014, we issued $750 million aggregate principal amount of 5.50% senior notes due 2019 (the 5.50% senior notes). These notes bear interest at a rate of 5.50% per annum, which is payable semi-annually in arrears on each April 1 and October 1, beginning April 1, 2015. The 5.50% senior notes mature on October 1, 2019 and are fully and unconditionally guaranteed by American, US Airways Group and US Airways. The 5.50% senior notes are senior unsecured obligations of AAG. The indenture for the 5.50% senior notes contains covenants and events of default generally customary for similar financings. In addition, if we experience specific kinds of changes of control, we must offer to repurchase the 5.50% senior notes at a price of 101% of the principal amount plus accrued and unpaid interest, if any, to the repurchase date. Upon the occurrence of certain events of default, the 5.50% senior notes may be accelerated and become due and payable.

2014 Credit Facilities

On October 10, 2014, American, AAG, US Airways Group and US Airways entered into a Credit and Guaranty Agreement (the 2014 Credit Agreement) with certain lenders. The 2014 Credit Agreement provides for a $750 million term loan facility (the 2014 Term Loan Facility) and a $400 million revolving credit facility (the 2014 Revolving Facility and, together with the 2014 Term Loan Facility, the 2014 Credit Facilities). As of December 31, 2014, $750 million was outstanding under the 2014 Term Loan Facility. The 2014 Revolving Facility provides that American may from time to time borrow, repay and reborrow loans thereunder. American may have letters of credit issued under the 2014 Revolving Facility in an aggregate amount outstanding at any time up to $300 million. As of December 31, 2014, there were no borrowings or letters of credit outstanding under the 2014 Revolving Facility.

Subject to certain limitations and exceptions, the 2014 Credit Facilities are secured by certain collateral, including certain route authorities and certain take-off and landing rights and gate leaseholds at certain airports. The obligations of American under the 2014 Credit Facilities are guaranteed by AAG, US Airways Group and US Airways. American is required to maintain a certain minimum ratio of appraised value of the collateral to the outstanding loans under the 2014 Credit Facilities as more fully described below in “Collateral Related Covenants.

The 2014 Term Loan Facility and 2014 Revolving Facility mature on October 10, 2021 and October 10, 2019, respectively, unless otherwise extended by the applicable parties. The 2014 Term Loan Facility is repayable in annual installments in an amount equal to 1.00% of the original principal balance with any unpaid balance due on the maturity date of the 2014 Term Loan Facility. Voluntary prepayments may be made by American at any time, with a premium of 1.00% applicable to certain prepayments made prior to the date that is six months following October 10, 2014.

The 2014 Credit Facilities bear interest at an index rate plus an applicable index margin or, at American’s option, LIBOR (subject to a floor of 0.75% in the case of the 2014 Term Loan Facility) plus an applicable LIBOR margin. The applicable LIBOR margins are 3.50% and 3.00% for borrowings under the 2014 Term Loan Facility and the 2014 Revolving Facility, respectively. If American has a corporate credit rating of Ba3 or higher from Moody’s and BB- or higher from S&P, the applicable LIBOR margin is 3.25% under the 2014 Term Loan Facility.

The 2014 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 under the

2014 Credit Facilities may be accelerated and become due and payable immediately. In addition, if a “change of control” (as defined in the 2014 Credit Agreement) occurs with respect to AAG, American will (absent an amendment or waiver) be required to repay at par the loans outstanding under the 2014 Credit Facilities and terminate the 2014 Revolving Facility. The 2014 Credit Facilities also include covenants that, among other things, require AAG to maintain a minimum aggregate liquidity (as defined in the 2014 Credit Facilities) of not less than $2.0 billion, and limit the ability of AAG and its restricted subsidiaries to pay dividends and make certain other payments, make certain investments, 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.

AAdvantage Loan

American had the right to repay in cash, without premium or penalty, any or all of the amounts owed to Citibank under the AAdvantage Loan. Effective January 2, 2015, American exercised its loan repayment right with respect to the full value of the outstanding balance to Citibank for $400 million. In connection with the repayment, in the first quarter of 2015, American will recognize an early debt extinguishment gain of approximately $17 million. The entire outstanding balance of the obligation is reflected in current maturities of long-term debt on the accompanying consolidated balance sheet as of December 31, 2014.

Guarantees

In March 2014, AAG, US Airways Group and US Airways entered into amended and restated guarantees of the payment obligations of US Airways under the equipment notes relating to each of its Series 2010-1, 2011-1, 2012-1, 2012-2 and 2013-1 Pass Through Certificates, the result of which was to add AAGdisclosed as a guarantor of such equipment notes on a joint and several basis with US Airways Group.

Collateral Related Covenants

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

Specifically, we are required to meet certain collateral coverage tests on a periodic basis on three Credit Facilities, as described below:

   

2014 Credit Facilities

  

2013 Credit Facilities

  

2013 Citicorp Credit Facility

Frequency of Appraisals of Appraised Collateral

  Annual  Semi-Annual  Once per Fiscal Year (1)

LTV Requirement

  1.6x Collateral valuation to amount of debt outstanding (62.5% LTV)  1.6x Collateral valuation to amount of debt outstanding (62.5% LTV)  1.5x Collateral valuation to amount of debt outstanding (66.7% LTV)

LTV as of Last Measurement
Date

  21.9%  33.7%  61.8%

Collateral Description

  Generally, certain route authorities, take-off and landing slots, and rights to airport facilities used by American to operate certain services between the U.S. and London Heathrow, Tokyo Narita, and China  Generally, certain route authorities, take-off and landing slots, and rights to airport facilities used by American to operate all services between the U.S. and South America  Generally, certain Slots (e.g., DCA and LaGuardia), accounts receivable, certain engines, certain spare parts and ground service equipment, certain simulators, certain leasehold real estate assets and cash

(1)

With respect to spare parts, one physical appraisal and one desktop appraisal are required in each fiscal year.

At December 31, 2014, we were in compliance with the applicable collateral coverage tests as of the most recent measurement dates.subsequent event.

Credit Ratings

The following table details our credit ratings as of December 31, 2014:2015:

 

   S&P
Local Issuer
Credit Rating
 Fitch
Issuer Default
Credit Rating
 Moody’s
Corporate
Family Rating

American Airlines Group

  B+BB-  B+ B1BB-Ba3

American Airlines, Inc.

  B+BB-  B+BB- *

 

*

The credit agency does not rate this category for this entity.

A decrease in our credit ratings could cause our borrowing costs to increase, which would increase our interest expense and could affect our net income, and our credit ratings could adversely affect our ability to obtain additional financing. If our financial performance or industry conditions worsen, we may face future downgrades, which could negatively impact our borrowing costs and the prices of our equity or debt securities. In addition, any downgrade of our credit ratings may indicate a decline in our business and in our ability to satisfy our obligations under our indebtedness.

Aircraft and Engine Purchase Commitments

As of December 31, 2014,2015, we had definitive purchase agreements with Airbus, Boeing and other manufacturers for the acquisition of the following mainline and regional aircraft:

 

  2015   2016   2017   2018   2019   2020 and
Thereafter
   Total   2016   2017   2018   2019   2020   2021 and
Thereafter
   Total 

Airbus

                            

A320 Family

   42     25     20                    87     25     20                         45  

A320neo

             10     25     25     40     100  

A320neo Family

                  25     25     50     100  

A350 XWB

             6     10     6          22          4     10     6     2          22  

Boeing

                            

737 Family

   18     20     20                    58  

737 MAX

             3     17     20     60     100  

737-800

   20     20                         40  

737 MAX Family

        3     17     20     20     40     100  

777-300 ER

   2     2                         4     2                              2  

787 Family

   12     13     10     7               42     8     13     8                    29  

Bombardier

                            

CRJ900 (1)

   18     20                         38     18                              18  

Embraer

                            

ERJ175 (1)

   24     24     12                    60     24     12                         36  
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

   116     104     81     59     51     100     511     97     72     35     51     47     90     392  

 

(1)

These aircraft may be operated by wholly-owned subsidiaries or leased to third-party regional carriers which would operate the aircraft under capacity purchase arrangements.

We also hadhave agreements for 5549 spare engines to be delivered in 20152016 and beyond. Under all of our aircraft and engine purchase agreements, our total future commitments as of December 31, 20142015 are expected to be as follows (approximately, in(in millions):

 

   2015   2016   2017   2018   2019   2020 and
Thereafter
   Total 

Payments for American aircraft commitments and certain engines (1)

  $4,586    $4,856    $4,165    $3,241    $2,654    $5,651    $25,153  

Payments for US Airways aircraft commitments and certain engines (1)

  $524    $122    $772    $1,050    $588    $    $3,056  
   2016   2017   2018   2019   2020   2021 and
Thereafter
   Total 

Payments for the above aircraft commitments and certain engines (1)

  $4,505    $4,591    $2,916    $3,156    $2,793    $4,537    $22,498  

 

(1)

These amounts are net of purchase deposits currently held by the manufacturers and include all commitments for regional aircraft. American has granted Boeing a security interest in its purchase deposits with Boeing. Our purchase deposits held by all manufacturers totaled $1.2$1.1 billion as of December 31, 2014.2015.

In April 2014,2015, we exercisedamended our optiondelivery agreement with Boeing to purchase,defer four 787 aircraft from 2016 to 2017 and terminatedone 787 aircraft from 2017 to 2018. In June 2015, we amended our existing lease financing arrangementsdelivery agreement with respectAirbus to 62 Airbus A320defer delivery of 10 A320neo family aircraft scheduledin 2017 and 25 A320neo family aircraft in 2018 to be delivered between the first quarter of 2015 and the third quarter of 2017. In connection with our exercise of such option, we also exercised our right to convert firm orders for 30 Airbus A320neo aircraft, scheduled to be delivered inyears 2021 and 2022, to options to acquire such aircraft. The table above reflects these changes.

through 2023. In December 2014,2015, we exercisedamended our right under our purchasedelivery agreement with BombardierAirbus to convert 24 of our 40 option order CRJ900 aircraftdefer two A350 XWB from 2017 to firm orders to acquire such aircraft.2020. These deferrals are reflected in the table above.

As of December 31, 2014,2015, we did not have financing commitments for the following aircraft currently on order and scheduled to be delivered through 2017: 8325 Airbus A320 family aircraft 10in 2016 and 20 Airbus A320neo aircraft, six Airbus A350 XWB aircraft, 13 Boeing 737A320 family aircraft three 737 MAX aircraft, four Boeing 777-300 ER aircraft, and 35in 2017, 8 Boeing 787 family aircraft.aircraft in 2016 and 13 Boeing 787 family aircraft in 2017, 15 Boeing 737-800 aircraft in 2016, three Boeing 737 MAX family aircraft in 2017 and two Boeing 777-300ER aircraft in 2016. In addition, we diddo not have financing commitments in place for substantially all aircraft currently on order and scheduled to be delivered in 2018 and beyond. See Part I, Item 1A. Risk Factors –We “We will need to obtain sufficient financing or other capital to operate successfullysuccessfully.”.”

Credit Card Processing Agreements

We have agreements with companies that process customer credit card transactions for the sale of air travel and other services. Credit card processors have financial risk associated with tickets purchased for travel because, although the processor generally forwards the cash related to the purchase to us soon after the purchase is completed, the air travel generally occurs after that time, and the processor may have liability if we do not ultimately provide the air travel.travel or services according to our fare rules. Our agreements allow these processing companies, under certain conditions, to hold an amount of our cash (referred to as a “holdback”) equal to a portion of advance ticket sales that have been processed by that company, but for which we have not yet provided the air transportation. We are not currently required to maintain any holdbacks pursuant to these requirements. Certain of our agreements provide that these holdback requirements can be modified at the discretion of the processing companies, up to the estimated liability for future air travel purchased with the respective credit cards, upon the occurrence of specified events, including material adverse changes in our financial condition. The amount that the processing companies may withhold also varies as a result of changes in financial risk due to seasonal fluctuations in ticket volume. Additional holdback requirements will reduce our liquidity in the form of unrestricted cash by the amount of the holdbacks.

Pension Funding Obligation

We are required to make minimum contributions to our defined benefit pension plans under the minimum funding requirements of Employee Retirement Income Security Act of 1974 (ERISA), the Pension Funding Equity Act of 2004, the Pension Protection Act of 2006, the Pension Relief Act of 2010 and the Moving Ahead for Progress in the 21st Century Act of 2012. In 2014, we made our aggregate minimum required contributions for 2014 of $171 million, and made $639 million in supplemental contributions to our pension plans, above and beyond the $171 million of minimum required contributions.various other laws.

Based on our current funding assumptions, we have no minimum required contributions until 2019.2018. Currently, our minimum funding obligation for our pension plans is subject to temporary favorable rules that are scheduled to expire at the end of 2017. Upon expiration of these rules, ourOur pension funding obligations are likely to increase materially.materially following expiration of the temporary funding rules, when we will be required to make contributions relating to the 2018

fiscal year. The amount of these obligations will depend on the performance of our investments held in trust by the pension plans, interest rates for determining liabilities and our actuarial experience. See Note 13 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 11 to American’s Consolidated Financial Statements in Part II, Item 8B for further information on retirement benefits as of December 31, 2015.

Labor Agreements

In June 2014 and 2015, we reached three agreements with IAM covering 11,000 US Airways mechanics, fleet service agents and maintenance training specialists. In July 2014, these three-year agreements that amend pre-merger contracts were ratified by IAM and will remain in effect until a joint collective bargaining agreement can be reached with their colleagues at the TWU to cover more than 30,000 employees at the new American Airlines.

several labor unions. On December 18, 2014, we reached a JCBA with the APFA. On December 23, 2014, the APFA JCBA pay rates were increased by 4% due to a corporate wide initiative announced on that day. The new agreement did not require ratification and was effective immediately with the wage increases under the JCBA becoming effective January 1, 2015. We estimate that our total flight attendant costs in 2015 will be approximately $200 million higher as a result of this new agreement.

On January 3, 2015, we reached a tentative agreement with the APA on a five-year JCBA, which was ratified on January 30, 2015. The new, higher pay rates were implemented retroactive to December 2, 2014. We estimate that the ratified contract will increase our 2015 cost of pilot compensation and benefits by approximately $650 million.

In 2014, Envoy pilots ratifiedSeptember 2015, we reached an agreement with the CWA-IBT for a new 10 year collective bargaining agreement, Piedmont pilotsJCBA applicable to passenger service employees, which was ratified a new 10 year collective bargaining agreementin November 2015 and Piedmont flight attendants ratified a new five-year collective bargaining agreement.provided significant pay increases for combined passenger service employees, effective immediately.

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 15 to AAG’s Consolidated Financial Statements included in Part II, Item 8A and Note 1213 to American’s Consolidated Financial Statements in Part II, Item 8B.

Special Facility Revenue Bonds

We guarantee the payment of principal and interest of certain special facility revenue bonds issued by municipalities primarily to build or improve airport facilities and purchase equipment which is leased to us. Under such leases, we are required to make rental payments through 2035, sufficient to pay maturing principal and interest payments on the related bonds. As of December 31, 2014,2015, the remaining lease payments guaranteeing the principal and interest on these bonds are $449$617 million, which are accounted for as operating leases.

Pass-Through Trusts

We have financed certain aircraft and engines with pass-through trust certificates, or EETCs, issued by pass-through trusts. These trusts are off-balance sheet entities, the primary purpose of which is to finance our acquisition of flight equipment. Rather than finance each aircraft separately when such aircraft is purchased, delivered or refinanced, these trusts allow American and US Airways to raise the financing for several aircraft at one time and, if applicable, place such funds in escrow pending thea future purchase, delivery or refinancing of the relevant aircraft. The trusts were also 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 and US Airways.American.

Each trust covered a set amount of aircraft scheduled to be delivered or refinanced upon the issuance of the EETC or within a specific period of time.time thereafter. At the time of each covered aircraft financing, the relevant trust used the fundsproceeds of the issuance of the EETC (which may have been available at the time of issuance thereof or held in escrow until the date of delivery of the applicable aircraft) to purchase equipment notes relating to the financed aircraft. The equipment notes were issued, at American or, in the case of equipment notes issued by US Airways prior to its merger with and into American, at US Airways’ election, in connection with a mortgage financing of the aircraft 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 leased the aircraft to American or US Airways. In both cases, the equipment notes are secured by a security interest in the aircraft. On December 30, 2015, American assumed all of US Airways’ obligations under all outstanding equipment notes previously issued by US Airways. The pass-through trust certificates are not direct obligations of, nor are they guaranteed by, AAG American, US Airways Group or US Airways.American. However, in the case of mortgage financings, the equipment notes issued to the trusts are direct obligations of American or US Airways and, in certain instances, are guaranteed by AAG or US Airways Group as applicable.AAG. As of December 31, 2014, $7.02015, $8.7 billion associated with these mortgage financings is reflected as debt in the accompanying consolidated balance sheet.

With respect to leveraged leases, American or US Airways evaluated whether the leases had characteristics of a variable interest entity. American or US Airways concluded the leasing entities met the criteria for variable interest entities. American and US Airways generally areis 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 or US Airways to absorb decreases in value or entitles American or US Airways to participate in increases in the value of the aircraft. American and US Airways dodoes not provide residual value guarantees to the bondholders or equity participants in the trusts. American’s existing lease arrangements do not contain fixed-price purchase options or similar features. Certain US Airways’Some leases have a fair market value or a fixed price purchase option that allows itAmerican 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, US AirwaysAmerican does not participate in any increases in the value of the aircraft. American and US Airways concluded they wereit is not the primary beneficiary under these arrangements. Therefore, American and US Airways accountaccounts for theirits EETC leveraged lease financings as operating leases. American and US Airways’American’s total future obligations under these leveraged lease financings are $2.1$1.8 billion as of December 31, 2014.2015.

AAG Contractual Obligations

The following table provides details of our future cash contractual obligations as of December 31, 2014.2015. 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  Payments Due by Period 
 2015 2016 2017 2018 2019 2020 and
Thereafter
 Total  2016 2017 2018 2019 2020 2021 and
Thereafter
 Total 

American

          

Debt and capital lease obligations (1), (3)

 $1,230   $698   $942   $844   $2,744   $4,791   $11,249   $2,266   $1,598   $1,634   $2,628   $3,081   $7,820   $19,027  

Interest obligations (2), (3)

  525    478    486    497    374    1,094    3,454    796    742    698    601    472    1,314    4,623  

Commitments for aircraft and engine purchases (4)

  4,586    4,856    4,165    3,241    2,654    5,651    25,153    4,505    4,591    2,916    3,156    2,793    4,537    22,498  

Operating lease commitments (5)

  1,391    1,293    1,240    1,141    1,069    4,939    11,073    2,187    2,069    1,824    1,642    1,493    4,704    13,919  

Regional capacity purchase agreements (6)

  502    592    463    446    430    2,242    4,675    1,672    1,553    1,249    1,075    881    2,393    8,823  

Minimum pension obligations (7)

                  853    3,606    4,459            164    1,205    902    4,199    6,470  

Retiree medical and other purchase obligations

  461    260    215    192    166    374    1,668  

Retiree medical and other purchase obligations (7)

  435    241    206    178    90    355    1,505  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total American Contractual Obligations

 $8,695   $8,177   $7,511   $6,361   $8,290   $22,697   $61,731   $11,861   $10,794   $8,691   $10,485   $9,712   $25,322   $76,865  

AAG Parent, US Airways Group and Other AAG Subsidiaries

     

Debt and capital lease obligations (1), (3)

 $478   $964   $396   $1,035   $2,156   $1,685   $6,714  

Interest obligations (2), (3)

  321    303    275    239    168    270    1,576  

Commitments for aircraft and engine purchases (4)

  524    122    772    1,050    588        3,056  

Operating lease commitments (5)

  719    624    569    417    330    782    3,441  

Regional capacity purchase agreements (6)

  1,082    1,024    1,016    751    636    860    5,369  

Retiree medical and other purchase obligations

  9    9    9    9    7    35    78  

AAG Parent and Other AAG Subsidiaries

     

Debt and capital lease obligations (1)

 $   $   $500   $750   $506   $24   $1,780  

Interest obligations (2)

  97    97    82    67    14    9    366  

Operating lease commitments

  11    9    5    1            26  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total AAG Contractual Obligations

 $11,828   $11,223   $10,548   $9,862   $12,175   $26,329   $81,965   $11,969   $10,900   $9,278   $11,303   $10,232   $25,355   $79,037  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

 

(1)

Amounts represent contractual amounts due. For American, excludes $42$228 million and for US Airways Group,AAG Parent and other AAG subsidiaries, excludes $17$18 million of unamortized debt discount and debt issuance costs as of December 31, 2014.2015.

 

(2)

For variable-rate debt, future interest obligations are estimated using the current forward rates at December 31, 2014.2015.

 

(3)

For American, includes $4.3Includes $8.7 billion of future principal payments and $1.1$2.3 billion of future interest payments, respectively, and for US Airways Group, includes $2.7 billion of future principal payments and

$867 million of future interest payments, respectively, as of December 31, 2014,2015, related to EETCs associated with mortgage financings for the purchase of certain aircraft.

 

(4)

See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations –“Liquidity “Liquidity and Capital Resources” for additional information about the obligations of American and US Airways Group.these obligations.

 

(5)

For American, includes $269 million and for US Airways Group, includesIncludes $1.8 billion of future minimum lease payments related to EETC leverage leased financings of certain aircraft as of December 31, 2014.2015.

 

(6)

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.

 

(7)

Includes minimum pension contributions based on actuarially determined estimates and other postretirement benefit payments based on estimated payments through 2024.2025. See Note 1011 to American’s Consolidated Financial Statements in Part II, Item 8B.

Capital Raising Activity and Other Possible Actions

In light of our significant financial commitments related to, among other things, new aircraft and the servicing and amortization of existing debt and equipment leasing arrangements, we and our subsidiaries will regularly

consider, and enter into negotiations related to, capital raising activity, which may include the entry into leasing transactions and future issuances of secured or unsecured debt obligations or additional equity securities in public or private offerings or otherwise. The cash available from operations and these sources, however, may not be sufficient to cover 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 or natural disasters could reduce the demand for air travel, which would reduce the amount of cash generated by operations. 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, the 2013 Credit Facilities, the 2014 Credit Facilities, the 2013 Citicorp Credit Facility and certain of our other financing arrangements contain significant minimum cash balance requirements. As a result, we cannot use all of our available cash to fund operations, capital expenditures and cash obligations without violating these requirements.

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 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.

OTHER INFORMATION

Basis of Presentation

See Note 5 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 45 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 accounting principles generally accepted in the United States 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 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 summary of significant accounting policies included in Note 5 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 45 to American’s Consolidated Financial Statements in Part II, Item 8B for additional discussion of the application of these estimates and other accounting policies.

Passenger revenueRevenue

Passenger revenue is recognized when transportation is provided. Ticket sales for transportation that has not yet been provided are initially deferred and recorded as air traffic liability on the consolidated balance sheets. The air traffic liability represents tickets sold for future travel dates and estimated future refunds and exchanges of tickets sold for past travel dates. The balance in the air traffic liability fluctuates throughout the year based on seasonal travel patterns and fare sale activity. AAG’sOur air traffic liability was $4.3$3.7 billion and $4.4$4.3 billion as of December 31, 20142015 and 2013, respectively, and American’s air traffic liability was $3.0 billion and $3.1 billion as of December 31, 2014, and 2013, respectively.

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 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 and members of theother airline industry participants have consistently applied this accounting method to estimate revenue from forfeited tickets at the date travel was to be provided.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 results of operations during the period in which the evaluations are completed.

Long-lived Assets

Long-lived assets consist of flight equipment along with other fixed assets and amortizing intangible assets such as certain domestic take-off and landing rights,slots, customer relationships, marketing agreements and tradenames. 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. Amortizing intangible assets are originally recorded at their acquired fair values and are subsequently amortized over their estimated useful lives. See Note 5 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 45 to American’s Consolidated Financial Statements in Part II, Item 8B for further information.

We record impairment charges 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 thosethe assets are less than the carrying amount of thosethe 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. Cash flow estimates are based on historical results adjusted to reflect management’s best estimate of future market and operating conditions, including our current fleet plan and considerations of any modifications thereto. 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 and US Airways’ 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.

Goodwill and indefinite-lived assetsIndefinite-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 tested for impairment annually on October 1st or more frequently if events or circumstances indicate.indicate that goodwill may be impaired. We have one consolidated reporting unit.

Our indefinite-lived intangible assets other than goodwill include certain international slots and route authorities and domestic take-off and landing rights.airport slots. Indefinite-lived intangible assets are not amortized but tested for impairment annually on October 1st or more frequently if events or circumstances indicate.indicate that the asset may be impaired.

Goodwill and indefinite-lived intangible assets are measured for impairment by initially performing a qualitative screen. Under the qualitative approach, we analyze the following factors 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 mile yields, (4) lower passenger demand as a result of a weakened U.S. and global economy and (5) changes to the regulatory environment.

If we determine that it is more likely than not that the asset value may be impaired, we use the quantitative approach to assess the asset’s fair value and the amount of the impairment. Under the quantitative approach, we

calculate the fair value of the asset using the following assumptions: (1) our projected revenues, expenses and cash flows, (2) an estimated weighted average cost of capital, (3) assumed discount rates depending on the asset (4) a tax rate and (5) market prices for comparable assets. These assumptions are consistent with those which hypothetical market participants would use. If the asset’s carrying value exceeds its fair value calculated using the quantitative approach, we will record an impairment charge for the difference in fair value and carrying value.

Based upon our annual testing, there were no impairments of our goodwill and indefinite-lived assets in 2014.2015.

Business Combination Measurements

In accordance with applicable accounting standards, we estimated the fair value of US Airways’ assets and liabilities as of the closing date of the Merger, December 9, 2013. These fair value adjustments did not result in gains or losses, but were instead an input to the calculation of goodwill related to the excess of the purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed by us in the Merger.

The fair values of the assets acquired and liabilities assumed were determined using the market, income and cost approaches. The fair value measurements were primarily based on significant inputs that are not observable in the market, other than certain long-term debt assumed in the Merger. The market approach, which indicates value for a subject asset based on available market pricing for comparable assets, was utilized to estimate the fair value of US Airways’ aircraft and operating leases. The market approach used includesincluded prices and other relevant information generated by market transactions involving comparable assets, as well as pricing guides and other sources. We considered the current market for the aircraft, the maintenance condition of the aircraft and the expected proceeds from the sale of the assets, among other factors. We also utilized the market approach to value certain intangible assets such as airport take-offtake off and landing slots when sufficient market information was available. The income approach was primarily used to value intangible assets, including customer relationships, marketing agreements, certain international route authorities, and the US Airways tradename. The income approach indicates value for a subject asset based on the present value of cash flows projected to be generated by the asset. Projected cash flows are discounted at a required market rate of return that reflects the relative risk of achieving the cash flows and the time value of money. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used, as appropriate, for certain assets for which the market and income approaches could not be applied due to the nature of the asset. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the asset, less an allowance for loss in value due to depreciation. The fair value of the US Airways Dividend Miles frequent flyerloyalty program liability was determined based on the weighted average equivalent ticket value of outstanding miles which were expected to be redeemed for future travel at December 9, 2013. The weighted average equivalent ticket value contemplates differing classes of service, domestic and international itineraries and the carrier providing the award travel.

Frequent flyer programsLoyalty Program

AAGWe currently operates two frequent traveler programs, American’s AAdvantage and US Airways’ Dividend Miles. These programs awardoperate the loyalty program, AAdvantage. This program awards mileage credits to passengers who fly on American US Airways andoneworld carriers, as well as certain other partner airlines that participate in the programs.program. Mileage credits can also be earned through purchases from other non-airline partners that participate in our respective loyalty programs.program. Mileage credits can be redeemed for travel on American US Airways or other participating partner airlines, in which case we pay a fee.

We use the incremental cost method to account for the portion of our frequent flyerloyalty program liability incurred when AAdvantage and Dividend Miles members earn mileage credits by flying on American US Airways or our regional affiliates. We have an obligation to provide future travel when these mileage credits are redeemed and therefore have recorded a liability for mileage credits outstanding.

The incremental cost liability includes all mileage credits that are expected to be redeemed, including mileage credits earned by members whose mileage account balances have not yet reached the minimum mileage credit level required to redeem an award. Additionally, outstanding mileage credits are subject to expiration if unused. In calculating the liability, we estimate how many mileage credits will never be redeemed for travel and exclude those mileage credits from the estimate of the liability. Estimates are also made for the number of miles that will be used per award redemption and the number of travel awards that will be redeemed on partner airlines. These estimates are based on historical program experience as well as consideration of enacted program changes, as applicable. Changes in the liability resulting from members earning additional mileage credits or changes in estimates are recorded in the statementconsolidated statements of operations as a part of passenger revenue.

The liability for outstanding mileage credits is valued based on the estimated incremental cost of carrying one additional passenger. Incremental cost primarily includes unit costs incurred for fuel, food, and insurance as well as fees incurred when travel awards are redeemed on partner airlines. No profit or overhead margin is included in the accrual of incremental cost. These estimates are generally updated based upon our 12-month historical average of such costs.

WeAs of December 31, 2015 and 2014, the liability for outstanding mileage credits for the AAdvantage program accounted for under the incremental cost method was $657 million and $674 million, respectively, and is included on the consolidated balance sheets within loyalty program liability.

In addition, we applied the acquisition method of accounting in connection with the Merger and therefore recorded the liability for outstanding US AirwaysAirways’ mileage credits at fair value, an amount significantly in excess of incremental cost. As of December 31, 2015 and 2014, the liability for these outstanding mileage credits expected to be redeemed for future travel awards for US Airways under the Dividend Miles program was $638$296 million and $611 million, respectively, and is included on the consolidated balance sheets within frequent flyerloyalty program liability. This liability willis amortized into passenger revenue on a straight-line basis over the period in which the mileage credits are expected to be reduced as miles are redeemed andfor travel. All new miles earned will be recorded as a liability based on the incremental cost method discussed above.

As of December 31, 2014, the liability for outstanding mileage credits for the AAdvantage program was $647 million and is included on the consolidated balance sheets within frequent flyer liability.

American and US Airways also sell frequent flyersells loyalty program mileage credits to participating airline partners and non-airline business partners. Sales of mileage credits to non-airline business partners is comprised of two components, transportation and marketing. Historically, we have used the residual method of accounting to determine the values of each component as there had not been a material modification to any significant agreements since ourthe adoption of Accounting Standards Update (ASU) No. 2009-13, “Revenue Recognition (Topic 605) – Multiple-Deliverable Revenue Arrangements” on January 1, 2011.

During the fourth quarter ofIn 2013, American and Citibank amended their currentAAdvantage co-branded credit card agreement, which resulted in a material modification of the terms of the arrangement. Also, in connection with ourthe acquisition of US Airways on December 9, 2013, a material modification occurred on all of US Airways’ agreements in connection with the Merger. Therefore, subsequent to the amendments of these arrangements, we will applyhave applied the relative selling price method to determine the values of each deliverable. Under the relative selling price approach, we identified five revenue elements for the co-branded credit card agreements with Citibank and Barclays: the transportation component; use of the

American and US Airways’ brand including access to frequent flyerloyalty program member lists; advertising; lounge access; and baggage services (together excluding “thethe transportation component, the “marketing component”)marketing component).

The transportation component represents the estimated selling price of future travel awards and is determined using historical transaction information, including information related to customer redemption patterns. The transportation component is deferred based on its relative selling price and is amortized into passenger revenue on a straight-line basis over the period in which the mileage credits are expected to be redeemed for travel.

The marketing component represents services provided to our business partners and relates primarily to the use of American’s and US Airways’ logo and tradenames along withthe American brand including access to customers lists of AAdvantage and Dividend Miles members.loyalty program member lists. The marketing services are provided

periodically, but no less than monthly. Accordingly, the marketing component is considered earned and recognized in other revenues in the period of the mileage sale.

Upon application of the relative selling price method in 2013 for American’s Citibank modification, we reduced our travel component liability and recorded other revenue of approximately $31 million. As a result of the change in the marketing component value when the relative selling price method is applied, American and US Airwayswe now defer less revenue per mile sold.

For American’s agreements where there has not been a material modification, we continue to apply the residual method.

As of December 31, 2015 and 2014, and 2013, AAGAmerican had $1.5 billion in deferred revenue from the sale of mileage credits (recorded as frequent flyerwithin loyalty program liability on the consolidated balance sheets). For the years ended December 31, 2015, 2014 and 2013, and 2012, AAG’sthe marketing component of mileage sales recognized at the time of sale in other revenues was approximately $1.5 billion, $1.4 billion $834 million and $725 million, respectively.

As of December 31, 2014 and 2013, American had $1.2 billion, in deferred revenue from the sale of mileage credits (recorded as frequent flyer liability on the consolidated balance sheets). For the years ended December 31, 2014, 2013 and 2012, American’s marketing component of mileage sales recognized at the time of sale in other revenues was approximately $1.1 billion, $816 million and $725$834 million, respectively.

A change to certain estimates used in the calculation of incremental cost could have a material impact on the liability. A 1%one percentage point increase or decrease in the percentage of travel awards redeemed on partner airlines would have a $31an approximate $35 million impact on the liability as of December 31, 2014.2015. A 10% increase or decrease in the assumed price per gallon of fuel would have a $23an approximate $12 million impact on the liability as of December 31, 2014.2015.

A change to the estimated fair value of the transportation component could have a significant impact on revenue. A 10% increase or decrease in the estimated fair value of the transportation component would have an approximately $91$75 million impact on revenue recognized in 2014.2015.

The number of one way travel award redemptions during the year ended December 31, 2014,2015, was approximately 7.98.3 million representing approximately 5.5%6.5% of our total mainline and regional RPMs during that period. We believe displacement of revenue passengers is minimal given our load factors and our ability to manage frequent flyerloyalty program seat inventory.

Pensions and retiree medicalRetiree Medical and other benefitsOther 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 other postretirement plans in the consolidated balance sheet with a corresponding adjustment to accumulated other comprehensive income (loss).

Our pension and other postretirement benefit costs and liabilities are calculated using various actuarial assumptions and methodologies. We use certain assumptions including, but not limited to, the selection of the: (i) discount rate; (ii) expected return on plan assets; (iii) expected health care cost trend rate and (iv) the estimated age of pilot retirement (as discussed below). These assumptions as of December 31 were:

 

  2014 2013   2015 2014 

Pension discount rate (1)

   4.30  5.10   4.70  4.30

OPEB discount rate (1)

   4.00  4.71

Other postretirement benefits discount rate (1)

   4.42  4.00

Expected return on plan assets (2)

   8.00  8.00   8.00  8.00

Expected health care cost trend rate (3):

      

Pre-65 individuals

      

Initial

   5.25  6.50   5.21  5.25

Ultimate (2023)

   4.55  4.50

Ultimate (2024)

   4.56  4.55

Post-65 individuals

      

Initial

   5.25  6.50   5.21  5.25

Ultimate (2023)

   4.55  4.50

Ultimate (2024)

   4.56  4.55

Pilot Retirement Age

   62    63     62    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, 20142015 would increase our pension and other postretirement benefits obligations by approximately $1.4$1.2 billion and $58$52 million, respectively, and increase estimated 20152016 pension expense by $7 million and decrease estimated 20152016 other postretirement benefit expense by $2less than $1 million.

 

(2)

The expected 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 32%31% longer duration corporate and U.S. government/agency bonds, 33%32% U.S. value stocks, 18%19% developed international stocks, 9%10% emerging markets stocks and bonds and 8% alternative (private) investments. The expected 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. We monitor our actual asset allocation and believe that our long-term asset allocation will continue to approximate our target allocation. Our historical annualized ten-year rate of return on plan assets, calculated using a geometric compounding of monthly returns, is approximately 8% as of December 31, 2014. Lowering the expected long-term rate of return on plan assets by 50 basis points as of December 31, 20142015 would increase estimated 20152016 pension expense and other postretirement benefit expense by approximately $53$47 million and $1 million, respectively.

 

(3)

The 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 20152016 other postretirement benefits expense by $3 million.

During 2014,2015, we revised our mortality assumptions to incorporate the new set of mortality tablesimprovement scale issued by the Society of Actuaries, adjusted to reflect our experience and future expectations.Actuaries. This resulted in an increasea decrease in the projected benefit obligationobligations of our pension and retiree medical programs of $682$161 million and $47$9 million, respectively. We also reviewed and revised certain other economic and demographic assumptions including the pension and retiree medical discount rates and health care cost and trend rates. The net effect of changing these assumptions for the pension and retiree medical plans resulted in an increase of $1.8 billion and a decrease of $64$940 million and $119 million, respectively, in the projected benefit obligation at December 31, 20142015 primarily due to the decreaseincrease in the pension discount rate.

See Note 13 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 1011 to American’s Consolidated Financial Statements in Part II, Item 8B for additional information regarding our retirement benefits.

Income taxesTaxes

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. A valuation allowance is established, if necessary, for the amount of any tax benefits that, based on available evidence, are not expected to be realized.

NewRecent Accounting Pronouncements

In May 2014, theSee Note 5 to AAG’s Consolidated Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 completes the joint effort by the FASBStatements in Part II, Item 8A and International Accounting Standards Board (IASB)Note 5 to improve financial reporting by creating common revenue recognition guidanceAmerican’s Consolidated Financial Statements in Part II, Item 8B for U.S. GAAP and International Financial Reporting Standards (IFRS). ASU 2014-09 applies to all companies that enter into contracts with customers to transfer goods or services. ASU 2014-09 is effective for public entities for interim and annual reporting periods beginning after December 15, 2016. Early application is not permitted and entities have the choice to apply ASU 2014-09 either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying ASU 2014-09 at the date of initial application and not adjusting comparative information. We are currently evaluating the requirements of ASU 2014-09 and have not yet determined its impactfurther information on our consolidated financial statements.recent accounting pronouncements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

AAG’s Market Risk Sensitive Instruments and Positions

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 management may take to mitigate our exposure to such changes. Therefore, actual results may differ. See Note 11 to AAG’s Consolidated Financial Statements in Part II, Item 8A for accounting policies and additional informationdiscussion regarding derivatives.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, even a relatively small increase or decrease in the price of fuel can have a material adverse aggregate effect on our costs and liquidity. Jet fuel market prices have fluctuated substantially over the past several years with market spot prices ranging from a low of approximately $1.55$1.00 per gallon to a high of approximately $3.37$3.34 per gallon during the period from January 1, 20112012 to December 31, 2014. In order to provide a measure of control over price and supply, we trade and ship fuel and maintain fuel storage facilities to support our flight operations.2015.

During the second quarter of 2014, we sold our portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. We have not entered into any transactions to hedge our fuel consumption since December 9, 2013 and, accordingly, asAs of December 31, 2014,2015, we did not have any fuel hedging contracts outstanding.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. Our 20152016 forecasted mainline and regional fuel consumption is presently approximately 4.34.4 billion gallons, and based on this forecast, a one cent per gallon increase in aviation fuel price would result in a $43$44 million increase in annual expense.

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. Our largest exposure comes from the British pound, Euro, Canadian dollar Japanese yen and various Latin American currencies, particularlyprimarily the Venezuelan bolivar, Brazilian real and Argentine peso.real. We do not currently have a foreign currency hedge program related to our foreign currency-denominated ticket sales. Due to our foreign-denominated revenues exceeding our foreign-denominated expenses, aprogram. A uniform 10% relative strengthening in the value of the U.S. dollar from December 31, 2014 and 20132015 levels relative to each of the currencies in which we have foreign currency exposure would have resulted in an increase in our total nonoperating expense, net of approximately $235 million and $199$220 million for the years endingyear ended December 31, 2014 and 2013, respectively,2015, and does not address any exposure to foreign currency held on our consolidated balance sheet.

Venezuela CashGenerally, fluctuations in foreign currencies, including devaluations, cannot be predicted by us and Short-term Investments

As of December 31, 2014, $804 millioncan significantly affect the value of our cashassets 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 short-term investments balances were held in foreign bank accounts, of which approximately $656 million was held in Venezuelan bolivars. This balance includes approximately $621 million valued at 6.3 bolivars and approximately $35 million valued at 12.0 bolivars, with the rate depending on the date we submitted our repatriation request to the Venezuelan government. These rates are materially more favorable than the exchange rates currently prevailing for other transactions conducted outside of the Venezuelan government’s currency exchange system that we participate in. Our cash balance held

in Venezuelan bolivars decreased $54 million from the December 31, 2013 balance of $710 million primarily due to $88 million in cash repatriations and $30 million in foreign currency losses as described below, partially offset by additional cash proceeds from ticket sales in early 2014. In the second and third quarters of 2014, we repatriated $65 million including $31 million valued at 6.3 bolivars to the dollar and $34 million valued at 10.6 bolivars to the dollar. In the fourth quarter of 2014, we incurred an $11 million foreign currency loss related to the receipt of $23 million at a rate of 6.3 bolivars to the dollar for one of our 2012 repatriation requests originally valued at a rate of 4.3 bolivars to the dollar. Accordingly, we revalued our remaining pending 2012 repatriation requests from 4.3 to 6.3 bolivars to the dollar resulting in additional foreign currency losses of $19 million. In total, we recognized a $30 million special charge for these foreign currency losses in the fourth quarter of 2014. During 2014, we significantly reduced capacity in this market and we are no longer accepting bolivars as payment for airline tickets. We are continuing to work with Venezuelan authorities regarding the timing and exchange rate applicable to the repatriation of funds held in local currency. We are monitoring this situation closely and continue to evaluate our holdings of Venezuelan bolivars for additional foreign currency losses, which could be material, particularly in light of the uncertainty posed by the new foreign exchange regulations announced in mid-February 2015 and the continued deterioration of economic conditions in Venezuela.financial condition. See Part I, Item 1A. Risk Factors –“We “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 are also affected by changes in interest rates due to the impact those changes have on our interest income from short-term investments, and our interest expense from variable-rate debt instruments. Our largest exposure with respect to variable rate debt comes from changes in the London Interbank Offered Rate (LIBOR). We had variable rate debt instruments representing approximately 36%38% of our total long-term debt at

December 31, 2014.2015. We currently do not have an interest rate hedge program. If our interest rates increased 10% in 2014,2015, our interest expense would have increased by approximately $21 million and interest income from short-term investments would have increased by approximately $2$23 million.

Additional information regarding our debt obligations as of December 31, 20142015 is as follows (in millions):

 

  Expected Maturity Date   Expected Maturity Date 
  2015 2016 2017 2018 2019 Thereafter Total   2016 2017 2018 2019 2020 2021 and
Thereafter
 Total 

Fixed-rate debt

  $1,281   $745   $1,005   $1,539   $1,838   $5,100   $11,508    $1,200   $1,121   $1,651   $1,946   $1,360   $5,698   $12,976  

Weighted avg. interest rate

   5.6  5.6  5.6  5.6  5.6  6.0    5.0  5.1  5.0  4.9  4.9  5.7 

Variable-rate debt

  $427   $917   $333   $340   $3,062   $1,376   $6,455    $1,066   $477   $483   $1,432   $2,227   $2,146   $7,831  

Weighted avg. interest rate

   3.3  3.3  3.4  3.4  3.4  3.2    3.0  3.0  3.0  2.9  2.8  1.0 

American’s Market Risk Sensitive Instruments and Positions

The risk inherent in American’s 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 management may take to mitigate American’s exposure to such changes. Therefore, actual results may differ. See Note 89 to American’s Consolidated Financial Statements in Part II, Item 8B for accounting policies and additional informationdiscussion regarding derivatives.risk management matters.

Aircraft Fuel

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. Because of the amount

of fuel needed to operate American, even a relatively small increase or decrease in the price of fuel can have a material adverse aggregate effect on American’s costs and liquidity. Jet fuel market prices have fluctuated substantially over the past several years with market spot prices ranging from a low of approximately $1.55$1.00 per gallon to a high of approximately $3.37$3.34 per gallon during the period from January 1, 20112012 to December 31, 2014. In order to provide a measure of control over price and supply, American trades and ships fuel and maintains fuel storage facilities to support its flight operations.2015.

During the second quarter of 2014, American sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. American has not entered into any transactions to hedge its fuel consumption since December 9, 2013 and, accordingly, asAs of December 31, 2014,2015, American did not have any fuel hedging contracts outstanding.outstanding to hedge its fuel consumption. As such, and assuming American does not enter into any future transactions to hedge its fuel consumption, American will continue to be fully exposed to fluctuations in fuel prices. American’s current policy is not to enter into transactions to hedge its fuel consumption, although American reviews that policy from time to time based on market conditions and other factors. American’s 20152016 forecasted mainline and regional fuel consumption is presently approximately 2.84.4 billion gallons, and based on this forecast, a one cent per gallon increase in aviation fuel price would result in a $28$44 million increase in annual expense.

Foreign Currency

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. American’s largest exposure comes from the British pound, Euro, Canadian dollar Japanese yen and various Latin American currencies, particularlyprimarily the Venezuelan bolivar, Brazilian real and Argentine peso.real. American does not currently have a foreign currency hedge program related to its foreign currency-denominated ticket sales. Due to American’s foreign-denominated revenues exceeding its foreign-denominated expenses, ahedge. A uniform 10% strengthening in the value of the U.S. dollar from December 31, 2014 and 20132015 levels relative to each of the currencies in which American has foreign currency exposure would have resulted in an increase in its nonoperating expense, net of approximately $195 million and $199$220 million for the years endingyear ended December 31, 2014 and 2013, respectively,2015, and does not address any exposure to foreign currency held on its consolidated balance sheet.

Venezuela CashGenerally, fluctuations in foreign currencies, including devaluations, cannot be predicted by American and Short-term Investments

As of December 31, 2014, $745 millioncan significantly affect the value of American’s cash and short-term investments balances were held in foreign bank accounts, of which approximately $656 million was held in Venezuelan bolivars. This balance includes approximately $621 million valued at 6.3 bolivars and approximately $35 million valued at 12.0 bolivars, withassets located outside the rate depending on the date American submitted its repatriation request to the Venezuelan government.United States. These rates are materially more favorable than the exchange rates currently prevailing for other transactions conducted outside of the Venezuelan government’s currency exchange system that American participates in. American’s cash balance held in Venezuelan bolivars decreased $54 million from the December 31, 2013 balance of $710 million primarily due to $88 million in cash repatriations and $30 million in foreign currency lossesconditions, as described below, partially offset by additional cash proceeds from ticket sales in early 2014. In the second and third quarters of 2014, American repatriated $65 million including $31 million valued at 6.3 bolivars to the dollar and $34 million valued at 10.6 bolivars to the dollar. In the fourth quarter of 2014, American incurred an $11 million foreign currency loss related to the receipt of $23 million at a rate of 6.3 bolivars to the dollar for one of its 2012 repatriation requests originally valued at a rate of 4.3 bolivars to the dollar. Accordingly, American revalued its remaining pending 2012 repatriation requests from 4.3 to 6.3 bolivars to the dollar resulting in additional foreign currency losses of $19 million. In total, American recognized a $30 million special charge for these foreign currency losses in the fourth quarter of 2014. During 2014, American significantly reduced capacity in this market and is no longer accepting bolivarswell as payment for airline tickets. American is continuing to work with Venezuelan authorities regarding the timing and exchange rate applicable to the repatriation of funds held in local currency. American is monitoring this situation closely and continues to evaluate its holdings of Venezuelan bolivars for additional foreign currency losses, which could be material,

particularly in lightany further delays, devaluations or imposition of the uncertainty posed by the new foreign exchange regulations announced in mid-February 2015more stringent repatriation restrictions, may materially adversely affect American’s business, results of operations and the continued deterioration of economic conditions in Venezuela.financial condition. See Part I, Item 1A. Risk Factors –We “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 controlcontrol” for additional discussion of this and other currency risks.

Interest

American’s earnings are also affected by changes in interest rates due to the impact those changes have on its interest income from short-term investments, and its interest expense from variable-rate debt instruments. American’s largest exposure with respect to variable rate debt comes from changes in the London Interbank Offered Rate (LIBOR).LIBOR. American had variable rate debt instruments representing approximately 35%41% of its total long-term debt at December 31, 2014.2015. American currently does not have an interest rate hedge program. If American’s interest rates increased 10% in 2014,2015, American’s interest expense would have increased by approximately $14 million and interest income from short-term investments would have increased by approximately $2$23 million.

Additional information regarding American’s debt obligations as of December 31, 20142015 is as follows (in millions):

 

  Expected Maturity Date   Expected Maturity Date 
  2015 2016 2017 2018 2019 Thereafter Total   2016 2017 2018 2019 2020 2021 and
Thereafter
 Total 

Fixed-rate debt

  $968   $505   $745   $658   $766   $3,673   $7,315    $1,200   $1,121   $1,151   $1,196   $854   $5,674   $11,196  

Weighted avg. interest rate

   5.4  5.4  5.4  5.5  5.6  6.2    5.0  5.0  5.0  4.9  4.9  5.6 

Variable-rate debt

  $262   $193   $197   $186   $1,978   $1,118   $3,934    $1,066   $477   $483   $1,432   $2,227   $2,146   $7,831  

Weighted avg. interest rate

   3.6  3.6  3.6  3.6  3.6  3.3    3.0  3.0  3.0  2.9  2.8  1.0 

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

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

American Airlines Group Inc.:

We have audited the accompanying consolidated balance sheetsheets of American Airlines Group Inc. and subsidiaries (the Company) as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income (loss), cash flows, and stockholders’ equity (deficit), and cash flows for the yearyears then ended. 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 audit.audits.

We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit providesaudits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Airlines Group Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for the yearyears then ended, 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), American Airlines Group Inc.’sthe Company’s internal control over financial reporting as of December 31, 2014,2015, based on criteria established inInternal Control – Integrated Framework (1992)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 25, 201524, 2016 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/    KPMG LLP

Dallas, Texas

February 25, 201524, 2016

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

American Airlines Group Inc.

We have audited the accompanying consolidated balance sheet of American Airlines Group Inc. (the Company) (formerly AMR Corporation) as of December 31, 2013, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity (deficit) and cash flows of American Airlines Group Inc. (the Company) (formerly AMR Corporation) for each of the two years in the periodyear ended December 31, 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.audit. We did not audit the financial statements of US Airways Group, Inc., a wholly-owned subsidiary of the Company, which statements reflect consolidated total assets constituting 39% as of December 31, 2013, and total operating revenues constituting 3% of consolidated operating revenues for the year ended December 31, 2013, of the related consolidated totals.2013. Those financial statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to data included for such wholly-owned subsidiary, is based solely on the report of other auditors.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial positionresults of American Airlines Group Inc. at December 31, 2013 and the consolidated results of its’s operations and its cash flows for each of the two years in the periodyear ended December 31, 2013 in conformity with U.S. generally accepted accounting principles.

/s/    Ernst & Young LLP

Dallas, Texas

February 27, 2014 except for Note 7

as to which the date is February 25, 2015

AMERICAN AIRLINES GROUP INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except shares and per share amounts)

 

  Year Ended December 31,   Year Ended December 31, 
  2014 2013 2012   2015 2014 2013 

Operating revenues:

        

Mainline passenger

  $30,802   $20,218   $18,743    $29,037   $30,802   $20,218  

Regional passenger

   6,322    3,131    2,914     6,475    6,322    3,131  

Cargo

   875    685    675     760    875    685  

Other

   4,651    2,709    2,523     4,718    4,651    2,709  
  

 

  

 

  

 

   

 

  

 

  

 

 

Total operating revenues

   42,650    26,743    24,855     40,990    42,650    26,743  

Operating expenses:

        

Aircraft fuel and related taxes

   10,592    7,839    7,705     6,226    10,592    7,839  

Salaries, wages and benefits

   8,508    5,460    6,217     9,524    8,508    5,460  

Regional expenses

   6,516    3,326    3,028     5,983    6,516    3,326  

Maintenance, materials and repairs

   2,051    1,260    1,158     1,889    2,051    1,260  

Other rent and landing fees

   1,727    1,152    1,083     1,731    1,727    1,152  

Aircraft rent

   1,250    768    553     1,250    1,250    768  

Selling expenses

   1,544    1,158    1,058     1,394    1,544    1,158  

Depreciation and amortization

   1,295    853    845     1,364    1,295    853  

Special items, net

   800    559    386     1,051    800    559  

Other

   4,118    2,969    2,674     4,374    4,118    2,969  
  

 

  

 

  

 

   

 

  

 

  

 

 

Total operating expenses

   38,401    25,344    24,707     34,786    38,401    25,344  
  

 

  

 

  

 

   

 

  

 

  

 

 

Operating income

   4,249    1,399    148     6,204    4,249    1,399  

Nonoperating income (expense):

        

Interest income

   31    20    26     39    31    20  

Interest expense, net of capitalized interest

   (887  (856  (632   (880  (887  (856

Other, net

   (181  (88  221     (747  (181  (88
  

 

  

 

  

 

   

 

  

 

  

 

 

Total nonoperating expense, net

   (1,037  (924  (385   (1,588  (1,037  (924
  

 

  

 

  

 

   

 

  

 

  

 

 

Income (loss) before reorganization items, net

   3,212    475    (237

Income before reorganization items, net

   4,616    3,212    475  

Reorganization items, net

       (2,655  (2,208           (2,655
  

 

  

 

  

 

   

 

  

 

  

 

 

Income (loss) before income taxes

   3,212    (2,180  (2,445   4,616    3,212    (2,180

Income tax provision (benefit)

   330    (346  (569   (2,994  330    (346
  

 

  

 

  

 

   

 

  

 

  

 

 

Net income (loss)

  $2,882   $(1,834 $(1,876  $7,610   $2,882   $(1,834
  

 

  

 

  

 

   

 

  

 

  

 

 

Earnings (loss) per share:

        

Basic

  $4.02   $(6.54 $(7.52  $11.39   $4.02   $(6.54

Diluted

  $3.93   $(6.54 $(7.52  $11.07   $3.93   $(6.54

Weighted average shares outstanding (in thousands):

        

Basic

   717,456    280,213    249,490     668,393    717,456    280,213  

Diluted

   734,016    280,213    249,490     687,355    734,016    280,213  

Cash dividends declared per common share

  $0.20   $   $    $0.40   $0.20   $  

See accompanying notes to consolidated financial statements.

AMERICAN AIRLINES GROUP INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

 

  Year Ended December 31,   Year Ended December 31, 
  2014 2013 2012   2015 2014 2013 

Net income (loss)

  $2,882   $(1,834 $(1,876  $7,610   $2,882   $(1,834
  

 

  

 

  

 

 

Other comprehensive income (loss), before tax:

    

Other comprehensive income (loss):

    

Defined benefit pension plans and retiree medical:

        

Amortization of actuarial gain (loss) and prior service cost

   (163  (142  130  

Amortization of actuarial loss and prior service cost

   (108  (163  (142

Current year change

   (2,633  1,577    (1,910   (51  (2,633  1,577  

Benefit plan modifications

           3,345  

Derivative financial instruments:

        

Change in fair value

   (54  18    (12       (54  18  

Reclassification into earnings

   (4  34    (3   (9  (4  34  

Unrealized gain (loss) on investments:

    

Unrealized loss on investments:

    

Net change in value

   (3  (1  3     (5  (3  (1

Reversal of non-cash tax provision (benefit)

       330    (538
  

 

  

 

  

 

   

 

  

 

  

 

 

Other comprehensive income (loss) before tax

   (2,857  1,486    1,553  

Non-cash tax provision (benefit)

   (330  538    569  

Total other comprehensive income (loss)

   (173  (2,527  948  
  

 

  

 

  

 

   

 

  

 

  

 

 

Comprehensive income (loss)

  $355   $(886 $(892

Total comprehensive income (loss)

  $7,437   $355   $(886
  

 

  

 

  

 

   

 

  

 

  

 

 

See accompanying notes to consolidated financial statements.

AMERICAN AIRLINES GROUP INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except shares and par value)

 

 December 31,   December 31, 
 2014 2013   2015 2014 

ASSETS

     

Current assets

     

Cash

 $994   $1,140    $390   $994  

Short-term investments

  6,309    8,111     5,864    6,309  

Restricted cash and short-term investments

  774    1,035     695    774  

Accounts receivable, net

  1,771    1,560     1,425    1,771  

Aircraft fuel, spare parts and supplies, net

  1,004    1,012     863    1,004  

Prepaid expenses and other

  1,260    1,465     748    898  
 

 

  

 

   

 

  

 

 

Total current assets

  12,112    14,323     9,985    11,750  

Operating property and equipment

     

Flight equipment

  28,213    23,730     33,185    28,213  

Ground property and equipment

  5,900    5,585     6,402    5,900  

Equipment purchase deposits

  1,230    1,077     1,067    1,230  
 

 

  

 

   

 

  

 

 

Total property and equipment, at cost

  35,343    30,392     40,654    35,343  

Less accumulated depreciation and amortization

  (12,259  (11,133   (13,144  (12,259
 

 

  

 

   

 

  

 

 

Total property and equipment, net

  23,084    19,259     27,510    23,084  

Other assets

     

Goodwill

  4,091    4,086     4,091    4,091  

Intangibles, net of accumulated amortization of $447 and $373, respectively

  2,240    2,311  

Intangibles, net of accumulated amortization of $502 and $447, respectively

   2,249    2,240  

Deferred tax asset

   2,477      

Other assets

  2,244    2,299     2,103    2,060  
 

 

  

 

   

 

  

 

 

Total other assets

  8,575    8,696     10,920    8,391  
 

 

  

 

   

 

  

 

 

Total assets

 $43,771   $42,278    $48,415   $43,225  
 

 

  

 

   

 

  

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

  

LIABILITIES AND STOCKHOLDERS’ EQUITY

   

Current liabilities

     

Current maturities of long-term debt and capital leases

 $1,708   $1,446    $2,231   $1,677  

Accounts payable

  1,377    1,368     1,563    1,377  

Accrued salaries and wages

  1,194    1,143     1,205    1,194  

Air traffic liability

  4,252    4,380     3,747    4,252  

Frequent flyer liability

  2,807    3,005  

Loyalty program liability

   2,525    2,807  

Other accrued liabilities

  2,097    2,464     2,334    2,097  
 

 

  

 

   

 

  

 

 

Total current liabilities

  13,435    13,806     13,605    13,404  

Noncurrent liabilities

     

Long-term debt and capital leases, net of current maturities

  16,196    15,353     18,330    16,043  

Pension and postretirement benefits

  7,562    5,828     7,450    7,562  

Deferred gains and credits, net

  829    935     667    829  

Mandatorily convertible preferred stock and other bankruptcy settlement obligations

  325    5,928  

Bankruptcy settlement obligations

   193    325  

Other liabilities

  3,403    3,159     2,535    3,041  
 

 

  

 

   

 

  

 

 

Total noncurrent liabilities

  28,315    31,203     29,175    27,800  

Commitments and contingencies (Note 15)

     

Stockholders’ equity (deficit)

  

Common stock, $0.01 par value; 1,750,000,000 shares authorized, 697,474,535 shares issued and outstanding at December 31, 2014; 526,805,522 shares issued and outstanding at December 31, 2013

  7    5  

Stockholders’ equity

   

Common stock, $0.01 par value; 1,750,000,000 shares authorized 624,622,381 shares issued and outstanding at December 31, 2015; 697,474,535 shares issued and outstanding at December 31, 2014

   6    7  

Additional paid-in capital

  15,135    10,592     11,591    15,135  

Accumulated other comprehensive loss

  (4,559  (2,032   (4,732  (4,559

Accumulated deficit

  (8,562  (11,296   (1,230  (8,562
 

 

  

 

   

 

  

 

 

Total stockholders’ equity (deficit)

  2,021    (2,731

Total stockholders’ equity

   5,635    2,021  
 

 

  

 

   

 

  

 

 

Total liabilities and stockholders’ equity (deficit)

 $43,771   $42,278  

Total liabilities and stockholders’ equity

  $48,415   $43,225  
 

 

  

 

   

 

  

 

 

See accompanying notes to consolidated financial statements.

AMERICAN AIRLINES GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

 

 December 31,   December 31, 
 2014 2013 2012   2015 2014 2013 

Cash flows from operating activities:

       

Net income (loss)

 $2,882   $(1,834 $(1,876  $7,610   $2,882   $(1,834

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

       

Depreciation and amortization

  1,513    1,020    1,015     1,609    1,513    1,020  

Debt discount and lease amortization

  (171      (14   (122  (171    

Special items, non-cash

  52    95   ��215     273    52    95  

Pension and postretirement

  (163  (154  287     (193  (163  (154

Deferred income taxes

  346    (324  (569   (3,014  346    (324

Share based compensation

  304    39    29  

Share-based compensation

   284    304    39  

Reorganization items, non-cash

      2,112    2,066             2,112  

Interest expense, non-cash

      181                 181  

Other, net

  3    (76  22     (12  3    (76

Changes in operating assets and liabilities:

       

Increase in accounts receivable

  (160  (93  (222

Decrease (increase) in accounts receivable

   352    (160  (93

Increase in other current assets

  (45  (29  (133   (90  (45  (29

Decrease (increase) in derivative collateral

      1    (1

Decrease in derivative collateral

           1  

Increase in accounts payable and accrued liabilities

  110    71    449     173    110    71  

Increase (decrease) in air traffic liability

  (97  150    161     (505  (97  150  

Increase (decrease) in frequent flyer liability

  (229  38    140  

Increase (decrease) in loyalty program liability

   (295  (229  38  

Contributions to pension plans

  (810  (494  (277   (6  (810  (494

Decrease in other assets and liabilities

  (455  (28  (7

Increase (decrease) in other assets and liabilities

   185    (455  (28
 

 

  

 

  

 

   

 

  

 

  

 

 

Net cash provided by operating activities

  3,080    675    1,285     6,249    3,080    675  

Cash flows from investing activities:

       

Capital expenditures and aircraft purchase deposits

  (5,311  (3,114  (1,888   (6,151  (5,311  (3,114

Acquisition of US Airways Group

      206                 206  

Purchases of short-term investments

  (5,380  (3,342  (1,078   (8,126  (5,380  (3,342

Sales of short-term investments

  7,179    2,161    1,384     8,517    7,179    2,161  

Decrease (increase) in restricted cash and short-term investments

  261    147    (112

Decrease in restricted cash and short-term investments

   79    261    147  

Net proceeds from slot transaction

  307                 307      

Proceeds from sale of an investment

   52          

Proceeds from sale of property and equipment

  33    128    123     35    33    128  
 

 

  

 

  

 

   

 

  

 

  

 

 

Net cash used in investing activities

  (2,911  (3,814  (1,571   (5,594  (2,911  (3,814

Cash flows from financing activities:

       

Payments on long-term debt and capital leases

  (3,132  (2,926  (1,288   (2,153  (3,132  (2,926

Proceeds from issuance of long-term debt

  3,302    5,134    268     5,009    3,302    5,134  

Deferred financing costs

  (106  (120  (6   (87  (106  (120

Sale-leaseback transactions

  811    1,700    1,509     43    811    1,700  

Exercise of stock options

  10                 10      

Treasury stock repurchases

  (1,062           (3,846  (1,062    

Dividend payment

  (144        

Dividend payments

   (278  (144    

Other financing activities

  6    11         53    6    11  
 

 

  

 

  

 

   

 

  

 

  

 

 

Net cash provided by (used in) financing activities

  (315  3,799    483     (1,259  (315  3,799  
 

 

  

 

  

 

   

 

  

 

  

 

 

Net increase (decrease) in cash

  (146  660    197     (604  (146  660  

Cash at beginning of year

  1,140    480    283     994    1,140    480  
 

 

  

 

  

 

   

 

  

 

  

 

 

Cash at end of year

 $994   $1,140   $480    $390   $994   $1,140  
 

 

  

 

  

 

   

 

  

 

  

 

 

See accompanying notes to consolidated financial statements.

AMERICAN AIRLINES GROUP INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(In millions, except share amounts)

 

 Common
Stock
 Additional
Paid-in

Capital
 Treasury
Stock
 Accumulated
Other
Comprehensive
Income (Loss)
 Accumulated
Deficit
 Total 

Balance at December 31, 2011

 $254   $4,552   $(367 $(3,964 $(7,586 $(7,111

Net loss

                  (1,876  (1,876

Change in unrealized gain on investments

              3        3  

Changes in pension, retiree medical and other liability

              1,565        1,565  

Net changes in fair value of derivative financial instruments

              (15      (15

Non-cash tax provision

              (569      (569

Share-based compensation expense

      16                16  
 

 

  

 

  

 

  

 

  

 

  

 

  Common
Stock
 Additional
Paid-in

Capital
 Treasury
Stock
 Accumulated
Other
Comprehensive
Income (Loss)
 Accumulated
Deficit
 Total 

Balance at December 31, 2012

  254    4,568    (367  (2,980  (9,462  (7,987  254    4,568    (367  (2,980  (9,462  (7,987

Net loss

                  (1,834  (1,834                  (1,834  (1,834

Change in unrealized loss on investments

              (1      (1

Changes in pension, retiree medical and other liability

              1,435        1,435                1,435        1,435  

Net changes in fair value of derivative financial instruments

              52        52                52        52  

Non-cash tax provision

              (538      (538

Reversal of non-cash tax benefit

              (538      (538

Issuance of 6,249,185 shares to employees pursuant to stock option and deferred stock incentive plans

  6    2                8    6    2                8  

Issuance of 37,208,354 shares in exchange for redemption of AMR Corporation debt

  37    484                521    37    484                521  

Cancellation of pre-reorganization common stock

  (297  (70  367                (297  (70  367              

Issuance of 319,412,943 shares of post-reorganization common stock

  3    592                595    3    592                595  

Issuance of 197,363,088 shares in exchange for US Airways Group common stock

  2    4,590                4,592    2    4,590                4,592  

Equity component of US Airways Group convertible debt assumed in Merger

      88                88        88                88  

Issuance of 9,993,882 shares for Optional Conversion of Preferred Shares

      269                269        269                269  

Share-based compensation expense

      69                69        69                69  

Issuance of 35,609 shares to employees pursuant to stock option and deferred stock incentive plans

                                                

Change in unrealized loss on investments

              (1      (1
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance at December 31, 2013

  5    10,592        (2,032  (11,296  (2,731  5    10,592        (2,032  (11,296  (2,731

Net income

                  2,882    2,882                    2,882    2,882  

Change in unrealized loss on investments

              (3      (3

Changes in pension, retiree medical and other liability

              (2,796      (2,796              (2,796      (2,796

Net changes in fair value of derivative financial instruments

              (58      (58              (58      (58

Non-cash tax benefit

              330        330  

Reversal of non-cash tax benefit

              330        330  

Cash tax withholding on shares issued

      (110              (110      (110              (110

Purchase and retirement of 23,406,472 of AAG Common Stock

      (1,000              (1,000      (1,000              (1,000

Dividends declared on common stock ($0.20 per share)

                  (148  (148                  (148  (148

US Airways Group convertible debt settled with cash

      (154              (154      (154              (154

Issuance of 5,701,776 shares of common stock pursuant to employee stock plans

      10                10        10                10  

Issuance of 57,393,096 shares of post-reorganization common stock

  1    1,604                1,605    1    1,604                1,605  

Issuance of 130,980,613 shares for Optional Conversion of Preferred Shares

  1    3,889                3,890    1    3,889                3,890  

Share-based compensation expense

      304                304        304                304  

Change in unrealized loss on investments

              (3      (3
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance at December 31, 2014

 $7   $15,135   $   $(4,559 $(8,562 $2,021    7    15,135        (4,559  (8,562  2,021  

Net income

                  7,610    7,610  

Changes in pension, retiree medical and other liability

              (159      (159

Net changes in fair value of derivative financial instruments

              (9      (9

Cash tax withholding on shares issued

      (306              (306

Purchase and retirement of 85,141,691 shares of AAG Common Stock

  (1  (3,585              (3,586

Dividends declared on common stock ($0.40 per share)

                  (278  (278

Issuance of 12,289,537 shares of common stock pursuant to employee stock plans

                        

Settlement of Single-dip unsecured claims held in distributed claims reserve

      63                63  

Share-based compensation expense

      284                284  

Change in unrealized loss on investments

              (5      (5
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance at December 31, 2015

 $6   $11,591   $   $(4,732 $(1,230 $5,635  
 

 

  

 

  

 

  

 

  

 

  

 

 

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

1.  Nature of Operations and Operating Environment

American Airlines Group Inc. (AAG or the Company), a Delaware corporation, is a holding company whose primary business activity is the operation of twoa major network air carrierscarrier through its subsidiaries, American Airlines, Inc. (American), US Airways Group, Inc. (US Airways Group) and Envoy Aviation Group Inc. (Envoy, formerly known as AMR Eagle Holding Corporation). US Airways Group’s principal subsidiary is US Airways, Inc. (US Airways) and its wholly-owned regional subsidiaries, includeEnvoy Aviation Group Inc. (Envoy), Piedmont Airlines, Inc. (Piedmont), and PSA Airlines, Inc. (PSA). that operate under capacity purchase agreements as American Eagle.

The Company operates the largest airline in the world as measured by revenue passenger miles (RPMs) and available seat miles (ASMs). The Company has hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York City, Philadelphia, Phoenix and Washington, D.C. Together with American Eagle, and US Airways Express, the Company operates an average of nearly 6,700 flights per day to 339nearly 350 destinations in 54more than 50 countries. In 2014,2015, the Company had approximately 146 million and 52201 million passengers boarding its mainline and regional flights, respectively.flights. As of December 31, 2014,2015, the Company operated 983946 mainline jetsaircraft and is supported by its regional airline subsidiaries and third-party regional carriers operating as American Eagle and US Airways Express under capacity purchase agreements, which operated 566an additional 587 regional aircraft.

On December 30, 2015, in order to simplify AAG’s internal corporate structure and as part of the integration efforts following the business combination of AAG and US Airways Group, Inc. (US Airways Group), AAG caused US Airways Group to be merged with and into AAG, with AAG as the surviving corporation, and, immediately thereafter, US Airways, Inc. (US Airways), a Delaware corporation and wholly-owned subsidiary of US Airways Group, merged with and into American, with American as the surviving corporation. As a result of the merger of US Airways and American, US Airways transferred all of its assets, liabilities and off-balance sheet commitments to American. For financial reporting purposes, this transaction constituted a transfer of assets between entities under common control and was accounted for at historical cost. As part of the transfer of assets and liabilities to American, all of US Airways’ obligations with respect to certain pass through trusts and the leases of related aircraft and engines were transferred to American.

As of December 31, 2014,2015, the Company employed approximately 113,300118,500 active full-time equivalent employees, of which 18,90019,600 were employed by its regional operations. Approximately 82% of employees are covered by collective bargaining agreements (CBAs) with various labor unions.

2.  Emergence from Chapter 11

Overview

On November 29, 2011 (the Petition Date), AMR Corporation (AMR, renamed American Airlines Group Inc., upon the closing of the Merger), its principal subsidiary, American, and certain of the Company’sAMR’s other direct and indirect domestic subsidiaries (collectively, the Debtors), filed voluntary petitions for relief (the Chapter 11 Cases) under Chapter 11 of the United States Bankruptcy Code (the 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 (the Confirmation Order) approving and confirming the Debtors’ fourth amended joint plan of reorganization (as amended, the Plan).

On December 9, 2013 (the Effective Date), the Debtors consummated their reorganization pursuant to the Plan, principally through the transactions contemplated by that certainan Agreement and Plan of Merger (as amended, the Merger Agreement), dated as of February 13, 2013, by and among AMR, AMR Merger Sub, Inc. (Merger Sub) and US Airways Group, pursuant to which Merger Sub merged with and into US Airways Group (the Merger), with US Airways Group surviving as a wholly-owned subsidiary of the Company following the Merger. Pursuant to the Merger Agreement, each share of common stock, par value $0.01 per share, of US Airways Group was converted into the right to receive one share of AAG common stock, par value $0.01 per share (AAG Common Stock).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

From the Petition Date through the Effective Date, pursuant to automatic stay provisions under the Bankruptcy Code and orders granted by the Bankruptcy Court, all actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date as well as all pending litigation against the Debtors generally were stayed. Following the Effective Date, actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date generally have been permanently enjoined. Any unresolved claims will continue to be subject to the claims reconciliation process under the supervision of the U.S. Bankruptcy Court. However, certain pending litigation related to pre-petition liabilities may proceed in courts other than the U.S. Bankruptcy Court to the extent the parties to such litigation have obtained relief from the permanent injunction.

Plan of Reorganization

The Plan implements the Merger and incorporates a compromise and settlement of certain intercreditor and intercompany claim issues.

Pursuant to the Plan, all shares of AMR common stock outstanding prior to the Effective Date were canceled. AAG’s Certificate of Incorporation, which was approved in connection with the Plan, authorizes the issuance of 1.75 billion new shares of AAG Common Stock and 200 million shares of AAG Series A Preferred Stock, par value $0.01 per share (AAG Series A Preferred Stock). Of the authorized AAG Series A Preferred Stock, approximately 168 million shares were designated “Series A Convertible Preferred Stock,” with a stated value of $25.00 per share, and issued in accordance with the Plan. AAG Common Stock is listed on the NASDAQ Global Select Market under the symbol “AAL” and began trading on December 9, 2013. AAG Series A Preferred Stock was listed on the NASDAQ Global Select Market under the symbol “AALCP” from December 9, 2013 until its final mandatory conversion on April 8, 2014. In addition, the 2013 Incentive Award Plan (the 2013 Plan) authorizes the grant of awards for the issuance of 40 million shares of AAG Common Stock plus any shares underlying awards granted under the 2013 Plan, or any pre-existing US Airways Group plan, that are forfeited, terminate or are cash settled (in whole or in part) without a payment being made in the form of shares. In addition, any shares that were available for issuance under the US Airways Group 2011 Incentive Award Plan (the 2011 Plan) as of the effective date of the Merger may be used for awards under the 2013 Plan; provided, that awards using such available shares shall not be made after the date awards or grants could have been made under 2011 Plan and shall only be made to individuals who were not providing services to AMR prior to the Merger.

The Plan contains the following provisions relating to the treatment of pre-petition claims against the Debtors and other holders of allowed interests in the Debtors:

all secured claims against the Debtors have been reinstated;

allowed administrative claims, priority claims and convenience claims have been or will be paid in full in cash;

other holders of allowed pre-petition unsecured claims, holders of allowed interests and certain employees of AMR received or will receive 72% of AAG Common Stock (on a fully converted basis) authorized to be issued pursuant to the Plan and in connection with the Merger under the following provisions:

all creditors holding general unsecured claims against American that are guaranteed by AAG and general unsecured claims against AAG that are guaranteed by American (Double-Dip Unsecured Claims) were treated the same under the Plan. Holders of Double-Dip Unsecured Claims received, at the Effective Date, their recovery in shares of AAG Series A Preferred Stock with a stated amount equal to the allowed amount of their claims, including post-petition interest at the non-default rate;

all creditors holding Single-Dip Unsecured Claims were treated the same regardless of whether the claim was asserted against the AAG Debtors, the American Debtors, or other Debtors. As used herein, “Single-Dip Unsecured Claims” means the general unsecured claims against the Debtors that were not

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

guaranteed by any other Debtor, other than the claims of the Debtors’ labor unions representing mainline workers. Holders of Single-Dip Unsecured Claims received a portion of their recovery in shares of AAG Series A Preferred Stock at the Effective Date and their remaining recovery in shares of AAG Common Stock during the 120-day period after the Effective Date;

holders of certain labor-related deemed claims and certain non-management, non-union employees as specified in the Plan received, at the Effective Date, the right to receive an allocation of shares of AAG Common Stock representing 23.6% of the total number of shares of AAG Common Stock ultimately distributed to holders of pre-petition general unsecured creditors against the Debtors. On the Effective Date, pursuant to the Plan, an initial allocation of approximately 39 million shares of AAG Common Stock was made related to these labor and employee groups, of which approximately 27 million shares were distributed on the Effective Date and approximately 13 million shares of which were withheld in connection with the Company making a cash payment of approximately $300 million for certain required withholding taxes;

holders of allowed interests in AMR (primarily holders of AMR common stock existing immediately prior to the Effective Date) received, at the Effective Date, a distribution of approximately 26 million shares of AAG Common Stock representing 3.5% of the total number of shares of AAG Common Stock contemplated for issuance pursuant to the Plan and received an additional 267 million shares of AAG Common Stock during the 120-day period after the Effective Date; and

holders of disputed claims at the Effective Date, to the extent such disputed claims become allowed Single-Dip Unsecured Claims after the Effective Date, are eligible to receive shares of AAG Common Stock held in reserve (the Disputed Claims Reserve), beginning 180 days after the Effective Date. Disputed claimholders that subsequently become holders of Single-Dip Unsecured Claims will receive, subject to the availability of sufficient shares in the Disputed Claims Reserve, the number of shares of AAG Common Stock that the disputed claimholder would have received had such claimholder been a holder of Single-Dip Unsecured Claims as of the Effective Date.

The Plan contemplated the distribution of up to 756 million shares of AAG Common Stock, however this amount was reduced by approximately 20 million shares because certain tax withholdings for employees were paid in cash as permitted under the Plan. In accordance with the Plan, the Company issued the remaining shares of AAG Common Stock over the 120-day distribution period, except for shares held in the Disputed Claims Reserve. In addition, pursuant to the Plan, approximately 197 million shares of AAG Common Stock were distributed to holders of outstanding shares of US Airways Group common stock.

The AAG Series A Preferred Stock, while outstanding, voted and participated in accordance with the terms of the underlying Certificate of Designation. One quarter of the shares of AAG Series A Preferred Stock initially issued was mandatorily convertible on each of the 30th, 60th, 90th and 120th days after the Effective Date, subject to additional voluntary conversions. The initial stated value of each share of AAG Series A Preferred Stock was $25.00 and accrued dividends at 6.25% per annum, calculated daily, while outstanding. Additionally, AAG Series A Preferred Stock converted to AAG Common Stock based upon the volume weighted average price of the shares of AAG Common Stock on the five trading days immediately preceding the conversion date, at a 3.5% fixed discount, subject to a conversion price floor of $10.875 per share and a conversion price cap of $33.8080 per share, below or above which the conversion rate remains fixed. As of April 8, 2014, all shares of AAG Series A Preferred Stock had been converted into AAG Common Stock.

Pursuant to rulings of the Bankruptcy Court, the Plan established the Disputed Claims Reserve that was initially issued 30.4 million shares of AAG Common Stock reserved for issuance to disputed claimholders at the Effective Date that ultimately become holders of allowed Single-Dip Unsecured Claims (Single-Dip Equity Obligations) as well as to certain AMR labor groups and employees who received a deemed claim amount based upon a fixed percentage of the distributions to be made to general unsecured claimholders. As of December 31,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

2014, the Disputed Claims Reserve held 26.8 million shares of AAG Common Stock pending distribution of those shares in accordance with the Plan. On February 10, 2015, approximately 0.8 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and the Company repurchased less than 0.1 million shares of AAG Common Stock for an aggregate of $4 million from the Disputed Claims Reserve at the then-prevailing market price in order to fund cash tax obligations resulting from this distribution. On July 14, 2015, approximately 0.6 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and the Company repurchased less than 0.1 million shares of AAG Common Stock for an aggregate of $2 million from the Disputed Claims Reserve at the then-prevailing market price in order to fund cash tax obligations resulting from this distribution. As of December 31, 2015, there were approximately 25.3 million shares of AAG Common Stock remaining in the Disputed Claims Reserve. As disputed claims are resolved, the claimants will receive distributions of shares from the Disputed Claims Reserve on the same basis as if such distributions had been made on or about the Effective Date. 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 the Company but rather will be distributed to former AMR stockholders as of the Effective Date. The Company is not required to distribute additional shares above the limits contemplated by the Plan described above.

In addition, from the Effective Date through December 31, 2015, the Company has made the following cash disbursements under the Plan:

$385 million in cash to the pension plans in connection with missed contributions to the pension plans during the Chapter 11 Cases and interest and penalty interest thereon;

$108 million in cash to holders in partial or full satisfaction of their claims, including to holders of administrative claims, and state and local priority tax claims;

$196 million in cure payments to holders of secured debt; and

Approximately $570 million for payroll and other taxes associated with equity distributions to employees and distributions from the Disputed Claims Reserve.

Several parties have filed appeals seeking reconsideration of the Confirmation Order. See Note 15 for more information.

The reconciliation process with respect to the remaining claims will take considerable time post-emergence. The Company’s estimate of the amounts of disputed claims that will ultimately become allowed Single-Dip Unsecured Claims are included in bankruptcy settlement obligations on the Company’s consolidated balance sheet as of December 31, 2015. As these claims are resolved, or where better information becomes available and is evaluated, the Company will make adjustments to the liabilities recorded on the Company’s consolidated financial statements as appropriate. Any such adjustments could be material to the Company’s financial position or results of operations in any given period.

Availability and Utilization of Net Operating Losses

Upon emergence from bankruptcy, the Debtors experienced an “ownership change” as defined in Section 382 of the Internal Revenue Code of 1986, as amended (Section 382), which could potentially limit the ability to utilize certain tax attributes including the Debtors’ substantial net operating losses (NOLs). The general limitation rules for a debtor in a bankruptcy case are liberalized where the ownership change occurs upon emergence from bankruptcy. The Debtors elected to be covered by certain special rules for federal income tax

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

purposes that permitted approximately $9.0 billion (with $6.6 billion of unlimited NOL still remaining at December 31, 2015) of the federal NOLs carried over from prior taxable years (NOL Carryforwards) to be utilized without regard to the annual limitation generally imposed by Section 382. See Note 10 for additional information related to tax matters.

Moreover, an ownership change subsequent to the Debtors’ emergence from bankruptcy may further limit or effectively eliminate the ability to utilize the Debtors’ NOL Carryforwards and other tax attributes. To reduce the risk of a potential adverse effect on the Debtors’ ability to utilize the NOL Carryforwards, AAG’s Restated Certificate of Incorporation (the Certificate of Incorporation) contains transfer restrictions applicable to certain substantial stockholders. Although the purpose of these transfer restrictions is to prevent an ownership change from occurring, there can be no assurance that an ownership change will not occur even with these transfer restrictions. A copy of the Certificate of Incorporation was attached as Exhibit 3.1 to a Current Report on Form 8-K filed by the Company with the SEC on December 9, 2013.

Reorganization Items, Net

Reorganization items refer to revenues, expenses (including professional fees), realized gains and losses and provisions for losses that are realized or incurred in the Chapter 11 Cases. The following table summarizes the components included in reorganization items, net on the consolidated statement of operations for the year ended December 31, 2013 (in millions):

   December 31,
2013
 

Labor-related deemed claim (1)

  $1,733  

Aircraft and facility financing renegotiations and rejections (2),(3)

   325  

Fair value of conversion discount (4)

   218  

Professional fees

   199  

Other

   180  
  

 

 

 

Total reorganization items, net

  $2,655  
  

 

 

 

(1)

In exchange for employees’ contributions to the successful reorganization, including agreeing to reductions in pay and benefits, the Company agreed in the Plan to provide each employee group a deemed claim, which was used to provide a distribution of a portion of the equity of the reorganized entity to those employees. Each employee group received a deemed claim amount based upon a portion of the value of cost savings provided by that group through reductions to pay and benefits as well as through certain work rule changes. The total value of this deemed claim was approximately $1.7 billion.

(2)

Amounts include allowed claims (claims approved by the Bankruptcy Court) and estimated allowed claims relating to (i) the rejection or modification of financings related to aircraft and (ii) entry of orders treated as unsecured claims with respect to facility agreements supporting certain issuances of special facility revenue bonds. The Debtors recorded an estimated claim associated with the rejection or modification of a financing or facility agreement when the applicable motion was filed with the Bankruptcy Court to reject or modify such financing or facility agreement and the Debtors believed that it was probable the motion would be approved, and there was sufficient information to estimate the claim.

(3)

Pursuant to the Plan, the Debtors agreed to allow certain post-petition unsecured claims on obligations. As a result, during the year ended December 31, 2013, the Company recorded reorganization charges to adjust estimated allowed claim amounts previously recorded on rejected special facility revenue bonds of $180 million, allowed general unsecured claims related to the 1990 and 1994 series of special facility revenue bonds that financed certain improvements at John F. Kennedy International Airport (JFK), and rejected bonds that financed certain improvements at Chicago O’Hare International Airport (ORD), which are included in the table above.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

(4)

The Plan allowed unsecured creditors receiving AAG Series A Preferred Stock a conversion discount of 3.5%. Accordingly, the Company recorded the fair value of such discount upon the confirmation of the Plan by the Bankruptcy Court.

3.  Bankruptcy Settlement Obligations

As of December 31, 2015 and 2014, the components of bankruptcy settlement obligations on the consolidated balance sheets are as follows (in millions):

   December 31, 
   2015   2014 

Single-Dip Equity Obligations

  $147    $248  

Labor-related deemed claim

   46     77  
  

 

 

   

 

 

 

Total

  $193    $325  
  

 

 

   

 

 

 

The Single-Dip Equity Obligations, while outstanding, do not vote or participate in accordance with the terms of the Plan. These equity obligations, representing the amount of total Single-Dip Unsecured Claims not satisfied through the issuance of AAG Series A Preferred Stock at the Effective Date, represented an unconditional obligation to transfer a variable number of shares of AAG Common Stock based predominantly on a fixed monetary amount known at inception, and, as such, were not treated as equity, but rather as liabilities, until the 120th day after emergence, which was April 8, 2014. As of April 8, 2014, the Company has issued shares of AAG Common Stock to satisfy the obligation amount at emergence, plus accrued dividends of 12% per annum, calculated daily, through such date, based on the volume weighted average price of the shares of AAG Common Stock, at a 3.5% discount, as specified in the Plan. The amount of the remaining Single-Dip Equity Obligations at December 31, 2015 is the Company’s estimate of its obligation for disputed claims of $147 million and is calculated based on the fair value of the shares expected to be issued, measured as if the obligations were settled using the closing price of AAG Common Stock at December 31, 2015. Additional allowed claims will receive 30.7553 shares, subject to reduction for expenses of the Disputed Claims Reserve, including tax liabilities, for each $1,000 of allowed claims. For accounting purposes, the value of the shares expected to be issued is marked-to-market each period until issued. Accordingly, changes in the value of AAG Common Stock could result in future increases and decreases in this obligation.

In exchange for employees’ contributions to the successful reorganization of the Company, including agreeing to reductions in pay and benefits, the Company agreed in the Plan to provide each employee group a deemed claim which was used to provide a distribution of a portion of the equity of the reorganized entity to those employees. Each employee group received a deemed claim amount based upon a fixed percentage of the distributions to be made to general unsecured claimholders. The fair value based on the expected number of shares to be distributed to satisfy this deemed claim, as adjusted, was approximately $1.5 billion. From the Effective Date through December 31, 2015, the Company has made distributions of $1.0 billion in AAG Common Stock and paid approximately $555 million in cash to cover payroll and other taxes related to the equity distributions. As of December 31, 2015, the liability to certain AMR labor groups and employees of $46 million represents the estimated fair value of the remaining shares expected to be issued in satisfaction of such obligation, measured as if the obligation were settled using the closing price of AAG Common Stock at December 31, 2015. For accounting purposes, the value of the remaining shares expected to be issued to satisfy the labor claim is marked-to-market each period until issued. Accordingly, changes in the value of AAG Common Stock could result in future increases and decreases in this obligation.

On February 10, 2015 and July 14, 2015, approximately 0.8 million and 0.6 million shares, respectively, of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

Unsecured Claims, to holders of certain labor-related deemed claims and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and 0.1 million shares in the aggregate were withheld to fund cash tax obligations resulting from these distributions.

4.  Merger and Related Matters

Description of Transaction

As previously discussed in Note 2, on the Effective Date, the Debtors consummated their reorganization and the Merger pursuant to the Plan. The Merger has been accounted for as a business acquisition using the acquisition method of accounting in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 805, “Business Combinations” (ASC 805), with AAG considered the acquirer of US Airways Group. The acquisition method of accounting requires, among other things, that assets acquired and liabilities assumed be recognized on the balance sheet at their fair values as of the acquisition date. The acquisition values have also been reflected in US Airways Group’s separate-entity financial statements as of December 9, 2013. The excess of the purchase price over the net fair value of assets and liabilities acquired was recorded as goodwill. Goodwill is not amortized, but is tested for impairment at least annually.

Slot Divestitures

As a stipulation for the Merger to be approved by the Department of Justice (DOJ), the Company was required to divest certain airport take off and landing rights (slots) at LaGuardia Airport (LGA) and Ronald Reagan Washington National Airport (DCA). In 2014, the Company divested the required DCA slots and received $307 million in cash as well as 24 slots at JFK. The Company recognized a net gain of $309 million related to these divestitures, which has been included in special items, net in the consolidated statement of operations. In 2013, the Company recognized a gain of $67 million related to the sale of the LGA slots, which has been included in special items, net in the consolidated statement of operations.

In 2013, the European Commission cleared under the EU Merger Regulation the proposed merger between US Airways and American. As a consequence of the merger clearance process in the EU, the Company was required to make available one pair of London Heathrow slots for use by another carrier between London and Philadelphia, which the acquiring carrier can deploy on another London Heathrow city pair after operating the slots on London-Philadelphia for a period of not less than three consecutive years. In addition, along with the Company’s joint business agreement partners, the Company was required to make available for an initial period of up to seven years one pair of Heathrow slots for service between London and Miami that may be operated via an intermediate point. In connection with these requirements and upon making these slots available, in 2014, the Company recorded a $43 million non-cash charge, which has been included in special items, net in the consolidated statement of operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

Fair Value of Consideration Transferred

The fair value of the consideration transferred, or the purchase price, was derived as described below based on the outstanding shares of US Airways Group common stock at December 9, 2013, the exchange ratio of one share of AAG Common Stock for each share of US Airways Group common stock, and a price per share of AAG Common Stock of $22.55, which represented the closing price of US Airways Group common stock on December 6, 2013, the last day such shares traded on the New York Stock Exchange. US Airways Group equity awards outstanding at the close of the Merger converted into equity awards with respect to AAG Common Stock. Vested equity awards held by employees of US Airways Group are considered part of the purchase price.

   (In millions except per share data) 

Outstanding shares of US Airways Group Common Stock at December 9, 2013 exchanged

   197.4  

Exchange ratio

   1.0  
  

 

 

 

Assumed shares of AAG Common Stock

   197.4  

Price per share

  $22.55  
  

 

 

 

Fair value of AAG Common Stock issued

  $4,451  

Fair value of AAG equity awards issued in exchange for outstanding US Airways Group equity awards

  $141  
  

 

 

 

Total purchase price

  $4,592  

Allocation of Consideration Transferred

The Merger has been accounted for using the acquisition method of accounting in accordance with ASC 805, with AAG treated as the acquirer of US Airways Group for accounting purposes. The acquisition method of accounting requires, among other things, that assets acquired and liabilities assumed be recognized on the balance sheet at their fair values as of the acquisition date. The excess of the purchase price over the net fair value of assets acquired and liabilities assumed was recorded as goodwill. Goodwill is not amortized, but is tested for impairment at least annually.

   (In millions) 

Cash

  $206  

Short-term investments

   3,517  

Other current assets

   1,459  

Operating property and equipment

   5,536  

Goodwill

   4,091  

Identifiable intangibles

   1,501  

Other noncurrent assets

   123  

Long-term debt and capital leases, including current portion

   (6,026

Air traffic liability

   (1,417

Loyalty program liability

   (1,256

Other liabilities assumed

   (3,142
  

 

 

 

Total purchase price

  $4,592  

The fair values of the assets acquired and liabilities assumed were determined using the market, income and cost approaches. The fair value measurements were primarily based on significant inputs that are not observable in the market, other than certain long-term debt assumed in the Merger. The market approach, which indicates value for a subject asset based on available market pricing for comparable assets, was utilized to estimate the fair value of US Airways’ aircraft and operating leases. The market approach included prices and other relevant

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

information generated by market transactions involving comparable assets, as well as pricing guides and other sources. The current market for the aircraft, the maintenance condition of the aircraft and the expected proceeds from the sale of the assets, among other factors, were considered. The market approach was utilized to value certain intangible assets such as airport take off and landing slots when sufficient market information was available. The income approach was primarily used to value intangible assets, including customer relationships, marketing agreements, certain international route authorities, and the US Airways tradename. The income approach indicates value for a subject asset based on the present value of cash flows projected to be generated by the asset. Projected cash flows are discounted at a required market rate of return that reflects the relative risk of achieving the cash flows and the time value of money. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used, as appropriate, for certain assets for which the market and income approaches could not be applied due to the nature of the asset. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the asset, less an allowance for loss in value due to depreciation. The fair value of US Airways’ Dividend Miles loyalty program liability was determined based on the weighted average equivalent ticket value of outstanding miles which were expected to be redeemed for future travel at December 9, 2013. The weighted average equivalent ticket value contemplates differing classes of service, domestic and international itineraries and the carrier providing the award travel.

Pro-forma Impact of the Merger

The Company’s unaudited pro-forma results presented below include the effects of the Merger as if it had been consummated as of January 1, 2012. The pro-forma results include the depreciation and amortization associated with the acquired tangible and intangible assets, lease and debt fair value adjustments, the elimination of any deferred gains or losses, adjustments relating to reflecting the fair value of the loyalty program liability and the impact of income changes on profit sharing expense, among others. In addition, the pro-forma results below reflect the impact of higher wage rates related to memorandums of understanding with US Airways’ pilots that became effective upon closing of the Merger, as well as the elimination of the Company’s reorganization items, net and Merger transition costs. However, the pro-forma results do not include any anticipated synergies or other expected benefits of the Merger. Accordingly, the unaudited pro-forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisition been consummated as of January 1, 2012.

   December 31,
2013
 
   (In millions) 

Revenue

  $40,678  

Net Income

   2,526  

5.  Basis of Presentation and Summary of Significant Accounting Policies

(a) Basis of Presentation

The consolidated financial statements for the full years of 2015 and 2014 and the period from December 9, 2013 to December 31, 2013 include the accounts of the Company and its wholly-owned subsidiaries. For the periods prior to December 9, 2013, the consolidated financial statements do not include the accounts of US Airways Group. 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

of judgment relate to passenger revenue recognition, impairment of goodwill, impairment of long-lived and intangible assets, business combination measurements, the loyalty program, pensions and retiree medical and other postretirement benefits and the deferred tax asset valuation allowance.

(b) Chapter 11 Matters

In accordance with GAAP, the Debtors (as defined in Note 2 above) applied ASC 852 “Reorganizations” (ASC 852) in preparing the consolidated financial statements for periods subsequent to the Chapter 11 Cases (as defined in Note 2 above). ASC 852 requires that the financial statements distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain revenues, expenses (including professional fees), realized gains and losses and provisions for losses that are realized or incurred in the Chapter 11 Cases for 2013 are presented in reorganization items, net on the accompanying consolidated statement of operations.

(c) Restricted Cash and Short-term Investments

The Company has restricted cash and short-term investments related primarily to collateral held to support workers’ compensation obligations.

(d) Aircraft Fuel, Spare Parts, and Supplies, Net

Aircraft fuel, spare parts, and supplies, net are recorded at net realizable value based on average costs. These items are expensed when used. An allowance for obsolescence is provided for aircraft spare parts and supplies.

(e) Operating Property and Equipment

Operating property and equipment are recorded at cost. Interest expense related to the acquisition of certain property and equipment, including aircraft purchase deposits, is capitalized as an additional cost of the asset. Interest capitalized for the years ended December 31, 2015, 2014 and 2013 was $52 million, $61 million and $47 million, respectively. Property and equipment is depreciated and amortized to residual values over the estimated useful lives or the lease term, whichever is less, using the straight-line method. Costs of major improvements that enhance the usefulness of the asset are capitalized and depreciated over the estimated useful life of the asset or the modifications, whichever is less. The depreciable lives used for the principal depreciable asset classifications are:

Principal Depreciable Asset Classification

Depreciable Life

Jet aircraft and engines

16 - 30 years

Other regional aircraft and engines

25 years

Major rotable parts, avionics and assemblies

Fleet end date

Improvements to leased flight equipment

Lesser of asset/leasehold improvement or lease end date

Buildings and improvements

Lesser of 5 - 30 years or lease term

Furniture, fixtures and other equipment

3 - 10 years: ranges from computer hardware to furniture

Capitalized software

Lesser of 5 years or lease term

Residual values for aircraft, engines, major rotable parts, avionics and assemblies are generally 5% to 10%.

Equipment and property under capital leases are amortized over the term of the leases or, in the case of certain aircraft, over their expected useful lives. Lease terms vary but are generally 12 to 30 years for aircraft and three to 30 years for other leased equipment and property.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

The Company records impairment charges 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. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell.

(f) 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. A valuation allowance is established, if necessary, for the amount of any tax benefits that, based on available evidence, are not expected to be realized.

(g) Goodwill

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 tested for impairment annually on October 1st or more frequently if events or circumstances indicate that goodwill may be impaired. The Company has one consolidated reporting unit.

Goodwill is measured for impairment by initially performing a qualitative screen and, if necessary, then comparing the fair value 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. Based upon the Company’s annual measurement, there was no goodwill impairment in 2015.

(h) Other Intangibles, Net

Intangible assets consist primarily of airport slots, customer relationships, marketing agreements, international slots and route authorities, gate leasehold rights and tradenames. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

The following table provides information relating to the Company’s amortizable intangible assets as of December 31, 2015 and 2014 (in millions):

   December 31, 
   2015  2014 

Domestic airport slots

  $365   $365  

Customer relationships

   300    300  

Marketing agreements

   105    105  

Tradenames

   35    35  

Airport gate leasehold rights

   137    138  

Accumulated amortization

   (502  (447
  

 

 

  

 

 

 

Total

  $440   $496  
  

 

 

  

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

Domestic airport slots and airport gate leasehold rights are amortized on a straight-line basis over 25 years. The customer relationships, marketing agreements and tradenames were identified as intangible assets subject to amortization and are amortized on a straight-line basis over approximately nine years, 30 years and 15 months, respectively.

The Company recorded amortization expense related to these intangible assets of approximately $55 million, $81 million and $20 million for the years ended December 31, 2015, 2014 and 2013, respectively. The Company expects to record annual amortization expense for the aforementioned definite-life intangible assets as follows (in millions):

2016

  $50  

2017

   46  

2018

   42  

2019

   42  

2020

   42  

2021 and thereafter

   218  
  

 

 

 

Total

  $440  
  

 

 

 

The Company’s indefinite-lived assets include certain international slots and route authorities and domestic airport slots. Indefinite-lived assets are not amortized but instead are reviewed for impairment annually on October 1st or more frequently if events or circumstances indicate that the asset may be impaired. As of December 31, 2015 and 2014, the Company had $1.8 billion and $1.7 billion, respectively, of indefinite-lived intangible assets on its consolidated balance sheets.

The Company’s indefinite-lived intangible assets are reviewed for impairment by initially performing a qualitative screen to determine whether the Company believes it is more likely than not that an asset has been impaired. If the Company believes an impairment has occurred, the Company then evaluates for impairment by comparing the estimated fair value of assets to the carrying value. An impairment charge is recognized if the asset’s estimated fair value is less than its carrying value. Based upon the Company’s annual review, there was no indefinite-lived intangible asset impairment in 2015.

(i) Loyalty Program

The Company currently operates the loyalty program, AAdvantage. This program awards mileage credits to passengers who fly on American andoneworld carriers, as well as certain other partner airlines that participate in the program. Mileage credits can also be earned through purchases from other non-airline partners that participate in the Company’s loyalty program. Mileage credits can be redeemed for travel on American or other participating partner airlines, in which case the Company pays a fee.

The Company uses the incremental cost method to account for the portion of its loyalty program liability incurred when AAdvantage members earn mileage credits by flying on American or its regional affiliates. The Company has an obligation to provide future travel when these mileage credits are redeemed and therefore has recorded a liability for mileage credits outstanding.

The incremental cost liability includes all mileage credits that are expected to be redeemed, including mileage credits earned by members whose mileage account balances have not yet reached the minimum mileage credit level required to redeem an award. Additionally, outstanding mileage credits are subject to expiration if unused. In calculating the liability, the Company estimates how many mileage credits will never be redeemed for travel and excludes those mileage credits from the estimate of the liability. Estimates are also made for the number of miles that will be used per award redemption and the number of travel awards that will be redeemed on partner

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

airlines. These estimates are based on historical program experience as well as consideration of enacted program changes, as applicable. Changes in the liability resulting from members earning additional mileage credits or changes in estimates are recorded in the consolidated statements of operations as a part of passenger revenue.

The liability for outstanding mileage credits is valued based on the estimated incremental cost of carrying one additional passenger. Incremental cost primarily includes unit costs incurred for fuel, food, and insurance as well as fees incurred when travel awards are redeemed on partner airlines. No profit or overhead margin is included in the accrual of incremental cost. These estimates are generally updated based upon the Company’s 12-month historical average of such costs.

As of December 31, 2015 and 2014, the liability for outstanding mileage credits for the AAdvantage program accounted for under the incremental cost method was $657 million and $674 million, respectively, and is included on the consolidated balance sheets within loyalty program liability.

In addition, the Company applied the acquisition method of accounting in connection with the Merger and therefore recorded the liability for outstanding US Airways’ mileage credits at fair value, an amount significantly in excess of incremental cost. As of December 31, 2015 and 2014, the liability for these outstanding mileage credits expected to be redeemed for future travel awards was $296 million and $611 million, respectively, and is included on the consolidated balance sheets within loyalty program liability. This liability is amortized into passenger revenue on a straight-line basis over the period in which the mileage credits are expected to be redeemed for travel. All new miles earned will be recorded as a liability based on the incremental cost method discussed above.

American also sells loyalty program mileage credits to participating airline partners and non-airline business partners. Sales of mileage credits to non-airline business partners is comprised of two components, transportation and marketing. Historically, the Company has used the residual method of accounting to determine the values of each component as there had not been a material modification to any significant agreements since the adoption of Accounting Standards Update (ASU) No. 2009-13, “Revenue Recognition (Topic 605) – Multiple-Deliverable Revenue Arrangements” on January 1, 2011.

In 2013, American and Citibank amended their AAdvantage co-branded credit card agreement, which resulted in a material modification of the terms of the arrangement. Also, in connection with the acquisition of US Airways on December 9, 2013, a material modification occurred on all of US Airways’ agreements in connection with the Merger. Therefore, subsequent to the amendments of these arrangements, the Company applied the relative selling price method to determine the values of each deliverable. Under the relative selling price approach, the Company identified five revenue elements for the co-branded credit card agreements with Citibank and Barclays: the transportation component; use of the American brand including access to loyalty program member lists; advertising; lounge access; and baggage services (together excluding the transportation component, the marketing component).

The transportation component represents the estimated selling price of future travel awards and is determined using historical transaction information, including information related to customer redemption patterns. The transportation component is deferred based on its relative selling price and is amortized into passenger revenue on a straight-line basis over the period in which the mileage credits are expected to be redeemed for travel.

The marketing component represents services provided to the Company’s business partners and relates primarily to the use of the American brand including access to loyalty program member lists. The marketing services are provided periodically, but no less than monthly. Accordingly, the marketing component is considered earned and recognized in other revenues in the period of the mileage sale.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

Upon application of the relative selling price method in 2013 for American’s Citibank modification, the Company reduced its travel component liability and recorded other revenue of approximately $31 million. As a result of the change in the marketing component value when the relative selling price method is applied, the Company now defers less revenue per mile sold.

As of December 31, 2015 and 2014, the Company had $1.5 billion in deferred revenue from the sale of mileage credits (recorded within loyalty program liability on the consolidated balance sheets). For the years ended December 31, 2015, 2014 and 2013, the marketing component of mileage sales recognized at the time of sale in other revenues was approximately $1.5 billion, $1.4 billion and $834 million, respectively.

(j) Passenger Revenue

Passenger revenue is recognized when transportation is provided. Ticket sales for transportation that has not yet been provided are initially deferred and recorded as air traffic liability on the consolidated balance sheets. The air traffic liability represents tickets sold for future travel dates and estimated future refunds and exchanges of tickets sold for past travel dates. The balance in the air traffic liability fluctuates throughout the year based on seasonal travel patterns and fare sale activity. The Company’s air traffic liability was $3.7 billion and $4.3 billion as of December 31, 2015 and 2014, respectively.

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 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 the Company’s historical data. The Company and other airline industry participants have consistently applied this accounting method to estimate revenue from forfeited tickets at the date of travel. Estimated future refunds and exchanges included in the air traffic liability are routinely evaluated based on subsequent activity to validate the accuracy of the Company’s estimates. Any adjustments resulting from periodic evaluations of the estimated air traffic liability are included in results of operations during the period in which the evaluations are completed.

The Company purchases capacity, or ASMs, generated by its wholly-owned regional air carriers and the capacity of third-party carriers including Air Wisconsin Airlines Corporation (Air Wisconsin), Republic Airline Inc. (Republic), Mesa Airlines, Inc. (Mesa), SkyWest Airlines, Inc. (SkyWest), ExpressJet Airlines, Inc. (ExpressJet), Compass Airlines, LLC (Compass) and Trans States Airlines, Inc. (Trans States) in certain markets. The Company’s wholly-owned regional air carriers and third-party carriers operate regional aircraft as part of American Eagle carriers. The Company classifies revenues generated from transportation on these carriers as regional passenger revenues. Liabilities related to tickets sold by the Company for travel on these air carriers are also included in the Company’s air traffic liability and are subsequently recognized as revenue in the same manner as described above.

Various taxes and fees assessed on the sale of tickets to end customers are collected by the Company 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.

(k) 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

(l) Selling Expenses

Selling expenses include commissions, credit card fees, computerized reservations systems fees and advertising. Advertising expenses are expensed as incurred. Advertising expense was $110 million, $92 million and $166 million for the years ended December 31, 2015, 2014 and 2013, respectively.

(m) Share-based Compensation

The Company 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. The fair value of stock options and stock appreciation rights is estimated using a Black-Scholes option pricing model. The fair value of restricted stock units is based on the market price of the underlying shares of common stock on the date of grant. See Note 18 for further discussion of share-based compensation.

(n) Deferred Gains and Credits, Net

Included within deferred gains and credits, net are amounts deferred and amortized into future periods associated with the adjustment of leases to fair value in connection with the application of acquisition accounting, deferred gains on the sale-leaseback of aircraft and certain vendor incentives. The Company periodically receives vendor incentives in connection with acquisition of aircraft and engines. These credits are deferred until aircraft and engines are delivered and then applied as a reduction to the cost of the related equipment.

(o) Foreign Currency Gains and Losses

Foreign currency gains and losses are recorded as part of other nonoperating expense, net in the consolidated statements of operations. Foreign currency losses for 2015, 2014 and 2013 were $751 million, $114 million and $56 million, respectively. The 2015 period included a $592 million special charge to write off all of the value of Venezuelan bolivars held by the Company due to continued lack of repatriations and deterioration of economic conditions in Venezuela.

(p) Other Operating Expenses

Other operating expenses includes expenses associated with ground and cargo handling, crew travel, aircraft food and catering, passenger accommodation, airport security, international navigation fees and certain general and administrative expenses.

(q) Regional Expenses

Expenses associated with the Company’s wholly-owned regional airlines and third-party regional carriers operating under the brand name American Eagle are classified as regional expenses on the consolidated statements of operations. Regional expenses consist of the following (in millions):

   Year Ended December 31, 
   2015   2014   2013 

Aircraft fuel and related taxes

  $1,230    $2,009    $1,120  

Salaries, wages and benefits

   1,187     1,140     692  

Capacity purchases from third-party regional carriers (1)

   1,591     1,475     269  

Maintenance, materials and repairs

   305     367     284  

Other rent and landing fees

   476     419     236  

Aircraft rent

   7     35     4  

Selling expenses

   333     307     154  

Depreciation and amortization

   243     217     168  

Special items, net

   29     24     8  

Other

   582     523     391  
  

 

 

   

 

 

   

 

 

 

Total regional expenses

  $5,983    $6,516    $3,326  
  

 

 

   

 

 

   

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

(1)

For the years ended December 31, 2015 and 2014, the component of capacity purchase expenses related to aircraft deemed to be leased was approximately $492 million and $447 million, respectively.

(r) Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 completes the joint effort by the FASB and International Accounting Standards Board (IASB) to improve financial reporting by creating common revenue recognition guidance for GAAP and International Financial Reporting Standards (IFRS). ASU 2014-09 applies to all companies that enter into contracts with customers to transfer goods or services. ASU 2014-09 is effective for public entities for interim and annual reporting periods beginning after December 15, 2017. Early application is permitted, but not before interim and annual reporting periods beginning after December 15, 2016. Entities have the choice to apply ASU 2014-09 either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying ASU 2014-09 at the date of initial application and not adjusting comparative information. The Company is currently evaluating the requirements of ASU 2014-09 and has not yet determined its impact on the Company’s consolidated financial statements.

On February 18, 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810).” ASU 2015-02 amends both the variable interest entity and voting interest entity consolidation models. The standard is effective for public reporting entities in fiscal periods beginning after December 15, 2015, and early adoption is permitted. This standard is not expected to have a material impact on the Company’s consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The update requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. ASU 2015-03 requires retrospective application, represents a change in accounting principle and is effective for fiscal years beginning after December 15, 2015. The Company early adopted this standard during the fourth quarter 2015, utilizing retrospective application as permitted. As such, certain prior period amounts have been reclassified to conform to the current presentation. As a result, the Company reclassified $184 million of debt issuance costs within other assets to reduce current maturities of long-term debt and capital leases by $31 million and to reduce long-term debt and capital leases by $153 million on the consolidated balance sheet as of December 31, 2014.

In May 2015, the FASB issued ASU 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent).” Under ASU 2015-07, investments for which fair value is measured at net asset value per share (or its equivalent) using the practical expedient should not be categorized in the fair value hierarchy. ASU 2015-07 is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. ASU 2015-07 is not expected to have a material impact on the Company’s consolidated financial statements.

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which changes how deferred taxes are classified on the balance sheet. ASU 2015-17 eliminates the current requirement to present deferred tax liabilities and assets as current and noncurrent on the balance sheet. Deferred tax liabilities and assets are now required to be classified as noncurrent on the balance sheet. Entities have the choice to apply ASU 2015-17 either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The update is effective for annual and interim periods in fiscal years beginning after December 15, 2016. The Company early adopted this standard during the fourth quarter 2015, utilizing retrospective application as permitted. As such, certain prior period amounts have been reclassified to conform to the current presentation. As a result, the Company reclassified $361 million of current deferred income tax assets within prepaid expenses and other to reduce deferred income taxes within other liabilities on the consolidated balance sheet as of December 31, 2014.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10).” ASU 2016-01 makes several modifications to Subtopic 825-10 including the elimination of the available-for-sale classification of equity investments, and requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income. ASU 2016-01 is effective for interim and annual periods beginning after December 15, 2017 and is not expected to have a material impact on the Company’s consolidated financial statements.

6.  Special Items, Net

The Company’s special items, net on the consolidated statements of operations are as follows (in millions):

   Year Ended December 31, 
     2015       2014       2013   

Mainline operating special items, net (1)

  $1,051    $800    $559  

(1)

The 2015 mainline operating special items totaled a net charge of $1.1 billion, which principally included $1.0 billion of merger integration expenses related to information technology, alignment of labor union contracts, professional fees, severance, share-based compensation, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training.

The 2014 mainline operating special items totaled a net charge of $800 million, which principally included $810 million of merger integration expenses related to information technology, alignment of labor union contracts, professional fees, severance and retention, share-based compensation, divestiture of London Heathrow slots, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training. In addition, the Company recorded a net charge of $81 million for bankruptcy related items principally consisting of fair value adjustments for bankruptcy settlement obligations and an $81 million charge to revise prior estimates of certain aircraft residual values and other spare parts asset impairments. These charges were offset in part by a $309 million gain on the sale of slots at DCA.

The 2013 mainline operating special items, net principally included $443 million of merger related expenses related to the alignment of labor union contracts, professional fees, severance, share-based compensation and fees for US Airways to exit the Star Alliance and its codeshare agreement with United Airlines. In addition, the Company recorded a $107 million charge related to American’s pilot long-term disability obligation, a $43 million charge for workers’ compensation claims and a $33 million aircraft impairment charge. These charges were offset in part by a $67 million gain on the sale of slots at LGA.

The following additional amounts are also included in the consolidated statements of operations as follows (in millions):

   Year Ended December 31, 
   2015  2014   2013 

Other revenue special item, net (1)

  $   $    $(31

Regional operating special items, net (2)

   29    24     8  

Nonoperating special items, net (3)

   594    132     211  

Reorganization items, net (4)

            2,655  

Income tax special items, net (5)

   (3,015  346     (324

(1)

The 2013 other revenue special item, net included a credit to other revenues related to a change in accounting method resulting from the modification of American’s AAdvantage miles agreement with Citibank.

(2)

The 2015 regional operating special items, net principally related to merger integration expenses.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

The 2014 regional operating special items, net consisted primarily of a $24 million charge due to a new pilot labor contract at the Company’s Envoy regional subsidiary, as well as $7 million of merger integration expenses, offset in part by an $8 million gain on the sale of certain spare parts.

(3)

The 2015 nonoperating special items totaled a net charge of $594 million, which principally included a $592 million charge to write off all of the value of Venezuelan bolivars held by the Company due to continued lack of repatriations and deterioration of economic conditions in Venezuela.

The 2014 nonoperating special items totaled a net charge of $132 million, which principally included a $43 million charge for Venezuelan foreign currency losses, $56 million of early debt extinguishment costs primarily related to the prepayment of 7.50% senior secured notes and other indebtedness and $33 million of non-cash interest accretion on bankruptcy settlement obligations.

The 2013 nonoperating special items, net consisted of interest charges of $138 million primarily to recognize post-petition interest expense on unsecured obligations pursuant to the Plan and penalty interest related to 10.5% secured notes and 7.50% senior secured notes, a $54 million charge related to the premium on tender for existing enhanced equipment trust certificates (EETC) financings and the write-off of debt issuance costs and $19 million in charges related to the repayment of existing EETC financings.

(4)

In 2013, the Company recognized reorganization expenses as a result of the filing of voluntary petitions for relief under Chapter 11. These amounts consisted primarily of estimated allowed claim amounts and professional fees.

(5)

In 2015, income tax special items totaled a net credit of $3.0 billion. In connection with the preparation of the Company’s financial statements for the fourth quarter of 2015, management determined that it was more likely than not that substantially all of its deferred tax assets, which include its NOLs, would be realized. Accordingly, the Company reversed $3.0 billion of the valuation allowance as of December 31, 2015, which resulted in a special $3.0 billion non-cash tax benefit recorded in the consolidated statement of operations for 2015.

In 2014, income tax special items, net were $346 million. During 2014, the Company sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, the Company recorded a special non-cash tax provision of $330 million in the second quarter of 2014 that reversed the non-cash tax provision which was recorded in other comprehensive income (OCI), a subset of stockholders’ equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of the Company’s fuel hedging contracts. In accordance with GAAP, the Company retained the $330 million tax provision in OCI until the last contract was settled or terminated.

In 2013, income tax special items, net included a $538 million non-cash income tax benefit from continuing operations. The Company is required to consider all items (including items recorded in OCI) in determining the amount of tax benefit that results from a loss from continuing operations and that should be allocated to continuing operations. As a result, the Company recorded a tax benefit on the loss from continuing operations for the year, which was exactly offset by income tax expense on OCI. However, while the income tax benefit from continuing operations is reported on the income statement, the income tax expense on OCI is recorded directly to accumulated other comprehensive income (loss), which is a component of stockholders’ equity. Because the income tax expense on OCI is equal to the income tax benefit from continuing operations, the Company’s year-end net deferred tax position is not impacted by this tax allocation. The 2013 tax benefit was offset in part by a $214 million tax charge attributable to additional valuation allowance required to reduce deferred tax assets to the amount the Company believed was more likely than not to be realized.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

7.  Earnings (Loss) Per Share

Pursuant to the Plan and the Merger Agreement, holders of AMR common stock formerly traded under the symbol “AAMRQ” received shares of AAG Common Stock principally over the 120-day distribution period following the Effective Date. In accordance with GAAP, the 2013 weighted average shares and earnings (loss) per share calculations have been adjusted to retrospectively reflect these distributions which were each made at the rate of approximately 0.7441 shares of AAG Common Stock per share of AMR common stock. Former holders of AMR common stock as of the Effective Date may in the future receive additional distributions of AAG Common Stock dependent upon the ultimate distribution of shares of AAG Common Stock to holders of disputed claims. Thus, the shares and related earnings per share calculations prior to the Effective Date may change in the future to reflect additional retrospective adjustments for future AAG Common Stock distributions to former holders of AMR common stock.

As of December 31, 2015, all shares pursuant to the Plan have been issued and are outstanding for purposes of the Company’s basic and diluted earnings per share calculation in connection with the conversion of AAG Series A Preferred Stock and satisfaction of other bankruptcy settlement obligations related to allowed unsecured claims, including disputed claims, labor-related deemed claims and former holders of AMR common stock.

The following table sets forth the computation of basic and diluted earnings (loss) per share (in millions, except share and per share amounts in thousands):

  Year Ended December 31, 
  2015  2014  2013 

Basic Earnings (Loss) Per Share:

   

Net income (loss)

 $7,610   $2,882   $(1,834

Weighted-average shares outstanding (in thousands)

  668,393    717,456    280,213  
 

 

 

  

 

 

  

 

 

 

Basic earnings (loss) per share

 $11.39   $4.02   $(6.54
 

 

 

  

 

 

  

 

 

 

Diluted Earnings (Loss) Per Share:

   

Net income (loss)

 $7,610   $2,882   $(1,834

Change in fair value of conversion feature on 7.25% convertible senior notes (a)

      3      
 

 

 

  

 

 

  

 

 

 

Net income (loss) for purposes of computing diluted earnings (loss) per share

 $7,610   $2,885   $(1,834

Share computation for diluted earnings (loss) per share (in thousands):

   

Weighted-average shares outstanding

  668,393    717,456    280,213  

Dilutive effect of stock awards

  18,962    15,603      

Assumed conversion of convertible senior notes

      957      
 

 

 

  

 

 

  

 

 

 

Weighted average common shares outstanding – as adjusted

  687,355    734,016    280,213  
 

 

 

  

 

 

  

 

 

 

Diluted earnings (loss) per share

 $11.07   $3.93   $(6.54
 

 

 

  

 

 

  

 

 

 

The following were excluded from the calculation of diluted earnings (loss) per share (in thousands):

   

Stock options, SARs and RSUs because inclusion would be antidilutive

  764    226    7,674  

(a)

In March 2014, the Company notified the holders of US Airways Group’s 7.25% convertible senior notes that it had elected to settle all future conversions solely in cash instead of shares of AAG Common Stock in accordance with the related indenture. Thus, the diluted shares include the weighted average impact of the 7.25% convertible senior notes only for the period from January 1, 2014 to March 12, 2014. In addition, under GAAP, the Company must adjust the numerator for purposes of calculating diluted earnings per share by the change in fair value of the conversion feature from March 12, 2014 to May 15, 2014, which increased GAAP net income for purposes of computing diluted earnings per share by $3 million for the year ended December 31, 2014.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

8.  Share Repurchase Programs and Dividends

Since July 2014, the Company’s Board of Directors have approved several share repurchase programs aggregating $7.0 billion of authority of which, as of December 31, 2015, $2.4 billion of authority remained unused under repurchase programs which are to be completed no later than December 31, 2016. Share repurchases under the 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 will be made from time to time subject to market and economic conditions, applicable legal requirements and other relevant factors. The programs do not obligate the Company to repurchase any specific number of shares and may be suspended at any time at the Company’s discretion.

During the year ended December 31, 2015, the Company repurchased 85.1 million shares of AAG Common Stock for $3.6 billion at a weighted average cost per share of $42.09. During the year ended December 31, 2014, the Company repurchased 23.4 million shares of AAG Common Stock for $1.0 billion at a weighted average cost per share of $42.72. Since the inception of the share repurchase programs in July 2014, the Company has repurchased 108.5 million shares of AAG Common Stock for $4.6 billion at a weighted average cost per share of $42.23.

The Company’s Board of Directors declared the following cash dividends:

Year Ended

December 31

  

Period

  Per share   

For stockholders

of record as of

  

Payable on

2015

  Fourth Quarter  $0.10    November 5, 2015  November 19, 2015
  Third Quarter   0.10    August 10, 2015  August 24, 2015
  Second Quarter   0.10    May 4, 2015  May 18, 2015
  First Quarter   0.10    February 9, 2015  February 23, 2015

2014

  Fourth Quarter  $0.10    November 3, 2014  November 17, 2014
  Third Quarter   0.10    August 4, 2014  August 18, 2014

The total cash payment for dividends during the years ended December 31, 2015 and 2014 was $278 million and $144 million, respectively. Any future dividends that may be declared and paid from time to time under the Company’s capital deployment program will be subject to market and economic conditions, applicable legal requirements and other relevant factors. The Company’s capital deployment program does not obligate it to continue a dividend for any fixed period, and payment of dividends may be suspended at any time at the Company’s discretion.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

9.  Debt

Long-term debt and capital lease obligations included in the consolidated balance sheets consisted of (in millions):

   December 31, 
   2015   2014 

Secured

    

2013 Credit Facilities, variable interest rate of 3.25%, installments through 2020 (a)

  $1,867    $1,872  

2014 Credit Facilities, variable interest rate of 3.50%, installments through 2021 (b)

   743     750  

2013 Citicorp Credit Facility tranche B-1, variable interest rate of 3.50%, installments through 2019 (c)

   980     990  

2013 Citicorp Credit Facility tranche B-2, variable interest rate of 3.00%, installments through 2016 (c)

   588     594  

Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 3.38% to 9.75%, maturing from 2017 to 2027 (d)

   8,693     7,028  

Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.63% to 8.48%, maturing from 2016 to 2027 (e)

   4,183     2,952  

Special facility revenue bonds, fixed interest rates ranging from 2.00% to 8.00%, maturing from 2016 to 2035 (f)

   1,080     1,100  

AAdvantage Loan (g)

        433  

Other secured obligations, fixed interest rates ranging from 3.60% to 12.24%, maturing from 2016 to 2028 (e)

   923     994  
  

 

 

   

 

 

 
   19,057     16,713  
  

 

 

   

 

 

 

Unsecured

    

5.50% senior notes, interest only payments until due in 2019 (h)

   750     750  

6.125% senior notes, interest only payments until due in 2018 (i)

   500     500  

4.625% senior notes, interest only payments until due in 2020 (j)

   500       
  

 

 

   

 

 

 
   1,750     1,250  
  

 

 

   

 

 

 

Total long-term debt and capital lease obligations

   20,807     17,963  

Less: Total unamortized debt discount and debt issuance costs

   246     243  

Less: Current maturities

   2,231     1,677  
  

 

 

   

 

 

 

Long-term debt and capital lease obligations, net of current maturities

  $18,330    $16,043  
  

 

 

   

 

 

 

The table below shows availability under revolving credit facilities, all of which were undrawn, as of December 31, 2015 (in millions):

2013 Revolving Facility

  $1,400  

2014 Revolving Facility

   1,025  
  

 

 

 

Total

  $2,425  
  

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

Secured financings are collateralized by assets, primarily aircraft, engines, simulators, rotable aircraft parts, airport leasehold rights, route authorities and airport slots. At December 31, 2015, the Company was operating 35 aircraft under capital leases. Leases can generally be renewed at rates based on fair market value at the end of the lease term for a number of additional years. At December 31, 2015, the maturities of long-term debt and capital lease obligations are as follows (in millions):

2016

  $2,266  

2017

   1,598  

2018

   2,134  

2019

   3,378  

2020

   3,587  

2021 and thereafter

   7,844  
  

 

 

 

Total

  $20,807  
  

 

 

 

(a) 2013 Credit Facilities

On June 27, 2013, American and AAG entered into a Credit and Guaranty Agreement (as amended, restated, amended and restated or otherwise modified, the 2013 Credit Agreement) with Deutsche Bank AG New York Branch, as administrative agent, and certain lenders that originally provided for a $1.9 billion term loan facility scheduled to mature on June 27, 2019 (the 2013 Term Loan Facility) and a $1.0 billion revolving credit facility scheduled to mature on June 27, 2018 (the 2013 Revolving Facility). The maturity of the term loan facility was subsequently extended to June 2020 and the revolving credit facility commitments were subsequently increased to $1.4 billion with an extended maturity date of October 10, 2020, all of which is further described below.

On May 21, 2015, American amended and restated the 2013 Credit Agreement pursuant to which it refinanced the 2013 Term Loan Facility (the $1.9 billion 2015 Term Loan Facility and, together with the 2013 Revolving Facility, the 2013 Credit Facilities) to extend the maturity date to June 2020 and reduce the LIBOR margin from 3.00% to 2.75%. In addition, American entered into certain amendments to reflect the ability for American to make future modifications to the collateral pledged, subject to certain restrictions. The $1.9 billion 2015 Term Loan Facility is repayable in annual installments, with the first installment in an amount equal to 1.25% of the principal amount commencing on June 27, 2016 and installments thereafter, in an amount equal to 1.0% of the principal amount, with any unpaid balance due on the maturity date. As of December 31, 2015, $1.9 billion of principal was outstanding under the $1.9 billion 2015 Term Loan Facility. Voluntary prepayments may be made by American at any time.

On October 10, 2014, American and AAG amended the 2013 Credit Agreement to extend the maturity date of the 2013 Revolving Facility to October 10, 2019 and increased the commitments thereunder to an aggregate principal amount of $1.4 billion while reducing the letter of credit commitments thereunder to $300 million. On October 26, 2015, American, AAG, US Airways Group and US Airways amended the 2013 Credit Agreement to extend the maturity date of the 2013 Revolving Facility to October 10, 2020. The 2013 Revolving Facility provides that American may from time to time borrow, repay and reborrow loans thereunder and have letters of credit issued thereunder. As of December 31, 2015, there were no borrowings or letters of credit outstanding under the 2013 Revolving Facility.

The 2013 Credit Facilities bear interest at an index rate plus an applicable index margin or, at American’s option, LIBOR (subject to a floor of 0.75%, with respect to the $1.9 billion 2015 Term Loan Facility) plus a LIBOR margin of 3.00% with respect to the 2013 Revolving Facility and 2.75% with respect to the $1.9 billion 2015 Term Loan Facility; provided that American’s corporate credit rating is Ba3 or higher from Moody’s and BB- or higher from S&P, the applicable LIBOR margin would be 2.50% for the $1.9 billion 2015 Term Loan

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

Facility. As of December 31, 2015, American satisfied this ratings test and accordingly, the LIBOR margin for the $1.9 billion 2015 Term Loan Facility was 2.50%. The 2013 Revolving Credit Facility is subject to an undrawn fee of 0.75%.

Upon consummation of the Merger, US Airways Group and US Airways joined the 2013 Credit Facilities as guarantors. Following the joinder, certain minimum dollar-thresholds under the negative and financial covenants in the 2013 Credit Facilities were automatically increased.

Subject to certain limitations and exceptions, the 2013 Credit Facilities are secured by certain collateral, including certain slots, route authorities and airport gate leasehold rights. The obligations of American under the 2013 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 under the 2013 Credit Facilities as further described below in“Collateral Related Covenants.”

The 2013 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 under the 2013 Credit Facilities may be accelerated and become due and payable immediately. In addition, if a “change of control” (as defined in the 2013 Credit Agreement) occurs, American will (absent an amendment or waiver) be required to repay at par the loans outstanding under the 2013 Credit Facilities and terminate the 2013 Revolving Facility. The 2013 Credit Facilities also include covenants that, among other things, require AAG to maintain a minimum aggregate liquidity (as defined in the 2013 Credit Facilities) of not less than $2.0 billion, 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) 2014 Credit Facilities

On October 10, 2014, American, AAG, US Airways Group and US Airways entered into a Credit and Guaranty Agreement (as amended, restated, amended and restated or otherwise modified, the 2014 Credit Agreement) with Citibank, N.A., as administrative agent, and certain lenders that originally provided for a $750 million term loan facility scheduled to mature on October 10, 2021 (the 2014 Term Loan Facility) and a $400 million revolving credit facility scheduled to mature on October 10, 2019 (the 2014 Revolving Facility). The revolving credit facility commitments were subsequently increased to $1.025 billion with an extended maturity date of October 10, 2020 as further described below.

On April 20, 2015, American amended and restated the 2014 Credit Agreement pursuant to which it refinanced the 2014 Term Loan Facility (the $750 million 2015 Term Loan Facility and, together with the 2014 Revolving Facility, the 2014 Credit Facilities) to reduce the LIBOR margin from 3.50% to 3.00% and entered into certain amendments to reflect the release of certain existing collateral and the addition of certain new collateral, as well as the ability for American to make future modifications to the collateral pledged, subject to certain restrictions. The $750 million 2015 Term Loan Facility is repayable in annual installments in an amount equal to 1.00% of the original principal balance with any unpaid balance due on the maturity date. As of December 31, 2015, $743 million of principal was outstanding under the $750 million 2015 Term Loan Facility. Voluntary prepayments may be made by American at any time.

On October 26, 2015, American, AAG, US Airways Group and US Airways amended the 2014 Credit Agreement to increase the commitments under the 2014 Revolving Facility to an aggregate principal amount of $1.025 billion and extend the maturity date to October 10, 2020. The 2014 Revolving Facility provides that American may from time to time borrow, repay and reborrow loans thereunder. American may have letters of credit issued under the 2014 Revolving Facility in an aggregate amount outstanding at any time up to $300 million. As of December 31, 2015, there were no borrowings or letters of credit outstanding under the 2014 Revolving Facility.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

The 2014 Credit Facilities bear interest at an index rate plus an applicable index margin or, at American’s option, LIBOR (subject to a floor of 0.75% in the case of the $750 million 2015 Term Loan Facility) plus a LIBOR margin of 3.00% with respect to the 2014 Revolving Facility and 3.00% with respect to the 2015 Term Loan Facility; provided that, American’s corporate credit rating is Ba3 or higher from Moody’s and BB- or higher from S&P, the applicable LIBOR margin would be 2.75% for the $750 million 2015 Term Loan Facility. As of December 31, 2015, American satisfied this ratings test and accordingly, the LIBOR margin for the $750 million 2015 Term Loan Facility was 2.75%. The 2014 Revolving Facility is subject to an undrawn fee of 0.75%.

Subject to certain limitations and exceptions, the 2014 Credit Facilities are secured by certain collateral, including certain slots, route authorities and airport gate leasehold rights. The obligations of American under the 2014 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 under the 2014 Credit Facilities as further described below in“Collateral Related Covenants.”

The 2014 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 under the 2014 Credit Facilities may be accelerated and become due and payable immediately. In addition, if a “change of control” (as defined in the 2014 Credit Agreement) occurs with respect to AAG, American will (absent an amendment or waiver) be required to repay at par the loans outstanding under the 2014 Credit Facilities and terminate the 2014 Revolving Facility. The 2014 Credit Facilities also include covenants that, among other things, require AAG to maintain a minimum aggregate liquidity (as defined in the 2014 Credit Facilities) of not less than $2.0 billion, and limit the ability of AAG and its restricted subsidiaries to pay dividends and make certain other payments, make certain investments, 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.

(c) 2013 Citicorp Credit Facility

On May 23, 2013, US Airways entered into a term loan credit facility (as amended, the 2013 Citicorp Credit Facility) with Citicorp North America, Inc., as administrative agent, and certain lenders. US Airways Group guaranteed the obligations of US Airways under the 2013 Citicorp Credit Facility, and AAG and certain other subsidiaries of AAG are guarantors of those obligations. On December 30, 2015, in connection with the merger of US Airways Group with and into AAG and the merger of US Airways with and into American, AAG and American entered into an assumption agreement pursuant to which they assumed the obligations of US Airways Group and US Airways, respectively, in connection with the 2013 Citicorp Credit Facility.

The 2013 Citicorp Credit Facility consists of tranche B-1 term loans (Tranche B-1) and tranche B-2 term loans (Tranche B-2). As of December 31, 2015, $980 million of principal was outstanding under Tranche B-1 and $588 million of principal was outstanding under Tranche B-2. Voluntary prepayments may be made by American at any time.

The 2013 Citicorp Credit Facility bears interest at an index rate plus an applicable index margin or, at American’s option, LIBOR (subject to a floor of 0.75%) plus an applicable LIBOR margin. As of December 31, 2015, the applicable LIBOR margin was 2.75% for Tranche B-1 and 2.25% for Tranche B-2.

Tranche B-1 and Tranche B-2 mature on May 23, 2019 and November 23, 2016, respectively (unless otherwise extended by the applicable parties), and each is repayable in annual installments to be paid on each anniversary of the closing date in an amount equal to 1.00% of the initial aggregate principal amount of the loans with any unpaid balance due on the maturity date of the respective tranche.

Subject to certain limitations and exceptions, the obligations under the 2013 Citicorp Credit Facility are secured by liens on certain take off and landing slots at LGA, spare parts and certain other assets. The obligations

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

of American under the 2013 Citicorp Credit Facility are guaranteed by AAG. American is required to maintain a certain minimum ratio of appraised value of the collateral to the outstanding loans under the 2013 Citicorp Credit Facility as further described below in“Collateral Related Covenants.”

The 2013 Citicorp Credit Facility agreement contains events of default customary for similar financings, including a cross-default provision to certain other material indebtedness of American and certain of its affiliates. Upon the occurrence of an event of default, the outstanding obligations under the 2013 Citicorp Credit Facility may be accelerated and become due and payable immediately. In addition, if a “change of control” (as defined in the 2013 Citicorp Credit Facility agreement) occurs, American will (absent an amendment or waiver) be required to repay the outstanding loans in full together with accrued interest thereon to the date of such prepayment. The 2013 Citicorp Credit Facility agreement includes affirmative, negative and financial covenants that, among other things, (a) require AAG and its restricted subsidiaries to maintain unrestricted liquidity of not less than $2.0 billion, with not less than $750 million held in accounts subject to control agreements, and (b) restrict the ability of AAG and its subsidiaries party to the 2013 Citicorp Credit Facility to make certain investments, pay dividends and make certain other payments, make certain acquisitions, incur liens on the collateral, dispose of collateral, enter into certain affiliate transactions, enter into certain hedging transactions, and engage in certain business activities, in each case subject to certain exceptions.

(d) Aircraft Enhanced Equipment Trust Certificates (EETCs)

2015-1 EETCs

In March 2015, American created two pass-through trusts which issued approximately $1.2 billion aggregate face amount of Series 2015-1 Class A and Class B EETCs (the 2015-1 EETCs) in connection with the financing of 28 aircraft owned by American (the 2015-1 EETC Aircraft).

As of December 31, 2015, the entire $1.2 billion of the proceeds from the sale of the 2015-1 EETCs had been used to purchase equipment notes issued by American in two series: Series A equipment notes in the amount of $948 million bearing interest at 3.375% per annum and Series B equipment notes in the amount of $266 million bearing interest at 3.70% per annum. Interest and principal payments on the equipment notes are payable semi-annually in May and November of each year, which began in November 2015. The final payments on the Series A and Series B equipment notes are due in May 2027 and May 2023, respectively. These equipment notes are secured by liens on the 2015-1 EETC Aircraft.

2015-2 EETCs

In September 2015, American created three pass-through trusts which issued approximately $1.1 billion aggregate face amount of Series 2015-2 Class AA, Class A and Class B EETCs (the 2015-2 EETCs) in connection with the financing of 21 aircraft owned by American (the 2015-2 EETC Aircraft).

As of December 31, 2015, the entire $1.1 billion of the proceeds from the sale of the 2015-2 EETCs had been used to purchase equipment notes issued by American in three series: Series AA equipment notes in the amount of $583 million bearing interest at 3.60% per annum, Series A equipment notes in the amount of $239 million bearing interest at 4.00% per annum and Series B equipment notes in the amount of $239 million bearing interest at 4.40% per annum. Interest and principal payments on the equipment notes are payable semi-annually in March and September of each year, with interest payments beginning in March 2016 and principal payments beginning in September 2016. The final payments on the Series AA and Series A equipment notes are due in September 2027 and the final payment on the Series B equipment notes is due in September 2023. These equipment notes are secured by liens on the 2015-2 EETC Aircraft.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

(e) Other Aircraft Financing Transactions

In 2015, the Company prepaid $72 million principal amount of outstanding debt secured by certain aircraft.

In 2015, the Company entered into loan agreements to borrow $1.9 billion in connection with the financing of certain aircraft. The notes mature in 2022 through 2027 and bear interest at a rate of LIBOR plus an applicable margin averaging 1.82%.

(f) Obligations Associated with Special Facility Revenue Bonds

In December 2014, American acquired approximately $112 million aggregate principal amount of special facility revenue bonds related to the Tulsa International Airport, when such bonds were mandatorily tendered to American. The acquisition of these bonds resulted in an $11 million reduction of a capital lease obligation and a $50 million reduction of a long-term operating lease obligation included in other long-term liabilities on American’s consolidated balance sheet as of December 31, 2014. American exercised its option to remarket approximately $104 million of these bonds in May 2015. The remarketed bonds bear interest at 5.0% per annum from the date of initial issuance and delivery of the bonds on May 27, 2015, until the day preceding June 1, 2025, on which date the bonds will be subject to mandatory tender for purchase by American. In connection with the remarketing of these special facility revenue bonds, American received cash proceeds of $112 million. As of December 31, 2015, $11 million is reflected as a capital lease and $52 million is reflected in other long-term liabilities on American’s consolidated balance sheet.

In June 2015, American exercised its right to adjust the interest rate on approximately $365 million aggregate principal amount of special facility revenue bonds related to the John F. Kennedy International Airport, which were bearing interest at 8.50% per annum. In August 2015, these bonds were purchased by American and subsequently remarketed. The remarketed bonds bear interest at 2.00% per annum from the date of initial issuance and delivery of the bonds in August 2015, until August 2016, when the bonds will be subject to mandatory tender for purchase by American. The $365 million obligation is reflected in current maturities of long-term debt and capital leases on American’s consolidated balance sheet as of December 31, 2015.

(g) AAdvantage Loan

Effective January 2, 2015, American exercised its loan repayment right with respect to the full value of the outstanding balance of the AAdvantage Loan with Citibank for $400 million.

(h) 5.50% Senior Notes

In September 2014, the Company issued $750 million aggregate principal amount of 5.50% senior notes due 2019 (the 5.50% senior notes). These notes bear interest at a rate of 5.50% per annum, which is payable semi-annually in arrears on each April 1 and October 1, and began on April 1, 2015. The 5.50% senior notes mature on October 1, 2019 and are fully and unconditionally guaranteed by American. The 5.50% senior notes are senior unsecured obligations of the Company. The indenture for the 5.50% senior notes contains covenants and events of default generally customary for similar financings. In addition, if the Company experiences specific kinds of changes of control, the Company must offer to repurchase the 5.50% senior notes at a price of 101% of the principal amount plus accrued and unpaid interest, if any, to (but not including) the repurchase date. Upon the occurrence of certain events of default, the 5.50% senior notes may be accelerated and become due and payable. When issued, the 5.50% senior notes were fully and unconditionally guaranteed by US Airways Group and US Airways. On December 30, 2015, AAG, American and the trustee entered into a first supplemental indenture agreement to the 5.50% senior notes, in which AAG assumed the obligations of US Airways Group as guarantor and American assumed the obligations of US Airways as guarantor, in each case, under the 5.50% senior notes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

(i) 6.125% Senior Notes

In May 2013, US Airways Group issued its 6.125% Senior Notes due 2018 (the 6.125% senior notes). The 6.125% senior notes bear interest at a rate of 6.125% per annum, which is payable semi-annually in arrears on each June 1 and December 1 and began on December 1, 2013. The 6.125% senior notes mature on June 1, 2018 and, prior to the execution of the third supplemental indenture agreement (as described below), were fully and unconditionally guaranteed by US Airways when issued. In connection with the closing of the Merger, AAG and American each also provided a full and unconditional guarantee of the payment obligations of US Airways Group under the 6.125% senior notes. The indenture for the 6.125% senior notes contains covenants and events of default generally customary for similar financings. In addition, if the Company experiences specific kinds of changes of control, the Company must offer to repurchase the 6.125% senior notes at a price of 101% of the principal amount plus accrued and unpaid interest, if any, to (but not including) the repurchase date. Upon the occurrence of certain events of default, the 6.125% senior notes may be accelerated and become due and payable. The 6.125% senior notes are general unsecured senior obligations of the Company. On December 30, 2015, AAG, American and the trustee entered into a third supplemental indenture agreement to the 6.125% senior notes, in which AAG assumed the obligations of US Airways Group as issuer and American assumed the obligations of US Airways as guarantor, in each case, under the 6.125% senior notes.

(j) 4.625% Senior Notes

In March 2015, the Company issued $500 million aggregate principal amount of 4.625% senior notes due 2020 (the 4.625% senior notes). These notes bear interest at a rate of 4.625% per annum, which is payable semi-annually in arrears on each March 1 and September 1, which began on September 1, 2015. The 4.625% senior notes mature on March 1, 2020 and are fully and unconditionally guaranteed by American. The 4.625% senior notes are senior unsecured obligations of the Company. The indenture for the 4.625% senior notes contains covenants and events of default generally customary for similar financings. In addition, if the Company experiences specific kinds of changes of control, the Company must offer to repurchase the 4.625% senior notes in whole or in part at a repurchase price of 101% of the aggregate principal amount plus accrued and unpaid interest, if any, to (but not including) the repurchase date. Upon the occurrence of certain events of default, the 4.625% senior notes may be accelerated and become due and payable. When issued, the 4.625% senior notes were fully and unconditionally guaranteed by US Airways Group and US Airways. On December 30, 2015, AAG, American and the trustee entered into a first supplemental indenture agreement to the 4.625% senior notes, in which AAG assumed the obligations of US Airways Group as guarantor and American assumed the obligations of US Airways as guarantor, in each case, under the 4.625% senior notes.

Guarantees

As of December 31, 2015, AAG had issued guarantees covering approximately $1.1 billion of American’s special facility revenue bonds (and interest thereon) and $8.6 billion of American’s secured debt (and interest thereon), including the 2013 Credit Facilities, the 2014 Credit Facilities, the 2013 Citicorp Credit Facility and certain EETC financings.

Collateral Related Covenants

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

Specifically, the Company is required to meet certain collateral coverage tests on an annual basis for three credit facilities, as described below:

   

2014 Credit Facilities

  

2013 Credit Facilities

  

2013 Citicorp Credit Facility

Frequency of Appraisals of Appraised Collateral  Annual  Annual  Annual (1)
LTV Requirement  

1.6x Collateral valuation to

amount of debt outstanding

(62.5% LTV)

  

1.6x Collateral valuation to

amount of debt outstanding

(62.5% LTV)

  

1.5x Collateral valuation to

amount of debt outstanding

(66.7% LTV)

LTV as of Last Measurement Date  24.1%  33.6%  57.8%
Collateral Description  

Generally, certain slots, route

authorities and airport gate

leasehold rights used by

American to operate certain

services between the U.S. and

London Heathrow

  

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 LGA slots,

certain spare parts, certain

simulators, certain leasehold

real estate assets and cash

(1)

With respect to spare parts, one physical appraisal and one desktop appraisal are required in each fiscal year.

At December 31, 2015, the Company was in compliance with the applicable collateral coverage tests as of the most recent measurement dates.

10.  Income Taxes

The significant components of the income tax provision (benefit) were (in millions):

   Year Ended December 31, 
   2015  2014  2013 

Current

  $20   $(16 $(22

Deferred

   (3,014  346    (324
  

 

 

  

 

 

  

 

 

 

Income tax provision (benefit)

  $(2,994 $330   $(346
  

 

 

  

 

 

  

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

The income tax provision (benefit) differed from amounts computed at the statutory federal income tax rate as follows (in millions):

   Year Ended December 31, 
   2015  2014  2013 

Statutory income tax provision (benefit)

  $1,616   $1,123   $(763

State income tax provision (benefit), net of federal tax effect

   72    75    (8

Book expenses (benefits) not deductible for tax purposes

   57    (1  27  

Bankruptcy administration expenses

   3    95    83  

Interest cutback to net operating loss (NOL)

           141  

Alternative minimum tax credit refund

       (24  (22

Change in valuation allowance

   (4,742  (1,323  717  

Tax provision (benefit) resulting from OCI allocation

       330    (538

Other, net

       55    17  
  

 

 

  

 

 

  

 

 

 

Income tax provision (benefit)

  $(2,994 $330   $(346
  

 

 

  

 

 

  

 

 

 

The Company provides a valuation allowance for its deferred tax assets, which includes the 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. The Company considers all available positive and negative evidence and makes certain assumptions in evaluating the realizability of its deferred tax assets. As of December 31, 2015, after considering all positive and negative evidence, including the completion of certain critical merger integration milestones as well as the Company’s financial performance, the Company concluded that substantially all of its deferred income tax assets were more likely than not to be realized. Accordingly, the Company reversed the valuation allowance, which resulted in a special $3.0 billion non-cash tax benefit recorded in the consolidated statement of operations for 2015.

For the year ended December 31, 2014, the Company recorded a $330 million tax provision. During 2014, the Company sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, the Company recorded a special non-cash tax provision of $330 million in the second quarter of 2014 that reversed the non-cash tax provision which was recorded in OCI, a subset of stockholders’ equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of the Company’s fuel hedging contracts. In accordance with GAAP, the Company retained the $330 million tax provision in OCI until the last contract was settled or terminated.

For the year ended December 31, 2013, the Company recorded a $346 million tax benefit. This benefit included a $538 million special non-cash income tax benefit from continuing operations. The Company is required to consider all items (including items recorded in OCI) in determining the amount of tax benefit that results from a loss from continuing operations and that should be allocated to continuing operations. As a result, the Company recorded a tax benefit on the loss from continuing operations for the year, which was exactly offset by income tax expense on OCI. However, while the income tax benefit from continuing operations is reported on the income statement, the income tax expense on OCI is recorded directly to accumulated OCI, which is a component of stockholders’ equity. Because the income tax expense on OCI is equal to the income tax benefit from continuing operations, the Company’s net deferred tax position is not impacted by this tax allocation. The 2013 tax benefit was offset in part by a $214 million special tax provision attributable to additional valuation allowance required to reduce deferred tax assets to the amount the Company believed was more likely than not to be realized.

In addition to the changes in the valuation allowance from operations described in the table above, the valuation allowance was also impacted by the changes in the components of accumulated other comprehensive income (loss), described in Note 14. The total decrease in the valuation allowance was $4.8 billion and $197 million in 2015 and 2014, respectively. The total increase in the valuation allowance was $602 million in 2013.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

The components of the Company’s deferred tax assets and liabilities were (in millions):

   December 31, 
   2015  2014 

Deferred tax assets:

   

Postretirement benefits other than pensions

  $340   $386  

Rent expense

   134    180  

Alternative minimum tax credit carryforwards

   346    346  

Operating loss carryforwards

   2,558    3,461  

Pensions

   2,436    2,403  

Loyalty program obligation

   590    948  

Gains from lease transactions

   262    207  

Reorganization items

   57    64  

Other

   1,200    1,210  
  

 

 

  

 

 

 

Total deferred tax assets

   7,923    9,205  

Valuation allowance

   (22  (4,816
  

 

 

  

 

 

 

Net deferred tax assets

   7,901    4,389  
  

 

 

  

 

 

 

Deferred tax liabilities:

   

Accelerated depreciation and amortization

   (5,158  (4,829

Other

   (266  (98
  

 

 

  

 

 

 

Total deferred tax liabilities

   (5,424  (4,927
  

 

 

  

 

 

 

Net deferred tax asset (liability)

  $2,477   $(538
  

 

 

  

 

 

 

At December 31, 2015, the Company had approximately $8.0 billion of gross NOL Carryforwards to reduce future federal taxable income, substantially all of which are expected to be available for use in 2016. The federal NOL Carryforwards will expire beginning in 2023 if unused. These NOL Carryforwards include an unrealized tax benefit of $1.2 billion related to share-based compensation that will be recorded in equity when realized. The Company also had approximately $4.0 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2015, which will expire in years 2016 through 2034 if unused. As of December 31, 2015, the amount of NOL Carryforwards for state income tax purposes that will expire, if unused, in 2016 is $136 million. The Company’s ability to deduct its NOL 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. The Company experienced an ownership change in connection with its emergence from the Chapter 11 Cases, and US Airways Group experienced an ownership change in connection with the Merger. As a result of the Merger, US Airways Group is now included in the AAG consolidated federal and state income tax returns. The general limitation rules of Section 382 for a debtor in a bankruptcy case are liberalized where the ownership change occurs upon emergence from bankruptcy. The Company elected to be covered by certain special rules for federal income tax purposes that permitted approximately $9.0 billion (with $6.6 billion of unlimited NOL still remaining at December 31, 2015) of its federal NOL Carryforwards to be utilized without regard to the Section 382 annual limitation rules unless a second ownership change occurred on or before December 9, 2015. No second ownership change occurred within that period. Substantially all of the Company’s remaining federal NOL Carryforwards (attributable to US Airways Group) are subject to limitation under Section 382; however, the Company’s ability to utilize such NOL Carryforwards is not anticipated to be effectively constrained as a result of such limitation. Similar limitations may apply for state income tax purposes. The Company’s ability to utilize any new NOL Carryforwards arising after the ownership changes is not affected by the annual limitation rules imposed by Section 382 unless another 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 future use of NOLs and tax credits. See Part I,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

Item 1A. Risk Factors– “Our ability to utilize our NOL Carryforwards may be limited” for unaudited additional discussion of this risk.

At December 31, 2015, the Company had an Alternative Minimum Tax credit carryforward of approximately $341 million available for federal income tax purposes, which is available for an indefinite period.

The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Company’s 2012 through 2014 tax years are still subject to examination by the Internal Revenue Service. Various state and foreign jurisdiction tax years remain open to examination and the Company is under examination, in administrative appeals, or engaged in tax litigation in certain jurisdictions. The Company believes that the effect of any assessments will be immaterial to its consolidated financial statements.

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which changes how deferred taxes are classified on the balance sheet. The update eliminates the current requirement to present deferred tax liabilities and assets as current and noncurrent on the balance sheet. Deferred tax liabilities and assets are now required to be classified as noncurrent on the balance sheet. Entities have the choice to apply ASU 2015-17 either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The update is effective for annual and interim periods in fiscal years beginning after December 15, 2016. The Company early adopted this standard during the fourth quarter 2015, utilizing retrospective application as permitted. As such, certain prior period amounts have been reclassified to conform to the current presentation. As a result, the Company reclassified $361 million of current deferred income tax assets within prepaid expenses and other to reduce deferred income taxes within other liabilities on the consolidated balance sheet as of December 31, 2014.

11.  Risk Management

The Company’s economic prospects are heavily dependent upon two variables it cannot control: the health of the economy and the price of fuel.

Due to the discretionary nature of business and leisure travel spending, airline industry 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 and changes in booking practices, both of which in turn have had, and may have in the future, a strong negative effect on the Company’s revenues. In addition, during challenging economic times, actions by its competitors to increase their revenues can have an adverse impact on the Company’s revenues.

The Company’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 the Company’s business. Jet fuel market prices have fluctuated substantially over the past several years and prices continue to be highly volatile. Because of the amount of fuel needed to operate the Company’s business, even a relatively small increase or decrease in the price of fuel can have a material effect on the Company’s operating results and liquidity.

These additional factors could impact the Company’s results of operations, financial performance and liquidity.

(a) Credit Risk

Most of the Company’s receivables relate to tickets sold to individual passengers through the use of major credit cards or to tickets sold by other airlines and used by passengers on American. These receivables are short-term, mostly being settled within seven days after sale. Bad debt losses, which have been minimal in the past, have been considered in establishing allowances for doubtful accounts. The Company does not believe it is subject to any significant concentration of credit risk.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

(b) Interest Rate Risk

The Company has exposure to market risk associated with changes in interest rates related primarily to its variable rate debt obligations. Interest rates on $7.8 billion principal amount of long-term debt as of December 31, 2015 are subject to adjustment to reflect changes in floating interest rates. The weighted average effective interest rate on the Company’s variable rate debt was 2.93% at December 31, 2015. The Company does not currently have an interest rate hedge program.

(c) Foreign Currency Risk

The Company is exposed to the effect of foreign exchange rate fluctuations on the U.S. dollar value of foreign currency-denominated operating revenues and expenses. The Company’s largest exposure comes from the British pound, Euro, Canadian dollar and various Latin American currencies, primarily the Brazilian real. The Company 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.

12.  Investments and Fair Value Measurements

Assets Measured at Fair Value on a Recurring Basis

The Company utilizes the market approach to measure fair value for its financial assets. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. The Company’s 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, 2015.

Assets measured at fair value on a recurring basis are summarized below (in millions):

   Fair Value Measurements as of December 31, 2015 
       Total           Level 1           Level 2           Level 3     

Short-term investments (1), (2):

        

Money market funds

  $1,010    $1,010    $    $  

Government agency investments

   1          1       

Corporate obligations

   2,191          2,191       

Bank notes/certificates of deposit/time deposits

   2,662          2,662       
  

 

 

   

 

 

   

 

 

   

 

 

 
   5,864     1,010     4,854       

Restricted cash and short-term investments (1)

   695     695            
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $6,559    $1,705    $4,854    $  
  

 

 

   

 

 

   

 

 

   

 

 

 

(1)

Unrealized gains or losses on short-term investments and restricted cash and 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. The Company’s short-term investments mature in one year or less except for $734 million of corporate obligations and $1.2 billion of bank notes/certificates of deposit/time deposits.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

   Fair Value Measurements as of December 31, 2014 
       Total           Level 1           Level 2           Level 3     

Short-term investments (1), (2):

        

Money market funds

  $954    $954    $    $  

Government agency investments

   101          101       

Repurchase agreements

   46          46       

Corporate obligations

   3,927          3,927       

Bank notes/certificates of deposit/time deposits

   1,281          1,281       
  

 

 

   

 

 

   

 

 

   

 

 

 
   6,309     954     5,355       

Restricted cash and short-term investments (1)

   774     774            
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $7,083    $1,728    $5,355    $  
  

 

 

   

 

 

   

 

 

   

 

 

 

(1)

Unrealized gains or losses on short-term investments and restricted cash and 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. The Company’s short-term investments mature in one year or less except for $1.1 billion of corporate obligations and $575 million of bank notes/certificates of deposit/time deposits.

There were no Level 1 to Level 2 transfers during the years ended December 31, 2015 or 2014.

Fair Value of Debt

The fair value of the Company’s long-term debt was estimated using quoted market prices or discounted cash flow analyses, based on the Company’s current estimated incremental borrowing rates for similar types of borrowing arrangements. If the Company’s long-term debt was measured at fair value, it would have been classified as Level 2 in the fair value hierarchy.

The carrying value and estimated fair value of the Company’s long-term debt, including current maturities, were as follows (in millions):

   December 31, 2015   December 31, 2014 
   Carrying
Value
   Fair
Value
   Carrying
Value
   Fair
Value
 

Long-term debt, including current maturities

  $20,561    $21,111    $17,720    $18,542  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and Short-term Investments

Generally, fluctuations in foreign currencies, including devaluations, cannot be predicted by the Company and can significantly affect the value of the Company’s cash and short-term investments 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 the Company’s business, results of operations and financial condition. See Part I, Item 1A. Risk Factors – “We operate a global business with international operations thatare 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 and other currency risks.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

13.  Retirement Benefits

The Company sponsors defined benefit and defined contribution pension plans for eligible employees. The defined benefit 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 the Company’s defined benefit pension plans were frozen and the Company began providing enhanced benefits under its defined contribution plans for certain groups. The Company uses a December 31 measurement date for all of its defined benefit plans. The Company also provides certain retiree medical and other postretirement benefits, including health care and life insurance benefits, to retired employees. Effective November 1, 2012, the Company modified its retiree medical and life coverage to eliminate the company subsidy for employees who retire on or after November 1, 2012. As a result of modifications to its retiree medical plans in 2012, the Company recognized a negative plan amendment of $1.9 billion, which is included as a component of actuarial gain in OCI and will be amortized over the future service life of the active plan participants for whom the benefit was eliminated, or approximately eight years. As of December 31, 2015, $1.1 billion of actuarial gain remains to be amortized.

Year End Information

The following table provides a reconciliation of the changes in the pension and retiree medical and other postretirement benefit obligations and fair value of assets for the years ended December 31, 2015 and 2014, and a statement of funded status as of December 31, 2015 and 2014 (in millions):

   Pension Benefits  Retiree Medical and Other
Postretirement Benefits
 
   2015  2014      2015          2014     

Reconciliation of benefit obligation:

     

Obligation at January 1

  $17,594   $14,899   $1,325   $1,385  

Service cost

   2    3    3    1  

Interest cost

   737    746    50    61  

Actuarial (gain) loss

   (1,159  2,573    (177  (39

Plan amendments

               33  

Settlements

   (3  (20        

Benefit payments

   (776  (607  (94  (112

Other

           24    (4
  

 

 

  

 

 

  

 

 

  

 

 

 

Obligation at December 31

  $16,395   $17,594   $1,131   $1,325  
  

 

 

  

 

 

  

 

 

  

 

 

 

Reconciliation of fair value of plan assets:

     

Fair value of plan assets at January 1

  $10,986   $10,057   $244   $239  

Actual return on plan assets

   (506  746    (10  11  

Employer contributions

   6    810    89    106  

Settlements

   (3  (20        

Benefit payments

   (776  (607  (94  (112

Other (1)

           24      
  

 

 

  

 

 

  

 

 

  

 

 

 

Fair value of plan assets at December 31

   9,707    10,986    253    244  
  

 

 

  

 

 

  

 

 

  

 

 

 

Funded status at December 31

  $(6,688 $(6,608 $(878 $(1,081
  

 

 

  

 

 

  

 

 

  

 

 

 

Amounts recognized in the consolidated balance sheets:

     

Current liability

  $7   $10   $109   $117  

Noncurrent liability (2)

   6,681    6,598    769    964  
  

 

 

  

 

 

  

 

 

  

 

 

 
  $6,688   $6,608   $878   $1,081  
  

 

 

  

 

 

  

 

 

  

 

 

 

Amounts recognized in other comprehensive income:

     

Net actuarial loss (gain)

  $5,047   $4,961   $(339 $(199

Prior service cost (benefit) (2)

   216    245    (1,084  (1,326
  

 

 

  

 

 

  

 

 

  

 

 

 
  $5,263   $5,206   $(1,423 $(1,525
  

 

 

  

 

 

  

 

 

  

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

  Pension Benefits  Retiree Medical and
Other Postretirement Benefits
 
          2015                  2014                  2015                  2014         

For plans with accumulated benefit obligations exceeding the fair value of plan assets:

    

Projected benefit obligation (PBO)

 $16,369   $17,560   $   $  

Accumulated benefit obligation (ABO)

  16,357    17,548          

Accumulated postretirement benefit obligation (APBO)

          1,129    1,324  

Fair value of plan assets

  9,677    10,950    253    244  

ABO less fair value of plan assets

  6,680    6,598          

(1)

At December 31, 2015, certain trust assets totaling approximately $24 million, were added to the retiree medical plan asset values that were previously offset against the benefit obligation.

(2)

The 2015 noncurrent liability does not include $17 million of other postretirement benefits or $1 million of prior service costs. The 2014 noncurrent liability does not include $18 million of other postretirement benefits or $2 million of prior service costs.

The following tables provide the components of net periodic benefit cost (income) for the years ended December 31, 2015, 2014 and 2013 (in millions):

   Pension Benefits  Retiree Medical and
Other Postretirement Benefits
 
       2015          2014          2013          2015          2014          2013     
       

Defined benefit plans:

       

Service cost

  $2   $3   $3   $3   $1   $  

Interest cost

   737    746    654    50    61    50  

Expected return on assets

   (851  (786  (720  (19  (19  (16

Curtailments

           2              

Settlements

   1    4    (1            

Amortization of:

       

Prior service cost (benefit) (1)

   28    28    28    (243  (244  (251

Unrecognized net loss (gain)

   112    43    90    (9  (8  (9
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net periodic benefit cost (income) for defined benefit plans

   29    38    56    (218  (209  (226

Defined contribution plans

   662    546    328    N/A    N/A    N/A  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  $691   $584   $384   $(218 $(209 $(226
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(1)

The 2015 prior service cost does not include amortization of $3 million related to other postretirement benefits. The 2014 prior service cost does not include amortization of $14 million related to other postretirement benefits.

The estimated amount of unrecognized net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $126 million.

The estimated amount of unrecognized net gain for the retiree medical and other postretirement plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $16 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

   Pension Benefits  Retiree Medical and
Other  Postretirement Benefits
 
       2015          2014          2015          2014     

Weighted-average assumptions used to determine benefit obligations as of December 31:

     

Discount rate

   4.70  4.30  4.42  4.00

Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31:

     

Discount rate 1/1 – 12/31

   4.30  5.10  4.00  4.74

Expected return on plan assets

   8.00  8.00  8.00  8.00

As of December 31, 2015, the Company’s estimate of the long-term rate of return on plan assets was 8% based on the target asset allocation. Expected returns on longer duration bonds are based on yields to maturity of the bonds held at year-end. Expected returns on other assets are based on a combination of long-term historical returns, actual returns on plan assets achieved over the last ten years, current and expected market conditions, and expected value to be generated through active management, currency overlay and securities lending programs.

The objectives of the Company’s investment policies are to: maintain sufficient income and liquidity to pay retirement benefits; produce a long-term rate of return that meets or exceeds the assumed rate of return for plan assets; limit the volatility of asset performance and funded status; and diversify assets among asset classes and investment managers.

Based on these investment objectives, a long-term strategic asset allocation has been established. This strategic allocation seeks to balance the potential benefit of improving funded position with the potential risk that the funded position would decline. The current strategic target asset allocation is as follows:

Asset Class/Sub-Class

Allowed Range

Equity

62% - 72%

Public:

U.S. Value

20% - 35%

International Value

14% - 24%

Emerging Markets

5% - 11%

Alternative Investments

0% - 18%

Fixed Income

28% - 38%

U.S. Long Duration

26% - 36%

Emerging Markets

0% -  4%

Other

0% -  5%

Cash Equivalents

0% -  5%

Public equity and emerging market fixed income securities are used to provide diversification and are expected to generate higher returns over the long-term than longer duration U.S. bonds. Public stocks are managed using a value investment approach in order to participate in the returns generated by stocks in the long-term, while reducing year-over-year volatility. Longer duration U.S. bonds are used to partially hedge the assets from declines in interest rates. Alternative (private) investments are used to provide expected returns in excess of the public markets over the long-term. Additionally, the pension plan’s master trust engages currency overlay managers in an attempt to increase returns by protecting non-U.S. dollar denominated assets from a rise in the relative value of the U.S. dollar. The pension plan’s master trust also participates in securities lending programs to generate additional income by loaning plan assets to borrowers on a fully collateralized basis. These programs are subject to market risk.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

Investments in securities traded on recognized securities exchanges are valued at the last reported sales price on the last business day of the year. Securities traded in the over-the-counter market are valued at the last bid price. The money market fund is valued at fair value which represents the net asset value of the shares of such fund as of the close of business at the end of the period. Investments in limited partnerships are carried at estimated net asset value as determined by and reported by the general partners of the partnerships and represent the proportionate share of the estimated fair value of the underlying assets of the limited partnerships. Common/collective trusts are valued at net asset value based on the fair values of the underlying investments of the trusts as determined by the sponsor of the trusts. The pension plan’s master trust also invests in a 103-12 investment entity (the 103-12 Investment Trust) which is designed to invest plan assets of more than one unrelated employer. The 103-12 Investment Trust is valued at net asset value which is determined by the issuer at the end of each month and is based on the aggregate fair value of trust assets less liabilities, divided by the number of units outstanding. No changes in valuation techniques or inputs occurred during the year.

The fair value of the Company’s pension plan assets at December 31, 2015 and 2014, by asset category, are as follows (in millions):

  Fair Value Measurements as of December 31, 2015 

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

 $287   $   $   $287  

Equity securities:

    

International markets (a), (b)

  2,873            2,873  

Large-cap companies (b)

  1,999            1,999  

Mid-cap companies (b)

  361            361  

Small-cap companies (b)

  18            18  

Mutual funds (c)

  47            47  

Fixed income:

    

Corporate bonds (d)

      2,204        2,204  

Government Securities (e)

      917        917  

U.S. municipal securities

      48        48  

Alternative instruments:

    

Private equity partnerships (f)

          722    722  

Common/collective trusts and 103-12 Investment Trust (g)

      219        219  

Insurance group annuity contracts

          2    2  

Dividend and interest receivable

  50            50  

Due to/from brokers for sale of securities – net

  23            23  

Other assets – net

  8            8  

Other liabilities – net

  (71          (71
 

 

 

  

 

 

  

 

 

  

 

 

 

Total

 $5,595   $3,388   $724   $9,707  
 

 

 

  

 

 

  

 

 

  

 

 

 

a)

Holdings are diversified as follows: 16% United Kingdom, 12% Japan, 10% France, 7% Switzerland, 7% Netherlands, 6% Republic of Korea, 11% of other emerging markets and the remaining 31% with no concentration greater than 5% in any one country.

b)

There are no significant concentrations of holdings by company or industry.

c)

Investment includes mutual funds invested 40% in equity securities of large-cap, mid-cap and small-cap U.S. companies, 35% in U.S. treasuries and corporate bonds and 25% in equity securities of international companies.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

d)

Includes approximately 74% investments in corporate debt with a Standard and Poor’s (S&P) rating lower than A and 26% investments in corporate debt with an S&P rating A or higher. Holdings include 82% U.S. companies, 16% international companies and 2% emerging market companies.

e)

Includes approximately 75% investments in U.S. domestic government securities and 25% in emerging market government securities. There are no significant foreign currency risks within this classification.

f)

Includes limited partnerships that invest primarily in U.S. (89%) and European (11%) buyout opportunities of a range of privately held companies. The pension plan’s master trust does not have the right to redeem its limited partnership investment at its net asset value, but rather receives distributions as the underlying assets are liquidated. It is estimated that the underlying assets of these funds will be gradually liquidated over the next one to ten years. Additionally, the pension plan’s master trust has future funding commitments of approximately $428 million over the next ten years.

g)

Investment includes 73% in an emerging market 103-12 Investment Trust with investments in emerging country equity securities, 14% in Canadian segregated balanced value, income growth and diversified pooled funds and 13% in a common/collective trust investing in securities of smaller companies located outside the U.S., including developing markets. Requests for withdrawals must meet specific requirements with advance notice of redemption preferred.

   Fair Value Measurements as of December 31, 2014 

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

  $332    $    $    $332  

Equity securities:

        

International markets (a), (b)

   2,943               2,943  

Large-cap companies (b)

   2,488               2,488  

Mid-cap companies (b)

   362               362  

Small-cap companies (b)

   21               21  

Mutual funds (c)

   51               51  

Fixed income:

        

Corporate bonds (d)

        2,384          2,384  

Government Securities (e)

        1,184          1,184  

U.S. municipal securities

        65          65  

Alternative instruments:

        

Private equity partnerships (f)

             818     818  

Common/collective trusts and 103-12 Investment Trust (g)

        240          240  

Insurance group annuity contracts

             2     2  

Dividend and interest receivable

   52               52  

Due to/from brokers for sale of securities – net

   39               39  

Other assets – net

   5               5  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $6,293    $3,873    $820    $10,986  
  

 

 

   

 

 

   

 

 

   

 

 

 

a)

Holdings are diversified as follows: 18% United Kingdom, 11% Japan, 10% France, 7% Switzerland, 7% Netherlands, 6% Republic of Korea, 13% of other emerging markets and the remaining 28% with no concentration greater than 5% in any one country.

b)

There are no significant concentrations of holdings by company or industry.

c)

Investment includes mutual funds invested 46% in equity securities of large-cap, mid-cap and small-cap U.S. companies, 35% in U.S. treasuries and corporate bonds and 18% in equity securities of international companies.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

d)

Includes approximately 74% investments in corporate debt with an S&P rating lower than A and 26% investments in corporate debt with an S&P rating A or higher. Holdings include 81% U.S. companies, 16% international companies and 3% emerging market companies.

e)

Includes approximately 73% investments in U.S. domestic government securities and 27% in emerging market government securities. There are no significant foreign currency risks within this classification.

f)

Includes limited partnerships that invest primarily in U.S. (91%) and European (9%) buyout opportunities of a range of privately held companies. The pension plan’s master trust does not have the right to redeem its limited partnership investment at its net asset value, but rather receives distributions as the underlying assets are liquidated. It is estimated that the underlying assets of these funds will be gradually liquidated over the next one to ten years. Additionally, the pension plan’s master trust has future funding commitments of approximately $403 million over the next ten years.

g)

Investment includes 74% in an emerging market 103-12 Investment Trust with investments in emerging country equity securities, 14% in Canadian segregated balanced value, income growth and diversified pooled funds and 12% in a common/collective trust investing in securities of smaller companies located outside the U.S., including developing markets. Requests for withdrawals must meet specific requirements with advance notice of redemption preferred.

Changes in fair value measurements of Level 3 investments during the year ended December 31, 2015, were as follows (in millions):

   Private  Equity
Partnerships
  Insurance Group
Annuity Contracts
 

Beginning balance at December 31, 2014

  $818   $2  

Actual return on plan assets:

   

Relating to assets still held at the reporting date

   (105    

Relating to assets sold during the period

   115      

Purchases

   145      

Sales

   (251    
  

 

 

  

 

 

 

Ending balance at December 31, 2015

  $722   $2  
  

 

 

  

 

 

 

Changes in fair value measurements of Level 3 investments during the year ended December 31, 2014, were as follows (in millions):

   Private  Equity
Partnerships
  Insurance Group
Annuity Contracts
 

Beginning balance at December 31, 2013

  $848   $2  

Actual return on plan assets:

   

Relating to assets still held at the reporting date

   (38    

Relating to assets sold during the period

   158      

Purchases

   148      

Sales

   (298    
  

 

 

  

 

 

 

Ending balance at December 31, 2014

  $818   $2  
  

 

 

  

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

The fair value of the Company’s other postretirement benefit plan assets at December 31, 2015 by asset category, were as follows (in millions):

   Fair Value Measurements as of December 31, 2015 

Asset Category

  Quoted Prices in
Active Markets for
Identical Assets

(Level 1)
   Significant
Observable
Inputs

(Level 2)
   Significant
Unobservable
Inputs

(Level 3)
   Total 

Money market fund

  $4    $    $    $4  

Mutual funds – Institutional Class

   19         $    $19  

Mutual funds – AMR Class

        230          230  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $23    $230    $    $253  
  

 

 

   

 

 

   

 

 

   

 

 

 

The fair value of the Company’s other postretirement benefit plan assets at December 31, 2014 by asset category, were as follows (in millions):

   Fair Value Measurements as of December 31, 2014 

Asset Category

  Quoted Prices in
Active Markets for
Identical Assets

(Level 1)
   Significant
Observable
Inputs

(Level 2)
   Significant
Unobservable
Inputs

(Level 3)
   Total 

Money market fund

  $2    $    $    $2  

Mutual funds – AMR Class

        242          242  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $2    $242    $    $244  
  

 

 

   

 

 

   

 

 

   

 

 

 

Investments in the other postretirement benefit plan’s mutual funds are valued by quoted prices on the active market, which is fair value and represents the net asset value of the shares of such funds as of the close of business at the end of the period. AMR Class shares are offered without a sales charge to participants. Purchases are restricted to certain retirement benefit plans, including the Company’s other postretirement benefit plan, resulting in a fair value classification of Level 2. Investments include approximately 27% and 28% of investments in non-U.S. common stocks in 2015 and 2014, respectively. Net asset value is based on the fair market value of the funds’ underlying assets and liabilities at the date of determination.

           2015                  2014         

Assumed health care trend rates at December 31

   

Health care cost trend rate assumed for next year

   5.21  5.25

Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)

   4.56  4.55

Year that the rate reaches the ultimate trend rate

   2024    2023  

A one percentage point change in the assumed health care cost trend rates would have the following effects (in millions):

   1% Increase   1% Decrease 

Impact on 2015 service and interest cost

  $3    $(3

Impact on other postretirement benefits obligation as of December 31, 2015

   61     (60

The Company is required to make minimum contributions to its defined benefit pension plans under the minimum funding requirements of the Employee Retirement Income Security Act of 1974 and various other laws. Based on current funding assumptions, the Company has no minimum required contributions until 2018. Currently, the Company’s minimum funding obligation for its pension plans is subject to temporary favorable rules that are scheduled to expire at the end of 2017. The Company’s pension funding obligations are likely to increase materially following expiration of the temporary funding rules, when the Company will be required to

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

make contributions relating to the 2018 fiscal year. The amount of these obligations will depend on the performance of the Company’s investments held in trust by the pension plans, interest rates for determining liabilities and the Company’s actuarial experience.

The following benefit payments, which reflect expected future service as appropriate, are expected to be paid (in millions):

   2016   2017   2018   2019   2020   2021-2025 

Pension

  $662    $690    $725    $764    $805    $4,642  

Retiree medical and other postretirement benefits

   109     104     99     90     84     353  

14.  Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) are as follows (in millions):

   Pension and
Retiree Medical

Liability
  Derivative
Financial

Instruments
  Unrealized
Gain/(Loss)  on

Investments
  Income
Tax
Benefit

(Provision)
  Total 

Balance at December 31, 2013

  $(887 $67   $(2 $(1,210 $(2,032

Other comprehensive loss before reclassifications

   (2,633  (54          (2,687

Amounts reclassified from accumulated other comprehensive income (loss)

   (163  (4  (3  330    160  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net current-period other comprehensive income (loss)

   (2,796  (58  (3  330    (2,527
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2014

   (3,683  9    (5  (880  (4,559

Other comprehensive loss before reclassifications

   (51      (6      (57

Amounts reclassified from accumulated other comprehensive income (loss)

   (108  (9  1        (116
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net current-period other comprehensive loss

   (159  (9  (5      (173
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2015

  $(3,842 $   $(10 $(880 $(4,732
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Reclassifications out of accumulated other comprehensive income (loss) for the years ended December 31, 2015 and 2014 are as follows (in millions):

Details about accumulated other comprehensive

income (loss) components

  Amount reclassified from accumulated
other comprehensive income (loss)
  

Affected line item in the
statement where net income
(loss) is  presented

  Year Ended December 31,  
  2015  2014  

Amortization of pension and retiree medical liability:

    

Prior service cost

  $(212 $(202 Salaries, wages and benefits

Actuarial loss

   104    39   Salaries, wages and benefits

Derivative financial instruments:

    

Cash flow hedges

   (9  (4 Aircraft fuel and related taxes

Net unrealized change on investments:

    

Net change in value

   1    (3 Other nonoperating, net

Income tax benefit (provision):

    

Reversal of non-cash tax provision

       330   Income tax provision (benefit)
  

 

 

  

 

 

  

Total reclassifications for the period

  $(116 $160   
  

 

 

  

 

 

  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

During 2014, the Company sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, the Company recorded a special non-cash tax provision of $330 million in the statement of operations for the second quarter of 2014 that reversed the non-cash tax provision which was recorded in OCI, a subset of stockholders’ equity, principally in 2009. This provision represented the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of the Company’s fuel hedging contracts. In accordance with GAAP, the Company retained the $330 million tax provision in OCI until the last contract was settled or terminated.

Amounts allocated to OCI for income taxes as further described in Note 10 will remain in accumulated other comprehensive income (loss) until the Company ceases all related activities, such as termination of the pension plan.

15.  Commitments, Contingencies and Guarantees

(a) Aircraft and Engine Purchase Commitments

Under all of the Company’s aircraft and engine purchase agreements, its total future commitments as of December 31, 2015 are expected to be as follows (approximately, in millions):

   2016   2017   2018   2019   2020   2021 and
Thereafter
   Total 

Payments for aircraft commitments and certain engines (1)

  $4,505    $4,591    $2,916    $3,156    $2,793    $4,537    $22,498  

(1)

These amounts are net of purchase deposits currently held by the manufacturers and include all commitments for wholly-owned regional aircraft. American has granted Boeing a security interest in its purchase deposits with Boeing. The Company’s purchase deposits totaled $1.1 billion as of December 31, 2015.

As of December 31, 2015, the Company did not have financing commitments for the following aircraft currently on order and scheduled to be delivered through 2017: 25 Airbus A320 family aircraft in 2016 and 20 Airbus A320 family aircraft in 2017, 8 Boeing 787 family aircraft in 2016 and 13 Boeing 787 family aircraft in 2017, 15 Boeing 737-800 aircraft in 2016, three Boeing 737 MAX family aircraft in 2017 and two Boeing777-300ER aircraft in 2016. In addition, the Company did not have financing commitments in place for substantially all aircraft currently on order and scheduled to be delivered in 2018 and beyond. See Part I, Item 1A. Risk Factors – “We will need to obtain sufficient financing or other capital to operate successfully” for unaudited additional discussion.

(b) Facility and support commitments

The Company has contracts related to facility construction or improvement projects, primarily at airport locations, as well as information technology support. The contractual obligations related to these contracts are presented in the table below (in millions):

   2016   2017   2018   2019   2020   2021 and
Thereafter
   Total 

Facility construction or improvement contracts

  $211    $2    $    $    $    $    $213  

Information technology contracts

   160     136     107     88     6          497  

(c) Capacity Purchase Agreements with Third-Party Regional Carriers

As of December 31, 2015, the Company’s capacity purchase agreements with third-party regional carriers had expiration dates ranging from 2017 to 2027, with rights of American to extend the respective terms of each agreement. See Part I, Item 2. Properties for unaudited information on the aircraft contractually obligated to the Company under such capacity purchase agreements with third-party regional carriers.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

The Company has entered into agreements with the third-party regional carriers that operate certain of their aircraft using American’s flight designator codes. American controls the scheduling, pricing, reservations, ticketing and seat inventories of those aircraft and retains all revenues associated with flights by those aircraft. American pays the third-party regional carriers an amount, as defined in the applicable agreement, based on the airlines’ costs of operating those flights. In addition, these agreements provide that certain variable costs, such as airport landing fees, fuel and passenger liability insurance, will be 100% paid for or reimbursed by the Company. As of December 31, 2015, the Company’s minimum fixed obligations under its capacity purchase agreements with third-party regional carriers were as follows (approximately, in millions):

   2016   2017   2018   2019   2020   2021 and
Thereafter
   Total 

Minimum fixed obligations under its capacity purchase agreements with third-party regional carriers (1)

  $1,672    $1,553    $1,249    $1,075    $881    $2,393    $8,823  

(1)

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 the Company’s actual payments could differ materially. These obligations also include the portion of the Company’s future obligations related to aircraft deemed to be leased in the amount of approximately $469 million in 2016, $414 million in 2017, $334 million in 2018, $292 million in 2019, $235 million in 2020 and $704 million in 2021 and thereafter.

(d) Operating Leases

The Company leases certain aircraft, engines and ground equipment, in addition to the majority of its ground facilities and terminal space. As of December 31, 2015, the Company had 438 aircraft under operating leases, with remaining terms ranging from one month to approximately 12 years. Airports are utilized for flight operations under lease arrangements with the municipalities or agencies owning or controlling such airports. Substantially all leases provide that the lessee must pay taxes, maintenance, insurance and certain other operating expenses applicable to the leased property. Some leases also include renewal and purchase options.

As of December 31, 2015, obligations under noncancellable operating leases for future minimum lease payments were as follows (in millions):

   2016   2017   2018   2019   2020   2021 and
Thereafter
   Total 

Future minimum lease payments (1)

  $2,198    $2,078    $1,829    $1,643    $1,493    $4,704    $13,945  

(1)

As of December 31, 2015, $294 million is included on the accompanying consolidated balance sheet in accrued liabilities and deferred gains and credits, net relating to rent expense being recorded in advance of future operating lease payments.

Mainline and regional rent expense, excluding landing fees, was $2.8 billion, $2.8 billion and $1.7 billion in 2015, 2014 and 2013, respectively.

(e) Off-Balance Sheet Arrangements

Aircraft

The Company currently operates 263 owned aircraft and 138 leased aircraft which were financed with enhanced equipment trust certificates, or 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. Rather than finance each aircraft separately when such aircraft was purchased, delivered or refinanced, these trusts allowed American to

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

raise the financing for several aircraft at one time and place such funds in escrow pending the purchase, delivery or refinancing of the relevant aircraft. The trusts were also 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 covered a set amount of aircraft scheduled to be delivered or refinanced within a specific period of time. At the time of each covered aircraft financing, the relevant trust uses the funds in escrow to purchase equipment notes relating to the financed aircraft. The equipment notes are issued, at American’s election, in connection with a mortgage financing of the aircraft 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. The EETCs 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, are guaranteed by AAG. As of December 31, 2015, $8.7 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. American concluded it was not the primary beneficiary under these arrangements. Therefore, American accounts for its EETC leveraged lease financings as operating leases. American’s total future obligations under these leveraged lease financings are $1.8 billion as of December 31, 2015, which are included in the future minimum lease payments table above.

Special Facility Revenue Bonds

AAG guarantees the payment of principal and interest of certain special facility revenue bonds issued by municipalities primarily to build or improve airport facilities and purchase equipment which is leased to American. Under such leases, American is required to make rental payments through 2035, sufficient to pay maturing principal and interest payments on the related bonds. As of December 31, 2015, the remaining lease payments guaranteeing the principal and interest on these bonds are $617 million, which are accounted for as operating leases.

(f) Legal Proceedings

Chapter 11 Cases. On the Petition Date, November 29, 2011, the Debtors filed the Chapter 11 Cases. On October 21, 2013, the Bankruptcy Court entered the Confirmation Order confirming the Plan. On the Effective Date, December 9, 2013, the Debtors consummated their reorganization pursuant to the Plan and completed the Merger. From the Petition Date through the Effective Date, pursuant to automatic stay provisions under the Bankruptcy Code and orders granted by the Bankruptcy Court, actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date as well as all pending litigation against the Debtors generally were stayed. Following the Effective Date, actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date, generally have been permanently enjoined. Any unresolved claims will continue to be subject to the claims reconciliation process under the supervision of the Bankruptcy Court. However, certain pending litigation related to pre-petition liabilities may proceed in courts other than the Bankruptcy Court to determine the amount, if any, of such litigation claims for purposes of treatment under the Plan.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

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 Single-Dip Unsecured Claims. The shares provided for under the Plan were determined based upon a Disputed Claims Reserve amount of claims of approximately $755 million, representing the maximum amount of additional distributions to subsequently allowed Single-Dip Unsecured Claims under the Plan. As of December 31, 2015, there were approximately 25.3 million shares of AAG Common Stock remaining in the Disputed Claims Reserve. As disputed claims are resolved, the claimants will receive distributions of shares from the Disputed Claims Reserve on the same basis as if such distributions had been made on or about the Effective Date. However, the Company is not required to distribute additional shares above the limits contemplated by the Plan, even if the shares remaining for distribution 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 the Company but rather will be distributed to former AMR stockholders as of the Effective Date. However, resolution of disputed claims could have a material effect on recoveries by holders of additional allowed Single-Dip Unsecured Claims under the Plan and the amount of additional share distributions, if any, that are made to former AMR stockholders as the total number of shares of AAG Common Stock that remain available for distribution upon resolution of disputed claims is limited pursuant to the Plan.

There is also pending in the Bankruptcy Court an adversary proceeding relating to an action brought by American to seek a determination that certain non-pension, post-employment benefits (OPEB) are not vested benefits and thus may be modified or terminated without liability to American. On April 18, 2014, the Bankruptcy Court granted American’s motion for summary judgment with respect to certain non-union employees, concluding that their benefits were not vested and could be terminated. The summary judgment motion was denied with respect to all other retirees. The Bankruptcy Court has not yet scheduled a trial on the merits concerning whether those retirees’ benefits are vested, and American cannot predict whether it will receive relief from obligations to provide benefits to any of those retirees. The Company’s financial statements presently reflect these retirement programs without giving effect to any modification or termination of benefits that may ultimately be implemented based upon the outcome of this proceeding. Separately, both the APFA and TWU have filed grievances asserting that American was “successful” in its Chapter 11 with respect to matters related to OPEB and, accordingly, by operation of the underlying collective bargaining agreements, American’s prior contributions to certain OPEB prefunding trusts attributable to active employees should be returned to those active employees. These amounts aggregate approximately $212 million. The Company has denied both grievances and intends to defend these matters vigorously.

DOJ Antitrust Civil Investigative Demand. In June 2015, the Company received a Civil Investigative Demand (CID) from the DOJ as part of an investigation into whether there have been illegal agreements or coordination of air passenger capacity. The CID seeks documents and other information from the Company, and other airlines have announced that they have received similar requests. The Company is cooperating fully with the DOJ investigation. In addition, subsequent to announcement of the delivery of CIDs by the DOJ, the Company, 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 were the subject of multiple motions to consolidate them in a single forum, and they have now been consolidated in the Federal District Court for the District of Columbia. Both the DOJ investigation and these lawsuits are in their very early stages and the Company intends to defend the lawsuits vigorously.

Private Party Antitrust Action. On July 2, 2013, a lawsuit captioned Carolyn Fjord, et al., v. US Airways Group, Inc., et al., was filed in the United States District Court for the Northern District of California. The complaint named as defendants US Airways Group and US Airways, and alleged that the effect of the Merger may be to substantially lessen competition or tend to create a monopoly in violation of Section 7 of the Clayton

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

Antitrust Act. The relief sought in the complaint included an injunction against the Merger, or divestiture. On August 6, 2013, the plaintiffs re-filed their complaint in the Bankruptcy Court, adding AMR and American as defendants, and on October 2, 2013, dismissed the initial California action. On November 27, 2013, the Bankruptcy Court denied plaintiffs’ motion to preliminarily enjoin the Merger. On August 19, 2015, after three previous largely unsuccessful attempts to amend their complaint, plaintiffs filed a fourth motion for leave to file an amended and supplemental complaint to add a claim for damages and demand for jury trial, as well as claims similar to those in the putative class action lawsuits regarding air passenger capacity. Thereafter, plaintiffs filed a request with the Judicial Panel on Multidistrict Litigation (JPML) to consolidate the Fjord matter with the putative class action lawsuits. The JPML denied that request on October 15, 2015 and plaintiffs’ request for further relief from the JPML was denied on February 4, 2016. Accordingly, the parties will continue to litigate the matter in Bankruptcy Court. The Company believes this lawsuit is without merit and intends to vigorously defend against the allegations.

DOJ Civil Investigative Demand Related to the United States Postal Service. In April 2015, the DOJ informed the Company 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, the Company received a CID from DOJ seeking certain information relating to these contracts. The DOJ has indicated it is investigating potential violations of the False Claims Act. The Company is cooperating fully with the DOJ investigation.

General. In addition to the specifically identified legal proceedings, the Company and its 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 the Company’s control. Therefore, although the Company will vigorously defend itself in each of the actions described above and such other legal proceedings, their ultimate resolution and potential financial and other impacts on the Company 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 unaudited additional discussion.

(g) Guarantees and Indemnifications

The Company is a party to many routine contracts in which it provides general indemnities in the normal course of business to third parties for various risks. The Company is not able to estimate the potential amount of any liability resulting from the indemnities. These indemnities are discussed in the following paragraphs.

In its aircraft financing agreements, the Company generally indemnifies the financing parties, trustees acting on their behalf and other relevant parties against liabilities (including certain taxes) resulting from the financing, manufacture, design, ownership, operation and maintenance of the aircraft regardless of whether these liabilities (or taxes) relate to the negligence of the indemnified parties.

The Company’s loan agreements and other LIBOR-based financing transactions (including certain leveraged aircraft leases) generally obligate the Company to reimburse the applicable lender for incremental costs due to a change in law that imposes (i) any reserve or special deposit requirement against assets of, deposits with or credit extended by such lender related to the loan, (ii) any tax, duty or other charge with respect to the loan (except standard income tax) or (iii) capital adequacy requirements. In addition, the Company’s loan agreements and other financing arrangements typically contain a withholding tax provision that requires the Company to pay additional amounts to the applicable lender or other financing party, generally if withholding taxes are imposed on such lender or other financing party as a result of a change in the applicable tax law.

These increased cost and withholding tax provisions continue for the entire term of the applicable transaction, and there is no limitation on the maximum additional amounts the Company could be obligated to pay under such

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

provisions. Any failure to pay amounts due under such provisions generally would trigger an event of default and, in a secured financing transaction, would entitle the lender to foreclose on the collateral to realize the amount due.

In certain transactions, including certain aircraft financing leases and loans, the lessors, lenders and/or other parties have rights to terminate the transaction based on changes in foreign tax law, illegality or certain other events or circumstances. In such a case, the Company may be required to make a lump sum payment to terminate the relevant transaction.

The Company has general indemnity clauses in many of its airport and other real estate leases where the Company as lessee indemnifies the lessor (and related parties) against liabilities related to the Company’s use of the leased property. Generally, these indemnifications cover liabilities resulting from the negligence of the indemnified parties, but not liabilities resulting from the gross negligence or willful misconduct of the indemnified parties. In addition, the Company provides environmental indemnities in many of these leases for contamination related to the Company’s use of the leased property.

Under certain contracts with third parties, the Company indemnifies the third-party against legal liability arising out of an action by the third-party, or certain other parties. The terms of these contracts vary and the potential exposure under these indemnities cannot be determined. The Company has liability insurance protecting the Company for some of the obligations it has undertaken under these indemnities.

The Company is involved in certain claims and litigation related to its operations. The Company is also subject to regulatory assessments in the ordinary course of business. The Company establishes reserves for litigation and regulatory matters when those matters present loss contingencies that are both probable and can be reasonably estimated. In the opinion of management, liabilities, if any, arising from these regulatory matters, claims and litigation will not have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows, after consideration of available insurance.

As of December 31, 2015, AAG had issued guarantees covering approximately $1.1 billion of American’s special facility revenue bonds (and interest thereon) and $8.6 billion of American’s secured debt (and interest thereon), including the 2013 Credit Facilities, the 2014 Credit Facilities, the 2013 Citicorp Credit Facility and certain EETC financings.

(h) Other

As a result of the terrorist attacks of September 11, 2001 (the Terrorist Attacks) and the subsequent liability protections provided for by the Air Transportation Safety and System Stabilization Act (the Stabilization Act), the Company recorded a liability for the Terrorist Attacks claims equal to the related insurance receivable due to American. The Stabilization Act provides that, notwithstanding any other provision of law, liability for all claims, whether compensatory or punitive, arising from the Terrorist Attacks, against any air carrier shall not exceed the liability coverage maintained by the air carrier. As of December 31, 2015, the remaining liability and the amount of the offsetting receivable were each $974 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

16.  Supplemental Cash Flow Information

Supplemental disclosure of cash flow information and non-cash investing and financing activities are as follows (in millions):

   Year Ended December 31, 
   2015   2014   2013 

Non-cash investing and financing activities:

      

Settlement of bankruptcy obligations

  $63    $5,495    $864  

Acquisition of US Airways Group, net

             4,386  

Capital lease obligations

   5     747       

Supplemental information:

      

Interest paid, net of amounts capitalized

   873     814     713  

Income taxes paid

   20     7     12  

17.  Operating Segments and Related Disclosures

The Company is managed as a single business unit that provides air transportation for passengers and cargo. This allows it to benefit from an integrated revenue pricing and route network that includes American and AAG’s wholly-owned and third-party regional carriers that fly under capacity purchase agreements operating as American Eagle. The flight equipment of all these carriers is combined to form one fleet that is deployed through a single route scheduling system. When making resource allocation decisions, the chief operating decision maker evaluates flight profitability data, which considers aircraft type and route economics, but gives no weight to the financial impact of the resource allocation decision on an individual carrier basis. The objective in making resource allocation decisions is to maximize consolidated financial results, not the individual results of American or American Eagle.

The Company’s operating revenues by geographic region as defined by the U.S. Department of Transportation (DOT) are summarized below (in millions):

   Year Ended December 31, 
   2015   2014   2013 

DOT Domestic

  $28,761    $28,568    $15,376  

DOT Latin America

   5,539     6,964     6,288  

DOT Atlantic

   5,146     5,652     3,756  

DOT Pacific

   1,544     1,466     1,323  
  

 

 

   

 

 

   

 

 

 

Total consolidated revenues

  $40,990    $42,650    $26,743  
  

 

 

   

 

 

   

 

 

 

The Company attributes operating revenues by geographic region based upon the origin and destination of each flight segment. The Company’s tangible assets consist primarily of flight equipment, which are mobile across geographic markets and, therefore, have not been allocated.

18.   Share-based Compensation

In December 2013, the Board of Directors of AAG approved the 2013 AAG Incentive Award Plan (the 2013 Plan). Awards may be in the form of an option, restricted stock award, restricted stock unit award, performance award, dividend equivalent award, deferred stock award, deferred stock unit award, stock payment award or stock appreciation right. The 2013 Plan authorizes the grant of awards for the issuance of 40 million shares plus any shares underlying awards granted under the 2013 Plan, or any pre-existing US Airways Group plan, that are forfeited, terminate or are cash settled (in whole or in part) without a payment being made in the form of shares. In addition, any shares that were available for issuance under the US Airways Group 2011 Incentive Award Plan (the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

2011 Plan) as of the effective date of the Merger may be used for awards under the 2013 Plan; provided, that awards using such available shares under the 2011 Plan shall not be made after the date awards or grants could have been made under the 2011 Plan and shall only be made to individuals who were not providing services to AAG prior to the Merger. Awards granted under the 2013 Plan upon the assumption of, or in substitution for, outstanding awards in connection with a corporate transaction, such as a merger, will not reduce the shares authorized for issuance under the 2013 Plan.

In addition, pursuant to the Plan, and as approved by the Bankruptcy Court, certain officers, directors and employees received share-based incentive awards related to the Merger and future service. Awards issued in conjunction with the Plan are discussed in more detail below.

All outstanding US Airways Group equity awards were converted into equity awards with respect to AAG Common Stock using an exchange ratio of 1 to 1 and had a fair value of approximately $141 million at the Merger, which was included in the purchase price. These awards have the same terms and conditions as were applicable to such equity awards immediately prior to the Merger closing date.

The Company’s net income for the years ended December 31, 2015, 2014 and 2013 included $274 million, $381 million and $92 million, respectively, of share-based compensation costs. Of the 2015, 2014 and 2013 amounts, $198 million, $224 million and $42 million, respectively, were related to the Merger and recorded in special items, net on the accompanying consolidated statements of operations.

During 2015, the Company withheld approximately 7.0 million shares of AAG common stock and paid approximately $306 million in satisfaction of certain tax withholding obligations associated with employee equity awards.

(a) Restricted Stock Unit Awards (RSUs)

The Company has granted RSUs with service conditions (time vested) and performance conditions. The grant-date fair value of RSUs is equal to the market price of the underlying shares of common stock on the date of grant. For time vested awards, the expense is recognized on a straight-line basis over the vesting period for the entire award. For awards with performance conditions, the expense is recognized based on the expected achievement at each reporting period. Stock-settled RSUs are classified as equity awards as the vesting results in the issuance of shares of AAG Common Stock. Cash-settled restricted stock unit awards (CRSUs) are classified as liability awards as the vesting results in payment of cash by the Company. The Company granted certain RSU awards in connection with the Merger as follows:

Alignment Awards

On December 9, 2013, alignment awards were granted in the form of RSUs. The awards were provided to legacy AMR employees in order to align interests and create parity with peers at US Airways Group, and one-third of the awards vested on the Company’s emergence from bankruptcy. The remaining awards vested equally on the one and two year anniversary of emergence. The awards of employees terminated in connection with the Merger became fully vested on the date of termination. Compensation expenses for these awards were recorded in special items, net on the consolidated statements of operations.

Merger Equity Grant

The Merger Equity Grant was granted on the Effective Date to certain officers and directors and employees in the form of RSUs and settled in equity for domestic employees and in cash for international employees. Subject to the executive’s continued employment, each RSU vested on December 16, 2015 with respect to (i) 50% of the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

RSUs which were time vested; (ii) 25% of the RSUs as the Company was issued a Single Operating Certificate in April 2015; and (iii) 25% of the RSUs as the compensation committee of the Board of Directors determined that the Company had achieved at least $1.0 billion in net synergies with respect to fiscal year 2015. Compensation expenses for these awards were recorded in special items, net on the consolidated statements of operations.

Stock-settled RSU award activity for all plans for the years ended December 31, 2015, 2014 and 2013 is as follows (shares in thousands):

   Number of
Shares
  Weighted Average
Grant Date Fair

Value
 
   (In thousands)    

Outstanding at January 1, 2013

      $  

Granted

   22,101    24.60  

Assumed US Airways Group awards

   3,164    22.55  

Vested and released

   (1,386  24.58  

Forfeited

         
  

 

 

  

Outstanding at December 31, 2013

   23,879   $24.33  

Granted

   3,467    37.07  

Vested and released

   (4,193  23.84  

Forfeited

   (1,811  25.10  
  

 

 

  

Outstanding at December 31, 2014

   21,342   $26.43  

Granted

   2,213    46.62  

Vested and released

   (17,163  25.20  

Forfeited

   (785  27.12  
  

 

 

  

Outstanding at December 31, 2015

   5,607   $38.08  
  

 

 

  

As of December 31, 2015, there was $117 million of unrecognized compensation cost related to stock-settled RSUs. These costs are expected to be recognized over a weighted average period of one year. The total fair value of stock-settled RSUs vested during the years ended December 31, 2015, 2014 and 2013 was $750 million, $154 million and $31 million, respectively.

As of December 31, 2015, the Company had a nominal amount of CRSUs outstanding. The total cash paid for CRSUs vested during the years ended December 31, 2015, 2014 and 2013 was $10 million, $12 million and less than $1 million, respectively.

(b) Stock Options and Stock Appreciation Rights

No stock options or stock appreciation rights have been granted subsequent to the Merger closing date. The Company assumed US Airways Group’s outstanding stock options and stock appreciation rights in connection with the Merger. These stock options and stock appreciation rights were granted with an exercise price equal to the underlying common stock’s fair value at the date of each grant, have service conditions, become exercisable over a three-year vesting period and expire if unexercised at the end of their term, which ranges from seven to ten years. Stock options and stock-settled stock appreciation rights (SARs) are classified as equity awards as the exercise results in the issuance of shares of AAG Common Stock. Cash-settled stock appreciation rights (CSARs) are classified as liability awards as the exercise results in payment of cash by the Company. Stock appreciation rights are expensed on a straight-line basis over the vesting period for the entire award. There are no unrecognized compensation costs for stock options.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

Stock option and SAR award activity for all plans for the years ended December 31, 2015, 2014 and 2013 is as follows (stock options and SARs in thousands):

   Stock Options
and SARS
  Weighted
Average
Exercise
Price
   Weighted Average
Remaining
Contractual Term
   Aggregate
Intrinsic Value
 
   (In thousands)      (In years)   (In millions) 

Assumed US Airways Group awards at December 9, 2013

   11,200   $12.84      

Granted

             

Exercised

   (42  14.42      

Forfeited

             

Expired

             
  

 

 

      

Balance at December 31, 2013

   11,158   $12.84      

Granted

             

Exercised

   (4,109  10.74      

Forfeited

             

Expired

   (42  41.73      
  

 

 

      

Balance at December 31, 2014

   7,007   $13.90      

Granted

             

Exercised

   (2,985  12.09      

Forfeited

             

Expired

   (9  45.75      
  

 

 

      

Balance at December 31, 2015

   4,013   $15.17     1.9    $111  

Vested or expected to vest at December 31, 2015

   4,013   $15.17     1.9    $111  

Exercisable at December 31, 2015

   3,996   $15.17     1.9    $110  

CSAR award activity for all plans for the years ended December 31, 2015, 2014 and 2013 is as follows (CSARs in thousands):

   CSARs  Weighted
Average

Exercise
Price
   Weighted Average
Remaining
Contractual Term
   Aggregate
Intrinsic  Value
 
   (In thousands)      (In years)   (In millions) 

Assumed US Airways Group awards at December 9, 2013

   2,888   $6.25      

Granted

             

Exercised

   (23  5.10      

Forfeited

             

Expired

             
  

 

 

      

Balance at December 31, 2013

   2,865   $6.26      

Granted

             

Exercised

   (1,254  6.18      

Forfeited

             

Expired

             
  

 

 

      

Balance at December 31, 2014

   1,611   $6.33      

Granted

             

Exercised

   (760  6.31      

Forfeited

             

Expired

             
  

 

 

      

Balance at December 31, 2015

   851   $6.35     1.4    $31  

Vested or expected to vest at December 31, 2015

   851   $6.35     1.4    $31  

Exercisable at December 31, 2015

   851   $6.35     1.4    $31  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

As of December 31, 2015, there were less than a million of total unrecognized compensation costs related to SARs which are expected to be recognized in 2016. The total intrinsic value of stock options and SARs exercised during the years ended December 31, 2015, 2014 and the 23 day period ended December 31, 2013 was $102 million, $105 million and less than $1 million, respectively.

As of December 31, 2015, the weighted average fair value of outstanding CSARs was $35.76 per share and the related liability was $31 million. These CSARs are fully vested and will continue to be remeasured at fair value at each reporting date until all awards are settled. Total cash paid for CSARs exercised during the years ended December 31, 2015, 2014 and the 23 day period ended December 31, 2013 was $31 million, $42 million and less than $1 million, respectively.

19.  Valuation and Qualifying Accounts (in millions)

  Balance  at
Beginning
of Year
  Changes Charged  to
Statement of
Operations
Accounts
  Payments  Write-offs
(Net of
Recoveries)
  Sales,
Retirements
and
Transfers
  Balance  at
End
of Year
 

Allowance for obsolescence of inventories

      

Year ended December 31, 2015

 $673   $50   $   $(4 $9   $728  

Year ended December 31, 2014

  547    142        (4  (12  673  

Year ended December 31, 2013

  546    24        (23      547  

Allowance for uncollectible accounts

      

Year ended December 31, 2015

 $17   $46   $   $(22 $   $41  

Year ended December 31, 2014

  41    6        (30      17  

Year ended December 31, 2013

  44    3        (6      41  

Reserves for environmental remediation costs

      

Year ended December 31, 2015

 $10   $   $(1 $   $   $9  

Year ended December 31, 2014

  11        (1          10  

Year ended December 31, 2013

  13    2    (1  (3      11  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

20.  Quarterly Financial Data (Unaudited)

Unaudited summarized financial data by quarter for 2015 and 2014 (in millions, except share and per share amounts):

   First Quarter   Second Quarter   Third Quarter   Fourth Quarter 

2015

        

Operating revenues

  $9,827    $10,827    $10,706    $9,630  

Operating expenses

   8,611     8,906     8,707     8,562  

Operating income

   1,216     1,921     1,999     1,068  

Net income

   932     1,704     1,693     3,281  

Earnings per share:

        

Basic

  $1.34    $2.47    $2.56    $5.24  

Diluted

  $1.30    $2.41    $2.49    $5.09  

Shares used for computation (in thousands):

        

Basic

   696,415     688,727     661,869     626,559  

Diluted

   716,930     707,611     680,739     644,140  

2014

        

Operating revenues

  $9,995    $11,355    $11,139    $10,160  

Operating expenses

   9,265     9,956     9,879     9,300  

Operating income

   730     1,399     1,260     860  

Net income

   480     864     942     597  

Earnings per share:

        

Basic

  $0.66    $1.20    $1.31    $0.84  

Diluted

  $0.65    $1.17    $1.28    $0.82  

Shares used for computation (in thousands):

        

Basic

   723,971     720,600     719,067     706,185  

Diluted

   741,335     734,767     735,196     724,767  

The Company’s fourth quarter 2015 results include $2.0 billion of total net special credits consisting principally of a $3.0 billion non-cash tax benefit recorded in connection with the reversal of the Company’s tax valuation allowance, offset in part by a nonoperating net special charge of $592 million to write off all of the value of Venezuelan bolivars held by the Company due to continued lack of repatriations and deterioration of economic conditions in Venezuela and $450 million in total operating special charges primarily consisting of merger integration expenses.

The Company’s fourth quarter 2014 results include $507 million of total net special charges consisting principally of $280 million of merger integration expenses, a net $116 million charge for bankruptcy related items principally consisting of fair value adjustments for bankruptcy settlement obligations and a $70 million charge related primarily to certain spare parts asset impairments.

21.  Financial Information for Subsidiary Guarantors and Non-guarantor Subsidiaries

There are various cross-guarantees among the Company and American with respect to publicly held debt securities. In accordance with Rule 3-10 of Regulation S-X, the Company is providing the following consolidating financial information as of and for the years ended December 31, 2015 and 2014 for American Airlines Group (Parent), American and all other non-guarantor subsidiaries, together with the consolidating adjustments necessary to present the Company’s results on a consolidated basis.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

AMERICAN AIRLINES GROUP INC.

CONSOLIDATING STATEMENT OF OPERATIONS

(In millions)

  Year Ended December 31, 2015 
  American
Airlines Group
(Parent

Company
Only)
  American  Non-
Guarantor
Subsidiaries
  Eliminations
and
Reclassifications
  American
Airlines
Group Inc.
Consolidated
 

Operating revenues:

     

Mainline passenger

 $   $29,037   $   $   $29,037  

Regional passenger

      6,475            6,475  

Cargo

      760            760  

Other

      4,812    2,742    (2,836  4,718  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total operating revenues

      41,084    2,742    (2,836  40,990  

Operating expenses:

     

Aircraft fuel and related taxes

      6,226            6,226  

Salaries, wages and benefits

      9,514    783    (773  9,524  

Regional expenses

      6,098        (115  5,983  

Maintenance, materials and repairs

      1,889    304    (304  1,889  

Other rent and landing fees

      1,731    44    (44  1,731  

Aircraft rent

      1,250    151    (151  1,250  

Selling expenses

      1,394            1,394  

Depreciation and amortization

      1,364    44    (44  1,364  

Special items, net

      1,051    7    (7  1,051  

Other

  4    4,378    1,390    (1,398  4,374  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total operating expenses

  4    34,895    2,723    (2,836  34,786  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income (loss)

  (4  6,189    19        6,204  

Nonoperating income (expense):

     

Interest income

  6    49    9    (25  39  

Interest expense, net

  (99  (796  (10  25    (880

Equity in earnings of subsidiaries

  7,624            (7,624    

Other, net

  22    (774  1    4    (747
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total nonoperating income (expense), net

  7,553    (1,521      (7,620  (1,588
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Income before income taxes

  7,549    4,668    19    (7,620  4,616  

Income tax benefit

  (61  (3,452  (23  542    (2,994
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income

 $7,610   $8,120   $42   $(8,162 $7,610  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

AMERICAN AIRLINES GROUP INC.

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

(In millions)

   Year Ended December 31, 2015 
   American
Airlines

Group
(Parent

Company
Only)
   American  Non-
Guarantor

Subsidiaries
   Eliminations
and
Reclassifications
  American
Airlines
Group Inc.
Consolidated
 

Net income

  $7,610    $8,120   $42    $(8,162 $7,610  

Other comprehensive income (loss):

        

Defined benefit pension plans and retiree medical:

        

Amortization of actuarial loss and prior service cost

        (109       1    (108

Current year change

        (51  1     (1  (51

Derivative financial instruments:

        

Reclassification into earnings

        (9           (9

Unrealized loss on investments:

        

Net change in value

        (6       1    (5
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Total other comprehensive income (loss)

        (175  1     1    (173
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Total comprehensive income

  $7,610    $7,945   $43    $(8,161 $7,437  
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

AMERICAN AIRLINES GROUP INC.

CONSOLIDATING STATEMENT OF OPERATIONS

(In millions)

   Year Ended December 31, 2014 
   American
Airlines Group
(Parent

Company
Only)
  American  Non-
Guarantor
Subsidiaries
  Eliminations
and
Reclassifications
  American
Airlines
Group Inc.

Consolidated
 

Operating revenues:

      

Mainline passenger

  $   $30,802   $   $   $30,802  

Regional passenger

       6,322            6,322  

Cargo

       875            875  

Other

       4,764    3,278    (3,391  4,651  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total operating revenues

       42,763    3,278    (3,391  42,650  

Operating expenses:

      

Aircraft fuel and related taxes

       10,592            10,592  

Salaries, wages and benefits

       8,499    782    (773  8,508  

Regional expenses

       6,564        (48  6,516  

Maintenance, materials and repairs

       2,051    352    (352  2,051  

Other rent and landing fees

       1,727    32    (32  1,727  

Aircraft rent

       1,250    94    (94  1,250  

Selling expenses

       1,544            1,544  

Depreciation and amortization

       1,301    40    (46  1,295  

Special items, net

   18    783    18    (19  800  

Other

   6    4,186    1,951    (2,025  4,118  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total operating expenses

   24    38,497    3,269    (3,389  38,401  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income (loss)

   (24  4,266    9    (2  4,249  

Nonoperating income (expense):

      

Interest income

   9    32    2    (12  31  

Interest expense, net

   (51  (847  (1  12    (887

Equity in earnings of subsidiaries

   3,008            (3,008    

Other, net

   (53  (183  2    53    (181
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total nonoperating income (expense), net

   2,913    (998  3    (2,955  (1,037
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Income before income taxes

   2,889    3,268    12    (2,957  3,212  

Income tax provision

   7    320    16    (13  330  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss)

  $2,882   $2,948   $(4 $(2,944 $2,882  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

AMERICAN AIRLINES GROUP INC.

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(In millions)

   Year Ended December 31, 2014 
   American
Airlines
Group  (Parent

Company
Only)
  American  Non-
Guarantor
Subsidiaries
  Eliminations
and
Reclassifications
  American
Airlines
Group Inc.

Consolidated
 

Net income (loss)

  $2,882   $2,948   $(4 $(2,944 $2,882  

Other comprehensive income (loss):

      

Defined benefit pension plans and retiree medical:

      

Amortization of actuarial loss and prior service cost

   ��   (163          (163

Current year change

       (2,621  (12      (2,633

Derivative financial instruments:

      

Change in fair value

   (2  (52          (54

Reclassification into earnings

       (4          (4

Unrealized gain (loss) on investments:

      

Net change in value

   1    (4          (3

Reversal of non-cash tax provision

   2    328            330  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total other comprehensive income (loss)

   1    (2,516  (12      (2,527
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total comprehensive income (loss)

  $2,883   $432   $(16 $(2,944 $355  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

AMERICAN AIRLINES GROUP INC.

CONDENSED CONSOLIDATING BALANCE SHEET

(In millions)

  December 31, 2015 
  American
Airlines Group
(Parent

Company
Only)
  American  Non-
Guarantor

Subsidiaries
  Eliminations and
Reclassifications
  American
Airlines
Group Inc.

Consolidated
 

ASSETS

     

Current assets

     

Cash

 $19   $364   $7   $   $390  

Short-term investments

      5,862    2        5,864  

Restricted cash and short-term investments

      695            695  

Accounts receivable, net

  1    1,420    18    (14  1,425  

Receivables from related parties, net

      1,981    66    (2,047    

Aircraft fuel, spare parts and supplies, net

      796    67        863  

Prepaid expenses and other

      740    8        748  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total current assets

  20    11,858    168    (2,061  9,985  

Operating property and equipment

      27,236    274        27,510  

Other assets

     

Investments in subsidiaries

  9,433            (9,433    

Goodwill

      4,091            4,091  

Intangibles, net of accumulated amortization

      2,249            2,249  

Deferred tax asset

  40    2,932    62    (557  2,477  

Other assets

  13    2,073    36    (19  2,103  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total other assets

  9,486    11,345    98    (10,009  10,920  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total assets

 $9,506   $50,439   $540   $(12,070 $48,415  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

     

Current liabilities

     

Current maturities of long-term debt and capital leases

 $   $2,234   $   $(3 $2,231  

Accounts payable

      1,517    62    (16  1,563  

Payables to related parties, net

  2,031            (2,031    

Air traffic liability

      3,747            3,747  

Loyalty program liability

      2,525            2,525  

Other accrued liabilities

  69    3,354    115    1    3,539  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total current liabilities

  2,100    13,377    177    (2,049  13,605  

Noncurrent liabilities

     

Long-term debt and capital leases, net of current maturities

  1,771    16,592        (33  18,330  

Pension and postretirement benefits

      7,410    40        7,450  

Bankruptcy settlement obligations

      193            193  

Other liabilities

      3,169    53    (20  3,202  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total noncurrent liabilities

  1,771    27,364    93    (53  29,175  

Stockholders’ equity

     

Common stock

  6                6  

Additional paid-in capital

  11,591    16,521    198    (16,719  11,591  

Accumulated other comprehensive loss

  (4,732  (4,831  (11  4,842    (4,732

Retained earnings (deficit)

  (1,230  (1,992  83    1,909    (1,230
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total stockholders’ equity

  5,635    9,698    270    (9,968  5,635  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total liabilities and stockholders’ equity

 $9,506   $50,439   $540   $(12,070 $48,415  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

AMERICAN AIRLINES GROUP INC.

CONDENSED CONSOLIDATING BALANCE SHEET

(In millions)

  December 31, 2014 
  American
Airlines Group
(Parent

Company
Only)
  American  Non-
Guarantor
Subsidiaries
  Eliminations and
Reclassifications
  American
Airlines
Group Inc.

Consolidated
 

ASSETS

     

Current assets

     

Cash

 $3   $984   $7   $   $994  

Short-term investments

      6,306    3        6,309  

Restricted cash and short-term investments

      774            774  

Accounts receivable, net

      1,769    15    (13  1,771  

Receivables from related parties, net

  2,050        526    (2,576    

Aircraft fuel, spare parts and supplies, net

      919    85        1,004  

Prepaid expenses and other

  154    885    15    (156  898  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total current assets

  2,207    11,637    651    (2,745  11,750  

Operating property and equipment

      22,805    279        23,084  

Other assets

     

Investments in subsidiaries

  1,849            (1,849    

Goodwill

      4,091            4,091  

Intangibles, net of accumulated amortization

      2,240            2,240  

Other assets

  53    2,014    38    (45  2,060  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total other assets

  1,902    8,345    38    (1,894  8,391  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total assets

 $4,109   $42,787   $968   $(4,639 $43,225  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

     

Current liabilities

     

Current maturities of long-term debt and capital leases

 $   $1,678   $   $(1 $1,677  

Accounts payable

      1,316    61        1,377  

Payables to related parties, net

  634    1,703    239    (2,576    

Air traffic liability

      4,252            4,252  

Loyalty program liability

      2,807            2,807  

Other accrued liabilities

  17    3,139    138    (3  3,291  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total current liabilities

  651    14,895    438    (2,580  13,404  

Noncurrent liabilities

     

Long-term debt and capital leases, net of current maturities

  1,282    14,804    1    (44  16,043  

Pension and postretirement benefits

      7,522    40        7,562  

Bankruptcy settlement obligations

      325            325  

Other liabilities

  155    3,835    291    (411  3,870  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total noncurrent liabilities

  1,437    26,486    332    (455  27,800  

Stockholders’ equity

     

Common stock

  7                7  

Additional paid-in capital

  15,135    16,174    199    (16,373  15,135  

Accumulated other comprehensive loss

  (4,559  (4,656  (12  4,668    (4,559

Retained earnings (deficit)

  (8,562  (10,112  11    10,101    (8,562
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total stockholders’ equity

  2,021    1,406    198    (1,604  2,021  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total liabilities and stockholders’ equity

 $4,109   $42,787   $968   $(4,639 $43,225  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

AMERICAN AIRLINES GROUP INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(In millions)

  Year Ended December 31, 2015 
  American
Airlines Group
(Parent

Company
Only)
  American  Non-
Guarantor
Subsidiaries
  Eliminations
and
Reclassifications
  American
Airlines
Group Inc.

Consolidated
 

Net cash provided by operating activities

 $3,595   $2,587   $67   $   $6,249  

Cash flows from investing activities:

     

Capital expenditures and aircraft purchase deposits

      (6,075  (76      (6,151

Purchases of short-term investments

      (8,126          (8,126

Sales of short-term investments

      8,517            8,517  

Decrease in restricted cash and short-term investments

      79            79  

Proceeds from sale of an investment

  52                52  

Proceeds from sale of property and equipment

      26    9        35  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net cash provided by (used in) investing activities

  52    (5,579  (67      (5,594

Cash flows from financing activities:

   

Payments on long-term debt and capital leases

      (2,153          (2,153

Proceeds from issuance of long-term debt

  500    4,509            5,009  

Deferred financing costs

  (7  (80          (87

Sale-leaseback transactions

      43            43  

Treasury stock repurchases

  (3,846              (3,846

Dividend payments

  (278              (278

Other financing activities

      53       ��    53  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net cash provided by (used in) financing activities

  (3,631  2,372            (1,259
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net increase (decrease) in cash

  16    (620          (604

Cash at beginning of year

  3    984    7        994  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Cash at end of year

 $19   $364   $7   $   $390  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

AMERICAN AIRLINES GROUP INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(In millions)

  Year Ended December 31, 2014 
  American
Airlines Group
(Parent

Company
Only)
  American  Non-
Guarantor
Subsidiaries
  Eliminations
and
Reclassifications
  American
Airlines
Group Inc.

Consolidated
 

Net cash provided by operating activities

 $458   $2,578   $44   $   $3,080  

Cash flows from investing activities:

     

Capital expenditures and aircraft purchase deposits

      (5,256  (55      (5,311

Purchases of short-term investments

      (5,380          (5,380

Sales of short-term investments

      7,179            7,179  

Decrease in restricted cash and short-term investments

      261            261  

Net proceeds from slot transaction

      307            307  

Proceeds from sale of property and equipment

      20    13        33  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net cash used in investing activities

      (2,869  (42      (2,911

Cash flows from financing activities:

   

Payments on long-term debt and capital leases

      (2,955  (1  (176  (3,132

Proceeds from issuance of long-term debt

  750    2,552            3,302  

Deferred financing costs

  (11  (95          (106

Sale-leaseback transactions

      811            811  

Exercise of stock options

  10                10  

Treasury stock repurchases

  (1,062              (1,062

Dividend payments

  (144              (144

Funds transferred to affiliates, net

      (176   176      

Other financing activities

      6            6  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net cash provided by (used in) financing activities

  (457  143    (1      (315
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net increase (decrease) in cash

  1    (148  1        (146

Cash at beginning of year

  2    1,132    6        1,140  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Cash at end of year

 $3   $984   $7   $   $994  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

22.  Subsequent Events

Dividend Declaration

In January 2016, the Company announced that its Board of Directors had declared a $0.10 per share dividend for stockholders of record on February 10, 2016, and payable on February 24, 2016. Any future dividends that may be declared and paid from time to time under the Company’s capital deployment program will be subject to market and economic conditions, applicable legal requirements and other relevant factors. The Company’s capital deployment program does not obligate it to continue a dividend for any fixed period, and payment of dividends may be suspended at any time at the Company’s discretion.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

2016-1 EETCs

In January 2016, American created three pass-through trusts which issued approximately $1.1 billion aggregate face amount of Series 2016-1 Class AA, Class A and Class B EETCs in connection with the financing of 22 aircraft owned by American (the 2016-1 EETC Aircraft).

All of the proceeds received from the sale of the 2016-1 EETCs have been used to purchase equipment notes issued by American in three series: Series AA equipment notes in the amount of $584 million bearing interest at 3.575% per annum, Series A equipment notes in the amount of $262 million bearing interest at 4.10% per annum and Series B equipment notes in the amount of $228 million bearing interest at 5.25% per annum. Interest and principal payments on the equipment notes are payable semi-annually in January and July of each year, beginning in July 2016. The final payments on the Series AA and Series A equipment notes are due in January 2028 and the final payment on the Series B equipment notes is due in January 2024. These equipment notes are secured by liens on the 2016-1 EETC Aircraft.

ITEM 8B. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF AMERICAN AIRLINES, INC.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

American Airlines, Inc.:

We have audited the accompanying consolidated balance sheets of American Airlines, Inc. and subsidiaries (American) as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income (loss), cash flows, and stockholder’s equity (deficit) for the years then ended. These consolidated financial statements are the responsibility of the American’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Airlines, Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for the years then ended, 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), American’s internal control over financial reporting as of December 31, 2015, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 24, 2016 expressed an unqualified opinion on the effectiveness of American’s internal control over financial reporting.

/s/    KPMG LLP

Dallas, Texas

February 24, 2016

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

American Airlines, Inc.

We have audited the accompanying consolidated statements of operations, comprehensive income (loss), stockholders’ equity (deficit) and cash flows of American Airlines, Inc. (the Company) for the year ended December 31, 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of US Airways, Inc. (US Airways), a wholly-owned subsidiary of the Company, which statements reflect operating revenues constituting 4% of consolidated operating revenues for the year ended December 31, 2013. Those financial statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to data included for such wholly-owned subsidiary, is based solely on the report of other auditors.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated results of American Airlines, Inc.’s operations and its cash flows for the year ended December 31, 2013 in conformity with U.S. generally accepted accounting principles.

As discussed in Note 5 to the consolidated financial statements, US Airways merged with and into American Airlines, Inc. on December 30, 2015; therefore, the 2013 financial statements are presented as though the transaction occurred on December 9, 2013, which represents the earliest date that the Company and US Airways were under common control.

/s/    Ernst & Young LLP

Dallas, Texas

February 27, 2014 except for Note 5

as to which the date is February 23, 2016

AMERICAN AIRLINES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions)

   Year Ended December 31, 
   2015  2014  2013 

Operating revenues:

    

Mainline passenger

  $29,037   $30,802   $20,218  

Regional passenger

   6,475    6,322    3,131  

Cargo

   760    875    685  

Other

   4,812    4,764    2,667  
  

 

 

  

 

 

  

 

 

 

Total operating revenues

   41,084    42,763    26,701  

Operating expenses:

    

Aircraft fuel and related taxes

   6,226    10,592    7,839  

Salaries, wages and benefits

   9,514    8,499    5,452  

Regional expenses

   6,098    6,564    3,293  

Maintenance, materials and repairs

   1,889    2,051    1,260  

Other rent and landing fees

   1,731    1,727    1,152  

Aircraft rent

   1,250    1,250    768  

Selling expenses

   1,394    1,544    1,158  

Depreciation and amortization

   1,364    1,301    853  

Special items, net

   1,051    783    559  

Other

   4,378    4,186    3,007  
  

 

 

  

 

 

  

 

 

 

Total operating expenses

   34,895    38,497    25,341  
  

 

 

  

 

 

  

 

 

 

Operating income

   6,189    4,266    1,360  

Nonoperating income (expense):

    

Interest income

   49    32    20  

Interest expense, net of capitalized interest

   (796  (847  (727

Other, net

   (774  (183  (84
  

 

 

  

 

 

  

 

 

 

Total nonoperating expense, net

   (1,521  (998  (791
  

 

 

  

 

 

  

 

 

 

Income before reorganization items, net

   4,668    3,268    569  

Reorganization items, net

           (2,640
  

 

 

  

 

 

  

 

 

 

Income (loss) before income taxes

   4,668    3,268    (2,071

Income tax provision (benefit)

   (3,452  320    (354
  

 

 

  

 

 

  

 

 

 

Net income (loss)

  $8,120   $2,948   $(1,717
  

 

 

  

 

 

  

 

 

 

See accompanying notes to consolidated financial statements.

AMERICAN AIRLINES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

   Year Ended December 31, 
   2015  2014  2013 

Net income (loss)

  $8,120   $2,948   $(1,717

Other comprehensive income (loss):

    

Defined benefit pension plans and retiree medical:

    

Amortization of actuarial loss and prior service cost

   (109  (163  (142

Current year change

   (51  (2,621  1,577  

Derivative financial instruments:

    

Change in fair value

       (52  18  

Reclassification into earnings

   (9  (4  34  

Unrealized loss on investments:

    

Net change in value

   (6  (4  (1

Reversal of non-cash tax provision (benefit)

       328    (538
  

 

 

  

 

 

  

 

 

 

Total other comprehensive income (loss)

   (175  (2,516  948  
  

 

 

  

 

 

  

 

 

 

Total comprehensive income (loss)

  $7,945   $432   $(769
  

 

 

  

 

 

  

 

 

 

See accompanying notes to consolidated financial statements.

AMERICAN AIRLINES, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except shares and par value)

   December 31, 
   2015  2014 

ASSETS

   

Current assets

   

Cash

  $364   $984  

Short-term investments

   5,862    6,306  

Restricted cash and short-term investments

   695    774  

Accounts receivable, net

   1,420    1,769  

Receivables from related parties, net

   1,981      

Aircraft fuel, spare parts and supplies, net

   796    919  

Prepaid expenses and other

   740    885  
  

 

 

  

 

 

 

Total current assets

   11,858    11,637  

Operating property and equipment

   

Flight equipment

   32,838    27,852  

Ground property and equipment

   6,224    5,762  

Equipment purchase deposits

   1,067    1,230  
  

 

 

  

 

 

 

Total property and equipment, at cost

   40,129    34,844  

Less accumulated depreciation and amortization

   (12,893  (12,039
  

 

 

  

 

 

 

Total property and equipment, net

   27,236    22,805  

Other assets

   

Goodwill

   4,091    4,091  

Intangibles, net of accumulated amortization of $502 and $447, respectively

   2,249    2,240  

Deferred tax asset

   2,932      

Other assets

   2,073    2,014  
  

 

 

  

 

 

 

Total other assets

   11,345    8,345  
  

 

 

  

 

 

 

Total assets

  $50,439   $42,787  
  

 

 

  

 

 

 

LIABILITIES AND STOCKHOLDER’S EQUITY

   

Current liabilities

   

Current maturities of long-term debt and capital leases

  $2,234   $1,678  

Accounts payable

   1,517    1,316  

Accrued salaries and wages

   1,156    1,126  

Air traffic liability

   3,747    4,252  

Loyalty program liability

   2,525    2,807  

Payables to related parties, net

       1,703  

Other accrued liabilities

   2,198    2,013  
  

 

 

  

 

 

 

Total current liabilities

   13,377    14,895  

Noncurrent liabilities

   

Long-term debt and capital leases, net of current maturities

   16,592    14,804  

Pension and postretirement benefits

   7,410    7,522  

Deferred gains and credits, net

   667    829  

Bankruptcy settlement obligations

   193    325  

Other liabilities

   2,502    3,006  
  

 

 

  

 

 

 

Total noncurrent liabilities

   27,364    26,486  

Commitments and contingencies (Note 13)

   

Stockholder’s equity

   

Common stock, $1.00 par value; 1,000 shares authorized, issued and outstanding

         

Additional paid-in capital

   16,521    16,174  

Accumulated other comprehensive loss

   (4,831  (4,656

Accumulated deficit

   (1,992  (10,112
  

 

 

  

 

 

 

Total stockholder’s equity

   9,698    1,406  
  

 

 

  

 

 

 

Total liabilities and stockholder’s equity

  $50,439   $42,787  
  

 

 

  

 

 

 

See accompanying notes to consolidated financial statements.

AMERICAN AIRLINES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

   December 31, 
   2015  2014  2013 

Cash flows from operating activities:

    

Net income (loss)

  $8,120   $2,948   $(1,717

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Depreciation and amortization

   1,560    1,469    1,003  

Debt discount and lease amortization

   (126  (171    

Special items, non-cash

   295    91    82  

Pension and postretirement

   (194  (163  (154

Deferred income taxes

   (3,467  344    (324

Share-based compensation

   284    300    34  

Reorganization items, non-cash

           2,098  

Interest expense, non-cash

           45  

Other, net

   (21  7    (77

Changes in operating assets and liabilities:

    

Decrease (increase) in accounts receivable

   354    (176  (94

Decrease (increase) in other current assets

   (105  (73  1  

Decrease in derivative collateral

           1  

Increase in accounts payable and accrued liabilities

   214    74    83  

Increase (decrease) in air traffic liability

   (505  (97  150  

Decrease in payables to related parties, net

   (3,695  (527  (51

Increase (decrease) in loyalty program liability

   (295  (229  38  

Contributions to pension plans

   (6  (809  (494

Increase (decrease) in other assets and liabilities

   174    (410  3  
  

 

 

  

 

 

  

 

 

 

Net cash provided by operating activities

   2,587    2,578    627  

Cash flows from investing activities:

    

Capital expenditures and aircraft purchase deposits

   (6,075  (5,256  (3,099

Acquisition of US Airways

           200  

Purchases of short-term investments

   (8,126  (5,380  (3,342

Sales of short-term investments

   8,517    7,179    2,159  

Decrease in restricted cash and short-term investments

   79    261    147  

Net proceeds from slot transaction

       307      

Proceeds from sale of property and equipment

   26    20    115  
  

 

 

  

 

 

  

 

 

 

Net cash used in investing activities

   (5,579  (2,869  (3,820

Cash flows from financing activities:

    

Payments on long-term debt and capital leases

   (2,153  (2,955  (2,925

Proceeds from issuance of long-term debt

   4,509    2,552    5,134  

Deferred financing costs

   (80  (95  (120

Sale-leaseback transactions

   43    811    1,700  

Funds transferred from (to) affiliates, net

       (176  53  

Other financing activities

   53    6    9  
  

 

 

  

 

 

  

 

 

 

Net cash provided by financing activities

   2,372    143    3,851  
  

 

 

  

 

 

  

 

 

 

Net increase (decrease) in cash

   (620  (148  658  

Cash at beginning of year

   984    1,132    474  
  

 

 

  

 

 

  

 

 

 

Cash at end of year

  $364   $984   $1,132  
  

 

 

  

 

 

  

 

 

 

See accompanying notes to consolidated financial statements.

AMERICAN AIRLINES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY (DEFICIT)

(In millions)

  Common
Stock
  Additional
Paid-in

Capital
  Accumulated
Other
Comprehensive

Income (Loss)
  Accumulated
Deficit
  Total 

Balance at December 31, 2012

      4,469    (3,088  (11,343  (9,962

Merger impact:

     

Issuance of new stock by AAG pursuant to Merger

      5,431            5,431  

Net loss

              (1,717  (1,717

Changes in pension, retiree medical and other liability

          1,435        1,435  

Net changes in fair value of derivative financial instruments

          52        52  

Reversal of non-cash tax benefit

          (538      (538

Share-based compensation expense

      78            78  

Intercompany equity transfer

      824            824  

Change in unrealized loss on investments

          (1      (1
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2013

      10,802    (2,140  (13,060  (4,398

Net income

              2,948    2,948  

Changes in pension, retiree medical and other liability

          (2,784      (2,784

Net changes in fair value of derivative financial instruments

          (56      (56

Reversal of non-cash tax provision

          328        328  

Share-based compensation expense

      300            300  

Intercompany equity transfer

      5,072            5,072  

Change in unrealized loss on investments

          (4      (4
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2014

 $   $16,174   $(4,656 $(10,112 $1,406  

Net income

              8,120    8,120  

Changes in pension, retiree medical and other liability

          (160      (160

Net changes in fair value of derivative financial instruments

          (9      (9

Share-based compensation expense

      284            284  

Intercompany equity transfer

      63            63  

Change in unrealized loss on investments

          (6      (6
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2015

 $   $16,521   $(4,831 $(1,992 $9,698  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

1.  Nature of Operations and Operating Environment

American Airlines, Inc. (American) is a Delaware corporation whose primary business activity is the operation of a major network air carrier. American is a wholly-owned subsidiary of American Airlines Group Inc. (AAG; formerly AMR Corporation), which owns all of American’s outstanding common stock, par value $1.00 per share.

American has hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York City, Philadelphia, Phoenix and Washington, D.C.

On December 30, 2015, in order to simplify AAG’s internal corporate structure and as part of the integration efforts following the business combination of AAG and US Airways Group, Inc. (US Airways Group), AAG caused US Airways Group to be merged with and into AAG, with AAG as the surviving corporation, and, immediately thereafter, US Airways, Inc. (US Airways), a Delaware corporation and wholly-owned subsidiary of US Airways Group, merged with and into American, with American as the surviving corporation. As a result of the merger of US Airways and American, US Airways transferred all of its assets, liabilities and off-balance sheet commitments to American. For financial reporting purposes, this transaction constituted a transfer of assets between entities under common control and was accounted for at historical cost. As part of the transfer of assets and liabilities to American, all of US Airways’ obligations with respect to certain pass through trusts and the leases of related aircraft and engines were transferred to American. See Note 5(a) for further information.

As of December 31, 2015, American employed approximately 98,900 active full-time equivalent employees, of which approximately 85% are covered by collective bargaining agreements with various labor unions.

2.  Emergence from Chapter 11

Overview

On November 29, 2011 (the Petition Date), AMR Corporation (AMR, renamed American Airlines Group Inc., upon the closing of the Merger), its principal subsidiary, American, and certain of AMR’s other direct and indirect domestic subsidiaries (collectively, the Debtors), filed voluntary petitions for relief (the Chapter 11 Cases) under Chapter 11 of the United States Bankruptcy Code (the 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 (the Confirmation Order) approving and confirming the Debtors’ fourth amended joint plan of reorganization (as amended, the Plan).

On December 9, 2013 (the Effective Date), the Debtors consummated their reorganization pursuant to the Plan, principally through the transactions contemplated by an Agreement and Plan of Merger (as amended, the Merger Agreement), dated as of February 13, 2013, by and among AMR, AMR Merger Sub, Inc. (Merger Sub) and US Airways Group, pursuant to which Merger Sub merged with and into US Airways Group (the Merger), with US Airways Group surviving as a wholly-owned subsidiary of AAG following the Merger. Pursuant to the Merger Agreement, each share of common stock, par value $0.01 per share, of US Airways Group was converted into the right to receive one share of AAG common stock, par value $0.01 per share (AAG Common Stock).

From the Petition Date through the Effective Date, pursuant to automatic stay provisions under the Bankruptcy Code and orders granted by the Bankruptcy Court, all actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date as well as all pending litigation against the Debtors generally were stayed. Following the Effective Date, actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date generally have been permanently enjoined. Any unresolved claims will continue to be subject to the claims reconciliation process under the supervision of the U.S. Bankruptcy Court. However, certain pending litigation related to pre-petition liabilities may proceed in courts other than the U.S. Bankruptcy Court to the extent the parties to such litigation have obtained relief from the permanent injunction.

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

 

Plan of Reorganization

The Plan implements the Merger and incorporates a compromise and settlement of certain intercreditor and intercompany claim issues.

Pursuant to the Plan, all shares of AMR common stock outstanding prior to the Effective Date were canceled. AAG’s Certificate of Incorporation, which was approved in connection with the Plan, authorizes the issuance of 1.75 billion new shares of AAG Common Stock and 200 million shares of AAG Series A Preferred Stock, par value $0.01 per share (AAG Series A Preferred Stock). Of the authorized AAG Series A Preferred Stock, approximately 168 million shares were designated “Series A Convertible Preferred Stock,” with a stated value of $25.00 per share, and issued in accordance with the Plan. AAG Common Stock is listed on the NASDAQ Global Select Market under the symbol “AAL” and began trading on December 9, 2013. AAG Series A Preferred Stock was listed on the NASDAQ Global Select Market under the symbol “AALCP” from December 9, 2013 until its final mandatory conversion on April 8, 2014. In addition, the 2013 Incentive Award Plan (the 2013 Plan) authorizes the grant of awards for the issuance of 40 million shares of AAG Common Stock plus any shares underlying awards granted under the 2013 Plan, or any pre-existing US Airways Group plan, that are forfeited, terminate or are cash settled (in whole or in part) without a payment being made in the form of shares. In addition, any shares that were available for issuance under the US Airways Group 2011 Incentive Award Plan (the 2011 Plan) as of the effective date of the Merger may be used for awards under the 2013 Plan; provided, that awards using such available shares shall not be made after the date awards or grants could have been made under 2011 Plan and shall only be made to individuals who were not providing services to AMR prior to the Merger.

The Plan contains the following provisions relating to the treatment of pre-petition claims against the Debtors and other holders of allowed interests in the Debtors:

 

all secured claims against the Debtors have been reinstated;

 

allowed administrative claims, priority claims and convenience claims have been or will be paid in full in cash;

 

other holders of allowed pre-petition unsecured claims, holders of allowed interests and certain employees of AMR received or will receive 72% of AAG Common Stock (on a fully converted basis) authorized to be issued pursuant to the Plan and in connection with the Merger under the following provisions:

 

all creditors holding general unsecured claims against American that are guaranteed by AAG and general unsecured claims against AAG that are guaranteed by American (Double-Dip Unsecured Claims) were treated the same under the Plan. Holders of Double-Dip Unsecured Claims received, at the Effective Date, their recovery in shares of AAG Series A Preferred Stock with a stated amount equal to the allowed amount of their claims, including post-petition interest at the non-default rate;

 

all creditors holding Single-Dip Unsecured Claims were treated the same regardless of whether the claim was asserted against the AAG Debtors, the American Debtors, or other Debtors. As used herein, “Single-Dip Unsecured Claims” means the general unsecured claims against the Debtors that were not guaranteed by any other Debtor, other than the claims of the Debtors’ labor unions representing mainline workers. Holders of Single-Dip Unsecured Claims received a portion of their recovery in shares of AAG Series A Preferred Stock at the Effective Date and their remaining recovery in shares of AAG Common Stock during the 120-day period after the Effective Date;

 

holders of certain labor-related deemed claims and certain non-management, non-union employees as specified in the Plan received, at the Effective Date, the right to receive an allocation of shares of AAG Common Stock representing 23.6% of the total number of shares of AAG Common Stock ultimately distributed to holders of pre-petition general unsecured creditors against the Debtors. On the Effective Date, pursuant to the Plan, an initial allocation of approximately 39 million shares of

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

 

 

the Effective Date, pursuant to the Plan, an initial allocation of approximately 39 million shares of AAG Common Stock was made related to these labor and employee groups, of which approximately 27 million shares were distributed on the Effective Date and approximately 13 million shares of which were withheld in connection with the CompanyAmerican making a cash payment of approximately $300 million for certain required withholding taxes;

 

holders of allowed interests in AMR (primarily holders of AMR common stock existing immediately prior to the Effective Date) received, at the Effective Date, a distribution of approximately 26 million shares of AAG Common Stock representing 3.5% of the total number of shares of AAG Common Stock contemplated for issuance pursuant to the Plan and received an additional 267 million shares of AAG Common Stock during the 120-day period after the Effective Date; and

 

holders of disputed claims at the Effective Date, to the extent such disputed claims become allowed Single-Dip Unsecured Claims after the Effective Date, are eligible to receive shares of AAG Common Stock held in reserve (the Disputed Claims Reserve), beginning 180 days after the Effective Date. Disputed claimholders that subsequently become holders of Single-Dip Unsecured Claims will receive, subject to the availability of sufficient shares in the Disputed Claims Reserve, the number of shares of AAG Common Stock that the disputed claimholder would have received had such claimholder been a holder of Single-Dip Unsecured Claims as of the Effective Date.

The Plan contemplated the distribution of up to 756 million shares of AAG Common Stock, however this amount has beenwas reduced by approximately 20 million shares because certain tax withholdings for employees were paid in cash as permitted under the Plan. In accordance with the Plan, the CompanyAAG issued the remaining shares of AAG Common Stock over the 120-day distribution period, except for shares held in the Disputed Claims Reserve. In addition, pursuant to the Plan, approximately 197 million shares of AAG Common Stock were distributed to holders of outstanding shares of US Airways Group common stock.

Pursuant to rulings of the Bankruptcy Court, the Plan established the Disputed Claims Reserve that was initially issued 30.4 million shares of AAG Common Stock reserved for issuance to disputed claimholders at the Effective Date that ultimately become holders of allowed Single-Dip Unsecured Claims (Single-Dip Equity Obligations) as well as to certain AMR labor groups and employees who received a deemed claim amount based upon a fixed percentage of the distributions to be made to general unsecured claimholders. On July 1, 2014 (the date 180 days after the Effective Date), approximately 2.9 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and shares were withheld or sold on account of related tax obligations. In addition, on July 1, 2014, the Company repurchased 0.4 million shares of AAG Common Stock for an aggregate of $19 million from the Disputed Claims Reserve at the then prevailing market price in order to fund cash tax obligations resulting from distributions by the Disputed Claims Reserve. On November 4, 2014, approximately 0.7 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and shares were withheld or sold on account of related tax obligations. In addition, on November 4, 2014, the Company repurchased less than 0.1 million shares of AAG Common Stock for an aggregate of $2 million from the Disputed Claims Reserve at the then prevailing market price in order to fund cash tax obligations resulting from distributions by the Disputed Claims Reserve. As of December 31, 2014, there were approximately 26.8 million shares of AAG Common Stock remaining in the Disputed Claims Reserve. As disputed claims are resolved, the claimants will receive distributions of shares from the Disputed Claims Reserve on the same basis as if such distributions had been made on or about the Effective Date. 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 the Company but rather will be distributed to former AMR shareholders as of the Effective Date. The Company is not required to distribute additional shares above the limits contemplated by the Plan described above.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

In addition, from the Effective Date through December 31, 2014, the Company has made the following cash disbursements under the Plan:

$385 million in cash to the pension plans in connection with missed contributions to the pension plans during the Chapter 11 Cases and interest and penalty interest thereon;

$108 million in cash to holders in partial or full satisfaction of their claims, including to holders of administrative claims, and state and local priority tax claims;

$196 million in cure payments to holders of secured debt; and

Approximately $563 million for payroll and other taxes associated with equity distributions to employees and distributions from the Disputed Claims Reserve.

Several parties have filed appeals seeking reconsideration of the Confirmation Order. See Note 15 for more information.

The reconciliation process with respect to the remaining claims will take considerable time post-emergence. The Company’s estimate of the amounts of disputed claims that will ultimately become allowed Single-Dip Unsecured Claims are included in mandatorily convertible preferred stock and other bankruptcy settlement obligations on the Company’s consolidated balance sheet as of December 31, 2014. As these claims are resolved, or where better information becomes available and is evaluated, the Company will make adjustments to the liabilities recorded on the Company’s consolidated financial statements as appropriate. Any such adjustments could be material to the Company’s financial position or results of operations in any given period.

Availability and Utilization of Net Operating Losses

Upon emergence from bankruptcy, the Debtors experienced an “ownership change” as defined in Section 382 of the Internal Revenue Code of 1986, as amended (Section 382), which could potentially limit the ability to utilize certain tax attributes including the Debtors’ substantial net operating losses (NOLs). The general limitation rules for a debtor in a bankruptcy case are liberalized where the ownership change occurs upon emergence from bankruptcy. The Debtors elected to be covered by certain special rules for federal income tax purposes that permit approximately $9.0 billion of the federal NOL Carryforwards to be utilized without regard to the annual limitation generally imposed by Section 382. See Note 10 for additional information related to tax matters.

Moreover, an ownership change subsequent to the Debtors’ emergence from bankruptcy may further limit or effectively eliminate the ability to utilize the Debtors’ NOL Carryforwards and other tax attributes. To reduce the risk of a potential adverse effect on the Debtors’ ability to utilize the NOL Carryforwards, AAG’s Certificate of Incorporation contains transfer restrictions applicable to certain substantial shareholders. Although the purpose of these transfer restrictions is to prevent an ownership change from occurring, there can be no assurance that an ownership change will not occur even with these transfer restrictions. A copy of AAG’s Certificate of Incorporation was attached as Exhibit 3.1 to a Current Report on Form 8-K filed by the Company with the SEC on December 9, 2013.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

Reorganization Items, Net

Reorganization items refer to revenues, expenses (including professional fees), realized gains and losses and provisions for losses that are realized or incurred in the Chapter 11 Cases. The following table summarizes the components included in reorganization items, net on the consolidated statements of operations for the years ended December 31, 2013 and 2012 (in millions):

   December 31, 
   2013   2012 

Pension and postretirement benefits

  $    $(66

Labor-related deemed claim (1)

   1,733       

Aircraft and facility financing renegotiations and rejections (2),(3)

   325     1,950  

Fair value of conversion discount (4)

   218       

Professional fees

   199     229  

Other

   180     95  
  

 

 

   

 

 

 

Total reorganization items, net

  $2,655    $2,208  
  

 

 

   

 

 

 

(1)

In exchange for employees’ contributions to the successful reorganization, including agreeing to reductions in pay and benefits, The Company agreed in the Plan to provide each employee group a deemed claim, which was used to provide a distribution of a portion of the equity of the reorganized entity to those employees. Each employee group received a deemed claim amount based upon a portion of the value of cost savings provided by that group through reductions to pay and benefits as well as through certain work rule changes. The total value of this deemed claim was approximately $1.7 billion.

(2)

Amounts include allowed claims (claims approved by the Bankruptcy Court) and estimated allowed claims relating to (i) the rejection or modification of financings related to aircraft and (ii) entry of orders treated as unsecured claims with respect to facility agreements supporting certain issuances of special facility revenue bonds. The Debtors recorded an estimated claim associated with the rejection or modification of a financing or facility agreement when the applicable motion was filed with the Bankruptcy Court to reject or modify such financing or facility agreement and the Debtors believed that it was probable the motion would be approved, and there was sufficient information to estimate the claim.

(3)

Pursuant to the Plan, the Debtors agreed to allow certain post-petition unsecured claims on obligations. As a result, during the year ended December 31, 2013, the Company recorded reorganization charges to adjust estimated allowed claim amounts previously recorded on rejected special facility revenue bonds of $180 million, allowed general unsecured claims related to the 1990 and 1994 series of special facility revenue bonds that financed certain improvements at John F. Kennedy International Airport (JFK), and rejected bonds that financed certain improvements at Chicago O’Hare International Airport (ORD), which are included in the table above.

(4)

The Plan allowed unsecured creditors receiving AAG Series A Preferred Stock a conversion discount of 3.5%. Accordingly, the Company recorded the fair value of such discount upon the confirmation of the Plan by the Bankruptcy Court.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

3.  Mandatorily Convertible Preferred Stock and Other Bankruptcy Settlement Obligations

As of December 31, 2014 and 2013, the components of mandatorily convertible preferred stock and other bankruptcy settlement obligations on the consolidated balance sheets are as follows (in millions):

   December 31, 
   2014   2013 

AAG Series A Preferred Stock

  $    $3,833  

Single-Dip Equity Obligations

   248     1,246  

Labor-related deemed claim

   77     849  
  

 

 

   

 

 

 

Total

  $325    $5,928  
  

 

 

   

 

 

 

The AAG Series A Preferred Stock, while outstanding, voted and participated in accordance with the terms of the underlying Certificate of Designation. One quarter of the shares of AAG Series A Preferred Stock initially issued was mandatorily convertible on each of the 30th, 60th, 90th and 120th days after the Effective Date, subject to additional voluntary conversions. The initial stated value of each share of AAG Series A Preferred Stock was $25.00 and accrued dividends at 6.25% per annum, calculated daily, while outstanding. Additionally, AAG Series A Preferred Stock converted to AAG Common Stock based upon the volume weighted average price of the shares of AAG Common Stock on the five trading days immediately preceding the conversion date, at a 3.5% fixed discount, subject to a conversion price floor of $10.875 per share and a conversion price cap of $33.8080 per share, below or above which the conversion rate remains fixed. As of April 8, 2014, all shares of AAG Series A Preferred Stock had been converted into AAG Common Stock.

The Single-Dip Equity Obligations, while outstanding, do not vote or participate in accordance with the terms of the Plan. These equity obligations, representing the amount of total Single-Dip Unsecured Claims not satisfied through the issuance of AAG Series A Preferred Stock at the Effective Date, represented an unconditional obligation to transfer a variable number of shares of AAG Common Stock based predominantly on a fixed monetary amount known at inception, and, as such, were not treated as equity, but rather as liabilities, until the 120th day after emergence, which was April 8, 2014. As of April 8, 2014, the Company has issued shares of AAG Common Stock to satisfy the obligation amount at emergence, plus accrued dividends of 12% per annum, calculated daily, through such date, based on the volume weighted average price of the shares of AAG Common Stock, at a 3.5% discount, as specified in the Plan. The amount of the remaining Single-Dip Equity Obligations at December 31, 2014 is the Company’s estimate of its obligation for disputed claims of $248 million and is calculated based on the fair value of the shares expected to be issued, measured as if the obligations were settled using the closing price of AAG Common Stock at December 31, 2014. Additional allowed claims will receive 30.7553 shares, subject to reduction for expenses of the Disputed Claims Reserve, including tax liabilities, for each $1,000 of allowed claims. For accounting purposes, the value of the shares expected to be issued is marked-to-market each period until issued. Accordingly, changes in the value of AAG Common Stock could result in future increases and decreases in this obligation.

In exchange for employees’ contributions to the successful reorganization of the Company, including agreeing to reductions in pay and benefits, the Company agreed in the Plan to provide each employee group a deemed claim which was used to provide a distribution of a portion of the equity of the reorganized entity to those employees. Each employee group received a deemed claim amount based upon a fixed percentage of the distributions to be made to general unsecured claimholders. The fair value based on the expected number of shares to be distributed to satisfy this deemed claim, as adjusted, was approximately $1.5 billion. From the Effective Date through December 31, 2014, the Company has made distributions of $988 million in AAG Common Stock and paid approximately $553 million in cash to cover payroll and other taxes related to the equity distributions. As of December 31, 2014, the liability to certain AMR labor groups and employees of $77 million represents the estimated fair value of the remaining shares expected to be issued in satisfaction of such

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

obligation, measured as if the obligation were settled using the closing price of AAG Common Stock at December 31, 2014. For accounting purposes, the value of the remaining shares expected to be issued to satisfy the labor claim is marked-to-market each period until issued. Accordingly, changes in the value of AAG Common Stock could result in future increases and decreases in this obligation.

On July 1, 2014, approximately 2.9 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and shares were withheld or sold on account of related tax obligations. In addition, on November 4, 2014, approximately 0.7 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and shares were withheld or sold on account of related tax obligations.

On February 10, 2015, approximately 0.8 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and shares were withheld or sold on account of related tax obligations.

4.  Merger and Related Matters

Description of Transaction

As previously discussed in Note 2, on the Effective Date, the Debtors consummated their reorganization and the Merger pursuant to the Plan. The Merger has been accounted for as a business acquisition using the acquisition method of accounting in accordance with ASC 805, “Business Combinations,” with AAG considered the acquirer of US Airways Group. The acquisition method of accounting requires, among other things, that assets acquired and liabilities assumed be recognized on the balance sheet at their fair values as of the acquisition date. The acquisition values have also been reflected in US Airways Group’s separate-entity financial statements as of December 9, 2013. The excess of the purchase price over the net fair value of assets and liabilities acquired was recorded as goodwill. Goodwill is not amortized, but is tested for impairment at least annually.

Slot Divestitures

As a stipulation for the Merger to be approved by the Department of Justice (DOJ), the Company was required to divest certain airport take-off and landing rights (Slots) at LaGuardia Airport and Ronald Reagan Washington National Airport (DCA). As of December 31, 2013, the DCA Slots to be divested were recorded as assets held for sale and were included in prepaid expenses and other on the consolidated balance sheet. In 2014, the Company divested the required DCA Slots and received $307 million in cash as well as 24 Slots at JFK. The Company recognized a net gain of $309 million related to these divestitures, which has been included in special items, net in the consolidated statement of operations. In 2013, the Company recognized a gain of $67 million related to the sale of the LaGuardia Airport Slots, which has been included in special items, net in the consolidated statement of operations.

In 2013, the European Commission cleared under the EU Merger Regulation the proposed merger between US Airways and American. As a consequence of the merger clearance process in the EU, the Company was required to make available one pair of London Heathrow Slots for use by another carrier between London and Philadelphia, which the acquiring carrier can deploy on another Heathrow city pair after operating the Slots on London-Philadelphia for a period of not less than three consecutive years. In addition, along with the Company’s joint business agreement (JBA) partners, the Company was required to make available for an initial period of up

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

to seven years one pair of Heathrow Slots for service between London and Miami that may be operated via an intermediate point. In connection with these requirements and upon making these slots available, in 2014, the Company recorded a $43 million non-cash charge, which has been included in special items, net in the consolidated statement of operations.

Fair Value of Consideration Transferred

The fair value of the consideration transferred, or the purchase price, was derived as described below based on the outstanding shares of US Airways Group common stock at December 9, 2013, the exchange ratio of one share of AAG Common Stock for each share of US Airways Group common stock, and a price per share of AAG Common Stock of $22.55, which represented the closing price of US Airways Group common stock on December 6, 2013, the last day such shares traded on the New York Stock Exchange. US Airways Group equity awards outstanding at the close of the Merger converted into equity awards with respect to AAG Common Stock. Vested equity awards held by employees of US Airways Group are considered part of the purchase price.

   (In millions except per share data) 

Outstanding shares of US Airways Group Common Stock at December 9, 2013 exchanged

   197.4  

Exchange ratio

   1.0  
  

 

 

 

Assumed shares of AAG Common Stock

   197.4  

Price per share

  $22.55  
  

 

 

 

Fair value of AAG Common Stock issued

  $4,451  

Fair value of AAG equity awards issued in exchange for outstanding US Airways Group equity awards

  $141  
  

 

 

 

Total purchase price

  $4,592  

Allocation of Consideration Transferred

The Merger has been accounted for using the acquisition method of accounting in accordance with ASC 805, “Business Combinations” (ASC 805), with AAG treated as the acquirer of US Airways Group for accounting purposes. The acquisition method of accounting requires, among other things, that assets acquired and liabilities assumed be recognized on the balance sheet at their fair values as of the acquisition date. The excess of the purchase price over the net fair value of assets acquired and liabilities assumed was recorded as goodwill. Goodwill is not amortized, but is tested for impairment at least annually.

   (In millions) 

Cash

  $206  

Short-term investments

   3,517  

Other current assets

   1,459  

Operating property and equipment

   5,536  

Goodwill

   4,091  

Identifiable intangibles

   1,501  

Other noncurrent assets

   123  

Long-term debt and capital leases, including current portion

   (6,026

Air traffic liability

   (1,417

Frequent flyer liability

   (1,256

Other liabilities assumed

   (3,142
  

 

 

 

Total purchase price

  $4,592  

The fair values of the assets acquired and liabilities assumed were determined using the market, income and cost approaches. The fair value measurements were primarily based on significant inputs that are not observable

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

in the market, other than certain long-term debt assumed in the Merger. The market approach, which indicates value for a subject asset based on available market pricing for comparable assets, was utilized to estimate the fair value of US Airways’ aircraft and operating leases. The market approach included prices and other relevant information generated by market transactions involving comparable assets, as well as pricing guides and other sources. The Company considered the current market for the aircraft, the maintenance condition of the aircraft and the expected proceeds from the sale of the assets, among other factors. The Company also utilized the market approach to value certain intangible assets such as airport take-off and landing slots when sufficient market information was available. The income approach was primarily used to value intangible assets, including customer relationships, marketing agreements, certain international route authorities, and the US Airways logo and tradenames. The income approach indicates value for a subject asset based on the present value of cash flows projected to be generated by the asset. Projected cash flows are discounted at a required market rate of return that reflects the relative risk of achieving the cash flows and the time value of money. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used, as appropriate, for certain assets for which the market and income approaches could not be applied due to the nature of the asset. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the asset, less an allowance for loss in value due to depreciation. The fair value of US Airways’ Dividend Miles frequent flyer program liability was determined based on the equivalent ticket value of outstanding miles which were expected to be redeemed at December 9, 2013. The equivalent ticket value contemplates purchased tickets that have similar restrictions as frequent traveler awards.

Pro-forma Impact of the Merger

The Company’s unaudited pro-forma results presented below include the effects of the Merger with US Airways Group as if it had been consummated as of January 1, 2012. The pro-forma results include the depreciation and amortization associated with the acquired tangible and intangible assets, lease and debt fair value adjustments, the elimination of any deferred gains or losses, adjustments relating to reflecting the fair value of the frequent flyer liability and the impact of income changes on profit sharing expense, among others. In addition, the pro-forma results below reflect the impact of higher wage rates related to memorandums of understanding with US Airways’ pilots and all labor groups of the Company that became effective upon closing of the Merger as well as the elimination of the Company’s reorganization items, net and Merger transition costs. However, the pro-forma results do not include any anticipated synergies or other expected benefits of the Merger. Accordingly, the unaudited pro-forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisition been consummated as of January 1, 2012.

   December 31, 
   2013   2012 
   (In millions) 

Revenue

  $40,678    $38,897  

Net Income

   2,526     520  

5.  Basis of Presentation and Summary of Significant Accounting Policies

(a) Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. As a result of the Merger, the consolidated financial statements presented include the results of AMR and its wholly-owned subsidiaries, American and Envoy, for periods ended prior to December 9, 2013 and consolidated results of AAG, which includes American, Envoy and US Airways Group, for periods ending on or after December 9, 2013. Accordingly, the consolidated financial statement for the year ended December 31, 2013 includes the accounts of US Airways Group for the 23 days ended December 31, 2013. All significant intercompany transactions have been eliminated.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

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 frequent traveler programs, pensions and retiree medical and other benefits and the deferred tax asset valuation allowance.

(b) Chapter 11 Matters

In accordance with GAAP, the Debtors (as defined in Note 2 above) applied ASC 852 “Reorganizations” (ASC 852) in preparing the consolidated financial statements for periods subsequent to the Chapter 11 Cases (as defined in Note 2 above). ASC 852 requires that the financial statements distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain revenues, expenses (including professional fees), realized gains and losses and provisions for losses that are realized or incurred in the Chapter 11 Cases for the 2013 and 2012 period are presented in reorganization items, net on the accompanying consolidated statements of operations.

(c) Restricted Cash and Short-term Investments

The Company has restricted cash and short-term investments related primarily to collateral held to support projected workers’ compensation obligations and funds held for certain tax obligations.

(d) Aircraft Fuel, Spare Parts, and Supplies, Net

Aircraft fuel, spare parts, and supplies, net are recorded at net realizable value based on average costs. These items are expensed when used. An allowance for obsolescence is provided for aircraft spare parts and supplies.

(e) Operating Property and Equipment

Operating property and equipment are recorded at cost. Interest expense related to the acquisition of certain property and equipment, including aircraft purchase deposits, is capitalized as an additional cost of the asset. Interest capitalized for the years ended December 31, 2014, 2013 and 2012 was $61 million, $47 million and $50 million, respectively. Property and equipment is depreciated and amortized to residual values over the estimated useful lives or the lease term, whichever is less, using the straight-line method. Costs of major improvements that enhance the usefulness of the asset are capitalized and depreciated over the estimated useful life of the asset or the modifications, whichever is less. The depreciable lives used for the principal depreciable asset classifications are:

Principal Depreciable Asset Classification

Depreciable Life

Jet aircraft and engines

16 - 30 years

Other regional aircraft and engines

25 years

Major rotable parts, avionics and assemblies

Fleet end date

Improvements to leased flight equipment

Lesser of asset/leasehold improvement or lease end date

Buildings and improvements

Lesser of 5 - 30 years or lease term

Furniture, fixtures and other equipment

3 - 10 years: ranges from computer hardware to furniture

Capitalized software

Lesser of 5 years or lease term

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

Residual values for aircraft, engines, major rotable parts, avionics and assemblies are generally 5% to 10%.

Equipment and property under capital leases are amortized over the term of the leases or, in the case of certain aircraft, over their expected useful lives. Lease terms vary but are generally 16 to 30 years for aircraft and three to 30 years for other leased equipment and property.

The Company records impairment charges 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 asset are less than the carrying amount of the asset and the net book value of the asset exceeds its 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. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell.

(f) 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. A valuation allowance is established, if necessary, for the amount of any tax benefits that, based on available evidence, are not expected to be realized.

(g) Goodwill

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 tested for impairment annually or more frequently if events or circumstances indicate. The Company has one consolidated reporting unit.

Goodwill is measured for impairment by initially performing a qualitative screen and, if necessary, then comparing the fair value 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. Based upon the Company’s annual testing, there was no goodwill impairment in 2014.

(h) Other Intangibles, Net

Intangible assets consist primarily of airport take-off and landing rights (Slots), customer relationships, marketing agreements, international Slots and route authorities, gate leasehold rights and tradenames. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

The following table provides information relating to the Company’s amortizable intangible assets as of December 31, 2014 and 2013 (in millions):

   December 31, 
   2014  2013 

Airport Slots

  $365   $332  

Customer relationships

   300    300  

Marketing agreements

   105    105  

Tradenames

   35    35  

Airport gate leasehold rights

   138    155  

Accumulated amortization

   (447  (373
  

 

 

  

 

 

 

Total

  $496   $554  
  

 

 

  

 

 

 

Airport operating and gate lease rights are being amortized on a straight-line basis over 25 years to a zero residual value. The customer relationships, marketing agreements and tradenames were identified as intangible assets subject to amortization and are amortized on a straight-line basis over approximately nine years, 30 years and 15 months, respectively.

The Company recorded amortization expense related to these intangible assets of approximately $81 million, $20 million and $25 million for the years ended December 31, 2014, 2013 and 2012, respectively. The Company expects to record annual amortization expense for the aforementioned definite-life intangible assets as follows (in millions):

2015

  $56  

2016

   50  

2017

   46  

2018

   42  

2019

   42  

2020 and thereafter

   260  
  

 

 

 

Total

  $496  
  

 

 

 

The Company’s indefinite-lived assets include certain international Slots and route authorities and domestic airport take-off and landing slots. Indefinite-lived assets are not amortized but instead are reviewed for impairment annually and more frequently if events or circumstances indicate that the asset may be impaired. As of December 31, 2014 and 2013, the Company had $1.7 billion and $1.8 billion, respectively, of indefinite-lived intangible assets on its consolidated balance sheets.

The Company’s indefinite-lived intangible assets are reviewed for impairment by initially performing a qualitative screen to determine whether the Company believes it is more likely than not that an asset has been impaired. If the Company believes an impairment has occurred, the Company then evaluates for impairment by comparing the estimated fair value of assets to the carrying value. An impairment charge is recognized if the asset’s estimated fair value is less than its carrying value. Based upon the Company’s annual testing, there was no indefinite-lived intangible asset impairment in 2014.

(i) Frequent Flyer Programs

AAG currently operates two frequent traveler programs, American’s AAdvantage and US Airways’ Dividend Miles. These programs award mileage credits to passengers who fly on American, US Airways andoneworld carriers, as well as certain other partner airlines that participate in the programs. Mileage credits can also be

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

earned through purchases from other non-airline partners that participate in the Company’s respective loyalty programs. Mileage credits can be redeemed for travel on American, US Airways or other participating partner airlines, in which case the Company pays a fee.

The Company uses the incremental cost method to account for the portion of the Company’s frequent flyer liability incurred when AAdvantage and Dividend Miles members earn mileage credits by flying on American, US Airways or its regional affiliates. The Company has an obligation to provide future travel when these mileage credits are redeemed and therefore has recorded a liability for mileage credits outstanding.

The incremental cost liability includes all mileage credits that are expected to be redeemed, including mileage credits earned by members whose mileage account balances have not yet reached the minimum mileage credit level required to redeem an award. Additionally, outstanding mileage credits are subject to expiration if unused. In calculating the liability, the Company estimates how many mileage credits will never be redeemed for travel and excludes those mileage credits from the estimate of the liability. Estimates are also made for the number of miles that will be used per award redemption and the number of travel awards that will be redeemed on partner airlines. These estimates are based on historical program experience as well as consideration of enacted program changes, as applicable. Changes in the liability resulting from members earning additional mileage credits or changes in estimates are recorded in the statement of operations as a part of passenger revenue.

The liability for outstanding mileage credits is valued based on the estimated incremental cost of carrying one additional passenger. Incremental cost primarily includes unit costs incurred for fuel, food, and insurance as well as fees incurred when travel awards are redeemed on partner airlines. No profit or overhead margin is included in the accrual of incremental cost. These estimates are generally updated based upon the Company’s 12-month historical average of such costs.

The Company applied the acquisition method of accounting in connection with the Merger and therefore recorded the liability for outstanding US Airways mileage credits at fair value. As of December 31, 2014 and 2013, the liability for outstanding mileage credits expected to be redeemed for future travel awards for US Airways under the Dividend Miles program was $638 million and $932 million and is included on the consolidated balance sheets within frequent flyer liability. This liability will be reduced as miles are redeemed and new miles earned will be recorded as a liability based on the incremental cost method discussed above.

As of December 31, 2014 and 2013 the liability for outstanding mileage credits for the AAdvantage program was $647 million and $580 million, respectively, and is included on the consolidated balance sheets within frequent flyer liability.

American and US Airways also sell frequent flyer program mileage credits to participating airline partners and non-airline business partners. Sales of mileage credits to business partners is comprised of two components, transportation and marketing. Historically, American and US Airways have used the residual method of accounting to determine the values of each component as there had not been a material modification to any significant agreements since the adoption of Accounting Standards Update (ASU) No. 2009-13, “Revenue Recognition (Topic 605) – Multiple-Deliverable Revenue Arrangements” on January 1, 2011.

In 2013, American and Citibank amended their AAdvantage co-branded credit card agreement, which resulted in a material modification of the terms of the arrangement. Also, in connection with the acquisition of US Airways on December 9, 2013, a material modification occurred on all of US Airways’ agreements in connection with the Merger. Therefore, subsequent to the amendments of these arrangements, AAG applied the relative selling price method to determine the values of each deliverable. Under the relative selling price approach, American and US Airways identified five revenue elements for the co-branded credit card agreement with Citibank and Dividend Miles co-branded credit card agreement with Barclays: the transportation component; use

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

of the American and US Airways’ brand including access to frequent flyer member lists; advertising; lounge access; and baggage services (together excluding “the transportation component,” the “marketing component”).

The transportation component represents the estimated selling price of future travel awards and is determined using historical transaction information, including information related to customer redemption patterns. The transportation component is deferred based on its relative selling price and amortized into passenger revenue on a straight-line basis over the period in which the mileage credits are expected to be redeemed for travel.

The marketing component represents services provided to the Company’s business partners and relates primarily to the use of American’s and US Airways’ logo and tradenames along with access to customers lists of AAdvantage and Dividend Miles members. The marketing services are provided periodically, but no less than monthly. Accordingly, the marketing component is considered earned and recognized in other revenues in the period of the mileage sale.

Upon application of the relative selling price method in 2013 for American’s Citibank modification, American reduced its travel component liability and recorded other revenue of approximately $31 million. As a result of the change in the marketing component value when the relative selling price method is applied, American and US Airways now defer less revenue per mile sold. For American’s agreements where there has not been a material modification, it continues to apply the residual method.

As of December 31, 2014 and 2013, the Company had $1.5 billion in deferred revenue from the sale of mileage credits (recorded as frequent flyer liability on the consolidated balance sheets). For the years ended December 31, 2014, 2013 and 2012, the marketing component of mileage sales recognized at the time of sale in other revenues was approximately $1.4 billion, $834 million and $725 million, respectively.

(j) Passenger Revenue

Passenger ticket sales are initially recorded as a component of air traffic liability. Revenue derived from ticket sales is recognized at the time service is provided. However, due to various factors, including the complex pricing structure and interline agreements throughout the industry, certain amounts are recognized in revenue using estimates regarding both the timing of the revenue recognition and the amount of revenue to be recognized, including breakage. These estimates are generally based upon the evaluation of historical trends, including the use of regression analysis and other methods to model the outcome of future events based on the Company’s historical experience, and are recorded at the scheduled time of departure.

The Company purchases capacity, or ASMs, generated by the Company’s wholly-owned regional air carriers and the capacity of Air Wisconsin Airlines Corporation (Air Wisconsin), Republic Airways Holdings’ subsidiaries Republic Airlines (Republic) and Chautauqua Airlines (Chautauqua), Mesa Airlines, Inc. (Mesa), and SkyWest Airlines, Inc.’s subsidiaries Sky West Airlines (SkyWest) and ExpressJet Airlines (ExpressJet) in certain markets. The Company’s wholly-owned regional air carriers and Air Wisconsin, Chautauqua, ExpressJet, Republic, Mesa, and SkyWest operate regional aircraft in these markets as part of either American Eagle carriers or US Airways Express. The Company classifies revenues generated from transportation on these carriers as regional passenger revenues. Liabilities related to tickets sold by the Company for travel on these air carriers are also included in the Company’s air traffic liability and are subsequently relieved in the same manner as described above.

Various taxes and fees assessed on the sale of tickets to end customers are collected by the Company 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

(k) 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.

(l) Selling Expenses

Selling expenses include commissions, credit card fees, computerized reservations systems fees and advertising. Advertising expenses are expensed as incurred. Advertising expense was $100 million, $166 million and $153 million for the years ended December 31, 2014, 2013 and 2012, respectively.

(m) Share-based Compensation

The Company 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. The fair value of stock options and stock appreciation rights is estimated using a Black-Scholes option pricing model. The fair value of restricted stock units is based on the market price of the underlying shares of common stock on the date of grant. See Note 18 for further discussion of share-based compensation.

(n) Deferred Gains and Credits, Net

Included within deferred gains and credits, net are amounts deferred and amortized into future periods associated with the adjustment of leases to fair value in connection with the application of acquisition accounting, deferred gains on the sale leaseback of aircraft and certain vendor incentives.

(o) Foreign Currency Gains and Losses

Foreign currency gains and losses are recorded as part of other nonoperating expense, net in the consolidated statements of operations. Foreign currency losses for 2014, 2013 and 2012 were $114 million, $56 million and $41 million, respectively.

(p) Regional Expenses

Expenses associated with the Company’s wholly-owned regional airlines and third-party regional carriers operating under the brand names American Eagle and US Airways Express are classified as regional expenses on the consolidated statements of operations. Regional expenses consist of the following (in millions):

   Year Ended December 31, 
   2014   2013   2012 

Aircraft fuel and related taxes

  $2,009    $1,120    $1,012  

Salaries, wages and benefits

   1,078     692     681  

Capacity purchases from third-party regional carriers (1)

   1,475     269     129  

Maintenance, materials and repairs

   367     284     285  

Other rent and landing fees

   419     236     222  

Aircraft rent

   35     4     6  

Selling expenses

   307     154     152  

Depreciation and amortization

   217     168     170  

Special items, net

   24     8     1  

Other

   585     391     370  
  

 

 

   

 

 

   

 

 

 

Total regional expenses

  $6,516    $3,326    $3,028  
  

 

 

   

 

 

   

 

 

 

(1)

For the year ended December 31, 2014, the component of capacity purchase expenses related to aircraft deemed to be leased was approximately $447 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

(q) Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 completes the joint effort by the FASB and International Accounting Standards Board (IASB) to improve financial reporting by creating common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards (IFRS). ASU 2014-09 applies to all companies that enter into contracts with customers to transfer goods or services. ASU 2014-09 is effective for public entities for interim and annual reporting periods beginning after December 15, 2016. Early application is not permitted and entities have the choice to apply ASU 2014-09 either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying ASU 2014-09 at the date of initial application and not adjusting comparative information. The Company is currently evaluating the requirements of ASU 2014-09 and has not yet determined its impact on the Company’s consolidated financial statements.

6.  Special Items, Net

The Company’s special items, net on the consolidated statements of operations are as follows (in millions):

   Year Ended December 31, 
     2014       2013       2012   

Mainline operating special items, net (1)

  $800    $559    $386  

(1)

The 2014 mainline operating special items totaled a net charge of $800 million, which principally included $810 million of Merger integration expenses related to information technology, alignment of labor union contracts, professional fees, severance and retention, share-based compensation, divestiture of London Heathrow Slots, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training. In addition, the Company recorded a net charge of $81 million for bankruptcy related items principally consisting of fair value adjustments for bankruptcy settlement obligations, $164 million in other special charges, including an $81 million charge to revise prior estimates of certain aircraft residual values, and other spare parts asset impairments, as well as $54 million in charges primarily relating to the buyout of certain aircraft leases. These charges were offset in part by a $309 million gain on the sale of Slots at DCA.

The 2013 mainline operating special items, net included $443 million of primarily Merger related expenses due to the alignment of labor union contracts, professional fees, severance, share-based compensation and fees for US Airways to exit the Star Alliance and its codeshare agreement with United Airlines. In addition, the Company recorded a $107 million charge related to American’s pilot long-term disability obligation, a $43 million charge for workers’ compensation claims and a $33 million aircraft impairment charge. These charges were offset in part by a $67 million gain on the sale of Slots at LaGuardia Airport.

The 2012 mainline operating special items, net consisted of $386 million of severance and related charges and write-off of leasehold improvements on aircraft and airport facilities that were rejected in connection with the Chapter 11 Cases.

See Note 4 for more information on the Merger Agreement.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

The following additional amounts are also included in the consolidated statements of operations as follows (in millions):

   Year Ended December 31, 
   2014   2013  2012 

Other revenue special item, net (1)

  $    $(31 $  

Regional operating special items, net

   24     8    1  

Nonoperating special items, net (2)

   132     211    (280

Reorganization items, net (3)

        2,655    2,208  

Income tax special items, net (4)

   346     (324  (569

(1)

The 2013 other revenue special item, net included a credit to other revenues related to a change in accounting method resulting from the modification of AAG’s AAdvantage miles agreement with Citibank.

(2)

The 2014 nonoperating special items totaled a net charge of $132 million, which principally included a $43 million charge for Venezuelan foreign currency losses, $56 million of early debt extinguishment costs related to the prepayment of 7.50% senior secured notes and other indebtedness and $33 million of non-cash interest accretion on bankruptcy settlement obligations. See Note 12 for further discussion on Venezuela cash and short-term investments.

The 2013 nonoperating special items, net consisted of interest charges of $138 million to recognize post-petition interest expense on unsecured obligations pursuant to the Plan and penalty interest related to 10.5% secured notes and 7.50% senior secured notes, a $54 million charge related to the premium on tender for existing enhanced equipment trust certificates financings and the write-off of debt issuance costs, and $19 million in charges related to the repayment of existing EETC financings.

The 2012 nonoperating special items, net consisted of a $280 million benefit resulting from a settlement of a commercial dispute.

(3)

In 2013 and 2012, the Company recognized reorganization expenses as a result of the filing of voluntary petitions for relief under Chapter 11. These amounts consisted primarily of estimated allowed claim amounts and professional fees.

(4)

In 2014, income tax special items, net were $346 million. During 2014, the Company sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, the Company recorded a special non-cash tax provision of $330 million in the second quarter of 2014 that reversed the non-cash tax provision which was recorded in other comprehensive income (OCI), a subset of stockholders’ equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of the Company’s fuel hedging contracts. In accordance with GAAP, the Company retained the $330 million tax provision in OCI until the last contract was settled or terminated. In addition, the 2014 period included a special $16 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets.

In 2013 and 2012, income tax special items, net included, respectively, a $538 million and a $569 million non-cash income tax benefit from continuing operations. The Company is required to consider all items (including items recorded in other comprehensive income) in determining the amount of tax benefit that results from a loss from continuing operations and that should be allocated to continuing operations. As a result, the Company recorded a tax benefit on the loss from continuing operations for the year, which was exactly offset by income tax expense on other comprehensive income. However, while the income tax benefit from continuing operations is reported on the income statement, the income tax expense on other comprehensive income is recorded directly to accumulated other comprehensive income (loss), which is a component of stockholders’ equity. Because the income tax expense on other comprehensive income is equal to the income tax benefit from continuing operations, the Company’s year-end net deferred tax

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

position is not impacted by this tax allocation. The 2013 tax benefit was offset in part by a $214 million tax charge attributable to additional valuation allowance required to reduce deferred tax assets to the amount the Company believes is more likely than not to be realized.

7.  Earnings (Loss) Per Share

Pursuant to the Plan and the Merger Agreement, holders of AMR common stock formerly traded under the symbol “AAMRQ” received shares of AAG Common Stock principally over the 120-day distribution period following the Effective Date. In accordance with GAAP, the 2013 and 2012 weighted average shares and earnings (loss) per share calculations have been adjusted to retrospectively reflect these distributions which were each made at the rate of approximately 0.7441 shares of AAG Common Stock per share of AMR common stock. Former holders of AMR common stock as of the Effective Date may in the future receive additional distributions of AAG Common Stock dependent upon the ultimate distribution of shares of AAG Common Stock to holders of disputed claims. Thus, the shares and related earnings per share calculations prior to the Effective Date may change in the future to reflect additional retrospective adjustments for future AAG Common Stock distributions to former holders of AMR common stock.

As of December 31, 2014, all shares pursuant to the Plan have been issued and are outstanding for purposes of the Company’s basic and diluted earnings per share calculation in connection with the conversion of AAG Series A Preferred Stock and satisfaction of other bankruptcy settlement obligations related to allowed unsecured claims, including disputed claims, labor-related deemed claims and former holders of AMR common stock.

The following table sets forth the computation of basic and diluted earnings (loss) per share (in millions, except share and per share amounts in thousands):

   Year Ended December 31, 
   2014   2013  2012 

Basic Earnings (Loss) Per Share:

     

Net income (loss)

  $2,882    $(1,834 $(1,876

Weighted-average shares outstanding (in thousands)

   717,456     280,213    249,490  
  

 

 

   

 

 

  

 

 

 

Basic earnings (loss) per share

  $4.02    $(6.54 $(7.52
  

 

 

   

 

 

  

 

 

 

Diluted Earnings (Loss) Per Share:

     

Net income (loss)

  $2,882    $(1,834 $(1,876

Change in fair value of conversion feature on 7.25% convertible senior notes (a)

   3           
  

 

 

   

 

 

  

 

 

 

Net income (loss) for purposes of computing diluted earnings (loss) per share

  $2,885    $(1,834  (1,876

Share computation for diluted earnings (loss) per share (in thousands):

     

Weighted-average shares outstanding

   717,456     280,213    249,490  

Dilutive effect of stock awards

   15,603           

Assumed conversion of convertible senior notes

   957           
  

 

 

   

 

 

  

 

 

 

Weighted average common shares outstanding – as adjusted

   734,016     280,213    249,490  
  

 

 

   

 

 

  

 

 

 

Diluted earnings (loss) per share

  $3.93    $(6.54 $(7.52
  

 

 

   

 

 

  

 

 

 

The following were excluded from the calculation of diluted earnings (loss) per share (in thousands):

     

Stock options, SARs and RSUs because inclusion would be antidilutive

   226     7,674    17,656  

(a)

In March 2014, the Company notified the holders of US Airways Group’s 7.25% convertible senior notes that it had elected to settle all future conversions solely in cash instead of shares of AAG Common Stock in accordance with the related indenture. Thus, the diluted shares include the weighted average impact of the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

7.25% convertible senior notes only for the period from January 1, 2014 to March 12, 2014. In addition, under GAAP, the Company must adjust the numerator for purposes of calculating diluted earnings per share by the change in fair value of the conversion feature from March 12, 2014 to May 15, 2014, which increased GAAP net income for purposes of computing diluted earnings per share by $3 million for the year ended December 31, 2014.

8.  Share Repurchase Program and Dividends

On July 23, 2014, as part of a capital deployment program, the Company’s Board of Directors authorized a $1.0 billion share repurchase program to be completed no later than December 31, 2015. During the year ended December 31, 2014, the Company completed this $1.0 billion share repurchase program by repurchasing 23.4 million shares of AAG Common Stock for $1.0 billion at a weighted average cost per share of $42.72. On January 27, 2015, the Company announced that its Board of Directors had authorized a new $2.0 billion share repurchase program to be completed by the end of 2016. Shares repurchased under the program 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 will be made from time to time subject to market and economic conditions, applicable legal requirements and other relevant factors. The program does not obligate the Company to repurchase any specific number of shares and may be suspended at any time at its discretion.

Also on July 23, 2014, as part of the Company’s capital deployment program, the Company’s Board of Directors declared a $0.10 per share cash dividend for shareholders of record as of August 4, 2014, and payable on August 18, 2014.

On October 22, 2014, the Company’s Board of Directors declared a $0.10 per share dividend for stockholders of record on November 3, 2014, and payable on November 17, 2014.

The total cash payment for dividends during the year ended December 31, 2014 was $144 million. Any future dividends that may be declared and paid from time to time under the Company’s capital deployment program will be subject to market and economic conditions, applicable legal requirements and other relevant factors. The Company’s capital deployment program does not obligate the Company to continue a dividend for any fixed period, and payment of dividends may be suspended at any time at management’s discretion.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

9.  Debt

Long-term debt and capital lease obligations included in the consolidated balance sheets consisted of (in millions):

   December 31, 
   2014   2013 

Secured

    

2013 Credit Facilities, variable interest rate of 3.75%, installments through 2019 (a)

  $1,872    $1,891  

2014 Credit Facilities, variable interest rate of 4.25%, installments through 2021 (b)

   750       

2013 Citicorp Credit Facility tranche B-1, variable interest rate of 3.50%, installments through 2019 (c)

   990     1,000  

2013 Citicorp Credit Facility tranche B-2, variable interest rate of 3.00%, installments through 2016 (c)

   594     600  

Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 3.70% to 11.00%, maturing from 2015 to 2026 (d)

   7,028     6,031  

Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.43% to 8.48%, maturing from 2015 to 2026 (e)

   2,952     3,441  

Special facility revenue bonds, fixed interest rates ranging from 5.50% to 8.50%, maturing from 2016 to 2035 (f)

   1,100     1,466  

7.50% senior secured notes (g)

        1,000  

AAdvantage Loan, effective rate of 8.30% (h)

   433     611  

Other secured obligations, fixed interest rates ranging from 4.19% to 12.24%, maturing from 2015 to 2028 (e)

   994     303  
  

 

 

   

 

 

 
   16,713     16,343  
  

 

 

   

 

 

 

Unsecured

    

5.50% senior notes, interest only payments until due in 2019 (i)

   750       

6.125% senior notes, interest only payments until due in 2018 (j)

   500     500  

7.25% convertible senior notes (k)

        22  

Industrial development bonds

        29  
  

 

 

   

 

 

 
   1,250     551  
  

 

 

   

 

 

 

Total long-term debt and capital lease obligations

   17,963     16,894  

Less: Total unamortized debt discount

   59     95  

Less: Current maturities

   1,708     1,446  
  

 

 

   

 

 

 

Long-term debt and capital lease obligations, net of current maturities

  $16,196    $15,353  
  

 

 

   

 

 

 

Secured financings are collateralized by assets, primarily aircraft, engines, simulators, rotable aircraft parts, hangar and maintenance facilities, route authorities and airport Slots. At December 31, 2014, the Company was operating 37 jet aircraft under capital leases. Leases can generally be renewed at rates based on fair market value at the end of the lease term for a number of additional years. At December 31, 2014, the maturities of long-term debt and capital leases are as follows (in millions):

2015

  $1,708  

2016

   1,662  

2017

   1,338  

2018

   1,879  

2019

   4,900  

2020 and thereafter

   6,476  
  

 

 

 

Total

  $17,963  
  

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

(a) 2013 Credit Facilities

On June 27, 2013, American and AAG entered into a Credit and Guaranty Agreement (as amended, the 2013 Credit Agreement) with certain lenders. The 2013 Credit Agreement provides for a term loan facility (the 2013 Term Loan Facility) that is scheduled to mature on June 27, 2019, unless otherwise extended by the applicable parties. As of December 31, 2014, $1.9 billion was outstanding under the 2013 Term Loan Facility.

The 2013 Credit Agreement originally provided for a $1.0 billion revolving credit facility (the 2013 Revolving Facility and, together with the 2013 Term Loan Facility, the 2013 Credit Facilities) scheduled to mature on June 27, 2018, unless otherwise extended by the applicable parties. The 2013 Term Loan Facility is repayable in quarterly installments in an amount equal to 0.25% of the original principal amount thereof with any unpaid balance due on the maturity date of the 2013 Term Loan Facility. The 2013 Revolving Facility provided that American may from time to time borrow, repay and reborrow loans thereunder and have letters of credit issued thereunder in an aggregate amount outstanding at any time of up to $1.0 billion. On October 10, 2014, American and AAG amended the 2013 Credit Agreement to extend the maturity date of the 2013 Revolving Facility to October 10, 2019 and increased the commitments thereunder to an aggregate amount of $1.4 billion while reducing the letter of credit commitments thereunder to $300 million. As of December 31, 2014, there were no borrowings or letters of credit outstanding under the 2013 Revolving Facility.

The 2013 Credit Facilities bear interest at an index rate plus an applicable index margin or, at American’s option, LIBOR (subject to a floor of 0.75%, with respect to the 2013 Term Loan Facility) plus an applicable LIBOR margin. The applicable LIBOR margin is 3.00% for borrowings under both the 2013 Term Loan Facility and the 2013 Revolving Facility.

Upon consummation of the Merger, US Airways Group and US Airways joined the 2013 Credit Facilities as guarantors. Following the joinder, certain minimum dollar-thresholds under the negative and financial covenants in the 2013 Credit Facilities were automatically increased.

Subject to certain limitations and exceptions, the 2013 Credit Facilities are secured by certain collateral, including certain route authorities and certain take-off and landing rights and gate leaseholds at certain airports. American is required to maintain a certain minimum ratio of appraised value of the collateral to the outstanding loans under the 2013 Credit Facilities as more fully described below in “Collateral Related Covenants.”

The 2013 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 under the 2013 Credit Facilities may be accelerated and become due and payable immediately. In addition, if a “change of control” (as defined in the 2013 Credit Agreement) occurs, American will (absent an amendment or waiver) be required to repay at par the loans outstanding under the 2013 Credit Facilities and terminate the 2013 Revolving Facility. The 2013 Credit Facilities also include covenants that, among other things, require AAG to maintain a minimum aggregate liquidity (as defined in the 2013 Credit Facilities) of not less than $2.0 billion, 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) 2014 Credit Facilities

On October 10, 2014, American, AAG, US Airways Group and US Airways entered into a Credit and Guaranty Agreement (the 2014 Credit Agreement) with certain lenders. The 2014 Credit Agreement provides for a $750 million term loan facility (the 2014 Term Loan Facility) and a $400 million revolving credit facility (the 2014 Revolving Facility and, together with the 2014 Term Loan Facility, the 2014 Credit Facilities). As of December 31, 2014, $750 million was outstanding under the 2014 Term Loan Facility. The 2014 Revolving

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

Facility provides that American may from time to time borrow, repay and reborrow loans thereunder. American may have letters of credit issued under the 2014 Revolving Facility in an aggregate amount outstanding at any time up to $300 million. As of December 31, 2014 there were no borrowings or letters of credit outstanding under the 2014 Revolving Facility.

Subject to certain limitations and exceptions, the 2014 Credit Facilities are secured by certain collateral, including certain route authorities and certain take-off and landing rights and gate leaseholds at certain airports. The obligations of American under the 2014 Credit Facilities are guaranteed by AAG, US Airways Group and US Airways. American is required to maintain a certain minimum ratio of appraised value of the collateral to the outstanding loans under the 2014 Credit Facilities as more fully described below in “Collateral Related Covenants.”

The 2014 Term Loan Facility and 2014 Revolving Facility mature on October 10, 2021 and October 10, 2019, respectively, unless otherwise extended by the applicable parties. The 2014 Term Loan Facility is repayable in annual installments in an amount equal to 1.00% of the original principal balance with any unpaid balance due on the maturity date of the 2014 Term Loan Facility. Voluntary prepayments may be made by American at any time, with a premium of 1.00% applicable to certain prepayments made prior to the date that is six months following October 10, 2014.

The 2014 Credit Facilities bear interest at an index rate plus an applicable index margin or, at American’s option, LIBOR (subject to a floor of 0.75% in the case of the 2014 Term Loan Facility) plus an applicable LIBOR margin. The applicable LIBOR margins are 3.50% and 3.00% for borrowings under the 2014 Term Loan Facility and the 2014 Revolving Facility, respectively. If American has a corporate credit rating of Ba3 or higher from Moody’s and BB- or higher from S&P, the applicable LIBOR margin is 3.25% under the 2014 Term Loan Facility.

The 2014 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 under the 2014 Credit Facilities may be accelerated and become due and payable immediately. In addition, if a “change of control” (as defined in the 2014 Credit Agreement) occurs with respect to AAG, American will (absent an amendment or waiver) be required to repay at par the loans outstanding under the 2014 Credit Facilities and terminate the 2014 Revolving Facility. The 2014 Credit Facilities also include covenants that, among other things, require AAG to maintain a minimum aggregate liquidity (as defined in the 2014 Credit Facilities) of not less than $2.0 billion, and limit the ability of AAG and its restricted subsidiaries to pay dividends and make certain other payments, make certain investments, 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.

(c) 2013 Citicorp Credit Facility

US Airways Group and certain other subsidiaries of US Airways Group are guarantors of the 2013 Citicorp Credit Facility agreement dated as of May 23, 2013. In connection with the closing of the Merger, AAG and American entered into a joinder to the 2013 Citicorp Credit Facility loan agreement pursuant to which AAG and American became guarantors under such agreement.

The 2013 Citicorp Credit Facility consists of tranche B-1 term loans (Tranche B-1) and tranche B-2 term loans (Tranche B-2). As of December 31, 2014, $990 million was outstanding under Tranche B-1 and $594 million was outstanding under Tranche B-2. Voluntary prepayments may be made at any time, with a premium of 1.00% applicable to certain prepayments made prior to the date that is six months following January 16, 2014.

As of December 31, 2014, the 2013 Citicorp Credit Facility bears interest at an index rate plus an applicable index margin or, at US Airways’ option, LIBOR (subject to a floor of 0.75%) plus an applicable LIBOR margin. The applicable LIBOR margin is 2.75% for Tranche B-1 and 2.25% for Tranche B-2.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

Tranche B-1 and Tranche B-2 mature on May 23, 2019 and November 23, 2016, respectively (unless otherwise extended by the applicable parties), and each is repayable in annual installments to be paid on each anniversary of the closing date in an amount equal to 1.00% of the initial aggregate principal amount of the loans with any unpaid balance due on the maturity date of the respective tranche.

Subject to certain limitations and exceptions, the obligations of US Airways under the 2013 Citicorp Credit Facility are secured by liens on certain take-off and landing rights at certain airports and certain other assets of US Airways. US Airways is required to maintain a certain minimum ratio of appraised value of the collateral to the outstanding loans under the 2013 Citicorp Credit Facility agreement as more fully described below in “Collateral Related Covenants”.

The 2013 Citicorp Credit Facility agreement contains events of default customary for similar financings, including a cross default provision to certain other material indebtedness of US Airways and certain of its affiliates. Upon the occurrence of an event of default, the outstanding obligations under the 2013 Citicorp Credit Facility may be accelerated and become due and payable immediately. In addition, if a “change of control” (as defined in the 2013 Citicorp Credit Facility agreement) occurs, US Airways will (absent an amendment or waiver) be required to repay the outstanding loans in full together with accrued interest thereon to the date of such prepayment. The 2013 Citicorp Credit Facility agreement includes affirmative, negative and financial covenants that, among other things, (a) require AAG and its restricted subsidiaries to maintain unrestricted liquidity of not less than $2.0 billion, with not less than $750 million held in accounts subject to control agreements, and (b) restrict the ability of US Airways Group, its subsidiaries party to the 2013 Citicorp Credit Facility, AAG and American to make certain investments, pay dividends and make certain other payments, make certain acquisitions, incur liens on the collateral, dispose of collateral, enter into certain affiliate transactions, enter into certain hedging transactions, and engage in certain business activities, in each case subject to certain exceptions.

(d) Aircraft Enhanced Equipment Trust Certificates (EETCs)

2014-1 EETCs

In September 2014, American created two pass-through trusts which issued approximately $957 million aggregate face amount of Series 2014-1 Class A and Class B EETCs in connection with the financing of 17 aircraft recently delivered to, and owned by, American (the 2014 EETC Aircraft).

As of December 31, 2014, the full $957 million of the escrowed proceeds from the 2014-1 EETCs have been used to purchase equipment notes issued by American in two series: Series A equipment notes in the amount of $742 million bearing interest at 3.70% per annum and Series B equipment notes in the amount of $215 million bearing interest at 4.375% per annum. Interest and principal payments on the equipment notes are scheduled to be made in April and October of each year, beginning in April 2015. The final payments on the Series A and Series B equipment notes will be due in October 2026 and October 2022, respectively. The equipment notes are secured by liens on the 2014 EETC Aircraft.

2013-1 EETCs

During 2014, US Airways issued $559 million of equipment notes in two series under its 2013-1 EETCs completed in April 2013: Series A equipment notes in the amount of $423 million bearing interest at 3.95% per annum and Series B equipment notes in the amount of $136 million bearing interest at 5.375% per annum. As of December 31, 2014, the full $820 million of the escrowed proceeds from US Airways’ 2013-1 EETCs have been used to purchase Series A and Series B equipment notes issued by US Airways. The equipment notes are secured by liens on aircraft.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

(e) Other Aircraft Financing Transactions

In May 2014, the Company prepaid $113 million principal amount of outstanding debt secured by certain aircraft.

During 2014, American entered into loan agreements to borrow $286 million in connection with financing certain aircraft deliveries. The notes mature in 2026 and bear interest at a rate of LIBOR plus an applicable margin.

During 2014, American financed 20 Boeing 737-800 aircraft under sale-leaseback arrangements and recorded proceeds from the sale of $811 million. Of the 20 Boeing 737-800 aircraft, 19 aircraft were accounted for as a capital lease and $747 million was reflected as debt on the consolidated balance sheet, included within other secured obligations in the table above. Gains associated with these sale-leaseback transactions are amortized over the respective remaining lease terms and are included in the consolidated balance sheet as deferred gains.

(f) Obligations Associated with Special Facility Revenue Bonds

In 2014, the Company prepaid $314 million of obligations, of which $135 million was a reduction of debt on the Company’s balance sheet, associated with special facility revenue bonds issued by municipalities to build or improve certain airport and maintenance facilities. The remaining portion of these obligations was accounted for as an operating lease.

In addition, in August 2014, American elected to exercise its option to reset the interest rate on approximately $220 million aggregate principal amount of special facility revenue bonds reflected as debt on its balance sheet, related to the Los Angeles International Airport, resulting in the repurchase of these bonds by American in September 2014. American has the option to remarket these bonds in the future. In connection with the repurchase of these bonds, American paid $2 million in cash premiums and recorded a $5 million non-cash write off of unamortized debt discount and issuance costs.

In December 2014, American purchased approximately $112 million aggregate principal amount of special facility revenue bonds related to the Tulsa International Airport, when such bonds were mandatorily tendered to American. Of this amount, $11 million was a reduction of debt on American’s balance sheet. American has the option to remarket these bonds in the future.

(g) Senior Secured Notes

In March 2014, American prepaid $100 million of its 7.50% senior secured notes at a redemption price of 103% of their principal amount plus accrued and unpaid interest. In July 2014, American prepaid the remaining outstanding principal balance of $900 million at a redemption price of 103.75% of outstanding principal amount plus accrued and unpaid interest. In connection with the prepayment of the outstanding 7.50% senior secured notes, American paid $37 million of cash premiums and recorded a $5 million non-cash write off of unamortized deferred issuance costs during the year ended December 31, 2014.

(h) AAdvantage Loan

In 2009, American entered into an arrangement under which Citibank loaned American $1.0 billion that could be repaid either in AAdvantage miles under American’s AAdvantage program or in cash (the AAdvantage Loan). Approximately $890 million of the AAdvantage Loan proceeds was accounted for as a loan from Citibank with the remaining $110 million recorded as deferred revenue in other liabilities and deferred credits.

To effect the AAdvantage Loan, American and Citibank entered into an Amended and Restated AAdvantage Participation Agreement (as so amended and restated, the Amended Participation Agreement). Under the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

Amended Participation Agreement, American agreed that it would apply in equal monthly installments over a five year period beginning on January 1, 2012, a credit for miles awarded to Citibank cardholders’ AAdvantage accounts.

American had the right to repay in cash, without premium or penalty, any or all of the amounts owed to Citibank under the AAdvantage Loan. Effective January 2, 2015, American exercised its loan repayment right with respect to the full value of the outstanding balance to Citibank for $400 million. In connection with the repayment, in the first quarter of 2015, American will recognize an early debt extinguishment gain of approximately $17 million. The entire outstanding balance of the obligation is reflected in current maturities of long-term debt on the accompanying consolidated balance sheet as of December 31, 2014.

(i) 5.50% Senior Notes

In September 2014, the Company issued $750 million aggregate principal amount of 5.50% senior notes due 2019 (the 5.50% senior notes). These notes bear interest at a rate of 5.50% per annum, which is payable semi-annually in arrears on each April 1 and October 1, beginning April 1, 2015. The 5.50% senior notes mature on October 1, 2019 and are fully and unconditionally guaranteed by American, US Airways Group and US Airways. The 5.50% senior notes are senior unsecured obligations of the Company. The indenture for the 5.50% senior notes contains covenants and events of default generally customary for similar financings. In addition, if the Company experiences specific kinds of changes of control, the Company must offer to repurchase the 5.50% senior notes at a price of 101% of the principal amount plus accrued and unpaid interest, if any, to the repurchase date. Upon the occurrence of certain events of default, the 5.50% senior notes may be accelerated and become due and payable.

(j) 6.125% Senior Notes

In May 2013, US Airways Group issued its 6.125% Senior Notes due 2018 (the 6.125% senior notes). The 6.125% senior notes bear interest at a rate of 6.125% per annum, which is payable semi-annually on each June 1 and December 1 and began December 1, 2013. The 6.125% senior notes mature on June 1, 2018 and are fully and unconditionally guaranteed by US Airways. In connection with the closing of the Merger, AAG and American provided a full and unconditional guarantee of the payment obligations of US Airways Group under the 6.125% senior notes. The 6.125% senior notes are general unsecured senior obligations of the Company.

(k) 7.25% Convertible Notes

In March 2014, the Company notified the holders of US Airways Group’s 7.25% convertible notes that it had elected to settle solely in cash instead of shares of AAG Common Stock all conversions during the period beginning on March 15, 2014 and ending on, and including, the second scheduled trading day immediately preceding the maturity date of May 15, 2014. In May 2014, the Company settled all outstanding 7.25% convertible notes in cash for approximately $175 million.

Guarantees

As of December 31, 2014, AAG had issued guarantees covering approximately $1.1 billion of American’s tax-exempt bond debt (and interest thereon) and $4.4 billion of American’s secured debt (and interest thereon).

In connection with the Merger and pursuant to the Plan on December 9, 2013, the Company and American entered into a joinder to the loan agreement and became co-obligors of US Airways Group’s $1.6 billion 2013 Citicorp Credit Facility and the Company and American entered into a second supplemental indenture that guarantees the payment obligations associated with the 6.125% senior notes. In March 2014, AAG, US Airways Group and US Airways entered into amended and restated guarantees of the payment obligations of US Airways

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

under the equipment notes relating to each of its Series 2010-1, 2011-1, 2012-1, 2012-2 and 2013-1 Pass Through Certificates, the result of which was to add AAG as a guarantor of such equipment notes on a joint and several basis with US Airways Group. Refer to Note 21 for further information.

Collateral Related Covenants

Certain of the Company’s debt financing agreements contain loan to value ratio covenants and require it to periodically appraise the related collateral. Pursuant to such agreements, if the loan to value ratio exceeds a specified threshold, the Company is required, as applicable, to pledge additional qualifying collateral (which in some cases may include cash collateral), or pay down such financing, in whole or in part, as described below.

Specifically, the Company is required to meet certain collateral coverage tests on a periodic basis on three Credit Facilities, as described below:

   

2014 Credit Facilities

  

2013 Credit Facilities

  

2013 Citicorp Credit Facility

Frequency of Appraisals of Appraised Collateral  Annual  Semi-Annual  Once per Fiscal Year (1)
LTV Requirement  1.6x Collateral valuation to amount of debt outstanding (62.5% LTV)  1.6x Collateral valuation to amount of debt outstanding (62.5% LTV)  1.5x Collateral valuation to amount of debt outstanding (66.7% LTV)
LTV as of Last Measurement Date  21.9%  33.7%  61.8%

Collateral

Description

  Generally, certain route authorities, take-off and landing slots, and rights to airport facilities used by American to operate certain services between the U.S. and London Heathrow, Tokyo Narita, and China  Generally, certain route authorities, take-off and landing slots, and rights to airport facilities used by American to operate all services between the U.S. and South America  Generally, certain Slots (e.g., DCA and LaGuardia), accounts receivable, certain engines, certain spare parts and ground service equipment, certain simulators, certain leasehold real estate assets and cash

(1)

With respect to spare parts, one physical appraisal and one desktop appraisal are required in each fiscal year.

At December 31, 2014, American and US Airways were in compliance with the applicable collateral coverage tests as of the most recent measurement dates.

10.  Income Taxes

The significant components of the income tax expense (benefit) were (in millions):

   Year Ended December 31, 
     2014    2013  2012 

Current

  $(16 $(22 $  

Deferred

   346    (324  (569
  

 

 

  

 

 

  

 

 

 

Income tax expense (benefit)

  $330   $(346 $(569
  

 

 

  

 

 

  

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

The income tax expense (benefit) differed from amounts computed at the statutory federal income tax rate as follows (in millions):

   Year Ended December 31, 
   2014  2013  2012 

Statutory income tax provision (benefit)

  $1,123   $(763 $(857

State income tax expense (benefit), net of federal tax effect

   75    (8  (32

Book expenses (benefits) not deductible for tax purposes

   (1  27    19  

Bankruptcy administration expenses

   95    83    26  

Interest cutback to net operating loss (NOL)

       141      

Alternative minimum tax credit refund

   (24  (22    

Change in valuation allowance

   (1,323  717    839  

Tax expense (benefit) resulting from OCI allocation

   330    (538  (569

Other, net

   55    17    5  
  

 

 

  

 

 

  

 

 

 

Income tax expense (benefit)

  $330   $(346 $(569
  

 

 

  

 

 

  

 

 

 

As a result of the Merger, US Airways Group and its subsidiaries are included in the AAG consolidated federal and state income tax returns for the period ended December 31, 2014.

For the year ended December 31, 2014, the Company recorded a $330 million tax provision. This provision included $346 million of special tax charges. During 2014, the Company sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, the Company recorded a special non-cash tax provision of $330 million in the second quarter of 2014 that reversed the non-cash tax provision which was recorded in other comprehensive income (OCI), a subset of stockholders’ equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of our fuel hedging contracts. In accordance with GAAP, the Company retained the $330 million tax provision in OCI until the last contract was settled or terminated. The Company also recorded a special $16 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets. In addition, the Company recorded $8 million of tax expense principally related to certain states and countries where NOL Carryforwards were limited or unavailable to be used. These charges were offset in part by a $24 million federal income tax benefit resulting from the Company’s elections under applicable sections of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 and the Housing and Economic Recovery Act of 2008 (as extended by the Tax Increase Prevention Act of 2014), allowing corporations to accelerate utilization of certain research and AMT credit carryforwards in lieu of applicable bonus depreciation on certain qualifying capital investments.

For the year ended December 31, 2013, the Company recorded a $346 million tax benefit. This benefit included a $538 million special non-cash income tax benefit from continuing operations. The Company is required to consider all items (including items recorded in OCI) in determining the amount of tax benefit that results from a loss from continuing operations and that should be allocated to continuing operations. As a result, the Company recorded a tax benefit on the loss from continuing operations for the year, which was exactly offset by income tax expense on OCI. However, while the income tax benefit from continuing operations is reported on the income statement, the income tax expense on other comprehensive income is recorded directly to accumulated other comprehensive income (loss), which is a component of stockholders’ equity. Because the income tax expense on other comprehensive income is equal to the income tax benefit from continuing operations, the Company’s year-end net deferred tax position is not impacted by this tax allocation. The 2013 tax benefit was offset in part by a $214 million tax charge attributable to additional valuation allowance required to reduce deferred tax assets to the amount the Company believes is more likely than not to be realized. In addition, the Company recorded a $22 million federal income tax benefit under the Housing and Economic Recovery Act of 2008 as described above.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

For the year ended December 31, 2012, the Company recorded a net income tax benefit of $569 million, which represents the non-cash income tax benefit resulting from gains recorded in OCI as discussed above.

The Company provides a valuation allowance for 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 generation of future taxable income (primarily reversals of deferred tax liabilities) during the periods in which those temporary differences will become deductible. In making this determination, the Company considers all available positive and negative evidence and makes certain assumptions. The Company considers many factors in evaluating the realizability of its deferred tax assets including risks associated with merger integration as well as other factors, which continue to be affected by conditions beyond the Company’s control, such as the condition of the economy, the level and volatility of fuel prices and travel demand. The Company has concluded as of December 31, 2014 that the valuation allowance was still needed on its deferred tax asset based on the weight of the factors described above.

A portion of the change in the valuation allowance reflects the income tax benefit of approximately $24 million and $22 million, respectively, recorded in 2014 and 2013 resulting from the Company’s elections under applicable sections of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 and the Housing and Economic Recovery Act of 2008 (as extended by the Tax Increase Prevention Act of 2014 and the American Taxpayer Relief Act of 2012), allowing corporations to accelerate utilization of certain research and alternative minimum tax (AMT) credit carryforwards in lieu of applicable bonus depreciation on certain qualifying capital investments.

In addition to the changes in the valuation allowance from operations described in the table above, the valuation allowance was also impacted by the changes in the components of accumulated other comprehensive income (loss), described in Note 14 to AAG’s consolidated financial statements. The total decrease in the valuation allowance was $197 million in 2014 and the total increase in the valuation allowance was $602 million and $263 million in 2013 and 2012, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

The components of AAG’s deferred tax assets and liabilities were (in millions):

   December 31, 
   2014  2013 

Deferred tax assets:

   

Postretirement benefits other than pensions

  $386   $643  

Rent expense

   180    355  

Alternative minimum tax credit carryforwards

   346    370  

Operating loss carryforwards

   3,461    3,655  

Pensions

   2,403    1,765  

Frequent flyer obligation

   948    1,075  

Gains from lease transactions

   207    56  

Reorganization items

   64    682  

Other

   1,210    871  
  

 

 

  

 

 

 

Total deferred tax assets

   9,205    9,472  

Valuation allowance

   (4,816  (5,013
  

 

 

  

 

 

 

Net deferred tax assets

   4,389    4,459  
  

 

 

  

 

 

 

Deferred tax liabilities:

   

Accelerated depreciation and amortization

   (4,829  (4,460

Other

   (98  (519
  

 

 

  

 

 

 

Total deferred tax liabilities

   (4,927  (4,979
  

 

 

  

 

 

 

Net deferred tax liability

  $(538 $(520
  

 

 

  

 

 

 

At December 31, 2014, the Company had approximately $10.1 billion of gross NOL Carryforwards to reduce future federal taxable income, substantially all of which are expected to be available for use in 2015. The federal NOL Carryforwards will expire beginning in 2022 if unused. These NOL Carryforwards include an unrealized tax benefit of $867 million related to the implementation of share-based compensation accounting guidance that will be recorded in equity when realized. The Company also had approximately $4.6 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2014, which will expire in years 2015 through 2034 if unused. The Company’s ability to deduct its NOL 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. The Company experienced an ownership change in connection with its emergence from the Chapter 11 Cases, and US Airways Group experienced an ownership change in connection with the Merger. As a result of the Merger, US Airways Group is now included in the AAG consolidated federal and state income tax return. The general limitation rules of Section 382 for a debtor in a bankruptcy case are liberalized where the ownership change occurs upon emergence from bankruptcy. The Company elected to be covered by certain special rules for federal income tax purposes that permit approximately $9.0 billion of its federal NOL Carryforwards to be utilized without regard to the Section 382 annual limitation rules. Substantially all of the Company’s remaining federal NOL Carryforwards (attributable to US Airways Group) are subject to limitation under Section 382; however, the Company’s ability to utilize such NOL Carryforwards is not anticipated to be effectively constrained as a result of such limitation. Similar limitations may apply for state income tax purposes. The Company’s ability to utilize any new NOL Carryforwards arising after the ownership changes is not affected by the annual limitation rules imposed by Section 382 unless another ownership change occurs. Under the Section 382 Limitation cumulative stock ownership changes among material shareholders exceeding 50% during a rolling 3-year period can potentially limit a company’s future use of net operating losses and tax credits. See Part I, Item 1A. Risk Factors– “Our ability to utilize our NOL Carryforwards may be limited”for additional unaudited discussion of this risk.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

At December 31, 2014, the Company had an AMT credit carryforward of approximately $341 million available for federal income tax purposes, which is available for an indefinite period. The Company’s net deferred tax assets, which include the NOL Carryforwards, are subject to a full valuation allowance. At December 31, 2014, the federal and state valuation allowances were $4.5 billion and $264 million, respectively. In accordance with GAAP, utilization of the NOL Carryforwards after December 9, 2013 will result in a corresponding decrease in the valuation allowance and offset our tax provision dollar for dollar.

The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Company’s 2004 through 2013 tax years are still subject to examination by the Internal Revenue Service. Various state and foreign jurisdiction tax years remain open to examination and the Company is under examination, in administrative appeals, or engaged in tax litigation in certain jurisdictions. The Company believes that the effect of any assessments will be immaterial to its consolidated financial statements.

The Company had an unrecognized tax benefit of approximately $6 million, which did not change during the twelve months ended December 31, 2014. Changes in the unrecognized tax benefit have no impact on the effective tax rate due to the existence of the valuation allowance. Accrued interest on tax positions is recorded as a component of interest expense but was not significant at December 31, 2014.

The reconciliation of the beginning and ending amounts of unrecognized tax benefit are (in millions):

   2014   2013 

Unrecognized tax benefit at January 1

  $6    $6  

No activity

          
  

 

 

   

 

 

 

Unrecognized tax benefit at December 31

  $6    $6  
  

 

 

   

 

 

 

The Company estimates that the unrecognized tax benefit will be realized within the next twelve months.

11.  Risk Management and Financial Instruments

The Company’s economic prospects are heavily dependent upon two variables it cannot control: the health of the economy and the price of fuel.

Due to the discretionary nature of business and leisure travel spending, airline industry 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 and changes in booking practices, both of which in turn have had, and may have in the future, a strong negative effect on the Company’s revenues. In addition, during challenging economic times, actions by our competitors to increase their revenues can have an adverse impact on the Company’s revenues.

The Company’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 the Company’s business. Because of the amount of fuel needed to operate the Company’s business, even a relatively small increase in the price of fuel can have a material adverse aggregate effect on the Company’s operating results and liquidity. Jet fuel market prices have fluctuated substantially over the past several years and prices continued to be volatile in 2014.

These factors could impact the Company’s results of operations, financial performance and liquidity.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

(a) Fuel Price Risk Management

During the second quarter of 2014, the Company sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. The Company has not entered into any transactions to hedge its fuel consumption since December 9, 2013 and, accordingly, as of December 31, 2014, the Company did not have any fuel hedging contracts outstanding. As such, and assuming the Company does not enter into any future transactions to hedge its fuel consumption, the Company will continue to be fully exposed to fluctuations in fuel prices. The Company’s current policy is not to enter into transactions to hedge its fuel consumption, although the Company reviews that policy from time to time based on market conditions and other factors.

The cash proceeds on these sales totaled $71 million which exceeded the current value of the portfolio. Approximately $25 million of the resulting gain was recorded to OCI and will be recognized as a decrease to fuel expense in the period the hedged fuel is scheduled to be consumed (through the second quarter of 2015). As of December 31, 2014, the Company expects to recognize the remaining $9 million of these gains into earnings in 2015. For the years ended December 31, 2014, 2013 and 2012, the Company recognized net gains of approximately $16 million, net losses of approximately $12 million and net gains of approximately $4 million, respectively, as a component of aircraft fuel expense on the accompanying consolidated statements of operations related to its fuel hedging agreements, including the ineffective portion of the hedges.

The impact of aircraft fuel derivative instruments (all cash flow hedges) on the Company’s consolidated statements of operations is depicted below (in millions):

   Location  Year Ended December 31, 
     2014   2013  2012 

Amount of gain (loss) reclassified from AOCI into income (1)

  Aircraft fuel and
related taxes
  $4    $(34 $3  

Amount of gain (loss) recognized in income on derivative (2)

  Aircraft fuel and
related taxes
   12     22    1  
    

 

 

   

 

 

  

 

 

 

Amount of gain (loss) recognized in consolidated statements of operations (3)

    $16    $(12 $4  
    

 

 

   

 

 

  

 

 

 

(1)

Includes the effective portion of hedge gain (loss)

(2)

Includes the ineffective portion of hedge gain (loss)

(3)

Includes the effective and ineffective portion of hedge gain (loss)

The impact of aircraft fuel derivative instruments (all cash flow hedges) on the Company’s consolidated statements of comprehensive income is depicted below (in millions):

   Location  Year Ended December 31, 
    2014  2013  2012 

Amount of (gain) loss reclassified from AOCI into income (1)

  Reclassification

into earnings

  $(4 $34   $(3

Amount of gain (loss) recognized in OCI on derivative (1)

  Change in fair

value

   (34  (2  (12
    

 

 

  

 

 

  

 

 

 

Amount of gain (loss) recognized in consolidated statements of comprehensive income

    $(38 $32   $(15
    

 

 

  

 

 

  

 

 

 

(1)

Includes the effective portion of hedge gain (loss)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

While certain of the Company’s fuel derivatives were subject to enforceable master netting agreements with its counterparties, the Company did not offset its fuel derivative assets and liabilities in its consolidated balance sheets. The Company had a gross asset of $109 million as of December 31, 2013 for its aircraft fuel derivative instruments, which was reflected in prepaid expenses and other on the accompanying consolidated balance sheet. The Company had no cash collateral posted or received as of December 31, 2013.

(b) Credit Risk

Most of the Company’s receivables relate to tickets sold to individual passengers through the use of major credit cards or to tickets sold by other airlines and used by passengers on American, US Airways or the Company’s regional carriers. These receivables are short-term, mostly being settled within seven days after sale. Bad debt losses, which have been minimal in the past, have been considered in establishing allowances for doubtful accounts. The Company does not believe it is subject to any significant concentration of credit risk.

(c) Interest Rate Risk

The Company has exposure to market risk associated with changes in interest rates related primarily to its variable rate debt obligations. Interest rates on $6.5 billion principal amount of long-term debt as of December 31, 2014 are subject to adjustment to reflect changes in floating interest rates. The weighted average effective interest rate on the Company’s variable rate debt was 3.3% at December 31, 2014.

12.  Investments and Fair Value Measurements

Short-term investments consisted of (in millions):

   December 31, 
   2014   2013 

Overnight Investments, Time Deposits and Repurchase Agreements

  $60    $177  

Corporate and Bank Notes

   5,194     3,350  

U.S. Government Agency and Treasury Obligations

   101     1,513  

Commingled Funds

   952     3,069  

Other

   2     2  
  

 

 

   

 

 

 

Total

  $6,309    $8,111  
  

 

 

   

 

 

 

Short-term investments at December 31, 2014, by contractual maturity included (in millions):

Due in one year or less

  $4,625  

Due between one year and three years

   1,684  

Due after three years

     
  

 

 

 

Total

  $6,309  
  

 

 

 

All short-term investments are classified as available-for-sale and stated at fair value. Unrealized gains and losses are reflected as a component of accumulated other comprehensive income (loss).

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company’s short-term investments classified as Level 2 primarily utilize

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

broker quotes in a non-active market for valuation of these securities. The Company’s fuel derivative contracts, which consisted primarily of call options, collars (consisting of a purchased call option and a sold put option) and call spreads (consisting of a purchased call option and a sold call option), are valued using energy and commodity market data which is derived by combining raw inputs with quantitative models and processes to generate forward curves and volatilities. Heating oil, jet fuel and crude oil were the primary underlying commodities in the hedge portfolio. No changes in valuation techniques or inputs occurred during the year ended December 31, 2014.

Assets and liabilities measured at fair value on a recurring basis are summarized below (in millions):

   Fair Value Measurements as of December 31, 2014 
       Total           Level 1           Level 2           Level 3     

Short-term investments (1), (2):

        

Money market funds

  $954    $954    $    $  

Government agency investments

   101          101       

Repurchase agreements

   46          46       

Corporate obligations

   3,927          3,927       

Bank notes / Certificates of deposit / Time deposits

   1,281          1,281       
  

 

 

   

 

 

   

 

 

   

 

 

 
   6,309     954     5,355       

Restricted cash and short term investments (1)

   774     774            
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $7,083    $1,728    $5,355    $  
  

 

 

   

 

 

   

 

 

   

 

 

 

(1)

Unrealized gains or losses on short-term investments and restricted cash and short-term investments are recorded in accumulated other comprehensive loss at each measurement date.

(2)

The Company’s short-term investments mature in one year or less except for $1.1 billion of corporate obligations and $575 million of bank notes/certificates of deposit/time deposits.

There were no Level 1 to Level 2 transfers during the year ended December 31, 2014.

   Fair Value Measurements as of December 31, 2013 
       Total           Level 1           Level 2           Level 3     

Short-term investments (1), (2):

        

Money market funds

  $3,071    $3,071    $    $  

Government agency investments

   1,512          1,512       

Repurchase agreements

   170          170       

Corporate obligations

   2,750          2,750       

Bank notes / Certificates of deposit / Time deposits

   608          608       
  

 

 

   

 

 

   

 

 

   

 

 

 
   8,111     3,071     5,040       

Restricted cash and short term investments (1)

   1,035     979     56       

Fuel derivative contracts, net (1)

   109          109       
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $9,255    $4,050    $5,205    $  
  

 

 

   

 

 

   

 

 

   

 

 

 

(1)

Unrealized gains or losses on short-term investments, restricted cash and short-term investments and derivatives qualifying for hedge accounting are recorded in accumulated other comprehensive income (loss) at each measurement date.

(2)

The Company’s short-term investments mature in one year or less except for $250 million of bank notes/certificates of deposit/time deposits, $511 million of U.S. Government agency investments and $2.1 billion of corporate obligations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

A $56 million Level 1 restricted money market security was liquidated in August 2013. The cash proceeds were subsequently reinvested in a Level 2 U.S. Treasury Obligation. American’s policy regarding the recording of transfers between levels is to reflect any such transfers at the end of the reporting period.

Venezuela Cash and Short-term Investments

As of December 31, 2014, $804 million of the Company’s cash and short-term investments balances were held in foreign bank accounts, of which approximately $656 million was held in Venezuelan bolivars. This balance includes approximately $621 million valued at 6.3 bolivars and approximately $35 million valued at 12.0 bolivars, with the rate depending on the date the Company submitted its repatriation request to the Venezuelan government. These rates are materially more favorable than the exchange rates currently prevailing for other transactions conducted outside of the Venezuelan government’s currency exchange system that the Company participates in. The Company’s cash balance held in Venezuelan bolivars decreased $54 million from the December 31, 2013 balance of $710 million primarily due to $88 million in cash repatriations and $30 million in foreign currency losses as described below, partially offset by additional cash proceeds from ticket sales in early 2014. In the second and third quarters of 2014, the Company repatriated $65 million including $31 million valued at 6.3 bolivars to the dollar and $34 million valued at 10.6 bolivars to the dollar. In the fourth quarter of 2014, the Company incurred an $11 million foreign currency loss related to the receipt of $23 million at a rate of 6.3 bolivars to the dollar for one of its 2012 repatriation requests originally valued at a rate of 4.3 bolivars to the dollar. Accordingly, the Company revalued its remaining pending 2012 repatriation requests from 4.3 to 6.3 bolivars to the dollar resulting in additional foreign currency losses of $19 million. In total, the Company recognized a $30 million special charge for these foreign currency losses in the fourth quarter of 2014. During 2014, the Company significantly reduced capacity in this market and is no longer accepting bolivars as payment for airline tickets. The Company is continuing to work with Venezuelan authorities regarding the timing and exchange rate applicable to the repatriation of funds held in local currency. The Company is monitoring this situation closely and continues to evaluate its holdings of Venezuelan bolivars for additional foreign currency losses, which could be material, particularly in light of the uncertainty posed by the new foreign exchange regulations announced in mid-February 2015 and the continued deterioration of economic conditions in Venezuela. 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 and other currency risks.

Fair Value of Debt

The fair value of the Company’s long-term debt was estimated using quoted market prices or discounted cash flow analyses, based on the Company’s current estimated incremental borrowing rates for similar types of borrowing arrangements. If the Company’s long-term debt was measured at fair value, it would have been classified as Level 2 in the fair value hierarchy.

The carrying value and estimated fair value of the Company’s long-term debt, including current maturities, were as follows (in millions):

   December 31, 2014   December 31, 2013 
   Carrying
Value
   Fair
Value
   Carrying
Value
   Fair
Value
 

Long-term debt, including current maturities

  $17,904    $18,542    $16,799    $17,035  
  

 

 

   

 

 

   

 

 

   

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

13.  Retirement Benefits

The Company sponsors defined benefit and defined contribution pension plans for eligible employees. The defined benefit plans provide benefits for participating employees based on years of service and average compensation for a specified period of time before retirement. The Company uses a December 31 measurement date for all of its defined benefit plans. In addition, the Company provides certain postemployment benefits to its employees. These benefits include disability-related and workers’ compensation benefits for certain employees. The Company accrues for the cost of such benefit expenses once an appropriate triggering event has occurred.

Year End Information

The following table provides a reconciliation of the changes in the pension and retiree medical and other benefit obligations and fair value of assets for the years ended December 31, 2014 and 2013, and a statement of funded status as of December 31, 2014 and 2013 (in millions):

  Pension Benefits  Retiree Medical and Other
Benefits
 
          2014                  2013                  2014                  2013         

Reconciliation of benefit obligation:

    

Obligation at January 1

 $14,899   $15,895   $1,385   $1,412  

Service cost

  3    3    1      

Interest cost

  746    654    61    50  

Actuarial (gain) loss

  2,573    (1,152  (39  (82

Plan amendments

          33      

Curtailments

      2          

Settlements

  (20  (1        

Benefit payments

  (607  (575  (112  (116

US Airways plan liability (Assumed)

      73    (4  121  
 

 

 

  

 

 

  

 

 

  

 

 

 

Obligation at December 31

 $17,594   $14,899   $1,325   $1,385  
 

 

 

  

 

 

  

 

 

  

 

 

 

Reconciliation of fair value of plan assets:

    

Fair value of plan assets at January 1

 $10,057   $9,065   $239   $211  

Actual return on plan assets

  746    1,026    11    41  

Employer contributions

  810    494    106    103  

Settlements

  (20  (1        

Benefit payments

  (607  (575  (112  (116

US Airways plan assets (Assumed)

      48          
 

 

 

  

 

 

  

 

 

  

 

 

 

Fair value of plan assets at December 31

  10,986    10,057    244    239  
 

 

 

  

 

 

  

 

 

  

 

 

 

Funded status at December 31

 $(6,608 $(4,842 $(1,081 $(1,146
 

 

 

  

 

 

  

 

 

  

 

 

 

Amounts recognized in the consolidated balance sheets:

    

Current liability

 $10   $31   $117   $129  

Noncurrent liability (1)

  6,598    4,811    964    1,017  
 

 

 

  

 

 

  

 

 

  

 

 

 
 $6,608   $4,842   $1,081   $1,146  
 

 

 

  

 

 

  

 

 

  

 

 

 

Amounts recognized in other comprehensive income:

    

Net actuarial loss (gain)

 $4,961   $2,395   $(199 $(176

Prior service cost (credit) (1)

  245    273    (1,326  (1,592
 

 

 

  

 

 

  

 

 

  

 

 

 
 $5,206   $2,668   $(1,525 $(1,768
 

 

 

  

 

 

  

 

 

  

 

 

 

US Airways plan other comprehensive loss

              (12
 

 

 

  

 

 

  

 

 

  

 

 

 
 $5,206   $2,668   $(1,525 $(1,780
 

 

 

  

 

 

  

 

 

  

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

  Pension Benefits  Retiree Medical and Other
Benefits
 
          2014                  2013                  2014                  2013         

For plans with accumulated benefit obligations exceeding the fair value of plan assets:

    

Projected benefit obligation (PBO)

 $17,560   $14,869   $   $  

Accumulated benefit obligation (ABO)

  17,548    14,858          

Accumulated postretirement benefit obligation (APBO)

          1,324    1,385  

Fair value of plan assets

  10,950    10,024    244    239  

ABO less fair value of plan assets

  6,598    4,834          

(1)

The 2014 noncurrent liability does not include $18 million of other post-employment benefits or $2 million of prior service costs.

The following tables provide the components of net periodic benefit cost for the years ended December 31, 2014, 2013 and 2012 (in millions):

   Pension Benefits  Retiree Medical and Other Benefits 
       2014          2013          2012          2014          2013          2012     

Components of net periodic benefit cost:

       

Defined benefit plans:

       

Service cost

  $3   $3   $341   $1   $   $46  

Interest cost

   746    654    729    61    50    128  

Expected return on assets

   (786  (720  (676  (19  (16  (17

Curtailments

       2    58            (124

Settlements

   4    (1                

Amortization of:

       

Prior service cost (1)

   28    28    10    (244  (251  (82

Unrecognized net loss (gain)

   43    90    211    (8  (9  (9
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net periodic benefit cost for defined benefit plans

   38    56    673    (209  (226  (58

Defined contribution plans

   546    328    218    N/A    N/A    N/A  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  $584   $384   $891   $(209 $(226 $(58
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(1)

The 2014 prior service cost does not include amortization of $14 million related to other post-employment benefits.

The estimated amount of unrecognized net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $111 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

The estimated amount of unrecognized net gain for the retiree medical and other postretirement plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $7 million.

   Pension Benefits  Retiree Medical and Other
Benefits
 
           2014                  2013                  2014                  2013         

Weighted-average assumptions used to determine benefit obligations as of December 31:

     

Discount rate

   4.30  5.10  4.00  4.71

Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31:

     

Discount rate 1/1 – 12/31

   5.10  4.20  4.74  3.80

Expected return on plan assets

   8.00  8.00  8.00  8.00

As of December 31, 2014, the Company’s estimate of the long-term rate of return on plan assets was 8.00% based on the target asset allocation. Expected returns on longer duration bonds are based on yields to maturity of the bonds held at year-end. Expected returns on other assets are based on a combination of long-term historical returns, actual returns on plan assets achieved over the last ten years, current and expected market conditions, and expected value to be generated through active management, currency overlay and securities lending programs. The Company’s annualized ten-year rate of return on plan assets as of December 31, 2014, was approximately 8%.

The objectives of the Company’s investment policies are to: maintain sufficient income and liquidity to pay retirement benefits; produce a long-term rate of return that meets or exceeds the assumed rate of return for plan assets; limit the volatility of asset performance and funded status; and diversify assets among asset classes and investment managers.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

Based on these investment objectives, a long-term strategic asset allocation has been established. This strategic allocation seeks to balance the potential benefit of improving funded position with the potential risk that the funded position would decline. The current strategic target asset allocation is as follows:

Asset Class/Sub-Class

Allowed Range

Equity

62% - 72%

Public:

U.S. Value

20% - 35%

International Value

14% - 24%

Emerging Markets

5% - 11%

Alternative Investments

0% - 18%

Fixed Income

28% - 38%

U.S. Long Duration

26% - 36%

Emerging Markets

0% -   4%

Other

0% -   5%

Cash Equivalents

0% -   5%

Each asset class is actively managed and, historically, the plans’ assets have produced returns, net of management fees, in excess of the expected rate of return over the last ten years. Public equity and emerging market fixed income securities are used to provide diversification and are expected to generate higher returns over the long-term than longer duration U.S. bonds. Public stocks are managed using a value investment approach in order to participate in the returns generated by stocks in the long-term, while reducing year-over-year volatility. Longer duration U.S. bonds are used to partially hedge the assets from declines in interest rates. Alternative (private) investments are used to provide expected returns in excess of the public markets over the long-term. Additionally, the Company engages currency overlay managers in an attempt to increase returns by protecting non-U.S. dollar denominated assets from a rise in the relative value of the U.S. dollar. The Company also participates in securities lending programs to generate additional income by loaning plan assets to borrowers on a fully collateralized basis. These programs are subject to market risk.

Investments in securities traded on recognized securities exchanges are valued at the last reported sales price on the last business day of the year. Securities traded in the over-the-counter market are valued at the last bid price. The money market fund is valued at fair value which represents the net asset value of the shares of such fund as of the close of business at the end of the period. Investments in limited partnerships are carried at estimated net asset value as determined by and reported by the general partners of the partnerships and represent the proportionate share of the estimated fair value of the underlying assets of the limited partnerships. Common/collective trusts are valued at net asset value based on the fair values of the underlying investments of the trusts as determined by the sponsor of the trusts. The 103-12 investment trust is valued at net asset value which is determined by the issuer at the end of each month and is based on the aggregate fair value of trust assets less liabilities, divided by the number of units outstanding. No changes in valuation techniques or inputs occurred during the year.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

The fair value of the Company’s pension plan assets at December 31, 2014 and 2013, by asset category, are as follows (in millions):

   Fair Value Measurements as of December 31, 2014 

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

  $332    $    $    $332  

Equity securities:

        

International markets (a) (b)

   2,943               2,943  

Large-cap companies (b)

   2,488               2,488  

Mid-cap companies (b)

   362               362  

Small-cap companies (b)

   21               21  

Mutual funds – US Airways plan (g)

   51               51  

Fixed Income:

        

Corporate bonds (c)

        2,384          2,384  

Government Securities (d)

        1,184          1,184  

U.S. municipal securities

        65          65  

Alternative instruments:

        

Private equity partnerships (e)

             818     818  

Common/collective and 103-12 investment trusts (f)

        240          240  

Insurance group annuity contracts

             2     2  

Dividend and interest receivable

   52               52  

Due to/from brokers for sale of securities – net

   39               39  

Other assets – net

   5               5  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $6,293    $3,873    $820    $10,986  
  

 

 

   

 

 

   

 

 

   

 

 

 

a)

Holdings are diversified as follows: 18% United Kingdom, 11% Japan, 10% France, 7% Switzerland, 7% Netherlands, 6% Republic of Korea, 13% emerging markets and the remaining 28% with no concentration greater than 5% in any one country.

b)

There are no significant concentrations of holdings by company or industry.

c)

Includes approximately 74% investments in corporate debt with a Standard and Poor’s (S&P) rating lower than A and 26% investments in corporate debt with an S&P rating A or higher. Holdings include 81% U.S. companies, 16% international companies and 3% emerging market companies.

d)

Includes approximately 73% investments in U.S. domestic government securities and 27% in emerging market government securities. There are no significant foreign currency risks within this classification.

e)

Includes limited partnerships that invest primarily in U.S. (91%) and European (9%) buyout opportunities of a range of privately held companies. The Master Trust does not have the right to redeem its limited partnership investment at its net asset value. Instead, the Master Trust receives distributions as the underlying assets are liquidated. It is estimated that the underlying assets of these funds will be gradually liquidated over the next one to ten years. Additionally, the Master Trust has future funding commitments of approximately $403 million over the next ten years.

f)

Investment includes 74% in an emerging market 103-12 investment trust with investments in emerging country equity securities, 14% in Canadian segregated balanced value, income growth and diversified pooled funds and 12% in a common/collective trust investing in securities of smaller companies located outside the U.S., including developing markets. Requests for withdrawals must meet specific requirements with advance notice of redemption preferred.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

g)

Investment includes mutual funds invested 46% in equity securities of large-cap, mid-cap and small-cap US companies, 35% in US treasuries and corporate bonds and 18% in equity securities of international companies.

   Fair Value Measurements as of December 31, 2013 

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

  $360   $    $    $360  

Equity securities:

       

International markets (a) (b)

   2,908              2,908  

Large-cap companies (b)

   2,196              2,196  

Mid-cap companies (b)

   227              227  

Small-cap companies (b)

   18              18  

Mutual funds – US Airways plan (g)

   48              48  

Fixed Income:

       

Corporate bonds (c)

       2,067          2,067  

Government Securities (d)

       1,035          1,035  

U.S. municipal securities

       55          55  

Alternative instruments:

       

Private equity partnerships (e)

            848     848  

Common/collective and 103-12 investment trusts (f)

       245          245  

Insurance group annuity contracts

            2     2  

Dividend and interest receivable

   51              51  

Due to/from brokers for sale of securities – net

   (10            (10

Other assets – net

   7              7  
  

 

 

  

 

 

   

 

 

   

 

 

 

Total

  $5,805   $3,402    $850    $10,057  
  

 

 

  

 

 

   

 

 

   

 

 

 

a)

Holdings are diversified as follows: 19% United Kingdom, 10% Japan, 11% France, 7% Switzerland, 6% Germany, 5% Netherlands, 6% Republic of Korea, 15% emerging markets and the remaining 21% with no concentration greater than 5% in any one country.

b)

There are no significant concentrations of holdings by company or industry.

c)

Includes approximately 76% investments in corporate debt with a Standard and Poor’s (S&P) rating lower than A and 24% investments in corporate debt with an S&P rating A or higher. Holdings include 80% U.S. companies, 17% international companies and 3% emerging market companies.

d)

Includes approximately 72% investments in U.S. domestic government securities and 28% in emerging market government securities. There are no significant foreign currency risks within this classification.

e)

Includes limited partnerships that invest primarily in U.S. (92%) and European (8%) buyout opportunities of a range of privately held companies. The Master Trust does not have the right to redeem its limited partnership investment at its net asset value. Instead, the Master Trust receives distributions as the underlying assets are liquidated. It is estimated that the underlying assets of these funds will be gradually liquidated over the next one to ten years. Additionally, the Master Trust has future funding commitments of approximately $376 million over the next ten years.

f)

Investment includes 74% in an emerging market 103-12 investment trust with investments in emerging country equity securities, 14% in Canadian segregated balanced value, income growth and diversified

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

pooled funds and 12% in a common/collective trust investing in securities of smaller companies located outside the U.S., including developing markets. Requests for withdrawals must meet specific requirements with advance notice of redemption preferred.

g)

Investment includes mutual funds invested 49% in equity securities of large-cap, mid-cap and small-cap US companies, 30% in US treasuries and corporate bonds and 21% in equity securities of international companies.

Changes in fair value measurements of Level 3 investments during the year ended December 31, 2014, were as follows (in millions):

   Private Equity
Partnerships
  Insurance Group
Annuity Contracts
 

Beginning balance at December 31, 2013

  $848   $2  

Actual return on plan assets:

   

Relating to assets still held at the reporting date

   (38    

Relating to assets sold during the period

   158      

Purchases

   148      

Sales

   (298    
  

 

 

  

 

 

 

Ending balance at December 31, 2014

  $818   $2  
  

 

 

  

 

 

 

Changes in fair value measurements of Level 3 investments during the year ended December 31, 2013, were as follows (in millions):

   Private Equity
Partnerships
  Insurance Group
Annuity Contracts
 

Beginning balance at December 31, 2012

  $914   $2  

Actual return on plan assets:

   

Relating to assets still held at the reporting date

   (21    

Relating to assets sold during the period

   99      

Purchases

   85      

Sales

   (229    
  

 

 

  

 

 

 

Ending balance at December 31, 2013

  $848   $2  
  

 

 

  

 

 

 

The fair value of the Company’s other postretirement benefit plan assets at December 31, 2014 by asset category, were as follows (in millions):

   Fair Value Measurements as of December 31, 2014 

Asset Category

  Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   Significant
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
   Total 

Money market fund

  $2    $    $    $2  

Mutual funds – AMR Class

        242          242  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $2    $242    $    $244  
  

 

 

   

 

 

   

 

 

   

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

The fair value of the Company’s other postretirement benefit plan assets at December 31, 2013 by asset category, were as follows (in millions):

   Fair Value Measurements as of December 31, 2013 

Asset Category

  Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   Significant
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
   Total 

Money market fund

  $4    $    $    $4  

Mutual funds – AMR Class

        235          235  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $4    $235    $    $239  
  

 

 

   

 

 

   

 

 

   

 

 

 

Investments in the AMR Class shares of the mutual funds managed by American Beacon Advisors, Inc (ABA) are valued by quoted prices on the active market, which is fair value and represents the net asset value of the shares of such funds as of the close of business at the end of the period. AMR Class shares are offered without a sales charge to participants and have the lowest expense ratio among the Beacon Funds. Purchases are restricted to retirement benefit plans of ABA and AMR and its affiliates, resulting in a fair value classification of Level 2. Investments include approximately 28% of investments in non-U.S. common stocks in 2014 and 27% of investments in non-U.S. common stocks in 2013. Net asset value is based on the fair market value of the funds’ underlying assets and liabilities at the date of determination.

         2014              2013       

Assumed health care trend rates at December 31

   

Health care cost trend rate assumed for next year

   5.25  6.50

Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)

   4.55  4.50

Year that the rate reaches the ultimate trend rate

   2023    2018  

A one percentage point change in the assumed health care cost trend rates would have the following effects (in millions):

   1% Increase   1% Decrease 

Impact on 2014 service and interest cost

  $3    $(3

Impact on postretirement benefit obligation as of December 31, 2014

   65     (65

The Company is required to make minimum contributions to its defined benefit pension plans under the minimum funding requirements of the Employee Retirement Income Security Act of 1974 (ERISA), the Pension Funding Equity Act of 2004, the Pension Protection Act of 2006, the Pension Relief Act of 2010 and the Moving Ahead for Progress in the 21st Century Act of 2012. In 2014, the Company has made its aggregate minimum required contributions for 2014 of $171 million, and has made $639 million in supplemental contributions to its pension plans, above and beyond the $171 million of minimum required contributions.

Based on current funding assumptions, the Company has no minimum required contributions until 2019. Currently, American’s minimum funding obligation for its pension plans is subject to temporary favorable rules that are scheduled to expire at the end of 2017. Upon expiration of these rules, American’s funding obligations are likely to increase materially.

The following benefit payments, which reflect expected future service as appropriate, are expected to be paid (in millions):

   2015   2016   2017   2018   2019   2020-2024 

Pension

  $645    $667    $699    $735    $776    $4,535  

Retiree medical and other

   117     111     106     100     95     414  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

Modifications to Retirement and Life Insurance Benefits

Effective November 1, 2012, the Company’s defined benefit pension plans were frozen and the Company began providing enhanced benefits under the $uper $aver 401(k) Plan for certain groups. Effective November 1, 2012, the Company matches all non-flight crew employee contributions up to 5.5% of eligible earnings. Effective November 1, 2012 through December 31, 2013, pilots received employer contributions of 14% of eligible earnings and flight attendants received matching contributions of up to 5.5% of eligible earnings. With the ratification of a new CBA by pilots on December 9, 2013, effective January 1, 2014, pilots receive employer contributions of 16% of eligible earnings. With the 2013 Conditional Labor Agreement, effective January 1, 2014, flight attendants on the American seniority list as of April 12, 2012 receive age-based employer contributions (under age 40 – 5.5% of eligible earnings; age 40 to 49 – 6.75% of eligible earnings; and age 50 and above – 9.9% of eligible earnings) and flight attendants hired after April 12, 2012, receive employer contributions of 3% of eligible earnings plus company matching contributions of up to 2.5% of eligible earnings.

In December 2012, the Pilot A Plan, a defined benefit plan, was amended to remove the lump-sum option and the installment option forms of benefit effective December 31, 2012. A small group of American pilots is appealing the Bankruptcy Court’s decision authorizing American to eliminate the lump sum option and installment option forms of benefit. This is the same group of pilots that are appealing the Bankruptcy Court’s decisions authorizing American to reject the pilot CBA and approve the new pilot CBA. The U.S. District Court for the Southern District of New York upheld the Bankruptcy Court decision. The appeals currently are pending in the U.S. Court of Appeals for the Second Circuit.

The Pilot B Plan, a defined contribution plan, was terminated on November 30, 2012. With the exception of a small residual balance to cover final plan expenses, the Company has distributed all of the funds in the plan.

On July 6, 2012, the Company commenced an adversary proceeding in the Bankruptcy Court seeking a determination on the issue of vesting for former employees who retired before November 1, 2012 and were eligible for certain retiree medical coverage. The Bankruptcy Court granted in part and denied in part the Company’s motion for summary judgment concerning vesting.

As a result of the modifications to the retirement benefits as discussed above, a portion of the pension and postretirement benefits liability, primarily relating to retiree medical and other benefits, was classified as liabilities subject to compromise as of December 31, 2012. This amount was reinstated upon emergence since there was no resolution in the Chapter 11 Cases.

Curtailment and Plan Amendment in the Third Quarter of 2012

In accordance with ASC 715 “Retirement Benefits” (ASC 715), in the third quarter of 2012, the Company remeasured its defined benefit pension and retiree medical plans as a result of modifications to its retirement plans and reductions in certain work groups (see above and Note 2 to AAG’s consolidated financial statements). The Company updated its significant actuarial assumptions used for the remeasurements including the discount rate, which was lowered to 4.10% and 3.80% for the defined benefit pension plans and retiree medical plans, respectively.

The remeasurement of the defined benefit plans resulted in an actuarial loss of $1.9 billion offset by a curtailment gain of $1.8 billion. In addition, a loss of $58 million, representing unamortized prior service cost as of the remeasurement date of the frozen defined benefit plans, is included as a component of reorganization items, net.

Further, as a result of modifications to its retiree medical plans, the Company recognized a negative plan amendment of $1.9 billion, which is included as a component of actuarial gain arising in current year in other

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

comprehensive income and will be amortized over the future service life of the active plan participants for whom the benefit was eliminated, or approximately eight years. In addition, a net credit of $124 million, representing unamortized prior service credits of $157 million offset by a curtailment loss of $33 million, is included as a component of reorganization items, net.

14.  Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) are as follows (in millions):

   Pension and
Retiree Medical
Liability
  Unrealized
Gain/(Loss)
on
Investments
  Derivative
Financial
Instruments
  Income
Tax
Benefit
(Expense)
  Total 

Balance at December 31, 2012

  $(2,322 $(1 $15   $(672 $(2,980

Other comprehensive income (loss) before reclassifications

   1,577        18    (538  1,057  

Amounts reclassified from accumulated other comprehensive income (loss)

   (142  (1  34        (109
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net current-period other comprehensive income (loss)

   1,435    (1  52    (538  948  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2013

   (887  (2  67    (1,210  (2,032

Other comprehensive income (loss) before reclassifications

   (2,633      (54      (2,687

Amounts reclassified from accumulated other comprehensive income (loss)

   (163  (3  (4  330    160  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net current-period other comprehensive income (loss)

   (2,796  (3  (58  330    (2,527
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2014

  $(3,683 $(5 $9   $(880 $(4,559
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Reclassifications out of accumulated other comprehensive income (loss) for the years ended December 31, 2014 and 2013 are as follows (in millions):

Details about accumulated other comprehensive

income (loss) components

  Amount reclassified from accumulated
other comprehensive income  (loss)
  

Affected line item in the
statement where net income

(loss) is presented

  Year Ended December 31,  
  2014  2013  

Amortization of pension and retiree medical liability:

    

Prior service cost

  $(202 $(223 Wages, salaries and benefits

Actuarial loss

   39    81   Wages, salaries and benefits

Derivative financial instruments:

    

Cash flow hedges

   (4  34   Aircraft fuel and related taxes

Net unrealized change on investments:

    

Net change in value

   (3     Other, net

Income tax benefit (expense):

    

Reversal of non-cash tax provision

   330       Income tax provision (benefit)
  

 

 

  

 

 

  

Total reclassifications for the period

  $160   $(108 
  

 

 

  

 

 

  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

During 2014, the Company sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, the Company recorded a special non-cash tax provision of $330 million in the statement of operations for the second quarter of 2014 that reverses the non-cash tax provision which was recorded in OCI, a subset of stockholders’ equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of the Company’s fuel hedging contracts. In accordance with GAAP, the Company retained the $330 million tax provision in OCI until the last contract was settled or terminated.

The Company recognized a $538 million non-cash income tax benefit, offset by a $538 million charge to other comprehensive income, during the fourth quarter of 2013 related to gains in other comprehensive income. See Note 10 for further information.

Amounts allocated to other comprehensive income for income taxes as further described in Note 10 will remain in accumulated other comprehensive income (loss) until the Company ceases all related activities, such as termination of the pension plan.

15.  Commitments, Contingencies and Guarantees

(a) Aircraft Acquisition Commitments

AAG had total aircraft acquisition commitments as of December 31, 2014 as follows:

   2015   2016   2017   2018   2019   2020 and
Thereafter
   Total 

Airbus

              

A320 Family

   42     25     20                    87  

A320neo

             10     25     25     40     100  

A350 XWB

             6     10     6          22  

Boeing

              

737 Family

   18     20     20                    58  

737 MAX

             3     17     20     60     100  

777-300 ER

   2     2                         4  

787 Family

   12     13     10     7               42  

Bombardier

              

CRJ900

   18     20                         38  

Embraer

              

ERJ175

   24     24     12                    60  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   116     104     81     59     51     100     511  

As of December 31, 2014, payments for the above aircraft commitments and certain engines are presented in the table below (in millions):

   2015   2016   2017   2018   2019   2020 and
Thereafter
   Total 

Payments for above aircraft commitments and certain engines (1)

  $5,110    $4,978    $4,937    $4,291    $3,242    $5,651    $28,209  

(1)

These amounts are net of purchase deposits currently held by the manufacturers and include all commitments for regional aircraft. American has granted Boeing a security interest in its purchase deposits with Boeing. The Company’s purchase deposits totaled $1.2 billion as of December 31, 2014.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

In April 2014, the Company exercised its option to purchase and terminated its existing lease financing arrangements with respect to 62 Airbus A320 family aircraft scheduled to be delivered between the first quarter of 2015 and the third quarter of 2017. In connection with the Company’s exercise of such option, the Company also exercised its right to convert firm orders for 30 Airbus A320neo aircraft, scheduled to be delivered in 2021 and 2022, to options to acquire such aircraft. The table above reflects these changes.

In December 2014, the Company exercised its right under its purchase agreement with Bombardier to convert 24 of the Company’s 40 option order CRJ900 aircraft to firm orders to acquire such aircraft.

(b) Facility and support commitments

The Company has contracts related to facility construction or improvement projects, primarily at airport locations as well as information technology support. The contractual obligations related to these contracts are presented in the table below (in millions):

   2015   2016   2017   2018   2019   2020 and
Thereafter
   Total 

Facility construction or improvement contracts

  $166    $6    $    $    $    $    $172  

Information technology contracts

   183     143     115     96     79     1     617  

(c) Capacity Purchase Agreements with Third-Party Regional Carriers

As of December 31, 2014, the Company’s capacity purchase agreements with third-party regional carriers had expiration dates ranging from 2015 to 2027, with rights of American or US Airways, respectively, to extend the respective terms of each agreement. See Part I, Item 2. Properties for unaudited information on the aircraft contractually obligated to the Company under such capacity purchase agreements with third-party regional carriers.

The Company has entered into agreements with the third-party regional carriers that operate certain of their aircraft using American’s or US Airways’ flight designator codes. American or US Airways, respectively, controls the scheduling, pricing, reservations, ticketing and seat inventories of those aircraft and retains all revenues associated with revenue flights by those aircraft. American or US Airways pays the third-party regional carriers an amount, as defined in the applicable agreement, based on the airlines’ costs of operating those flights and other factors intended to approximate market rates for those services. As of December 31, 2014, the Company’s minimum fixed obligations under its capacity purchase agreements with third-party regional airlines were as follows (approximately, in millions):

   2015   2016   2017   2018   2019   2020 and
Thereafter
   Total 

Minimum fixed obligations under its capacity purchase agreements with third-party regional carriers (1)

  $1,584    $1,616    $1,479    $1,197    $1,066    $3,102    $10,044  

(1)

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 the Company’s actual payments could differ materially. These obligations also include the portion of the Company’s future obligations related to aircraft deemed to be leased in the amount of approximately $492 million in 2015, $446 million in 2016, $382 million in 2017, $316 million in 2018, $283 million in 2019 and $883 million in 2020 and thereafter.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

(d) Operating Leases

The Company leases certain aircraft, engines and ground equipment, in addition to the majority of its ground facilities and terminal space. As of December 31, 2014, the Company had 477 aircraft under operating leases, with remaining terms ranging from one month to approximately 13 years. Airports are utilized for flight operations under lease arrangements with the municipalities or agencies owning or controlling such airports. Substantially all leases provide that the lessee must pay taxes, maintenance, insurance and certain other operating expenses applicable to the leased property. Some leases also include renewal and purchase options.

As of December 31, 2014, obligations under noncancellable operating leases for future minimum lease payments were as follows (in millions):

   2015   2016   2017   2018   2019   2020 and
Thereafter
   Total 

Future minimum lease payments (1)

  $2,110    $1,917    $1,809    $1,558    $1,399    $5,721    $14,514  

(1)

As of December 31, 2014, $267 million is included on the accompanying balance sheet in accrued liabilities and deferred gains and credits, net relating to rent expense being recorded in advance of future operating lease payments.

Rent expense, excluding landing fees, was $2.8 billion, $1.7 billion and $1.4 billion in 2014, 2013 and 2012, respectively.

(e) Off-Balance Sheet Arrangements

Aircraft

AAG has 214 owned aircraft and 138 leased aircraft which were financed with pass through trust certificates, or 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. Rather than finance each aircraft separately when such aircraft was purchased, delivered or refinanced, these trusts allowed AAG to raise the financing for several aircraft at one time and place such funds in escrow pending the purchase, delivery or refinancing of the relevant aircraft. The trusts were also 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 AAG.

Each trust covered a set amount of aircraft scheduled to be delivered or refinanced within a specific period of time. At the time of each covered aircraft financing, the relevant trust used the funds in escrow to purchase equipment notes relating to the financed aircraft. The equipment notes were issued, at AAG’s election, in connection with a mortgage financing of the aircraft 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 leased the aircraft to American or US Airways, as applicable. In both cases, the equipment notes are secured by a security interest in the aircraft. The pass through trust certificates are not direct obligations of, nor are they guaranteed by AAG, American, US Airways Group or US Airways. However, in the case of mortgage financings, the equipment notes issued to the trusts are direct obligations of American or US Airways and in certain instances are guaranteed by AAG or US Airways Group, as applicable. As of December 31, 2014, $7.0 billion associated with these mortgage financings is reflected as debt in the accompanying consolidated balance sheet.

With respect to leveraged leases, AAG evaluated whether the leases had characteristics of a variable interest entity and concluded the leasing entities met the criteria for variable interest entities. AAG generally is not the primary beneficiary of the leasing entities if the lease terms are consistent with market terms at the inception of

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

the lease and do not include a residual value guarantee, fixed-price purchase option or similar feature that obligates AAG to absorb decreases in value or entitles AAG to participate in increases in the value of the aircraft. AAG 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 AAG 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, AAG does not participate in any increases in the value of the aircraft. AAG concluded it was not the primary beneficiary under these arrangements. Therefore, AAG accounts for its EETC leveraged lease financings as operating leases. AAG’s total future obligations under these leveraged lease financings are $2.1 billion as of December 31, 2014, which are included in the future minimum lease payments table above.

Special Facility Revenue Bonds

AAG guarantees the payment of principal and interest of certain special facility revenue bonds issued by municipalities primarily to build or improve airport facilities and purchase equipment which is leased to AAG. Under such leases, AAG is required to make rental payments through 2035, sufficient to pay maturing principal and interest payments on the related bonds. As of December 31, 2014, the remaining lease payments guaranteeing the principal and interest on these bonds are $449 million, which are accounted for as operating leases.

(f) Legal Proceedings

Chapter 11 Cases.As previously disclosed, on the Petition Date, November 29, 2011, the Debtors filed the Chapter 11 Cases. On October 21, 2013, the Bankruptcy Court entered the Confirmation Order confirming the Plan. On the Effective Date, December 9, 2013, the Debtors consummated their reorganization pursuant to the Plan, principally through the transactions contemplated by the Merger Agreement pursuant to which Merger Sub merged with and into US Airways Group, with US Airways Group surviving as a wholly-owned subsidiary of AAG. From the Petition Date through the Effective Date, pursuant to automatic stay provisions under the Bankruptcy Code and orders granted by the Bankruptcy Court, actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date as well as all pending litigation against the Debtors generally were stayed. Following the Effective Date, actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date, generally have been permanently enjoined. Any unresolved claims will continue to be subject to the claims reconciliation process under the supervision of the Bankruptcy Court. However, certain pending litigation related to pre-petition liabilities may proceed in courts other than the Bankruptcy Court to determine the amount, if any, of such litigation claims for purposes of treatment under the Plan.

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 Single-Dip Unsecured Claims. The shares provided for under the Plan were determined based upon a Disputed Claims Reserve amount of claims of approximately $755 million, representing the maximum amount of additional distributions to subsequently allowed Single-Dip Unsecured Claims under the Plan. On July 1, 2014 (the date 180 days after the Effective Date), approximately 2.9 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and shares were withheld or sold on account of related tax obligations. In addition, on July 1, 2014, the Company repurchased 0.4 million shares of AAG Common Stock for an aggregate of $19 million from the Disputed Claims Reserve at the then prevailing market price in order to fund cash tax obligations resulting from distributions by the Disputed Claims Reserve. On November 4, 2014, approximately 0.7 million shares of AAG Common Stock held in the Disputed Claims

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and shares were withheld or sold on account of related tax obligations. In addition, on November 4, 2014, the Company repurchased less than 0.1 million shares of AAG Common Stock for an aggregate of $2 million from the Disputed Claims Reserve at the then prevailing market price in order to fund cash tax obligations resulting from distributions by the Disputed Claims Reserve. As of December 31, 2014, there were approximately 26.8 million shares of AAG Common Stock remaining in the Disputed Claims Reserve. On February 10, 2015, approximately 0.8 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and shares were withheld or sold on account of related tax obligations. In addition, on February 10, 2015, the Company repurchased less than 0.1 million shares of AAG Common Stock for an aggregate of $4 million from the Disputed Claims Reserve at the then prevailing market price in order to fund cash tax obligations resulting from distributions by the Disputed Claims Reserve. As disputed claims are resolved, the claimants will receive distributions of shares from the Disputed Claims Reserve on the same basis as if such distributions had been made on or about the Effective Date. However, the Company is not required to distribute additional shares above the limits contemplated by the Plan, even if the shares remaining for distribution 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 the Company but rather will be distributed to former AMR shareholders as of the Effective Date. However, resolution of disputed claims could have a material effect on recoveries by holders of additional allowed Single-Dip Unsecured Claims under the Plan and the amount of additional share distributions, if any, that are made to former AMR shareholders as the total number of shares of AAG Common Stock that remain available for distribution upon resolution of disputed claims is limited pursuant to the Plan.

There is also pending in the Bankruptcy Court an adversary proceeding relating to an action brought by American to seek a determination that certain non-pension, post-employee benefits (OPEB) are not vested benefits and thus may be modified or terminated without liability to American. On April 18, 2014, the Bankruptcy Court granted American’s motion for summary judgment with respect to certain non-union employees, concluding that their benefits were not vested and could be terminated. The summary judgment motion was denied with respect to all other retirees. The Bankruptcy Court has not yet scheduled a trial on the merits concerning whether those retirees’ benefits are vested, and American cannot predict whether it will receive relief from obligations to provide benefits to any of those retirees. The Company’s financial statements presently reflect these retirement programs without giving effect to any modification or termination of benefits that may ultimately be implemented based upon the outcome of this proceeding. Separately, both the Association of Professional Flight Attendants and Transport Workers Union have filed grievances asserting that American was “successful” in its Chapter 11 with respect to matters related to OPEB and, accordingly, by operation of the underlying collective bargaining agreements, American’s prior contributions to certain OPEB prefunding trusts attributable to active employees should be returned to those active employees. These amounts aggregate approximately $212 million. The Company has denied both grievances and intends to defend these matters vigorously.

Private Party Antitrust Action.On July 2, 2013, a lawsuit captioned Carolyn Fjord, et al., v. US Airways Group, Inc., et al., was filed in the United States District Court for the Northern District of California. The complaint names as defendants US Airways Group and US Airways, and alleges that the effect of the Merger may be to substantially lessen competition or tend to create a monopoly in violation of Section 7 of the Clayton Antitrust Act. The relief sought in the complaint includes an injunction against the Merger, or divestiture. On August 6, 2013, the plaintiffs re-filed their complaint in the Bankruptcy Court, adding AMR and American as defendants, and on October 2, 2013, dismissed the initial California action. The Bankruptcy Court denied plaintiffs’ motion to preliminarily enjoin the Merger. On January 10, 2014, the plaintiffs moved to amend their

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

complaint to add additional factual allegations, a claim for money damages and a request for preliminary injunctive relief requiring the carriers to hold separate their assets. On March 14, 2014, the Court allowed plaintiffs to add certain allegations but denied plaintiffs’ requests to add a damages claim or seek preliminary injunctive relief requiring the carriers to hold separate their assets. On June 2, 2014, plaintiffs filed an amended motion for leave to file a second amended and supplemental complaint, which motion has been fully briefed by the parties and is pending resolution by the Court. There is currently no trial date set. The Company believes this lawsuit is without merit and intends to vigorously defend against the allegations.

US Airways Sabre Matter. On April 21, 2011, US Airways filed an antitrust lawsuit against Sabre Holdings Corporation, Sabre Inc. and Sabre Travel International Limited (collectively, Sabre) in the Federal District Court for the Southern District of New York. The lawsuit, as amended to date, alleges, among other things, that Sabre has engaged in anticompetitive practices to preserve its market power by restricting the Company’s ability to distribute its products to its customers. The lawsuit also alleges that these actions have permitted Sabre to charge supracompetitive booking fees and to use technologies that are not as robust and as efficient as alternatives in a competitive market. The lawsuit seeks money damages. Sabre filed a motion to dismiss the case, which the court denied in part and granted in part in September 2011, allowing two of the four counts in the complaint to proceed. In January 2015, the court denied in part and granted in part Sabre’s motions for summary judgment. A trial date is expected to be set soon. The Company intends to pursue its claims against Sabre vigorously, but there can be no assurance of the outcome of this litigation.

General. The Company and its 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 the control of the Company. Therefore, although the Company will vigorously defend itself in each of the actions described above and such other legal proceedings, their ultimate resolution and potential financial and other impacts on the Company are uncertain.

(g) Guarantees and Indemnifications

US Airways assigned to Delta a lease agreement with the Port Authority of New York and New Jersey (the Port Authority) related to the East End Terminal at LaGuardia airport. A portion of the rental payments under the lease are used to repay special facility revenue bonds issued by the Port Authority. The special facility revenue bonds have a final scheduled maturity in 2015 and had an outstanding principal amount of approximately $22 million at December 31, 2014. Pursuant to the terms of the lease assignment, US Airways is contingently liable for Delta’s obligations, as assignee, under the lease agreement in the event Delta fails to perform such obligations including, without limitation, the payment of all rentals and other amounts due under the lease agreement. US Airways has the right to cure any failure by Delta to perform its obligations under the lease agreement and, in addition, US Airways has the right to reoccupy the terminal if it so chooses to cure any such default.

The Company is a party to many routine contracts in which it provides general indemnities in the normal course of business to third parties for various risks. The Company is not able to estimate the potential amount of any liability resulting from the indemnities. These indemnities are discussed in the following paragraphs.

In its aircraft financing agreements, the Company generally indemnifies the financing parties, trustees acting on their behalf and other relevant parties against liabilities (including certain taxes) resulting from the financing, manufacture, design, ownership, operation and maintenance of the aircraft regardless of whether these liabilities (or taxes) relate to the negligence of the indemnified parties.

The Company’s loan agreements and other London Interbank Offered Rate (LIBOR)-based financing transactions (including certain leveraged aircraft leases) generally obligate the Company to reimburse the applicable lender for incremental costs due to a change in law that imposes (i) any reserve or special deposit

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

requirement against assets of, deposits with or credit extended by such lender related to the loan, (ii) any tax, duty or other charge with respect to the loan (except standard income tax) or (iii) capital adequacy requirements. In addition, the Company’s loan agreements, derivative contracts and other financing arrangements typically contain a withholding tax provision that requires the Company to pay additional amounts to the applicable lender or other financing party, generally if withholding taxes are imposed on such lender or other financing party as a result of a change in the applicable tax law.

These increased cost and withholding tax provisions continue for the entire term of the applicable transaction, and there is no limitation on the maximum additional amounts the Company could be obligated to pay under such provisions. Any failure to pay amounts due under such provisions generally would trigger an event of default and, in a secured financing transaction, would entitle the lender to foreclose on the collateral to realize the amount due.

In certain transactions, including certain aircraft financing leases and loans, the lessors, lenders and/or other parties have rights to terminate the transaction based on changes in foreign tax law, illegality or certain other events or circumstances. In such a case, the Company may be required to make a lump sum payment to terminate the relevant transaction.

The Company has general indemnity clauses in many of its airport and other real estate leases where the Company as lessee indemnifies the lessor (and related parties) against liabilities related to the Company’s use of the leased property. Generally, these indemnifications cover liabilities resulting from the negligence of the indemnified parties, but not liabilities resulting from the gross negligence or willful misconduct of the indemnified parties. In addition, the Company provides environmental indemnities in many of these leases for contamination related to the Company’s use of the leased property.

Under certain contracts with third parties, the Company indemnifies the third-party against legal liability arising out of an action by the third-party, or certain other parties. The terms of these contracts vary and the potential exposure under these indemnities cannot be determined. The Company has liability insurance protecting the Company for some of the obligations it has undertaken under these indemnities.

The Company is involved in certain claims and litigation related to its operations. The Company is also subject to regulatory assessments in the ordinary course of business. The Company establishes reserves for litigation and regulatory matters when those matters present loss contingencies that are both probable and can be reasonably estimated. In the opinion of management, liabilities, if any, arising from these regulatory matters, claims and litigation will not have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows, after consideration of available insurance.

(h) Other

In 2010, American and Japan Airlines entered into a JBA under which, amongst other things, American provided Japan Airlines a guarantee of certain minimum incremental revenue resulting from the successful operation of the joint business for the first three years following its implementation, subject to certain terms and conditions. The amount required to be paid by the Company under the guarantee in any one of such years may not exceed $100 million, and is reduced if capacity for one of such years is less than a defined base year period capacity. As of December 31, 2013, American reached an agreement with Japan Airlines to settle the liability for $90 million. The liability is expected to be settled in 2015.

In the fourth quarter of 2012, the Company entered into a settlement agreement resolving a commercial dispute. The settlement agreement includes two elements which were valued at relative fair value and will be recognized when earned. The Company determined that the settlement includes a litigation gain of $280 million, which was valued using future cash flows and recognized in the fourth quarter of 2012. The settlement also

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

includes an incentive which is contingent upon signing a future contract and will be recognized over the term of the future contract. The contract was signed in January 2014. In connection with the new contract, the Company recorded an additional $70 million receivable with an offset to other liabilities to be recognized over the course of the remaining contract term.

As a result of the terrorist attacks of September 11, 2001 (the Terrorist Attacks) and the subsequent liability protections provided for by the Air Transportation Safety and System Stabilization Act (the Stabilization Act), the Company recorded a liability for the Terrorist Attacks claims equal to the related insurance receivable due to American. The Stabilization Act provides that, notwithstanding any other provision of law, liability for all claims, whether compensatory or punitive, arising from the Terrorist Attacks, against any air carrier shall not exceed the liability coverage maintained by the air carrier. As of December 31, 2014, the remaining liability and the amount of the offsetting receivable were each $974 million.

16.  Supplemental Cash Flow Information

Supplemental disclosure of cash flow information and non-cash investing and financing activities are as follows (in millions):

   Year Ended December 31, 
   2014   2013   2012 

Non-cash investing and financing activities:

      

Settlement of bankruptcy obligations

  $5,495    $864    $  

Acquisition of US Airways, net

        4,386       

Capital lease obligations

   747            

Supplemental information:

      

Interest paid, net of amounts capitalized

   814     713     485  

Income taxes paid

   7     12     6  

17.  Operating Segments and Related Disclosures

The Company is managed as a single business unit that provides air transportation for passengers and cargo. This allows it to benefit from an integrated revenue pricing and route network that includes American, US Airways, Envoy, Piedmont, PSA and third-party carriers that fly under capacity purchase or prorate agreements as part of the Company’s regional operations. The flight equipment of all these carriers is combined to form one fleet that is deployed through a single route scheduling system. When making resource allocation decisions, the chief operating decision maker evaluates flight profitability data, which considers aircraft type and route economics, but gives no weight to the financial impact of the resource allocation decision on an individual carrier basis. The objective in making resource allocation decisions is to maximize consolidated financial results, not the individual results of American, US Airways, Envoy, Piedmont and PSA.

The Company’s operating revenues by geographic region as defined by the U.S. Department of Transportation (DOT) are summarized below (in millions):

   Year Ended December 31, 
   2014   2013   2012 

DOT Domestic

  $28,568    $15,376    $14,287  

DOT Latin America

   6,964     6,288     5,813  

DOT Atlantic

   5,652     3,756     3,411  

DOT Pacific

   1,466     1,323     1,344  
  

 

 

   

 

 

   

 

 

 

Total consolidated revenues

  $42,650    $26,743    $24,855  
  

 

 

   

 

 

   

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

The Company attributes operating revenues by geographic region based upon the origin and destination of each flight segment. The Company’s tangible assets consist primarily of flight equipment, which are mobile across geographic markets and, therefore, have not been allocated.

18.  Share-based Compensation

In December 2013, the Board of Directors of AAG approved the 2013 AAG Incentive Award Plan (the 2013 Plan). Awards may be in the form of an option, restricted stock award, restricted stock unit award, performance award, dividend equivalent award, deferred stock award, deferred stock unit award, stock payment award or stock appreciation right. The 2013 Plan authorizes the grant of awards for the issuance of 40 million shares plus any shares underlying awards granted under the 2013 Plan, or any pre-existing US Airways Group plan, that are forfeited, terminate or are cash settled (in whole or in part) without a payment being made in the form of shares. In addition, any shares that are available for issuance under the US Airways Group 2011 Incentive Award Plan (the 2011 Plan) as of the effective date of the Merger may be used for awards under the 2013 Plan; provided, that awards using such available shares under the 2011 Plan shall not be made after the date awards or grants could have been made under the 2011 Plan and shall only be made to individuals who were not providing services to AAG prior to the Merger. Awards granted under the 2013 Plan upon the assumption of, or in substitution for, outstanding awards in connection with a corporate transaction, such as a merger, will not reduce the shares authorized for issuance under the 2013 Plan.

In addition, pursuant to the Plan, and as approved by the Bankruptcy Court, certain officers, directors and employees received share-based incentive awards related to the Merger and future service. Awards issued in conjunction with the Plan are discussed in more detail below.

All outstanding US Airways Group equity awards were converted into equity awards with respect to AAG Common Stock using an exchange ratio of 1 to 1 and had a fair value of approximately $141 million at the Merger, which was included in the purchase price. These awards have the same terms and conditions as were applicable to such equity awards immediately prior to the Merger closing date.

The Company’s net income for the years ended December 31, 2014, 2013 and 2012 included $381 million, $92 million and $29 million respectively, of share-based compensation costs. Of the 2014 and 2013 amounts, $224 million and $42 million, respectively, were related to the Merger and recorded in special items, net on the accompanying consolidated statements of operations.

(a) Restricted Stock Unit (RSU) Awards

As of December 31, 2014, the Company has outstanding restricted stock unit awards with service conditions (time vested) and performance conditions. The grant-date fair value of restricted stock unit awards is equal to the market price of the underlying shares of common stock on the date of grant. For time vested awards, the expense is recognized on a straight-line basis over the vesting period for the entire award. For awards with performance conditions, the expense is recognized based on the expected achievement at each reporting period. Stock-settled restricted stock unit awards (RSUs) are classified as equity awards as the vesting results in the issuance of shares of AAG Common Stock. Cash-settled restricted stock unit awards (CRSUs) are classified as liability awards as the vesting results in payment of cash by the Company. The Company granted certain RSU awards in connection with the Merger as follows:

Alignment Awards

On December 9, 2013, alignment awards were granted in the form of RSUs. The awards were provided to legacy AMR employees in order to align interests and create parity with peers at US Airways Group, and one-third of the awards vested on the Company’s emergence from bankruptcy. The remaining awards vest equally on

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

the one and two year anniversary of emergence. Employees terminated in connection with the Merger fully vest in their awards on the termination date. Compensation expenses for these awards are recorded in special items, net on the consolidated statements of operations.

Merger Equity Grant

The Merger Equity Grant was granted on the Effective Date to certain officers and directors and employees in the form of RSUs and will be settled in equity for domestic employees and in cash for international employees. Each restricted stock unit award granted will vest, subject to the executive’s continued employment, with respect to (i) 50% of the restricted stock units on December 16, 2015; (ii) 25% of the restricted stock units on the earlier to occur of (a) December 16, 2015, if the Company is issued a Single Operating Certificate prior to or on that date or (b) the date on which the Company is issued a Single Operating Certificate, provided that such date is prior to or on December 9, 2016; and (iii) 25% of the restricted stock units on the date the Board of Directors or compensation committee of the Board of Directors determines that the Company has achieved at least $1.0 billion in net synergies with respect to fiscal year 2015 or 2016. Compensation expenses for these awards are recorded in special items, net on the consolidated statements of operations.

RSU award activity for all plans for the years ended December 31, 2014 and 2013 is as follows (shares in thousands):

   Number of
Shares
  Weighted Average
Grant Date Fair
Value
 
   (In thousands)    

Outstanding at January 1, 2013

      $  

Granted

   22,101    24.60  

Assumed US Airways awards

   3,164    22.55  

Vested and released

   (1,386  24.58  

Forfeited

         
  

 

 

  

Outstanding at December 31, 2013

   23,879   $24.33  

Granted

   3,467    37.07  

Vested and released

   (4,193  23.84  

Forfeited

   (1,811  25.10  
  

 

 

  

Outstanding at December 31, 2014

   21,342   $26.43  
  

 

 

  

As of December 31, 2014, there was $308 million of total unrecognized compensation cost related to RSUs. These costs are expected to be recognized over a weighted average period of one year. The total fair value of RSUs vested during the years ended December 31, 2014 and 2013 was $154 million and $31 million, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

Cash-settled restricted stock

CRSU award activity for all plans for the years ended December 31, 2014 and 2013 is as follows (shares in thousands):

   Number of
Shares
  Weighted Average
Fair Value
 
   (In thousands)    

Outstanding at January 1, 2013

      $  

Granted

   309    24.60  

Assumed US Airways awards

   320    22.55  

Vested and released

   (3  25.25  

Forfeited

         
  

 

 

  

Outstanding at December 31, 2013

   626   $25.25  

Granted

   50    40.93  

Vested and released

   (341  34.54  

Forfeited

   (74  34.75  
  

 

 

  

Outstanding at December 31, 2014

   261   $53.63  
  

 

 

  

As of December 31, 2014, the liability related to CRSUs was $6 million, which will continue to be remeasured at fair value at each reporting date until all awards are vested. As of December 31, 2014, the total unrecognized compensation expense for CRSUs was $8 million and is expected to be recognized over a weighted average period of one year. The total cash paid for CRSUs vested during the years ended December 31, 2014 and 2013 was $12 million and less than $1 million, respectively.

(b) Stock Options and Stock Appreciation Rights

Stock options and stock appreciation rights are granted with an exercise price equal to the underlying common stock’s fair value at the date of each grant. Stock options and stock appreciation rights have service conditions, become exercisable over a three-year vesting period and expire if unexercised at the end of their term, which ranges from seven to ten years. Stock options and stock-settled stock appreciation rights (SARs) are classified as equity awards as the exercise results in the issuance of shares of AAG Common Stock. Cash-settled stock appreciation rights (CSARs) are classified as liability awards as the exercise results in payment of cash by the Company.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

Stock option and SAR award activity for all plans for the years ended December 31, 2014 and 2013 is as follows (stock options and SARs in thousands):

   Stock Options
and SARS
  Weighted
Average
Exercise
Price
   Weighted Average
Remaining
Contractual Term
   Aggregate
Intrinsic Value
 
   (In thousands)      (In years)   (In millions) 

Assumed US Airways awards at December 9, 2013

   11,200   $12.84      

Granted

             

Exercised

   (42  14.42      

Forfeited

             

Expired

             
  

 

 

      

Balance at December 31, 2013

   11,158   $12.84      

Granted

             

Exercised

   (4,109  10.74      

Forfeited

             

Expired

   (42  41.73      
  

 

 

      

Balance at December 31, 2014

   7,007   $13.90     2.6    $278  

Vested or expected to vest at December 31, 2014

   7,006   $13.90     2.6    $278  

Exercisable at December 31, 2014

   6,052   $14.83     2.4    $235  

CSAR award activity for all plans for the years ended December 31, 2014 and 2013 is as follows (CSARs in thousands):

   CSARs  Weighted
Average
Exercise
Price
   Weighted Average
Remaining
Contractual Term
   Aggregate
Intrinsic Value
 
   (In thousands)      (In years)   (In millions) 

Assumed US Airways awards at December 9, 2013

   2,888   $6.25      

Granted

             

Exercised

   (23  5.10      

Forfeited

             

Expired

             
  

 

 

      

Balance at December 31, 2013

   2,865   $6.26      

Granted

             

Exercised

   (1,254  6.18      

Forfeited

             

Expired

             
  

 

 

      

Balance at December 31, 2014

   1,611   $6.33     2.2    $76  

Vested or expected to vest at December 31, 2014

   1,611   $6.33     2.2    $76  

Exercisable at December 31, 2014

   1,610   $6.33     2.2    $76  

There were no stock options or stock appreciation rights granted subsequent to the Merger closing date. Stock options and stock appreciation rights are expensed on a straight-line basis over the vesting period for the entire award.

As of December 31, 2014, there were $4 million of total unrecognized compensation costs related to SARs. These costs are expected to be recognized over a weighted average period of 0.3 years. The total intrinsic value of stock options and SARs exercised during the year ended December 31, 2014 and the 23 day period ended December 31, 2013 was $105 million and less than $1 million, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

As of December 31, 2014, the weighted average fair value of outstanding CSARs was $47.29 per share and the related liability was $76 million. These CSARs will continue to be remeasured at fair value at each reporting date until all awards are settled. As of December 31, 2014, the total unrecognized compensation expense for CSARs was less than a million and is expected to be recognized over a weighted average period of 0.3 years. Total cash paid for CSARs exercised during the year ended December 31, 2014 and the 23 day period ended December 31, 2013 was $42 million and less than $1 million, respectively.

19.  Valuation and Qualifying Accounts (in millions)

  Balance at
beginning
of year
  Changes charged to
statement of
operations
accounts
  Payments  Write-offs
(net of
recoveries)
  Sales,
retirements
and
transfers
  Balance at
end of
year
 

Allowance for obsolescence of inventories

      

Year ended December 31, 2014

 $547   $142   $   $(4 $(12 $673  

Year ended December 31, 2013

  546    24        (23      547  

Year ended December 31, 2012

  575    20        (49      546  

Allowance for uncollectible accounts

      

Year ended December 31, 2014

 $41   $6   $   $(30 $   $17  

Year ended December 31, 2013

  44   ��3        (6      41  

Year ended December 31, 2012

  52    3        (11      44  

Reserves for environmental remediation costs

      

Year ended December 31, 2014

 $11   $   $(1 $   $   $10  

Year ended December 31, 2013

  13    2    (1  (3      11  

Year ended December 31, 2012

  14    (1              13  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

20.  Quarterly Financial Data (Unaudited)

Unaudited summarized financial data by quarter for 2014 and 2013 (in millions, except share and per share amounts):

   First Quarter  Second Quarter   Third Quarter   Fourth Quarter 

2014

       

Operating revenues

  $9,995   $11,355    $11,139    $10,160  

Operating expenses

   9,265    9,956     9,879     9,300  

Operating income

   730    1,399     1,260     860  

Net income

   480    864     942     597  

Earnings per share:

       

Basic

  $0.66   $1.20    $1.31    $0.84  

Diluted

  $0.65   $1.17    $1.28    $0.82  

Shares used for computation (in thousands):

       

Basic

   723,971    720,600     719,067     706,185  

Diluted

   741,335    734,767     735,196     724,767  

2013

       

Operating revenues

  $6,098   $6,449    $6,828    $7,367  

Operating expenses

   6,027    5,937     6,127     7,252  

Operating income

   71    512     701     115  

Net income (loss)

   (341  220     289     (2,000

Earnings (loss) per share (1):

       

Basic

  $(1.37 $0.88    $1.16    $(5.38

Diluted

  $(1.37 $0.79    $1.02    $(5.38

Shares used for computation (in thousands) (1):

       

Basic

   249,491    249,588     249,719     372,055  

Diluted

   249,491    288,511     289,036     372,055  

(1)

The Company’s weighted average diluted shares outstanding for the 2013 quarters presented include the weighted effect of shares outstanding for both the pre and post-merger periods. The shares outstanding for the pre-merger periods (January 1, 2013 through December 8, 2013) consist only of the AMR common stock formerly traded under the symbol: “AAMRQ”. In accordance with GAAP, these former AAMRQ shares have been adjusted for all periods presented to retrospectively reflect the distributions made to date pursuant to the Company’s Plan, whereby holders of AAMRQ have received 0.7441 shares of AAG Common Stock per share of AAMRQ. The shares outstanding for the 23 day post-merger period (December 9, 2013 through December 31, 2013) include the full amount of shares to be issued pursuant to the Plan over the 120 day distribution period adjusted for approximately 13 million shares withheld by the Company in satisfaction of employee tax obligations.

Former holders of AAMRQ shares as of the Effective Date may in the future receive additional distributions of AAG Common Stock dependent upon the ultimate distribution of shares of AAG Common Stock to holders of disputed claims. Thus, the shares and related earnings per share calculation prior to the Effective Date may change in the future to reflect additional retrospective adjustments for future AAG Common Stock distributions to former holders of AAMRQ shares.

The Company’s fourth quarter 2014 results reflect $507 million of net special items consisting of $280 million of merger integration expenses related to information technology, alignment of labor union contracts, professional fees, severance and retention, share-based compensation, divestiture of London Heathrow Slots, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training. In addition, the Company recorded a net $116 million charge for bankruptcy related items principally consisting of fair value adjustments

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

for bankruptcy settlement obligations, a $70 million charge related primarily to certain spare parts asset impairments as well as a $24 million charge due to a new pilot labor contract at the Company’s Envoy regional subsidiary. The Company also recorded a $31 million nonoperating special charge principally for Venezuelan foreign currency losses. These charges were offset in part by an $8 million gain on the sale of certain spare parts as well as a $6 million non-cash deferred income tax benefit related to certain indefinite-lived intangible assets.

The Company’s fourth quarter 2013 results reflect $2.4 billion of net special items consisting of $2.2 billion of reorganization items principally due to a $1.7 billion deemed claim to employees pursuant to the Plan as well as professional fees and estimated allowed claim amounts, $393 million of Merger related expenses due to the alignment of labor union contracts, professional fees, severance, share-based compensation and fees for US Airways to exit the Star Alliance and its codeshare agreement with United Airlines, a $214 million tax charge attributable to additional valuation allowance required to reduce deferred tax assets to the amount more likely than not to be realized, a $107 million charge related to American’s pilot long-term disability obligation, a $33 million aircraft impairment charge and $20 million of interest charges to recognize post-petition interest expense on unsecured obligations pursuant to the Plan. These charges were offset in part by a $538 million non-cash income tax benefit resulting from gains recorded in OCI, a $67 million gain on the sale of Slots at LaGuardia Airport and a $31 million credit to other revenue related to a change in accounting method resulting from the modification of the Company’s AAdvantage miles agreement with Citibank.

21.  Financial Information for Subsidiary Guarantors and Non-guarantor Subsidiaries

There are various cross-guarantees among the Company, American, US Airways Group and US Airways with respect to publicly held debt securities. In connection with the Merger, the Company and American entered into a second supplemental indenture under which they jointly and severally guaranteed the payment obligations of US Airways Group under the 6.125% senior notes. In addition, on March 31, 2014, the Company, US Airways Group and US Airways entered into amended and restated guarantees of the payment obligations of US Airways under the equipment notes relating to each of its Series 2010-1, 2011-1, 2012-1, 2012-2 and 2013-1 Pass Through Certificates, the result of which was to add AAG as a guarantor of such equipment notes on a joint and several basis with US Airways Group. In September 2014, the Company issued $750 million aggregate principal amount of the 5.50% senior notes, which are fully and unconditionally guaranteed by American, US Airways Group and US Airways.

In connection with the issuance of these guarantees, in accordance with Rule 3-10 of Regulation S-X and Rule 12h-5 under the Securities Exchange Act of 1934, as amended, US Airways Group and US Airways discontinued filing separate periodic and current reports with the SEC. As a result, in accordance with Rule 3-10, the Company is providing the following consolidating financial information for American Airlines Group (Parent Company Only), American, US Airways Group (Parent Company Only), US Airways and all other non-guarantor subsidiaries, together with the consolidating adjustments necessary to present the Company’s results on a consolidated basis. For the financial statements of US Airways Group and US Airways for the fiscal year ended December 31, 2013, please refer to the Annual Report on Form 10-K of each such company filed with the SEC on February 28, 2014.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

AMERICAN AIRLINES GROUP INC.

CONSOLIDATING STATEMENT OF OPERATIONS

(In millions)

  Year Ended December 31, 2014 
  American
Airlines Group
(Parent
Company
Only)
  American  US
Airways
Group
(Parent
Company
Only)
  US Airways  Non-
Guarantor
Subsidiaries
  Eliminations
and
Reclassifications
  American
Airlines
Group Inc.
Consolidated
 

Operating revenues:

       

Mainline passenger

 $   $20,345   $   $10,457   $   $   $30,802  

Regional passenger

      2,911        3,411            6,322  

Cargo

      717        158            875  

Other

      3,168        1,600    3,278    (3,395  4,651  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total operating revenues

      27,141        15,626    3,278    (3,395  42,650  

Operating expenses:

       

Aircraft fuel and related taxes

      7,190        3,401    1        10,592  

Salaries, wages and benefits

      5,662        2,837    782    (773  8,508  

Regional expenses

      3,113        3,452        (49  6,516  

Maintenance, materials and repairs

      1,334        717    352    (352  2,051  

Other rent and landing fees

      1,145        582    32    (32  1,727  

Aircraft rent

      860        394    94    (98  1,250  

Selling expenses

      1,091        453            1,544  

Depreciation and amortization

      896        405    40    (46  1,295  

Special items, net

  18    507        276    18    (19  800  

Other

  5    3,005    1    1,181    1,951    (2,025  4,118  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total operating expenses

  23    24,803    1    13,698    3,270    (3,394  38,401  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income (loss)

  (23  2,338    (1  1,928    8    (1  4,249  

Nonoperating income (expense):

       

Interest income

  9    25        7    2    (12  31  

Interest expense, net

  (15  (581  (36  (266  (1  12    (887

Equity in earnings of subsidiaries

  2,919        1,480            (4,399    

Other, net

      (153  (53  (30  2    53    (181
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total nonoperating income (expense), net

  2,913    (709  1,391    (289  3    (4,346  (1,037
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Income before income taxes

  2,890    1,629    1,390    1,639    11    (4,347  3,212  

Income tax provision (benefit)

  8    319    (1  157    16    (169  330  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss)

 $2,882   $1,310   $1,391   $1,482   $(5 $(4,178 $2,882  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

AMERICAN AIRLINES GROUP INC.

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(In millions)

  Year Ended December 31, 2014 
  American
Airlines
Group
(Parent
Company
Only)
  American  US
Airways
Group
(Parent
Company
Only)
  US Airways  Non-
Guarantor
Subsidiaries
  Eliminations
and
Reclassifications
  American
Airlines
Group Inc.
Consolidated
 

Net income (loss)

 $2,882   $1,310   $1,391   $1,482   $(5 $(4,178 $2,882  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Other comprehensive income (loss), before tax:

       

Defined benefit pension plans and retiree medical:

       

Amortization of actuarial loss and prior service cost

      (159      (4          (163

Current year change

      (2,602      (19  (12      (2,633

Derivative financial instruments:

       

Change in fair value

  (2  (52                  (54

Reclassification into earnings

      (4                  (4

Unrealized gain (loss) on investments:

       

Net change in value

  1    (4                  (3
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Other comprehensive income (loss) before tax

  (1  (2,821      (23  (12      (2,857

Non-cash tax benefit

  (2  (328                  (330
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income (loss)

 $2,883   $(1,183 $1,391   $1,459   $(17 $(4,178 $355  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

AMERICAN AIRLINES GROUP INC.

CONDENSED CONSOLIDATING BALANCE SHEET

(In millions)

  December 31, 2014 
  American
Airlines  Group
(Parent
Company

Only)
  American  US
Airways
Group
(Parent
Company
Only)
  US Airways  Non-
Guarantor
Subsidiaries
  Eliminations
and
Reclassifications
  American
Airlines
Group Inc.
Consolidated
 

ASSETS

       

Current assets

       

Cash

 $1   $785   $2   $199   $7   $   $994  

Short-term investments

      3,290        3,016    3        6,309  

Restricted cash and short-term investments

      650        124            774  

Accounts receivable, net

      1,445        324    15    (13  1,771  

Receivables from related parties, net

  1,893        157    933    526    (3,509    

Aircraft fuel, spare parts and supplies, net

      625        294    85        1,004  

Prepaid expenses and other

      462        912    41    (155  1,260  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total current assets

  1,894    7,257    159    5,802    677    (3,677  12,112  

Operating property and equipment

      16,299        6,506    279        23,084  

Other assets

       

Investments in subsidiaries

  847        6,870            (7,717    

Goodwill

              4,090        1    4,091  

Intangibles, net of accumulated amortization

      815        1,425            2,240  

Other assets

  53    1,921        267    38    (35  2,244  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total other assets

  900    2,736    6,870    5,782    38    (7,751  8,575  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total assets

 $2,794   $26,292   $7,029   $18,090   $994   $(11,428 $43,771  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

       

Current liabilities

       

Current maturities of long-term debt and capital leases

 $   $1,230   $   $477   $1   $   $1,708  

Accounts payable

      1,029        287    61        1,377  

Payables to related parties, net

      2,563    634    73    239    (3,509    

Air traffic liability

      2,989        1,263            4,252  

Frequent flyer liability

      1,823        984            2,807  

Other accrued liabilities

  14    1,886    3    1,253    138    (3  3,291  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total current liabilities

  14    11,520    637    4,337    439    (3,512  13,435  

Noncurrent liabilities

       

Long-term debt and capital leases, net of current maturities

  758    10,004    524    4,945        (35  16,196  

Pension and postretirement benefits

      7,400        122    40        7,562  

Mandatorily convertible preferred stock and other bankruptcy settlement obligations

      325                    325  

Other liabilities

  1    2,615        1,861    317    (562  4,232  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total noncurrent liabilities

  759    20,344    524    6,928    357    (597  28,315  

Stockholders’ equity (deficit)

       

Common stock

  7                        7  

Additional paid-in capital

  15,135    10,632    4,703    5,542    199    (21,076  15,135  

Accumulated other comprehensive loss

  (4,559  (4,645  (16  (8  (12  4,681    (4,559

Retained earnings (deficit)

  (8,562  (11,559  1,181    1,291    11    9,076    (8,562
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total stockholders’ equity (deficit)

  2,021    (5,572  5,868    6,825    198    (7,319  2,021  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total liabilities and stockholders’ equity (deficit)

 $2,794   $26,292   $7,029   $18,090   $994   $(11,428 $43,771  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

AMERICAN AIRLINES GROUP INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(In millions)

  Year Ended December 31, 2014 
  American
Airlines  Group
(Parent
Company
Only)
  American  US
Airways
Group
(Parent
Company
Only)
  US Airways  Non-
Guarantor
Subsidiaries
  Eliminations
and
Reclassifications
  American
Airlines
Group Inc.
Consolidated
 

Net cash provided by operating activities

 $457   $1,477   $1   $1,101   $44   $   $3,080  

Cash flows from investing activities:

       

Capital expenditures and aircraft purchase deposits

      (3,913      (1,145  (55  (198  (5,311

Purchases of short-term investments

      (3,270      (2,110          (5,380

Sales of short-term investments

      5,139        2,040            7,179  

Decrease in restricted cash and short-term investments

      52        209            261  

Net proceeds from slot transaction

      299        8            307  

Funds transferred to affiliates, net

      (198              198      

Proceeds from sale of property and equipment

      2        18    13        33  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net cash used in investing activities

      (1,889      (980  (42      (2,911

Cash flows from financing activities:

     

Payments on long-term debt and capital leases

      (2,343      (612  (1  (176  (3,132

Proceeds from issuance of long-term debt

  750    1,993        559            3,302  

Deferred financing costs

  (11  (93      (2          (106

Sale-leaseback transactions

      811                    811  

Exercise of stock options

  10                        10  

Treasury stock repurchases

  (1,062                      (1,062

Dividend payment

  (144                      (144

Funds transferred to affiliates, net

              (176   176      

Other financing activities

              6            6  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net cash provided by (used in) financing activities

  (457  368        (225  (1      (315
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net increase (decrease) in cash

      (44  1    (104  1        (146

Cash at beginning of year

  1    829    1    303    6        1,140  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Cash at end of year

 $1   $785   $2   $199   $7   $   $994  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

22.  Subsequent Events

AAdvantage Loan

American had the right to repay in cash, without premium or penalty, any or all of the amounts owed to Citibank under the AAdvantage Loan. Effective January 2, 2015, American exercised its loan repayment right with respect to the full value of the outstanding balance to Citibank for $400 million. In connection with the repayment, in the first quarter of 2015, American will recognize an early debt extinguishment gain of approximately $17 million. The entire outstanding balance of the obligation is reflected in current maturities of long-term debt on the accompanying consolidated balance sheet as of December 31, 2014.

Share Repurchase Program and Dividend Declaration

On January 27, 2015, the Company announced that its Board of Directors had authorized a $2.0 billion share repurchase program to be completed by the end of 2016. Shares repurchased under the program 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 will be made from time to time subject to market and economic conditions, applicable legal requirements and other relevant factors. The share repurchase program does not obligate the Company to repurchase any specific number of shares and may be suspended at any time at management’s discretion.

Also on January 27, 2015, the Company announced that its Board of Directors had declared a $0.10 per share dividend for shareholders of record on February 9, 2015, and payable on February 23, 2015. Any future dividends that may be declared and paid from time to time under the Company’s capital deployment program will be subject to market and economic conditions, applicable legal requirements and other relevant factors. The Company’s capital deployment program does not obligate it to continue a dividend for any fixed period, and payment of dividends may be suspended at any time at management’s discretion.

Distribution of AAG Common Stock

On February 10, 2015, approximately 0.8 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and shares were withheld or sold on account of related tax obligations.

ITEM 8B. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF AMERICAN AIRLINES, INC.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

American Airlines, Inc.:

We have audited the accompanying consolidated balance sheet of American Airlines, Inc. and subsidiaries (American) as of December 31, 2014, and the related consolidated statements of operations, comprehensive income (loss), stockholder’s equity (deficit), and cash flows for the year then ended. These consolidated financial statements are the responsibility of American’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Airlines, Inc. and subsidiaries as of December 31, 2014, and the results of their operations and their cash flows for the year then ended 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), American Airlines, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established inInternal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 25, 2015 expressed an unqualified opinion on the effectiveness of American’s internal control over financial reporting.

/s/    KPMG LLP

Dallas, Texas

February 25, 2015

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholder

American Airlines, Inc.

We have audited the accompanying consolidated balance sheet of American Airlines, Inc. (American) as of December 31, 2013, and the related consolidated statements of operations, comprehensive income (loss), stockholder’s equity (deficit) and cash flows for each of the two years in the period ended December 31, 2013. These consolidated financial statements and schedule are the responsibility of American’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Airlines, Inc. at December 31, 2013 and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.

/s/    Ernst & Young LLP

Dallas, Texas

February 27, 2014

AMERICAN AIRLINES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions)

   Year Ended December 31, 
   2014  2013  2012 

Operating revenues:

  

Mainline passenger

  $20,345   $19,594   $18,743  

Regional passenger

   2,911    2,927    2,914  

Cargo

   717    676    675  

Other

   3,168    2,563    2,493  
  

 

 

  

 

 

  

 

 

 

Total operating revenues

   27,141    25,760    24,825  

Operating expenses:

    

Aircraft fuel and related taxes

   7,190    7,628    7,705  

Salaries, wages and benefits

   5,662    5,267    6,208  

Regional expenses

   3,113    3,074    3,049  

Maintenance, materials and repairs

   1,334    1,222    1,158  

Other rent and landing fees

   1,145    1,117    1,083  

Aircraft rent

   860    743    554  

Selling expenses

   1,091    1,128    1,059  

Depreciation and amortization

   896    830    845  

Special items, net

   507    282    386  

Other

   3,005    2,935    2,696  
  

 

 

  

 

 

  

 

 

 

Total operating expenses

   24,803    24,226    24,743  
  

 

 

  

 

 

  

 

 

 

Operating income

   2,338    1,534    82  

Nonoperating income (expense):

    

Interest income

   25    20    25  

Interest expense, net of capitalized interest

   (581  (710  (646

Other, net

   (153  (84  223  
  

 

 

  

 

 

  

 

 

 

Total nonoperating expense, net

   (709  (774  (398
  

 

 

  

 

 

  

 

 

 

Income (loss) before reorganization items, net

   1,629    760    (316

Reorganization items, net

       (2,640  (2,179
  

 

 

  

 

 

  

 

 

 

Income (loss) before income taxes

   1,629    (1,880  (2,495

Income tax provision (benefit)

   319    (354  (569
  

 

 

  

 

 

  

 

 

 

Net income (loss)

  $1,310   $(1,526 $(1,926
  

 

 

  

 

 

  

 

 

 

See accompanying notes to consolidated financial statements.

AMERICAN AIRLINES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In millions)

   Year Ended December 31, 
   2014  2013  2012 

Net income (loss)

  $1,310   $(1,526 $(1,926
  

 

 

  

 

 

  

 

 

 

Other comprehensive income (loss), before tax:

    

Defined benefit pension plans and retiree medical:

    

Amortization of actuarial gain (loss) and prior service cost

   (159  (142  130  

Current year change

   (2,602  1,565    (1,910

Benefit plan modifications

           3,345  

Derivative financial instruments:

    

Change in fair value

   (52  18    (12

Reclassification into earnings

   (4  34    (3

Unrealized gain (loss) on investments:

    

Net change in value

   (4  (1  6  
  

 

 

  

 

 

  

 

 

 

Other comprehensive income (loss) before tax

   (2,821  1,474    1,556  

Non-cash tax provision (benefit)

   (328  538    569  
  

 

 

  

 

 

  

 

 

 

Comprehensive loss

  $(1,183 $(590 $(939
  

 

 

  

 

 

  

 

 

 

See accompanying notes to consolidated financial statements.

AMERICAN AIRLINES, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except shares and par value)

   December 31, 
   2014  2013 

ASSETS

  

Current assets

   

Cash

  $785   $829  

Short-term investments

   3,290    5,162  

Restricted cash and short-term investments

   650    702  

Accounts receivable, net

   1,445    1,186  

Aircraft fuel, spare parts and supplies, net

   625    620  

Prepaid expenses and other

   462    702  
  

 

 

  

 

 

 

Total current assets

   7,257    9,201  

Operating property and equipment

   

Flight equipment

   21,646    18,534  

Ground property and equipment

   5,217    5,002  

Equipment purchase deposits

   1,128    847  
  

 

 

  

 

 

 

Total property and equipment, at cost

   27,991    24,383  

Less accumulated depreciation and amortization

   (11,692  (10,914
  

 

 

  

 

 

 

Total property and equipment, net

   16,299    13,469  

Other assets

   

Intangibles, net of accumulated amortization of $376 and $375, respectively

   815    812  

Other assets

   1,921    2,130  
  

 

 

  

 

 

 

Total other assets

   2,736    2,942  
  

 

 

  

 

 

 

Total assets

  $26,292   $25,612  
  

 

 

  

 

 

 

LIABILITIES AND STOCKHOLDER’S DEFICIT

   

Current liabilities

   

Current maturities of long-term debt and capital leases

  $1,230   $957  

Accounts payable

   1,029    1,013  

Accrued salaries and wages

   650    659  

Air traffic liability

   2,989    3,145  

Frequent flyer liability

   1,823    1,760  

Payable to affiliates

   2,563    2,807  

Other accrued liabilities

   1,236    1,578  
  

 

 

  

 

 

 

Total current liabilities

   11,520    11,919  

Noncurrent liabilities

   

Long-term debt and capital leases, net of current maturities

   10,004    9,852  

Pension and postretirement benefits

   7,400    5,693  

Deferred gains and credits, net

   271    278  

Bankruptcy settlement obligations

   325    5,424  

Other liabilities

   2,344    2,106  
  

 

 

  

 

 

 

Total noncurrent liabilities

   20,344    23,353  

Commitments and contingencies (Note 12)

   

Stockholder’s deficit

   

Common stock, $1.00 par value; 1,000 shares authorized, issued and outstanding

         

Additional paid-in capital

   10,632    5,361  

Accumulated other comprehensive loss

   (4,645  (2,152

Accumulated deficit

   (11,559  (12,869
  

 

 

  

 

 

 

Total stockholder’s deficit

   (5,572  (9,660
  

 

 

  

 

 

 

Total liabilities and stockholder’s deficit

  $26,292   $25,612  
  

 

 

  

 

 

 

See accompanying notes to consolidated financial statements.

AMERICAN AIRLINES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

   December 31, 
   2014  2013  2012 

Cash flows from operating activities:

    

Net income (loss)

  $1,310   $(1,526 $(1,926

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Depreciation and amortization

   1,051    979    999  

Debt discount and lease amortization

   (5  4    (14

Special items, non-cash

   89    82    214  

Pension and postretirement

   (159  (154  287  

Deferred income taxes

   342    (324  (569

Share based compensation

   199    24    26  

Reorganization items, non-cash

       2,098    2,037  

Interest expense, non-cash

       45      

Other, net

   3    (77  13  

Changes in operating assets and liabilities:

    

Increase in accounts receivable

   (209  (81  (222

Decrease (increase) in other current assets

   8    (3  (133

Decrease (increase) in derivative collateral

       1    (1

Increase in accounts payable and accrued liabilities

   99    46    423  

Increase (decrease) in air traffic liability

   (124  332    161  

Increase in frequent flyer liability

   31    49    140  

Contributions to pension plans

   (809  (494  (277

Decrease in other assets and liabilities

   (349  (52  (4
  

 

 

  

 

 

  

 

 

 

Net cash provided by operating activities

   1,477    949    1,154  

Cash flows from investing activities:

    

Capital expenditures and aircraft purchase deposits

   (3,913  (2,968  (1,870

Purchases of short-term investments

   (3,270  (3,342  (1,067

Sales of short-term investments

   5,139    1,588    1,373  

Decrease (increase) in restricted cash and short-term investments

   52    148    (112

Net proceeds from slot transaction

   299          

Funds transferred to affiliates, net

   (198        

Proceeds from sale of property and equipment

   2    115    124  
  

 

 

  

 

 

  

 

 

 

Net cash used in investing activities

   (1,889  (4,459  (1,552

Cash flows from financing activities:

    

Payments on long-term debt and capital leases

   (2,343  (2,628  (1,288

Proceeds from issuance of long-term debt

   1,993    4,850    268  

Deferred financing costs

   (93  (115  (6

Sale-leaseback transactions

   811    1,700    1,509  

Funds transferred to affiliates, net

       53    109  

Other financing activities

       5      
  

 

 

  

 

 

  

 

 

 

Net cash provided by financing activities

   368    3,865    592  
  

 

 

  

 

 

  

 

 

 

Net increase (decrease) in cash

   (44  355    194  

Cash at beginning of year

   829    474    280  
  

 

 

  

 

 

  

 

 

 

Cash at end of year

  $785   $829   $474  
  

 

 

  

 

 

  

 

 

 

See accompanying notes to consolidated financial statements.

AMERICAN AIRLINES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY (DEFICIT)

(In millions)

  Common
Stock
  Additional
Paid-in

Capital
  Treasury
Stock
  Accumulated
Other
Comprehensive
Income (Loss)
  Accumulated
Deficit
  Total 

Balance at December 31, 2011

 $   $4,455   $   $(4,075 $(9,417 $(9,037

Net loss

                  (1,926  (1,926

Change in unrealized gain on investments

              6        6  

Changes in pension, retiree medical and other liability

              1,565        1,565  

Net changes in fair value of derivative financial instruments

              (15      (15

Non-cash tax provision

              (569      (569

Share-based compensation expense

      14             14  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2012

      4,469        (3,088  (11,343  (9,962

Net loss

                  (1,526  (1,526

Change in unrealized loss on investments

              (1      (1

Changes in pension, retiree medical and other liability

              1,423        1,423  

Net changes in fair value of derivative financial instruments

              52        52  

Non-cash tax provision

              (538      (538

Share-based compensation expense

      68             68  

Intercompany equity transfer

      824             824  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2013

      5,361        (2,152  (12,869  (9,660

Net income

                  1,310    1,310  

Change in unrealized loss on investments

              (4      (4

Changes in pension, retiree medical and other liability

              (2,761      (2,761

Net changes in fair value of derivative financial instruments

              (56      (56

Non-cash tax benefit

              328        328  

Share-based compensation expense

      199                199  

Intercompany equity transfer

      5,072                5,072  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2014

 $   $10,632   $   $(4,645 $(11,559 $(5,572
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

1.  Nature of Operations and Operating Environment

American Airlines, Inc. (American) is a Delaware corporation whose primary business activity is the operation of a major network air carrier. American is a wholly-owned subsidiary of American Airlines Group Inc. (AAG; formerly AMR Corporation), which owns all of American’s outstanding common stock, par value $1.00 per share.

Prior to the Merger, as discussed below, American operated the third largest airline in the U.S. as measured by revenue passenger miles (RPMs) and available seat miles (ASMs). American operates in five primary domestic markets: Chicago, Dallas/Fort Worth, Los Angeles, Miami, and New York City.

As of December 31, 2014, American employed approximately 61,600 active full-time equivalent employees, of which approximately 86% are covered by collective bargaining agreements (CBAs) with various labor unions.

2.  Emergence from Chapter 11

Overview

On November 29, 2011 (the Petition Date), AMR Corporation (AMR, renamed American Airlines Group Inc., upon the closing of the Merger), its principal subsidiary, American, and certain of AMR’s other direct and indirect domestic subsidiaries (collectively, the Debtors), filed voluntary petitions for relief (the Chapter 11 Cases) under Chapter 11 of the United States Bankruptcy Code (the 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 (the Confirmation Order) approving and confirming the Debtors’ fourth amended joint plan of reorganization (as amended, the Plan).

On December 9, 2013 (the Effective Date), the Debtors consummated their reorganization pursuant to the Plan, principally through the transactions contemplated by that certain Agreement and Plan of Merger (as amended, the Merger Agreement), dated as of February 13, 2013, by and among AMR, AMR Merger Sub, Inc. (Merger Sub) and US Airways Group, Inc. (US Airways Group), pursuant to which Merger Sub merged with and into US Airways Group (the Merger), with US Airways Group surviving as a wholly-owned subsidiary of AAG following the Merger. Pursuant to the Merger Agreement, each share of common stock, par value $0.01 per share, of US Airways Group was converted into the right to receive one share of AAG common stock, par value $0.01 per share (AAG Common Stock).

From the Petition Date through the Effective Date, pursuant to automatic stay provisions under the Bankruptcy Code and orders granted by the Bankruptcy Court, all actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date as well as all pending litigation against the Debtors generally were stayed. Following the Effective Date, actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date generally have been permanently enjoined. Any unresolved claims will continue to be subject to the claims reconciliation process under the supervision of the U.S. Bankruptcy Court. However, certain pending litigation related to pre-petition liabilities may proceed in courts other than the U.S. Bankruptcy Court to the extent the parties to such litigation have obtained relief from the permanent injunction.

Plan of Reorganization

The Plan implements the Merger and incorporates a compromise and settlement of certain intercreditor and intercompany claim issues.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Pursuant to the Plan, all shares of AMR common stock outstanding prior to the Effective Date were canceled. AAG’s Certificate of Incorporation, which was approved in connection with the Plan, authorizes the issuance of 1.75 billion new shares of AAG Common Stock and 200 million shares of AAG Series A Preferred Stock, par value $0.01 per share (AAG Series A Preferred Stock). Of the authorized AAG Series A Preferred Stock, approximately 168 million were designated “Series A Convertible Preferred Stock,” with a stated value of $25.00 per share, and issued in accordance with the Plan. AAG Common Stock is listed on the NASDAQ Global Select Market under the symbol “AAL” and began trading on December 9, 2013. AAG Series A Preferred Stock was listed on the NASDAQ Global Select Market under the symbol “AALCP” from December 9, 2013 until its final mandatory conversion on April 8, 2014. In addition, the 2013 Incentive Award Plan (the 2013 Plan) authorizes the grant of awards for the issuance of 40 million shares of AAG Common Stock plus any shares underlying awards granted under the 2013 Plan, or any pre-existing US Airways Group plan, that are forfeited, terminate or are cash settled (in whole or in part) without a payment being made in the form of shares. In addition, any shares that were available for issuance under the US Airways Group 2011 Incentive Award Plan (the 2011 Plan) as of the effective date of the Merger may be used for awards under the 2013 Plan; provided, that awards using such available shares shall not be made after the date awards or grants could have been made under 2011 Plan and shall only be made to individuals who were not providing services to AMR prior to the Merger.

The Plan contains the following provisions relating to the treatment of pre-petition claims against the Debtors and other holders of allowed interests in the Debtors:

all secured claims against the Debtors have been reinstated;

allowed administrative claims, priority claims and convenience claims have been or will be paid in full in cash;

other holders of allowed pre-petition unsecured claims, holders of allowed interests and certain employees of AMR received or will receive 72% of AAG Common Stock (on a fully converted basis) authorized to be issued pursuant to the Plan and in connection with the Merger under the following provisions:

all creditors holding general unsecured claims against American that are guaranteed by AAG and general unsecured claims against AAG that are guaranteed by American (Double-Dip Unsecured Claims) were treated the same under the Plan. Holders of Double-Dip Unsecured Claims received, at the Effective Date, their recovery in shares of AAG Series A Preferred Stock with a stated amount equal to the allowed amount of their claims, including post-petition interest at the non-default rate;

all creditors holding Single-Dip Unsecured Claims were treated the same regardless of whether the claim was asserted against the AAG Debtors, the American Debtors, or other Debtors. As used herein, “Single-Dip Unsecured Claims” means the general unsecured claims against the Debtors that were not guaranteed by any other Debtor, other than the claims of the Debtors’ labor unions representing mainline workers. Holders of Single-Dip Unsecured Claims received a portion of their recovery in shares of AAG Series A Preferred Stock at the Effective Date and their remaining recovery in shares of AAG Common Stock during the 120-day period after the Effective Date;

holders of certain labor-related deemed claims and certain non-management, non-union employees as specified in the Plan received, at the Effective Date, the right to receive an allocation of shares of AAG Common Stock representing 23.6% of the total number of shares of AAG Common Stock ultimately distributed to holders of pre-petition general unsecured creditors against the Debtors. On the Effective Date, pursuant to the Plan, an initial allocation of approximately 39 million shares of AAG Common Stock was made related to these labor and employee groups, of which approximately 27 million shares were distributed on the Effective Date and approximately 13 million shares of which were withheld in connection with American making a cash payment of approximately $300 million for certain required withholding taxes;

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

holders of allowed interests in AMR (primarily holders of AMR common stock existing immediately prior to the Effective Date) received, at the Effective Date, a distribution of approximately 26 million shares of AAG Common Stock representing 3.5% of the total number of shares of AAG Common Stock contemplated for issuance pursuant to the Plan and received an additional 267 million shares of AAG Common Stock during the 120-day period after the Effective Date; and

holders of disputed claims at the Effective Date, to the extent such disputed claims become allowed Single-Dip Unsecured Claims after the Effective Date, are eligible to receive shares of AAG Common Stock held in reserve (the Disputed Claims Reserve), beginning 180 days after the Effective Date. Disputed claimholders that subsequently become holders of Single-Dip Unsecured Claims will receive, subject to the availability of sufficient shares in the Disputed Claims Reserve, the number of shares of AAG Common Stock that the disputed claimholder would have received had such claimholder been a holder of Single-Dip Unsecured Claims as of the Effective Date.

The Plan contemplated the distribution of up to 756 million shares of AAG Common Stock, however this amount has been reduced by approximately 20 million shares because certain tax withholdings for employees were paid in cash as permitted under the Plan. In accordance with the Plan, AAG issued the remaining shares of AAG Common Stock over the 120-day distribution period, except for shares held in the Disputed Claims Reserve. In addition, pursuant to the Plan, approximately 197 million shares of AAG Common Stock were distributed to holders of outstanding shares of US Airways Group common stock.

Pursuant to rulings of the Bankruptcy Court, the Plan established the Disputed Claims Reserve that was initially issued 30.4 million shares of AAG Common Stock reserved for issuance to disputed claimholders at the Effective Date that ultimately become holders of allowed Single-Dip Unsecured Claims (Single-Dip Equity Obligations) as well as to certain AMR labor groups and employees who received a deemed claim amount based upon a fixed percentage of the distributions to be made to general unsecured claimholders. As of December 31, 2014, the Disputed Claims Reserve held 26.8 million shares of AAG Common Stock pending distribution of those shares in accordance with the Plan. On July 1, 2014 (the date 180 days after the Effective Date),February 10, 2015, approximately 2.90.8 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and shares were withheld or sold on account of related tax obligations. In addition, on July 1, 2014, American repurchased 0.4less than 0.1 million shares of AAG Common Stock for an aggregate of $19$4 million from the Disputed Claims Reserve at the then prevailingthen-prevailing market price in order to fund cash tax obligations resulting from distributions by the Disputed Claims Reserve.this distribution. On November 4, 2014,July 14, 2015, approximately 0.70.6 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and shares were withheld or sold on account of related tax obligations. In addition, on November 4, 2014, American repurchased less than 0.1 million shares of AAG Common Stock for an aggregate of $2 million from the Disputed Claims Reserve at the then prevailingthen-prevailing market price in order to fund cash tax obligations resulting from distributions by the Disputed Claims Reserve.this distribution. As of December 31, 2014,2015, there were approximately 26.825.3 million shares of AAG Common Stock remaining in the Disputed Claims Reserve. As disputed claims are resolved, the claimants will receive distributions of shares from the Disputed Claims Reserve on the same basis as if such distributions had been made on or about the Effective Date. 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 AAG but rather will be distributed to former AMR shareholdersstockholders as of the Effective Date. AAG is not required to distribute additional shares above the limits contemplated by the Plan described above.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

In addition, from the Effective Date through December 31, 2014,2015, American has made the following cash disbursements under the Plan:

 

$385 million in cash to the pension plans in connection with missed contributions to the pension plans during the Chapter 11 Cases and interest and penalty interest thereon;

 

$108 million in cash to holders in partial or full satisfaction of their claims, including to holders of administrative claims, and state and local priority tax claims;

 

$196 million in cure payments to holders of secured debt; and

 

Approximately $563$570 million for payroll and other taxes associated with equity distributions to employees and distributions from the Disputed Claims Reserve.

Several parties have filed appeals seeking reconsideration of the Confirmation Order. See Note 1213 for more information.

The reconciliation process with respect to the remaining claims will take considerable time post-emergence. American’s estimate of the amounts of disputed claims that will ultimately become allowed Single-Dip Unsecured Claims are included in bankruptcy settlement obligations on American’s consolidated balance sheet as of December 31, 2014.2015. As these claims are resolved, or where better information becomes available and is evaluated, American will make adjustments to the liabilities recorded inon American’s consolidated financial statements as appropriate. Any such adjustments could be material to American’s financial position or results of operations in any given period.

Availability and Utilization of Net Operating Losses

Upon emergence from bankruptcy, American experienced an “ownership change” as defined in Section 382 of the Internal Revenue Code of 1986, as amended (Section 382), which could potentially limit the ability to utilize certain tax attributes including American’s substantial net operating losses (NOLs). The general limitation rules for a debtor in a bankruptcy case are liberalized where the ownership change occurs upon emergence from bankruptcy. American elected to be covered by certain special rules for federal income tax purposes that permitpermitted approximately $9.5 billion (with $7.3 billion of unlimited NOL still remaining at December 31, 2015) of the federal NOL CarryforwardsNOLs carried over from prior taxable years (NOL Carryforwards) to be utilized without regard to the annual limitation generally imposed by Section 382. See Note 78 for additional information related to tax matters.

Moreover, an ownership change subsequent to American’s emergence from bankruptcy may further limit or effectively eliminate the ability to utilize American’s NOL Carryforwards and other tax attributes. To reduce the risk of a potential adverse effect on American’s ability to utilize the NOL Carryforwards, AAG’s Restated

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Certificate of Incorporation (the Certificate of Incorporation) contains transfer restrictions applicable to certain substantial shareholders.stockholders. Although the purpose of these transfer restrictions is to prevent an ownership change from occurring, there can be no assurance that an ownership change will not occur even with these transfer restrictions. A copy of AAG’sthe Certificate of Incorporation was attached as Exhibit 3.1 to a Current Report on Form 8-K filed by AAG with the SEC on December 9, 2013.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Reorganization Items, Net

Reorganization items refer to revenues, expenses (including professional fees), realized gains and losses and provisions for losses that are realized or incurred in the Chapter 11 Cases. The following table summarizes the components included in reorganization items, net on the consolidated statementsstatement of operations for the yearsyear ended December 31, 2013 and 2012 (in millions):

 

  December 31,   December 31,
2013
 
  2013   2012 

Pension and postretirement benefits

  $    $(66

Labor-related deemed claim (1)

   1,733         $1,733  

Aircraft and facility financing renegotiations and rejections (2),(3)

   320     1,951     320  

Fair value of conversion discount (4)

   218          218  

Professional fees

   199     227     199  

Other

   170     67     170  
  

 

   

 

   

 

 

Total reorganization items, net

  $2,640    $2,179    $2,640  
  

 

   

 

   

 

 

 

(1)

In exchange for employees’ contributions to the successful reorganization, including agreeing to reductions in pay and benefits, American agreed in the Plan to provide each employee group a deemed claim, which was used to provide a distribution of a portion of the equity of the reorganized entity to those employees. Each employee group received a deemed claim amount based upon a portion of the value of cost savings provided by that group through reductions to pay and benefits as well as through certain work rule changes. The total value of this deemed claim was approximately $1.7 billion.

 

(2)

Amounts include allowed claims (claims approved by the Bankruptcy Court) and estimated allowed claims relating to (i) the rejection or modification of financings related to aircraft and (ii) entry of orders treated as unsecured claims with respect to facility agreements supporting certain issuances of special facility revenue bonds. The Debtors recorded an estimated claim associated with the rejection or modification of a financing or facility agreement when the applicable motion was filed with the Bankruptcy Court to reject or modify such financing or facility agreement and the Debtors believed that it was probable the motion would be approved, and there was sufficient information to estimate the claim.

 

(3)

Pursuant to the Plan, the Debtors agreed to allow certain post-petition unsecured claims on obligations. As a result, during the year ended December 31, 2013, American recorded reorganization charges to adjust estimated allowed claim amounts previously recorded on rejected special facility revenue bonds of $180 million, allowed general unsecured claims related to the 1990 and 1994 series of special facility revenue bonds that financed certain improvements at John F. Kennedy International Airport (JFK), and rejected bonds that financed certain improvements at Chicago O’Hare International Airport (ORD), which are included in the table above.

 

(4)

The Plan allowed unsecured creditors receiving AAG Series A Preferred Stock a conversion discount of 3.5%. Accordingly, American recorded the fair value of such discount upon the confirmation of the Plan by the Bankruptcy Court.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

 

3.  Bankruptcy Settlement Obligations

As of December 31, 20142015 and 2013,2014, the components of bankruptcy settlement obligations on American’s consolidated balance sheets are as follows (in millions):

 

   December 31, 
   2014   2013 

Single-Dip and Double-Dip Equity Obligations

  $248    $4,575  

Labor-related deemed claim

   77     849  
  

 

 

   

 

 

 

Total

  $325    $5,424  
  

 

 

   

 

 

 

The AAG Series A Preferred Stock, while outstanding, voted and participated in accordance with the terms of the underlying Certificate of Designation. One quarter of the shares of AAG Series A Preferred Stock initially issued was mandatorily convertible on each of the 30th, 60th, 90th and 120th days after the Effective Date, subject to additional voluntary conversions. The initial stated value of each share of AAG Series A Preferred Stock was $25.00 and accrued dividends at 6.25% per annum, calculated daily, while outstanding. Additionally, AAG Series A Preferred Stock converted to AAG Common Stock based upon the volume weighted average price of the shares of AAG Common Stock on the five trading days immediately preceding the conversion date, at a 3.5% fixed discount, subject to a conversion price floor of $10.875 per share and a conversion price cap of $33.8080 per share, below or above which the conversion rate remains fixed. As of April 8, 2014, all shares of AAG Series A Preferred Stock had been converted into AAG Common Stock.

   December 31, 
   2015   2014 

Single-Dip Equity Obligations

  $147    $248  

Labor-related deemed claim

   46     77  
  

 

 

   

 

 

 

Total

  $193    $325  
  

 

 

   

 

 

 

The Single-Dip Equity Obligations, while outstanding, do not vote or participate in accordance with the terms of the Plan. These equity obligations, representing the amount of total Single-Dip Unsecured Claims not satisfied through the issuance of AAG Series A Preferred Stock at the Effective Date, represented an unconditional obligation to transfer a variable number of shares of AAG Common Stock based predominantly on a fixed monetary amount known at inception, and, as such, were not treated as equity, but rather as liabilities, until the 120th day after emergence, which was April 8, 2014. As of April 8, 2014, AAG has issued shares of AAG Common Stock to satisfy the obligation amount at emergence, plus accrued dividends of 12% per annum, calculated daily, through such date, based on the volume weighted average price of the shares of AAG Common Stock, at a 3.5% discount, as specified in the Plan. The amount of the remaining Single-Dip Equity Obligations at December 31, 20142015 is American’s estimate of its obligation for disputed claims of $248$147 million and is calculated based on the fair value of the shares expected to be issued, measured as if the obligations were settled using the closing price of AAG Common Stock at December 31, 2014.2015. Additional allowed claims will receive 30.7553 shares, subject to reduction for expenses of the Disputed Claims Reserve, including tax liabilities, for each $1,000 of allowed claims. For accounting purposes, the value of the shares expected to be issued is marked-to-market each period until issued. Accordingly, changes in the value of AAG Common Stock could result in future increases and decreases in this obligation.

In exchange for employees’ contributions to the successful reorganization of AAG, including agreeing to reductions in pay and benefits, AAG and American agreed in the Plan to provide each employee group a deemed claim which was used to provide a distribution of a portion of the equity of the reorganized entity to those employees. Each employee group received a deemed claim amount based upon a fixed percentage of the distributions to be made to general unsecured claimholders. The fair value based on the expected number of shares to be distributed to satisfy this deemed claim, as adjusted, was approximately $1.5 billion. From the Effective Date through December 31, 2014,2015, AAG has made distributions of $988 million$1.0 billion in AAG Common Stock and paid approximately $553$555 million in cash to cover payroll and other taxes related to the equity distributions. As of December 31, 2014,2015, the liability to certain AMR labor groups and employees of $77$46 million represents the estimated fair value of the remaining shares expected to be issued in satisfaction of such obligation, measured as if the obligation were settled using the closing price of AAG Common Stock at

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

December 31, 2014.2015. For accounting purposes, the value of the remaining shares expected to be issued to satisfy the labor claim is marked-to-market each period until issued. Accordingly, changes in the value of AAG Common Stock could result in future increases and decreases in this obligation.

On February 10, 2015 and July 1, 2014,14, 2015, approximately 2.90.8 million and 0.6 million shares, respectively, of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and 0.1 million shares in the aggregate were withheld or soldto fund cash tax obligations resulting from these distributions.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

4.  Merger and Related Matters

Description of Transaction

As previously discussed in Note 2, on accountthe Effective Date, the Debtors consummated their reorganization and the Merger pursuant to the Plan. The Merger has been accounted for as a business acquisition using the acquisition method of accounting in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 805, “Business Combinations” (ASC 805), with AAG considered the acquirer of US Airways Group. The acquisition method of accounting requires, among other things, that assets acquired and liabilities assumed be recognized on the balance sheet at their fair values as of the acquisition date. The excess of the purchase price over the net fair value of assets and liabilities acquired was recorded as goodwill. Goodwill is not amortized, but is tested for impairment at least annually. As a result of US Airways Group becoming a wholly-owned subsidiary of AAG, US Airways Group applied push down accounting to US Airways.

Slot Divestitures

As a stipulation for the Merger to be approved by the Department of Justice (DOJ), American was required to divest certain airport take off and landing rights (slots) at LaGuardia Airport (LGA) and Ronald Reagan Washington National Airport (DCA). In 2014, American divested the required DCA slots and received $307 million in cash as well as 24 slots at JFK. American recognized a net gain of $309 million related tax obligations.to these divestitures, which has been included in special items, net in the consolidated statement of operations. In 2013, American recognized a gain of $67 million related to the sale of the LGA slots, which has been included in special items, net in the consolidated statement of operations.

In 2013, the European Commission cleared under the EU Merger Regulation the proposed merger between US Airways and American. As a consequence of the merger clearance process in the EU, American was required to make available one pair of London Heathrow slots for use by another carrier between London and Philadelphia, which the acquiring carrier can deploy on another London Heathrow city pair after operating the slots on London-Philadelphia for a period of not less than three consecutive years. In addition, along with American’s joint business agreement partners, American was required to make available for an initial period of up to seven years one pair of Heathrow slots for service between London and Miami that may be operated via an intermediate point. In connection with these requirements and upon making these slots available, in 2014, American recorded a $43 million non-cash charge, which has been included in special items, net in the consolidated statement of operations.

Fair Value of Consideration Transferred

The fair value of the consideration transferred, or the purchase price, was derived as described below based on November 4, 2014, approximately 0.7 millionthe outstanding shares of US Airways Group common stock at December 9, 2013, the exchange ratio of one share of AAG Common Stock held in the Disputed Claims Reserve were distributed to holdersfor each share of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claimsUS Airways Group common stock, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and shares were withheld or sold on account of related tax obligations.

On February 10, 2015, approximately 0.8 million sharesa price per share of AAG Common Stock of $22.55, which represented the closing price of US Airways Group common stock on December 6, 2013, the last day such shares traded on the New York Stock Exchange. US Airways Group equity awards outstanding at the close of the Merger converted into equity awards with respect to AAG Common Stock. Vested equity awards held by employees of US Airways Group are considered part of the purchase price.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

   (In millions except per share data) 

Outstanding shares of US Airways Group Common Stock at December 9, 2013 exchanged

   197.4  

Exchange ratio

   1.0  
  

 

 

 

Assumed shares of AAG Common Stock

   197.4  

Price per share

  $22.55  
  

 

 

 

Fair value of AAG Common Stock issued

  $4,451  

Fair value of AAG equity awards issued in exchange for outstanding US Airways Group equity awards

  $141  
  

 

 

 

Total purchase price

  $4,592  

Allocation of Consideration Transferred

The Merger has been accounted for using the acquisition method of accounting in accordance with ASC 805, with AAG treated as the acquirer of US Airways Group for accounting purposes. The acquisition method of accounting requires, among other things, that assets acquired and liabilities assumed be recognized on the balance sheet at their fair values as of the acquisition date. The acquisition values have been pushed down to US Airways as of December 9, 2013. The amount of acquisition pushed down to US Airways was $5.4 billion, the remainder of the purchase price being pushed down to US Airways Group and its other subsidiaries based on the fair value of their net assets. The excess of the pushed down acquisition value over the net fair value of assets acquired and liabilities assumed was recorded as goodwill. Goodwill is not amortized, but is tested for impairment at least annually.

   (In millions) 

Cash

  $200  

Short-term investments

   3,517  

Other current assets

   1,417  

Operating property and equipment

   5,383  

Goodwill

   4,091  

Identifiable intangibles

   1,501  

Other noncurrent assets

   125  

Long-term debt and capital leases, including current portion

   (5,481

Air traffic liability

   (1,417

Loyalty program liability

   (1,256

Other liabilities assumed

   (2,649
  

 

 

 

Total purchase price

  $5,431  

The fair values of the assets acquired and liabilities assumed were determined using the market, income and cost approaches. The fair value measurements were primarily based on significant inputs that are not observable in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders ofmarket, other than certain labor-related deemed claims and to holders of certain non-management, non-union employee deemed claims as specifiedlong-term debt assumed in the Plan,Merger. The market approach, which indicates value for a subject asset based on available market pricing for comparable assets, was utilized to estimate the fair value of US Airways’ aircraft and sharesoperating leases. The market approach included prices and other relevant information generated by market transactions involving comparable assets, as well as pricing guides and other sources. The current market for the aircraft, the maintenance condition of the aircraft and the expected proceeds from the sale of the assets, among other factors, were withheldconsidered. The market approach was utilized to value certain intangible assets such as airport take off and landing slots when sufficient market information was available. The income approach was primarily used to value intangible assets, including customer relationships, marketing agreements, certain international route authorities, and the US Airways tradename. The income approach indicates value for a subject asset based on the present value of cash flows projected to be generated by

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

the asset. Projected cash flows are discounted at a required market rate of return that reflects the relative risk of achieving the cash flows and the time value of money. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used, as appropriate, for certain assets for which the market and income approaches could not be applied due to the nature of the asset. The cost to replace a given asset reflects the estimated reproduction or soldreplacement cost for the asset, less an allowance for loss in value due to depreciation. The fair value of US Airways’ Dividend Miles loyalty program liability was determined based on accountthe weighted average equivalent ticket value of related tax obligations.outstanding miles which were expected to be redeemed for future travel at December 9, 2013. The weighted average equivalent ticket value contemplates differing classes of service, domestic and international itineraries and the carrier providing the award travel.

4.Pro-forma Impact of the Merger

American’s unaudited pro-forma results presented below include the effects of the Merger as if it had been consummated as of January 1, 2012. The pro-forma results include the depreciation and amortization associated with the acquired tangible and intangible assets, lease and debt fair value adjustments, the elimination of any deferred gains or losses, adjustments relating to reflecting the fair value of the loyalty program liability and the impact of income changes on profit sharing expense, among others. In addition, the pro-forma results below reflect the impact of higher wage rates related to memorandums of understanding with US Airways’ pilots that became effective upon closing of the Merger, as well as the elimination of American’s reorganization items, net and Merger transition costs. However, the pro-forma results do not include any anticipated synergies or other expected benefits of the Merger. Accordingly, the unaudited pro-forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisition been consummated as of January 1, 2012.

   December 31,
2013
 
   (In millions) 

Revenue

  $40,782  

Net Income

   2,707  

5.  Basis of Presentation and Summary of Significant Accounting Policies

(a) Basis of Presentation

TheOn December 30, 2015, US Airways merged with and into American, which 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 forinto US Airways Group. Thus, the full years endedof 2015 and 2014 and the period from December 9, 2013 to December 31, 2014, 2013 and 2012 includeare comprised of the accounts of American. American is a wholly-owned subsidiaryconsolidated financial data of American Airlines Group Inc. (AAG). All significant intercompany transactions have been eliminated.and US Airways. For the periods prior to December 9, 2013, the financial data reflects the results of American only. For financial reporting purposes, the transaction constituted a transfer of assets between entities under common control and was accounted for in a manner similar to the pooling of interests method of accounting. Under this method, the carrying amount of net assets recognized in the balance sheets of each combining entity are carried forward to the balance sheet of the combined entity and no other assets or liabilities are recognized.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

intangible assets, business combination measurements, the frequent travelerloyalty program, pensions and retiree medical and other postretirement benefits and the deferred tax asset valuation allowance. All significant intercompany transactions have been eliminated.

(b) Chapter 11 Matters

In accordance with GAAP, the Debtors (as defined in Note 2 above) applied ASC 852 “Reorganizations” (ASC 852) in preparing the consolidated financial statements for periods subsequent to the Chapter 11 Cases (as defined in Note 2 above). ASC 852 requires that the financial statements distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain revenues, expenses (including professional fees), realized gains and losses and provisions for losses that are realized or incurred in the Chapter 11 Cases for the 2013 and 2012 period are presented in reorganization items, net on the accompanying consolidated statementsstatement of operations.

(c) Restricted Cash and Short-term Investments

American has restricted cash and short-term investments related primarily to collateral held to support projected workers’ compensation obligations and funds held for certain tax obligations.

(d) Aircraft Fuel, Spare Parts, and Supplies, Net

Aircraft fuel, spare parts, and supplies, net are recorded at net realizable value based on average costs. These items are expensed when used. An allowance for obsolescence is provided for aircraft spare parts and supplies.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

(e) Operating Property and Equipment

Operating property and equipment are recorded at cost. Interest expense related to the acquisition of certain property and equipment, including aircraft purchase deposits, is capitalized as an additional cost of the asset. Interest capitalized for the years ended December 31, 2015, 2014 and 2013 and 2012 was $53$52 million, $47$61 million and $50$47 million, respectively. Property and equipment is depreciated and amortized to residual values over the estimated useful lives or the lease term, whichever is less, using the straight-line method. Costs of major improvements that enhance the usefulness of the asset are capitalized and depreciated over the estimated useful life of the asset or the modifications, whichever is less. The depreciable lives used for the principal depreciable asset classifications are:

 

Principal Depreciable Asset Classification

  

Depreciable Life

Jet aircraft and engines

  16—16 - 30 years

Other regional aircraft and engines

  25 years

Major rotable parts, avionics and assemblies

  Fleet end date

Improvements to leased flight equipment

  Lesser of asset/leasehold improvement or lease end date

Buildings and improvements

  Lesser of 5—5 - 30 years or lease term

Furniture, fixtures and other equipment

  3—3 - 10 years: ranges from computer hardware to furniture

Capitalized software

  Lesser of 5 years or lease term

Residual values for aircraft, engines, major rotable parts, avionics and assemblies are generally 5% to 10%.

Equipment and property under capital leases are amortized over the term of the leases or, in the case of certain aircraft, over their expected useful lives. Lease terms vary but are generally 1612 to 30 years for aircraft and three to 30 years for other leased equipment and property.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

American records impairment charges 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 assetassets are less than the carrying amount of the assetassets and the net book value of the assetassets exceeds itstheir 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. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell.

(f) 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. A valuation allowance is established, if necessary, for the amount of any tax benefits that, based on available evidence, are not expected to be realized.

(g) Goodwill

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 tested for impairment annually on October 1st or more frequently if events or circumstances indicate that goodwill may be impaired. American has one consolidated reporting unit.

Goodwill is measured for impairment by initially performing a qualitative screen and, if necessary, then comparing the fair value 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. Based upon American’s annual measurement, there was no goodwill impairment in 2015.

(h) Other Intangibles, Net

Intangible assets consist primarily of airport take-off and landing rights (Slots),slots, customer relationships, marketing agreements, international Slotsslots and route authorities, and gate leasehold rights.rights and tradenames. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

The following table provides information relating to American’s amortizable intangible assets as of December 31, 20142015 and 20132014 (in millions):

 

  December 31,   December 31, 
  2014 2013   2015 2014 

Airport Slots

  $310   $277  

Domestic airport slots

  $365   $365  

Customer relationships

   300    300  

Marketing agreements

   105    105  

Tradenames

   35    35  

Airport gate leasehold rights

   138    155     137    138  

Accumulated amortization

   (376  (375   (502  (447
  

 

  

 

   

 

  

 

 

Total

  $72   $57    $440   $496  
  

 

  

 

   

 

  

 

 

Airport operating

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Domestic airport slots and airport gate leaseleasehold rights are amortized on a straight-line basis over 25 years. The customer relationships, marketing agreements and tradenames were identified as intangible assets subject to amortization and are amortized on a straight-line basis over approximately nine years, to a zero residual value.30 years and 15 months, respectively.

American recorded amortization expense related to these intangible assets of approximately $14$55 million, $18$81 million and $25$20 million for the years ended December 31, 2015, 2014 2013 and 2012,2013, respectively. American expects to record annual amortization expense for the aforementioned definite-life intangible assets as follows (in millions):

 

2015

  $12  

2016

   11    $50  

2017

   7     46  

2018

   3     42  

2019

   3     42  

2020 and thereafter

   36  

2020

   42  

2021 and thereafter

   218  
  

 

   

 

 

Total

  $72    $440  
  

 

   

 

 

American’s indefinite-lived assets include certain international slots and route authorities and domestic airport take-off and landing slots. Indefinite-lived assets are not amortized but instead are reviewed for impairment annually andon October 1st or more frequently if events or circumstances indicate that the asset may be impaired. As of December 31, 20142015 and 2013,2014, American had $743 million$1.8 billion and $755 million,$1.7 billion, respectively, of indefinite-lived intangible assets on its consolidated balance sheets.

American’s indefinite-lived intangible assets are reviewed for impairment by initially performing a qualitative screen to determine whether American believes it is more likely than not that an asset has been impaired. If American believes an impairment has occurred, American then evaluates for impairment by comparing the estimated fair value of assets to the carrying value. An impairment charge is recognized if the asset’s estimated fair value is less than its carrying value. Based upon American’s annual testing,review, there was no indefinite-lived intangible asset impairment in 2014.

Slot Divestitures

As a stipulation for the Merger to be approved by the Department of Justice (DOJ), American was required to divest certain Slots at LaGuardia Airport and Ronald Reagan Washington National Airport (DCA). As of December 31, 2013, the DCA Slots to be divested were recorded as assets held for sale and were included in prepaid expenses and other on the consolidated balance sheet. In 2014, American divested the required DCA Slots and received $299 million in cash as well as 24 Slots at JFK. American recognized a gain of $305 million related to these divestitures, which has been included in special items, net in the consolidated statement of operations. In 2013, American recognized a gain of $67 million related to the sale of the LaGuardia Airport Slots, which has been included in special items, net in the consolidated statement of operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

In 2013, the European Commission cleared under the EU Merger Regulation the proposed merger between US Airways and American. As a consequence of the merger clearance process in the EU, American was required to make available one pair of London Heathrow Slots for use by another carrier between London and Philadelphia, which the acquiring carrier can deploy on another Heathrow city pair after operating the Slots on London-Philadelphia for a period of not less than three consecutive years. In addition, along with American’s joint business agreement (JBA) partners, American was required to make available for an initial period of up to seven years one pair of Heathrow Slots for service between London and Miami that may be operated via an intermediate point. In connection with these requirements and upon making these slots available, in 2014, American recorded a $43 million non-cash charge, which has been included in special items, net in the consolidated statement of operations.2015.

(h) Frequent Flyer(i) Loyalty Program

American currently operates the AAdvantage frequent flyer program.loyalty program, AAdvantage. This program awards mileage credits to passengers who fly on American andoneworld carriers, as well as certain other partner airlines that participate in the programs.program. Mileage credits can also be earned through purchases from other non-airline partners that participate in American’s loyalty program. Mileage credits can be redeemed for travel on American US Airways or other participating partner airlines, in which case American pays a fee.

American uses the incremental cost method to account for the portion of American’s frequent flyerits loyalty program liability incurred when AAdvantage members earn mileage credits by flying on American US Airways or its regional affiliates. American has an obligation to provide future travel when these mileage credits are redeemed and therefore has recorded a liability for mileage credits outstanding.

The incremental cost liability includes all mileage credits that are expected to be redeemed, including mileage credits earned by members whose mileage account balances have not yet reached the minimum mileage credit level required to redeem an award. Additionally, outstanding mileage credits are subject to expiration if unused. In calculating the liability, American estimates how many mileage credits will never be redeemed for travel and excludes those mileage credits from the estimate of the liability. Estimates are also made for the number of miles that will be used per award redemption and the number of travel awards that will be redeemed on partner airlines. These estimates are based on historical program experience as well as consideration of enacted program changes,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

as applicable. Changes in the liability resulting from members earning additional mileage credits or changes in estimates are recorded in the statementconsolidated statements of operations as a part of passenger revenue.

The liability for outstanding mileage credits is valued based on the estimated incremental cost of carrying one additional passenger. Incremental cost primarily includes unit costs incurred for fuel, food, and insurance as well as fees incurred when travel awards are redeemed on partner airlines. No profit or overhead margin is included in the accrual of incremental cost. These estimates are generally updated based upon American’s 12-month historical average of such costs.

As of December 31, 20142015 and 20132014, the liability for outstanding mileage credits for the AAdvantage program accounted for under the incremental cost method was $647$657 million and $580$674 million, respectively, and is included on the consolidated balance sheets within frequent flyerloyalty program liability.

In addition, American applied the acquisition method of accounting in connection with the Merger and therefore recorded the liability for outstanding US Airways’ mileage credits at fair value, an amount significantly in excess of incremental cost. As of December 31, 2015 and 2014, the liability for these outstanding mileage credits expected to be redeemed for future travel awards was $296 million and $611 million, respectively, and is included on the consolidated balance sheets within loyalty program liability. This liability is amortized into passenger revenue on a straight-line basis over the period in which the mileage credits are expected to be redeemed for travel. All new miles earned will be recorded as a liability based on the incremental cost method discussed above.

American also sells frequent flyerloyalty program mileage credits to participating airline partners and non-airline business partners. Sales of mileage credits to non-airline business partners is comprised of two components, transportation and marketing. Historically, American has used the residual method of accounting to determine the values of each component as there had not been a material modification to any significant agreements since the adoption of Accounting Standards Update (ASU) No. 2009-13, “Revenue Recognition (Topic 605) – Multiple-Deliverable Revenue Arrangements” on January 1, 2011.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

In 2013, American and Citibank amended their current AAdvantage co-branded credit card agreement which resulted in a material modification of the terms of the arrangement. Also, in connection with the acquisition of US Airways on December 9, 2013, a material modification occurred on all of US Airways’ agreements in connection with the Merger. Therefore, subsequent to the amendmentamendments of the arrangement,these arrangements, American applied the relative selling price method to determine the values of each deliverable. Under the relative selling price approach, American identified five revenue elements for the co-branded credit card agreements with Citibank:Citibank and Barclays: the transportation component; use of American’sthe American brand including access to frequent flyerloyalty program member lists; advertising; lounge access; and baggage services (together excluding “thethe transportation component, the “marketing component”)marketing component).

The transportation component represents the estimated selling price of future travel awards and is determined using historical transaction information, including information related to customer redemption patterns. The transportation component is deferred based on its relative selling price and is amortized into passenger revenue on a straight-line basis over the period in which the mileage credits are expected to be redeemed for travel.

The marketing component represents services provided to American’s business partners and relates primarily to the use of American’s logo and tradename along withthe American brand including access to customers lists of AAdvantage members.loyalty program member lists. The marketing services are provided periodically, but no less than monthly. Accordingly, the marketing component is considered earned and recognized in other revenues in the period of the mileage sale.

Upon application of the relative selling price method in 2013 for American’s Citibank modification, American reduced its travel component liability and recorded other revenue of approximately $31 million. As a result of the change in the marketing component value when the relative selling price method is applied, American now defers less revenue per mile sold. For American’s agreements where there has not been a material modification, it continues to apply the residual method.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

As of December 31, 20142015 and 2013,2014, American had $1.2$1.5 billion in deferred revenue from the sale of mileage credits (recorded as frequent flyerwithin loyalty program liability on the consolidated balance sheets). For the years ended December 31, 2015, 2014 2013 and 2012,2013, the marketing component of mileage sales recognized at the time of sale in other revenues was approximately $1.1$1.5 billion, $816 million$1.4 billion and $725$834 million, respectively.

(i)(j) Passenger Revenue

Passenger ticketrevenue is recognized when transportation is provided. Ticket sales for transportation that has not yet been provided are initially deferred and recorded as a component of air traffic liability. Revenue derived from ticket sales is recognized atliability on the time service is provided. However, dueconsolidated balance sheets. The air traffic liability represents tickets sold for future travel dates and estimated future refunds and exchanges of tickets sold for past travel dates. The balance in the air traffic liability fluctuates throughout the year based on seasonal travel patterns and fare sale activity. American’s air traffic liability was $3.7 billion and $4.3 billion as of December 31, 2015 and 2014, respectively.

The majority of tickets sold are nonrefundable. A small percentage of tickets, some of which are partially used tickets, expire unused. Due to various factors, including the complex pricing structurestructures, refund and exchange policies, and interline agreements throughout the industry,with other airlines, certain amounts are recognized in revenue using estimates regarding both the timing of the revenue recognition and the amount of revenue to be recognized, including breakage.recognized. These estimates are generally based uponon the evaluationanalysis of American’s historical trends, including the use of regression analysisdata. American and other methodsairline industry participants have consistently applied this accounting method to modelestimate revenue from forfeited tickets at the outcomedate of travel. Estimated future eventsrefunds and exchanges included in the air traffic liability are routinely evaluated based on subsequent activity to validate the accuracy of American’s historical experience, andestimates. Any adjustments resulting from periodic evaluations of the estimated air traffic liability are recorded atincluded in results of operations during the scheduled time of departure.period in which the evaluations are completed.

American purchases capacity, or ASMs, generated by AAG’s wholly-owned regional air carriercarriers and the capacity of third-party carriers including Air Wisconsin Airlines Corporation (Air Wisconsin), Republic Airways Holdings’ subsidiaries RepublicAirline Inc. (Republic), Mesa Airlines, (Republic) and Chautauqua Airlines (Chautauqua)Inc. (Mesa), and SkyWest Airlines, Inc.‘s subsidiaries Sky West Airlines (SkyWest) and, ExpressJet Airlines, Inc. (ExpressJet), Compass Airlines, LLC (Compass) and Trans States Airlines, Inc. (Trans States) in certain markets. AAG’s wholly-owned regional air carriercarriers and Chautauqua, ExpressJet, Republic, and SkyWestthird-party carriers operate regional aircraft in these markets as part of American Eagle carriers. American classifies revenues generated from transportation on these carriers as regional passenger revenues. Liabilities related to tickets sold by American for travel on these air carriers are also included in American’s air traffic liability and are subsequently relievedrecognized as revenue in the same manner as described above.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

(j)(k) 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.

(k)(l) Selling Expenses

Selling expenses include commissions, credit card fees, computerized reservations systems fees and advertising. Advertising expenses are expensed as incurred. Advertising expense was $86$110 million, $166$92 million and $153$166 million for the years ended December 31, 2015, 2014 and 2013, and 2012, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

(l)(m) 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. The fair value of stock options and stock appreciation rights is estimated using a Black-Scholes option pricing model. The fair value of restricted stock units is based on the market price of the underlying shares of common stock on the date of grant. See Note 1516 for further discussion of share-based compensation.

(m)(n) Deferred Gains and Credits, Net

Included within deferred gains and credits, net are amounts deferred and amortized into future periods associated with the adjustment of leases to fair value in connection with the application of acquisition accounting, deferred gains on the sale leasebacksale-leaseback of aircraft and certain vendor incentives. American periodically receives vendor incentives in connection with acquisition of aircraft and engines. These credits are deferred until aircraft and engines are delivered and then applied as a reduction to the cost of the related equipment.

(n)(o) Foreign Currency Gains and Losses

Foreign currency gains and losses are recorded as part of other nonoperating expense, net in American’s consolidated statements of operations. Foreign currency losses for 2015, 2014 and 2013 and 2012 were $92$751 million, $55$114 million and $41$56 million, respectively. The 2015 period included a $592 million special charge to write off all of the value of Venezuelan bolivars held by American due to continued lack of repatriations and deterioration of economic conditions in Venezuela.

(o)(p) Other Operating Expenses

Other operating expenses includes expenses associated with ground and cargo handling, crew travel, aircraft food and catering, passenger accommodation, airport security, international navigation fees and certain general and administrative expenses.

(q) Regional Expenses

Expenses associated with American’s third-party regional carriers operating under the brand name American Eagle are classified as Regionalregional expenses on the consolidated statements of operations. Regional expenses consist of the following (in millions):

 

  Year Ended December 31,   Year Ended December 31, 
  2014   2013   2012   2015   2014   2013 

Aircraft fuel and related taxes

  $999    $1,055    $1,012    $1,230    $2,009    $1,119  

Salaries, wages and benefits

   35     20     33     276     228     29  

Capacity purchases from third-party regional carriers (1)

   1,253     1,242     1,282     3,246     3,187     1,359  

Maintenance, materials and repairs

   1     6       

Other rent and landing fees

   242     207     203     436     386     217  

Selling expenses

   151     142     152     333     307     153  

Depreciation and amortization

   155     149     154     197     168     150  

Special items, net

   5               18     5       

Other

   273     259     213     361     268     266  
  

 

   

 

   

 

   

 

   

 

   

 

 

Total regional expenses

  $3,113    $3,074    $3,049    $6,098    $6,564    $3,293  
  

 

   

 

   

 

   

 

   

 

   

 

 

 

(1)

For the yearyears ended December 31, 2015 and 2014, the component of capacity purchase expenses related to aircraft deemed to be leased was approximately $133 million.$492 million and $447 million, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

 

(p)(r) Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB)FASB issued Accounting Standards Update (ASU)ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 completes the joint effort by the FASB and International Accounting Standards Board (IASB) to improve financial reporting by creating common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards (IFRS). ASU 2014-09 applies to all companies that enter into contracts with customers to transfer goods or services. ASU 2014-09 is effective for public entities for interim and annual reporting periods beginning after December 15, 2016.2017. Early application is permitted, but not permittedbefore interim and entitiesannual reporting periods beginning after December 15, 2016. Entities have the choice to apply ASU 2014-09 either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying ASU 2014-09 at the date of initial application and not adjusting comparative information. American is currently evaluating the requirements of ASU 2014-09 and has not yet determined its impact on American’s consolidated financial statements.

On February 18, 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810).” ASU 2015-02 amends both the variable interest entity and voting interest entity consolidation models. The standard is effective for public reporting entities in fiscal periods beginning after December 15, 2015, and early adoption is permitted. This standard is not expected to have a material impact on American’s consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, “Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The update requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. ASU 2015-03 requires retrospective application, represents a change in accounting principle and is effective for fiscal years beginning after December 15, 2015. American early adopted this standard during the fourth quarter 2015, utilizing retrospective application as permitted. As such, certain prior period amounts have been reclassified to conform to the current presentation. As a result, American reclassified $174 million of debt issuance costs within other assets to reduce current maturities of long-term debt and capital leases by $29 million and to reduce long-term debt and capital leases by $145 million on the consolidated balance sheet as of December 31, 2014.

In May 2015, the FASB issued ASU 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent).” Under ASU 2015-07, investments for which fair value is measured at net asset value per share (or its equivalent) using the practical expedient should not be categorized in the fair value hierarchy. ASU 2015-07 is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. ASU 2015-07 is not expected to have a material impact on American’s consolidated financial statements.

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which changes how deferred taxes are classified on the balance sheet. ASU 2015-17 eliminates the current requirement to present deferred tax liabilities and assets as current and noncurrent on the balance sheet. Deferred tax liabilities and assets are now required to be classified as noncurrent on the balance sheet. Entities have the choice to apply ASU 2015-17 either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The update is effective for annual and interim periods in fiscal years beginning after December 15, 2016. American early adopted this standard during the fourth quarter 2015, utilizing retrospective application as permitted. As such, certain prior period amounts have been reclassified to conform to the current presentation. As a result, American reclassified $314 million of current deferred income tax assets within prepaid expenses and other to reduce deferred income taxes within other liabilities on the consolidated balance sheet as of December 31, 2014.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10).” ASU 2016-01 makes several modifications to Subtopic 825-10 including the elimination of the available-for-sale

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

classification of equity investments, and requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income. ASU 2016-01 is effective for interim and annual periods beginning after December 15, 2017 and is not expected to have a material impact on American’s consolidated financial statements.

6.  Special Items, Net

American’s special items, net on the consolidated statements of operations are as follows (in millions):

 

   Year Ended December 31, 
       2014           2013           2012     

Mainline operating special items, net (1)

  $507    $282    $386  
   Year Ended December 31, 
     2015       2014       2013   

Mainline operating special items, net (1)

  $1,051    $783    $559  

 

(1)

The 20142015 mainline operating special items totaled a net charge of $507 million,$1.1 billion, which principally included $527 million$1.0 billion of Mergermerger integration expenses related to information technology, alignment of labor union contracts, professional fees, severance, and retention, share-based compensation, divestiture of London Heathrow Slots, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training. In addition, American recorded a net charge of $60 million for bankruptcy related items principally consisting of fair value adjustments for bankruptcy settlement obligations, $181 million in other special charges, including an $81 million charge to revise prior estimates of certain aircraft residual values, and other spare parts asset impairments, as well as $44 million in charges primarily relating to the buyout of certain aircraft leases. These charges were offset in part by a $305 million gain on the sale of Slots

The 2014 mainline operating special items totaled a net charge of $783 million, which principally included $807 million of merger integration expenses related to information technology, alignment of labor union contracts, professional fees, severance and retention, share-based compensation, divestiture of London Heathrow slots, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training. In addition, American recorded a net charge of $60 million for bankruptcy related items principally consisting of fair value adjustments for bankruptcy settlement obligations and an $81 million charge to revise prior estimates of certain aircraft residual values and other spare parts asset impairments. These charges were offset in part by a $309 million gain on the sale of slots at DCA.

The 2013 mainline operating special items, net principally included $166$443 million of primarily Mergermerger related expenses duerelated to the alignment of labor union contracts, professional fees, severance, and share-based compensation and fees for US Airways to exit the Star Alliance and its codeshare agreement with United Airlines. In addition, American recorded a $107 million charge related to American’s pilot long-term disability obligation, a $43 million charge for workers’ compensation claims and a $33 million aircraft impairment charge. These charges were offset in part by a $67 million gain on the sale of Slotsslots at LaGuardia Airport.

The 2012 mainline operating special items, net consisted of $386 million of severance and related charges and write-off of leasehold improvements on aircraft and airport facilities that were rejected in connection with the Chapter 11 Cases.

See Note 4 to AAG’s Consolidated Financial Statements in Part II, Item 8A for information on the Merger Agreement.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

LGA.

The following additional amounts are also included in the consolidated statements of operations as follows (in millions):

 

  Year Ended December 31,   Year Ended December 31, 
  2014   2013 2012   2015 2014   2013 

Other revenue special item, net (1)

  $    $(31 $    $   $    $(31

Regional operating special items, net(2)

   5              18    5       

Nonoperating special items, net (2)(3)

   120     121    (280   616    128     121  

Reorganization items, net (3)(4)

        2,640    2,179              2,640  

Income tax special items, net (4)(5)

   342     (324  (569   (3,468  344     (324

 

(1)

The 2013 other revenue special item, net included a credit to other revenues related to a change in accounting method resulting from the modification of American’s AAdvantage miles agreement with Citibank.

 

(2)

The 2015 and 2014 regional operating special items, net principally related to merger integration expenses.

(3)

The 2015 nonoperating special items totaled a net charge of $120$616 million, which principally included a $43$592 million charge forto write off all of the value of Venezuelan foreign currency losses, $48 millionbolivars held by American due to continued lack of early debt extinguishment costs related to the prepaymentrepatriations and deterioration of 7.50% senior secured notes and other indebtedness and $29 million of non-cash interest accretion on bankruptcy settlement obligations. See Note 9 for further discussion on Venezuela cash and short-term investments.economic conditions in Venezuela.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

The 2014 nonoperating special items totaled a net charge of $128 million, which principally included a $43 million charge for Venezuelan foreign currency losses, $56 million of early debt extinguishment costs primarily related to the prepayment of 7.50% senior secured notes and other indebtedness and $29 million of non-cash interest accretion on bankruptcy settlement obligations.

The 2013 nonoperating special items, net consisted of interest charges of $48 million primarily to recognize post-petition interest expense on unsecured obligations pursuant to the Plan and penalty interest related to 10.5% secured notes and 7.50% senior secured notes, a $54 million charge related to the premium on tender for existing enhanced equipment trust certificates (EETC) financings and the write-off of debt issuance costs and $19 million in charges related to the repayment of existing EETC financings.

The 2012 nonoperating special items, net totaled a net benefit of $280 million resulting from a settlement of a commercial dispute.

 

(3)(4)

In 2013, and 2012, American recognized reorganization expenses as a result of the filing of voluntary petitions for relief under Chapter 11. These amounts consisted primarily of estimated allowed claim amounts and professional fees.

 

(4)(5)

In 2014,2015, income tax special items totaled a net were $342 million. During 2014, American sold its portfoliocredit of fuel hedging contracts that were scheduled to settle on or after June 30, 2014.$3.5 billion. In connection with this sale,the preparation of American’s financial statements for the fourth quarter of 2015, management determined that it was more likely than not that substantially all of its deferred tax assets, which include its NOLs, would be realized. Accordingly, American recordedreversed $3.5 billion of the valuation allowance as of December 31, 2015, which resulted in a special $3.5 billion non-cash tax provision of $328 millionbenefit recorded in the second quarterconsolidated statement of 2014 that reversed the non-cash tax provision which was recorded in other comprehensive income (OCI), a subset of stockholder’s equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of American’s fuel hedging contracts. In accordance with GAAP, American retained the $328 million tax provision in OCI until the last contract was settled or terminated. In addition, the 2014 period included a special $14 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets.operations for 2015.

In 2014, income tax special items, net were $344 million. During 2014, American sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, American recorded a special non-cash tax provision of $328 million in the second quarter of 2014 that reversed the non-cash tax provision which was recorded in other comprehensive income (OCI), a subset of stockholder’s equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of American’s fuel hedging contracts. In accordance with GAAP, American retained the $328 million tax provision in OCI until the last contract was settled or terminated.

In 2013, and 2012, income tax special items, net included respectively, a $538 million and a $569 million non-cash income tax benefit from continuing operations. American is required to consider all items (including items recorded in other comprehensive income)OCI) in determining the amount of tax benefit that results from a loss from continuing operations and that should be allocated to continuing operations. As a result, American recorded a tax benefit on the loss from continuing operations for the year, which was exactly offset by income tax expense on other comprehensive income.OCI. However, while the income tax benefit from continuing operations is reported on the income statement, the income tax expense on other comprehensive incomeOCI is recorded directly to accumulated other comprehensive income (loss), which is a component of stockholder’s equity. Because the income tax expense on other comprehensive incomeOCI is

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

equal to the income tax benefit from continuing operations, American’s year-end net deferred tax position is not impacted by this tax allocation. The 2013 tax benefit was offset in part by a $214 million tax charge attributable to additional valuation allowance required to reduce deferred tax assets to the amount American believes isbelieved was more likely than not to be realized.

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

7.  Debt

Long-term debt and capital lease obligations included in the consolidated balance sheets consisted of (in millions):

 

   December 31, 
   2014   2013 

Secured

    

2013 Credit Facilities, variable interest rate of 3.75%, installments through 2019 (a)

  $1,872    $1,891  

2014 Credit Facilities, variable interest rate of 4.25%, installments through 2021 (b)

   750       

Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 3.70% to 7.00%, maturing from 2017 to 2026 (c)

   4,271     3,516  

Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.43% to 8.10%, maturing from 2015 to 2026 (d)

   1,860     2,140  

Special facility revenue bonds, fixed interest rates ranging from 5.50% to 8.50%, maturing from 2016 to 2035 (e)

   1,071     1,393  

7.50% senior secured notes (f)

        1,000  

AAdvantage Loan, effective rate of 8.30%, (g)

   433     611  

Other secured obligations, fixed interest rates ranging from 4.19% to 12.24%, maturing from 2015 to 2028 (d)

   992     300  
  

 

 

   

 

 

 
   11,249     10,851  
  

 

 

   

 

 

 

Unsecured

    

Affiliate unsecured obligations

   27     27  
  

 

 

   

 

 

 
   27     27  
  

 

 

   

 

 

 

Total long-term debt and capital lease obligations

   11,276     10,878  

Less: Total unamortized debt discount

   42     69  

Less: Current maturities

   1,230     957  
  

 

 

   

 

 

 

Long-term debt and capital lease obligations, net of current maturities

  $10,004    $9,852  
  

 

 

   

 

 

 
   December 31, 
   2015   2014 

Secured

    

2013 Credit Facilities, variable interest rate of 3.25%, installments through 2020 (a)

  $1,867    $1,872  

2014 Credit Facilities, variable interest rate of 3.50%, installments through 2021 (b)

   743     750  

2013 Citicorp Credit Facility tranche B-1, variable interest rate of 3.50%, installments through 2019 (c)

   980     990  

2013 Citicorp Credit Facility tranche B-2, variable interest rate of 3.00%, installments through 2016 (c)

   588     594  

Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 3.38% to 9.75%, maturing from 2017 to 2027 (d)

   8,693     7,028  

Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.63% to 8.48%, maturing from 2016 to 2027 (e)

   4,183     2,952  

Special facility revenue bonds, fixed interest rates ranging from 2.00% to 8.00%, maturing from 2016 to 2035 (f)

   1,051     1,071  

AAdvantage Loan (g)

        433  

Other secured obligations, fixed interest rates ranging from 3.60% to 12.24%, maturing from 2016 to 2028 (e)

   922     993  
  

 

 

   

 

 

 
   19,027     16,683  
  

 

 

   

 

 

 

Unsecured

    

Affiliate unsecured obligations

   27     27  
  

 

 

   

 

 

 
   27     27  
  

 

 

   

 

 

 

Total long-term debt and capital lease obligations

   19,054     16,710  

Less: Total unamortized debt discount and debt issuance costs

   228     228  

Less: Current maturities

   2,234     1,678  
  

 

 

   

 

 

 

Long-term debt and capital lease obligations, net of current maturities

  $16,592    $14,804  
  

 

 

   

 

 

 

The table below shows availability under revolving credit facilities, all of which were undrawn, as of December 31, 2015 (in millions):

2013 Revolving Facility

  $1,400  

2014 Revolving Facility

   1,025  
  

 

 

 

Total

  $2,425  
  

 

 

 

Secured financings are collateralized by assets, primarily aircraft, engines, simulators, rotable aircraft parts, hangar and maintenance facilities,airport leasehold rights, route authorities and airport Slots.slots. At December 31, 2014,2015, American was operating 37 jet35 aircraft under capital leases. Leases can generally be renewed at rates based on fair market value at the end of the lease term for a number of additional years. At December 31, 2014,2015, the maturities of long-term debt and capital leaseslease obligations are as follows (in millions):

 

2015

  $1,230  

2016

   698    $2,266  

2017

   942     1,598  

2018

   844     1,634  

2019

   2,744     2,628  

2020 and thereafter

   4,791  

2020

   3,081  

2021 and thereafter

   7,820  
  

 

   

 

 

Total

  $11,249    $19,027  
  

 

   

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

 

(a) 2013 Credit Facilities

On June 27, 2013, American and AAG entered into a Credit and Guaranty Agreement (as amended, restated, amended and restated or otherwise modified, the 2013 Credit Agreement) with Deutsche Bank AG New York Branch, as administrative agent, and certain lenders. The 2013 Credit Agreement provideslenders that originally provided for a $1.9 billion term loan facility (the 2013 Term Loan Facility) that is scheduled to mature on June 27, 2019 unless otherwise extended by the applicable parties. As of December 31, 2014, $1.9 billion was outstanding under the(the 2013 Term Loan Facility.

The 2013 Credit Agreement originally provided forFacility) and a $1.0 billion revolving credit facility (the 2013 Revolving Facility and, together with the 2013 Term Loan Facility, the 2013 Credit Facilities) scheduled to mature on June 27, 2018 unless otherwise(the 2013 Revolving Facility). The maturity of the term loan facility was subsequently extended byto June 2020 and the applicable parties.revolving credit facility commitments were subsequently increased to $1.4 billion with an extended maturity date of October 10, 2020, all of which is further described below.

On May 21, 2015, American amended and restated the 2013 Credit Agreement pursuant to which it refinanced the 2013 Term Loan Facility (the $1.9 billion 2015 Term Loan Facility and, together with the 2013 Revolving Facility, the 2013 Credit Facilities) to extend the maturity date to June 2020 and reduce the LIBOR margin from 3.00% to 2.75%. In addition, American entered into certain amendments to reflect the ability for American to make future modifications to the collateral pledged, subject to certain restrictions. The 2013$1.9 billion 2015 Term Loan Facility is repayable in quarterlyannual installments, with the first installment in an amount equal to 0.25%1.25% of the original principal amount thereofcommencing on June 27, 2016 and installments thereafter, in an amount equal to 1.0% of the principal amount, with any unpaid balance due on the maturity datedate. As of December 31, 2015, $1.9 billion of principal was outstanding under the 2013$1.9 billion 2015 Term Loan Facility. The 2013 Revolving Facility provided thatVoluntary prepayments may be made by American may from time to time borrow, repay and reborrow loans thereunder and have letters of credit issued thereunder in an aggregate amount outstanding at any time of up to $1.0 billion. time.

On October 10, 2014, American and AAG amended the 2013 Credit Agreement to extend the maturity date of the 2013 Revolving Facility to October 10, 2019 and increased the commitments thereunder to an aggregate principal amount of $1.4 billion while reducing the letter of credit commitments thereunder to $300 million. On October 26, 2015, American, AAG, US Airways Group and US Airways amended the 2013 Credit Agreement to extend the maturity date of the 2013 Revolving Facility to October 10, 2020. The 2013 Revolving Facility provides that American may from time to time borrow, repay and reborrow loans thereunder and have letters of credit issued thereunder. As of December 31, 2014,2015, there were no borrowings or letters of credit outstanding under the 2013 Revolving Facility.

The 2013 Credit Facilities bear interest at an index rate plus an applicable index margin or, at American’s option, LIBOR (subject to a floor of 0.75%, with respect to the 2013$1.9 billion 2015 Term Loan Facility) plus an applicablea LIBOR margin. Themargin of 3.00% with respect to the 2013 Revolving Facility and 2.75% with respect to the $1.9 billion 2015 Term Loan Facility; provided that American’s corporate credit rating is Ba3 or higher from Moody’s and BB- or higher from S&P, the applicable LIBOR margin is 3.00%would be 2.50% for borrowings under both the 2013$1.9 billion 2015 Term Loan Facility. As of December 31, 2015, American satisfied this ratings test and accordingly, the LIBOR margin for the $1.9 billion 2015 Term Loan Facility and thewas 2.50%. The 2013 Revolving Facility.Credit Facility is subject to an undrawn fee of 0.75%.

Upon consummation of the Merger, US Airways Group and US Airways joined the 2013 Credit Facilities as guarantors. Following the joinder, certain minimum dollar-thresholds under the negative and financial covenants in the 2013 Credit Facilities were automatically increased.

Subject to certain limitations and exceptions, the 2013 Credit Facilities are secured by certain collateral, including certain slots, route authorities and certain take-off and landing rights andairport gate leaseholds at certain airports.leasehold rights. The obligations of American under the 2013 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 under the 2013 Credit Facilities as more fullyfurther described below inCollateral Related CovenantsCovenants.”.”

The 2013 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 under the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

2013 Credit Facilities may be accelerated and become due and payable immediately. In addition, if a “change of control” (as defined in the 2013 Credit Agreement) occurs, American will (absent an amendment or waiver) be required to repay at par the loans outstanding under the 2013 Credit Facilities and terminate the 2013 Revolving Facility. The 2013 Credit Facilities also include covenants that, among other things, require AAG to maintain a minimum aggregate liquidity (as defined in the 2013 Credit Facilities) of not less than $2.0 billion, 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) 2014 Credit Facilities

On October 10, 2014, American, AAG, US Airways Group and US Airways entered into a Credit and Guaranty Agreement (the(as amended, restated, amended and restated or otherwise modified, the 2014 Credit Agreement) with Citibank, N.A., as administrative agent, and certain lenders. The 2014 Credit Agreement provideslenders that originally provided for a $750 million term loan facility scheduled to mature on October 10, 2021 (the 2014 Term Loan Facility) and a $400 million revolving credit facility scheduled to mature on October 10, 2019 (the 2014 Revolving Facility). The revolving credit facility commitments were subsequently increased to $1.025 billion with an extended maturity date of October 10, 2020 as further described below.

On April 20, 2015, American amended and restated the 2014 Credit Agreement pursuant to which it refinanced the 2014 Term Loan Facility (the $750 million 2015 Term Loan Facility and, together with the 2014 Term LoanRevolving Facility, the 2014 Credit Facilities). to reduce the LIBOR margin from 3.50% to 3.00% and entered into certain amendments to reflect the release of certain existing collateral and the addition of certain new collateral, as well as the ability for American to make future modifications to the collateral pledged, subject to certain restrictions. The $750 million 2015 Term Loan Facility is repayable in annual installments in an amount equal to 1.00% of the original principal balance with any unpaid balance due on the maturity date. As of December 31, 2014, $7502015, $743 million of principal was outstanding under the 2014$750 million 2015 Term Loan Facility. Voluntary prepayments may be made by American at any time.

On October 26, 2015, American, AAG, US Airways Group and US Airways amended the 2014 Credit Agreement to increase the commitments under the 2014 Revolving Facility to an aggregate principal amount of $1.025 billion and extend the maturity date to October 10, 2020. The 2014 Revolving

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Facility provides that American may from time to time borrow, repay and reborrow loans thereunder. American may have letters of credit issued under the 2014 Revolving Facility in an aggregate amount outstanding at any time up to $300 million. As of December 31, 20142015, there were no borrowings or letters of credit outstanding under the 2014 Revolving Facility.

Subject to certain limitations and exceptions, the 2014 Credit Facilities are secured by certain collateral, including certain route authorities and certain take-off and landing rights and gate leaseholds at certain airports. The obligations of American under the 2014 Credit Facilities are guaranteed by AAG, US Airways Group and US Airways. American is required to maintain a certain minimum ratio of appraised value of the collateral to the outstanding loans under the 2014 Credit Facilities as more fully described below in “Collateral Related Covenants.”

The 2014 Term Loan Facility and 2014 Revolving Facility mature on October 10, 2021 and October 10, 2019, respectively, unless otherwise extended by the applicable parties. The 2014 Term Loan Facility is repayable in annual installments in an amount equal to 1.00% of the original principal balance with any unpaid balance due on the maturity date of the 2014 Term Loan Facility. Voluntary prepayments may be made by American at any time, with a premium of 1.00% applicable to certain prepayments made prior to the date that is six months following October 10, 2014.

The 2014 Credit Facilities bear interest at an index rate plus an applicable index margin or, at American’s option, LIBOR (subject to a floor of 0.75% in the case of the 2014$750 million 2015 Term Loan Facility) plus an applicablea LIBOR margin. The applicable LIBOR margins are 3.50% andmargin of 3.00% for borrowings under the 2014 Term Loan Facility andwith respect to the 2014 Revolving Facility respectively. If American has aand 3.00% with respect to the 2015 Term Loan Facility; provided that, American’s corporate credit rating ofis Ba3 or higher from Moody’s and BB- or higher from S&P, the applicable LIBOR margin would be 2.75% for the $750 million 2015 Term Loan Facility. As of December 31, 2015, American satisfied this ratings test and accordingly, the LIBOR margin for the $750 million 2015 Term Loan Facility was 2.75%. The 2014 Revolving Facility is 3.25%subject to an undrawn fee of 0.75%.

Subject to certain limitations and exceptions, the 2014 Credit Facilities are secured by certain collateral, including certain slots, route authorities and airport gate leasehold rights. The obligations of American under the 2014 Term Loan Facility.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 under the 2014 Credit Facilities as further described below in“Collateral Related Covenants.”

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

The 2014 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 under the 2014 Credit Facilities may be accelerated and become due and payable immediately. In addition, if a “change of control” (as defined in the 2014 Credit Agreement) occurs with respect to AAG, American will (absent an amendment or waiver) be required to repay at par the loans outstanding under the 2014 Credit Facilities and terminate the 2014 Revolving Facility. The 2014 Credit Facilities also include covenants that, among other things, require AAG to maintain a minimum aggregate liquidity (as defined in the 2014 Credit Facilities) of not less than $2.0 billion, and limit the ability of AAG and its restricted subsidiaries to pay dividends and make certain other payments, make certain investments, 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.

(c) 2013 Citicorp Credit Facility

On May 23, 2013, US Airways entered into a term loan credit facility (as amended, the 2013 Citicorp Credit Facility) with Citicorp North America, Inc., as administrative agent, and certain lenders. US Airways Group guaranteed the obligations of US Airways under the 2013 Citicorp Credit Facility, and AAG and certain other subsidiaries of AAG are guarantors of those obligations. On December 30, 2015, in connection with the merger of US Airways Group with and into AAG and the merger of US Airways with and into American, AAG and American entered into an assumption agreement pursuant to which they assumed the obligations of US Airways Group and US Airways, respectively, in connection with the 2013 Citicorp Credit Facility.

The 2013 Citicorp Credit Facility consists of tranche B-1 term loans (Tranche B-1) and tranche B-2 term loans (Tranche B-2). As of December 31, 2015, $980 million of principal was outstanding under Tranche B-1 and $588 million of principal was outstanding under Tranche B-2. Voluntary prepayments may be made by American at any time.

The 2013 Citicorp Credit Facility bears interest at an index rate plus an applicable index margin or, at American’s option, LIBOR (subject to a floor of 0.75%) plus an applicable LIBOR margin. As of December 31, 2015, the applicable LIBOR margin was 2.75% for Tranche B-1 and 2.25% for Tranche B-2.

Tranche B-1 and Tranche B-2 mature on May 23, 2019 and November 23, 2016, respectively (unless otherwise extended by the applicable parties), and each is repayable in annual installments to be paid on each anniversary of the closing date in an amount equal to 1.00% of the initial aggregate principal amount of the loans with any unpaid balance due on the maturity date of the respective tranche.

Subject to certain limitations and exceptions, the obligations under the 2013 Citicorp Credit Facility are secured by liens on certain take off and landing slots at LGA, spare parts and certain other assets. The obligations of American under the 2013 Citicorp Credit Facility are guaranteed by AAG. American is required to maintain a certain minimum ratio of appraised value of the collateral to the outstanding loans under the 2013 Citicorp Credit Facility as further described below in“Collateral Related Covenants.”

The 2013 Citicorp Credit Facility agreement contains events of default customary for similar financings, including a cross-default provision to certain other material indebtedness of American and certain of its affiliates. Upon the occurrence of an event of default, the outstanding obligations under the 2013 Citicorp Credit Facility may be accelerated and become due and payable immediately. In addition, if a “change of control” (as defined in the 2013 Citicorp Credit Facility agreement) occurs, American will (absent an amendment or waiver) be required to repay the outstanding loans in full together with accrued interest thereon to the date of such prepayment. The 2013 Citicorp Credit Facility agreement includes affirmative, negative and financial covenants that, among other things, (a) require AAG and its restricted subsidiaries to maintain unrestricted liquidity of not less than $2.0 billion, with not less than $750 million held in accounts subject to control agreements, and (b) restrict the ability

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

of AAG and its subsidiaries party to the 2013 Citicorp Credit Facility to make certain investments, pay dividends and make certain other payments, make certain acquisitions, incur liens on the collateral, dispose of collateral, enter into certain affiliate transactions, enter into certain hedging transactions, and engage in certain business activities, in each case subject to certain exceptions.

(d) Aircraft Enhanced Equipment Trust Certificates (EETCs)

2014-12015-1 EETCs

In September 2014,March 2015, American created two pass-through trusts which issued approximately $957 million$1.2 billion aggregate face amount of Series 2014-12015-1 Class A and Class B EETCs (the 2015-1 EETCs) in connection with the financing of 1728 aircraft recently delivered to, and owned by American (the 20142015-1 EETC Aircraft).

As of December 31, 2014,2015, the full $957 millionentire $1.2 billion of the escrowed proceeds from the 2014-1sale of the 2015-1 EETCs havehad been used to purchase equipment notes issued by American in two series: Series A equipment notes in the amount of $742$948 million bearing interest at 3.70%3.375% per annum and Series B equipment notes in the amount of $215$266 million bearing interest at 4.375%3.70% per annum. Interest and principal payments on the equipment notes are scheduled to be madepayable semi-annually in AprilMay and OctoberNovember of each year, beginningwhich began in AprilNovember 2015. The final payments on the Series A and Series B equipment notes will beare due in October 2026May 2027 and October 2022,May 2023, respectively. TheThese equipment notes are secured by liens on the 20142015-1 EETC Aircraft.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.2015-2 EETCs

In September 2015, American created three pass-through trusts which issued approximately $1.1 billion aggregate face amount of Series 2015-2 Class AA, Class A and Class B EETCs (the 2015-2 EETCs) in connection with the financing of 21 aircraft owned by American (the 2015-2 EETC Aircraft).

As of December 31, 2015, the entire $1.1 billion of the proceeds from the sale of the 2015-2 EETCs had been used to purchase equipment notes issued by American in three series: Series AA equipment notes in the amount of $583 million bearing interest at 3.60% per annum, Series A equipment notes in the amount of $239 million bearing interest at 4.00% per annum and Series B equipment notes in the amount of $239 million bearing interest at 4.40% per annum. Interest and principal payments on the equipment notes are payable semi-annually in March and September of each year, with interest payments beginning in March 2016 and principal payments beginning in September 2016. The final payments on the Series AA and Series A equipment notes are due in September 2027 and the final payment on the Series B equipment notes is due in September 2023. These equipment notes are secured by liens on the 2015-2 EETC Aircraft.

(d)(e) Other Aircraft Financing Transactions

In May 2014,2015, American prepaid $61$72 million principal amount of outstanding debt secured by certain aircraft.

During 2014,In 2015, American entered into loan agreements to borrow $286 million$1.9 billion in connection with the financing of certain aircraft deliveries.aircraft. The notes mature in 20262022 through 2027 and bear interest at a rate of LIBOR plus an applicable margin.

During 2014, American financed 20 Boeing 737-800 aircraft under sale-leaseback arrangements and recorded proceeds from the sale of $811 million. Of the 20 Boeing 737-800 aircraft, 19 aircraft were accounted for as a capital lease and $747 million was reflected as debt on the consolidated balance sheet, included within other secured obligations in the table above. Gains associated with these sale-leaseback transactions are amortized over the respective remaining lease terms and are included in the consolidated balance sheet as deferred gains.margin averaging 1.82%.

(e)(f) Obligations Associated with Special Facility Revenue Bonds

In 2014, American prepaid $98 million of obligations, of which $62 million was a reduction of debt on its balance sheet, associated with special facility revenue bonds issued by municipalities to build or improve certain airport and maintenance facilities. The remaining portion of these obligations was accounted for as an operating lease.

In addition, in August 2014, American elected to exercise its option to reset the interest rate on approximately $220 million aggregate principal amount of special facility revenue bonds reflected as debt on its balance sheet, related to the Los Angeles International Airport, resulting in the repurchase of these bonds by American in September 2014. American has the option to remarket these bonds in the future. In connection with the repurchase of these bonds, American paid $2 million in cash premiums and recorded a $5 million non-cash write off of unamortized debt discount and issuance costs.

In December 2014, American purchasedacquired approximately $112 million aggregate principal amount of special facility revenue bonds related to the Tulsa International Airport, when such bonds were mandatorily tendered to American. Of this amount,The acquisition of these bonds resulted in an $11 million was a reduction of debt on American’s balance sheet. American has the option to remarket these bonds in the future.

(f) Senior Secured Notes

In March 2014, American prepaid $100 million of its 7.50% senior secured notes at a redemption price of 103% of their principal amount plus accruedcapital lease obligation and unpaid interest. In July 2014, American prepaid the remaining outstanding principal balance of $900 million at a redemption price of 103.75% of outstanding principal amount plus accrued and unpaid interest. In connection with the prepayment of the outstanding 7.50% senior secured notes, American paid $37 million of cash premiums and recorded a $5 million non-cash write off of unamortized deferred issuance costs during the year ended December 31, 2014.

(g) AAdvantage Loan

In 2009, American entered into an arrangement under which Citibank loaned American $1.0 billion that could be repaid either in AAdvantage miles under American’s AAdvantage program or in cash (the AAdvantage Loan). Approximately $890 million of the AAdvantage Loan proceeds was accounted for as a loan from Citibank with the remaining $110 million recorded as deferred revenue in other liabilities and deferred credits.

To effect the AAdvantage Loan, American and Citibank entered into an Amended and Restated AAdvantage Participation Agreement (as so amended and restated, the Amended Participation Agreement). Under the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

 

Amended Participation Agreement,$50 million reduction of a long-term operating lease obligation included in other long-term liabilities on American’s consolidated balance sheet as of December 31, 2014. American agreed that it would applyexercised its option to remarket approximately $104 million of these bonds in equal monthly installments overMay 2015. The remarketed bonds bear interest at 5.0% per annum from the date of initial issuance and delivery of the bonds on May 27, 2015, until the day preceding June 1, 2025, on which date the bonds will be subject to mandatory tender for purchase by American. In connection with the remarketing of these special facility revenue bonds, American received cash proceeds of $112 million. As of December 31, 2015, $11 million is reflected as a five year period beginningcapital lease and $52 million is reflected in other long-term liabilities on January 1, 2012, a credit for miles awarded to Citibank cardholders’ AAdvantage accounts.American’s consolidated balance sheet.

In June 2015, American had theexercised its right to repay in cash, without premium or penalty, any or alladjust the interest rate on approximately $365 million aggregate principal amount of special facility revenue bonds related to the John F. Kennedy International Airport, which were bearing interest at 8.50% per annum. In August 2015, these bonds were purchased by American and subsequently remarketed. The remarketed bonds bear interest at 2.00% per annum from the date of initial issuance and delivery of the amounts owedbonds in August 2015, until August 2016, when the bonds will be subject to Citibank under themandatory tender for purchase by American. The $365 million obligation is reflected in current maturities of long-term debt and capital leases on American’s consolidated balance sheet as of December 31, 2015.

(g) AAdvantage Loan. Loan

Effective January 2, 2015, American exercised its loan repayment right with respect to the full value of the outstanding balance toof the AAdvantage Loan with Citibank for $400 million. In connection with the repayment, in the first quarter of 2015, American will recognize an early debt extinguishment gain of approximately $17 million. The entire outstanding balance of the obligation is reflected in current maturities of long-term debt on the accompanying consolidated balance sheet as

Guarantees

As of December 31, 2014.2015, American had issued guarantees covering AAG’s $750 million aggregate principal amount of 5.50% senior notes due 2019, $500 million aggregate principal amount of 6.125% senior notes due 2018 and $500 million aggregate principal amount of 4.625% senior notes due 2020.

Collateral Related Covenants

Certain of American’s debt financing agreements contain loan to value ratio covenants and require American to periodicallyannually appraise the related collateral. Pursuant to such agreements, if the loan to value (LTV) ratio exceeds a specified threshold, American is required, as applicable, to pledge additional qualifying collateral (which in some cases may include cash collateral), or pay down such financing, in whole or in part, as described below.part.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Specifically, American is required to meet certain collateral coverage tests on a periodican annual basis on two Credit Facilities,for three credit facilities, as described below:

 

   

2014 Credit Facilities

  

2013 Credit Facilities

Frequency of

Appraisals of

Appraised

Collateral

  Annual  Semi-Annual

LTV

Requirement

  

1.6x Collateral valuation to

amount of debt outstanding

(62.5% LTV)

  

1.6x Collateral valuation to

amount of debt outstanding

(62.5% LTV)

LTV as of

Last

Measurement

Date

  21.9%  33.7%

Collateral Description

  

Generally, certain route

authorities, take-off and landing

slots, and rights to airport facilities

used by American to operate certain

services between the U.S. and

London Heathrow, Tokyo

Narita, and China

  

Generally, certain route

authorities, take-off and landing

slots, and rights to airport facilities

used by American to operate all

services between the U.S. and

South America

   

2014 Credit Facilities

  

2013 Credit Facilities

  

2013 Citicorp Credit Facility

Frequency of Appraisals of Appraised Collateral  Annual  Annual  Annual (1)
LTV Requirement  1.6x Collateral valuation to amount of debt outstanding (62.5% LTV)  1.6x Collateral valuation to amount of debt outstanding (62.5% LTV)  1.5x Collateral valuation to amount of debt outstanding (66.7% LTV)
LTV as of Last Measurement Date  24.1%  33.6%  57.8%
Collateral Description  Generally, certain slots, route authorities and airport gate leasehold rights used by American to operate certain services between the U.S. and London Heathrow  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 LGA slots, certain spare parts, certain simulators, certain leasehold real estate assets and cash

(1)

With respect to spare parts, one physical appraisal and one desktop appraisal are required in each fiscal year.

At December 31, 2014,2015, American was in compliance with the applicable collateral coverage tests as of the most recent measurement dates.

8.  Income Taxes

The significant components of the income tax provision (benefit) were (in millions):

   Year Ended December 31, 
   2015  2014  2013 

Current

  $15   $(24 $(30

Deferred

   (3,467  344    (324
  

 

 

  

 

 

  

 

 

 

Income tax provision (benefit)

  $(3,452 $320   $(354
  

 

 

  

 

 

  

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

 

7. Income Taxes

The significant components of the income tax expense (benefit) were (in millions):

   Year Ended December 31, 
   2014  2013  2012 

Current

  $(23 $(30 $  

Deferred

   342    (324  (569
  

 

 

  

 

 

  

 

 

 

Income tax expense (benefit)

  $319   $(354 $(569
  

 

 

  

 

 

  

 

 

 

The income tax expenseprovision (benefit) differed from amounts computed at the statutory federal income tax rate as follows (in millions):

 

  Year Ended December 31,   Year Ended December 31, 
  2014 2013 2012   2015 2014 2013 

Statutory income tax provision (benefit)

  $570   $(658 $(873  $1,635   $1,144   $(725

State income tax expense (benefit), net of federal tax effect

   43    (14  (35

Book expenses (benefits) not deductible for tax purposes

   (20  20    20  

State income tax provision (benefit), net of federal tax effect

   71    81    (18

Book expenses not deductible for tax purposes

   55    4    25  

Bankruptcy administration expenses

   86    82    26     3    86    82  

Interest cutback to net operating loss (NOL)

       53                 53  

Alternative minimum tax credit refund

   (28  (30           (29  (30

Change in valuation allowance

   (660  714    858     (5,216  (1,285  780  

Tax expense (benefit) resulting from OCI allocation

   328    (538  (569

Tax provision (benefit) resulting from OCI allocation

       328    (538

Other, net

       17    4         (9  17  
  

 

  

 

  

 

   

 

  

 

  

 

 

Income tax expense (benefit)

  $319   $(354 $(569

Income tax provision (benefit)

  $(3,452 $320   $(354
  

 

  

 

  

 

   

 

  

 

  

 

 

American provides a valuation allowance for its deferred tax assets, which includes the 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. As of December 31, 2015, after considering all positive and negative evidence, including the completion of certain critical merger integration milestones as well as American’s financial performance, American concluded that substantially all of its deferred income tax assets were more likely than not to be realized. Accordingly, American reversed the valuation allowance, which resulted in a special $3.5 billion non-cash tax benefit recorded in the consolidated statement of operations for 2015.

For the year ended December 31, 2014, American recorded a $319$320 million tax provision. This provision included $342 million of special tax charges. During 2014, American sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, American recorded a special non-cash tax provision of $328 million in the second quarter of 2014 that reversed the non-cash tax provision which was recorded in other comprehensive income (OCI),OCI, a subset of stockholders’stockholder’s equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of ourAmerican’s fuel hedging contracts. In accordance with GAAP, American retained the $328 million tax provision in OCI until the last contract was settled or terminated. American also recorded a special $14 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets. In addition, American recorded $6 million of tax expense principally related to certain states and countries where NOL Carryforwards were limited or unavailable to be used. These charges were offset in part by a $29 million federal income tax benefit resulting from American’s elections under applicable sections of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 and the Housing and Economic Recovery Act of 2008 (as extended by the Tax Increase Prevention Act of 2014), allowing corporations to accelerate utilization of certain research and AMT credit carryforwards in lieu of applicable bonus depreciation on certain qualifying capital investments.

For the year ended December 31, 2013, American recorded a $354 million tax benefit. This benefit included a $538 million special non-cash income tax benefit from continuing operations. American is required to consider all items (including items recorded in OCI) in determining the amount of tax benefit that results from a loss from continuing operations and that should be allocated to continuing operations. As a result, American recorded a tax benefit on the loss from continuing operations for the year, which was exactly offset by income tax expense on OCI. However, while the income tax benefit from continuing operations is reported on the income statement, the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

income tax expense on other comprehensive incomeOCI is recorded directly to accumulated other comprehensive income (loss),OCI, which is a component of stockholder’s equity. Because the income tax expense on other comprehensive incomeOCI is equal to the income tax benefit from continuing operations, American’s year-end net deferred tax position is not impacted by this tax allocation. The 2013 tax benefit was offset in part by a $214 million special tax chargeprovision attributable to additional valuation allowance required to reduce deferred tax assets to the amount American believes isbelieved was more likely than not to be realized. In addition, American recorded a $30 million federal income tax benefit under the Housing and Economic Recovery Act of 2008 as described above.

For the year ended December 31, 2012, American recorded a net income tax benefit of $569 million, which represents the non-cash income tax benefit resulting from gains recorded in OCI as discussed above.

American provides a valuation allowance for 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 generation of future taxable income (primarily reversals of deferred tax liabilities) during the periods in which those temporary differences will become deductible. In making this determination, American considers all available positive and negative evidence and makes certain assumptions. American considers many factors in evaluating the realizability of its deferred tax assets including risks associated with merger integration as well as other factors, which continue to be affected by conditions beyond American’s control, such as the condition of the economy, the level and volatility of fuel prices and travel demand. American has concluded as of December 31, 2014 that the valuation allowance was still needed on its deferred tax asset based on the weight of the factors described above.

A portion of the change in the valuation allowance reflects the income tax benefit of approximately $29 million and $30 million, respectively, recorded in 2014 and 2013 resulting from American’s elections under applicable sections of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 and the Housing and Economic Recovery Act of 2008 (as extended by the Tax Increase Prevention Act of 2014 and the American Taxpayer Relief Act of 2012), allowing corporations to accelerate utilization of certain research and alternative minimum tax (AMT) credit carryforwards in lieu of applicable bonus depreciation on certain qualifying capital investments.

In addition to the changes in the valuation allowance from operations described in the table above, the valuation allowance was also impacted by the changes in the components of accumulated other comprehensive income (loss), described in Note 11 to American’s consolidated financial statements. The total increase in the valuation allowance was $69 million, $155 million and $282 million in 2014, 2013 and 2012, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

 

income (loss), described in Note 12. The total decrease in the valuation allowance was $5.2 billion and $525 million in 2015 and 2014, respectively. The total increase in the valuation allowance was $221 million in 2013.

The components of American’s deferred tax assets and liabilities were (in millions):

 

  December 31,   December 31, 
  2014 2013   2015 2014 

Deferred tax assets:

      

Postretirement benefits other than pensions

  $322   $342    $340   $379  

Rent expense

   86    55     134    121  

Alternative minimum tax credit carryforwards

   438    467     458    458  

Operating loss carryforwards

   3,536    3,302     2,818    3,737  

Pensions

   2,385    1,747     2,420    2,394  

Frequent flyer obligation

   589    620  

Loyalty program obligation

   590    948  

Gains from lease transactions

   22    24     261    208  

Reorganization items

   64    675     57    64  

Other

   829    975     1,123    1,172  
  

 

  

 

   

 

  

 

 

Total deferred tax assets

   8,271    8,207     8,201    9,481  

Valuation allowance

   (5,308  (5,239   (14  (5,196
  

 

  

 

   

 

  

 

 

Net deferred tax assets

   2,963    2,968     8,187    4,285  
  

 

  

 

   

 

  

 

 

Deferred tax liabilities:

      

Accelerated depreciation and amortization

   (2,953  (2,932   (5,011  (4,579

Other

   (238  (250   (244  (242
  

 

  

 

   

 

  

 

 

Total deferred tax liabilities

   (3,191  (3,182   (5,255  (4,821
  

 

  

 

   

 

  

 

 

Net deferred tax liability

  $(228 $(214

Net deferred tax asset (liability)

  $2,932   $(536
  

 

  

 

   

 

  

 

 

At December 31, 2014,2015, American had approximately $10.3$8.8 billion of gross NOL Carryforwards to reduce future federal taxable income, substantially all of which are expected to be available for use in 2015.2016. American is a member of AAG’s consolidated federal and certain state income tax returns. The amount of federal and state NOL Carryforwards available in those returns is $10.1$8.0 billion, and $4.6 billion, respectively, substantially all of which is expected to be available for use in 2015.2016. The federal NOL Carryforwards will expire beginning in 20222023 if unused. These NOL Carryforwards include an unrealized tax benefit of $712 million$1.2 billion related to the implementation of share-based compensation accounting guidance that will be recorded in equity when realized. American also had approximately $3.9$3.7 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2014,2015, which will expire in years 20152016 through 2034 if unused. As of December 31, 2015, the amount of NOL Carryforwards for state income tax purposes that will expire, if unused, in 2016 is $106 million. American’s ability to deduct its NOL 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. American experienced an ownership change in connection with its emergence from the Chapter 11 Cases.Cases, and US Airways Group experienced an ownership change in connection with the Merger. As a result of the Merger, US Airways Group is now included in the AAG consolidated federal and state income tax returns. The general limitation rules of Section 382 for a debtor in a bankruptcy case are liberalized where the ownership change occurs upon emergence from bankruptcy. American elected to be covered by certain special rules for federal income tax purposes that permitpermitted approximately $9.5 billion (with $7.3 billion of unlimited NOL still remaining at December 31, 2015) of its federal NOL Carryforwards to be utilized without regard to the Section 382 annual limitation rules.rules unless a second ownership change occurred on or before December 9, 2015. No second ownership change occurred within that period. Substantially all of American’s remaining federal NOL Carryforwards (attributable to US Airways Group) are subject to limitation under Section 382; however, American’s ability to utilize such NOL Carryforwards is not anticipated to be effectively

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

constrained as a result of such limitation. Similar limitations may apply for state income tax purposes. American’s ability to utilize any new NOL Carryforwards arising after the ownership changechanges is not affected by the annual limitation rules imposed by Section 382 unless another 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 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, 2014,2015, American had an AMTAlternative Minimum Tax credit carryforward of approximately $435$458 million available for federal income tax purposes, which is available for an indefinite period. American’s net deferred tax assets, which include the NOL Carryforwards, are subject to a full valuation allowance. At December 31, 2014, the federal and state valuation allowances were $5.1 billion and $208 million, respectively. In accordance with GAAP, utilization of the NOL Carryforwards after December 9, 2013 will result in a corresponding decrease in the valuation allowance and offset American’s tax provision dollar for dollar.

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 20042012 through 20132014 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 additionalany assessments will be immaterial to its consolidated financial statements.

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which changes how deferred taxes are classified on the balance sheet. The update eliminates the current requirement to present deferred tax liabilities and assets as current and noncurrent on the balance sheet. Deferred tax liabilities and assets are now required to be classified as noncurrent on the balance sheet. Entities have the choice to apply ASU 2015-17 either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The update is effective for annual and interim periods in fiscal years beginning after December 15, 2016. American has an unrecognized tax benefit of approximately $5 million, which did not changeearly adopted this standard during the twelve months ended December 31, 2014. Changes infourth quarter 2015, utilizing retrospective application as permitted. As such, certain prior period amounts have been reclassified to conform to the unrecognizedcurrent presentation. As a result, American reclassified $314 million of current deferred income tax benefit have no impactassets within prepaid expenses and other to reduce deferred income taxes within other liabilities on the effective tax rate due to the existenceconsolidated balance sheet as of the valuation allowance. Accrued interest on tax positions is recorded as a component of interest expense but was not significant at December 31, 2014.

The reconciliation of the beginning and ending amounts of unrecognized tax benefit are (in millions):

   2014   2013 

Unrecognized tax benefit at January 1

  $5    $5  

No activity

          
  

 

 

   

 

 

 

Unrecognized tax benefit at December 31

  $5    $5  
  

 

 

   

 

 

 

American estimates that the unrecognized tax benefit will be realized within the next twelve months.

8.9.  Risk Management and Financial Instruments

American’s economic prospects are heavily dependent upon two variables it cannot control: the health of the economy and the price of fuel.

Due to the discretionary nature of business and leisure travel spending, airline industry 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 and changes in booking practices, both of which in turn have had, and may have in the future, a strong negative effect on American’s revenues. In addition, during challenging economic times, actions by ourits 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. Jet fuel market prices have fluctuated substantially over the past several years and prices continue to be highly volatile. Because of the amount of fuel needed to operate American’s business, even a relatively small increase or decrease in the price of fuel can have a material adverse aggregate effect on American’s operating results and liquidity. Jet fuel market prices have fluctuated substantially over the past several years and prices continued to be volatile in 2014.

These additional factors could impact American’s results of operations, financial performance and liquidity.

(a) Fuel Price Risk Management

During the second quarter of 2014, American sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. American has not entered into any transactions to hedge its fuel consumption since December 9, 2013 and, accordingly, as of December 31, 2014, American did not have any fuel hedging contracts outstanding. As such, and assuming American does not enter into any future transactions to hedge its fuel consumption, American will continue to be fully exposed to fluctuations in fuel prices. American’s current policy is not to enter into transactions to hedge its fuel consumption, although American reviews that policy from time to time based on market conditions and other factors.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

 

The cash proceeds on these sales totaled $71 million which exceeded the current value of the portfolio. Approximately $25 million of the resulting gain was recorded to OCI and will be recognized as a decrease to fuel expense in the period the hedged fuel is scheduled to be consumed (through the second quarter of 2015). As of December 31, 2014, American expects to recognize the remaining $9 million of these gains into earnings in 2015. For the years ended December 31, 2014, 2013 and 2012, American recognized net gains of approximately $16 million, net losses of approximately $12 million and net gains of approximately $4 million, respectively, as a component of aircraft fuel expense on the accompanying consolidated statements of operations related to its fuel hedging agreements, including the ineffective portion of the hedges.

The impact of aircraft fuel derivative instruments (all cash flow hedges) on American’s consolidated statements of operations is depicted below (in millions):

   Location  Year Ended December 31, 
             2014                   2013                  2012         

Amount of gain (loss) reclassified from AOCI into income (1)

  Aircraft fuel and
related taxes
  $4    $(34 $3  

Amount of gain (loss) recognized in income on derivative (2)

  Aircraft fuel and
related taxes
   12     22    1  
    

 

 

   

 

 

  

 

 

 

Amount of gain (loss) recognized in consolidated statements of operations (3)

    $16    $(12 $4  
    

 

 

   

 

 

  

 

 

 

(1)

Includes the effective portion of hedge gain (loss)

(2)

Includes the ineffective portion of hedge gain (loss)

(3)

Includes the effective and ineffective portion of hedge gain (loss)

The impact of aircraft fuel derivative instruments (all cash flow hedges) on American’s consolidated statements of comprehensive income is depicted below (in millions):

   Location  Year Ended December 31, 
             2014                  2013                  2012         

Amount of (gain) loss reclassified from AOCI into income (1)

  Reclassification
into earnings
  $(4 $34   $(3

Amount of gain (loss) recognized in OCI on derivative (1)

  Change in fair value   (34  (2  (12
    

 

 

  

 

 

  

 

 

 

Amount of gain (loss) recognized in consolidated statements of comprehensive income

    $(38 $32   $(15
    

 

 

  

 

 

  

 

 

 

(1)

Includes the effective portion of hedge gain (loss)

While certain of American’s fuel derivatives were subject to enforceable master netting agreements with its counterparties, American did not offset its fuel derivative assets and liabilities in its consolidated balance sheets. American had a gross asset of $109 million as of December 31, 2013 for its aircraft fuel derivative instruments, which was reflected in prepaid expenses and other on the accompanying consolidated balance sheet. American had no cash collateral posted or received as of December 31, 2013.

(b)(a) Credit Risk

Most of American’s receivables relate to tickets sold to individual passengers through the use of major credit cards or to tickets sold by other airlines and used by passengers on American or its regional carriers.American. These

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

receivables are short-term, mostly being settled within seven days after sale. Bad debt losses, which have been minimal in the past, have been considered in establishing allowances for doubtful accounts. American does not believe it is subject to any significant concentration of credit risk.

(c)(b) Interest Rate Risk

American has exposure to market risk associated with changes in interest rates related primarily to its variable rate debt obligations. Interest rates on $3.9$7.8 billion principal amount of long-term debt as of December 31, 20142015 are subject to adjustment to reflect changes in floating interest rates. The weighted average effective interest rate on American’s variable rate debt was 3.6%2.93% at December 31, 2014.

9. Investments and Fair Value Measurements

Short-term investments consisted of (in millions):

   December 31, 
   2014   2013 

Overnight Investments, Time Deposits and Repurchase Agreements

  $60    $177  

Corporate and Bank Notes

   2,441     3,350  

U.S. Government Agency and Treasury Obligations

        1,312  

Commingled Funds

   789     323  
  

 

 

   

 

 

 

Total

  $3,290    $5,162  
  

 

 

   

 

 

 

Short-term investments at December 31, 2014, by contractual maturity included (in millions):

Due in one year or less

  $ 2,532  

Due between one year and three years

   758  

Due after three years

     
  

 

 

 

Total

  $3,290  
  

 

 

 

All short-term investments are classified as available-for-sale and stated at fair value. Unrealized gains and losses are reflected as a component of accumulated other comprehensive income (loss).2015. American does not currently have an interest rate hedge program.

Assets and Liabilities Measured at Fair Value on a Recurring Basis(c) Foreign Currency Risk

American utilizesis exposed to the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. American’s short-term investments classified as Level 2 primarily utilize broker quotes in a non-active market for valuationeffect of these securities. American’s fuel derivative contracts, which consisted primarily of call options, collars (consisting of a purchased call option and a sold put option) and call spreads (consisting of a purchased call option and a sold call option), are valued using energy and commodity market data which is derived by combining raw inputs with quantitative models and processes to generate forward curves and volatilities. Heating oil, jet fuel and crude oil were the primary underlying commodities in the hedge portfolio. No changes in valuation techniques or inputs occurred during the year ended December 31, 2014.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Assets and liabilities measured at fair value on a recurring basis are summarized below (in millions):

   Fair Value Measurements as of December 31, 2014 
       Total           Level 1           Level 2           Level 3     

Short-term investments (1), (2):

        

Money market funds

  $789    $789    $    $  

Repurchase agreements

   46          46       

Corporate obligations

   1,775          1,775       

Bank notes / Certificates of deposit / Time deposits

   680          680       
  

 

 

   

 

 

   

 

 

   

 

 

 
   3,290     789     2,501       

Restricted cash and short term investments (1)

   650     650            
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $3,940    $1,439    $2,501    $  
  

 

 

   

 

 

   

 

 

   

 

 

 

(1)

Unrealized gains or losses on short-term investments and restricted cash and short-term investments are recorded in accumulated other comprehensive loss at each measurement date.

(2)

American’s short-term investments mature in one year or less except for $558 million of corporate obligations and $200 million of bank notes/certificates of deposit/time deposits.

There were no Level 1 to Level 2 transfers during the year ended December 31, 2014.

   Fair Value Measurements as of December 31, 2013 
       Total           Level 1           Level 2           Level 3     

Short-term investments (1), (2):

        

Money market funds

  $323    $323    $    $  

Government agency investments

   1,312          1,312       

Repurchase agreements

   170          170       

Corporate obligations

   2,750          2,750       

Bank notes / Certificates of deposit / Time deposits

   607          607       
  

 

 

   

 

 

   

 

 

   

 

 

 
   5,162     323     4,839       

Restricted cash and short term investments (1)

   702     646     56       

Fuel derivative contracts, net (1)

   109          109       
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $5,973    $969    $5,004    $  
  

 

 

   

 

 

   

 

 

   

 

 

 

(1)

Unrealized gains or losses on short-term investments, restricted cash and short-term investments and derivatives qualifying for hedge accounting are recorded in accumulated other comprehensive income (loss) at each measurement date.

(2)

American’s short-term investments mature in one year or less except for $250 million of bank notes/certificates of deposit/time deposits, $511 million of U.S. Government agency investments and $2.1 billion of corporate obligations.

A $56 million Level 1 restricted money market security was liquidated in August 2013. The cash proceeds were subsequently reinvested in a Level 2 U.S. Treasury Obligation. American’s policy regarding the recording of transfers between levels is to reflect any such transfers at the end of the reporting period.

Venezuela Cash and Short-term Investments

As of December 31, 2014, $745 million of American’s cash and short-term investments balances were held in foreign bank accounts, of which approximately $656 million was held in Venezuelan bolivars. This balance includes approximately $621 million valued at 6.3 bolivars and approximately $35 million valued at 12.0

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

bolivars, with theexchange rate dependingfluctuations on the date American submitted its repatriation request to the Venezuelan government. These rates are materially more favorable than the exchange rates currently prevailing for other transactions conducted outsideU.S. dollar value of the Venezuelan government’s currency exchange system that American participates in.foreign currency-denominated operating revenues and expenses. American’s cash balance held in Venezuelan bolivars decreased $54 millionlargest exposure comes from the December 31, 2013 balance of $710 millionBritish pound, Euro, Canadian dollar and various Latin American currencies, primarily due to $88 million in cash repatriations and $30 million inthe Brazilian real. American does not currently have a foreign currency losses as described below, partially offset by additional cash proceeds from ticket sales in early 2014. In the second and third quarters of 2014, American repatriated $65 million including $31 million valued at 6.3 bolivars to the dollar and $34 million valued at 10.6 bolivars to the dollar. In the fourth quarter of 2014, American incurred an $11 million foreign currency loss related to the receipt of $23 million at a rate of 6.3 bolivars to the dollar for one of its 2012 repatriation requests originally valued at a rate of 4.3 bolivars to the dollar. Accordingly, American revalued its remaining pending 2012 repatriation requests from 4.3 to 6.3 bolivars to the dollar resulting in additional foreign currency losses of $19 million. In total, American recognized a $30 million special charge for these foreign currency losses in the fourth quarter of 2014. During 2014, American significantly reduced capacity in this market and is no longer accepting bolivars as payment for airline tickets. American is continuing to work with Venezuelan authorities regarding the timing and exchange rate applicable to the repatriation of funds held in local currency. American is monitoring this situation closely and continues to evaluate its holdings of Venezuelan bolivars for additional foreign currency losses, which could be material, particularly in light of the uncertainty posed by the new foreign exchange regulations announced in mid-February 2015 and the continued deterioration of economic conditions in Venezuela.hedge program. See Part I, Item 1A. Risk Factors –“We “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 controlcontrol” for unaudited additional discussion of thisdiscussion.

10.  Investments and Fair Value Measurements

Assets Measured at Fair Value on a Recurring Basis

American utilizes the market approach to measure fair value for its financial assets. The market approach uses prices and other currency risks.relevant information generated by market transactions involving identical or comparable assets. American’s 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, 2015.

Assets measured at fair value on a recurring basis are summarized below (in millions):

   Fair Value Measurements as of December 31, 2015 
       Total           Level 1           Level 2           Level 3     

Short-term investments (1), (2):

        

Money market funds

  $1,008    $1,008    $    $  

Government agency investments

   1          1       

Corporate obligations

   2,191          2,191       

Bank notes/certificates of deposit/time deposits

   2,662          2,662       
  

 

 

   

 

 

   

 

 

   

 

 

 
   5,862     1,008     4,854       

Restricted cash and short-term investments (1)

   695     695            
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $6,557    $1,703    $4,854    $  
  

 

 

   

 

 

   

 

 

   

 

 

 

(1)

Unrealized gains or losses on short-term investments and restricted cash and short-term investments are recorded in accumulated other comprehensive loss at each measurement date.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

(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 $734 million of corporate obligations and $1.2 billion of bank notes/certificates of deposit/time deposits.

   Fair Value Measurements as of December 31, 2014 
       Total           Level 1           Level 2           Level 3     

Short-term investments (1), (2):

        

Money market funds

  $951    $951    $    $  

Government agency investments

   101          101       

Repurchase agreements

   46          46       

Corporate obligations

   3,927          3,927       

Bank notes/certificates of deposit/time deposits

   1,281          1,281       
  

 

 

   

 

 

   

 

 

   

 

 

 
   6,306     951     5,355       

Restricted cash and short-term investments (1)

   774     774            
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $7,080    $1,725    $5,355    $  
  

 

 

   

 

 

   

 

 

   

 

 

 

(1)

Unrealized gains or losses on short-term investments and restricted cash and 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 $1.1 billion of corporate obligations and $575 million of bank notes/certificates of deposit/time deposits.

There were no Level 1 to Level 2 transfers during the years ended December 31, 2015 or 2014.

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 in the fair value hierarchy.

The carrying value and estimated fair value of American’s long-term debt, including current maturities, were as follows (in millions):

 

   December 31, 2014   December 31, 2013 
   Carrying
Value
   Fair
Value
   Carrying
Value
   Fair
Value
 

Long-term debt, including current maturities

  $11,234    $11,618    $10,809    $11,045  
  

 

 

   

 

 

   

 

 

   

 

 

 
   December 31, 2015   December 31, 2014 
   Carrying
Value
   Fair
Value
   Carrying
Value
   Fair
Value
 

Long-term debt, including current maturities

  $18,826    $19,378    $16,482    $17,245  
  

 

 

   

 

 

   

 

 

   

 

 

 

10.Cash and Short-term Investments

Generally, fluctuations in foreign currencies, including devaluations, cannot be predicted by American and can significantly affect the value of American’s cash and short-term investments 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 American’s 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 bynumerous events, circumstances or government actions beyond our control” for unaudited additional discussion of this and other currency risks.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

11. Retirement Benefits

American sponsors defined benefit and defined contribution pension plans for eligible employees. The defined benefit 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 plans for certain groups. American uses a December 31 measurement date for all of its defined benefit plans. In addition, American also provides certain postemploymentretiree medical and other postretirement benefits, including health care and life insurance benefits, to retired employees. Effective November 1, 2012, American modified its employees. These benefits include disability-relatedretiree medical and workers’ compensation benefitslife coverage to eliminate the company subsidy for certain employees.employees who retire on or after November 1, 2012. As a result of modifications to its retiree medical plans in 2012, American accruesrecognized a negative plan amendment of $1.9 billion, which is included as a component of actuarial gain in OCI and will be amortized over the future service life of the active plan participants for whom the costbenefit was eliminated, or approximately eight years. As of such benefit expenses once an appropriate triggering event has occurred.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

December 31, 2015, $1.1 billion of actuarial gain remains to be amortized.

Year End Information

The following table provides a reconciliation of the changes in the pension and retiree medical and other postretirement benefit obligations and fair value of assets for the years ended December 31, 20142015 and 2013,2014, and a statement of funded status as of December 31, 20142015 and 20132014 (in millions):

 

   Pension Benefits  Retiree Medical and Other
Benefits
 
   2014  2013  2014   2013 

Reconciliation of benefit obligation:

      

Obligation at January 1

  $14,826   $15,895   $1,264    $1,412  

Service cost

��  2    3           

Interest cost

   742    654    55     50  

Actuarial (gain) loss

   2,559    (1,152  (57   (82

Plan amendments

           33       

Curtailments

       2           

Settlements

   (20  (1         

Benefit payments

   (605  (575  (102   (116
  

 

 

  

 

 

  

 

 

   

 

 

 

Obligation at December 31

  $17,504   $14,826   $1,193    $1,264  
  

 

 

  

 

 

  

 

 

   

 

 

 

Reconciliation of fair value of plan assets:

      

Fair value of plan assets at January 1

  $10,009   $9,065   $239    $211  

Actual return on plan assets

   742    1,026    11     41  

Employer contributions

   809    494    96     103  

Settlements

   (20  (1         

Benefit payments

   (605  (575  (102   (116
  

 

 

  

 

 

  

 

 

   

 

 

 

Fair value of plan assets at December 31

   10,935    10,009    244     239  
  

 

 

  

 

 

  

 

 

   

 

 

 

Funded status at December 31

  $(6,569 $(4,817 $(949  $(1,025
  

 

 

  

 

 

  

 

 

   

 

 

 

Amounts recognized in the consolidated balance sheets:

      

Current liability

  $10   $31   $108    $118  

Noncurrent liability (1)

   6,559    4,786    841     907  
  

 

 

  

 

 

  

 

 

   

 

 

 
  $6,569   $4,817   $949    $1,025  
  

 

 

  

 

 

  

 

 

   

 

 

 

Amounts recognized in other comprehensive income:

      

Net actuarial loss (gain)

  $4,949   $2,395   $(217  $(176

Prior service cost (credit) (1)

   245    273    (1,319   (1,592
  

 

 

  

 

 

  

 

 

   

 

 

 
  $5,194   $2,668   $(1,536  $(1,768
  

 

 

  

 

 

  

 

 

   

 

 

 

For plans with accumulated benefit obligations exceeding the fair value of plan assets:

      

Projected benefit obligation (PBO)

  $17,471   $14,796   $    $  

Accumulated benefit obligation (ABO)

   17,461    14,788           

Accumulated postretirement benefit obligation (APBO)

           1,193     1,264  

Fair value of plan assets

   10,899    9,976    244     239  

ABO less fair value of plan assets

   6,562    4,812           

(1) The 2014 noncurrent liability does not include $18 million of other post-employment benefits or $2 million of prior service costs.

  Pension Benefits  Retiree Medical and Other
Postretirement Benefits
 
          2015                  2014                  2015                  2014         

Reconciliation of benefit obligation:

    

Obligation at January 1

 $17,504   $14,826   $1,324   $1,383  

Service cost

  2    2    3    1  

Interest cost

  733    742    50    61  

Actuarial (gain) loss

  (1,153  2,559    (178  (39

Plan amendments

              33  

Settlements

  (3  (20        

Benefit payments

  (773  (605  (94  (111

Other

          24    (4
 

 

 

  

 

 

  

 

 

  

 

 

 

Obligation at December 31

 $16,310   $17,504   $1,129   $1,324  
 

 

 

  

 

 

  

 

 

  

 

 

 

Reconciliation of fair value of plan assets:

    

Fair value of plan assets at January 1

 $10,935   $10,009   $244   $239  

Actual return on plan assets

  (505  742    (10  11  

Employer contributions

  6    809    89    105  

Settlements

  (3  (20        

Benefit payments

  (773  (605  (94  (111

Other (1)

          24      
 

 

 

  

 

 

  

 

 

  

 

 

 

Fair value of plan assets at December 31

  9,660    10,935    253    244  
 

 

 

  

 

 

  

 

 

  

 

 

 

Funded status at December 31

 $(6,650 $(6,569 $(876 $(1,080
 

 

 

  

 

 

  

 

 

  

 

 

 

Amounts recognized in the consolidated balance sheets:

    

Current liability

 $7   $10   $109   $117  

Noncurrent liability (2)

  6,643    6,559    767    963  
 

 

 

  

 

 

  

 

 

  

 

 

 
 $6,650   $6,569   $876   $1,080  
 

 

 

  

 

 

  

 

 

  

 

 

 

Amounts recognized in other comprehensive income:

    

Net actuarial loss (gain)

 $5,036   $4,949   $(339 $(199

Prior service cost (benefit) (2)

  216    245    (1,084  (1,326
 

 

 

  

 

 

  

 

 

  

 

 

 
 $5,252   $5,194   $(1,423 $(1,525
 

 

 

  

 

 

  

 

 

  

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

 

  Pension Benefits  Retiree Medical and Other
Postretirement Benefits
 
          2015                  2014              ��   2015                  2014         

For plans with accumulated benefit obligations exceeding the fair value of plan assets:

    

Projected benefit obligation (PBO)

 $16,283   $17,471   $   $  

Accumulated benefit obligation (ABO)

  16,272    17,461          

Accumulated postretirement benefit obligation (APBO)

          1,129    1,324  

Fair value of plan assets

  9,630    10,899    253    244  

ABO less fair value of plan assets

  6,642    6,562          

(1)

At December 31, 2015, certain trust assets totaling approximately $24 million, were added to the retiree medical plan asset values that were previously offset against the benefit obligation.

(2)

The 2015 noncurrent liability does not include $17 million of other postretirement benefits or $1 million of prior service costs. The 2014 noncurrent liability does not include $18 million of other postretirement benefits or $2 million of prior service costs.

The following tables provide the components of net periodic benefit cost (income) for the years ended December 31, 2015, 2014 2013 and 20122013 (in millions):

 

  Pension Benefits Retiree Medical and Other
Benefits
  Pension Benefits Retiree Medical and Other
Postretirement Benefits
 
  2014 2013 2012 2014 2013 2012      2015         2014         2013         2015         2014         2013     

Components of net periodic benefit cost:

       

Defined benefit plans:

             

Service cost

  $2   $3   $341   $   $   $46   $1   $2   $3   $3   $1   $  

Interest cost

   742    654    729    55    50    128    733    742    654    50    61    50  

Expected return on assets

   (783  (720  (676  (19  (16  (17  (848  (783  (720  (19  (19  (16

Curtailments

       2    58            (124          2              

Settlements

   4    (1                  1    4    (1            

Amortization of:

             

Prior service cost (1)

   28    28    10    (240  (251  (82

Prior service cost (benefit) (1)

  28    28    28    (243  (244  (251

Unrecognized net loss (gain)

   43    90    211    (8  (9  (9  111    43    90    (9  (8  (9
  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Net periodic benefit cost for defined benefit plans

   36    56    673    (212  (226  (58

Net periodic benefit cost (income) for defined benefit plans

  26    36    56    (218  (209  (226

Defined contribution plans

   385    303    202    N/A    N/A    N/A    657    527    311    N/A    N/A    N/A  
  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
  $421   $359   $875   $(212 $(226 $(58 $683   $563   $367   $(218 $(209 $(226
  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

 

(1)

The 2015 prior service cost does not include amortization of $3 million related to other postretirement benefits. The 2014 prior service cost does not include amortization of $14 million related to other post-employmentpostretirement benefits.

The estimated amount of unrecognized net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $111$125 million.

The estimated amount of unrecognized net gain for the retiree medical and other postretirement plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $7$16 million.

 

   Pension Benefits  Retiree Medical and Other
Benefits
 
   2014  2013  2014  2013 

Weighted-average assumptions used to determine benefit obligations as of December 31:

     

Discount rate

   4.30  5.10  4.00  4.71

Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31:

     

Discount rate 1/1 – 12/31

   5.10  4.20  4.71  3.80

Expected return on plan assets

   8.00  8.00  8.00  8.00
   Pension Benefits  Retiree Medical and Other
Postretirement Benefits
 
           2015                  2014                  2015                  2014         

Weighted-average assumptions used to determine benefit obligations as of December 31:

     

Discount rate

   4.70  4.30  4.42  4.00

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

   Pension Benefits  Retiree Medical and Other
Postretirement Benefits
 
           2015                  2014                  2015                  2014         

Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31:

     

Discount rate 1/1 – 12/31

   4.30  5.10  4.00  4.74

Expected return on plan assets

   8.00  8.00  8.00  8.00

As of December 31, 2014,2015, American’s estimate of the long-term rate of return on plan assets was 8.00%8% based on the target asset allocation. Expected returns on longer duration bonds are based on yields to maturity of the bonds held at year-end. Expected returns on other assets are based on a combination of long-term historical returns, actual returns on plan assets achieved over the last ten years, current and expected market conditions, and expected value to be generated through active management, currency overlay and securities lending programs. American’s annualized ten-year rate of return on plan assets as of December 31, 2014, was approximately 8%.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

The objectives of American’s investment policies are to: maintain sufficient income and liquidity to pay retirement benefits; produce a long-term rate of return that meets or exceeds the assumed rate of return for plan assets; limit the volatility of asset performance and funded status; and diversify assets among asset classes and investment managers.

Based on these investment objectives, a long-term strategic asset allocation has been established. This strategic allocation seeks to balance the potential benefit of improving funded position with the potential risk that the funded position would decline. The current strategic target asset allocation is as follows:

 

Asset Class/Sub-Class

  Allowed Range 

Equity

   62% - 7272%%  

Public:

  

U.S. Value

   20% - 3535%%  

International Value

   14% - 2424%%  

Emerging Markets

   5% - 1111%%  

Alternative Investments

   0% - 1818%%  

Fixed Income

   28% - 3838%%  

U.S. Long Duration

   26% - 3636%%  

Emerging Markets

   0% -   44%%  

Other

   0% -   55%%  

Cash Equivalents

   0% -   55%%  

Each asset class is actively managed and, historically, the plans’ assets have produced returns, net of management fees, in excess of the expected rate of return over the last ten years. Public equity and emerging market fixed income securities are used to provide diversification and are expected to generate higher returns over the long-term than longer duration U.S. bonds. Public stocks are managed using a value investment approach in order to participate in the returns generated by stocks in the long-term, while reducing year-over-year volatility. Longer duration U.S. bonds are used to partially hedge the assets from declines in interest rates. Alternative (private) investments are used to provide expected returns in excess of the public markets over the long-term. Additionally, Americanthe pension plan’s master trust engages currency overlay managers in an attempt to increase returns by protecting non-U.S. dollar denominated assets from a rise in the relative value of the U.S. dollar. AmericanThe pension plan’s master trust also participates in securities lending programs to generate additional income by loaning plan assets to borrowers on a fully collateralized basis. These programs are subject to market risk.

Investments in securities traded on recognized securities exchanges are valued at the last reported sales price on the last business day of the year. Securities traded in the over-the-counter market are valued at the last bid

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

price. The money market fund is valued at fair value which represents the net asset value of the shares of such fund as of the close of business at the end of the period. Investments in limited partnerships are carried at estimated net asset value as determined by and reported by the general partners of the partnerships and represent the proportionate share of the estimated fair value of the underlying assets of the limited partnerships. Common/collective trusts are valued at net asset value based on the fair values of the underlying investments of the trusts as determined by the sponsor of the trusts. The pension plan’s master trust also invests in a 103-12 investment trustentity (the 103-12 Investment Trust) which is designed to invest plan assets of more than one unrelated employer. The 103-12 Investment Trust is valued at net asset value which is determined by the issuer at the end of each month and is based on the aggregate fair value of trust assets less liabilities, divided by the number of units outstanding. No changes in valuation techniques or inputs occurred during the year.

The fair value of American’s pension plan assets at December 31, 2015 and 2014, by asset category are as follows (in millions):

   Fair Value Measurements as of December 31, 2015 

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

  $287   $    $    $287  

Equity securities:

       

International markets (a), (b)

   2,873              2,873  

Large-cap companies (b)

   1,999              1,999  

Mid-cap companies (b)

   361              361  

Small-cap companies (b)

   18              18  

Fixed income:

       

Corporate bonds (c)

       2,204          2,204  

Government Securities (d)

       917          917  

U.S. municipal securities

       48          48  

Alternative instruments:

       

Private equity partnerships (e)

            722     722  

Common/collective trusts and 103-12 Investment Trust (f)

       219          219  

Insurance group annuity contracts

            2     2  

Dividend and interest receivable

   50              50  

Due to/from brokers for sale of securities – net

   23              23  

Other assets – net

   8              8  

Other liabilities – net

   (71            (71
  

 

 

  

 

 

   

 

 

   

 

 

 

Total

  $5,548   $3,388    $724    $9,660  
  

 

 

  

 

 

   

 

 

   

 

 

 

a)

Holdings are diversified as follows: 16% United Kingdom, 12% Japan, 10% France, 7% Switzerland, 7% Netherlands, 6% Republic of Korea, 11% of other emerging markets and the remaining 31% with no concentration greater than 5% in any one country.

b)

There are no significant concentrations of holdings by company or industry.

c)

Includes approximately 74% investments in corporate debt with a Standard and Poor’s (S&P) rating lower than A and 26% investments in corporate debt with an S&P rating A or higher. Holdings include 82% U.S. companies, 16% international companies and 2% emerging market companies.

d)

Includes approximately 75% investments in U.S. domestic government securities and 25% in emerging market government securities. There are no significant foreign currency risks within this classification.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

 

The fair value of American’s pension plan assets at December 31, 2014 and 2013, by asset category are as follows (in millions):
e)

Includes limited partnerships that invest primarily in U.S. (89%) and European (11%) buyout opportunities of a range of privately held companies. The pension plan’s master trust does not have the right to redeem its limited partnership investment at its net asset value, but rather receives distributions as the underlying assets are liquidated. It is estimated that the underlying assets of these funds will be gradually liquidated over the next one to ten years. Additionally, the pension plan’s master trust has future funding commitments of approximately $428 million over the next ten years.

 

  Fair Value Measurements as of December 31, 2014 

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

 $332   $   $   $332  

Equity securities:

    

International markets (a)(b)

  2,943            2,943  

Large-cap companies (b)

  2,488            2,488  

Mid-cap companies (b)

  362            362  

Small-cap companies (b)

  21            21  

Fixed Income:

    

Corporate bonds (c)

      2,384     2,384  

Government Securities (d)

      1,184     1,184  

U.S. municipal securities

      65     65  

Alternative instruments:

    

Private equity partnerships (e)

          818    818  

Common/collective and 103-12 investment trusts (f)

      240        240  

Insurance group annuity contracts

          2    2  

Dividend and interest receivable

  52            52  

Due to/from brokers for sale of securities – net

  39            39  

Other assets – net

  5            5  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total

 $6,242   $3,873   $820   $10,935  
 

 

 

  

 

 

  

 

 

  

 

 

 
f)

Investment includes 73% in an emerging market 103-12 Investment Trust with investments in emerging country equity securities, 14% in Canadian segregated balanced value, income growth and diversified pooled funds and 13% in a common/collective trust investing in securities of smaller companies located outside the U.S., including developing markets. Requests for withdrawals must meet specific requirements with advance notice of redemption preferred.

   Fair Value Measurements as of December 31, 2014 

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

  $332    $    $    $332  

Equity securities:

        

International markets (a), (b)

   2,943               2,943  

Large-cap companies (b)

   2,488               2,488  

Mid-cap companies (b)

   362               362  

Small-cap companies (b)

   21               21  

Fixed income:

        

Corporate bonds (c)

        2,384          2,384  

Government Securities (d)

        1,184          1,184  

U.S. municipal securities

        65          65  

Alternative instruments:

        

Private equity partnerships (e)

             818     818  

Common/collective trusts and 103-12 Investment Trust (f)

        240          240  

Insurance group annuity contracts

             2     2  

Dividend and interest receivable

   52               52  

Due to/from brokers for sale of securities – net

   39               39  

Other assets – net

   5               5  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $6,242    $3,873    $820    $10,935  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

a)

Holdings are diversified as follows: 18% United Kingdom, 11% Japan, 10% France, 7% Switzerland, 7% Netherlands, 6% Republic of Korea, 13% of other emerging markets and the remaining 28% with no concentration greater than 5% in any one country.

 

b)

There are no significant concentrations of holdings by company or industry.

 

c)

Includes approximately 74% investments in corporate debt with a Standard and Poor’s (S&P)an S&P rating lower than A and 26% investments in corporate debt with an S&P rating A or higher. Holdings include 81% U.S. companies, 16% international companies and 3% emerging market companies.

 

d)

Includes approximately 73% investments in U.S. domestic government securities and 27% in emerging market government securities. There are no significant foreign currency risks within this classification.

 

e)

Includes limited partnerships that invest primarily in U.S. (91%) and European (9%) buyout opportunities of a range of privately held companies. The Master Trustpension plan’s master trust does not have the right to redeem its

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

limited partnership investment at its net asset value. Instead, the Master Trustvalue, but rather receives distributions as the underlying assets are liquidated. It is estimated that the underlying assets of these funds will be gradually liquidated over the next one to ten years. Additionally, the Master Trustpension plan’s master trust has future funding commitments of approximately $403 million over the next ten years.

 

f)

Investment includes 74% in an emerging market 103-12 investment trustInvestment Trust with investments in emerging country equity securities, 14% in Canadian segregated balanced value, income growth and diversified pooled funds and 12% in a common/collective trust investing in securities of smaller companies located outside the U.S., including developing markets. Requests for withdrawals must meet specific requirements with advance notice of redemption preferred.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.Changes in fair value measurements of Level 3 investments during the year ended December 31, 2015, were as follows (in millions):

 

  Fair Value Measurements as of December 31, 2013 

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

 $360   $   $   $360  

Equity securities:

    

International markets (a)(b)

  2,908            2,908  

Large-cap companies (b)

  2,196            2,196  

Mid-cap companies (b)

  227            227  

Small-cap companies (b)

  18            18  

Fixed Income:

    

Corporate bonds (c)

      2,067        2,067  

Government Securities (d)

      1,035        1,035  

U.S. municipal securities

      55        55  

Alternative instruments:

    

Private equity partnerships (e)

          848    848  

Common/collective and 103-12 investment trusts (f)

      245        245  

Insurance group annuity contracts

          2    2  

Dividend and interest receivable

  51            51  

Due to/from brokers for sale of securities – net

  (10          (10

Other assets – net

  7            7  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total

 $5,757   $3,402   $850   $10,009  
 

 

 

  

 

 

  

 

 

  

 

 

 

a)

Holdings are diversified as follows: 19% United Kingdom, 10% Japan, 11% France, 7% Switzerland, 6% Germany, 5% Netherlands, 6% Republic of Korea, 15% emerging markets and the remaining 21% with no concentration greater than 5% in any one country.

b)

There are no significant concentrations of holdings by company or industry.

c)

Includes approximately 76% investments in corporate debt with a Standard and Poor’s (S&P) rating lower than A and 24% investments in corporate debt with an S&P rating A or higher. Holdings include 80% U.S. companies, 17% international companies and 3% emerging market companies.

d)

Includes approximately 72% investments in U.S. domestic government securities and 28% in emerging market government securities. There are no significant foreign currency risks within this classification.

e)

Includes limited partnerships that invest primarily in U.S. (92%) and European (8%) buyout opportunities of a range of privately held companies. The Master Trust does not have the right to redeem its limited partnership investment at its net asset value. Instead, the Master Trust receives distributions as the underlying assets are liquidated. It is estimated that the underlying assets of these funds will be gradually liquidated over the next one to ten years. Additionally, the Master Trust has future funding commitments of approximately $376 million over the next ten years.

f)

Investment includes 74% in an emerging market 103-12 investment trust with investments in emerging country equity securities, 14% in Canadian segregated balanced value, income growth and diversified pooled funds and 12% in a common/collective trust investing in securities of smaller companies located outside the U.S., including developing markets. Requests for withdrawals must meet specific requirements with advance notice of redemption preferred.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

   Private  Equity
Partnerships
  Insurance  Group
Annuity

Contracts
 

Beginning balance at December 31, 2014

  $818   $2  

Actual return on plan assets:

   

Relating to assets still held at the reporting date

   (105    

Relating to assets sold during the period

   115      

Purchases

   145      

Sales

   (251    
  

 

 

  

 

 

 

Ending balance at December 31, 2015

  $722   $2  
  

 

 

  

 

 

 

Changes in fair value measurements of Level 3 investments during the year ended December 31, 2014, were as follows (in millions):

 

  Private Equity
Partnerships
 Insurance Group
Annuity Contracts
   Private  Equity
Partnerships
 Insurance Group
Annuity Contracts
 

Beginning balance at December 31, 2013

  $848   $2    $848   $2  

Actual return on plan assets:

      

Relating to assets still held at the reporting date

   (38       (38    

Relating to assets sold during the period

   158         158      

Purchases

   148         148      

Sales

   (298       (298    
  

 

  

 

   

 

  

 

 

Ending balance at December 31, 2014

  $818   $2    $818   $2  
  

 

  

 

   

 

  

 

 

Changes inThe fair value measurements of Level 3 investments during the year endedAmerican’s other postretirement benefit plan assets at December 31, 2013,2015 by asset category, were as follows (in millions):

 

   Private Equity
Partnerships
  Insurance Group
Annuity Contracts
 

Beginning balance at December 31, 2012

  $914   $2  

Actual return on plan assets:

   

Relating to assets still held at the reporting date

   (21    

Relating to assets sold during the period

   99      

Purchases

   85      

Sales

   (229    
  

 

 

  

 

 

 

Ending balance at December 31, 2013

  $848   $2  
  

 

 

  

 

 

 
   Fair Value Measurements as of December 31, 2015 

Asset Category

  Quoted Prices  in
Active Markets for
Identical Assets
(Level 1)
   Significant
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
   Total 

Money market fund

  $4    $    $    $4  

Mutual funds – Institutional Class

   19               19  

Mutual funds – AMR Class

        230          230  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $23    $230    $    $253  
  

 

 

   

 

 

   

 

 

   

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

The fair value of American’s other postretirement benefit plan assets at December 31, 2014 by asset category, were as follows (in millions):

 

   Fair Value Measurements as of December 31, 2014 

Asset Category

  Quoted Prices in
Active Markets for
Identical Assets

(Level 1)
   Significant
Observable
Inputs

(Level 2)
   Significant
Unobservable
Inputs

(Level 3)
   Total 

Money market fund

  $2    $    $    $2  

Mutual funds – AMR Class

        242          242  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $2    $242    $    $244  
  

 

 

   

 

 

   

 

 

   

 

 

 

The fair value of American’sInvestments in the other postretirement benefit plan assets at December 31, 2013 by asset category, were as follows (in millions):

   Fair Value Measurements as of December 31, 2013 

Asset Category

  Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   Significant
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
   Total 

Money market fund

  $4    $    $    $4  

Mutual funds – AMR Class

        235          235  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $4    $235    $    $239  
  

 

 

   

 

 

   

 

 

   

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Investments in the AMR Class shares of theplan’s mutual funds managed by American Beacon Advisors, Inc (ABA) are valued by quoted prices on the active market, which is fair value and represents the net asset value of the shares of such funds as of the close of business at the end of the period. AMR Class shares are offered without a sales charge to participants and have the lowest expense ratio among the Beacon Funds.participants. Purchases are restricted to certain retirement benefit plans, of ABA and AMR and its affiliates,including American’s other postretirement benefit plan, resulting in a fair value classification of Level 2. Investments include approximately 27% and 28% of investments in non-U.S. common stocks in 2015 and 2014, and 27% of investments in non-U.S. common stocks in 2013.respectively. Net asset value is based on the fair market value of the funds’ underlying assets and liabilities at the date of determination.

 

  2014 2013 

Assumed health care trend rates at December 31

     2015 2014 

Health care cost trend rate assumed for next year

   5.0  6.5   5.21  5.25

Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)

   4.5  4.5   4.56  4.55

Year that the rate reaches the ultimate trend rate

   2023    2018     2024    2023  

A one percentage point change in the assumed health care cost trend rates would have the following effects (in millions):

 

   1% Increase   1% Decrease 

Impact on 2014 service and interest cost

  $2    $(2

Impact on postretirement benefit obligation as of December 31, 2014

   48     (51
   1% Increase   1% Decrease 

Impact on 2015 service and interest cost

  $3    $(3

Impact on other postretirement benefits obligation as of December 31, 2015

   61     (60

American is required to make minimum contributions to its defined benefit pension plans under the minimum funding requirements of the Employee Retirement Income Security Act of 1974 (ERISA), the Pension Funding Equity Act of 2004, the Pension Protection Act of 2006, the Pension Relief Act of 2010 and the Moving Ahead for Progress in the 21st Century Act of 2012. In 2014, American has made its aggregate minimum required contributions for 2014 of $170 million, and has made $639 million in supplemental contributions to its pension plans, above and beyond the $170 million of minimum required contributions.

various other laws. Based on current funding assumptions, American has no minimum required contributions until 2019.2018. Currently, American’s minimum funding obligation for its pension plans is subject to temporary favorable rules that are scheduled to expire at the end of 2017. Upon expiration of these rules, American’s pension funding obligations are likely to increase materially.materially following expiration of the temporary funding rules, when American will be required to make contributions relating to the 2018 fiscal year. The amount of these obligations will depend on the performance of American’s investments held in trust by the pension plans, interest rates for determining liabilities and American’s actuarial experience.

The following benefit payments, which reflect expected future service as appropriate, are expected to be paid (in millions):

 

   2015   2016   2017   2018   2019   2020-2024 

Pension

  $643    $664    $696    $732    $773    $4,515  

Retiree medical and other

   108     102     97     91     87     374  

Modifications to Retirement and Life Insurance Benefits

Effective November 1, 2012, American’s defined benefit pension plans were frozen and American began providing enhanced benefits under the $uper $aver 401(k) Plan for certain groups. Effective November 1, 2012, American matches all non-flight crew employee contributions up to 5.5% of eligible earnings. Effective November 1, 2012 through December 31, 2013, pilots received employer contributions of 14% of eligible earnings and flight attendants received matching contributions of up to 5.5% of eligible earnings. With the ratification of a new CBA by pilots on December 9, 2013, effective January 1, 2014, pilots receive employer contributions of 16% of eligible earnings. With the 2013 Conditional Labor Agreement, effective January 1,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

2014, flight attendants on the American seniority list as of April 12, 2012 receive age-based employer contributions (under age 40 – 5.5% of eligible earnings; age 40 to 49 – 6.75% of eligible earnings; and age 50 and above – 9.9% of eligible earnings) and flight attendants hired after April 12, 2012, receive employer contributions of 3% of eligible earnings plus company matching contributions of up to 2.5% of eligible earnings.

In December 2012, the Pilot A Plan, a defined benefit plan, was amended to remove the lump-sum option and the installment option forms of benefit effective December 31, 2012. A small group of American pilots is appealing the Bankruptcy Court’s decision authorizing American to eliminate the lump sum option and installment option forms of benefit. This is the same group of pilots that are appealing the Bankruptcy Court’s decisions authorizing American to reject the pilot CBA and approve the new pilot CBA. The U.S. District Court for the Southern District of New York upheld the Bankruptcy Court decision. The appeals currently are pending in the U.S. Court of Appeals for the Second Circuit.

The Pilot B Plan, a defined contribution plan, was terminated on November 30, 2012. With the exception of a small residual balance to cover final plan expenses, American has distributed all of the funds in the plan.

On July 6, 2012, American commenced an adversary proceeding in the Bankruptcy Court seeking a determination on the issue of vesting for former employees who retired before November 1, 2012 and were eligible for certain retiree medical coverage. The Bankruptcy Court granted in part and denied in part American’s motion for summary judgment concerning vesting.

As a result of the modifications to the retirement benefits as discussed above, a portion of the pension and postretirement benefits liability, primarily relating to retiree medical and other benefits, was classified as liabilities subject to compromise as of December 31, 2012. This amount was reinstated upon emergence since there was no resolution in the Chapter 11 Cases.

Curtailment and Plan Amendment in the Third Quarter of 2012

In accordance with ASC 715 “Retirement Benefits” (ASC 715), in the third quarter of 2012, American remeasured its defined benefit pension and retiree medical plans as a result of modifications to its retirement plans and reductions in certain work groups (see above and Note 2 to American’s consolidated financial statements). American updated its significant actuarial assumptions used for the remeasurements including the discount rate, which was lowered to 4.10% and 3.80% for the defined benefit pension plans and retiree medical plans, respectively.

The remeasurement of the defined benefit plans resulted in an actuarial loss of $1.9 billion offset by a curtailment gain of $1.8 billion. In addition, a loss of $58 million, representing unamortized prior service cost as of the remeasurement date of the frozen defined benefit plans, is included as a component of reorganization items, net.

Further, as a result of modifications to its retiree medical plans, American recognized a negative plan amendment of $1.9 billion, which is included as a component of actuarial gain arising in current year in other comprehensive income and will be amortized over the future service life of the active plan participants for whom the benefit was eliminated, or approximately eight years. In addition, a net credit of $124 million, representing unamortized prior service credits of $157 million offset by a curtailment loss of $33 million, is included as a component of reorganization items, net.

   2016   2017   2018   2019   2020   2021-2025 

Pension

  $660    $687    $722    $761    $802    $4,621  

Retiree medical and other postretirement benefits

   109     104     98     90     84     353  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

 

11.12. Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) are as follows (in millions):

 

  Pension and
Retiree Medical
Liability
 Unrealized
Gain/(Loss)
on
Investments
 Derivative
Financial
Instruments
 Income
Tax
Benefit
(Expense)
 Total   Pension and
Retiree  Medical
Liability
 Derivative
Financial
Instruments
 Unrealized
Gain/(Loss)
on

Investments
 Income
Tax

Benefit
(Provision)
 Total 

Balance at December 31, 2012

  $(2,322 $2   $13   $(781 $(3,088

Other comprehensive income (loss) before reclassifications

   1,565        18    (538  1,045  

Amounts reclassified from accumulated other comprehensive income (loss)

   (142  (1  34        (109
  

 

  

 

  

 

  

 

  

 

 

Net current-period other comprehensive income (loss)

   1,423    (1  52    (538  936  
  

 

  

 

  

 

  

 

  

 

 

Balance at December 31, 2013

   (899  1    65    (1,319  (2,152  $(887 $65   $1   $(1,319 $(2,140

Other comprehensive income (loss) before reclassifications

   (2,602      (52      (2,654

Other comprehensive loss before reclassifications

   (2,621  (52          (2,673

Amounts reclassified from accumulated other comprehensive income (loss)

   (159  (4  (4  328    161     (163  (4  (4  328    157  
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Net current-period other comprehensive income (loss)

   (2,761  (4  (56  328    (2,493   (2,784  (56  (4  328    (2,516
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Balance at December 31, 2014

  $(3,660 $(3 $9   $(991 $(4,645   (3,671  9    (3  (991  (4,656

Other comprehensive loss before reclassifications

   (51      (7      (58

Amounts reclassified from accumulated other comprehensive income (loss)

   (109  (9  1        (117
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Net current-period other comprehensive loss

   (160  (9  (6      (175
  

 

  

 

  

 

  

 

  

 

 

Balance at December 31, 2015

  $(3,831 $   $(9 $(991 $(4,831
  

 

  

 

  

 

  

 

  

 

 

Reclassifications out of accumulated other comprehensive income (loss) for the years ended December 31, 20142015 and 20132014 are as follows (in millions):

 

Details about accumulated other comprehensive
income (loss) components

 Amount reclassified from accumulated
other comprehensive income (loss)
 Affected line item in the statement
where net income  (loss) is presented
  Amount reclassified from accumulated
other comprehensive income (loss)
 

Affected line item in the statement
where net income (loss) is  presented

Year Ended December 31,  Year Ended December 31, 
2014 2013  2015 2014 

Amortization of pension and retiree medical liability:

       

Prior service cost

 $(198 $(223 Wages, salaries and benefits  $(212 $(202 Salaries, wages and benefits

Actuarial loss

  39    81   Wages, salaries and benefits   103    39   Salaries, wages and benefits

Derivative financial instruments:

       

Cash flow hedges

  (4  34   Aircraft fuel and related taxes   (9  (4 Aircraft fuel and related taxes

Net unrealized change on investments:

       

Net change in value

  (4     Other, net   1    (4 Other nonoperating, net

Income tax benefit (expense):

   

Income tax benefit (provision):

    

Reversal of non-cash tax provision

  328       Income tax provision (benefit)       328   Income tax provision (benefit)
 

 

  

 

    

 

  

 

  

Total reclassifications for the period

 $161   $(108   $(117 $157   
 

 

  

 

    

 

  

 

  

During 2014, American sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, American recorded a special non-cash tax provision of $328 million in the statement of operations for the second quarter of 2014 that reversesreversed the non-cash tax provision which was recorded in OCI, a subset of stockholder’s equity, principally in 2009. This provision representsrepresented the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of American’s fuel hedging contracts. In accordance with GAAP, American retained the $328 million tax provision in OCI until the last contract was settled or terminated.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

 

American recognized a $538 million non-cash income tax benefit, offset by a $538 million charge to other comprehensive income, during the fourth quarter of 2013 related to gains in other comprehensive income. See Note 7 for further information.

Amounts allocated to other comprehensive incomeOCI for income taxes as further described in Note 78 will remain in accumulated other comprehensive income (loss) until American ceases all related activities, such as termination of the pension plan.

12.13.  Commitments, Contingencies and Guarantees

(a) Aircraft Acquisitionand Engine Purchase Commitments

American hadUnder all of American’s aircraft and engine purchase agreements, its total aircraft acquisitionfuture commitments as of December 31, 20142015 are expected to be as follows:

   2015   2016   2017   2018   2019   2020 and
Thereafter
   Total 

Airbus

              

A320 Family

   30     25     20                    75  

A320neo

             10     25     25     40     100  

Boeing

              

737 Family

   18     20     20                    58  

737 MAX

             3     17     20     60     100  

777-300 ER

   2     2                         4  

787 Family

   12     13     10     7               42  

Bombardier

              

CRJ900

   18     20                         38  

Embraer

              

ERJ175

   24     24     12                    60  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   104     104     75     49     45     100     477  

As of December 31, 2014, payments for the above aircraft commitments and certain engines are presentedfollows (approximately, in the table below (in millions):

 

   2015   2016   2017   2018   2019   2020 and
Thereafter
   Total 

Payments for above aircraft commitments and certain engines (1)

  $4,586    $4,856    $4,165    $3,241    $2,654    $5,651    $25,153  
   2016   2017   2018   2019   2020   2021 and
Thereafter
   Total 

Payments for aircraft commitments and certain engines (1)

  $4,505    $4,591    $2,916    $3,156    $2,793    $4,537    $22,498  

 

(1)

These amounts are net of purchase deposits currently held by the manufacturers and include all commitments for wholly-owned regional aircraft. American has granted Boeing a security interest in its purchase deposits with Boeing. American’s purchase deposits totaled $1.1 billion as of December 31, 2014.2015.

In April 2014,As of December 31, 2015, American exercised its optiondid not have financing commitments for the following aircraft currently on order and scheduled to purchase and terminated its existing lease financing arrangements with respect to 62be delivered through 2017: 25 Airbus A320 family aircraft scheduled to be delivered between the first quarter of 2015in 2016 and the third quarter of 2017.20 Airbus A320 family aircraft in 2017, 8 Boeing 787 family aircraft in 2016 and 13 Boeing 787 family aircraft in 2017, 15 Boeing 737-800 aircraft in 2016, three Boeing 737 MAX family aircraft in 2017 and two Boeing 777-300ER aircraft in 2016. In connection with American’s exercise of such option,addition, American also exercised its right to convert firm ordersdid not have financing commitments in place for 30 Airbus A320neosubstantially all aircraft currently on order and scheduled to be delivered in 20212018 and 2022,beyond. See Part I, Item 1A. Risk Factors – “We will need to optionsobtain sufficient financing or other capital to acquire such aircraft. The table above reflects these changes.

In December 2014, American exercised its right under its purchase agreement with Bombardier to convert 24 of American’s 40 option order CRJ900 aircraft to firm orders to acquire such aircraft.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.operate successfully” for unaudited additional discussion.

(b) Facility and support commitments

American has contracts related to facility construction or improvement projects, primarily at airport locations, as well as information technology support. The contractual obligations related to these contracts are presented in the table below (in millions):

 

  2015   2016   2017   2018   2019   2020 and
Thereafter
   Total   2016   2017   2018   2019   2020   2021 and
Thereafter
   Total 

Facility construction or improvement contracts

  $166    $6    $    $    $    $    $172    $211    $2    $    $    $    $    $213  

Information technology contracts

   179     139     112     96     79     1     606     160     136     107     88     6          497  

(c) Capacity Purchase Agreements with Third-Party Regional Carriers

As of December 31, 2014,2015, American’s capacity purchase agreements with third-party regional carriers had expiration dates ranging from 20162017 to 2027, with rights of American to extend the respective terms of each agreement. See Part I, Item 2. Properties for unaudited information on the aircraft contractually obligated to American under such capacity purchase agreements with third-party regional carriers.

American has entered into agreements with the third-party regional carriers that operate certain of their aircraft using American’s flight designator codes. American controls the scheduling, pricing, reservations, ticketing and seat inventories of those aircraft and retains all revenues associated with revenue flights by those aircraft. American pays the third-party regional carriers an amount, as defined in the applicable agreement, based on the airlines’ costs of operating those flightsflights. In addition, these agreements provide that certain variable costs, such as airport landing

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

fees, fuel and other factors intended to approximate market ratespassenger liability insurance, will be 100% paid for those services.or reimbursed by American. As of December 31, 2014,2015, American’s minimum fixed obligations under its capacity purchase agreements with third-party regional carriers were as follows (approximately, in millions):

 

   2015   2016   2017   2018   2019   2020 and
Thereafter
   Total 

Minimum fixed obligations under its capacity purchase agreements with third-party regional carriers (1)

  $502    $592    $463    $446    $430    $2,242    $4,675  
   2016   2017   2018   2019   2020   2021 and
Thereafter
   Total 

Minimum fixed obligations under its capacity purchase agreements with third-party regional carriers (1)

  $1,672    $1,553    $1,249    $1,075    $881    $2,393    $8,823  

 

(1)

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 American’s actual payments could differ materially. These obligations also include the portion of American’s future obligations related to aircraft deemed to be leased in the amount of approximately $173 million in 2015, $171$469 million in 2016, $111$414 million in 2017, $107$334 million in 2018, $107$292 million in 2019, and $665$235 million in 2020 and $704 million in 2021 and thereafter.

(d) Operating Leases

American leases certain aircraft, engines and ground equipment, in addition to the majority of its ground facilities and terminal space. As of December 31, 2014,2015, American had 245427 aircraft under operating leases, with remaining terms ranging from one month to approximately 1312 years. Airports are utilized for flight operations under lease arrangements with the municipalities or agencies owning or controlling such airports. Substantially all leases provide that the lessee must pay taxes, maintenance, insurance and certain other operating expenses applicable to the leased property. Some leases also include renewal and purchase options.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

As of December 31, 2014,2015, obligations under noncancellable operating leases for future minimum lease payments were as follows (in millions):

 

   2015   2016   2017   2018   2019   2020 and
Thereafter
   Total 

Future minimum lease payments (1)

  $1,391    $1,293    $1,240    $1,141    $1,069    $4,939    $11,073  
   2016   2017   2018   2019   2020   2021 and
Thereafter
   Total 

Future minimum lease payments (1)

  $2,187    $2,069    $1,824    $1,642    $1,493    $4,704    $13,919  

 

(1)

As of December 31, 2014, $2312015, $294 million is included on the accompanying consolidated balance sheet in accrued liabilities and deferred gains and credits, net relating to rent expense being recorded in advance of future operating lease payments.

RentMainline and regional rent expense, excluding landing fees, was $1.8$2.7 billion, $1.6$2.8 billion and $1.4$1.7 billion in 2015, 2014 2013 and 20122013, respectively.

(e) Off-Balance Sheet Arrangements

Aircraft

American has 135currently operates 263 owned aircraft and 32138 leased aircraft which were financed with pass throughenhanced equipment trust certificates, or EETCs, issued by pass throughpass-through trusts. These trusts are off-balance sheet entities, the primary purpose of which is to finance the acquisition of flight equipment. Rather than finance each aircraft separately when such aircraft was purchased, delivered or refinanced, these trusts allowed American to raise the financing for several aircraft at one time and place such funds in escrow pending the purchase, delivery or refinancing of the relevant aircraft. The trusts were also 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Each trust covered a set amount of aircraft scheduled to be delivered or refinanced within a specific period of time. At the time of each covered aircraft financing, the relevant trust useduses the funds in escrow to purchase equipment notes relating to the financed aircraft. The equipment notes wereare issued, at American’s election, in connection with a mortgage financing of the aircraft 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 leasedleases the aircraft to American. In both cases, the equipment notes are secured by a security interest in the aircraft. The pass through trust certificatesEETCs 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, are guaranteed by AAG. As of December 31, 2014, $4.32015, $8.7 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 andentity. 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 and American’s existing leasing arrangements dotrusts. 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 contain fixed-price purchase options or similar features.participate in any increases in the value of the aircraft. American concluded it was not the primary beneficiary under these arrangements. Therefore, American accounts for its EETC leveraged lease financings as operating leases. American’s total future obligations under these leveraged lease financings are $269 million$1.8 billion as of December 31, 2014,2015, which are included in the future minimum lease payments table above.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Special Facility Revenue Bonds

American guarantees the payment of principal and interest of certain special facility revenue bonds issued by municipalities primarily to build or improve airport facilities and purchase equipment which is leased to American. Under such leases, American is required to make rental payments through 2035, sufficient to pay maturing principal and interest payments on the related bonds. As of December 31, 2014,2015, the remaining lease payments guaranteeing the principal and interest on these bonds are $449$617 million, which are accounted for as operating leases.

(f) Legal Proceedings

Chapter 11 Cases. As previously disclosed, onOn the Petition Date, November 29, 2011, the Debtors filed the Chapter 11 Cases. On October 21, 2013, the Bankruptcy Court entered the Confirmation Order confirming the Plan. On the Effective Date, December 9, 2013, the Debtors consummated their reorganization pursuant to the Plan principally throughand completed the transactions contemplated by the Merger Agreement pursuant to which Merger Sub merged with and into US Airways Group, with US Airways Group surviving as a wholly-owned subsidiary of AAG.Merger. From the Petition Date through the Effective Date, pursuant to automatic stay provisions under the Bankruptcy Code and orders granted by the Bankruptcy Court, actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date as well as all pending litigation against the Debtors generally were stayed. Following the Effective Date, actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date, generally have been permanently enjoined. Any unresolved claims will continue to be subject to the claims reconciliation process under the supervision of the Bankruptcy Court. However, certain pending litigation related to pre-petition liabilities may proceed in courts other than the Bankruptcy Court to determine the amount, if any, of such litigation claims for purposes of treatment under the Plan.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

become holders of allowed Single-Dip Unsecured Claims. The shares provided for under the Plan were determined based upon a Disputed Claims Reserve amount of claims of approximately $755 million, representing the maximum amount of additional distributions to subsequently allowed Single-Dip Unsecured Claims under the Plan. On July 1, 2014 (the date 180 days after the Effective Date), approximately 2.9 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and shares were withheld or sold on account of related tax obligations. In addition, on July 1, 2014, American repurchased 0.4 million shares of AAG Common Stock for an aggregate of $19 million from the Disputed Claims Reserve at the then prevailing market price in order to fund cash tax obligations resulting from distributions by the Disputed Claims Reserve. On November 4, 2014, approximately 0.7 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and shares were withheld or sold on account of related tax obligations. In addition, on November 4, 2014, American repurchased less than 0.1 million shares of AAG Common Stock for an aggregate of $2 million from the Disputed Claims Reserve at the then prevailing market price in order to fund cash tax obligations resulting from distributions by the Disputed Claims Reserve. As of December 31, 2014,2015, there were approximately 26.825.3 million shares of AAG Common Stock remaining in the Disputed Claims Reserve. On February 10, 2015, approximately 0.8 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and shares were withheld or sold on account of related tax obligations. In addition, on February 10, 2015, American repurchased less than 0.1 million shares of AAG Common Stock for an aggregate of $4 million

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

from the Disputed Claims Reserve at the then prevailing market price in order to fund cash tax obligations resulting from distributions by the Disputed Claims Reserve. As disputed claims are resolved, the claimants will receive distributions of shares from the Disputed Claims Reserve on the same basis as if such distributions had been made on or about the Effective Date. However, American is not required to distribute additional shares above the limits contemplated by the Plan, even if the shares remaining for distribution 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 AAG but rather will be distributed to former AMR shareholdersstockholders as of the Effective Date. However, resolution of disputed claims could have a material effect on recoveries by holders of additional allowed Single-Dip Unsecured Claims under the Plan and the amount of additional share distributions, if any, that are made to former AMR shareholdersstockholders as the total number of shares of AAG Common Stock that remain available for distribution upon resolution of disputed claims is limited pursuant to the Plan.

There is also pending in the Bankruptcy Court an adversary proceeding relating to an action brought by American to seek a determination that certain non-pension, post-employeepost-employment benefits (OPEB) are not vested benefits and thus may be modified or terminated without liability to American. On April 18, 2014, the Bankruptcy Court granted American’s motion for summary judgment with respect to certain non-union employees, concluding that their benefits were not vested and could be terminated. The summary judgment motion was denied with respect to all other retirees. The Bankruptcy Court has not yet scheduled a trial on the merits concerning whether those retirees’ benefits are vested, and American cannot predict whether it will receive relief from obligations to provide benefits to any of those retirees. American’s financial statements presently reflect these retirement programs without giving effect to any modification or termination of benefits that may ultimately be implemented based upon the outcome of this proceeding. Separately, both the Association of Professional Flight AttendantsAPFA and Transport Workers UnionTWU have filed grievances asserting that American was “successful” in its Chapter 11 with respect to matters related to OPEB and, accordingly, by operation of the underlying collective bargaining agreements, American’s prior contributions to certain OPEB prefunding trusts attributable to active employees should be returned to those active employees. These amounts aggregate approximately $212 million. American has denied both grievances and intends to defend these matters vigorously.

DOJ Antitrust Civil Investigative Demand. In June 2015, American received a Civil Investigative Demand (CID) from the DOJ as part of an investigation into whether there have been illegal agreements or coordination of air passenger capacity. The CID seeks documents and other information from American, and other airlines have announced that they have received similar requests. American is cooperating fully with the DOJ investigation. In addition, subsequent to announcement of the delivery of CIDs by the DOJ, American, 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 were the subject of multiple motions to consolidate them in a single forum, and they have now been consolidated in the Federal District Court for the District of Columbia. Both the DOJ investigation and these lawsuits are in their very early stages and American intends to defend the lawsuits vigorously.

Private Party Antitrust Action. On July 2, 2013, a lawsuit captioned Carolyn Fjord, et al., v. US Airways Group, Inc., et al., was filed in the United States District Court for the Northern District of California. The complaint namesnamed as defendants US Airways Group and US Airways, and allegesalleged that the effect of the Merger may be to substantially lessen competition or tend to create a monopoly in violation of Section 7 of the Clayton Antitrust Act. The relief sought in the complaint includesincluded an injunction against the Merger, or divestiture. On August 6, 2013, the plaintiffs re-filed their complaint in the Bankruptcy Court, adding AMR and American as

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

defendants, and on October 2, 2013, dismissed the initial California action. TheOn November 27, 2013, the Bankruptcy Court denied plaintiffs’ motion to preliminarily enjoin the Merger. On January 10, 2014, the plaintiffs movedAugust 19, 2015, after three previous largely unsuccessful attempts to amend their complaint, to add additional factual allegations, a claim for money damages and a request for preliminary injunctive relief requiring the carriers to hold separate their assets. On March 14, 2014, the Court allowed plaintiffs to add certain allegations but denied plaintiffs’ requests to add a damages claim or seek preliminary injunctive relief requiring the carriers to hold separate their assets. On June 2, 2014, plaintiffs filed an amendeda fourth motion for leave to file a secondan amended and supplemental complaint which motion has been fully briefed byto add a claim for damages and demand for jury trial, as well as claims similar to those in the putative class action lawsuits regarding air passenger capacity. Thereafter, plaintiffs filed a request with the Judicial Panel on Multidistrict Litigation (JPML) to consolidate the Fjord matter with the putative class action lawsuits. The JPML denied that request on October 15, 2015 and plaintiffs’ request for further relief from the JPML was denied on February 4, 2016. Accordingly, the parties and is pending resolution bywill continue to litigate the matter in Bankruptcy Court. There is currently no trial date set. American believes this lawsuit is without merit and intends to vigorously defend against the allegations.

DOJ Civil Investigative Demand Related to the United States Postal Service. In April 2015, the DOJ informed American 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, American received a CID from DOJ seeking certain information relating to these contracts. The DOJ has indicated it is investigating potential violations of the False Claims Act. American is cooperating fully with the DOJ investigation.

General. In addition to the specifically identified legal proceedings, American isand its 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 the control of American.American’s control. Therefore, although American will vigorously defend itself in each of the actions described above and such other legal proceedings, their ultimate resolution and potential financial and other impacts on American are uncertain.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 unaudited additional discussion.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

(g) Guarantees and Indemnifications

American is a party to many routine contracts in which it provides general indemnities in the normal course of business to third parties for various risks. American is not able to estimate the potential amount of any liability resulting from the indemnities. These indemnities are discussed in the following paragraphs.

In its aircraft financing agreements, American generally indemnifies the financing parties, trustees acting on their behalf and other relevant parties against liabilities (including certain taxes) resulting from the financing, manufacture, design, ownership, operation and maintenance of the aircraft regardless of whether these liabilities (or taxes) relate to the negligence of the indemnified parties.

American’s loan agreements and other London Interbank Offered Rate (LIBOR)-basedLIBOR-based financing transactions (including certain leveraged aircraft leases) generally obligate American to reimburse the applicable lender for incremental costs due to a change in law that imposes (i) any reserve or special deposit requirement against assets of, deposits with or credit extended by such lender related to the loan, (ii) any tax, duty or other charge with respect to the loan (except standard income tax) or (iii) capital adequacy requirements. In addition, American’s loan agreements derivative contracts and other financing arrangements typically contain a withholding tax provision that requires American to pay additional amounts to the applicable lender or other financing party, generally if withholding taxes are imposed on such lender or other financing party as a result of a change in the applicable tax law.

These increased cost and withholding tax provisions continue for the entire term of the applicable transaction, and there is no limitation on the maximum additional amounts American could be obligated to pay under such provisions. Any failure to pay amounts due under such provisions generally would trigger an event of default and, in a secured financing transaction, would entitle the lender to foreclose on the collateral to realize the amount due.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

In certain transactions, including certain aircraft financing leases and loans, the lessors, lenders and/or other parties have rights to terminate the transaction based on changes in foreign tax law, illegality or certain other events or circumstances. In such a case, American may be required to make a lump sum payment to terminate the relevant transaction.

American has general indemnity clauses in many of its airport and other real estate leases where American as lessee indemnifies the lessor (and related parties) against liabilities related to American’s use of the leased property. Generally, these indemnifications cover liabilities resulting from the negligence of the indemnified parties, but not liabilities resulting from the gross negligence or willful misconduct of the indemnified parties. In addition, American provides environmental indemnities in many of these leases for contamination related to American’s use of the leased property.

Under certain contracts with third parties, American indemnifies the third-party against legal liability arising out of an action by the third-party, or certain other parties. The terms of these contracts vary and the potential exposure under these indemnities cannot be determined. American has liability insurance protecting American for some of the obligations it has undertaken under these indemnities.

American is involved in certain claims and litigation related to its operations. American is also subject to regulatory assessments in the ordinary course of business. American establishes reserves for litigation and regulatory matters when those matters present loss contingencies that are both probable and can be reasonably estimated. In the opinion of management, liabilities, if any, arising from these regulatory matters, claims and litigation will not have a material adverse effect on American’s consolidated financial position, results of operations, or cash flows, after consideration of available insurance.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

In connection with the Merger and pursuant to the Plan onAs of December 9, 2013, AAG and31, 2015, American entered into a joinder to the loan agreement and became co-obligorshad issued guarantees covering AAG’s $750 million aggregate principal amount of US Airways Group’s $1.6 billion 2013 Citicorp Credit Facility and AAG and American entered into a second supplemental indenture that guarantees the payment obligations associated with the5.50% senior notes due 2019, $500 million aggregate principal amount of 6.125% senior notes.notes due 2018 and $500 million aggregate principal amount of 4.625% senior notes due 2020.

(h) Other

In 2010, American and Japan Airlines entered into a JBA under which, amongst other things, American provided Japan Airlines a guarantee of certain minimum incremental revenue resulting from the successful operation of the joint business for the first three years following its implementation, subject to certain terms and conditions. The amount required to be paid by American under the guarantee in any one of such years may not exceed $100 million, and is reduced if capacity for one of such years is less than a defined base year period capacity. As of December 31, 2013, American reached an agreement with Japan Airlines to settle the liability for $90 million. The liability is expected to be settled in 2015.

In the fourth quarter of 2012, American entered into a settlement agreement resolving a commercial dispute. The settlement agreement includes two elements which were valued at relative fair value and will be recognized when earned. American determined that the settlement includes a litigation gain of $280 million, which was valued using future cash flows and recognized in the fourth quarter of 2012. The settlement also includes an incentive which is contingent upon signing a future contract and will be recognized over the term of the future contract. The contract was signed in January 2014. In connection with the new contract, American recorded an additional $70 million receivable with an offset to other liabilities to be recognized over the course of the remaining contract term.

As a result of the terrorist attacks of September 11, 2001 (the Terrorist Attacks) and the subsequent liability protections provided for by the Air Transportation Safety and System Stabilization Act (the Stabilization Act), American recorded a liability for the Terrorist Attacks claims equal to the related insurance receivable due to American. The Stabilization Act provides that, notwithstanding any other provision of law, liability for all claims, whether compensatory or punitive, arising from the Terrorist Attacks, against any air carrier shall not exceed the liability coverage maintained by the air carrier. As of December 31, 2014,2015, the remaining liability and the amount of the offsetting receivable were each $974 million.

13.14.  Supplemental Cash Flow Information

Supplemental disclosure of cash flow information and non-cash investing and financing activities are as follows (in millions):

 

  Year Ended December 31,   Year Ended December 31, 
      2014           2013           2012       2015   2014   2013 

Non-cash investing and financing activities:

            

Settlement of bankruptcy obligations

  $5,131    $833    $    $63    $5,131    $833  

Acquisition of US Airways, net

             5,231  

Capital lease obligations

   747               5     747       

Supplemental information:

            

Interest paid, net of amounts capitalized

   525     706     498     787     780     712  

Income taxes paid

   2     7     5     19     4     7  

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

15.  Operating Segments and Related Disclosures

American is managed as a single business unit that provides air transportation for passengers and cargo. This allows it to benefit from an integrated revenue pricing and route network that includes American Envoyand AAG’s wholly-owned and third-party regional carriers that fly under capacity purchase or prorate agreements operating as part of American’s regional

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

operations.American Eagle. The flight equipment of all these carriers is combined to form one fleet that is deployed through a single route scheduling system. When making resource allocation decisions, the chief operating decision maker evaluates flight profitability data, which considers aircraft type and route economics, but gives no weight to the financial impact of the resource allocation decision on an individual carrier basis. The objective in making resource allocation decisions is to maximize consolidated financial results, not the individual results of American and Envoy.or American Eagle.

American’s operating revenues by geographic region as defined by the U.S. Department of Transportation (DOT) are summarized below (in millions):

 

  Year Ended December 31,   Year Ended December 31, 
  2014   2013   2012   2015   2014   2013 

DOT Domestic

  $15,873    $14,603    $14,257    $28,855    $28,671    $15,392  

DOT Latin America

   6,034     6,197     5,813     5,539     6,974     6,267  

DOT Atlantic

   3,768     3,638     3,411     5,146     5,652     3,720  

DOT Pacific

   1,466     1,322     1,344     1,544     1,466     1,322  
  

 

   

 

   

 

   

 

   

 

   

 

 

Total consolidated revenues

  $27,141    $25,760    $24,825    $41,084    $42,763    $26,701  
  

 

   

 

   

 

   

 

   

 

   

 

 

American attributes operating revenues by geographic region based upon the origin and destination of each flight segment. American’s tangible assets consist primarily of flight equipment, which are mobile across geographic markets and, therefore, have not been allocated.

15.16.  Share-based Compensation

In December 2013, the Board of Directors of AAG approved the 2013 AAG Incentive Award Plan (the 2013 Plan). Awards may be in the form of an option, restricted stock award, restricted stock unit award, performance award, dividend equivalent award, deferred stock award, deferred stock unit award, stock payment award or stock appreciation right. The 2013 Plan authorizes the grant of awards for the issuance of 40 million shares plus any shares underlying awards granted under the 2013 Plan, or any pre-existing US Airways Group plan, that are forfeited, terminate or are cash settled (in whole or in part) without a payment being made in the form of shares. In addition, any shares that arewere available for issuance under the US Airways Group 2011 Incentive Award Plan (the 2011 Plan) as of the effective date of the Merger may be used for awards under the 2013 Plan; provided, that awards using such available shares under the 2011 Plan shall not be made after the date awards or grants could have been made under the 2011 Plan and shall only be made to individuals who were not providing services to AAG prior to the Merger. Awards granted under the 2013 Plan upon the assumption of, or in substitution for, outstanding awards in connection with a corporate transaction, such as a merger, will not reduce the shares authorized for issuance under the 2013 Plan.

In addition, pursuant to the Plan, and as approved by the Bankruptcy Court, certain officers, directors and employees received share-based incentive awards related to the Merger and future service. Awards issued in conjunction with the Plan are discussed in more detail below.

All outstanding US Airways Group equity awards were converted into equity awards with respect to AAG Common Stock using an exchange ratio of 1 to 1 and had a fair value of approximately $141 million at the Merger, which was included in the purchase price. These awards have the same terms and conditions as were applicable to such equity awards immediately prior to the Merger closing date.

AAG’s net income for the years ended December 31, 2014 and 2013 included $381 million and $92 million, respectively, of share-based compensation costs. Of the $381 million recorded by AAG in 2014, $250 million

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

 

was allocated toAmerican’s net income for the financialsyears ended December 31, 2015, 2014 and 2013 included $274 million, $381 million and $84 million, respectively, of American.share-based compensation costs. Of the $92 million recorded by AAG in 2013, $65 million was recorded by American. The2015, 2014 and 2013 amounts, recorded by AAG included$198 million, $224 million and $42$44 million, respectively, were related to the Merger and recorded in special items, net on the accompanying consolidated statements of operations. Of the $224

During 2015, AAG withheld approximately 7.0 million recorded byshares of AAG common stock and paid approximately $306 million in 2014, $155 million was allocated to the financialssatisfaction of American. Of the $42 million recorded by AAG in 2013, $37 million was recorded by American. In 2012, American recorded $26 million of share-based compensation costs, included in salaries, wages, and benefits expense.certain tax withholding obligations associated with employee equity awards.

(a) Restricted Stock Unit (RSU) Awards (RSUs)

As of December 31, 2014, AAG has outstanding restricted stock unit awardsgranted RSUs with service conditions (time vested) and performance conditions. The grant-date fair value of restricted stock unit awardsRSUs is equal to the market price of the underlying shares of common stock on the date of grant. For time vested awards, the expense is recognized on a straight-line basis over the vesting period for the entire award. For awards with performance conditions, the expense is recognized based on the expected achievement at each reporting period. Stock-settled restricted stock unit awards (RSUs)RSUs are classified as equity awards as the vesting results in the issuance of shares of AAG Common Stock. Cash-settled restricted stock unit awards (CRSUs) are classified as liability awards as the vesting results in payment of cash by AAG. AAG granted certain RSU awards in connection with the Merger as follows:

Alignment Awards

On December 9, 2013, alignment awards were granted in the form of RSUs. The awards were provided to legacy AMR employees in order to align interests and create parity with peers at US Airways Group, and one-third of the awards vested on AAG’s emergence from bankruptcy. The remaining awards vestvested equally on the one and two year anniversary of emergence. EmployeesThe awards of employees terminated in connection with the Merger became fully vest in their awardsvested on the termination date.date of termination. Compensation expenses for these awards arewere recorded in special items, net on the consolidated statements of operations.

Merger Equity Grant

The Merger Equity Grant was granted on the Effective Date to certain officers and directors and employees in the form of RSUs and will be settled in equity for domestic employees and in cash for international employees. Each restricted stock unit award granted will vest, subjectSubject to the executive’s continued employment, each RSU vested on December 16, 2015 with respect to (i) 50% of the restricted stock units on December 16, 2015;RSUs which were time vested; (ii) 25% of the restricted stock units on the earlier to occur of (a) December 16, 2015, ifRSUs as AAG iswas issued a Single Operating Certificate prior to or on that date or (b) the date on which AAG is issued a Single Operating Certificate, provided that such date is prior to or on December 9, 2016;in April 2015; and (iii) 25% of the restricted stock units onRSUs as the date the Board of Directors or compensation committee of the Board of Directors determinesdetermined that AAG hashad achieved at least $1.0 billion in net synergies with respect to fiscal year 2015 or 2016.2015. Compensation expenses for these awards arewere recorded in special items, net on the consolidated statements of operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

 

Stock-settled RSU award activity for all plans for the years ended December 31, 2015, 2014 and 2013 is as follows (shares in thousands):

 

  Number of Shares Weighted Average
Grant Date Fair
Value
   Number of
Shares
 Weighted Average
Grant Date Fair

Value
 
  (In thousands)     (In thousands)   

Outstanding at January 1, 2013

      $        $  

Granted

   22,101    24.60     22,101    24.60  

Assumed US Airways awards

   3,164    22.55  

Assumed US Airways Group awards

   3,164    22.55  

Vested and released

   (1,386  24.58     (1,386  24.58  

Forfeited

                  
  

 

    

 

  

Outstanding at December 31, 2013

   23,879   $24.33     23,879   $24.33  

Granted

   3,467    37.07     3,467    37.07  

Vested and released

   (4,193  23.84     (4,193  23.84  

Forfeited

   (1,811  25.10     (1,811  25.10  
  

 

    

 

  

Outstanding at December 31, 2014

   21,342   $26.43     21,342   $26.43  

Granted

   2,213    46.62  

Vested and released

   (17,163  25.20  

Forfeited

   (785  27.12  
  

 

    

 

  

Outstanding at December 31, 2015

   5,607   $38.08  
  

 

  

As of December 31, 2014,2015, there was $308$117 million of total unrecognized compensation cost related to RSUs, which will be allocated to American and US Airways Group.stock-settled RSUs. These costs are expected to be recognized over a weighted average period of one year. The total fair value of stock-settled RSUs vested during the years ended December 31, 2015, 2014 and 2013 was $750 million, $154 million and $31 million, respectively.

Cash-settled restricted stock

CRSU award activity for all plans for the years ended December 31, 2014 and 2013 is as follows (shares in thousands):

   Number of Shares  Weighted Average
Fair Value
 
   (In thousands)    

Outstanding at January 1, 2013

      $  

Granted

   309    24.60  

Assumed US Airways awards

   320    22.55  

Vested and released

   (3  25.25  

Forfeited

         
  

 

 

  

Outstanding at December 31, 2013

   626   $25.25  

Granted

   50    40.93  

Vested and released

   (341  34.54  

Forfeited

   (74  33.52  
  

 

 

  

Outstanding at December 31, 2014

   261   $53.63  
  

 

 

  

As of December 31, 2014, the liability related to2015, AAG had a nominal amount of CRSUs was $6 million, which was allocated to American and US Airways Group, and will continue to be remeasured at fair value at each reporting date until all awards are vested. As of December 31, 2014, the total unrecognized compensation expense for CRSUs was $8 million, which will be allocated to American and US Airways Group, and is expected to be recognized over a weighted average period of one year.outstanding. The total cash paid for CRSUs vested during the years ended December 31, 2015, 2014 and 2013 was $10 million, $12 million and less than $1 million, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

(b) Stock Options and Stock Appreciation Rights

StockNo stock options or stock appreciation rights have been granted subsequent to the Merger closing date. AAG assumed US Airways Group’s outstanding stock options and stock appreciation rights arein connection with the Merger. These stock options and stock appreciation rights were granted with an exercise price equal to the underlying common stock’s fair value at the date of each grant. Stock options and stock appreciation rightsgrant, have service conditions, become exercisable over a three-year vesting period and expire if unexercised at the end of their term, which ranges from seven to ten years. Stock options and stock-settled stock appreciation rights (SARs) are classified as equity awards as the exercise results in the issuance of shares of AAG Common Stock. Cash-settled stock appreciation rights (CSARs) are classified as liability awards as the exercise results in payment of cash by AAG. Stock appreciation rights are expensed on a straight-line basis over the vesting period for the entire award. There are no unrecognized compensation costs for stock options.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Stock option and SAR award activity for all plans for the years ended December 31, 2015, 2014 and 2013 is as follows (stock options and SARs in thousands):

 

 Stock Options and SARS Weighted
Average
Exercise Price
 Weighted Average
Remaining
Contractual Term
 Aggregate
Intrinsic Value
  Stock Options
and SARS
 Weighted
Average
Exercise
Price
 Weighted Average
Remaining
Contractual Term
 Aggregate
Intrinsic Value
 
 (In thousands)   (In years) (In millions)  (In thousands)   (In years) (In millions) 

Assumed US Airways awards at December 9, 2013

  11,200   $12.84    

Assumed US Airways Group awards at December 9, 2013

  11,200   $12.84    

Granted

                    

Exercised

  (42  14.42      (42  14.42    

Forfeited

                    

Expired

                    
 

 

     

 

    

Balance at December 31, 2013

  11,158   $12.84      11,158   $12.84    

Granted

                    

Exercised

  (4,109  10.74      (4,109  10.74    

Forfeited

                    

Expired

  (42  41.73      (42  41.73    
 

 

     

 

    

Balance at December 31, 2014

  7,007   $13.90    2.6   $278    7,007   $13.90    

Vested or expected to vest at December 31, 2014

  7,006   $13.90    2.6   $278  

Exercisable at December 31, 2014

  6,052   $14.83    2.4   $235  

Granted

          

Exercised

  (2,985  12.09    

Forfeited

          

Expired

  (9  45.75    
 

 

    

Balance at December 31, 2015

  4,013   $15.17    1.9   $111  

Vested or expected to vest at December 31, 2015

  4,013   $15.17    1.9   $111  

Exercisable at December 31, 2015

  3,996   $15.17    1.9   $110  

CSAR award activity for all plans for the years ended December 31, 2015, 2014 and 2013 is as follows (CSARs in thousands):

 

 CSARs Weighted
Average
Exercise Price
 Weighted Average
Remaining
Contractual Term
 Aggregate
Intrinsic Value
  CSARs Weighted
Average

Exercise  Price
 Weighted Average
Remaining
Contractual Term
 Aggregate
Intrinsic  Value
 
 (In thousands)   (In years) (In millions)  (In thousands)   (In years) (In millions) 

Assumed US Airways awards at December 9, 2013

  2,888   $6.25    

Assumed US Airways Group awards at December 9, 2013

  2,888   $6.25    

Granted

                    

Exercised

  (23  5.10      (23  5.10    

Forfeited

                    

Expired

                    
 

 

     

 

    

Balance at December 31, 2013

  2,865   $6.26      2,865   $6.26    

Granted

                    

Exercised

  (1,254  6.18      (1,254  6.18    

Forfeited

                    

Expired

                    
 

 

     

 

    

Balance at December 31, 2014

  1,611   $6.33    2.2   $76    1,611   $6.33    

Vested or expected to vest at December 31, 2014

  1,611   $6.33    2.2   $76  

Exercisable at December 31, 2014

  1,610   $6.33    2.2   $76  

Granted

          

Exercised

  (760  6.31    

Forfeited

          

Expired

          
 

 

    

Balance at December 31, 2015

  851   $6.35    1.4   $31  

Vested or expected to vest at December 31, 2015

  851   $6.35    1.4   $31  

Exercisable at December 31, 2015

  851   $6.35    1.4   $31  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

 

There were no stock options or stock appreciation rights granted subsequent to the Merger closing date. Stock options and stock appreciation rights are expensed on a straight-line basis over the vesting period for the entire award.

As of December 31, 2014,2015, there were $4less than a million of total unrecognized compensation costs related to SARs which will be allocated to American and US Airways Group. These costs are expected to be recognized over a weighted average period of 0.3 years.in 2016. The total intrinsic value of stock options and SARs exercised during the yearyears ended December 31, 2015 and 2014 and the 23 day period ended December 31, 2013 was $102 million, $105 million and less than $1 million, respectively.

As of December 31, 2014,2015, the weighted average fair value of outstanding CSARs was $47.29$35.76 per share and the related liability was $76 million, which was allocated to American and US Airways Group.$31 million. These CSARs are fully vested and will continue to be remeasured at fair value at each reporting date until all awards are settled. As of December 31, 2014, the total unrecognized compensation expense for CSARs was less than a million, which will be allocated to American and US Airways Group, and is expected to be recognized over a weighted average period of 0.3 years. Total cash paid for CSARs exercised during the yearyears ended December 31, 2015 and 2014 and the 23 day period ended December 31, 2013 was $31 million, $42 million and less than $1 million, respectively.

16.17.  Valuation and Qualifying Accounts (in millions)

 

 Balance at
beginning
of year
 Changes charged to
statement of
operations
accounts
 Payments Write-off
(net of
recoveries)
 Sales,
retirements
and transfers
 Balance at
end of year
  Balance at
Beginning
of Year
 Changes Charged to
Statement of
Operations

Accounts
 Payments Write-offs
(Net of
Recoveries)
 Sales,
Retirements

and  Transfers
 Balance at
End of Year
 

Allowance for obsolescence of inventories

            

Year ended December 31, 2015

 $638   $42   $   $   $9   $689  

Year ended December 31, 2014

 $502   $108   $   $   $1   $611    504    135        (2  1    638  

Year ended December 31, 2013

  503    20        (21      502    607    22        (125      504  

Year ended December 31, 2012

  530    18        (45      503  

Allowance for uncollectible accounts

            

Year ended December 31, 2015

 $14   $45   $   $(22 $   $37  

Year ended December 31, 2014

 $40   $   $   $(29 $   $11    40    3        (29      14  

Year ended December 31, 2013

  43    2        (5      40    49    2        (11      40  

Year ended December 31, 2012

  51    3        (11      43  

Reserves for environmental remediation costs

            

Year ended December 31, 2015

 $10   $   $(1 $   $   $9  

Year ended December 31, 2014

 $11   $   $(1 $   $   $10    11        (1          10  

Year ended December 31, 2013

  13    2    (1  (3      11    13    2    (1  (3      11  

Year ended December 31, 2012

  14    (1              13  

18.  Quarterly Financial Data (Unaudited)

Unaudited summarized financial data by quarter for 2015 and 2014 (in millions):

   First Quarter   Second Quarter   Third Quarter   Fourth Quarter 

2015

        

Operating revenues

  $9,842    $10,849    $10,733    $9,660  

Operating expenses

   8,641     8,928     8,730     8,596  

Operating income

   1,201     1,921     2,003     1,064  

Net income

   808     1,465     1,450     4,397  

2014

        

Operating revenues

  $10,015    $11,382    $11,169    $10,197  

Operating expenses

   9,249     9,986     9,905     9,357  

Operating income

   766     1,396     1,264     840  

Net income

   527     870     954     597  

American’s fourth quarter 2015 results include $2.5 billion of total net special credits consisting principally of a $3.5 billion non-cash tax benefit recorded in connection with the reversal of American’s tax valuation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

 

17.  Quarterly Financial Data (Unaudited)

Unaudited summarized financial dataallowance, offset in part by quarter for 2014a nonoperating net special charge of $592 million to write off all of the value of Venezuelan bolivars held by American due to continued lack of repatriations and 2013 (in millions):deterioration of economic conditions in Venezuela and $447 million in total operating special charges primarily consisting of merger integration expenses.

   First Quarter  Second Quarter   Third Quarter   Fourth Quarter 

2014

       

Operating revenues

  $6,469   $7,153    $7,055    $6,464  

Operating expenses

   5,891    6,435     6,357     6,120  

Operating income

   578    718     698     344  

Net income

   401    265     465     179  

2013

       

Operating revenues

  $6,085   $6,437    $6,816    $6,422  

Operating expenses

   6,019    5,936     6,130     6,141  

Operating income

   66    501     686     281  

Net income (loss)

   (253  228     290     (1,791

American’s fourth quarter 2014 results reflect $406include $495 million of total net special itemscharges consisting principally of $195$284 million of merger integration expenses, related to information technology, alignment of labor union contracts, professional fees, severance and retention, share-based compensation, divestiture of London Heathrow Slots, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training. In addition, American recorded a net $116 million charge for bankruptcy related items principally consisting of fair value adjustments for bankruptcy settlement obligations and a $70 million charge related primarily to certain spare parts asset impairments. American also recorded a $31 million nonoperating special charge principally for Venezuelan foreign currency losses. These charges were offset in part by a $6 million non-cash deferred income tax benefit related to certain indefinite-lived intangible assets.

American’s fourth quarter 2013 results reflect $2.1 billion of net special items consisting of $2.2 billion of reorganization items principally due to a $1.7 billion deemed claim to employees pursuant to the Plan as well as professional fees and estimated allowed claim amounts, a $214 million tax charge attributable to additional valuation allowance required to reduce deferred tax assets to the amount more likely than not to be realized, $110 million of Merger related expenses due professional fees, severance and share-based compensation, a $107 million charge related to American’s pilot long-term disability obligation, a $33 million aircraft impairment charge and $20 million of interest charges to recognize post-petition interest expense on unsecured obligations pursuant to the Plan. These charges were offset in part by a $538 million non-cash income tax benefit resulting from gains recorded in OCI, a $67 million gain on the sale of Slots at LaGuardia Airport and a $31 million credit to other revenue related to a change in accounting method resulting from the modification of American’s AAdvantage miles agreement with Citibank.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

18.19.  Transactions with Related Parties

The following represents the net payablesreceivables (payables) to related parties (in millions):

 

  December 31,   December 31, 
  2014   2013   2015 2014 

American Airlines Group Parent(1)

  $1,893    $2,455    $4,489   $653  

US Airways Group, Inc.

   320       

Envoy Aviation Group (1) and other subsidiaries

   350     352  

American Airlines Group’s wholly-owned subsidiaries (2)

   (2,508  (2,356
  

 

   

 

   

 

  

 

 

Total

  $2,563    $2,807    $1,981   $(1,703
  

 

   

 

   

 

  

 

 

 

(1)

Formerly known as AMR Eagle Holding Corporation (Envoy),The increase in net related party receivables between American and American Airlines Group Parent is primarily due to American providing the funding for share repurchases performed by the AAG parent company.

(2)

The net payable to AAG’s wholly-owned subsidiaries consists primarily of amounts due under regional airlinecapacity purchase agreements with AAG’s wholly-owned regional airlines operating under the brand name of American Eagle consists principally of amounts due under regional capacity purchase agreements.Eagle.

Pursuant to a capacity purchase agreement between American and Envoy,AAG’s wholly-owned regional airlines operating as American Eagle, American purchases all of the capacity from these carriers and recognizes passenger revenue from flights operated by EnvoyAmerican Eagle. In 2015, 2014 and American purchases all of the capacity from Envoy. The capacity purchase agreement reflects what American believes are current market rates received by third-party regional carriers for similar flying. In 2014, 2013, and 2012, American recognized expense of approximately $894 million, $1.0$1.2 billion, $1.2 billion and $1.1$1.0 billion, respectively, related to the Envoywholly-owned regional airline capacity purchase agreement.agreements.

19.20.  Subsequent Events

AAdvantage Loan2016-1 EETCs

In January 2016, American had the right to repaycreated three pass-through trusts which issued approximately $1.1 billion aggregate face amount of Series 2016-1 Class AA, Class A and Class B EETCs in cash, without premium or penalty, any or all of the amounts owed to Citibank under the AAdvantage Loan. Effective January 2, 2015, American exercised its loan repayment right with respect to the full value of the outstanding balance to Citibank for $400 million. In connection with the repayment,financing of 22 aircraft owned by American (the 2016-1 EETC Aircraft).

All of the proceeds received from the sale of the 2016-1 EETCs have been used to purchase equipment notes issued by American in three series: Series AA equipment notes in the first quarteramount of 2015, American will recognize an early debt extinguishment gain$584 million bearing interest at 3.575% per annum, Series A equipment notes in the amount of approximately $17 million. The entire outstanding balance$262 million bearing interest at 4.10% per annum and Series B equipment notes in the amount of the obligation is reflected in current maturities of long-term debt$228 million bearing interest at 5.25% per annum. Interest and principal payments on the accompanying consolidated balance sheet asequipment notes are payable semi-annually in January and July of December 31, 2014.

Distribution of AAG Common Stock

On February 10, 2015, approximately 0.8 million shares of AAG Common Stock heldeach year, beginning in July 2016. The final payments on the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claimsSeries AA and to holders of certain non-management, non-union employee deemed claims as specifiedSeries A equipment notes are due in January 2028 and the Plan, and shares were withheld or soldfinal payment on account of related tax obligations.the Series B equipment notes is due in January 2024. These equipment notes are secured by liens on the 2016-1 EETC Aircraft.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.  CONTROLS AND PROCEDURES

Management’s Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC. An evaluation of the effectiveness of AAG’s and American’s disclosure controls and procedures as of December 31, 20142015 was performed under the supervision and with the participation of AAG’s and American’s management, including AAG’s and American’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO). Based on that evaluation, AAG’s and American’s management, including AAG’s and American’s CEO and CFO, concluded that AAG’s and American’s disclosure controls and procedures were effective as of December 31, 2014.2015.

Changes in Internal Control over Financial Reporting

On December 9, 2013, AAG acquired US Airways Group and its subsidiaries. We are in the process of integrating policies, processes, people, technology and operations for the post-Merger combined company, and we will continue to evaluate the impact of any related changes to our internal control over financial reporting. Except for any changes in internal controls related to the integration of US Airways Group and its subsidiaries into the post-Merger combined company, including the related adoption of common financial reporting and internal control practices for the combined company and associated updates and improvements to the combined control environment, during the year ended December 31, 2014,2015, there has been no change in AAG’s or American’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, AAG’s and American’s internal control over financial reporting.

Limitation on the Effectiveness of Controls

We believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and the CEO and CFO of AAG and American believe that our disclosure controls and procedures were effective at the “reasonable assurance” level as of December 31, 2014.2015.

Management’s Annual Report on Internal Control over Financial Reporting

Management of AAG and American is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. AAG’s and American’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. AAG’s and American’s internal control over financial reporting includes policies and procedures that:

 

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of AAG or American, respectively;

 

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of AAG or American are being made only in accordance with authorizations of management and directors of AAG or American, respectively; and

 

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of AAG’s or American’s assets that could have a material effect on the financial statements.

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

Management assessed the effectiveness of AAG’s and American’s internal control over financial reporting as of December 31, 2014.2015. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in its Internal Control — Integrated Framework (1992(2013 Framework).

Based on our assessment and those criteria, AAG’s and American’s management concludes that AAG and American, respectively, maintained effective internal control over financial reporting as of December 31, 2014.2015.

AAG’s and American’s independent registered public accounting firm has issued an attestation report on the effectiveness of AAG’s and American’s internal control over financial reporting. That report has been included herein.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

American Airlines Group Inc.:

We have audited American Airlines Group Inc.’s (the Company) internal control over financial reporting as of December 31, 2014,2015, based on criteria established inInternal Control – Integrated Framework (1992)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). American Airlines Group Inc.’sThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

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

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

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

In our opinion, American Airlines Group Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014,2015, based on criteria established inInternal Control – Integrated Framework (1992)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheetsheets of American Airlines Group Inc. and subsidiariesthe Company as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income (loss), cash flows, and stockholders’ equity (deficit), and cash flows for the yearyears then ended, and our report dated February 25, 201524, 2016 expressed an unqualified opinion on those consolidated financial statements.

/s/    KPMG LLP

Dallas, Texas

February 25, 201524, 2016

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

American Airlines, Inc.:

We have audited American Airlines, Inc.’s (American) internal control over financial reporting as of December 31, 2014,2015, based on criteria established inInternal Control – Integrated Framework (1992)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). American Airlines, Inc.’sAmerican’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on American’s internal control over financial reporting based on our audit.

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

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

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

In our opinion, American Airlines, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014,2015, based on criteria established inInternal Control – Integrated Framework (1992)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheetsheets of American Airlines, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income (loss), cash flows, and stockholder’s equity (deficit), and cash flows for the yearyears then ended, and our report dated February 25, 201524, 2016 expressed an unqualified opinion on those consolidated financial statements.

/s/    KPMG LLP

Dallas, Texas

February 25, 201524, 2016

PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 10.  DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Except as stated below, the information required by this Item will be set forth under the captions “Proposal 1 – Election of Directors,” “Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Information About Our Board of Directors and Corporate Governance” in the Proxy Statement and is incorporated by reference into this Annual Report on Form 10-K.

American Airlines Group and American have adopted Standards of Business Conduct (the Ethics Standards) within the meaning of Item 406(b) of Regulation S-K. The Ethics Standards apply to all officers and employees of American Airlines Group Inc. and its subsidiaries, including American except for the employees, officers and members of the Board of Directors of US Airways Group and its wholly-owned subsidiaries, who are governed by the US Airways Group Code of Business Conduct and Ethics (the US Airways Group Code).American. The Ethics Standards are available on our website at www.aa.com. If we make substantive amendments to the Ethics Standards or the US Airways Group Code or grant any waiver, including any implicit waiver, to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, we will disclose the nature of such amendment or waiver on our website or in a Current Report on Form 8-K in accordance with applicable rules and regulations.

ITEM 11.  EXECUTIVE COMPENSATION

Except as stated below, the information required by this Item will be set forth in the Proxy Statement under the captions “Information About the Board of Directors and Corporate Governance,” “Director Compensation,” “Compensation Discussion and Analysis,” “Executive Compensation” and “Compensation Committee Report” and is incorporated by reference into this Annual Report on Form 10-K.

During 2014,2015, the executive officers of AAG and American were the same persons, and the information regarding such persons called for by Item 11 with respect to American will be set forth in the Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Except as stated below, the information required by this Item will be set forth in the Proxy Statement under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” and is incorporated by reference into this Annual Report on Form 10-K.

All of the outstanding shares of common stock of American, consisting of 1,000 shares, par value $1.00 per share, are owned beneficially and of record by AAG.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item will be set forth in the Proxy Statement under the captions “Certain Relationships and Related Party Transactions” and “Information About the Board of Directors and Corporate Governance” and is incorporated by reference into this Annual Report on Form 10-K.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item will be set forth in the Proxy Statement under the caption “Proposal 2 – Ratification of Appointment of Independent Registered Public Accounting Firm” and is incorporated by reference into this Annual Report on Form 10-K.

PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

ITEM 15.  EXHIBITSAND FINANCIAL STATEMENT SCHEDULES

Consolidated Financial Statements

The following consolidated financial statements of American Airlines Group Inc. and Independent Auditors’ ReportReports are filed as part of this report:

 

   Page 

Reports of Independent Registered Public Accounting Firms

   119103  

Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 2013 and 20122013

   121105  

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December  31, 2015, 2014 2013 and 20122013

   122106  

Consolidated Balance Sheets at December 31, 20142015 and 20132014

   123107  

Consolidated Statements of Cash Flows for the Years Ended December 31,2015, 2014 2013 and 20122013

   124108  

Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended December  31, 2015, 2014 2013 and 20122013

   125109  

Notes to Consolidated Financial Statements

   126110  

The following consolidated financial statements of American Airlines, Inc. and Independent Auditors’ ReportReports are filed as part of this report:

 

   Page 

Reports of Independent Registered Public Accounting Firm

   190172  

Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 2013 and 20122013

   192174  

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December  31, 2015, 2014 2013 and 20122013

   193175  

Consolidated Balance Sheets at December 31, 20142015 and 20132014

   194176  

Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 2013 and 20122013

   195177  

Consolidated Statements of Stockholder’s Equity (Deficit) for the Years Ended December  31, 2015, 2014 2013 and 20122013

   196178  

Notes to Consolidated Financial Statements

   197179  

Schedules not included have been omitted because they are not applicable or because the required information is included in the Consolidated Financial Statements or notes thereto.

Exhibits

The exhibits listed in the Exhibit Index following the signature pages to this report are filed as part of, or incorporated by reference into, this report.

Exhibits required to be filed by Item 601 of Regulation S-K: Where the amount of securities authorized to be issued under any of our long-term debt agreements does not exceed 10 percent of our assets, pursuant to paragraph (b)(4) of Item 601 of Regulation S-K, in lieu of filing such as an exhibit, we hereby agree to furnish to the Commission upon request a copy of any agreement with respect to such long-term debt.

SIGNATURES

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

 

  American Airlines Group Inc.
Date: February 25, 201524, 2016 

By:

 

/s/    W. Douglas Parker

  W. Douglas Parker
  Chairman and Chief Executive Officer
  (Principal Executive Officer)

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

 

  American Airlines, Inc.
Date: February 25, 201524, 2016 

By:

 

/s/    W. Douglas Parker

  W. Douglas Parker
  Chairman and Chief Executive Officer
  (Principal Executive Officer)

KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints W. Douglas Parker and Derek J. Kerr and each or any of them, his or her true and lawful attorneys and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to the Registrants’ Annual Report on Form 10-K for the fiscal year ended December 31, 2014,2015, and to file the same with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each or any of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys and agents, and each of them, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of American Airlines Group Inc. and in the capacities and on the dates noted:

 

Date: February 25, 201524, 2016

  

/s/    W. Douglas Parker

  W. Douglas Parker
  Chairman and Chief Executive Officer
  (Principal Executive Officer)

Date: February 25, 201524, 2016

  

/s/    Derek J. Kerr

  Derek J. Kerr
  Executive Vice President and Chief Financial Officer
  (Principal Financial and Accounting Officer)

Date: February 25, 201524, 2016

  

/s/    James F. Albaugh

  James F. Albaugh, Director

Date: February 25, 201524, 2016

  

/s/    Jeffrey D. Benjamin

  Jeffrey D. Benjamin, Director

Date: February 25, 201524, 2016

  

/s/    John T. Cahill

  John T. Cahill, Director

Date: February 25, 201524, 2016

  

/s/    Michael J. Embler

  Michael J. Embler, Director

Date: February 25, 201524, 2016

  

/s/    Matthew J. Hart

  Matthew J. Hart, Director

Date: February 25, 201524, 2016

  

/s/    Alberto Ibargüen

  Alberto Ibargüen, Director

Date: February 25, 201524, 2016

  

/s/    Richard C. Kraemer

  Richard C. Kraemer, Director

Date: February 25, 201524, 2016

/s/    Susan D. Kronick

Susan D. Kronick, Director

Date: February 24, 2016

/s/    Martin H. Nesbitt

Martin H. Nesbitt, Director

Date: February 24, 2016

  

/s/    Denise M. O’Leary

  Denise M. O’Leary, Director

Date: February 25, 201524, 2016

  

/s/    Ray M. Robinson

  Ray M. Robinson, Director

Date: February 25, 201524, 2016

  

/s/    Richard P. Schifter

  Richard P. Schifter, Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of American Airlines, Inc. and in the capacities and on the dates noted:

 

Date: February 25, 201524, 2016

  

/s/    W. Douglas Parker

  W. Douglas Parker
  Chairman and Chief Executive Officer
  (Principal Executive Officer)

Date: February 25, 201524, 2016

  

/s/    Derek J. Kerr

  Derek J. Kerr
  Executive Vice President and Chief Financial Officer
  (Principal Financial and Accounting Officer)

Date: February 25, 201524, 2016

  

/s/    Stephen L. Johnson

  Stephen L. Johnson, Director

Date: February 25, 201524, 2016

  

/s/    J. Scott Kirby

  J. Scott Kirby, Director

EXHIBIT INDEX

 

Exhibit
Number

  

Description

  2.1  Confirmation Order and Plan (incorporated by reference to Exhibit 2.1 to AMR’s Current Report on Form 8-K filed on October 23, 2013 (Commission File No. 1-8400)).
  2.2  Agreement and Plan of Merger, dated as of February 13, 2013, among AMR Corporation, AMR Merger Sub, Inc. and US Airways Group, Inc. (incorporated by reference to Exhibit 2.1 to US Airways Group’s Current Report on Form 8-K/A filed on February 14, 2013 (Commission File No. 1-8444)).#
  2.3  Amendment to Agreement and Plan of Merger, dated as of May 15, 2013, by and among AMR Corporation, AMR Merger Sub, Inc. and US Airways Group, Inc. (incorporated by reference to Exhibit 2.1 to US Airways Group’s Current Report on Form 8-K filed on May 16, 2013 (Commission File No. 1-8444)).
  2.4  Second Amendment to Agreement and Plan of Merger, dated as of June 7, 2013, by and among AMR Corporation, AMR Merger Sub, Inc. and US Airways Group, Inc. (incorporated by reference to Exhibit 2.1 to US Airways Group’s Current Report on Form 8-K filed on June 12, 2013 (Commission File No. 1-8444)).
  2.5  Third Amendment to Agreement and Plan of Merger, dated as of September 20, 2013, by and among AMR Corporation, AMR Merger Sub, Inc. and US Airways Group, Inc. (incorporated by reference to Exhibit 2.1 to US Airways Group’s Current Report on Form 8-K filed on September 23, 2013 (Commission File No. 1-8444)).
  2.6  AmendedAgreement and Restated Mutual Asset Purchase and Sale Agreement,Plan of Merger, dated as of May 20, 2011,December 28, 2015, by and amongbetween American Airlines, Inc. and US Airways, Inc., US Airways Group, Inc. and Delta Air Lines, Inc. (incorporated by reference to Exhibit 2.1 to US Airways Group’s QuarterlyAAG’s Current Report on Form 10-Q for the quarter ended June 30, 20118-K filed on December 31, 2015 (Commission File No. 1-8444)1-8400)).#*.
  3.1  Restated Certificate of Incorporation of American Airlines Group Inc., including the Certificate of Designations, Powers, Preferences and Rights of the American Airlines Group Inc. Series A Convertible Preferred Stock attached as Annex I thereto (incorporated by reference to Exhibit 3.1 to AAG’s Current Report on Form 8-K filed on December 9, 2013 (Commission File No. 1-8400)).
  3.2  Amended and Restated Bylaws of American Airlines Group Inc. (incorporated by reference to Exhibit 3.2 to AAG’s Current Report on Form 8-K filed on December 9, 2013 (Commission File No. 1-8400)).
  3.3  Amended and Restated Certificate of Incorporation of American Airlines, Inc. (incorporated by reference to Exhibit 3.3 to AAG’s Annual Report on Form 10-K for the year ended December 31, 20142013 (Commission File No. 1-8400)).
  3.4  Amended and Restated Bylaws of American Airlines, Inc. (incorporated by reference to Exhibit 3.4 to AAG’s Annual Report on Form 10-K for the year ended December 31, 20142013 (Commission File No. 1-8400)).
  4.1Indenture, dated as of May 13, 2009, between US Airways Group, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to US Airways Group’s Current Report on Form 8-K filed May 14, 2009 (Commission File No. 1-8444)).
  4.2First Supplemental Indenture, dated as of May 13, 2009, between US Airways Group, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee., including a form of 7.25% Convertible Senior Note due 2014 (incorporated by reference to Exhibit 4.2 to US Airways Group’s Current Report on Form 8-K filed May 14, 2009 (Commission File No. 1-8444)).

Exhibit
Number

Description

  4.3Second Supplemental Indenture with The Bank of New York Mellon Trust Company, N.A., as trustee, to the indenture governing US Airways Inc.’s 7.25% Senior Convertible Notes due 2014 (incorporated by reference to Exhibit 4.2 to AAG’s Current Report on Form 8-K filed on December 9, 2013 (Commission File No. 1-8400)).
  4.4  Pass Through Trust Agreement, dated as of March 12, 2013, between American Airlines, Inc. and Wilmington Trust Company (incorporated by reference to Exhibit 4.1 to AMR’s Current Report on Form 8-K filed on March 12, 2013 (Commission File No. 1-8400)).
  4.54.2  Trust Supplement No. 2013-2B, dated as of November 27, 2013, among American Airlines, Inc. and Wilmington Trust Company, as Class B Trustee, to the Pass Through Trust Agreement, dated as of March 12, 2013 (incorporated by reference to Exhibit 4.2 to AMR’s Current Report on Form 8-K filed on November 27, 2013 (Commission File No. 1-8400)).

Exhibit
Number

Description

  4.64.3  Form of Pass Through Trust Certificate, Series 2013-2B (included in Exhibit A to Exhibit 4.2) (incorporated by reference to Exhibit 4.3 to AMR’s Current Report on Form 8-K filed on November 27, 2013 (Commission File No. 1-8400)).
  4.7Amendment No. 1 to Intercreditor Agreement (2013-2), dated as of November 27, 2013, among Wilmington Trust Company, as Trustee of American Airlines Pass Through Trust 2013-2A and American Airlines Pass Through Trust 2013-2B, Morgan Stanley Bank, N.A., as Class A Liquidity Provider and as Class B Liquidity Provider, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4.4 to AMR’s Current Report on Form 8-K filed on November 27, 2013 (Commission File No. 1-8400)).
  4.8  Revolving Credit Agreement (2013-2B), dated as of November 27, 2013, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for Trustee of American Airlines Pass Through Trust 2013-2B and as Borrower, and Morgan Stanley Bank, N.A., as Class B Liquidity Provider (incorporated by reference to Exhibit 4.5 to AMR’s Current Report on Form 8-K filed on November 27, 2013 (Commission File No. 1-8400)).
  4.9Trust Supplement No. 2013-2C, dated as of December 20, 2013, among American Airlines, Inc. and Wilmington Trust Company, as Class C Trustee, to the Pass Through Trust Agreement, dated as of March 12, 2013 (incorporated by reference to Exhibit 4.2 to AMR’s Current Report on Form 8-K filed on December 20, 2013 (Commission File No. 1-8400)).
  4.10Form of Pass Through Trust Certificate, Series 2013-2C (included in Exhibit A to Exhibit 4.11) (incorporated by reference to Exhibit 4.3 to AMR’s Current Report on Form 8-K filed on December 20, 2013 (Commission File No. 1-8400)).
  4.11Amended and Restated Intercreditor Agreement (2013-2), dated as of December 20, 2013, among Wilmington Trust Company, as Trustee of American Airlines Pass Through Trust 2013-2A, American Airlines Pass Through Trust 2013-2B and American Airlines Pass Through Trust 2013-2C, Morgan Stanley Bank, N.A., as Class A Liquidity Provider and as Class B Liquidity Provider, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4.4 to AMR’s Current Report on Form 8-K filed on December 20, 2013 (Commission File No. 1-8400)).
  4.124.5  Participation Agreement (N907AN), dated as of September 9, 2013, among American Airlines, Inc., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements in effect as of the date thereof, Wilmington Trust Company, as Subordination Agent, Wilmington Trust Company, as Loan Trustee, and Wilmington Trust Company, in its individual capacity as set forth therein (incorporated by reference to Exhibit 4.6 to AMR’s Current Report on Form 8-K filed on November 27, 2013 (Commission File No. 1-8400)).

Exhibit
Number

  4.6
  

DescriptionIndenture and Security Agreement (N907AN), dated as of September 9, 2013, between American Airlines, Inc. and Wilmington Trust Company, as Loan Trustee (incorporated by reference to Exhibit 4.7 to AMR’s Current Report on Form 8-K filed on November 27, 2013 (Commission File No.1-8400)).

  4.134.7  First Amendment to Participation Agreement (N907AN), dated as of November 27, 2013, among American Airlines, Inc., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust Company, as Loan Trustee, and Wilmington Trust Company, in its individual capacity as set forth therein (incorporated by reference to Exhibit 4.8 to AMR’s Current Report on Form 8-K filed on November 27, 2013 (Commission File No. 1-8400)).
  4.14Second Amendment to Participation Agreement (N907AN), dated as of December 20, 2013, among American Airlines, Inc., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust Company, as Loan Trustee, and Wilmington Trust Company, in its individual capacity as set forth therein (incorporated by reference to Exhibit 4.9 to AMR’s Current Report on Form 8-K filed on December 20, 2013 (Commission File No. 1-8400)).
  4.15Indenture and Security Agreement (N907AN), dated as of September 9, 2013, between American Airlines, Inc. and Wilmington Trust Company, as Loan Trustee (incorporated by reference to Exhibit 4.7 to AMR’s Current Report on Form 8-K filed on November 27, 2013 (Commission File No. 1-8400)).
  4.164.8  First Amendment to Indenture and Security Agreement (N907AN), dated as of November 27, 2013, between American Airlines, Inc. and Wilmington Trust Company, as Loan Trustee (incorporated by reference to Exhibit 4.9 to AMR’s Current Report on Form 8-K filed on November 27, 2013 (Commission File No. 1-8400)).
  4.17Second Amendment to Indenture and Security Agreement (N907AN), dated as of December 20, 2013, between American Airlines, Inc. and Wilmington Trust Company, as Loan Trustee (incorporated by reference to Exhibit 4.10 to AMR’s Current Report on Form 8-K filed on December 20, 2013 (Commission File No. 1-8400)).
  4.184.9  Series 2013-2A N907AN Equipment Note No. 1, dated as of September 9, 2013 (incorporated by reference to Exhibit 4.10 to AMR’s Current Report on Form 8-K filed on November 27, 2013 (Commission File No. 1-8400)).
  4.194.10  Series 2013-2B N907AN Equipment Note No. 1, dated as of November 27, 2013 (incorporated by reference to Exhibit 4.11 to AMR’s Current Report on Form 8-K filed on November 27, 2013 (Commission File No. 1-8400)).
  4.20Series 2013-2C N907AN Equipment Note No. 1, dated as of December 20, 2013 (incorporated by reference to Exhibit 4.11 to AMR’s Current Report on Form 8-K filed on December 20, 2013 (Commission File No. 1-8400)).
  4.21  Registration Rights Agreement, dated as of November 27, 2013, among American Airlines, Inc., Wilmington Trust Company, as Trustee under Trust Supplement No. 2013-2B, dated as of November 27, 2013, and Morgan Stanley & Co. LLC, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman, Sachs & Co., Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, in their capacity as representatives of the Initial Purchasers (incorporated by reference to Exhibit 4.12 to AMR’s Current Report on Form 8-K filed on November 27, 2013 (Commission File No. 1-8400)).
  4.22Registration Rights Agreement, dated as of December 20, 2013, among American Airlines, Inc., Wilmington Trust Company, as Trustee under Trust Supplement No. 2013-2C, dated as of December 20, 2013, and Morgan Stanley & Co. LLC, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman, Sachs & Co., Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, in their capacity as representatives of the Initial Purchasers (incorporated by reference to Exhibit 4.12 to AMR’s Current Report on Form 8-K filed on December 20, 2013 (Commission File No. 1-8400)).

Exhibit
Number

Description

  4.23  Schedule I (Pursuant to Instruction 2 to Item 6.01 of Regulation S-K, this Schedule I contains a list of documents applicable to the financing of the Aircraft in connection with the offering of the Class B Certificates, which documents are substantially identical to those filed herewith as Exhibits 4.12, 4.13, 4.15, 4.16, 4.18 and 4.19. Schedule I sets forth the details by which such documents differ from the corresponding Exhibits) (incorporated by reference to Exhibit 99.2 to AMR’s Current Report on Form 8-K filed on November 27, 2013 (Commission File No. 1-8400)).

Exhibit
Number

Description

  4.244.13Trust Supplement No. 2013-2C, dated as of December 20, 2013, among American Airlines, Inc. and Wilmington Trust Company, as Class C Trustee, to the Pass Through Trust Agreement, dated as of March 12, 2013 (incorporated by reference to Exhibit 4.2 to AMR’s Current Report on Form 8-K filed on December 20, 2013 (Commission File No. 1-8400)).
  4.14Form of Pass Through Trust Certificate, Series 2013-2C (included in Exhibit A to Exhibit 4.14) (incorporated by reference to Exhibit 4.3 to AMR’s Current Report on Form 8-K filed on December 20, 2013 (Commission File No. 1-8400)).
  4.15Amended and Restated Intercreditor Agreement (2013-2), dated as of December 20, 2013, among Wilmington Trust Company, as Trustee of American Airlines Pass Through Trust 2013-2A, American Airlines Pass Through Trust 2013-2B and American Airlines Pass Through Trust 2013-2C, Morgan Stanley Bank, N.A., as Class A Liquidity Provider and as Class B Liquidity Provider, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4.4 to AMR’s Current Report on Form 8-K filed on December 20, 2013 (Commission File No. 1-8400)).
  4.16Second Amendment to Participation Agreement (N907AN), dated as of December 20, 2013, among American Airlines, Inc., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust Company, as Loan Trustee, and Wilmington Trust Company, in its individual capacity as set forth therein (incorporated by reference to Exhibit 4.9 to AMR’s Current Report on Form 8-K filed on December 20, 2013 (Commission File No. 1-8400)).
  4.17Second Amendment to Indenture and Security Agreement (N907AN), dated as of December 20, 2013, between American Airlines, Inc. and Wilmington Trust Company, as Loan Trustee (incorporated by reference to Exhibit 4.10 to AMR’s Current Report on Form 8-K filed on December 20, 2013 (Commission File No. 1-8400)).
  4.18Series 2013-2C N907AN Equipment Note No. 1, dated as of December 20, 2013 (incorporated by reference to Exhibit 4.11 to AMR’s Current Report on Form 8-K filed on December 20, 2013 (Commission File No. 1-8400)).
  4.19Registration Rights Agreement, dated as of December 20, 2013, among American Airlines, Inc., Wilmington Trust Company, as Trustee under Trust Supplement No. 2013-2C, dated as of December 20, 2013, and Morgan Stanley & Co. LLC, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman, Sachs & Co., Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, in their capacity as representatives of the Initial Purchasers (incorporated by reference to Exhibit 4.12 to AMR’s Current Report on Form 8-K filed on December 20, 2013 (Commission File No. 1-8400)).
  4.20  Schedule I (Pursuant to Instruction 2 to Item 6.01 of Regulation S-K, this Schedule I contains a list of documents applicable to the financing of the Aircraft in connection with the offering of the Class C Certificates, which documents are substantially identical to those filed herewith as Exhibits 4.14, 4.17 and 4.20. Schedule I sets forth the details by which such documents differ from the corresponding Exhibits) (incorporated by reference to Exhibit 99.2 to AMR’s Current Report on Form 8-K filed on December 20, 2013 (Commission File No. 1-8400)).
  4.25Indenture, dated as of March 15, 2011, among American Airlines, Inc., AMR Corporation, U.S. Bank National Association, as trustee, and Wilmington Trust Company, as collateral trustee (incorporated by reference to Exhibit 4.1 to AMR’s Current Report on Form 8-K filed on March 15, 2011 (Commission File No. 1-8400)).
  4.26Form of 7.50% Senior Secured Note due 2016 (included in Exhibit 4.1, as Exhibit A to Indenture, dated as of March 15, 2011, among American Airlines, Inc., AMR Corporation, U.S. Bank National Association, as trustee, and Wilmington Trust Company, as collateral trustee) (incorporated by reference to Exhibit 4.2 to AMR’s Current Report on Form 8-K filed on March 15, 2011 (Commission File No. 1-8400)).
  4.27First Supplemental Indenture, dated as of December 9, 2013, by US Airways Group, Inc. in favor of U.S. Bank National Association, as trustee, guaranteeing the obligations of American Airlines Group Inc. and American Airlines, Inc. under the Indenture, dated as of March 15, 2011, by and among American Airlines Group Inc. (f/k/a AMR Corporation), American Airlines, Inc., U.S. Bank National Association, as trustee and Wilmington Trust Company, as collateral trustee (incorporated by reference to Exhibit 4.3 to AAG’s Current Report on Form 8-K filed on December 9, 2013 (Commission File No. 1-8400)).
  4.284.21  Indenture, dated as of May 24, 2013, between US Airways Group, Inc. and Wilmington Trust, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to US Airways Group’s Current Report on Form 8-K filed on May 24, 2013 (Commission File No. 1-8444)).
  4.294.22  First Supplemental Indenture, dated as of May 24, 2013, among US Airways Group, Inc., US Airways, Inc. and Wilmington Trust, National Association, as Trustee (incorporated by reference to Exhibit 4.2 to US Airways Group’s Current Report on Form 8-K filed on May 24, 2013 (Commission File No. 1-8444)).

Exhibit
Number

Description

  4.304.23  Form of 6.125% Senior Notes due 2018 (incorporated by reference to Exhibit 4.3 to US Airways Group’s Current Report on Form 8-K filed on May 24, 2013 (Commission File No. 1-8444)).
  4.314.24  Second Supplemental Indenture dated as of December 9, 2013, by and among US Airways Group, Inc., AMR Corporation Airlines Group Inc. and Wilmington Trust, National Association, as trustee, with respect to the Indenture, dated as of May 24, 2013 between US Airways Group, Inc. and Wilmington Trust, National Association, as trustee, as supplemented by the First Supplemental Indenture, dated as of May 24, 2013, among US Airways Group Inc., US Airways, Inc. and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.1 to AAG’s Current Report on Form 8-K filed on December 9, 2013 (Commission File No. 1-8000)).

Exhibit
Number

  4.25
  

Description

Third Supplemental Indenture, dated as of December 30, 2015, by and among American Airlines Group Inc., American Airlines, Inc. and Wilmington Trust, National Association, as trustee, to the Indenture dated as of May 24, 2013 (incorporated by reference to Exhibit 4.1 to AAG’s Current Report on Form 8-K filed on December 31, 2015 (Commission File No. 1-8400)).
  4.324.26  Pass Through Trust Agreement, dated as of September 16, 2014, between American Airlines, Inc. and Wilmington Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to AAG’sAmerican’s Current Report on Form 8-K filed on September 17, 2014 (Commission File No. 1-8400)1-2691)).
  4.334.27  Trust Supplement No. 2014-1A, dated as of September 16, 2014, between American Airlines, Inc. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4.2 to AAG’sAmerican’s Current Report on Form 8-K filed on September 17, 2014 (Commission File No. 1-8400)1-2691)).
  4.344.28  Trust Supplement No. 2014-1B, dated as of September 16, 2014, between American Airlines, Inc. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4.3 to AAG’sAmerican’s Current Report on Form 8-K filed on September 17, 2014 (Commission File No. 1-8400)1-2691)).
  4.354.29  Intercreditor Agreement (2014-1), dated as of September 16, 2014, among Wilmington Trust Company, as Trustee of the American Airlines Pass Through Trust 2014-1A and as Trustee of the American Airlines Pass Through Trust 2014-1B, Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Class A Liquidity Provider and Class B Liquidity Provider, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4.4 to AAG’sAmerican’s Current Report on Form 8-K filed on September 17, 2014 (Commission FileNo. 1-2691)).
  4.30Amendment No. 1 to Intercreditor Agreement (2014-1), dated as of June 24, 2015, by and among American Airlines, Inc., Crédit Agricole Corporate and Investment Bank, as Class A and Class B liquidity provider and Wilmington Trust Company, as subordination agent and trustee (incorporated by reference to Exhibit 10.6 to AAG’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (Commission File No. 1-8400)).
  4.364.31  Note Purchase Agreement, dated as of September 16, 2014, among American Airlines, Inc., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust, National Association, as Escrow Agent, and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4.9 to AAG’sAmerican’s Current Report on Form 8-K filed on September 17, 2014 (Commission File No. 1-8400)1-2691)).
  4.374.32  Form of Participation Agreement (Participation Agreement among American Airlines, Inc., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust Company, as Loan Trustee, and Wilmington Trust Company, in its individual capacity as set forth therein) (Exhibit B to Note Purchase Agreement) (incorporated by reference to Exhibit 4.10 to AAG’sAmerican’s Current Report on Form 8-K filed on September 17, 2014 (Commission File No. 1-8400)1-2691)).

Exhibit
Number

Description

  4.384.33  Form of Indenture and Security Agreement (Indenture and Security Agreement between American Airlines, Inc., and Wilmington Trust Company, as Loan Trustee) (Exhibit C to Note Purchase Agreement) (incorporated by reference to Exhibit 4.11 to AAG’sAmerican’s Current Report on Form 8-K filed on September 17, 2014 (Commission File No. 1-8400)1-2691)).
  4.394.34  Revolving Credit Agreement (2014-1A), dated as of September 16, 2014, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2014-1A, as Borrower, and Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Liquidity Provider (incorporated by reference to Exhibit 4.14 to AAG’sAmerican’s Current Report on Form 8-K filed on September 17, 2014 (Commission FileNo. 1-8400)1-2691)).
  4.404.35  Revolving Credit Agreement (2014-1B), dated as of September 16, 2014, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2014-1B, as Borrower, and Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Liquidity Provider (incorporated by reference to Exhibit 4.15 to AAG’sAmerican’s Current Report on Form 8-K filed on September 17, 2014 (Commission FileNo. 1-8400)1-2691)).
  4.414.36  Indenture, dated as of September 25, 2014, by and among American Airlines Group Inc., the Guarantors (as defined therein) and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.1 to AAG’s Current Report on Form 8-K filed on September 26, 2014 (Commission File No. 1-8400)).
  4.424.37  Form of 5.50% Senior Notes due 2019 (incorporated by reference to Exhibit 4.2 to AAG’s Current Report on Form 8-K filed on September 26, 2014 (Commission File No. 1-8400)).
  4.38First Supplemental Indenture, dated as of December 30, 2015, by and among American Airlines Group Inc., American Airlines, Inc. and Wilmington Trust, National Association, as trustee, to the Indenture dated as of September 25, 2014 (incorporated by reference to Exhibit 4.2 to AAG’s Current Report on Form 8-K filed on December 31, 2015 (Commission File No. 1-8400)).
  4.39Indenture, dated as of March 5, 2015, by and among American Airlines Group Inc., the Guarantors (as defined therein) and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.1 to AAG’s Current Report on Form 8-K filed on March 12, 2015 (Commission File No. 1-8400)).
  4.40Form of 4.625% Senior Notes due 2020 (incorporated by reference to Exhibit 4.2 to AAG’s Current Report on Form 8-K filed on March 12, 2015 (Commission File No. 1-8400)).
  4.41First Supplemental Indenture, dated as of December 30, 2015, by and among American Airlines Group Inc., American Airlines, Inc. and Wilmington Trust, National Association, as trustee, to the Indenture dated as of March 5, 2015 (incorporated by reference to Exhibit 4.3 to AAG’s Current Report on Form 8-K filed on December 31, 2015 (Commission File No. 1-8400)).
  4.42Trust Supplement No. 2015-1A, dated as of March 16, 2015, between American Airlines, Inc. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4.2 to American’s Current Report on Form 8-K filed on March 16, 2015 (Commission File No. 1-2691)).
  4.43Trust Supplement No. 2015-1B, dated as of March 16, 2015, between American Airlines, Inc. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4.3 to American’s Current Report on Form 8-K filed on March 16, 2015 (Commission File No. 1-2691)).

Exhibit
Number

  

Description

  4.44Intercreditor Agreement (2015-1), dated as of March 16, 2015, among Wilmington Trust Company, as Trustee of the American Airlines Pass Through Trust 2015-1A and as Trustee of the American Airlines Pass Through Trust 2015-1B, Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Class A Liquidity Provider and Class B Liquidity Provider, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4.4 to American’s Current Report on Form 8-K filed on March 16, 2015 (Commission File No. 1-2691)).
  4.45Note Purchase Agreement, dated as of March 16, 2015, among American Airlines, Inc., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust, National Association, as Escrow Agent, and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4.9 to American’s Current Report on Form 8-K filed on March 16, 2015 (Commission File No. 1-2691)).
  4.46Form of Participation Agreement (Participation Agreement among American Airlines, Inc., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust Company, as Loan Trustee, and Wilmington Trust Company, in its individual capacity as set forth therein) (incorporated by reference to Exhibit 4.10 to American’s Current Report on Form 8-K filed on March 16, 2015 (Commission File No. 1-2691)).
  4.47Form of Indenture and Security Agreement (Indenture and Security Agreement between American Airlines, Inc., and Wilmington Trust Company, as Loan Trustee) (incorporated by reference to Exhibit 4.11 to American’s Current Report on Form 8-K filed on March 16, 2015 (Commission File No. 1-2691)).
  4.48Form of Pass Through Trust Certificate, Series 2015-1A (incorporated by reference to Exhibit 4.12 to American’s Current Report on Form 8-K filed on March 16, 2015 (Commission File No. 1-2691)).
  4.49Form of Pass Through Trust Certificate, Series 2015-1B (incorporated by reference to Exhibit 4.13 to American’s Current Report on Form 8-K filed on March 16, 2015 (Commission File No. 1-2691)).
  4.50Revolving Credit Agreement (2015-1A), dated as of March 16, 2015, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2015-1A, as Borrower, and Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Liquidity Provider (incorporated by reference to Exhibit 4.14 to American’s Current Report on Form 8-K filed on March 16, 2015 (Commission File No. 1-2691)).
  4.51Revolving Credit Agreement (2015-1B), dated as of March 16, 2015, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2015-lB, as Borrower, and Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Liquidity Provider (incorporated by reference to Exhibit 4.15 to American’s Current Report on Form 8-K filed on March 16, 2015 (Commission File No. 1-2691)).
  4.52Trust Supplement No. 2015-2AA, dated as of September 24, 2015, between American Airlines, Inc. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4.2 to American’s Current Report on Form 8-K filed on September 24, 2015 (Commission File No. 1-2691)).
  4.53Trust Supplement No. 2015-2A, dated as of September 24, 2015, between American Airlines, Inc. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4.3 to American’s Current Report on Form 8-K filed on September 24, 2015 (Commission File No. 1-2691)).

Exhibit
Number

Description

  4.54Trust Supplement No. 2015-2B, dated as of September 24, 2015, between American Airlines, Inc. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4.4 to American’s Current Report on Form 8-K filed on September 24, 2015 (Commission File No. 1-2691)).
  4.55Intercreditor Agreement (2015-2), dated as of September 24, 2015, among Wilmington Trust Company, as Trustee of the American Airlines Pass Through Trust 2015-2AA, as Trustee of the American Airlines Pass Through Trust 2015-2A and as Trustee of the American Airlines Pass Through Trust 2015-2B, Commonwealth Bank of Australia, New York Branch, as Class AA Liquidity Provider, Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Class A Liquidity Provider and Class B Liquidity Provider, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4.5 to American’s Current Report on Form 8-K filed on September 24, 2015 (Commission File No. 1-2691)).
  4.56Note Purchase Agreement, dated as of September 24, 2015, among American Airlines, Inc., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4.6 to American’s Current Report on Form 8-K filed on September 24, 2015 (Commission File No. 1-2691)).
  4.57Form of Participation Agreement (Participation Agreement among American Airlines, Inc., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust Company, as Loan Trustee, and Wilmington Trust Company, in its individual capacity as set forth therein) (incorporated by reference to Exhibit 4.7 to American’s Current Report on Form 8-K filed on September 24, 2015 (Commission File No. 1-2691)).
  4.58Form of Indenture and Security Agreement (Indenture and Security Agreement between American Airlines, Inc., and Wilmington Trust Company, as Loan Trustee) (incorporated by reference to Exhibit 4.8 to American’s Current Report on Form 8-K filed on September 24, 2015 (Commission File No. 1-2691)).
  4.59Form of Pass Through Trust Certificate, Series 2015-2AA (incorporated by reference to Exhibit 4.9 to American’s Current Report on Form 8-K filed on September 24, 2015 (Commission FileNo. 1-2691)).
  4.60Form of Pass Through Trust Certificate, Series 2015-2A (incorporated by reference to Exhibit 4.10 to American’s Current Report on Form 8-K filed on September 24, 2015 (Commission File No.1-2691)).
  4.61Form of Pass Through Trust Certificate, Series 2015-2B (incorporated by reference to Exhibit 4.11 to American’s Current Report on Form 8-K filed on September 24, 2015 (Commission FileNo. 1-2691)).
  4.62Revolving Credit Agreement (2015-2AA), dated as of September 24, 2015, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2015-2AA, as Borrower, and Commonwealth Bank of Australia, New York Branch, as Liquidity Provider (incorporated by reference to Exhibit 4.12 to American’s Current Report on Form 8-K filed on September 24, 2015 (Commission File No. 1-2691)).
  4.63Revolving Credit Agreement (2015-2A), dated as of September 24, 2015, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2015-2A, as Borrower, and Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Liquidity Provider (incorporated by reference to Exhibit 4.13 to American’s Current Report on Form 8-K filed on September 24, 2015 (Commission File No. 1-2691)).

Exhibit
Number

Description

  4.64Revolving Credit Agreement (2015-2B), dated as of September 24, 2015, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2015-2B, as Borrower, and Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Liquidity Provider (incorporated by reference to Exhibit 4.14 to American’s Current Report on Form 8-K filed on September 24, 2015 (Commission File No. 1-2691)).
  4.65Note Purchase Agreement, dated as of April 24, 2013, among US Airways, Inc., Wilmington Trust Company, as Pass Through Trustee, Wilmington Trust Company, as Subordination Agent, Wilmington Trust, National Association, as Escrow Agent, and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4.12 to US Airways Group’s Current Report on Form 8-K filed on April 25, 2013 (Commission File No. 1-8444)).
  4.66Assumption Agreement, dated as of December 30, 2015, by American Airlines, Inc. for the benefit of Wilmington Trust Company, as pass through trustee, subordination agent, and paying agent, and Wilmington Trust, National Association, as escrow agent, in each case, under the Note Purchase Agreement, dated as of April 24, 2013, among US Airways, Inc., Wilmington Trust Company, Wilmington Trust, National Association and Wilmington Trust Company (incorporated by reference to Exhibit 10.2 to AAG’s Current Report on Form 8-K filed on December 31, 2015 (Commission File No. 1-8400)).
  4.67Form of Participation Agreement between US Airways, Inc., as Owner, and Wilmington Trust Company, as Indenture Trustee, Subordination Agent and Pass Through Trustee (incorporated by reference to Exhibit 4.13 to US Airways Group’s Current Report on Form 8-K filed on April 25, 2013 (Commission File No. 1-8444)).
  4.68Form of Trust Indenture and Security Agreement among US Airways, Inc., as Owner, Wilmington Trust, National Association, as Securities Intermediary, and Wilmington Trust Company, as Indenture Trustee (incorporated by reference to Exhibit 4.14 to US Airways Group’s Current Report on Form 8-K filed on April 25, 2013 (Commission File No. 1-8444)).
  4.69Form of Amendment No. 1 to Participation Agreement between US Airways, Inc., as Owner, and Wilmington Trust Company, as Indenture Trustee, Subordination Agent and Pass Through Trustee (Exhibit A to Note Purchase Agreement) (incorporated by reference to Exhibit 4.8 to US Airways Group’s Current Report on Form 8-K filed on June 6, 2013 (Commission File No. 1-8444)).
  4.70Form of Amendment No. 1 to Trust Indenture and Security Agreement among US Airways, Inc., as Owner, Wilmington Trust, National Association, as Securities Intermediary, and Wilmington Trust Company, as Indenture Trustee) (Exhibit B to Note Purchase Agreement) (incorporated by reference to Exhibit 4.9 to US Airways Group’s Current Report on Form 8-K filed on June 6, 2013 (Commission File No. 1-8444)).
  4.71Amended and Restated Guarantee, dated as of March 31, 2014, from US Airways Group, Inc. and American Airlines Group Inc., relating to obligations of US Airways under the equipment notes relating to its Series 2013-1 Pass Through Certificates (incorporated by reference to Exhibit 10.5 to AAG’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 (Commission File No. 1-8400)).
  4.72Form of Participation Agreement between US Airways, Inc., as Owner, and Wilmington Trust Company, as Indenture Trustee, Subordination Agent and Pass Through Trustee (Schedule I to Amendment No. 1 to Note Purchase Agreement (2012-2)) (incorporated by reference to Exhibit 4.10 to US Airways Group’s Current Report on Form 8-K filed on June 6, 2013 (Commission File No. 1-8444)).

Exhibit
Number

Description

  4.73Form of Trust Indenture and Security Agreement among US Airways, Inc., as Owner, Wilmington Trust, National Association, as Securities Intermediary, and Wilmington Trust Company, as Indenture Trustee) (Schedule II to Amendment No. 1 to Note Purchase Agreement (2012-2)) (incorporated by reference to Exhibit 4.11 to US Airways Group’s Current Report on Form 8-K filed on June 6, 2013 (Commission File No. 1-8444)).
  4.74Form of Participation Agreement (Participation Agreement between US Airways, Inc., as Owner, and Wilmington Trust Company, as Indenture Trustee and Subordination Agent) (incorporated by reference to Exhibit 4.14 to US Airways Group’s Current Report on Form 8-K filed on December 23, 2010 (Commission File No. 1-8444)).
  4.75Form of Indenture (Trust Indenture and Security Agreement between US Airways, Inc., as Owner, and Wilmington Trust Company, as Indenture Trustee) (incorporated by reference to Exhibit 4.15 to US Airways Group’s Current Report on Form 8-K filed on December 23, 2010 (Commission File No. 1-8444)).
  4.76Amended and Restated Guarantee, dated as of March 31, 2014, from US Airways Group, Inc. and American Airlines Group Inc., relating to obligations of US Airways under the equipment notes relating to its Series 2010-1 Pass Through Certificates (incorporated by reference to Exhibit 10.1 to AAG’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 (Commission File No. 1-8400)).
  4.77Form of Participation Agreement (Participation Agreement between US Airways, Inc., as Owner, and Wilmington Trust Company, as Indenture Trustee and Subordination Agent) (incorporated by reference to Exhibit 4.18 to US Airways Group’s Current Report on Form 8-K filed on July 1, 2011 (Commission File No. 1-08444)).
  4.78Form of Indenture (Trust Indenture and Security Agreement between US Airways, Inc., as Owner, and Wilmington Trust Company, as Indenture Trustee) (incorporated by reference to Exhibit 4.19 to US Airways Group’s Current Report on Form 8-K filed on July 1, 2011 (Commission FileNo. 1-08444)).
  4.79Guarantee, dated as of June 28, 2011, from US Airways Group, Inc. (incorporated by reference to Exhibit 4.23 to US Airways Group’s Current Report on Form 8-K filed on July 1, 2011 (Commission File No. 1-08444)).
  4.80Amended and Restated Guarantee, dated as of March 31, 2014, from US Airways Group, Inc. and American Airlines Group Inc., relating to obligations of US Airways under the equipment notes relating to its Series 2011-1 Pass Through Certificates (incorporated by reference to Exhibit 10.2 to AAG’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 (Commission File No. 1-8400)).
  4.81Form of Participation Agreement (Participation Agreement between US Airways, Inc., as Owner, and Wilmington Trust Company, as Indenture Trustee and Subordination Agent) (incorporated by reference to Exhibit 4.18 to US Airways Group’s Current Report on Form 8-K filed on May 16, 2012 (Commission File No. 1-08444)).
  4.82Form of Indenture (Trust Indenture and Security Agreement between US Airways, Inc., as Owner, and Wilmington Trust Company, as Indenture Trustee) (incorporated by reference to Exhibit 4.19 to US Airways Group’s Current Report on Form 8-K filed on May 16, 2012 (Commission FileNo. 1-08444)).
  4.83Amended and Restated Guarantee, dated as of March 31, 2014, from US Airways Group, Inc. and American Airlines Group Inc., relating to obligations of US Airways under the equipment notes relating to its Series 2012-1 Pass Through Certificates (incorporated by reference to Exhibit 10.3 to AAG’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 (Commission File No. 1-8400)).

Exhibit
Number

Description

  4.84Form of Participation Agreement (Participation Agreement between US Airways, Inc., as Owner, and Wilmington Trust Company, as Indenture Trustee and Subordination Agent) (incorporated by reference to Exhibit B to Exhibit 4.12 to US Airways Group’s Current Report on Form 8-K filed on December 13, 2012 (Commission File No. 1-08444)).
  4.85Form of Indenture (Trust Indenture and Security Agreement between US Airways, Inc., as Owner, and Wilmington Trust Company, as Indenture Trustee) (incorporated by reference to Exhibit C to Exhibit 4.12 to US Airways Group’s Current Report on Form 8-K filed on December 13, 2012 (Commission File No. 1-08444)).
  4.86Amended and Restated Guarantee, dated as of March 31, 2014, from US Airways Group, Inc. and American Airlines Group Inc., relating to obligations of US Airways under the equipment notes relating to its Series 2012-2 Pass Through Certificates (incorporated by reference to Exhibit 10.4 to AAG’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 (Commission File No. 1-8400)).
  4.87Form of Assumption Agreement, dated as of December 30, 2015, by American Airlines, Inc. for the benefit of Wilmington Trust Company, as Indenture Trustee, to (i) each Participation Agreement between, among others, US Airways, Inc. and Wilmington Trust Company, as Indenture Trustee, entered into pursuant to the 2010-1, 2011-1, 2012-1, 2012-2 and 2013-1 EETC note purchase agreements and (ii) each Trust Indenture and Security Agreement, between, among others, US Airways, Inc., and Wilmington Trust Company, as Indenture Trustee entered into pursuant to the 2010-1, 2011-1, 2012-1, 2012-2 and 2013-1 EETC note purchase agreements (incorporated by reference to Exhibit 10.3 to AAG’s Current Report on Form 8-K filed on December 31, 2015 (Commission File No. 1-8400)).
10.1  Aircraft Purchase$1,600,000 Loan Agreement, No. 1980, dated as of October 31, 1997, between The Boeing CompanyMay 23, 2013, among US Airways, Inc., as Borrower, certain affiliates of US Airways, Inc. party to the agreement from time to time, Citicorp North America, Inc., as Administrative Agent, the lenders party to the agreement from time to time and certain other parties thereto (incorporated by reference to Exhibit 10.1 to US Airways Group’s Current Report on Form 8-K filed on May 30, 2013 (Commission File No. 1-8444)).
10.2Joinder to Loan Agreement, dated as of December 9, 2013, by American Airlines Group Inc. and American Airlines, Inc., Relating to the Boeing Model 777-223IGW Aircraft$1,600,000,000 Loan Agreement, dated as of May 23, 2013, among US Airways, Inc., US Airways Group, Inc. and certain affiliates of US Airways, Inc. party thereto from time to time, the lenders party thereto and Citicorp North America, Inc., as administrative agent for the lenders (incorporated by reference to Exhibit 10.1 to AAG’s Current Report on Form 8-K filed on December 9, 2013 (Commission File No. 1-8400)).
10.3Amendment No. 1, dated as of January 16, 2014, to the $1,600,000,000 Loan Agreement, dated as of May 23, 2013, among US Airways, Inc., as Borrower, certain affiliates of US Airways, Inc. party to the agreement from time to time, Citicorp North America, Inc., as Administrative Agent, the lenders party to the agreement from time to time and and certain other parties thereto (incorporated by reference to Exhibit 10.48 to AMR’sUS Airways Group’s Annual Report on Form 10-K for the year ended December 31, 19972013 (Commission File No. 1-8400)1-8444)).*
10.2Aircraft Purchase Agreement No. 1977, dated as of October 31, 1997, between The Boeing Company and American Airlines, Inc., Relating to the Boeing Model 737-823 Aircraft (incorporated by reference to Exhibit 10.48 to AMR’s Annual Report on Form 10-K for the year ended December 31, 1997 (Commission File No. 1-8400)).*
10.3Letter Agreement, dated as of November 17, 2004, Purchase Agreement No. 1977 Supplement No. 19 and Purchase Agreement No. 1980 Supplement No. 17, dated as of January 11, 2005, between The Boeing Company and American Airlines, Inc. (incorporated by reference to Exhibit 10.99 to AMR’s Annual Report on Form 10-K for the year ended December 31, 2004 (Commission File No.1-8400)).*
10.4Assumption Agreement, dated as of December 30, 2015, by and among American Airlines Group Inc., American Airlines, Inc. and Citicorp North America, Inc., as administrative agent, to the Loan Agreement, as amended, dated May 23, 2013 between, among others, US Airways, Inc., certain affiliates of US Airways, Inc. and certain lenders (incorporated by reference to Exhibit 10.1 to AAG’s Current Report on Form 8-K filed on December 31, 2015 (Commission File No. 1-8400)).

Exhibit
Number

Description

10.5First Amendment and Restatement Agreement, dated April 20, 2015, in relation to the Credit and Guaranty Agreement, dated as of October 10, 2014 (as amended), among American Airlines, Inc., American Airlines Group Inc. (formerly known as AMR Corporation), US Airways Group, Inc., US Airways, Inc., the Revolving Lenders (as defined therein) party thereto, the 2015 Term Loan Lenders (as defined therein) party thereto and Citibank N.A., as administrative agent and collateral agent (incorporated by reference to Exhibit 10.4 to AAG’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (Commission File No. 1-8400)).
10.6First Amendment to Amended and Restated Credit and Guaranty Agreement, dated as of October 26, 2015, amending the Amended and Restated Credit and Guaranty Agreement, dated as of April 20, 2015, among American Airlines, Inc., American Airlines Group Inc., US Airways Group, Inc. and US Airways, Inc., the lenders from time to time party thereto, Deutsche Bank AG New York Branch, as administrative agent, and certain other parties thereto.
10.7First Amendment and Restatement Agreement, dated May 21, 2015, in relation to the Credit and Guaranty Agreement, dated as of June 27, 2013 (as amended), among American Airlines, Inc., American Airlines Group Inc. (formerly known as AMR Corporation), US Airways Group, Inc., US Airways, Inc., the Revolving Lenders (as defined therein) party thereto, the 2015 Term Loan Lenders (as defined therein) party thereto and Deutsche Bank AG New York Branch, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.5 to AAG’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (Commission File No. 1-8400)).
10.8First Amendment to Amended and Restated Credit and Guaranty Agreement, dated as of October 26, 2015, amending the Amended and Restated Credit and Guaranty Agreement, dated as of May 21, 2015, among American Airlines, Inc., American Airlines Group Inc., US Airways Group, Inc. and US Airways, Inc., the lenders from time to time party thereto, Citibank N.A., as administrative agent, and certain other parties thereto.
10.9  Letter Agreement, dated as of May 5, 2005, between The Boeing Company and American Airlines, Inc. (incorporated by reference to Exhibit 10.7 to AMR’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (Commission File No. 1-8400)).*
10.510.10  Purchase Agreement No. 3219, dated as of October 15, 2008, between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.29 to American Airlines, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008 (Commission FileNo. 1-8400)).*
10.610.11  Supplemental Agreement No. 2, dated as of July 21, 2010, to Purchase Agreement No. 3219 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.2 to AMR’s report on Form 10-QA for the quarter ended June 30, 2010 (CommissionFile No. 1-8400)).*
10.710.12  Supplemental Agreement No. 3, dated as of February 1, 2013, to Purchase Agreement No. 3219 by and between American Airlines, Inc., and The Boeing Company (incorporated by reference to Exhibit 10.2 to AMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (Commission File No. 1-8400)).*
10.810.13  Supplemental Agreement No. 4, dated as of June 9, 2014, to Purchase Agreement No. 3219 by and between The Boeing Company and American Airlines, Inc. dated as of October 15, 2008, Relating to Boeing Model 787 Aircraft, as amended, restated, amended and restated, supplemented or otherwise modified (incorporated by reference to Exhibit 10.6 to AAG’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (Commission File No. 1-8400)).*

Exhibit
Number

Description

10.910.14Supplemental Agreement No. 5, dated as of January 20, 2015, to Purchase Agreement No. 3219 by and between The Boeing Company and American Airlines, Inc., dated as of October 15, 2008, Relating to Boeing Model 787 Aircraft, as amended, restated, amended and restated, supplemented or otherwise modified (incorporated by reference to Exhibit 10.2 to AAG’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 (Commission File No. 1-8400)).*
10.15Supplemental Agreement No. 6, dated as of April 21, 2015, to Purchase Agreement No. 3219 by and between American Airlines, Inc. and The Boeing Company, dated October 15, 2008, as amended, restated, amended and restated, supplemented or otherwise modified (incorporated by reference to Exhibit 10.2 to AAG’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (Commission File No. 1-8400)).*
10.16Aircraft Purchase Agreement No. 1977, dated as of October 31, 1997, between The Boeing Company and American Airlines, Inc., Relating to the Boeing Model 737-823 Aircraft (incorporated by reference to Exhibit 10.48 to AMR’s Annual Report on Form 10-K for the year ended December 31, 1997 (Commission File No. 1-8400)).*
10.17Letter Agreement, dated as of November 17, 2004, Purchase Agreement No. 1977 Supplement No. 19 and Purchase Agreement No. 1980 Supplement No. 17, dated as of January 11, 2005, between The Boeing Company and American Airlines, Inc. (incorporated by reference to Exhibit 10.99 to AMR’s Annual Report on Form 10-K for the year ended December 31, 2004 (Commission File No. 1-8400)).*
10.18  Supplemental Agreement No. 20, dated as of August 17, 2007, to Purchase Agreement No. 1977 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.133 to AMR’s Annual Report on Form 10-K for the year ended December 31, 2007 (Commission File No. 1-8400)).*
10.1010.19  Supplemental Agreement No. 21, dated as of November 20, 2007, to Purchase Agreement No. 1977 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.134 to AMR’s Annual Report on Form 10-K for the year ended December 31, 2007 (Commission File No. 1-8400)).*
10.1110.20  Supplemental Agreement No. 22, dated as of December 10, 2007, to Purchase Agreement No. 1977 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.135 to AMR’s Annual Report on Form 10-K for the year ended December 31, 2007 (Commission File No. 1-8400)).*

Exhibit
Number

Description

10.1210.21  Supplemental Agreement No. 23, dated as of January 30, 2008, to Purchase Agreement No. 1977 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.136 to AMR’s Annual Report on Form 10-K for the year ended December 31, 2007 (Commission File No. 1-8400)).*
10.1310.22  Supplemental Agreement No. 24, dated as of February 11, 2008, to Purchase Agreement No. 1977 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.137 to AMR’s Annual Report on Form 10-K for the year ended December 31, 2007 (Commission File No. 1-8400)).*
10.1410.23  Supplemental Agreement No. 25, dated as of March 12, 2008, to Purchase Agreement No. 1977 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 13.1 to AMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (Commission File No. 1-8400)).*
10.1510.24  Supplemental Agreement No. 26, dated as of April 11, 2008, to Purchase Agreement No. 1977 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 13.2 to AMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (Commission File No. 1-8400)).*

Exhibit
Number

Description

10.1610.25  Supplemental Agreement No. 27, dated as of May 14, 2008, to Purchase Agreement No. 1977 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.2 to AMR’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 (Commission File No. 1-8400)).*
10.1710.26  Supplemental Agreement No. 28, dated as of June 30, 2008, to Purchase Agreement No. 1977 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to 10.3 to AMR’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 (Commission File No. 1-8400)).*
10.1810.27  Supplemental Agreement No. 29, dated as of July 29, 2008, to Purchase Agreement No. 1977 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to 10.1 to AMR’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 (Commission File No. 1-8400)).*
10.1910.28  Supplemental Agreement No. 30, dated as of August 8, 2008, to Purchase Agreement No. 1977 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to 10.2 to AMR’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 (Commission File No. 1-8400)).*
10.2010.29  Supplemental Agreement No. 31, dated as of September 15, 2008, to Purchase Agreement No. 1977 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to 10.3 to AMR’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 (Commission File No. 1-8400)).*
10.2110.30  Supplemental Agreement No. 32, dated as of June 9, 2009, to Purchase Agreement No. 1977 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.5 to AMR’s report on Form 10-QA for the quarter ended June 30, 2009 (Commission FileNo. 1-8400)).*
10.2210.31  Supplemental Agreement No. 34, dated as of July 21, 2010, to Purchase Agreement No. 1977 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.1 to AMR’s report on Form 10-QA for the quarter ended June 30, 2010 (Commission FileNo. 1-8400)).*

Exhibit
Number

Description

10.2310.32  Supplemental Agreement No. 35, dated as of August 19, 2011, to Purchase Agreement No. 1977 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.3 to AMR’s report on Form 10-Q for the quarter ended September 30, 2011 (Commission File No. 1-8400)).*
10.2410.33  Supplemental Agreement No. 36, dated as of February 1, 2013, to Purchase Agreement No. 1977 by and between American Airlines, Inc., and The Boeing Company (incorporated by reference to Exhibit 10.3 to AMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (Commission File No. 1-8400)).*
10.2510.34  Supplemental Agreement No. 37, dated as of April 25, 2014, to Purchase Agreement No. 1977, between The Boeing Company and American Airlines, Inc. dated as of October 31, 1997, Relating to Boeing Model 737-800 Aircraft, as amended, restated, amended and restated, supplemented or otherwise modified (incorporated by reference to Exhibit 10.4 to AAG’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (Commission File No. 1-8400)).*
10.2610.35  Supplemental Agreement No. 38, dated as of Sept. 26, 2014, to Purchase Agreement No. 1977 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.1 to AAG’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 (Commission File No. 1-8400)).*

Exhibit
Number

Description

10.2710.36Letter Agreement, dated as of October 29, 2015, to Purchase Agreement No. 1977 by and between American Airlines, Inc. and The Boeing Company.**
10.37Aircraft Purchase Agreement No. 1980, dated as of October 31, 1997, between The Boeing Company and American Airlines, Inc., Relating to the Boeing Model 777-223IGW Aircraft (incorporated by reference to Exhibit 10.48 to AMR’s Annual Report on Form 10-K for the year ended December 31, 1997 (Commission File No. 1-8400)).*
10.38  Purchase Agreement Supplement No. 19, dated as of December 18, 2009, to Purchase Agreement No. 1980 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.151 to AMR’s Annual Report on Form 10-K for the year ended December 31, 2009 (Commission File No. 1-8400)).*
10.2810.39  Purchase Agreement Supplement No. 20, dated as of January 14, 2011, to Purchase Agreement No. 1980 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.159 to AMR’s Annual Report on Form 10-K for the year ended December 31, 2010 (Commission File No. 1-8400)).*
10.2910.40  Supplemental Agreement No. 21, dated as of March 14, 2011, to Purchase Agreement No. 1980 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.1 to AMR’s report on Form 10-Q for the quarter ended March 31, 2011 (Commission File No. 1-8400)).*
10.3010.41  Supplemental Agreement No. 22, dated as of March 31, 2011, to Purchase Agreement No. 1980 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.2 to AMR’s report on Form 10-Q for the quarter ended March 31, 2011 (Commission File No. 1-8400)).*
10.3110.42  Supplemental Agreement No. 23, dated as of April 29, 2011, to Purchase Agreement No. 1980 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.1 to AMR’s report on Form 10-Q for the quarter ended June 30, 2011 (Commission File No. 1-8400)).*
10.3210.43  Supplemental Agreement No. 24, dated as of May 25, 2011, to Purchase Agreement No. 1980 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.2 to AMR’s report on Form 10-Q for the quarter ended June 30, 2011 (Commission File No. 1-8400)).*
10.3310.44  Supplemental Agreement No. 25, dated as of July 19, 2011, to Purchase Agreement No. 1980 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.1 to AMR’s report on Form 10-Q for the quarter ended September 30, 2011 (Commission File No. 1-8400)).*

Exhibit
Number

Description

10.3410.45  Supplemental Agreement No. 26, dated as of July 26, 2011, to Purchase Agreement No. 1980 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.2 to AMR’s report on Form 10-Q for the quarter ended September 30, 2011 (Commission File No. 1-8400)).*
10.3510.46  Supplemental Agreement No. 27, dated as of October 10, 2011, to Purchase Agreement No. 1980 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.155 to AMR’s Annual Report on Form 10-K for the year ended December 31, 2011 (Commission File No. 1-8400)).*
10.3610.47  Supplemental Agreement No. 28, dated as of June 1, 2012, to Purchase Agreement No. 1980 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.1 to AMR’s report on Form 10-Q for the quarter ended June 30, 2012 (Commission File No. 1-8400)). *

Exhibit
Number

Description

10.3710.48  Supplemental Agreement No. 29, dated as of March 12, 2012, to Purchase Agreement No. 1980 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.1 to AMR’s report on Form 10-Q for the quarter ended March 31, 2012 (Commission File No. 1-8400)).*
10.3810.49  Supplemental Agreement No. 30, dated as of June 29, 2012, to Purchase Agreement No. 1980 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.2 to AMR’s report on Form 10-Q for the quarter ended June 30, 2012 (Commission File No. 1-8400)).*
10.3910.50  Supplemental Agreement No. 32, dated as of September 30, 2012, to Purchase Agreement No. 1980 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.1 to AMR’s report on Form 10-Q for the quarter ended September 30, 2012 (Commission File No. 1-8400)).*
10.4010.51  Supplemental Agreement No. 33, dated as of February 1, 2013, to Purchase Agreement No. 1980 by and between American Airlines, Inc., and The Boeing Company (incorporated by reference to Exhibit 10.4 to AMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (Commission File No. 1-8400)).*
10.4110.52  Supplemental Agreement No. 34, dated as of February 1, 2013, to Purchase Agreement No. 1980 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.5 to AMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (Commission File No. 1-8400)).*
10.4210.53  Supplemental Agreement No. 35, dated as of February 13, 2013, to Purchase Agreement No. 1980 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.6 to AMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (Commission File No. 1-8400)).*
10.4310.54  Supplemental Agreement No. 36, dated as of April 30, 2014, to Purchase Agreement No. 1980, between The Boeing Company and American Airlines, Inc. dated as of October 31, 1997, Relating to Boeing Model 777 Aircraft, as amended, restated, amended and restated, supplemented or otherwise modified (incorporated by reference to Exhibit 10.5 to AAG’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (Commission File No. 1-8400)).*
10.4410.55Supplemental Agreement No. 37, dated as of July 31, 2015, to Purchase Agreement No. 1980 dated as of October 31, 1997, between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.2 to AAG’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 (Commission File No. 1-8400)).*
10.56  A320 Family Aircraft Purchase Agreement, dated as of July 20, 2011, by and between American Airlines, Inc. and Airbus S.A.S. (incorporated by reference to Exhibit 10.4 to AMR’s report on Form 10-Q for the quarter ended September 30, 2011 (Commission File No. 1-8400)).*

Exhibit
Number

Description

10.4510.57  Amendment No. 1, dated as of January 11, 2013, to A320 Family Aircraft Purchase Agreement by and between American Airlines, Inc. and Airbus S.A.S., dated as of July 20, 2011 (incorporated by reference to Exhibit 10.8 to AMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (Commission File No. 1-8400)).*
10.4610.58  Amendment No. 2, dated as of May 30, 2013, to A320 Family Aircraft Purchase Agreement by and between American Airlines, Inc. and Airbus S.A.S, dated as of July 20, 2011 (incorporated by reference to Exhibit 10.2 to AMR’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 (Commission File No. 1-8400)).*

Exhibit
Number

Description

10.4710.59  Amendment No. 3, dated as of November 20, 2013, to A320 Family Aircraft Purchase Agreement by and between American Airlines, Inc. and Airbus S.A.S., dated as of July 20, 2011 (incorporated by reference to Exhibit 10.27 to AAG’s Annual Report on Form 10-K for the year ended December 31, 20142013 (Commission File No. 1-8400)).*
10.4810.60  Amendment No. 4, dated as of June 18, 2014, to the A320 Family Aircraft Purchase Agreement between Airbus S.A.S., as seller, and American Airlines, Inc., as buyer, dated as of July 20, 2011, as amended, restated, amended and restated, supplemented or otherwise modified (incorporated by reference to Exhibit 10.1 to AAG’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (Commission File No. 1-8400)).*
10.4910.61  Amendment No. 5, dated as of June 24, 2014, to the A320 Family Aircraft Purchase Agreement between Airbus S.A.S., as seller, and American Airlines, Inc., as buyer, dated as of July 20, 2011, as amended, restated, amended and restated, supplemented or otherwise modified (incorporated by reference to Exhibit 10.2 to AAG’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (Commission File No. 1-8400)).*
10.5010.62  Amendment No. 6, dated as of July 1, 2014, to the A320 Family Aircraft Purchase Agreement between Airbus S.A.S., as seller, and American Airlines, Inc., as buyer, dated as of July 20, 2011, as amended, restated, amended and restated, supplemented or otherwise modified (incorporated by reference to Exhibit 10.3 to AAG’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (Commission File No. 1-8400)).*
10.5110.63  Amendment No. 7, dated as of November 25, 2014, to the A320 Family Aircraft Purchase Agreement between Airbus S.A.S., as seller, and American Airlines, Inc., as buyer, dated as of July 20, 2011, as amended, restated, amended and restated, supplemented or otherwise.*otherwise (incorporated by reference to Exhibit 10.51 to AAG’s Annual Report on Form 10-K for the year ended December 31, 2014 (Commission File No. 1-8400)).*
10.5210.64Amendment No. 8, dated as of June 11, 2015, to the A320 Family Aircraft Purchase Agreement between American Airlines, Inc. and Airbus S.A.S., dated July 20, 2011, as amended, restated, amended and restated, supplemented or otherwise modified (incorporated by reference to Exhibit 10.1 to AAG’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (Commission File No. 1-8400)).*
10.65Amendment No. 9, dated as of September 23, 2015, to the A320 Family Aircraft Purchase Agreement, dated as of July 20, 2011, between American Airlines, Inc. and Airbus S.A.S. (incorporated by reference to Exhibit 10.6 to AAG’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 (Commission File No. 1-8400)).*
10.66  2012 Omnibus Restructure Agreement, dated as of January 11, 2013, by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.1 to AMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (Commission FileNo.1-8400)).*
10.5310.67  2012 Omnibus Restructure Agreement, dated as of January 11, 2013, by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.1 to Amendment No. 1 to AMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (Commission File No. 1-8400)).*
10.5410.68  Purchase Agreement No. 03735, dated as of February 1, 2013, by and between American Airlines, Inc., and The Boeing Company (incorporated by reference to Exhibit 10.7 to AMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (Commission File No. 1-8400)).*

Exhibit
Number

Description

10.5510.69  Supplemental Agreement No. 1, dated as of April 15, 2013, to Purchase Agreement No. 03735 by and between American Airlines, Inc. and The Boeing Company (incorporated by reference to Exhibit 10.1 to AMR’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 (Commission File No. 1-8400)).*

Exhibit
Number

Description

10.5610.70  Aircraft PurchaseSupplemental Agreement No. 2, dated as of January 31, 1998,March 6, 2015, to Purchase Agreement No. 03735 by and between AMR Eagle Holding CorporationAmerican Airlines, Inc. and Bombardier Inc.The Boeing Company, dated February 1, 2013 Relating to Boeing Model 737 MAX Aircraft, as amended, restated, amended and restated, supplemented or otherwise modified (incorporated by reference to Exhibit 10.4910.1 to AMR’s AnnualAAG’s Quarterly Report on Form 10-K10-Q for the yearquarter ended DecemberMarch 31, 19972015 (Commission File No. 1-8400)).*
10.5710.71Supplemental Agreement No. 3, dated as of May 22, 2015, to Purchase Agreement No. 03735 by and between American Airlines, Inc. and The Boeing Company, dated February 1, 2013 Relating to Boeing Model 737 MAX Aircraft, as amended, restated, amended and restated, supplemented or otherwise modified (incorporated by reference to Exhibit 10.3 to AAG’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (Commission File No. 1-8400)).*
10.72  Purchase Agreement Supplement, dated as of December 2, 2009, by and between AMR Eagle Holding Corporation and Bombardier Inc. (incorporated by reference to Exhibit 10.150 to AMR’s Annual Report on Form 10-K for the year ended December 31, 2009 (Commission FileNo. 1-8400)).*
10.58Credit and Guaranty Agreement, dated as of June 27, 2013, among American Airlines, Inc., as the borrower, AMR, as parent and guarantor, the subsidiaries of AMR from time to time party thereto, as guarantors, the lenders party thereto from time to time, Deutsche Bank AG New York Branch, as administrative agent, collateral agent, issuing lender and Citigroup Global Markets Inc., as left lead arranger for the Revolving Facility (as defined in the Credit and Guaranty Agreement) and syndication agent, Barclays Bank PLC, Goldman Sachs Bank USA, J.P. Morgan Securities LLC and Morgan Stanley Senior Funding, Inc., as documentation agents, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Barclays Bank PLC, Goldman Sachs Bank USA, J.P. Morgan Securities LLC and Morgan Stanley Senior Funding, Inc., as joint lead arrangers and joint bookrunners, and Credit Suisse Securities (USA) LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint bookrunners (incorporated by reference to Exhibit 10.3 to AMR’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 (Commission File No. 1-8400)).
10.59First Amendment to Credit and Guaranty Agreement, dated as of August 5, 2013, among American Airlines, Inc., as borrower, AMR, as parent, the lenders committing to provide and providing new loans thereunder, and Deutsche Bank AG New York Branch, as administrative agent (incorporated by reference to Exhibit 10.1 to AMR’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 (Commission File No. 1-8400)).
10.60Instrument of Assumption of Joinder, dated as of December 9, 2013, by US Airways Group, Inc. and US Airways, Inc. in favor of Deutsche Bank AG New York Branch, as administrative agent for the Lenders, guaranteeing the obligations of American Airlines, Inc. under the Credit and Guaranty Agreement, dated as of June 27, 2013, by and among American Airlines, Inc., AMR Corporation, the direct and indirect Domestic Subsidiaries of AMR Corporation from time to time party thereto other than American Airlines, Inc., each of the several banks and other financial institutions or entities from time to time party hereto as a lender and Deutsche Bank AG New York Branch, as administrative agent for the Lenders (incorporated by reference to Exhibit 10.2 to AAG’s Current Report on Form 8-K filed on December 9, 2013 (Commission File No. 1-8444)).
10.61Second Amendment to Credit and Guaranty Agreement, dated as of December 27, 2013, among American Airlines, Inc., American Airlines Group Inc., the Consenting Lenders (as defined therein), the New Lenders (as defined therein) and Deutsche Bank AG New York Branch, as administrative agent and, by Instrument of Assumption and Joinder, dated as of December 9, 2013, US Airways Group, Inc. and US Airways, Inc. (incorporated by reference to Exhibit 10.45 to AAG’s Annual Report on Form 10-K for the year ended December 31, 2014 (Commission File No. 1-8400)).
10.62Third Amendment to Credit and Guaranty Agreement, dated as of October 10, 2014, among American Airlines, Inc., American Airlines Group Inc. (formerly known as AMR Corporation), US Airways Group, Inc., US Airways, Inc., the Existing Revolving Lenders (as defined therein) party thereto, BNP Paribas, Credit Agricole Corporate and Investment Bank and Deutsche Bank AG New York Branch, as administrative agent and as an issuing lender (incorporated by reference to Exhibit 10.2 to AAG’s Current Report on Form 8-K filed on October 14, 2014 (Commission File No. 1-8444)).

Exhibit
Number

Description

10.63Credit and Guaranty Agreement, dated as of October 10, 2014, by and among American Airlines, Inc., as the Borrower, American Airlines Group Inc., as Parent and a Guarantor, US Airways Group, Inc. and US Airways, Inc., as Guarantors, the lenders party thereto, Citibank N.A., as Administrative Agent and Collateral Agent, Citigroup Global Markets Inc., as Left Lead Arranger for the Term Loan Facility and Revolving Facility, Citigroup Global Markets Inc., Bank of America, N.A., Barclays Bank PLC, BNP Paribas Securities Corp., Credit Agricole Corporate and Investment Bank, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman Sachs Bank USA, J.P. Morgan Securities LLC and Morgan Stanley Senior Funding, Inc., as Joint Lead Arrangers and Bookrunners, Citigroup Global Markets Inc., Bank of America, N.A., Barclays Bank PLC, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman Sachs Bank USA, J.P. Morgan Securities LLC and Morgan Stanley Senior Funding, Inc., as Syndication Agents and Credit Agricole Corporate and Investment Bank and BNP Paribas Securities Corp., as Documentation Agents (incorporated by reference to Exhibit 10.1 to AAG’s Current Report on Form 8-K filed on October 14, 2014 (Commission File No. 1-8444)).
10.64Note Purchase Agreement, dated as of April 24, 2013, among US Airways, Inc., Wilmington Trust Company, as Pass Through Trustee, Wilmington Trust Company, as Subordination Agent, Wilmington Trust, National Association, as Escrow Agent, and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4.12 to US Airways Group’s Current Report on Form 8-K filed on April 25, 2013 (Commission File No. 1-8444)).
10.65Form of Participation Agreement between US Airways, Inc., as Owner, and Wilmington Trust Company, as Indenture Trustee, Subordination Agent and Pass Through Trustee (incorporated by reference to Exhibit 4.13 to US Airways Group’s Current Report on Form 8-K filed on April 25, 2013 (Commission File No. 1-8444)).
10.66Form of Trust Indenture and Security Agreement among US Airways, Inc., as Owner, Wilmington Trust, National Association, as Securities Intermediary, and Wilmington Trust Company, as Indenture Trustee (incorporated by reference to Exhibit 4.14 to US Airways Group’s Current Report on Form 8-K filed on April 25, 2013 (Commission File No. 1-8444)).
10.67Form of Amendment No. 1 to Participation Agreement between US Airways, Inc., as Owner, and Wilmington Trust Company, as Indenture Trustee, Subordination Agent and Pass Through Trustee (Exhibit A to Note Purchase Agreement) (incorporated by reference to Exhibit 4.8 to US Airways Group’s Current Report on Form 8-K filed on June 6, 2013 (Commission File No. 1-8444)).
10.68Form of Amendment No. 1 to Trust Indenture and Security Agreement among US Airways, Inc., as Owner, Wilmington Trust, National Association, as Securities Intermediary, and Wilmington Trust Company, as Indenture Trustee) (Exhibit B to Note Purchase Agreement) (incorporated by reference to Exhibit 4.9 to US Airways Group’s Current Report on Form 8-K filed on June 6, 2013 (Commission File No. 1-8444)).
10.69Guarantee, dated as of April 24, 2013, from US Airways Group, Inc. in respect of Fourteen (14) Airbus A321-231 and Four (4) Airbus A330-243 Aircraft (incorporated by reference to Exhibit 4.17 to US Airways Group’s Current Report on Form 8-K filed on April 25, 2013 (Commission File No. 1-8444)).
10.70Form of Participation Agreement between US Airways, Inc., as Owner, and Wilmington Trust Company, as Indenture Trustee, Subordination Agent and Pass Through Trustee (Schedule I to Amendment No. 1 to Note Purchase Agreement (2012-2)) (incorporated by reference to Exhibit 4.10 to US Airways Group’s Current Report on Form 8-K filed on June 6, 2013 (Commission FileNo. 1-8444)).

Exhibit
Number

Description

10.71Form of Trust Indenture and Security Agreement among US Airways, Inc., as Owner, Wilmington Trust, National Association, as Securities Intermediary, and Wilmington Trust Company, as Indenture Trustee) (Schedule II to Amendment No. 1 to Note Purchase Agreement (2012-2)) (incorporated by reference to Exhibit 4.11 to US Airways Group’s Current Report on Form 8-K filed on June 6, 2013 (Commission File No. 1-8444)).
10.72Guarantee Confirmation, dated as of June 6, 2013, from US Airways Group, Inc. in respect of seven (7) Airbus A321-200 and four (4) Airbus A330-200 Aircraft (incorporated by reference to Exhibit 4.13 to US Airways Group’s Current Report on Form 8-K filed on June 6, 2013 (Commission File No. 1-8444)).
10.73  Amended and Restated Airbus A320 Agreement, dated as of October 2, 2007, between US Airways, Inc. and Airbus S.A.S. (incorporated by reference to Exhibit 10.3 to US Airways Group’s Annual Report on Form 10-K for the year ended December 31, 2007 (Commission File No. 1-8444)).*
10.74  Amendment No. 1, dated as of January 11, 2008, to the Amended and Restated Airbus A320 Family Aircraft Purchase Agreement dated as of October 2, 2007 between US Airways, Inc. and Airbus S.A.S. (incorporated by reference to Exhibit 10.1 to US Airways Group’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (Commission File No. 1-8444)).*
10.75  Amendment No. 2, dated as of October 20, 2008, to the Amended and Restated Airbus A320 Family Aircraft Purchase Agreement dated as of October 2, 2007 between US Airways, Inc. and Airbus S.A.S., including Amended and Restated Letter Agreement No. 3, Amended and Restated Letter Agreement No. 5, and Amended and Restated Letter Agreement No. 9 to the Purchase Agreement (incorporated by reference to Exhibit 10.5 to US Airways Group’s Annual Report on Form 10-K for the year ended December 31, 2008 (Commission File No. 1-8444)).*
10.76  Amendment No. 3, dated as of January 16, 2009, to the Amended and Restated Airbus A320 Family Aircraft Purchase Agreement dated as of October 2, 2007 between US Airways, Inc. and Airbus S.A.S. (incorporated by reference to Exhibit 10.1 to US Airways Group’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 (Commission File No. 1-8444)).*
10.77  Amendment No. 4, dated as of August 11, 2009, to the Amended and Restated Airbus A320 Family Aircraft Purchase Agreement dated as of October 2, 2007 between Airbus S.A.S. and US Airways, Inc. (incorporated by reference to Exhibit 10.1 to US Airways Group’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2009 (Commission File No. 1-8444)).*
10.78  Amendment No. 5, dated as of October 2, 2009, to the Amended and Restated Airbus A320 Family Aircraft Purchase Agreement dated as of October 2, 2007 between Airbus S.A.S. and US Airways, Inc. (incorporated by reference to Exhibit 10.93 to US Airways Group’s Annual Report onForm 10-K for the year ended December 31, 2009 (Commission File No. 1-8444)).*

Exhibit
Number

Description

10.79  Amendment No. 6, dated as of November 20, 2009, to the Amended and Restated Airbus A320 Family Aircraft Purchase Agreement dated as of October 2, 2007 between Airbus S.A.S. and US Airways, Inc. (incorporated by reference to Exhibit 10.94 to US Airways Group’s Annual Report on Form 10-K for the year ended December 31, 2009 (Commission File No. 1-8444)).*
10.80 ��Amendment No. 7, dated as of April 1, 2010, to the Amended and Restated Airbus A320 Family Aircraft Purchase Agreement, dated as of October 2, 2007, between Airbus S.A.S. and US Airways, Inc. (incorporated by reference to Exhibit 10.1 to US Airways Group’s Quarterly Report onForm 10-Q for the quarter ended June 30, 2010 (Commission File No. 1-8444)).*
10.81  Amendment No. 8, dated as of February 13, 2011, to the Amended and Restated Airbus A320 Family Aircraft Purchase Agreement, dated as of October 2, 2007, between Airbus S.A.S. and US Airways, Inc. (incorporated by reference to Exhibit 10.22 to US Airways Group’s Annual Report onForm 10-K for the year ended December 31, 2013 (Commission File No. 1-8444)).*

Exhibit
Number

Description

10.82  Amendment No. 9, dated as of March 31, 2011, to the Amended and Restated Airbus A320 Family Aircraft Purchase Agreement, dated as of October 2, 2007, between Airbus S.A.S. and US Airways, Inc. (incorporated by reference to Exhibit 10.23 to US Airways Group’s Annual Report onForm 10-K for the year ended December 31, 2013 (Commission File No. 1-8444)).*
10.83  Amendment No. 10, dated as of October 17, 2011, to the Amended and Restated Airbus A320 Family Aircraft Purchase Agreement, dated as of October 2, 2007, between Airbus S.A.S. and US Airways, Inc. (incorporated by reference to Exhibit 10.24 to US Airways Group’s Annual Report on Form 10-K for the year ended December 31, 2013 (Commission File No. 1-8444)).*
10.84  Amendment No. 11, dated as of December 15, 2011, to the Amended and Restated Airbus A320 Family Aircraft Purchase Agreement, dated as of October 2, 2007, between Airbus S.A.S. and US Airways, Inc. (incorporated by reference to Exhibit 10.25 to US Airways Group’s Annual Report on Form 10-K for the year ended December 31, 2013 (Commission File No. 1-8444)).*
10.85  Amendment No. 12, dated as of October 19, 2012, to the Amended and Restated Airbus A320 Family Aircraft Purchase Agreement, dated as of October 2, 2007, between Airbus S.A.S. and US Airways, Inc. (incorporated by reference to Exhibit 10.26 to US Airways Group’s Annual Report on Form 10-K for the year ended December 31, 2013 (Commission File No. 1-8444)).*
10.86  Amendment No. 13, dated as of July 3, 2013, to the Amended and Restated Airbus A320 Family Aircraft Purchase Agreement, dated as of October 2, 2007, between Airbus S.A.S. and US Airways, Inc. (incorporated by reference to Exhibit 10.27 to US Airways Group’s Annual Report onForm 10-K for the year ended December 31, 2013 (Commission File No. 1-8444)).*
10.87  Amendment No. 14, dated as of September 30, 2013, to the Amended and Restated Airbus A320 Family Aircraft Purchase Agreement, dated as of October 2, 2007, between Airbus S.A.S. and US Airways, Inc. (incorporated by reference to Exhibit 10.28 to US Airways Group’s Annual Report on Form 10-K for the year ended December 31, 2013 (Commission File No. 1-8444)).*
10.88  Amendment No. 15, dated as of December 20, 2013, to the Amended and Restated Airbus A320 Family Aircraft Purchase Agreement, dated as of October 2, 2007, between Airbus S.A.S. and US Airways, Inc. (incorporated by reference to Exhibit 10.29 to US Airways Group’s Annual Report on Form 10-K for the year ended December 31, 2013 (Commission File No. 1-8444)).*
10.89  Amendment No. 16, dated as of July 1, 2014, to the Amended and Restated Airbus A320 Family Aircraft Purchase Agreement, dated as of October 2, 2007, between Airbus S.A.S. and US Airways, Inc. as amended, restated, amended and restated, supplemented or otherwise modified (incorporated by reference to Exhibit 10.7 to AAG’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (Commission File No. 1-8400)). *

Exhibit
Number

Description

10.90  Amended and Restated Airbus A350 XWB Purchase Agreement, dated as of October 2, 2007, among AVSA, S.A.R.L. and US Airways, Inc., AWA and US Airways Group (incorporated by reference to Exhibit 10.19 to US Airways Group’s Annual Report on Form 10-K for the year ended December 31, 2007 (Commission File No. 1-8444)).*
10.91  Amendment No. 1, dated as of October 20, 2008, to the Amended and Restated Airbus A350 XWB Purchase Agreement, dated as of October 2, 2007, between US Airways, Inc. and Airbus S.A.S., including Amended and Restated Letter Agreement No. 3, Amended and Restated Letter Agreement No. 5, and Amended and Restated Letter Agreement No. 9 to the Purchase Agreement (incorporated by reference to Exhibit 10.23 to US Airways Group’s Annual Report on Form 10-K for the year ended December 31, 2008 (Commission File No. 1-8444)).*

Exhibit
Number

Description

10.92  Amendment No. 2, dated as of January 16, 2009, to the Amended and Restated Airbus A350 XWB Purchase Agreement, dated as of October 2, 2007, among AVSA, S.A.R.L. and US Airways, Inc., AWA and US Airways Group (incorporated by reference to Exhibit 10.3 to US Airways Group’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 (Commission FileNo. 1-8444)).*
10.93  Amendment No. 3, dated as of July 23, 2009, to the Amended and Restated Airbus A350 XWB Purchase Agreement dated as of October 2, 2007 between Airbus S.A.S. and US Airways, Inc. (incorporated by reference to Exhibit 10.3 to US Airways Group’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 (Commission File No. 1-8444)).*
10.94  Amendment No. 4, dated as of November 20, 2009, to the Amended and Restated Airbus A350 XWB Purchase Agreement dated as of October 2, 2007 between Airbus S.A.S. and US Airways, Inc. (incorporated by reference to Exhibit 10.96 to US Airways Group’s Annual Report on Form 10-K for the year ended December 31, 2009 (Commission File No. 1-8444)).*
10.95  Amendment No. 5, dated as of December 20, 2013, to the Amended and Restated Airbus A350 XWB Purchase Agreement dated as of October 2, 2007 between Airbus S.A.S. and US Airways, Inc., including Amended and Restated Letter Agreement No. 2, Amended and Restated Letter Agreement No. 4, Third Amended and Restated Letter Agreement No. 5, Amended and Restated Letter Agreement No. 6, Amended and Restated Letter Agreement No. 7, Amended and Restated Letter Agreement No. 8-2, Second Amended and Restated Letter Agreement No. 9, Amended and Restated Letter Agreement No. 12, Amended and Restated Letter Agreement No. 13 and Amended and Restated Letter Agreement No. 14 to the Amended and Restated Airbus A350 XWB Purchase Agreement dated as of October 2, 2007 between Airbus S.A.S. and US Airways, Inc. (incorporated by reference to Exhibit 10.43 to US Airways Group’s Annual Report on Form 10-K for the year ended December 31, 2013 (Commission File No. 1-8444)).*
10.96  LoanSecond Amended and Restated Letter Agreement No. 6, dated as of July 7, 2015 to the Amended and Restated Airbus A350 XWB Purchase Agreement, dated as of May 23, 2013, among US Airways, Inc., as Borrower, certain affiliates of US Airways, Inc. party to the agreement from time to time, Citicorp North America, Inc., as Administrative Agent, the lenders party to the agreement from time to time, Citigroup Global Markets Inc., as Joint Lead Arranger and Joint Bookrunner, Barclays Bank PLC, as Joint Lead Arranger, Joint Bookrunner and Syndication Agent, Morgan Stanley Senior Funding, Inc., as Joint Bookrunner and Documentation Agent and Goldman Sachs Bank USA, as Joint Bookrunner and Documentation Agent (incorporated by reference to Exhibit 10.1 to US Airways Group’s Current Report on Form 8-K filed on May 30, 2013 (Commission File No. 1-8444)).
10.97Amendment No. 1, dated as of January 16, 2014, to Loan Agreement, dated as of May 23, 2013, among US Airways, Inc., as Borrower, certain affiliates of US Airways, Inc. party to the agreement from time to time, Citicorp North America, Inc., as Administrative Agent, the lenders party to the agreement from time to time, Citigroup Global Markets Inc., as Joint Lead Arranger and Joint Bookrunner, Barclays Bank PLC, as Joint Lead Arranger, Joint Bookrunner and Syndication Agent, Morgan Stanley Senior Funding, Inc., as Joint Bookrunner and Documentation Agent and Goldman Sachs Bank USA, as Joint Bookrunner and Documentation Agent (incorporated by reference to Exhibit 10.48 to US Airways Group’s Annual Report on Form 10-K for the year ended December 31, 2013 (Commission File No. 1-8444)).
10.98Joinder to Loan Agreement, dated as of December 9, 2013, by American Airlines Group Inc. and American Airlines, Inc. to the $1,600,000,000 Loan Agreement, dated as of May 23, 2013, among US Airways, Inc., US Airways Group, Inc. and certain affiliates of US Airways, Inc. party thereto from time to time, the lenders party thereto and Citicorp North America, Inc., as administrative agent for the lenders (incorporated by reference to Exhibit 10.1 to AAG’s Current Report on Form 8-K filed on December 9, 2013 (Commission File No. 1-8400)).

Exhibit
Number

Description

10.99Form of Participation Agreement (Participation AgreementOctober 2, 2007, between US Airways, Inc., as Owner, and Wilmington Trust Company, as Indenture Trustee and Subordination Agent) (incorporated by reference to Exhibit 4.14 to US Airways Group’s Current Report on Form 8-K filed on December 23, 2010 (Commission File No. 1-8444)).
10.100Form of Indenture (Trust Indenture and Security Agreement between US Airways, Inc., as Owner, and Wilmington Trust Company, as Indenture Trustee) (incorporated by reference to Exhibit 4.15 to US Airways Group’s Current Report on Form 8-K filed on December 23, 2010 (Commission File No. 1-8444)).
10.101Guarantee, dated as of December 21, 2010, from US Airways Group, Inc. (incorporated by reference to Exhibit 4.18 to US Airways Group’s Current Report on Form 8-K filed on December 23, 2010 (Commission File No. 1-8444)).
10.102Form of Participation Agreement (Participation Agreement between US Airways, Inc., as Owner, and Wilmington Trust Company, as Indenture Trustee and Subordination Agent) (incorporated by reference to Exhibit 4.18 to US Airways Group’s Current Report on Form 8-K filed on July 1, 2011 (Commission File No. 001-08444)).
10.103Form of Indenture (Trust Indenture and Security Agreement between US Airways, Inc., as Owner, and Wilmington Trust Company, as Indenture Trustee) (incorporated by reference to Exhibit 4.19 to US Airways Group’s Current Report on Form 8-K filed on July 1, 2011 (Commission FileNo. 001-08444)).
10.104Guarantee, dated as of June 28, 2011, from US Airways Group, Inc. (incorporated by reference to Exhibit 4.23 to US Airways Group’s Current Report on Form 8-K filed on July 1, 2011 (Commission File No. 001-08444)).
10.105Form of Participation Agreement (Participation Agreement between US Airways, Inc., as Owner, and Wilmington Trust Company, as Indenture Trustee and Subordination Agent) (incorporated by reference to Exhibit 4.18 to US Airways Group’s Current Report on Form 8-K filed on May 16, 2012 (Commission File No. 001-08444)).
10.106Form of Indenture (Trust Indenture and Security Agreement between US Airways, Inc., as Owner, and Wilmington Trust Company, as Indenture Trustee) (incorporated by reference to Exhibit 4.19 to US Airways Group’s Current Report on Form 8-K filed on May 16, 2012 (Commission FileNo. 001-08444)).
10.107Guarantee, dated as of May 14, 2012, from US Airways Group, Inc. (incorporated by reference to Exhibit 4.23 to US Airways Group’s Current Report on Form 8-K filed on May 16, 2012 (Commission File No. 001-08444)).
10.108Form of Participation Agreement (Participation Agreement between US Airways, Inc., as Owner, and Wilmington Trust Company, as Indenture Trustee and Subordination Agent) (incorporated by reference to Exhibit B to Exhibit 4.12 to US Airways Group’s Current Report on Form 8-K filed on December 13, 2012 (Commission File No. 001-08444)).
10.109Form of Indenture (Trust Indenture and Security Agreement between US Airways, Inc., as Owner, and Wilmington Trust Company, as Indenture Trustee) (incorporated by reference to Exhibit C to Exhibit 4.12 to US Airways Group’s Current Report on Form 8-K filed on December 13, 2012 (Commission File No. 001-08444)).
10.110Guarantee, dated as of December 13, 2012, from US Airways Group, Inc. (incorporated by reference to Exhibit 4.17 to US Airways Group’s Current Report on Form 8-K filed on December 13, 2012 (Commission File No. 001-08444)).

Exhibit
Number

Description

10.111Amended and Restated Guarantee, dated as of March 31, 2014, from US Airways Group, Inc. and American Airlines Group Inc., relating to obligations of US Airways under the equipment notes relating to its Series 2010-1 Pass Through CertificatesAirbus S.A.S. (incorporated by reference to Exhibit 10.1 to AAG’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014September 30, 2015 (Commission File No. 1-8400)).*
10.11210.97  Amendment No. 6, dated as of December 15, 2015, to the Amended and Restated Guarantee,Airbus A350 XWB Purchase Agreement dated as of March 31, 2014, fromOctober 2, 2007 between Airbus S.A.S. and US Airways, Group, Inc. and American Airlines Group Inc., relating to obligations of US Airways under the equipment notes relating to its Series 2011-1 Pass Through Certificates (incorporated by reference to Exhibit 10.2 to AAG’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 (Commission File No. 1-8400)).**
10.11310.98  Amended and Restated Guarantee,Consent Agreement, dated as of March 31, 2014, fromOctober 5, 2015, by and between US Airways, Group,Inc., American Airlines, Inc. and American Airlines Group Inc., relating to obligations of US Airways under the equipment notes relating to its Series 2012-1 Pass Through Certificates (incorporated by reference to Exhibit 10.3 to AAG’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 (Commission File No. 1-8400)).Airbus S.A.S.**
10.114Amended and Restated Guarantee, dated as of March 31, 2014, from US Airways Group, Inc. and American Airlines Group Inc., relating to obligations of US Airways under the equipment notes relating to its Series 2012-2 Pass Through Certificates (incorporated by reference to Exhibit 10.4 to AAG’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 (Commission File No. 1-8400)).
10.115Amended and Restated Guarantee, dated as of March 31, 2014, from US Airways Group, Inc. and American Airlines Group Inc., relating to obligations of US Airways under the equipment notes relating to its Series 2013-1 Pass Through Certificates (incorporated by reference to Exhibit 10.5 to AAG’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 (Commission File No. 1-8400)).
10.11610.99  AMR Corporation Amended and Restated Directors Pension Benefits Plan, effective as of January 1, 2005 (incorporated by reference to Exhibit 10.149 to AMR’s Annual Report on Form 10-K for the year ended December 31, 2008 (Commission File No. 1-8400)).†

Exhibit
Number

Description

10.11710.100  Supplemental Executive Retirement Program for Officers of American Airlines, Inc., as amended and restated as of January 1, 2005 (incorporated by reference to Exhibit 10.127 to AMR’s Annual Report on Form 10-K for the year ended December 31, 2008 (Commission File No. 1-8400)).†
10.11810.101  Trust Agreement Under Supplemental Retirement Program for Officers of American Airlines, Inc., as amended and restated as of June 1, 2007 (incorporated by reference to Exhibit 10.128 to AMR’s Annual Report on Form 10-K for the year ended December 31, 2008 (Commission FileNo. 1-8400)).†
10.11910.102  Trust Agreement Under Supplemental Executive Retirement Program for Officers of American Airlines, Inc. Participating in the Super Saver Plus Plan, as amended and restated as of June 1, 2007 (incorporated by reference to Exhibit 10.129 to AMR’s Annual Report on Form 10-K for the year ended December 31, 2008 (Commission File No. 1-8400)).
10.12010.103  Form of American Severance Agreement (incorporated by reference to Exhibit 10.4 to AAG’s Current Report on Form 8-K filed on December 9, 2013 (Commission File No. 1-8400)).†
10.12110.104  Form of letter agreement regarding equity awards by and between US Airways Group, Inc. and each executive officer of US Airways Group, Inc. (incorporated by reference to Exhibit 10.1 to US Airways Group’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (Commission File No. 1-8444)).†

Exhibit
Number

Description

10.12210.105  American Airlines Group Inc. 2013 Incentive Award Plan (incorporated by reference to Exhibit 4.1 of American Airlines Group Inc.’s (f/k/a AMR Corporation) Form S-8 Registration Statement, filed on December 4, 2013).†
10.12310.106  Form of American Airlines Group Inc. 2013 Incentive Award Plan Restricted Stock Unit (Cash-Settled) Award Grant Notice and Award Agreement (incorporated by reference to Exhibit 10.125 to AAG’s Annual Report on Form 10-K for the year ended December 31, 20142013 (Commission File No. 1-8400)).†
10.12410.107  Form of American Airlines Group Inc. 2013 Incentive Award Plan Restricted Stock Unit (Cash-Settled) Award Grant Notice and Award Agreement for Merger Equity Grants (incorporated by reference to Exhibit 10.126 to AAG’s Annual Report on Form 10-K for the year ended December 31, 20142013 (Commission File No. 1-8400)).†
10.12510.108  Form of American Airlines Group Inc. 2013 Incentive Award Plan Restricted Stock Unit (Stock-Settled) Award Grant Notice and Award Agreement (incorporated by reference to Exhibit 10.127 to AAG’s Annual Report on Form 10-K for the year ended December 31, 20142013 (Commission File No. 1-8400)).†
10.12610.109  Form of American Airlines Group Inc. 2013 Incentive Award Plan Restricted Stock Unit (Stock-Settled) Award Grant Notice and Award Agreement for Merger Equity Grants (incorporated by reference to Exhibit 10.128 to AAG’s Annual Report on Form 10-K for the year ended December 31, 20142013 (Commission File No. 1-8400)).†
10.12710.110  Form of American Airlines Group Inc. 2013 Incentive Award Plan Restricted Stock Unit (Stock-Settled) Award Grant Notice and Award Agreement for Director Grants (incorporated by reference to Exhibit 10.129 to AAG’s Annual Report on Form 10-K for the year ended December 31, 20142013 (Commission File No. 1-8400)).†
10.12810.111  Form of Indemnification Agreement (incorporated by reference to Exhibit 10.9 to AAG’s Current Report on Form 8-K filed on December 9, 2013 (Commission File No. 1-8400)).†

10.129

Exhibit
Number

  America West Holdings 2002 Incentive Equity Plan as amended through May 23, 2002 (incorporated by reference to Exhibit 10.1 to US Airways Group’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 (Commission File No. 1-8444)).†

Description

10.13010.112  US Airways Group 2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to US Airways Group’s Current Report on Form 8-K filed on October 3, 2005 (Commission FileNo. 1-8444)).†
10.13110.113  Stock Unit Award Agreement, dated as of September 27, 2005, between US Airways Group and W. Douglas Parker (incorporated by reference to Exhibit 10.6 to US Airways Group’s Current Report on Form 8-K filed on October 3, 2005 (Commission File No. 1-8444)).†
10.13210.114  Form of Stock Unit Agreement under US Airways Group’s 2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.210.1 to US Airways Group’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 (Commission File No. 1-8444)).†
10.13310.115  Form of Stock Appreciation Rights Award Agreement under US Airways Group’s 2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.75 to US Airways Group’s Annual Report on Form 10-K for the year ended December 31, 2005 (Commission File No. 1-8444)).†
10.13410.116  Form of Nonstatutory Stock Option Award Agreement under US Airways Group’s 2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.5 to US Airways Group’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 (Commission File No. 1-8444)).†

Exhibit
Number

Description

10.13510.117  Form of Stock Bonus Award Agreement for Non-Employee Directors under US Airways Group’s 2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.96 to US Airways Group’s Annual Report on Form 10-K for the year ended December 31, 2007 (Commission FileNo. 1-8444)).†
10.13610.118  US Airways Group, Inc. 2008 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 to US Airways Group’s Registration Statement on Form S-8 filed on June 30, 2008 (RegistrationNo. 333-152033)).†
10.13710.119  Form of Restricted Stock Unit Award Agreement under the US Airways Group, Inc. 2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to US Airways Group’s Current Report on Form 8-K filed August 7, 2008 (Commission File No. 1-8444)).†
10.13810.120  Form of Stock Appreciation Right Award Agreement under the US Airways Group, Inc. 2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to US Airways Group’s Current Report on Form 8-K filed August 7, 2008 (Commission File No. 1-8444)).†
10.13910.121  Form of Stock Appreciation Right (Cash-Settled) Award Agreement under the US Airways Group, Inc. 2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.8 to US Airways Group’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 (Commission FileNo. 1-8444)).†
10.14010.122  Form of Stock Appreciation Right (Stock-Settled) Award Agreement under the US Airways Group, Inc. 2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.9 to US Airways Group’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 (Commission FileNo. 1-8444)).†
10.14110.123  Form of Director Vested Share Award Agreement under the US Airways Group 2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.78 to US Airways Group’s Annual Report on Form 10-K for the year ended December 31, 2008 (Commission File No. 1-8444)).†
10.1422011 Long Term Incentive Performance Program Under 2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to US Airways Group’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 (Commission File No. 1-8444)).†
10.14310.124  US Airways Group, Inc. 2011 Incentive Award Plan (incorporated by reference to Exhibit 4.1 to US Airways Group’s Registration Statement on Form S-8 filed on July 1, 2011 (RegistrationNo. 333-175323)).†

Exhibit
Number

Description

10.14410.125  Form of Annual Grant Agreement under the US Airways Group, Inc. 2011 Incentive Award Plan (incorporated by reference to Exhibit 4.2 to US Airways Group’s Registration Statement onForm S-8 filed on July 1, 2011 (Registration No. 333-175323)).†
10.14510.126  Form of Stock Appreciation Right (Cash-Settled) Award Grant Notice and Stock Appreciation Right (Cash-Settled) Award Agreement under the US Airways Group, Inc. 2011 Incentive Award Plan (incorporated by reference to Exhibit 4.3 to US Airways Group’s Registration Statement onForm S-8 filed on July 1, 2011 (Registration No. 333-175323)).†
10.14610.127  Form of Stock Appreciation Right (Stock-Settled) Award Grant Notice and Stock Appreciation Right Award Agreement under the US Airways Group, Inc. 2011 Incentive Award Plan (incorporated by reference to Exhibit 4.4 to US Airways Group’s Registration Statement on Form S-8 filed on July 1, 2011 (Registration No. 333-175323)).†

Exhibit
Number

Description

10.14710.128  Form of Restricted Stock Unit (Cash-Settled) Award Grant Notice and Restricted Stock Unit (Cash-Settled) Award Agreement under the US Airways Group, Inc. 2011 Incentive Award Plan (incorporated by reference to Exhibit 4.5 to US Airways Group’s Registration Statement onForm S-8 filed on July 1, 2011 (Registration No. 333-175323)).†
10.14810.129  Form of Restricted Stock Unit (Stock-Settled) Award Grant Notice and Restricted Stock Unit Award Agreement under the US Airways Group, Inc. 2011 Incentive Award Plan (incorporated by reference to Exhibit 4.6 to US Airways Group’s Registration Statement on Form S-8 filed on July 1, 2011 (Registration No. 333-175323)).†
10.14910.130  2012 Long Term Incentive Performance Program Under 2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.151 to AAG’s Annual Report on Form 10-K for the year ended December 31, 20142013 (Commission File No. 1-8400)).†
10.15010.131  2013 Long Term Incentive Performance Program Under 2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.152 to AAG’s Annual Report on Form 10-K for the year ended December 31, 20142013 (Commission File No. 1-8400)).†
10.15110.132  2014 Short Term-Incentive Program Under 2013 Incentive Award Plan (incorporated by reference to Exhibit 10.8 to AAG’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (Commission File No. 1-8400)).†
10.15210.133  Form of Executive Change in Control Agreement for Presidents (incorporated by reference to Exhibit 10.2 to US Airways Group’s Current Report on Form 8-K filed on November 29, 2007 (Commission File No. 1-8444)).†
10.15310.134  Form of Executive Change in Control Agreement for Executive Vice Presidents (incorporated by reference to Exhibit 10.3 to US Airways Group’s Current Report on Form 8-K filed on November 29, 2007 (Commission File No. 1-8444)).†
10.15410.135  Form of Executive Change in Control Agreement for Senior Vice Presidents (incorporated by reference to Exhibit 10.4 to US Airways Group’s Current Report on Form 8-K filed on November 29, 2007 (Commission File No. 1-8444)).†
10.15510.136  Form of Letter Agreement for Directors Travel Program (incorporated by reference to Exhibit 10.106 to US Airways Group’s Annual Report on Form 10-K for the year ended December 31, 2007 (Commission File No. 1-8444)).†
10.15610.137  Amended and Restated Employment Agreement, dated as of November 28, 2007, by and among US Airways Group, US Airways, Inc. and W. Douglas Parker (incorporated by reference to Exhibit 10.1 to US Airways Group’s Current Report on Form 8-K filed on November 29, 2007 (Commission File No. 1-8444)).†

10.157

Exhibit
Number

  Form of Indemnity Agreement (incorporated by reference to Exhibit 10.1 to US Airways Group’s Current Report on Form 8-K filed on October 6, 2005 (Commission File No. 1-8444)).†

Description

10.15810.138  Support and Settlement Agreement, dated as of February 13, 2013, by and among AMR Corporation, certain direct and indirect subsidiaries of AMR Corporation, and the Initial Consenting Creditors (as defined therein) (incorporated by reference to Exhibit 10.1 to AMR’s Current Report on Form 8-K filed on February 14, 2013 (Commission File No. 1-8400)).
10.15910.139  Proposed Final Judgment (incorporated by reference to Exhibit 10.1 to AMR’s Current Report on Form 8-K filed on November 13, 2013 (Commission File No. 1-8400)).
10.16010.140  Asset Preservation Order (incorporated by reference to Exhibit 10.2 to AMR’s Current Report on Form 8-K filed on November 13, 2013 (Commission File No. 1-8400)).

Exhibit
Number

Description

10.16110.141  Supplemental Stipulated Order (incorporated by reference to Exhibit 10.3 to AMR’s Current Report on Form 8-K filed on November 13, 2013 (Commission File No. 1-8400)).
10.16210.142  Joint Stipulation (incorporated by reference to Exhibit 10.4 to AMR’s Current Report on Form 8-K filed on November 13, 2013 (Commission File No. 1-8400)).
10.16310.143  DOT Agreement (incorporated by reference to Exhibit 10.5 to AMR’s Current Report on Form 8-K filed on November 13, 2013 (Commission File No. 1-8400)).
12.1  Computation of ratio of earnings to combined fixed charges and preferred dividends of American Airlines Group Inc. for 2015, 2014, 2013, 2012 2011 and 2010.2011.
12.2  Computation of ratio of earnings to fixed charges of American Airlines, Inc. for 2015, 2014, 2013, 2012 2011 and 2010.2011.
14.1  Code of Ethics (incorporated by reference to Exhibit 14.1 to AAG’s Current Report on Form 8-K filed on December 9, 2013 (Commission File No. 1-8400)).
14.2US Airways Group, Inc. Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1 to US Airways Group’s Current Report on Form 8-K filed on December 9, 2013 (Commission File No. 1-8444)).
21  Significant subsidiaries of AAG and American as of December 31, 2014.2015.
23.1  Consent of Independent Registered Public Accounting Firm – KPMG LLP.
23.2  Consent of Independent Registered Public Accounting Firm – Ernst & Young LLP.
24  Powers of Attorney (included in signature page of this Annual Report on Form 10-K).
31.1  Certification of AAG Chief Executive Officer pursuant to Rule 13a-14(a).
31.2  Certification of AAG Chief Financial Officer pursuant to Rule 13a-14(a).
31.3  Certification of American Chief Executive Officer pursuant to Rule 13a-14(a).
31.4  Certification of American Chief Financial Officer pursuant to Rule 13a-14(a).
32.1  Certification pursuant to Rule 13a-14(b) and section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code).
32.2  Certification pursuant to Rule 13a-14(b) and section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code).
101  Interactive data files pursuant to Rule 405 of Regulation S-T.

 

  #

Pursuant to Item 601(b)(2) of Regulation S-K promulgated by the Securities and Exchange Commission, certain exhibits and schedules to this agreement have been omitted. Such exhibits and schedules are described in the referenced agreement. AAG and American hereby agree to furnish to the Securities and Exchange Commission, upon its request, any or all of such omitted exhibits or schedules.

 

  *

Confidential treatment has been granted with respect to certain portions of this agreement.

 

  **

Confidential treatment has been requested with respect to certain portions of this agreement.

 

  †

Management contract or compensatory plan or arrangement.

 

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