Edgar Filing: American Airlines Group Inc.

Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




	FORM 10-Q



☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended March 31, 2018



☐	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)

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)

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.	☒	Yes	☐	No
American Airlines, Inc.	☒	Yes	☐	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.	☒	Yes	☐	No
American Airlines, Inc.	☒	Yes	☐	No

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



American Airlines Group Inc.	☒ Large Accelerated Filer	☐ Accelerated Filer	☐ Non-accelerated Filer	☐ Smaller Reporting Company	☐ Emerging Growth Company
American Airlines, Inc.	☐ Large Accelerated Filer	☐ Accelerated Filer	☒ Non-accelerated Filer	☐ Smaller Reporting Company	☐ Emerging Growth Company

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



American Airlines Group Inc.	☐
American Airlines, Inc.	☐

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



American Airlines Group Inc.	☐	Yes	☒	No
American Airlines, Inc.	☐	Yes	☒	No

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.	☒	Yes	☐	No
American Airlines, Inc.	☒	Yes	☐	No

As of April 20, 2018, there were 468,152,649 shares of American Airlines Group Inc. common stock outstanding.

As of April 20, 2018, there were 1,000 shares of American Airlines, Inc. common stock outstanding, all of which were held by American Airlines Group Inc.

American Airlines Group Inc.

American Airlines, Inc.

Form 10-Q

Quarterly Period Ended March 31, 2018

Table of Contents



		Page
PART I: FINANCIAL INFORMATION
Item 1A.	Condensed Consolidated Financial Statements of American Airlines Group Inc.	4
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Income	5
	Condensed Consolidated Balance Sheets	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to the Condensed Consolidated Financial Statements	8
Item 1B.	Condensed Consolidated Financial Statements of American Airlines, Inc.	21
	Condensed Consolidated Statements of Operations	21
	Condensed Consolidated Statements of Comprehensive Income	22
	Condensed Consolidated Balance Sheets	23
	Condensed Consolidated Statements of Cash Flows	24
	Notes to the Condensed Consolidated Financial Statements	25
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58
Item 4.	Controls and Procedures	59
PART II: OTHER INFORMATION
Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	78
Item 6.	Exhibits	79
SIGNATURES		80

This report is filed by American Airlines Group Inc. (formerly named AMR Corporation) (AAG) and its wholly-owned subsidiary American Airlines, Inc. (American). References in this report to “we,” “us,” “our,” the “Company” and similar terms refer to AAG and its consolidated subsidiaries. “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, Inc. (US Airways Group) on December 9, 2013. References to “US Airways Group” and “US Airways,” a subsidiary of US Airways Group, represent the entities during the period of time prior to the dissolution of those entities in connection with AAG’s internal corporate restructuring on December 30, 2015. References in this report to “mainline” refer to the operations of American only and exclude regional operations.

Note Concerning Forward-Looking Statements

Certain of the statements contained in this report should be considered forward-looking statements within the meaning of the Securities Act of 1933, as amended (the Securities Act), the Securities Exchange Act of 1934, as amended (the Exchange Act), and 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 our plans, objectives, expectations, intentions, estimates and strategies for the future, and other statements that are not historical facts. 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 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Part II, Item 1A. Risk Factors and other risks and uncertainties listed from time to time in our filings with the Securities and Exchange Commission (the SEC).

All of the forward-looking statements are qualified in their entirety by reference to the factors discussed in Part II, 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 report or as of the dates indicated in the statements.

PART I: FINANCIAL INFORMATION

This report on Form 10-Q is filed by both AAG and American and includes the Condensed Consolidated Financial Statements of each company in Item 1A and Item 1B, respectively.

ITEM 1A. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.

AMERICAN AIRLINES GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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



	Three Months Ended March 31,
	2018			2017
Operating revenues:
Passenger	$	9,480		$	8,997
Cargo	227			191
Other	694			632
Total operating revenues	10,401			9,820
Operating expenses:
Aircraft fuel and related taxes	1,763			1,402
Salaries, wages and benefits	3,017			2,859
Regional expenses	1,698			1,573
Maintenance, materials and repairs	469			492
Other rent and landing fees	462			440
Aircraft rent	304			295
Selling expenses	356			318
Depreciation and amortization	445			405
Special items, net	195			119
Other	1,261			1,180
Total operating expenses	9,970			9,083
Operating income	431			737
Nonoperating income (expense):
Interest income	25			21
Interest expense, net	(265		)	(257		)
Other income, net	82			34
Total nonoperating expense, net	(158		)	(202		)
Income before income taxes	273			535
Income tax provision	87			195
Net income	$	186		$	340

Earnings per common share:
Basic	$	0.39		$	0.67
Diluted	$	0.39		$	0.67
Weighted average shares outstanding (in thousands):
Basic	472,297			503,902
Diluted	474,598			507,797
Cash dividends declared per common share	$	0.10		$	0.10

See accompanying notes to condensed consolidated financial statements.

AMERICAN AIRLINES GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)(Unaudited)



	Three Months Ended March 31,
	2018			2017
Net income	$	186		$	340
Other comprehensive loss, net of tax:
Pension, retiree medical and other postretirement benefits	(16		)	(14		)
Investments	(2		)	—
Total other comprehensive loss, net of tax	(18		)	(14		)
Total comprehensive income	$	168		$	326

See accompanying notes to condensed consolidated financial statements.

AMERICAN AIRLINES GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except shares and par value)



	March 31, 2018			December 31, 2017
	(Unaudited)
ASSETS
Current assets
Cash	$	297		$	295
Short-term investments	4,994			4,771
Restricted cash and short-term investments	294			318
Accounts receivable, net	1,809			1,752
Aircraft fuel, spare parts and supplies, net	1,455			1,359
Prepaid expenses and other	824			651
Total current assets	9,673			9,146
Operating property and equipment
Flight equipment	40,662			40,318
Ground property and equipment	8,599			8,267
Equipment purchase deposits	1,231			1,217
Total property and equipment, at cost	50,492			49,802
Less accumulated depreciation and amortization	(16,159		)	(15,646		)
Total property and equipment, net	34,333			34,156
Other assets
Goodwill	4,091			4,091
Intangibles, net of accumulated amortization of $632 and $622, respectively	2,193			2,203
Deferred tax asset	1,581			1,816
Other assets	1,409			1,373
Total other assets	9,274			9,483
Total assets	$	53,280		$	52,785

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Current maturities of long-term debt and capital leases	$	2,793		$	2,554
Accounts payable	1,953			1,688
Accrued salaries and wages	1,178			1,672
Air traffic liability	5,549			4,042
Loyalty program liability	3,176			3,121
Other accrued liabilities	2,359			2,281
Total current liabilities	17,008			15,358
Noncurrent liabilities
Long-term debt and capital leases, net of current maturities	21,946			22,511
Pension and postretirement benefits	7,259			7,497
Loyalty program liability	5,610			5,701
Other liabilities	2,475			2,498
Total noncurrent liabilities	37,290			38,207
Commitments and contingencies
Stockholders’ equity (deficit)
Common stock, $0.01 par value; 1,750,000,000 shares authorized, 467,390,481 shares issued and outstanding at March 31, 2018; 475,507,887 shares issued and outstanding at December 31, 2017	5			5
Additional paid-in capital	5,279			5,714
Accumulated other comprehensive loss	(5,172		)	(5,154		)
Accumulated deficit	(1,130		)	(1,345		)
Total stockholders’ deficit	(1,018		)	(780		)
Total liabilities and stockholders’ equity (deficit)	$	53,280		$	52,785

See accompanying notes to condensed consolidated financial statements.

AMERICAN AIRLINES GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)(Unaudited)



	Three Months Ended March 31,
	2018			2017
Net cash provided by operating activities	$	1,799		$	2,250
Cash flows from investing activities:
Capital expenditures and aircraft purchase deposits	(779		)	(1,714		)
Proceeds from sale of property and equipment and other investments	22			32
Purchases of short-term investments	(1,252		)	(1,922		)
Sales of short-term investments	1,029			1,660
Decrease in restricted short-term investments	24			74
Net cash used in investing activities	(956		)	(1,870		)
Cash flows from financing activities:
Proceeds from issuance of long-term debt	236			899
Payments on long-term debt and capital leases	(569		)	(686		)
Deferred financing costs	(1		)	(31		)
Treasury stock repurchases	(461		)	(484		)
Dividend payments	(48		)	(51		)
Other financing activities	2			4
Net cash used in financing activities	(841		)	(349		)
Net increase in cash and restricted cash	2			31
Cash and restricted cash at beginning of period	398			436
Cash and restricted cash at end of period ^(a)	$	400		$	467

Supplemental information:
Interest paid, net	258			255
Income taxes paid	3			4

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



Cash	$	297	$	374
Restricted cash included in restricted cash and short-term investments	103		93
Total cash and restricted cash	$	400	$	467

See accompanying notes to condensed consolidated financial statements.

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

(Unaudited)

1. Basis of Presentation and Recent Accounting Pronouncements

(a) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of American Airlines Group Inc. (we, us, our and similar terms, or AAG) should be read in conjunction with the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2017. The accompanying unaudited condensed consolidated financial statements include the accounts of AAG and its wholly-owned subsidiaries. AAG’s principal subsidiary is American Airlines, Inc. (American). All significant intercompany transactions have been eliminated.

On December 9, 2013, a subsidiary of AMR Corporation (AMR) merged with and into US Airways Group, Inc. (US Airways Group), a Delaware corporation, which survived as a wholly-owned subsidiary of AAG, and AAG emerged from Chapter 11 (the Merger). Upon closing of the Merger and emergence from Chapter 11, AMR changed its name to American Airlines Group Inc. On December 30, 2015, in order to simplify AAG’s internal corporate structure, US Airways Group merged with and into AAG, with AAG as the surviving corporation. Immediately thereafter, US Airways, Inc. (US Airways), a wholly-owned subsidiary of US Airways Group, merged with and into American, with American as the surviving corporation.

Management believes that all adjustments necessary for the fair presentation of results, consisting of normally recurring items, have been included in the unaudited condensed consolidated financial statements for the interim periods presented. The preparation of financial statements in accordance with accounting principles generally accepted in the United States (GAAP) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The most significant areas of judgment relate to passenger revenue recognition, impairment of goodwill, impairment of long-lived and intangible assets, the loyalty program, valuation allowance for deferred tax assets, as well as pension and retiree medical and other postretirement benefits.

(b) Recent Accounting Pronouncements

Standards Effective for 2018 Reporting Periods

Effective January 1, 2018, we adopted the accounting pronouncements described below.

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

The New Revenue Standard applies to all companies that enter into contracts with customers to transfer goods or services. We adopted the New Revenue Standard using the full retrospective method, which resulted in the recast of prior reporting periods.

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

The New Revenue Standard also required certain reclassifications, principally the reclassification of certain ancillary revenues previously classified and reported as other revenue to passenger revenue and as applicable to cargo revenue. Additionally, the New Revenue Standard required a gross presentation on the face of our condensed consolidated statement of operations for certain revenues and expenses that had previously been presented on a net basis.

See recast condensed consolidated statement of operations data for the three months ended March 31, 2017 and recast consolidated balance sheet data as of December 31, 2017 presented below for the effects of adoption.

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

(Unaudited)

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

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

See recast condensed consolidated statement of operations data for the three months ended March 31, 2017 presented below for the effects of adoption.

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

This ASU made several modifications to Subtopic 825-10, including the elimination of the available-for-sale classification of equity investments, and it required equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income. This standard was adopted prospectively as of January 1, 2018 and resulted in a $77 million cumulative effect adjustment credit to retained earnings related to our investment in China Southern Airlines Company Limited, which was previously accounted for under the cost method.

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

This ASU required that the change in total cash, cash at beginning of period and cash at end of period on the statement of cash flows include restricted cash and restricted cash equivalents and also requires companies who report cash and restricted cash separately on the balance sheet to reconcile those amounts to the statement of cash flows. This standard was applied retrospectively, which resulted in the recast of the prior reporting period in the statement of cash flows. For the three months ended March 31, 2018 and 2017, $103 million and $93 million, respectively, of restricted cash is included in the total of cash and restricted cash balance at the end of period. A reconciliation of cash and restricted cash from our condensed consolidated statement of cash flows to the amounts reported within our condensed consolidated balance sheet is also included in a table below our condensed consolidated statement of cash flows.

Impacts to Prior Period Results

The effects of adoption of the New Revenue Standard and New Retirement Standard to our condensed consolidated statement of operations for the three months ended March 31, 2017 were as follows (in millions, except per share amounts):



				New Revenue Standard					New Retirement Standard
	As Reported			Deferred Revenue Method		Reclassifications			Reclassifications			As Recast
Operating revenues:
Passenger	$	8,155		$	170	$	672		$	—		$	8,997
Cargo	172			—		19			—			191
Other	1,297			—		(665		)	—			632
Total operating revenues	9,624			170		26			—			9,820
Total operating expenses	9,023			—		26			34			9,083
Operating income	601			170		—			(34		)	737
Total nonoperating expense, net	(236		)	—		—			34			(202		)
Income before income taxes	365			170		—			—			535
Income tax provision	131			64		—			—			195
Net income	$	234		$	106	$	—		$	—		$	340
Diluted earnings per common share	$	0.46										$	0.67

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

(Unaudited)

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



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

Standards Effective for 2019 Reporting Periods

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

The New Lease Standard requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet and aligns many of the underlying principles of the new lessor model with those in the New Revenue Standard. The New Lease Standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We will adopt the New Lease Standard effective January 1, 2019. We are currently evaluating how the adoption of the New Lease Standard will impact our consolidated financial statements. Interpretations are on-going and could have a material impact on our implementation. Currently, we expect that the adoption of the New Lease Standard will have a material impact on our consolidated balance sheet due to the recognition of right-of-use assets and lease liabilities principally for certain leases currently accounted for as operating leases.

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

This ASU provides financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings due to the U.S. federal corporate income tax rate change as a result of H.R. 1, the 2017 Tax Cuts and Jobs Act (the 2017 Tax Act). The amount of the reclassification is the difference between the amount initially charged or credited directly to other comprehensive income at the previously enacted U.S. federal corporate income tax rate that remains in accumulated other comprehensive income and the amount that would have been charged or credited directly to other comprehensive income using the newly enacted U.S. federal corporate income tax rate, excluding the effect of any valuation allowance previously charged to income from continuing operations. This standard is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. We expect we will adopt this standard effective January 1, 2019. The adoption of the standard may impact tax amounts stranded in accumulated other comprehensive income related to our pension and retiree medical and other postretirement benefit plans.

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

(Unaudited)

2. Special Items, Net

Special items, net on the condensed consolidated statements of operations consisted of the following (in millions):



	Three Months Ended March 31,
	2018		2017
Fleet restructuring expenses ⁽¹⁾	$	82	$	63
Merger integration expenses ⁽²⁾	59		63
Labor contract expenses	13		—
Other operating charges, net	41		(7		)
Mainline operating special items, net	195		119

Regional operating special items, net	—		2

Debt refinancing and extinguishment charges	—		5
Nonoperating special items, net	—		5

Income tax special items, net ⁽³⁾	22		—


⁽¹⁾	Fleet restructuring expenses principally included the acceleration of depreciation and impairments for aircraft and related equipment grounded or expected to be grounded earlier than planned.


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


⁽³⁾	Income tax special items included a $22 million charge to income tax expense to establish a required valuation allowance related to our estimated refund for Alternative Minimum Tax (AMT) credits.

3. Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per common share (EPS) (in millions, except share and per share amounts):



	Three Months Ended March 31,
	2018		2017
Basic EPS:
Net income	$	186	$	340
Weighted average common shares outstanding (in thousands)	472,297		503,902
Basic EPS	$	0.39	$	0.67

Diluted EPS:
Net income for purposes of computing diluted EPS	$	186	$	340
Share computation for diluted EPS (in thousands):
Basic weighted average common shares outstanding	472,297		503,902
Dilutive effect of stock awards	2,301		3,895
Diluted weighted average common shares outstanding	474,598		507,797
Diluted EPS	$	0.39	$	0.67

Restricted stock unit awards excluded from the calculation of diluted EPS because inclusion would be antidilutive (in thousands)	1		395

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

(Unaudited)

4. Share Repurchase Programs and Dividends

Since July 2014, our Board of Directors has approved six share repurchase programs aggregating $11.0 billion of authority. As of March 31, 2018, there was no remaining authority to repurchase shares under our share repurchase programs.

During the three months ended March 31, 2018, we repurchased 8.4 million shares of AAG common stock for $450 million at a weighted average cost per share of $53.32. Since the inception of our share repurchase programs in July 2014, we have repurchased 270.7 million shares of AAG common stock for $11.0 billion at a weighted average cost per share of $40.63.

Our Board of Directors declared a cash dividend of $0.10 per share for stockholders of record as of February 6, 2018 and paid on February 20, 2018, totaling $48 million in the first three months of 2018.

5. Revenue Recognition

(a) Revenue

Effective January 1, 2018, we adopted the New Revenue Standard using the full retrospective method, which resulted in the recast of prior reporting periods. See Recent Accounting Pronouncements in Note 1(b) above for effects of adoption on our condensed consolidated statement of operations for the three months ended March 31, 2017 and on our consolidated balance sheet as of December 31, 2017. Under the New Revenue Standard, revenue is recognized upon transfer of control of promised products or services to our customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.

The following are the significant categories comprising our reported operating revenues (in millions):



	Three Months Ended March 31,
	2018		2017
Passenger revenue:
Passenger travel	$	8,630	$	8,195
Loyalty revenue - travel ⁽¹⁾	850		802
Total passenger revenue	9,480		8,997
Cargo	227		191
Other:
Loyalty revenue - marketing services	570		514
Other revenue	124		118
Total other revenue	694		632
Total operating revenues	$	10,401	$	9,820


⁽¹⁾	Loyalty revenue included in passenger revenue is principally comprised of mileage credit redemptions for air travel awards from mileage credits earned through travel and mileage credits sold to co-branded card and other partners. See discussion of Loyalty Revenue below.

The following is our total passenger revenue by geographic region (in millions):



	Three Months Ended March 31,
	2018		2017
Domestic	$	6,963	$	6,781
Latin America	1,445		1,231
Atlantic	669		624
Pacific	403		361
Total passenger revenue	$	9,480	$	8,997

We attribute passenger revenue by geographic region based upon the origin and destination of each flight segment.

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

(Unaudited)

Passenger Revenue

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

The majority of tickets sold are nonrefundable. A small percentage of tickets, some of which are partially used tickets, expire unused. Due to complex pricing structures, refund and exchange policies, and interline agreements with other airlines, certain amounts are recognized in passenger revenue using estimates regarding both the timing of the revenue recognition and the amount of revenue to be recognized. These estimates are generally based on the analysis of our historical data. We have consistently applied this accounting method to estimate revenue from forfeited tickets at the date of travel. Estimated future refunds and exchanges included in the air traffic liability are routinely evaluated based on subsequent activity to validate the accuracy of our estimates. Any adjustments resulting from periodic evaluations of the estimated air traffic liability are included in passenger revenue during the period in which the evaluations are completed.

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

Loyalty Revenue

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

Mileage credits earned through travel

For mileage credits earned through travel, we apply a relative selling price approach whereby the total amount collected from each passenger ticket sale is allocated between the air transportation and the mileage credits earned. The portion of each passenger ticket sale attributable to mileage credits earned is initially deferred and then recognized in passenger revenue when mileage credits are redeemed and transportation is provided. The estimated selling price of mileage credits is determined using an equivalent ticket value approach which uses historical data, including award redemption patterns by geographic region and class of service as well as similar fares as those used to settle award redemptions. The estimated selling price of miles is adjusted for an estimate of miles that will not be redeemed based on historical redemption patterns.

Mileage credits sold to co-branded cards and other partners

We sell mileage credits to participating airline partners and non-airline business partners including our co-branded card partners, under contracts with terms extending generally for one to nine years. Sales of mileage credits to non-airline business partners are comprised of two components, transportation and marketing. We allocate the consideration received from the sale of mileage credits based on the relative selling price of each product or service delivered.

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

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

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

(Unaudited)

For the portion of our outstanding mileage credits that we estimate will not be redeemed, we recognize the associated value proportionally as the remaining mileage credits are redeemed. Our estimates are based on analysis of historical redemptions.

Cargo Revenue

Cargo revenue is recognized when we provide the transportation.

Other Revenue

Other revenue includes revenue associated with our loyalty program, which is comprised principally of the marketing component of mileage sales to co-branded card and other partners and other marketing related payments. For the three months ended March 31, 2018 and 2017, loyalty revenue included in other revenue was $570 million and $514 million, respectively. The accounting and recognition for the loyalty program marketing services are discussed above in Loyalty Revenue. The remaining amounts included within other revenue relate to airport clubs, advertising and vacation-related services.

(b) Contract Balances

Our significant contract liabilities are comprised of (1) outstanding loyalty program mileage credits that may be redeemed for future travel and other non-air travel awards, reported as loyalty program liability on our condensed consolidated balance sheet and (2) ticket sales for transportation that has not yet been provided, reported as air traffic liability on our condensed consolidated balance sheet.



	March 31, 2018		December 31, 2017
	(In millions)
Loyalty program liability	$	8,786	$	8,822
Air traffic liability	5,549		4,042
Total	$	14,335	$	12,864

The balance of the loyalty program liability fluctuates based on seasonal patterns, which impact the volume of mileage credits issued through travel or sold to co-branded card and other partners (deferral of revenue) and mileage credits redeemed (recognition of revenue). Changes in loyalty program liability are as follows (in millions):



Balance at December 31, 2017	$	8,822
Deferral of revenue	865
Recognition of revenue ⁽¹⁾	(901		)
Balance at March 31, 2018 ⁽²⁾	$	8,786


⁽¹⁾	Principally relates to revenue recognized from the redemption of mileage credits for both air and non-air travel awards. Mileage credits are combined in one homogenous pool and are not separately identifiable. As such, the revenue is comprised of miles that were part of the loyalty program deferred revenue balance at the beginning of the period as well as miles that were issued during the period.

⁽²⁾

Mileage credits can be redeemed at any time and do not expire as long as that AAdvantage member has any type of qualifying activity at least every 18 months. As of March 31, 2018, our current loyalty program liability was $3.2 billion and represents our current estimate of revenue expected to be recognized in the next twelve months based on historical trends, with the balance reflected in long-term loyalty program liability expected to be recognized as revenue in periods thereafter.

The air traffic liability principally represents tickets sold for future travel dates and estimated future refunds and exchanges of tickets sold for past travel dates. The balance in our air traffic liability also fluctuates with seasonal travel patterns. The contract duration of passenger tickets is one year. Accordingly, any revenue associated with tickets sold for future travel dates will be recognized within twelve months. For the three months ended March 31, 2018, $2.1 billion of revenue was recognized in passenger revenue that was included in our air traffic liability at December 31, 2017.

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

(Unaudited)

With respect to contract receivables, reflected as accounts receivable, net on the accompanying condensed consolidated balance sheet, these primarily include receivables for tickets sold to individual passengers through the use of major credit cards. These receivables are short-term, mostly 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.

6. Debt

Long-term debt and capital lease obligations included in the condensed consolidated balance sheets consisted of (in millions):



	March 31, 2018		December 31, 2017
Secured
2013 Credit Facilities, variable interest rate of 3.88%, installments through 2020	$	1,825	$	1,825
2014 Credit Facilities, variable interest rate of 3.74%, installments through 2021	728		728
April 2016 Credit Facilities, variable interest rate of 3.88%, installments through 2023	990		990
December 2016 Credit Facilities, variable interest rate of 3.78%, installments through 2023	1,238		1,238
Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 3.00% to 9.75%, averaging 4.25%, maturing from 2018 to 2029	11,764		11,881
Equipment loans and other notes payable, fixed and variable interest rates ranging from 2.34% to 8.48%, averaging 3.70%, maturing from 2018 to 2029	5,062		5,259
Special facility revenue bonds, fixed interest rates ranging from 5.00% to 8.00%, maturing from 2018 to 2035	857		857
Other secured obligations, fixed interest rates ranging from 3.81% to 12.24%, maturing from 2021 to 2028	755		773
	23,219		23,551
Unsecured
5.50% senior notes, interest only payments until due in 2019	750		750
6.125% senior notes, interest only payments until due in 2018	500		500
4.625% senior notes, interest only payments until due in 2020	500		500
	1,750		1,750
Total long-term debt and capital lease obligations	24,969		25,301
Less: Total unamortized debt discount, premium and issuance costs	230		236
Less: Current maturities	2,793		2,554
Long-term debt and capital lease obligations, net of current maturities	$	21,946	$	22,511

The table below shows the maximum availability under revolving credit facilities, all of which were undrawn, as of March 31, 2018 (in millions):



2013 Revolving Facility	$	1,200
2014 Revolving Facility	1,000
April 2016 Revolving Facility	300
Total	$	2,500

The December 2016 Credit Facilities provide for a revolving credit facility that may be established in the future.

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

(Unaudited)

2018 Aircraft Financing Activities

2017-2 EETCs

During the first quarter of 2018, $210 million of the $1.0 billion total net proceeds from the issuance of certain enhanced equipment trust certificates in August and October 2017 (the 2017-2 EETCs) were used to purchase equipment notes issued by American in connection with financing 4 of the 30 aircraft financed under the 2017-2 EETCs. Approximately $735 million of proceeds from the 2017-2 EETCs were used in 2017 to purchase equipment notes issued by American in connection with the financing of 24 aircraft. Interest and principal payments on equipment notes issued in connection with the 2017-2 EETCs are payable semi-annually in April and October of each year, with interest payments beginning in April 2018 and principal payments beginning in October 2018. These equipment notes are secured by liens on the aircraft financed with the proceeds of the 2017-2 EETCs. The remaining net proceeds of $73 million of 2017-2 EETCs is being held in escrow for the benefit of the holders of the 2017-2 EETCs until such time as American issues additional Series AA, A and B equipment notes to the pass-through trusts, which will purchase additional equipment notes with the escrowed funds. These escrowed funds are not guaranteed by American and are not reported as debt on its condensed consolidated balance sheet because the proceeds held by the depository are not American's assets.

Certain information regarding the 2017-2 EETC equipment notes and the remaining escrowed proceeds of the 2017-2 EETCs, as of March 31, 2018, is set forth in the table below.



	2017-2 EETCs
	Series AA	Series A	Series B
Aggregate principal issued	$545 million	$252 million	$221 million
Remaining escrowed proceeds	$39 million	$18 million	$16 million
Fixed interest rate per annum	3.35%	3.60%	3.70%
Maturity date	October 2029	October 2029	October 2025

7. Income Taxes

At December 31, 2017, we had approximately $10.0 billion of federal net operating losses (NOLs) carried over from prior taxable years (NOL Carryforwards) to reduce future federal taxable income, substantially all of which we expect to be available for use in 2018. The federal NOL Carryforwards will expire beginning in 2022 if unused. We also had approximately $3.4 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2017, which will expire in years 2018 through 2037 if unused.

At December 31, 2017, we had an AMT credit carryforward of approximately $339 million available for federal income tax purposes, which is expected to be substantially refunded in 2019 and 2020 as a result of the repeal of corporate AMT.

During the three months ended March 31, 2018, we recorded an income tax provision of $87 million, which was substantially non-cash as we utilized our NOLs described above. This provision included a $22 million special income tax charge to establish a required valuation allowance related to our estimated refund for AMT credits, which is now subject to a sequestration reduction rate of approximately 6.6%. Substantially all of our income before income taxes is attributable to the United States.

The 2017 Tax Act was enacted on December 22, 2017. The 2017 Tax Act is the most comprehensive tax change in more than 30 years. As of March 31, 2018, we have not completed our evaluation of the 2017 Tax Act; however, to the extent possible, we have made a reasonable estimate of its effects, including the impact of lower corporate income tax rates (21% vs. 35%) on our deferred tax assets and liabilities and the one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred.

The 2017 Tax Act is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementation regulations by the Treasury and Internal Revenue Service. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities. Accordingly, we have not yet been able to make a reasonable estimate of the impact of certain items and continue to account for those items based on the tax laws in effect prior to the 2017 Tax Act.

As further interpretations, clarifications and amendments to the 2017 Tax Act are made, our future financial statements could be materially impacted.

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

(Unaudited)

8. Fair Value Measurements

Assets Measured at Fair Value on a Recurring Basis

We utilize the market approach to measure fair value for our financial assets. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. Our 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 three months ended March 31, 2018.

Assets measured at fair value on a recurring basis are summarized below (in millions):



	Fair Value Measurements as of March 31, 2018
	Total		Level 1		Level 2		Level 3
Short-term investments ^(1) (2):
Money market funds	$	14	$	14	$	—	$	—
Corporate obligations	1,712		—		1,712		—
Bank notes/certificates of deposit/time deposits	2,843		—		2,843		—
Repurchase agreements	425		—		425		—
	4,994		14		4,980		—
Restricted cash and short-term investments ⁽¹⁾	294		164		130		—
Long-term investments ⁽³⁾	281		281		—		—
Total	$	5,569	$	459	$	5,110	$	—


⁽¹⁾	Unrealized gains or losses on short-term investments are recorded in accumulated other comprehensive loss at each measurement date.


⁽²⁾	All short-term investments are classified as available-for-sale and stated at fair value. Our short-term investments mature in one year or less except for $425 million of bank notes/certificates of deposit/time deposits and $145 million of corporate obligations.


⁽³⁾	Long-term investments primarily include our investment in China Southern Airlines Company Limited and are classified in other assets on our condensed consolidated balance sheets.

Fair Value of Debt

The fair value of our long-term debt was estimated using quoted market prices or discounted cash flow analyses, based on our current estimated incremental borrowing rates for similar types of borrowing arrangements. If our 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 our long-term debt, including current maturities, were as follows (in millions):



	March 31, 2018				December 31, 2017
	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, including current maturities	$	24,739	$	25,286	$	25,065	$	25,848

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

(Unaudited)

9. Employee Benefit Plans

The following table provides the components of net periodic benefit cost (income) (in millions):



	Pension Benefits						Retiree Medical and Other Postretirement Benefits
Three Months Ended March 31,	2018			2017			2018			2017
Service cost	$	1		$	1		$	1		$	1
Interest cost	169			180			9			10
Expected return on assets	(226		)	(197		)	(6		)	(5		)
Amortization of:
Prior service cost (benefit)	7			7			(59		)	(59		)
Unrecognized net loss (gain)	36			36			(5		)	(6		)
Net periodic benefit cost (income)	$	(13	)	$	27		$	(60	)	$	(59	)

Effective November 1, 2012, substantially all of our defined benefit pension plans were frozen.

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

During the first three months of 2018, we contributed $155 million to our defined benefit pension plans, including supplemental contributions of $116 million in addition to a $39 million minimum required contribution.

10. Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive income (loss) (AOCI) are as follows (in millions):



	Pension, Retiree Medical and Other Postretirement Benefits			Unrealized Gain (Loss) on Investments			Income Tax Benefit (Provision) ⁽¹⁾				Total
Balance at December 31, 2017	$	(4,523	)	$	(1	)	$	(630	)		$	(5,154	)
Other comprehensive loss before reclassifications	—			(2		)	—				(2		)
Amounts reclassified from AOCI	(21		)	—			5			(2)	(16		)
Net current-period other comprehensive income (loss)	(21		)	(2		)	5				(18		)
Balance at March 31, 2018	$	(4,544	)	$	(3	)	$	(625	)		$	(5,172	)


⁽¹⁾	Relates principally to pension, retiree medical and other postretirement benefits obligations that will not be recognized in net income until the obligations are fully extinguished.


⁽²⁾	Relates to pension, retiree medical and other postretirement benefits obligations and is recognized within the income tax provision on the condensed consolidated statement of operations.

Reclassifications out of AOCI are as follows (in millions):



	Amounts reclassified from AOCI						Affected line items on the condensed consolidated statements of operations
AOCI Components	Three Months Ended March 31,
AOCI Components	2018			2017
Amortization of pension, retiree medical and other postretirement benefits:
Prior service benefit	$	(40	)	$	(33	)	Nonoperating other income, net
Actuarial loss	24			19			Nonoperating other income, net
Total reclassifications for the period, net of tax	$	(16	)	$	(14	)

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

(Unaudited)

11. Regional Expenses

Expenses associated with American Eagle operations are classified as regional expenses on the condensed consolidated statements of operations. Regional expenses consist of the following (in millions):



	Three Months Ended March 31,
	2018		2017
Aircraft fuel and related taxes	$	398	$	318
Salaries, wages and benefits	383		345
Capacity purchases from third-party regional carriers	354		393
Maintenance, materials and repairs	80		69
Other rent and landing fees	147		152
Aircraft rent	9		9
Selling expenses	85		80
Depreciation and amortization	82		79
Special items, net	—		2
Other	160		126
Total regional expenses	$	1,698	$	1,573

12. Legal Proceedings

Chapter 11 Cases. On November 29, 2011, AMR, American, and certain of AMR’s other direct and indirect domestic subsidiaries (the Debtors) filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court). On October 21, 2013, the Bankruptcy Court entered an order approving and confirming the Debtors’ fourth amended joint plan of reorganization (as amended, the Plan). On the Effective Date, December 9, 2013, the Debtors consummated their reorganization pursuant to the Plan and completed the Merger.

Pursuant to rulings of the Bankruptcy Court, the Plan established the Disputed Claims Reserve to hold shares of AAG common stock reserved for issuance to disputed claimholders at the Effective Date that ultimately become holders of allowed claims. As of March 31, 2018, there were approximately 24.5 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. 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 stockholders.

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, postemployment benefits 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.

DOJ Antitrust Civil Investigative Demand. In June 2015, we received a Civil Investigative Demand (CID) from the United States Department of Justice (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.

Private Party Antitrust Action. 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, although Southwest has entered into a settlement with the plaintiffs that is pending approval by the court.

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

(Unaudited)

The U.S. lawsuits have been consolidated in the Federal District Court for the District of Columbia. On October 28, 2016, the Court denied a motion by the airline defendants to dismiss all claims in the class actions. We believe these lawsuits are without merit.

Private Party Antitrust Action Related to the Merger. On August 6, 2013, a lawsuit captioned Carolyn Fjord, et al., v. AMR Corporation, et al., was filed in the United States Bankruptcy Court for the Southern District of New York. The complaint named as defendants US Airways Group, US Airways, AMR and American, alleged that the effect of the Merger may be to create a monopoly in violation of Section 7 of the Clayton Antitrust Act, and sought injunctive relief and/or divestiture. On November 27, 2013, the Bankruptcy Court denied plaintiffs’ motion to preliminarily enjoin the Merger. On March 26, 2018, the Court held a hearing on motions for summary judgment filed by defendants and plaintiffs. The Court has not yet issued an order. We believe this lawsuit is without merit and intend to vigorously defend against the allegations.

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

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

13. Subsequent Events

Aircraft Purchase Commitments

In April 2018, American agreed with The Boeing Company (Boeing) to acquire an additional 47 Boeing 787 aircraft, consisting of 22 787-8 aircraft and 25 787-9 aircraft with deliveries scheduled to commence in 2020 and continue through 2026. American also has options to acquire an additional 14 Boeing 787 family aircraft in 2026 and 2027 plus, subject to satisfying certain conditions, options to acquire 14 more Boeing 787 family aircraft in 2027 and 2028. Boeing has committed to provide sale-leaseback financing (in the form of operating leases) for the 22 787-8 aircraft and backstop debt financing for the 25 787-9 aircraft. Additionally, American agreed with Boeing to defer the delivery of 40 737 MAX aircraft currently scheduled for delivery in 2020, 2021 and 2022. These aircraft are now scheduled to be delivered in 2025 and 2026.

Also, in April 2018, American and Airbus S.A.S. (Airbus) agreed to terminate the parties' A350 XWB purchase agreement and cancel the parties' obligations thereunder. American was scheduled to acquire 22 Airbus A350 aircraft with deliveries commencing in 2020 and continuing through 2024.

Share Repurchase Program and Dividend Declaration

In April 2018, we announced that our Board of Directors authorized a new $2.0 billion share repurchase program that expires on December 31, 2020. Share repurchases under our share 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. Our share repurchase programs do not obligate us to repurchase any specific number of shares and may be suspended at any time at our discretion.

Also, in April 2018, we announced that our Board of Directors declared a $0.10 per share dividend for stockholders of record as of May 8, 2018, and payable on May 22, 2018. Any future dividends that may be declared and paid from time to time will be subject to market and economic conditions, applicable legal requirements and other relevant factors. We are not obligated to continue a dividend for any fixed period, and the payment of dividends may be suspended at any time at our discretion.

ITEM 1B. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

AMERICAN AIRLINES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions)(Unaudited)



	Three Months Ended March 31,
	2018			2017
Operating revenues:
Passenger	$	9,480		$	8,997
Cargo	227			191
Other	691			629
Total operating revenues	10,398			9,817
Operating expenses:
Aircraft fuel and related taxes	1,763			1,402
Salaries, wages and benefits	3,014			2,857
Regional expenses	1,682			1,569
Maintenance, materials and repairs	469			492
Other rent and landing fees	462			440
Aircraft rent	304			295
Selling expenses	356			318
Depreciation and amortization	445			405
Special items, net	195			119
Other	1,261			1,180
Total operating expenses	9,951			9,077
Operating income	447			740
Nonoperating income (expense):
Interest income	73			49
Interest expense, net	(253		)	(241		)
Other income, net	82			33
Total nonoperating expense, net	(98		)	(159		)
Income before income taxes	349			581
Income tax provision	113			212
Net income	$	236		$	369

See accompanying notes to condensed consolidated financial statements.

AMERICAN AIRLINES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)(Unaudited)



	Three Months Ended March 31,
	2018			2017
Net income	$	236		$	369
Other comprehensive loss, net of tax:
Pension, retiree medical and other postretirement benefits	(16		)	(14		)
Investments	(2		)	—
Total other comprehensive loss, net of tax	(18		)	(14		)
Total comprehensive income	$	218		$	355

See accompanying notes to condensed consolidated financial statements.

AMERICAN AIRLINES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except shares and par value)



	March 31, 2018			December 31, 2017
	(Unaudited)
ASSETS
Current assets
Cash	$	283		$	287
Short-term investments	4,984			4,768
Restricted cash and short-term investments	294			318
Accounts receivable, net	1,865			1,755
Receivables from related parties, net	9,405			8,822
Aircraft fuel, spare parts and supplies, net	1,387			1,294
Prepaid expenses and other	820			647
Total current assets	19,038			17,891
Operating property and equipment
Flight equipment	40,340			39,993
Ground property and equipment	8,329			8,006
Equipment purchase deposits	1,230			1,217
Total property and equipment, at cost	49,899			49,216
Less accumulated depreciation and amortization	(15,860		)	(15,354		)
Total property and equipment, net	34,039			33,862
Other assets
Goodwill	4,091			4,091
Intangibles, net of accumulated amortization of $632 and $622, respectively	2,193			2,203
Deferred tax asset	1,757			2,071
Other assets	1,309			1,283
Total other assets	9,350			9,648
Total assets	$	62,427		$	61,401

LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities
Current maturities of long-term debt and capital leases	$	2,297		$	2,058
Accounts payable	1,884			1,625
Accrued salaries and wages	1,126			1,613
Air traffic liability	5,549			4,042
Loyalty program liability	3,176			3,121
Other accrued liabilities	2,266			2,209
Total current liabilities	16,298			14,668
Noncurrent liabilities
Long-term debt and capital leases, net of current maturities	20,669			21,236
Pension and postretirement benefits	7,214			7,452
Loyalty program liability	5,610			5,701
Other liabilities	2,429			2,456
Total noncurrent liabilities	35,922			36,845
Commitments and contingencies
Stockholder’s equity
Common stock, $1.00 par value; 1,000 shares authorized, issued and outstanding	—			—
Additional paid-in capital	16,740			16,716
Accumulated other comprehensive loss	(5,269		)	(5,251		)
Accumulated deficit	(1,264		)	(1,577		)
Total stockholder’s equity	10,207			9,888
Total liabilities and stockholder’s equity	$	62,427		$	61,401

See accompanying notes to condensed consolidated financial statements.

AMERICAN AIRLINES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)(Unaudited)



	Three Months Ended March 31,
	2018			2017
Net cash provided by operating activities	$	1,262		$	1,696
Cash flows from investing activities:
Capital expenditures and aircraft purchase deposits	(762		)	(1,695		)
Proceeds from sale of property and equipment and other investments	19			31
Purchases of short-term investments	(1,244		)	(1,920		)
Sales of short-term investments	1,029			1,660
Decrease in restricted short-term investments	24			74
Net cash used in investing activities	(934		)	(1,850		)
Cash flows from financing activities:
Proceeds from issuance of long-term debt	236			899
Payments on long-term debt and capital leases	(569		)	(686		)
Deferred financing costs	(1		)	(31		)
Other financing activities	2			4
Net cash provided by (used in) financing activities	(332		)	186
Net increase (decrease) in cash and restricted cash	(4		)	32
Cash and restricted cash at beginning of period	390			424
Cash and restricted cash at end of period ^(a)	$	386		$	456

Supplemental information:
Interest paid, net	246			243
Income taxes paid	3			4

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



Cash	$	283	$	363
Restricted cash included in restricted cash and short-term investments	103		93
Total cash and restricted cash	$	386	$	456

See accompanying notes to condensed consolidated financial statements.

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

(Unaudited)

1. Basis of Presentation and Recent Accounting Pronouncements

(a) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of American Airlines, Inc. (American) should be read in conjunction with the consolidated financial statements contained in American’s Annual Report on Form 10-K for the year ended December 31, 2017. American is the principal wholly-owned subsidiary of American Airlines Group Inc. (AAG). All significant intercompany transactions have been eliminated.

(b) Recent Accounting Pronouncements

Standards Effective for 2018 Reporting Periods

Effective January 1, 2018, American adopted the accounting pronouncements described below.

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

The New Revenue Standard applies to all companies that enter into contracts with customers to transfer goods or services. American adopted the New Revenue Standard using the full retrospective method, which resulted in the recast of prior reporting periods.

The adoption of the New Revenue Standard impacted American’s accounting for outstanding mileage credits earned through travel by AAdvantage loyalty program members. There was no change in accounting for sales of mileage credits to co-branded card or other partners. Prior to the adoption of the New Revenue Standard, American used the incremental cost method to account for the portion of its loyalty program liability related to mileage credits earned through travel, which were valued based on the estimated incremental cost of carrying one additional passenger. The New Revenue Standard required American to change its policy to the deferred revenue method and apply a relative selling price approach whereby a portion of each passenger ticket sale attributable to mileage credits earned is deferred and recognized in passenger revenue upon future mileage redemption. The value of the earned mileage credits is materially greater under the deferred revenue method than the value attributed to these mileage credits under the incremental cost method.

The New Revenue Standard also required certain reclassifications, principally the reclassification of certain ancillary revenues previously classified and reported as other revenue to passenger revenue and as applicable to cargo revenue. Additionally, the New Revenue Standard required a gross presentation on the face of American’s condensed consolidated statement of operations for certain revenues and expenses that had previously been presented on a net basis.

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

(Unaudited)

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

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

See recast condensed consolidated statement of operations data for the three months ended March 31, 2017 presented below for the effects of adoption.

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

This ASU made several modifications to Subtopic 825-10, including the elimination of the available-for-sale classification of equity investments, and it required equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income. This standard was adopted prospectively as of January 1, 2018 and resulted in a $77 million cumulative effect adjustment credit to retained earnings related to American's investment in China Southern Airlines Company Limited, which was previously accounted for under the cost method.

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

This ASU required that the change in total cash, cash at beginning of period and cash at end of period on the statement of cash flows include restricted cash and restricted cash equivalents and also requires companies who report cash and restricted cash separately on the balance sheet to reconcile those amounts to the statement of cash flows. This standard was applied retrospectively, which resulted in the recast of the prior reporting period in the statement of cash flows. For the three months ended March 31, 2018 and 2017, $103 million and $93 million, respectively, of restricted cash is included in the total of cash and restricted cash balance at the end of period. A reconciliation of cash and restricted cash from American's condensed consolidated statement of cash flows to the amounts reported within its condensed consolidated balance sheet is also included in a table below its condensed consolidated statement of cash flows.

Impacts to Prior Period Results

The effects of adoption of the New Revenue Standard and New Retirement Standard to American’s condensed consolidated statement of operations for the three months ended March 31, 2017 were as follows (in millions):



				New Revenue Standard					New Retirement Standard
	As Reported			Deferred Revenue Method		Reclassifications			Reclassifications			As Recast
Operating revenues:
Passenger	$	8,155		$	170	$	672		$	—		$	8,997
Cargo	172			—		19			—			191
Other	1,294			—		(665		)	—			629
Total operating revenues	9,621			170		26			—			9,817
Total operating expenses	9,017			—		26			34			9,077
Operating income	604			170		—			(34		)	740
Total nonoperating expense, net	(193		)	—		—			34			(159		)
Income before income taxes	411			170		—			—			581
Income tax provision	148			64		—			—			212
Net income	$	263		$	106	$	—		$	—		$	369

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

(Unaudited)

The effects of adoption of the New Revenue Standard to American’s December 31, 2017 consolidated balance sheet are as follows (in millions):



	As Reported		New Revenue Standard			As Recast
Deferred tax asset	$	682	$	1,389		$	2,071
Air traffic liability	3,978		64			4,042
Current loyalty program liability	2,791		330			3,121
Noncurrent loyalty program liability	—		5,701			5,701
Total stockholder’s equity (deficit)	14,594		(4,706		)	9,888

Standards Effective for 2019 Reporting Periods

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

The New Lease Standard requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet and aligns many of the underlying principles of the new lessor model with those in the New Revenue Standard. The New Lease Standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. American will adopt the New Lease Standard effective January 1, 2019. American is currently evaluating how the adoption of the New Lease Standard will impact its consolidated financial statements. Interpretations are on-going and could have a material impact on its implementation. Currently, American expects that the adoption of the New Lease Standard will have a material impact on its consolidated balance sheet due to the recognition of right-of-use assets and lease liabilities principally for certain leases currently accounted for as operating leases.

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

This ASU provides financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings due to the U.S. federal corporate income tax rate change as a result of H.R. 1, the 2017 Tax Cuts and Jobs Act (the 2017 Tax Act). The amount of the reclassification is the difference between the amount initially charged or credited directly to other comprehensive income at the previously enacted U.S. federal corporate income tax rate that remains in accumulated other comprehensive income and the amount that would have been charged or credited directly to other comprehensive income using the newly enacted U.S. federal corporate income tax rate, excluding the effect of any valuation allowance previously charged to income from continuing operations. This standard is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. American expects it will adopt this standard effective January 1, 2019. The adoption of the standard may impact tax amounts stranded in accumulated other comprehensive income related to American's pension and retiree medical and other postretirement benefit plans.

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

(Unaudited)

2. Special Items, Net

Special items, net on the condensed consolidated statements of operations consisted of the following (in millions):



	Three Months Ended March 31,
	2018		2017
Fleet restructuring expenses ⁽¹⁾	$	82	$	63
Merger integration expenses ⁽²⁾	59		63
Labor contract expenses	13		—
Other operating charges, net	41		(7		)
Mainline operating special items, net	195		119

Regional operating special items, net	—		2

Debt refinancing and extinguishment charges	—		5
Nonoperating special items, net	—		5

Income tax special items, net ⁽³⁾	30		—


⁽¹⁾	Fleet restructuring expenses principally included the acceleration of depreciation and impairments for aircraft and related equipment grounded or expected to be grounded earlier than planned.


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


⁽³⁾	Income tax special items included a $30 million charge to income tax expense to establish a required valuation allowance related to American's estimated refund for Alternative Minimum Tax (AMT) credits.

3. Revenue Recognition

(a) Revenue

Effective January 1, 2018, American adopted the New Revenue Standard using the full retrospective method, which resulted in the recast of prior reporting periods. See Recent Accounting Pronouncements in Note 1(b) above for effects of adoption on American's condensed consolidated statement of operations for the three months ended March 31, 2017 and on American's consolidated balance sheet as of December 31, 2017. Under the New Revenue Standard, revenue is recognized upon transfer of control of promised products or services to American's customers in an amount that reflects the consideration it expects to receive in exchange for those products or services.

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

(Unaudited)

The following are the significant categories comprising American's reported operating revenues (in millions):



	Three Months Ended March 31,
	2018		2017
Passenger revenue:
Passenger travel	$	8,630	$	8,195
Loyalty revenue - travel ⁽¹⁾	850		802
Total passenger revenue	9,480		8,997
Cargo	227		191
Other:
Loyalty revenue - marketing services	570		514
Other revenue	121		115
Total other revenue	691		629
Total operating revenues	$	10,398	$	9,817


⁽¹⁾	Loyalty revenue included in passenger revenue is principally comprised of mileage credit redemptions for air travel awards from mileage credits earned through travel and mileage credits sold to co-branded card and other partners. See discussion of Loyalty Revenue below.

The following is American's total passenger revenue by geographic region (in millions):



	Three Months Ended March 31,
	2018		2017
Domestic	$	6,963	$	6,781
Latin America	1,445		1,231
Atlantic	669		624
Pacific	403		361
Total passenger revenue	$	9,480	$	8,997

American attributes passenger revenue by geographic region based upon the origin and destination of each flight segment.

Passenger Revenue

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

The majority of tickets sold are nonrefundable. A small percentage of tickets, some of which are partially used tickets, expire unused. Due to complex pricing structures, refund and exchange policies, and interline agreements with other airlines, certain amounts are recognized in passenger revenue using estimates regarding both the timing of the revenue recognition and the amount of revenue to be recognized. These estimates are generally based on the analysis of American's historical data. American has consistently applied this accounting method to estimate revenue from forfeited tickets at the date of travel. Estimated future refunds and exchanges included in the air traffic liability are routinely evaluated based on subsequent activity to validate the accuracy of American's estimates. Any adjustments resulting from periodic evaluations of the estimated air traffic liability are included in passenger revenue during the period in which the evaluations are completed.

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

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

(Unaudited)

Loyalty Revenue

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

Mileage credits earned through travel

For mileage credits earned through travel, American applies a relative selling price approach whereby the total amount collected from each passenger ticket sale is allocated between the air transportation and the mileage credits earned. The portion of each passenger ticket sale attributable to mileage credits earned is initially deferred and then recognized in passenger revenue when mileage credits are redeemed and transportation is provided. The estimated selling price of mileage credits is determined using an equivalent ticket value approach which uses historical data, including award redemption patterns by geographic region and class of service as well as similar fares as those used to settle award redemptions. The estimated selling price of miles is adjusted for an estimate of miles that will not be redeemed based on historical redemption patterns.

Mileage credits sold to co-branded cards and other partners

American sells mileage credits to participating airline partners and non-airline business partners including American's co-branded card partners, under contracts with terms extending generally for one to nine years. Sales of mileage credits to non-airline business partners are comprised of two components, transportation and marketing. American allocates the consideration received from the sale of mileage credits based on the relative selling price of each product or service delivered.

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

For the portion of American's outstanding mileage credits that it estimates will not be redeemed, American recognizes the associated value proportionally as the remaining mileage credits are redeemed. American's estimates are based on analysis of historical redemptions.

Cargo Revenue

Cargo revenue is recognized when American provides the transportation.

Other Revenue

Other revenue includes revenue associated with American's loyalty program, which is comprised principally of the marketing component of mileage sales to co-branded card and other partners and other marketing related payments. For the three months ended March 31, 2018 and 2017, loyalty revenue included in other revenue was $570 million and $514 million, respectively. The accounting and recognition for the loyalty program marketing services are discussed above in Loyalty Revenue. The remaining amounts included within other revenue relate to airport clubs, advertising and vacation-related services.

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

(Unaudited)

(b) Contract Balances

American's significant contract liabilities are comprised of (1) outstanding loyalty program mileage credits that may be redeemed for future travel and other non-air travel awards, reported as loyalty program liability on American's condensed consolidated balance sheet and (2) ticket sales for transportation that has not yet been provided, reported as air traffic liability on American's condensed consolidated balance sheet.



	March 31, 2018		December 31, 2017
	(In millions)
Loyalty program liability	$	8,786	$	8,822
Air traffic liability	5,549		4,042
Total	$	14,335	$	12,864



Balance at December 31, 2017	$	8,822
Deferral of revenue	865
Recognition of revenue ⁽¹⁾	(901		)
Balance at March 31, 2018 ⁽²⁾	$	8,786


⁽¹⁾	Principally relates to revenue recognized from the redemption of mileage credits for both air and non-air travel awards. Mileage credits are combined in one homogenous pool and are not separately identifiable. As such, the revenue is comprised of miles that were part of the loyalty program deferred revenue balance at the beginning of the period as well as miles that were issued during the period.

⁽²⁾

Mileage credits can be redeemed at any time and do not expire as long as that AAdvantage member has any type of qualifying activity at least every 18 months. As of March 31, 2018, American's current loyalty program liability was $3.2 billion and represents American's current estimate of revenue expected to be recognized in the next twelve months based on historical trends, with the balance reflected in long-term loyalty program liability expected to be recognized as revenue in periods thereafter.

The air traffic liability principally represents tickets sold for future travel dates and estimated future refunds and exchanges of tickets sold for past travel dates. The balance in American's air traffic liability also fluctuates with seasonal travel patterns. The contract duration of passenger tickets is one year. Accordingly, any revenue associated with tickets sold for future travel dates will be recognized within twelve months. For the three months ended March 31, 2018, $2.1 billion of revenue was recognized in passenger revenue that was included in American's air traffic liability at December 31, 2017.

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

(Unaudited)

4. Debt

Long-term debt and capital lease obligations included in the condensed consolidated balance sheets consisted of (in millions):



	March 31, 2018		December 31, 2017
Secured
2013 Credit Facilities, variable interest rate of 3.88%, installments through 2020	$	1,825	$	1,825
2014 Credit Facilities, variable interest rate of 3.74%, installments through 2021	728		728
April 2016 Credit Facilities, variable interest rate of 3.88%, installments through 2023	990		990
December 2016 Credit Facilities, variable interest rate of 3.78%, installments through 2023	1,238		1,238
Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 3.00% to 9.75%, averaging 4.25%, maturing from 2018 to 2029	11,764		11,881
Equipment loans and other notes payable, fixed and variable interest rates ranging from 2.34% to 8.48%, averaging 3.70%, maturing from 2018 to 2029	5,062		5,259
Special facility revenue bonds, fixed interest rates ranging from 5.00% to 5.50%, maturing from 2018 to 2035	828		828
Other secured obligations, fixed interest rates ranging from 3.81% to 12.24%, maturing from 2021 to 2028	754		772
Total long-term debt and capital lease obligations	23,189		23,521
Less: Total unamortized debt discount, premium and issuance costs	223		227
Less: Current maturities	2,297		2,058
Long-term debt and capital lease obligations, net of current maturities	$	20,669	$	21,236

The table below shows the maximum availability under revolving credit facilities, all of which were undrawn, as of March 31, 2018 (in millions):



2013 Revolving Facility	$	1,200
2014 Revolving Facility	1,000
April 2016 Revolving Facility	300
Total	$	2,500

The December 2016 Credit Facilities provide for a revolving credit facility that may be established in the future.

2018 Aircraft Financing Activities

2017-2 EETCs

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

(Unaudited)

Certain information regarding the 2017-2 EETC equipment notes and the remaining escrowed proceeds of the 2017-2 EETCs, as of March 31, 2018, is set forth in the table below.



	2017-2 EETCs
	Series AA	Series A	Series B
Aggregate principal issued	$545 million	$252 million	$221 million
Remaining escrowed proceeds	$39 million	$18 million	$16 million
Fixed interest rate per annum	3.35%	3.60%	3.70%
Maturity date	October 2029	October 2029	October 2025

5. Income Taxes

At December 31, 2017, American had approximately $10.6 billion of federal net operating losses (NOLs) carried over from prior taxable years (NOL Carryforwards) to reduce future federal taxable income, substantially all of which, American expects to be available for use in 2018. American is a member of AAG’s consolidated federal and certain state income tax returns. The amount of federal NOL Carryforwards available in those returns is $10.0 billion, substantially all of which is expected to be available for use in 2018. The federal NOL Carryforwards will expire beginning in 2022 if unused. American also had approximately $3.2 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2017, which will expire in years 2018 through 2037 if unused.

At December 31, 2017, American had an AMT credit carryforward of approximately $452 million available for federal income tax purposes.

During the three months ended March 31, 2018, American recorded an income tax provision of $113 million, which was substantially non-cash as American utilized the NOLs described above. This provision included a $30 million special income tax charge to establish a required valuation allowance related to American's estimated refund for AMT credits, which is now subject to a sequestration reduction rate of approximately 6.6%. Substantially all of American’s income before income taxes is attributable to the United States.

The 2017 Tax Act was enacted on December 22, 2017. The 2017 Tax Act is the most comprehensive tax change in more than 30 years. As of March 31, 2018, American has not completed its evaluation of the 2017 Tax Act; however, to the extent possible, American has made a reasonable estimate of its effects, including the impact of lower corporate income tax rates (21% vs. 35%) on its deferred tax assets and liabilities and the one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred.

The 2017 Tax Act is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementation regulations by the Treasury and Internal Revenue Service. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities. Accordingly, American has not yet been able to make a reasonable estimate of the impact of certain items and continues to account for those items based on the tax laws in effect prior to the 2017 Tax Act.

As further interpretations, clarifications and amendments to the 2017 Tax Act are made, American's future financial statements could be materially impacted.

6. 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 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 three months ended March 31, 2018.

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

(Unaudited)

Assets measured at fair value on a recurring basis are summarized below (in millions):



	Fair Value Measurements as of March 31, 2018
	Total		Level 1		Level 2		Level 3
Short-term investments ^(1) (2):
Money market funds	$	4	$	4	$	—	$	—
Corporate obligations	1,712		—		1,712		—
Bank notes/certificates of deposit/time deposits	2,843		—		2,843		—
Repurchase agreements	425		—		425		—
	4,984		4		4,980		—
Restricted cash and short-term investments ⁽¹⁾	294		164		130		—
Long-term investments ⁽³⁾	281		281		—		—
Total	$	5,559	$	449	$	5,110	$	—


⁽¹⁾	Unrealized gains or losses on short-term investments are recorded in accumulated other comprehensive loss at each measurement date.


⁽²⁾	All short-term investments are classified as available-for-sale and stated at fair value. American’s short-term investments mature in one year or less except for $425 million of bank notes/certificates of deposit/time deposits and $145 million of corporate obligations.


⁽³⁾	Long-term investments primarily include American's investment in China Southern Airlines Company Limited and are classified in other assets on its condensed consolidated balance sheets.

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):



	March 31, 2018				December 31, 2017
	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, including current maturities	$	22,966	$	23,481	$	23,294	$	24,029

7. Employee Benefit Plans

The following table provides the components of net periodic benefit cost (income) (in millions):



	Pension Benefits						Retiree Medical and Other Postretirement Benefits
Three Months Ended March 31,	2018			2017			2018			2017
Service cost	$	1		$	—		$	1		$	1
Interest cost	168			180			9			10
Expected return on assets	(225		)	(196		)	(6		)	(5		)
Amortization of:
Prior service cost (benefit)	7			7			(59		)	(59		)
Unrecognized net loss (gain)	36			36			(5		)	(6		)
Net periodic benefit cost (income)	$	(13	)	$	27		$	(60	)	$	(59	)

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

(Unaudited)

Effective November 1, 2012, substantially all of American’s defined benefit pension plans were frozen.

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

During the first three months of 2018, American contributed $155 million to its defined benefit pension plans, including supplemental contributions of $116 million in addition to a $39 million minimum required contribution.

8. Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive income (loss) (AOCI) are as follows (in millions):

Pension, Retiree
Medical and
Other
Postretirement
Benefits

Unrealized Gain (Loss) on Investments

Income Tax
Benefit
(Provision) ⁽¹⁾

Total

Balance at December 31, 2017