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Item 7. Management’s Discussion and Analysis

2021-02-17 compared with 2020-02-19 · 390 added, 307 removed, 255 unchanged (73% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Together with our wholly-owned regional airline subsidiaries and third-party regional carriers operating as American Eagle, our airline operates an average of 6,800 flights per day to more than 365 destinations in 61 countries through our hubs and gateways in Charlotte, Chicago, Dallas/Fort Worth, London Heathrow, Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington, D.C.

In 2019 , approximately 215 million passengers boarded our flights.

2020 Financial Overview

Impact of Coronavirus (COVID-19)

COVID-19 has been declared a global health pandemic by the World Health Organization.

COVID-19 has surfaced in nearly all regions of the world, which has driven the implementation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, testing regimes, closing of borders, “stay at home” orders and business closures.

As a result, we have experienced an unprecedented decline in the demand for air travel, which has resulted in a material deterioration in our revenues.

While our business performed largely as expected in January and February of 2020, a severe reduction in air travel starting in March 2020 resulted in our total operating revenues decreasing approximately 62% in 2020 as compared to 2019.

While the length and severity of the reduction in demand due to the COVID-19 pandemic is uncertain, we expect our results of operations for 2021 to be severely impacted.

We have taken aggressive actions to mitigate the effects of the COVID-19 pandemic on our business including deep capacity reductions, structural changes to our fleet, cost reductions, and steps to preserve cash and improve our overall liquidity position.

We remain extremely focused on taking all self-help measures available to manage our business during this unprecedented time, consistent with the terms of the financial assistance we have received from the U.S.

Government under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and Subtitle A of Title IV of Division N of the Consolidated Appropriations Act, 2021 (PSP Extension Law).

Capacity Reductions

We have significantly reduced our capacity (as measured by available seat miles), with 2020 flying decreasing by 50% year-over-year.

Domestic capacity in 2020 was down 41% year-over-year while international capacity was down 68% year-over-year.

We also reset our international capacity and network for 2021 in response to the severe decline in demand.

We have exited 19 international routes from six hubs.

These changes will allow us to operate more efficiently when demand returns.

We currently expect our first quarter 2021 system capacity to decrease by 45% as compared to the first quarter of 2019.

The demand environment continues to be uncertain as COVID-19 cases have continued to fluctuate in jurisdictions to which we fly and travel restrictions have generally remained in place.

Due to this uncertainty, we will continue to adjust our future capacity to match observed booking trends for future travel and make further adjustments to our capacity as needed.

To better align our network with lower passenger demand, we accelerated the retirement of Airbus A330-200, Boeing 757, Boeing 767, Airbus A330-300 and Embraer 190 fleets as well as certain regional aircraft, including certain Embraer 140 and Bombardier CRJ200 aircraft.

These retirements remove complexity from our operation and bring forward cost savings and efficiencies associated with operating fewer aircraft types.

See Note 1(g) to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information on the accounting for our fleet retirements.

Due to the inherent uncertainties of the current operating environment, we will continue to evaluate our current fleet and may decide to permanently retire additional aircraft.

In addition, we have placed a number of Boeing 737-800 and certain regional aircraft into temporary storage.

Cost Reductions

We moved quickly to better align our costs with our reduced schedule.

In aggregate, we estimate that we reduced our 2020 operating and capital expenditures by more than $17 billion.

These savings were achieved primarily through capacity reductions.

In addition, we implemented a series of actions, including the accelerated fleet retirements discussed above as well as reductions in maintenance expense and $700 million in non-aircraft capital expenditures through less fleet modification work, the elimination of ground service equipment purchases and pausing non-critical facility investments and information technology projects.

We also suspended all non-essential hiring, paused non-contractual pay rate increases, reduced executive and board of director compensation, implemented voluntary leave and early retirement programs and decreased our management and support staff team, including officers, by approximately 30%.

In total, more than 20,000 team members have opted for an early retirement or long-term partially paid leave.

Additionally, we have made reductions in marketing, contractor, event and training expenses as well as consolidated space at airport facilities.

Due to the effects of the COVID-19 pandemic, we involuntarily furloughed certain team members starting October 1, 2020, and subsequently recalled the team members covered by the PSP2 financial assistance effective December 1, 2020 (see Note 18 to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information).

On February 5, 2021, we informed approximately 13,000 U.S.-based team members of the possibility of a workforce reduction at their work location.

We expect that any workforce reductions will take effect on or after April 1, 2021.

In connection with this notification, we announced the reopening of the voluntary early out and long-term leave of absence programs for team members of certain represented workgroups.

Eligible team members must opt in by February 26, 2021 for the early out program and March 12, 2021 for the voluntary leave program.

As of December 31, 2020, we had $14.3 billion in total available liquidity, consisting of $6.9 billion in unrestricted cash and short-term investments, $7.0 billion in an undrawn term loan facility under the CARES Act and a total of $446 million in undrawn short-term revolving and other facilities.

During 2020, we completed the following financing transactions (see Note 5 to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information):

• refinanced the $1.2 billion 2014 Term Loan Facility at a lower interest rate and extended the maturity from 2021 to 2027;

• issued $500 million in aggregate principal amount of 3.75% unsecured senior notes due 2025;

• raised $1.0 billion from the senior secured delayed draw term loan credit facility (Delayed Draw Term Loan Credit Facility);

• borrowed $750 million under the 2013 Revolving Facility, $1.6 billion under the 2014 Revolving Facility and $450 million under the April 2016 Revolving Facility;

• issued $1.0 billion in aggregate principal amount of 6.50% convertible senior notes due 2025;

• issued 85.2 million shares of AAG common stock at a price of $13.50 per share and 44.3 million shares of AAG common stock at a price of $12.975 per share pursuant to two underwritten public offerings of common stock for aggregate net proceeds of $1.7 billion;

• issued $2.5 billion in aggregate principal amount of 11.75% senior secured notes due 2025 and used the proceeds thereof, in part, to repay the $1.0 billion Delayed Draw Term Loan Credit Facility that we borrowed in March 2020;

• issued approximately $360 million in special facility revenue bonds, of which $47 million was used to fund the redemption of certain outstanding bonds;

• entered into a $7.5 billion secured term loan facility with the U.S.

Department of Treasury (Treasury) (the Treasury Loan Agreement), of which we borrowed $550 million;

• issued $1.2 billion in aggregate principal amount of two series of 10.75% senior secured notes due 2026 secured by various collateral;

• issued 68.6 million shares of AAG common stock at an average price of $12.87 per share pursuant to an at-the-market offering for net proceeds of $869 million (see Note 18 to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information);

• raised $665 million principally from aircraft sale-leaseback transactions as well as $351 million from asset sales primarily related to previously parked aircraft;

• received approximately $600 million of proceeds from enhanced equipment trust certificates (EETCs) and other aircraft and flight equipment financings, of which $17 million was used to repay existing indebtedness.

In addition to the foregoing financings, we received an aggregate of $6.0 billion in financial assistance through PSP1 established under the CARES Act, all of which was received by the end of September 2020.

In connection with our receipt of this financial assistance, AAG issued a promissory note (the PSP1 Promissory Note) to Treasury for $1.8 billion in aggregate principal amount and warrants to purchase up to an aggregate of approximately 14.1 million shares (the PSP1 Warrant Shares) of AAG common stock.

See Note 1(b) to AAG’s Consolidated Financial Statements in Part II, Item 8A for further discussion on PSP1.

In January 2021, we received $1.5 billion (of an expected total of at least $3.0 billion) in financial assistance through PSP2 established under the PSP Extension Law.

In connection with our receipt of this financial assistance, AAG issued a promissory note (the PSP2 Promissory Note) to Treasury for an initial principal sum of approximately $433 million and warrants to purchase up to an aggregate of approximately 2.8 million shares (the PSP2 Warrant Shares) of AAG common stock.

See Note 18 to AAG’s Consolidated Financial Statements in Part II, Item 8A for further discussion on PSP2.

Also, we are permitted to, and have, deferred payment of the employer portion of Social Security taxes through the end of 2020 (with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022).

This deferral provided approximately $350 million in additional liquidity during 2020.

Additionally, we have suspended our capital return program, including share repurchases and the payment of future dividends for at least the period that the restrictions imposed by the CARES Act and the PSP Extension Law are applicable.

We continue to evaluate future financing opportunities and work with third-party appraisers on valuations of our remaining unencumbered assets.

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

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

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

AAG’s 2020 Results

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

December 31, Increase

(Decrease) Percent

(In millions, except percentage changes)

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Total operating expenses 27,758 42,703 (14,945) (35.0)

Operating income

Pre-tax income

Income tax provision

Pre-tax income – GAAP

Operating income (loss) (10,421) 3,065 (13,486) nm (2)

Pre-tax income (loss) (11,453) 2,256 (13,709) nm

Income tax provision (benefit) (2,568) 570 (3,138) nm

Net income (loss) (8,885) 1,686 (10,571) nm

Pre-tax income (loss) – GAAP $ (11,453) $ 2,256 $ (13,709) nm

Adjusted for:

Pre-tax net special items (1)

Pre-tax income excluding net special items

(796) 644 (1,440) nm

Pre-tax income (loss) excluding net special items $ (12,249) $ 2,900 $ (15,149) nm

(1) See Part II, Item 6.

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

Pre-Tax Income and Net Income

Pre-tax income and net income were $2.3 billion and $1.7 billion in 2019 , respectively.

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

Pre-Tax Income (Loss) and Net Income (Loss)

Pre-tax loss and net loss were $11.5 billion and $8.9 billion, respectively, in 2020.

This compares to 2019 pre-tax income and net income of $2.3 billion and $1.7 billion, respectively.

Excluding the effects of pre-tax net special items, pre-tax income was $2.9 billion and $2.8 billion in 2019 and 2018 , respectively.

The year-over-year increase in our pre-tax income on both a GAAP basis and excluding pre-tax net special items was principally driven by higher revenues and lower fuel costs, offset in part by increases in salaries, wages and benefits, maintenance expenses and costs associated with increased regional capacity.

Fleet and Operation

Boeing 737 MAX

On March 13, 2019, a directive from the FAA grounded all U.S.-registered Boeing 737 MAX aircraft.

Our fleet currently includes 24 Boeing 737 MAX aircraft with an additional 76 aircraft on order.

As a result of this directive, we canceled approximately 27,600 flights in 2019.

We have removed all Boeing 737 MAX flying from our flight schedule through August 17, 2020 and continue to assess this timeline.

Our estimate of the financial damages incurred in 2019 due to the Boeing 737 MAX grounding and related cancellations was approximately $540 million.

As previously announced in January 2020, we reached a confidential agreement with Boeing on compensation related to financial damages incurred in 2019 due to the grounding of the Boeing 737 MAX aircraft.

The settlement did not have a material impact on 2019 earnings because we are accounting for substantially all of the compensation as a reduction in cost basis of grounded Boeing 737 MAX aircraft and certain future Boeing 737 MAX aircraft deliveries.

Our future aircraft purchase commitments in Note 12 to AAG’s Consolidated Financial Statements in Part II, Item 8A reflect the portion of the compensation we expect to receive in the future as Boeing 737 MAX aircraft are delivered.

These amounts reflect our best estimate in light of the uncertainty surrounding the timing of future Boeing 737 MAX aircraft deliveries.

Due to the impact of the Boeing 737 MAX grounding on our 2019 financial results, our Board of Directors authorized a discretionary portion of the settlement to be returned to team members through our 2019 profit-sharing program.

The profit-sharing award was based on our estimate of full-year 2019 financial damages for the Boeing 737 MAX grounding.

As a result, an additional accrual of approximately $30 million was made to our 2019 profit-sharing program.

We are pleased with the settlement agreement we reached for 2019, which was intended to address our financial damages incurred in 2019 due to the grounding of the Boeing 737 MAX aircraft.

However, the aircraft remain grounded and therefore we continue to incur financial damages in 2020.

We expect discussions to continue with Boeing for further compensation for these damages.

Operational Slowdown

In 2019, the TWU-IAM Association engaged in an illegal work slowdown in an effort to influence contract negotiations.

This slowdown significantly impacted our operation and caused a significant number of flight cancellations and delays in the second and third quarters of 2019.

Agreements in principle were reached on January 30, 2020 for JCBAs covering all of the workgroups represented by the TWU-IAM Association.

Those agreements are subject to membership ratification vote.

In 2019 , we reported total operating revenues of $45.8 billion , an increase of $1.2 billion , or 2.8 %, as compared to 2018 .

Passenger revenue was $42.0 billion , an increase of $1.3 billion , or 3.3 %, as compared to 2018 .

The increase in passenger revenue in 2019 was due to continued strength in passenger demand resulting in a 4.4 % increase in revenue passenger miles (RPMs) and a 2.6 point increase in passenger load factor.

Domestic passenger revenue per available seat mile (PRASM) increased 2.0 % as compared to 2018 .

Latin America was the best performing international region in 2019, with PRASM increasing 3.4 % followed by Pacific with PRASM increasing 3.1%, while Atlantic PRASM declined 1.5 % principally due to lower transfer payments related to our joint business arrangement and foreign currency effects.

In 2019 , cargo revenue was $863 million , a decrease of $150 million , or 14.8 %, as compared to 2018 , primarily due to a 14.4 % decrease in cargo ton miles reflecting declines in freight volumes, principally as a result of international schedule reductions.

Other operating revenue increase d $43 million , or 1.5 %, in 2019 as compared to 2018 , principally driven by higher revenue associated with our airport clubs and loyalty program.

Our total revenue per available seat mile (TRASM) was 16.05 cents in 2019 , a 1.7 % increase as compared to 15.79 cents in 2018 .

Our mainline and regional fuel expense totaled $9.4 billion in 2019 , which was $501 million , or 5.1 %, lower compared to 2018 .

This decrease was primarily driven by a 6.9 % decrease in the average price per gallon of fuel including related taxes to $2.07 in 2019 from $2.23 in 2018 , offset in part by a 2.0% increase in gallons of fuel consumed.

The year-over-year decrease in our pre-tax income was principally driven by lower revenues as a result of a severe decline in passenger demand and government travel restrictions related to the outbreak and spread of COVID-19.

This decline in revenues was offset in part by a decrease in expenses due to our reduced schedule and cost reduction actions described above.

Additionally, we recognized $796 million of net special credits in 2020 driven principally by the PSP1 financial assistance (the PSP1 Financial Assistance), offset in part by severance expenses and fleet impairment charges.

See Notes 1 and 2 to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information on the PSP1 Financial Assistance and net special items, respectively.

Excluding the effects of pre-tax net special items, pre-tax loss was $12.2 billion in 2020 and pre-tax income was $2.9 billion in 2019.

The year-over-year decrease in our pre-tax income excluding pre-tax net special items was principally driven by lower revenues and decreased expenses due to our reduced schedule and cost reduction actions as described above.

In 2020, we reported total operating revenues of $17.3 billion, a decrease of $28.4 billion, or 62.1%, as compared to 2019.

Passenger revenue was $14.5 billion, a decrease of $27.5 billion, or 65.4%, as compared to 2019.

The decrease in passenger revenue in 2020 was due to a severe decline in passenger demand and government travel restrictions related to the COVID-19 pandemic, resulting in a 61.9% decrease in revenue passenger miles (RPMs) and a 20.5 point decrease in passenger load factor.

In 2020, cargo revenue was $769 million, a decrease of $94 million, or 10.8%, as compared to 2019, primarily due to a 44.4% decrease in cargo ton miles reflecting declines in freight volumes, principally as a result of international schedule reductions, which was offset in part by a 60.5% increase in yield as a result of rate increases.

Other operating revenue decreased $845 million, or 29.2%, in 2020 as compared to 2019, driven primarily by lower revenue associated with our loyalty program and airport clubs.

Our total revenue per available seat mile (TRASM) was 12.11 cents in 2020, a 24.6% decrease as compared to 16.05 cents in 2019.

Our mainline and regional fuel expense totaled $3.4 billion in 2020, which was $6.0 billion, or 63.8%, lower compared to 2019.

This decrease was primarily driven by a 49.4% decrease in gallons of fuel consumed as a result of lower capacity and a 28.5% decrease in the average price per gallon of aircraft fuel including related taxes to $1.48 in 2020 from $2.07 in 2019.

As of December 31, 2020, we did not have any fuel hedging contracts outstanding to hedge our fuel consumption.

Our current policy is not to enter into transactions to hedge our fuel consumption, although we review that policy from time to time based on market conditions and other factors.

We do not currently view the market opportunities to hedge fuel prices as attractive because, among other things, our future fuel needs remain unclear due to uncertainties regarding air travel demand and any hedging would potentially require significant capital or collateral to be placed at risk.

As such, and assuming we do not enter into any future transactions to hedge our fuel consumption, we will continue to be fully exposed to fluctuations in fuel prices.

We remain committed to actively managing our cost structure, which we believe is necessary in an industry whose economic prospects are heavily dependent upon two variables we cannot control:

the health of the economy and the price of fuel.

general economic conditions and the price of fuel.

In particular, the COVID-19 pandemic has resulted in a very rapid deterioration in general economic conditions, particularly as applicable to the travel industry.

Our 2020 total cost per available seat mile (CASM) was 19.39 cents, an increase of 29.4%, from 14.98 cents in 2019.

Lower than planned capacity in 2020 due to decreased passenger demand and government travel restrictions related to the COVID-19 pandemic drove the increase in our CASM, offset in part by the PSP1 Financial Assistance recognized in 2020.

Our 2020 CASM excluding net special items and fuel was 17.69 cents, an increase of 54.4%, from 11.46 cents in 2019.

The increase was primarily driven by higher maintenance expenses, costs associated with increased regional capacity and lower than planned capacity in 2019 due to the Boeing 737 MAX grounding.

For a reconciliation of CASM excluding net special items and fuel, see Part II, Item 6.

The increase was primarily driven by lower capacity in 2020 as described above.

For a reconciliation of total operating CASM to total operating CASM excluding net special items and fuel, see Part II, Item 6.

Selected Consolidated Financial Data – “Reconciliation of GAAP to Non-GAAP Financial Measures.”

As of December 31, 2019 , we had approximately $7.0 billion in total available liquidity, consisting of $3.8 billion in unrestricted cash and short-term investments and $3.2 billion in undrawn capacity under our revolving credit facilities.

We also had restricted cash and short-term investments of $158 million .

During 2019 , we completed the following significant financing transactions:

raised $3.2 billion from enhanced equipment trust certificates (EETCs) and other aircraft and flight equipment financing, of which $1.3 billion was used to repay existing indebtedness;

issued $750 million in aggregate principal amount of 5.000% senior notes due 2022 (the 5.000% senior notes);

raised $850 million from aircraft sale-leaseback transactions;

extended the maturities on $2.8 billion of our revolving credit facility commitments by one year from 2023 to 2024, and due to uncertainty surrounding the timing of the Boeing 737 MAX aircraft return to service, entered into an additional $400 million short-term revolving line of credit.

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

Additionally, we returned $1.3 billion to our stockholders in 2019 , including the repurchase of $1.1 billion of our common stock, or 33.8 million shares, and quarterly dividend payments totaling $178 million .

Since our capital return program commenced in mid-2014, we have returned $13.6 billion to stockholders, including $12.4 billion in share repurchases, or 312.7 million shares, and $1.2 billion in quarterly dividend payments.

AAG’s Results of Operations

As discussed above, our results of operations for 2020 were significantly impacted by the COVID-19 pandemic.

As a result, the comparison of our 2020 operating statistics and financial results to 2019 are largely not meaningful.

Refer to the "2020 Financial Overview" above for discussion of our 2020 financial results and the impact of the COVID-19 pandemic on our business.

For a comparison of the 2019 to 2018 reporting periods, see Part II, Item 7.

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The table below sets forth selected operating data for the years ended December 31, 2020 and 2019.

Year Ended December 31,

Increase (Decrease)

Year Ended December 31, Increase (Decrease)

Revenue passenger miles (millions) (a)

91,825 241,252 (61.9)%

Available seat miles (millions) (b)

143,167 285,088 (49.8)%

Passenger load factor (percent) (c)

64.1 84.6 (20.5)pts

Yield (cents) (d)

15.81 17.41 (9.2)%

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

10.14 14.74 (31.2)%

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

12.11 16.05 (24.6)%

Aircraft at end of period (g)

1,399 1,547 (9.6)%

Fuel consumption (gallons in millions) 2,297 4,537 (49.4)%

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

1.48 2.07 (28.5)%

Full-time equivalent employees at end of period 102,700 133,700 (23.2)%

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

Revenue passenger mile (RPM) – A basic measure of sales volume.

19.39 14.98 29.4%

(a) Revenue passenger mile (RPM) – A basic measure of sales volume.

One RPM represents one passenger flown one mile.

Available seat mile (ASM) – A basic measure of production.

(b) Available seat mile (ASM) – A basic measure of production.

One ASM represents one seat flown one mile.

Passenger load factor – The percentage of available seats that are filled with revenue passengers.

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

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

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

Includes aircraft owned and leased by American as well as aircraft operated by third-party regional carriers under capacity purchase agreements.

Excludes 12 Embraer E140 regional aircraft that are in temporary storage.

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

Results of Operations – 2019 Compared to 2018

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

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

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

(g) Includes aircraft owned and leased by American as well as aircraft operated by third-party regional carriers under capacity purchase agreements.

Excludes 22 mainline and 27 regional aircraft that are in temporary storage as follows:

22 Boeing 737-800, 18 Embraer 140, seven Embraer 175 and two Embraer 145.

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

Operating Revenues

Year Ended December 31,

Decrease Percent

(In millions, except percentage changes)

Passenger $ 14,518 $ 42,010 $ (27,492) (65.4)

Cargo 769 863 (94) (10.8)

Other 2,050 2,895 (845) (29.2)

Total operating revenues $ 17,337 $ 45,768 $ (28,431) (62.1)

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

Increase (Decrease)

Year Ended December 31, 2018

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

Year Ended December 31, 2019

Year Ended December 31, 2020 Passenger

Revenue RPMs ASMs Load

Factor Passenger

(In millions)

Passenger revenue

Passenger revenue increase d $1.3 billion , or 3.3 %, in 2019 from 2018 due to continued strength in passenger demand resulting in a 4.4% increase in RPMs and a 2.6 point increase in passenger load factor.

Domestic PRASM increased 2.0% in 2019 as compared to 2018.

Latin America was the best performing international region in 2019 , with PRASM increasing 3.4% followed by Pacific with PRASM increasing 3.1%, while Atlantic PRASM declined 1.5% principally due to lower transfer payments related to our joint business arrangement and foreign currency effects.

Cargo revenue decrease d $150 million , or 14.8 %, in 2019 from 2018 primarily due to a 14.4 % decrease in cargo ton miles reflecting declines in international freight volumes, principally as a result of international schedule reductions.

Other operating revenue increased $43 million , or 1.5 %, in 2019 from 2018 primarily due to higher revenue associated with our airport clubs and loyalty program.

Total operating revenues in 2019 increase d $1.2 billion , or 2.8 %, from 2018 driven principally by a 3.3 % increase in passenger revenue as described above.

Our TRASM was 16.05 cents in 2019 , a 1.7 % increase as compared to 15.79 cents in 2018 .

Passenger revenue $ 14,518 (65.4)% (61.9)% (49.8)% (20.5)pts (9.2)% (31.2)%

Total operating revenues in 2020 decreased $28.4 billion, or 62.1%, from 2019, primarily due to a severe decline in passenger demand and government travel restrictions related to the COVID-19 pandemic.

Operating Expenses

Year Ended December 31,

Year Ended December 31, Increase

(Decrease) Percent

(In millions, except percentage changes)

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Depreciation and amortization 2,040 1,982 58 3.0

Mainline operating special items, net

Mainline operating special items, net (657) 635 (1,292) nm

Other 2,969 5,087 (2,118) (41.6)

Regional expenses:

Aircraft fuel and related taxes 821 1,869 (1,048) (56.1)

Other 4,071 5,632 (1,561) (27.7)

Total operating expenses $ 27,758 $ 42,703 $ (14,945) (35.0)

Total operating expenses increase d $818 million , or 2.0 %, in 2019 from 2018 .

See detailed explanations below relating to changes in total CASM.

We sometimes use financial measures that are derived from the consolidated financial statements but that are not presented in accordance with GAAP to understand and evaluate our current operating performance and to allow for period-to-period comparisons.

We believe these non-GAAP financial measures may also provide useful information to investors and others.

These non-GAAP measures may not be comparable to similarly titled non-GAAP measures of other companies, and should be considered in addition to, and not as a substitute for or superior to, any measure of performance,

cash flow or liquidity prepared in accordance with GAAP.

We are providing a reconciliation of reported non-GAAP financial measures to their comparable financial measures on a GAAP basis.

The table below presents the reconciliation of total operating expenses (GAAP measure) to total operating costs excluding net special items and fuel (non-GAAP measure).

Management uses total operating costs excluding net special items and fuel to evaluate our current operating performance and for period-to-period comparisons.

The price of fuel, over which we have no control, impacts the comparability of period-to-period financial performance.

The adjustment to exclude aircraft fuel and net special items allows management an additional tool to understand and analyze our non-fuel costs and core operating performance.

The major components of our total CASM and our total CASM excluding net special items and fuel for the years ended December 31, 2019 and 2018 are as follows (amounts may not recalculate due to rounding):

Year Ended December 31,

(In cents, except percentage changes)

Aircraft fuel and related taxes

Salaries, wages and benefits

Maintenance, materials and repairs

Other rent and landing fees

Aircraft rent

Selling expenses

Depreciation and amortization

Special items, net

Regional expenses:

Aircraft fuel and related taxes

Mainline operating special items, net

Aircraft fuel and related taxes

Aircraft fuel and related taxes - mainline

Aircraft fuel and related taxes - regional

Total CASM, excluding net special items and fuel

Significant changes in the components of total CASM are as follows:

Mainline aircraft fuel and related taxes per ASM decrease d 7.5% in 2019 as compared to 2018 primarily due to a 7.1 % decrease in the average price per gallon of fuel including related taxes to $2.05 in 2019 from $2.21 in 2018 .

Maintenance, materials and repairs per ASM increased 14.9 % in 2019 as compared to 2018 primarily due to a contract change that resulted in certain flight equipment transitioning to a flight hour based contract (referred to as power by the hour) whereby expense is incurred and recognized based on actual hours flown.

Previously, this flight equipment was covered by a time and materials based contract whereby expense is incurred and recognized as maintenance is performed.

An increase in the volume of airframe and engine overhauls performed under time and material based contracts as well as an increase in the volume of component part repairs also drove higher maintenance expenses in 2019.

Other rent and landing fees per ASM increased 7.0 % in 2019 as compared to 2018 primarily due to an expansion at DFW that became fully operational in May 2019 and rate increases at certain hub airports.

Depreciation and amortization per ASM increase d 6.6% in 2019 as compared to 2018 due in part to airport and other facility improvements and the harmonization of interior configurations across the mainline fleet.

Depreciation associated with aircraft acquired as part of our fleet renewal program also contributed to the increase.

Regional aircraft fuel and related taxes per ASM increase d 0.3% in 2019 as compared to 2018 primarily due to an 8.3 % increase in gallons of fuel consumed, offset in part by a 6.4 % decrease in the average price per gallon of fuel including related taxes to $2.15 in 2019 from $2.30 in 2018 .

Regional other operating expenses per ASM increased 5.3% in 2019 as compared to 2018 primarily driven by an 8.3 % increase in regional capacity, principally from our wholly-owned regional carriers.

Total operating expenses decreased $14.9 billion, or 35.0%, in 2020 from 2019 due to our reduced schedule and cost reduction actions as described in the "2020 Financial Overview" above.

Depreciation and amortization increased $58 million, or 3.0%, in 2020 from 2019 due in part to accelerated depreciation for certain aircraft and related equipment expected to be retired earlier than planned.

Depreciation associated with facility improvements also contributed to the increase.

Operating Special Items, Net

1 unchanged sentence

(In millions)

Fleet restructuring expenses (1)

PSP1 Financial Assistance (1)

$ (3,710) $ —

Fleet impairment (2)

Severance expenses (3)

Labor contract expenses (4)

Mark-to-market adjustments on bankruptcy obligations, net (5)

Fleet restructuring expenses (6)

Merger integration expenses (7)

Litigation reserve adjustments — (53)

Mark-to-market adjustments on bankruptcy obligations, net (4)

Other operating special items, net (18) 13

Mainline operating special items, net (657) 635

PSP1 Financial Assistance (1)

Fleet impairment (2)

Severance expenses (3)

Intangible asset impairment (6)

Labor contract expenses

Other operating charges, net

Total mainline operating special items, net

Other operating special items, net — 6

Regional operating special items, net (309) 6

Total operating special items, net

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

Fleet impairment principally includes a non-cash write-down of aircraft related to the planned retirement of our Embraer E190 fleet.

Operating special items, net $ (966) $ 641

(1) PSP1 Financial Assistance represents recognition of financial assistance received from Treasury pursuant to the PSP1 Agreement.

See Note 1(b) to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information.

(2) The 2020 fleet impairment resulted from our decision to retire certain aircraft earlier than planned driven by the severe decline in air travel due to the COVID-19 pandemic.

Aircraft retired include Airbus A330-200, Boeing 757, Boeing 767, Airbus A330-300, Embraer 190, certain Embraer 140 and Bombardier CRJ200 aircraft.

This included a $1.5 billion non-cash write-down of mainline and regional aircraft and spare parts and $109 million in cash charges primarily for impairment of right-of-use (ROU) assets and lease return costs.

See Note 1(g) to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information related to these charges.

The 2019 fleet impairment principally included a non-cash write-down of aircraft related to the retirement of our Embraer 190 fleet.

(3) The 2020 severance expenses included salary and medical costs primarily associated with certain team members who opted in to voluntary early retirement programs offered as a result of reductions to our operation due to the COVID-19 pandemic.

Cash payments related to these charges for the year ended December 31, 2020 were approximately $365 million.

The 2019 severance expenses primarily included costs associated with reductions of management and support staff team members.

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

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

(6) Fleet restructuring expenses principally included accelerated depreciation and rent expense for aircraft and related equipment expected to be retired earlier than planned.

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

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

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

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

Nonoperating Results

Year Ended December 31,

Year Ended December 31, Increase

(Decrease) Percent

(In millions, except percentage changes)

3 unchanged sentences

Total nonoperating expense, net $ (1,032) $ (809) $ (223) 27.5

Interest expense, net increased $39 million , or 3.7 % in 2019 as compared to 2018 , primarily due to lower capitalized interest.

In 2019 , other nonoperating income, net principally included $183 million of non-service related pension and other postretirement benefit plan income.

This income was offset in part by $32 million of net foreign currency losses principally associated with losses from Latin American currencies.

Interest income decreased in 2020 compared to 2019 primarily as a result of lower returns on our short-term investments.

Interest expense, net increased in 2020 compared to 2019 primarily due to the issuance of debt and lower capitalized interest offset in part by lower interest expense on our variable-rate debt.

In 2020, other nonoperating income, net included $329 million of non-service related pension and other postretirement benefit plan income.

This income was offset in part by $170 million of net special charges principally for mark-to-market unrealized losses associated with our equity investment in China Southern Airlines and certain treasury rate lock derivative instruments and $24 million of net foreign currency losses, primarily associated with losses from Latin American currencies.

In 2019, other nonoperating income, net principally included $183 million of non-service related pension and other postretirement benefit plan income.

This income was offset in part by a $104 million net special charge for mark-to-market unrealized losses primarily associated with our equity investment in China Southern Airlines and $55 million of net foreign currency losses from Latin American currencies.

The decrease in non-service related pension and other postretirement benefit plan income in 2019 as compared to 2018 is principally due to a decrease in the expected return on pension plan assets.

In 2019 , we recorded an income tax provision of $570 million at an effective rate of approximately 25% , which was substantially non-cash due to utilization of our net operating losses (NOLs).

Substantially all of our income before income taxes is attributable to the United States.

At December 31, 2019 , we had approximately $9.1 billion of federal NOLs and $3.0 billion of state NOLs, substantially all of which we expect to be available in 2020 to reduce future federal and state taxable income.

This income was offset in part by $32 million of net foreign currency losses, primarily associated with losses from Latin American currencies.

The increase in non-service related pension and other postretirement benefit plan income in 2020 as compared to 2019 is principally due to an increase in the expected return on pension plan assets.

In 2020, we recorded an income tax benefit of $2.6 billion at an effective rate of approximately 22%.

Substantially all of our income or loss before income taxes is attributable to the United States.

At December 31, 2020, we had approximately $16.5 billion of federal NOLs available to reduce future federal taxable income, of which $8.5 billion will expire beginning in 2023 if unused and $8.0 billion can be carried forward indefinitely.

We also had approximately $5.0 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2020, which will expire in taxable years 2020 through 2040 if unused.

In 2019, we recorded an income tax provision of $570 million at an effective rate of approximately 25%, which was substantially non-cash.

This provision included an $18 million special income tax charge related to an international income tax matter.

See Note 7 to AAG’s Consolidated Financial Statements in Part II, Item 8A for additional information on income taxes.

American’s Results of Operations

As discussed above, American’s results of operations for 2020 were significantly impacted by the COVID-19 pandemic.

As a result, the comparison of American’s 2020 financial results to 2019 are largely not meaningful.

Refer to the "2020 Financial Overview" above for discussion of American’s 2020 financial results and the impact of the COVID-19 pandemic on American’s business.

For a comparison of the 2019 to 2018 reporting periods, see Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations – “ American’s Results of Operations – 2019 Compared to 2018” of American’s 2019 Form 10-K.

Results of Operations – 2019 Compared to 2018

Operating Revenues

Year Ended December 31,

Year Ended December 31, Decrease Percent

(In millions, except percentage changes)

Passenger $ 14,518 $ 42,010 $ (27,492) (65.4)

Cargo 769 863 (94) (10.8)

Other 2,048 2,888 (840) (29.1)

Total operating revenues $ 17,335 $ 45,761 $ (28,426) (62.1)

Passenger revenue increase d $1.3 billion , or 3.3% , in 2019 from 2018 due to continued strength in passenger demand resulting in an increase in RPMs and a year-over-year increase in passenger load factor.

Domestic PRASM increased in 2019 as compared to 2018.

Latin America PRASM was the best performing international region in 2019 , followed by Pacific PRASM, while Atlantic PRASM declined principally due to lower transfer payments related to American’s joint business arrangement and foreign currency effects.

Cargo revenue decrease d $150 million , or 14.8 %, in 2019 from 2018 primarily due to a decrease in cargo ton miles reflecting declines in international freight volumes, principally as a result of international schedule reductions.

Other operating revenue increased $47 million , or 1.7 % in 2019 from 2018 primarily due to higher revenue associated with American’s airport clubs and loyalty program.

Total operating revenues in 2019 increase d $1.2 billion , or 2.8 %, from 2018 driven principally by a 3.3% increase in passenger revenue as described above.

Operating Expenses

December 31, Increase

(Decrease) Percent

(In millions, except percentage changes)

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Depreciation and amortization 2,040 1,982 58 3.0

Mainline operating special items, net

Mainline operating special items, net (657) 635 (1,292) nm

Other 2,991 5,090 (2,099) (41.3)

Regional expenses:

Aircraft fuel and related taxes 821 1,869 (1,048) (56.1)

Other 3,855 5,649 (1,794) (31.8)

Total operating expenses $ 27,559 $ 42,714 $ (15,155) (35.5)

Total operating expenses increase d $907 million , or 2.2% , in 2019 from 2018 .

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

Mainline aircraft fuel and related taxes decrease d 6.5 % in 2019 as compared to 2018 primarily due to a 7.1 % decrease in the average price per gallon of fuel including related taxes to $2.05 in 2019 from $2.21 in 2018 .

Maintenance, materials and repairs increased 16.1 % in 2019 as compared to 2018 primarily due to a contract change that resulted in certain flight equipment transitioning to a flight hour based contract (referred to as power by the hour) whereby expense is incurred and recognized based on actual hours flown.

Previously, this flight equipment was covered by a time and materials based contract whereby expense is incurred and recognized as maintenance is performed.

Other rent and landing fees increase d 8.2 % in 2019 as compared to 2018 primarily due to an expansion at DFW that became fully operational in May 2019 and rate increases at certain hub airports.

Depreciation and amortization increase d 7.7 % in 2019 as compared to 2018 due in part to airport and other facility improvements and the harmonization of interior configurations across the mainline fleet.

Depreciation associated with aircraft acquired as part of American’s fleet renewal program also contributed to the increase.

Regional aircraft fuel and related taxes increase d 1.4 % in 2019 as compared to 2018 primarily due to an 8.3% increase in gallons of fuel consumed, offset in part by a 6.4% decrease in the average price per gallon of fuel including related taxes to $2.15 in 2019 from $2.30 in 2018 .

Regional other operating expenses increase d 8.2 % in 2019 as compared to 2018 primarily driven by an increase in regional capacity.

Total operating expenses decreased $15.2 billion, or 35.5%, in 2020 from 2019 due to American's reduced schedule and cost reduction actions as described in the "2020 Financial Overview" above.

Depreciation associated with facility improvements also contributed to the increase.

Operating Special Items, Net

1 unchanged sentence

(In millions)

Fleet restructuring expenses (1)

PSP1 Financial Assistance (1)

$ (3,710) $ —

Fleet impairment (2)

Merger integration expenses (3)

Litigation reserve adjustments

Mark-to-market adjustments on bankruptcy obligations, net (4)

Severance expenses (3)

Intangible asset impairment (6)

Labor contract expenses (4)

Other operating charges, net

Total mainline operating special items, net

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

Fleet impairment principally includes a non-cash write-down of aircraft related to the planned retirement of American's Embraer E190 fleet.

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

Mark-to-market adjustments on bankruptcy obligations, net (5)

Fleet restructuring expenses (6)

Merger integration expenses (7)

Litigation reserve adjustments — (53)

Other operating special items, net (18) 13

Mainline operating special items, net (657) 635

PSP1 Financial Assistance (1)

Fleet impairment (2)

Regional operating special items, net (338) —

Operating special items, net $ (995) $ 635

(1) PSP1 Financial Assistance represents recognition of financial assistance received from Treasury pursuant to the PSP1 Agreement.

See Note 1(b) to American’s Consolidated Financial Statements in Part II, Item 8B for further information.

(2) The 2020 fleet impairment resulted from American's decision to retire certain aircraft earlier than planned driven by the severe decline in air travel due to the COVID-19 pandemic.

Aircraft retired include Airbus A330-200, Boeing 757, Boeing 767, Airbus A330-300, Embraer 190, certain Embraer 140 and Bombardier CRJ200 aircraft.

This included a $1.5 billion non-cash write-down of mainline and regional aircraft and spare parts and $109 million in cash charges primarily for impairment of ROU assets and lease return costs.

See Note 1(g) to American’s Consolidated Financial Statements in Part II, Item 8B for further information related to these charges.

The 2019 fleet impairment principally included a non-cash write-down of aircraft related to the retirement of American’s Embraer 190 fleet.

Cash payments related to these charges for the year ended December 31, 2020 were approximately $365 million.

The 2019 severance expenses primarily included costs associated with reductions of management and support staff team members.

(4) Labor contract expenses primarily related to one-time charges resulting from the ratification of a new contract with the TWU-IAM Association for American's maintenance and fleet service team members, including signing bonuses and adjustments to vacation accruals resulting from pay rate increases.

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

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

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

(6) Fleet restructuring expenses principally included accelerated depreciation and rent expense for aircraft and related equipment expected to be retired earlier than planned.

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

Nonoperating Results

December 31, Increase

(Decrease) Percent

(In millions, except percentage changes)

3 unchanged sentences

Total nonoperating expense, net $ (679) $ (442) $ (237) 53.7

Interest income increase d $185 million , or 56.1 %, due to higher interest-bearing related party receivables from American’s parent company, AAG in 2019 as compared to 2018 .

Interest expense, net increase d $81 million , or 7.8 %, in 2019 as compared to 2018 , primarily due to higher-interest bearing related party payables to other AAG subsidiaries and lower capitalized interest .

In 2019 , other nonoperating income, net principally included $183 million of non-service related pension and other postretirement benefit plan income.

This income was offset in part by $32 million of net foreign currency losses principally associated with losses from Latin American currencies.

Interest income decreased in 2020 compared to 2019 primarily as a result of lower returns on American's short-term investments and lower interest-bearing related party receivables from American's parent company, AAG.

Interest expense, net increased in 2020 compared to 2019 primarily due to the issuance of debt and lower capitalized interest offset in part by lower interest expense on American's variable-rate debt .

In 2020, other nonoperating income, net included $329 million of non-service related pension and other postretirement benefit plan income.

This income was offset in part by $170 million of net special charges principally for mark-to-market unrealized losses associated with American’s equity investment in China Southern Airlines and certain treasury rate lock derivative instruments and $24 million of net foreign currency losses, primarily associated with losses from Latin American currencies.

In 2019, other nonoperating income, net principally included $183 million of non-service related pension and other postretirement benefit plan income.

This income was offset in part by a $104 million net special charge for mark-to-market unrealized losses primarily associated with American’s equity investment in China Southern Airlines and $54 million of net foreign currency losses from Latin American currencies.

The decrease in non-service related pension and other postretirement benefit plan income in 2019 as compared to 2018 is principally due to a decrease in the expected return on pension plan assets.

American is part of the AAG consolidated income tax return.

In 2019 , American recorded an income tax provision of $633 million at an effective rate of approximately 24% , which was substantially non-cash due to utilization of its NOLs.

Substantially all of American’s income before income taxes is attributable to the United States.

At December 31, 2019 , American had approximately $9.2 billion of federal NOLs and $2.9 billion of state NOLs, substantially all of which American expects to be available in 2020 to reduce future federal and state taxable income.

This income was offset in part by $32 million of net foreign currency losses, primarily associated with losses from Latin American currencies.

The increase in non-service related pension and other postretirement benefit plan income in 2020 as compared to 2019 is principally due to an increase in the expected return on pension plan assets.

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

In 2020, American recorded an income tax benefit of $2.5 billion at an effective rate of approximately 22%.

Substantially all of American’s income or loss before income taxes is attributable to the United States.

At December 31, 2020, American had approximately $16.5 billion of federal NOLs available to reduce future federal taxable income, of which $8.9 billion will expire beginning in 2023 if unused and $7.6 billion can be carried forward indefinitely.

American also had approximately $5.0 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2020, which will expire in taxable years 2020 through 2040 if unused.

In 2019, American recorded an income tax provision of $633 million at an effective rate of approximately 24%, which was substantially non-cash.

This provision included an $18 million special income tax charge related to an international income tax matter.

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

Liquidity and Capital Resources

As of December 31, 2019 , AAG had approximately $7.0 billion in total available liquidity and $158 million in restricted cash and short-term investments.

At December 31, 2020, AAG had $14.3 billion in total available liquidity and $609 million in restricted cash and short-term investments.

Additional detail regarding our available liquidity is provided in the table below (in millions):

December 31, December 31,

2020 2019 2020 2019

Cash $ 245 $ 280 $ 231 $ 267

Short-term investments 6,619 3,546 6,617 3,543

Undrawn revolving credit facilities (1)

Undrawn facilities 7,396 3,243 7,396 3,243

Total available liquidity $ 14,260 $ 7,069 $ 14,244 $ 7,053

For 2019, this amount includes $400 million in borrowing capacity under a short-term revolving line of credit we arranged in December 2019 due to uncertainty surrounding the timing of the Boeing 737 MAX aircraft return to service.

We have no present intention to borrow any amounts under this facility, which matures in September 2020 with an optional extension to December 2020.

For additional discussion of this facility see Note 5 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 3 to American’s Consolidated Financial Statements in Part II, Item 8B.

Share Repurchase Programs

In April 2018, we announced that our Board of Directors authorized a $2.0 billion share repurchase program that will expire on December 31, 2020.

Since July 2014, our Board of Directors has approved seven share repurchase programs aggregating $13.0 billion of authority.

As of December 31, 2019 , there was $565 million of remaining authority to repurchase shares under our current $2.0 billion share repurchase program.

Share repurchases under our repurchase programs may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades or accelerated share repurchase transactions.

Any such repurchases that may be made from time to time will be subject to market and economic conditions, applicable legal requirements and other relevant factors.

We are not obligated to repurchase any specific number of shares and our repurchase of AAG common stock may be limited, suspended or discontinued at any time at our discretion and without prior notice.

In 2019 , we repurchased 33.8 million shares of AAG common stock for $1.1 billion at a weighted average cost per share of $32.09 .

Since the inception of our share repurchase programs in July 2014 through December 31, 2019, we have repurchased 312.7 million shares of AAG common stock for $12.4 billion at a weighted average cost per share of $39.76 .

Cash Dividends

Our Board of Directors declared the following cash dividends during 2019 :

For stockholders of record as of

First Quarter

February 6, 2019

February 20, 2019

Second Quarter

Third Quarter

August 7, 2019

August 21, 2019

Fourth Quarter

November 6, 2019

November 20, 2019

In January 2020 , we announced that our Board of Directors declared a $0.10 per share cash dividend for stockholders of record on February 5, 2020 , and payable on February 19, 2020 .

Any future dividends that may be declared and paid from time to time will be subject to market and economic conditions, applicable legal requirements and other relevant factors.

We are not obligated to continue a dividend for any fixed period, and the payment of dividends may be suspended or discontinued at any time at our discretion and without prior notice.

Collateral-Related Covenants

Certain of our debt financing agreements (including our term loans, revolving credit facilities and spare engine EETCs) contain loan to value ratio covenants and require us to appraise the related collateral annually.

Pursuant to such agreements, if the loan to value ratio exceeds a specified threshold or the value of the appraised collateral fails to meet a specified threshold, as the case may be, we are required, as applicable, to pledge additional qualifying collateral (which in some cases may include cash or investment securities), or pay down such financing, in whole or in part.

As of December 31, 2019 , we were in compliance with the foregoing collateral coverage tests as of the most recent applicable measurement dates.

For further information regarding our collateral-related covenants, see Note 5 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 3 to American’s Consolidated Financial Statements in Part II, Item 8B.

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

Share Repurchase Programs and Cash Dividends

In 2020, we repurchased 6.4 million shares of AAG common stock for $145 million at a weighted average cost per share of $22.77, all of which were purchased in the first quarter of 2020.

In January 2020, our Board of Directors declared a cash dividend of $0.10 per share for stockholders of record as of February 5, 2020 and paid on February 19, 2020, totaling $43 million.

We have suspended our capital return program, including share repurchases and the payment of future dividends.

In connection with our receipt of financial assistance under PSP1 and PSP2, we agreed not to repurchase shares of or make dividend payments in respect of AAG common stock through at least March 31, 2022.

In addition, we have entered into the Treasury Loan Agreement, and, as a result, we are further prohibited from repurchasing shares of AAG common stock and paying dividends on AAG common stock through the date that is one year after the secured loan provided under the Treasury Loan Agreement is fully repaid.

Certain Covenants

Certain of our debt financing agreements (including our secured notes, term loans, revolving credit facilities and spare engine EETCs) contain loan to value (LTV) or collateral coverage ratio covenants and require us to appraise the related collateral annually or semiannually.

Pursuant to such agreements, if the LTV or collateral coverage ratio exceeds a specified threshold or if the value of the appraised collateral fails to meet a specified threshold, as the case may be, we are required, as applicable, to pledge additional qualifying collateral (which in some cases may include cash or investment securities), or pay down such financing, in whole or in part, or the interest rate for the financing under such agreements will be increased.

As of the most recent applicable measurement dates, we were in compliance with each of the foregoing collateral coverage tests.

Additionally, a significant portion of our debt financing agreements contain covenants requiring us to maintain an aggregate of at least $2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities, and our Treasury Term Loan Facility contains a debt service coverage ratio, pursuant to which failure to comply with a certain threshold may result in mandatory prepayment of the Treasury Term Loan Facility.

For further information regarding our debt covenants, see Note 5 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 3 to American’s Consolidated Financial Statements in Part II, Item 8B.

Sources and Uses of Cash

1 unchanged sentence

Management’s Discussion and Analysis of Financial Condition and Results of Operations – “ Sources and Uses of Cash” of our 2019 Form 10-K.

2019 Compared to 2018

Operating Activities

Our net cash provided by operating activities was $3.8 billion and $3.5 billion in 2019 and 2018 , respectively, a year-over-year increase of $282 million .

This increase in operating cash flows was primarily due to higher profitability in 2019 as well as working capital increases principally in our air traffic liability and loyalty program deferred revenue.

These increases were offset in part by higher contributions to our defined benefit pension plans in 2019 as compared to 2018 .

Our net cash used in operating activities was $6.5 billion in 2020 as compared to net cash provided by operating activities of $3.8 billion in 2019.

The $10.4 billion year-over-year decrease in operating cash flows was primarily due to a net loss in 2020.

The net loss was driven by lower revenues as a result of a severe decline in passenger demand and government travel restrictions related to the outbreak and spread of COVID-19, offset in part by a decrease in expenses due to our reduced schedule and cost reduction actions.

Additionally, we received cash proceeds of $4.2 billion in 2020 associated with the PSP1 Financial Assistance.

In 2020, we also recorded a $1.4 billion special charge for salary and medical costs primarily associated with certain team members who opted in to voluntary early retirement programs.

Approximately $365 million of this charge has been paid to team members in 2020.

We expect cash payments under these programs of approximately $600 million in 2021 with the remaining payments in 2022 and beyond.

Investing Activities

Our net cash used in investing activities was $4.3 billion and $2.2 billion in 2020 and 2019, respectively.

Our principal investing activities in 2019 included expenditures of $4.3 billion for property and equipment, including 21 Embraer E175 aircraft, 12 Bombardier CRJ900 aircraft, 12 Airbus A321neo aircraft, four Boeing 737 MAX aircraft and two Boeing 787 Family aircraft.

These cash outflows were offset in part by $960 million in net sales of short-term investments, $850 million of proceeds from aircraft sale-leaseback transactions and $250 million in proceeds from a vendor.

Our principal investing activities in 2018 included expenditures of $3.7 billion for property and equipment, including 16 Boeing 737 MAX aircraft, six Boeing 787 family aircraft and five Embraer E175 aircraft.

These cash outflows were offset in part by $1.1 billion of proceeds from aircraft sale-leaseback transactions and $293 million in net sales of short-term investments.

Our principal investing activities in 2020 included $3.1 billion in net purchases of short-term investments, expenditures of $2.0 billion for property and equipment, including 16 Airbus A321neo aircraft, eight Embraer 175 aircraft, three Bombardier CRJ900 aircraft and the harmonization of interior configurations across the mainline fleet as well as a $308 million increase in restricted short-term investments primarily related to cash proceeds from special facility revenue bonds.

These cash outflows were offset in part by $665 million of proceeds primarily from aircraft sale-leaseback transactions, $351 million of proceeds from the sale of property and equipment and $90 million of proceeds from a vendor.

Our principal investing activities in 2019 included expenditures of $4.3 billion for property and equipment, including 21 Embraer 175 aircraft, 12 Bombardier CRJ900 aircraft, 12 Airbus A321neo aircraft, four Boeing 737 MAX Family aircraft and two Boeing 787 Family aircraft.

These cash outflows were offset in part by $960 million in net sales of short-term investments, $850 million of proceeds primarily from aircraft sale-leaseback transactions and $250 million in proceeds from a vendor.

Financing Activities

Our net cash used in financing activities was $1.6 billion and $1.7 billion in 2019 and 2018 , respectively.

Our net cash provided by financing activities was $11.0 billion in 2020 as compared to net cash used in financing activities of $1.6 billion in 2019.

Our principal financing activities in 2020 included $11.8 billion in proceeds from the issuance of debt and $3.0 billion in proceeds from the issuance of equity.

These proceeds principally include $2.8 billion borrowed under the 2014 Revolving Facility, the 2013 Revolving Facility and the April 2016 Revolving Facility, $2.5 billion in aggregate principal amount of 11.75% senior secured notes, $1.8 billion in aggregate principal amount under the PSP1 Promissory Note, $1.2 billion in aggregate principal amount of two series of 10.75% senior secured notes due 2026, $1.0 billion in aggregate principal amount of AAG’s 6.50% convertible senior notes, $1.0 billion under the Delayed Draw Term Loan Credit Facility, $600 million in connection with the issuance of equipment notes related to EETCs and the financing of certain aircraft, $550 million under the Treasury Term Loan Facility, $500 million in aggregate principal amount of 3.75% unsecured senior notes due 2025 and the $360 million issuance of special facility revenue bonds as well as $1.7 billion of net proceeds from two underwritten public offerings of common stock and $869 million of net proceeds from an at-the-market offering of common stock.

These cash inflows were offset in part by $3.5 billion in debt repayments, consisting of approximately $2.5 billion in scheduled debt repayments, including repayment of $500 million of 4.625% senior notes, and the prepayment of the $1.0 billion Delayed Draw Term Loan Credit Facility, as well as $216 million in share repurchases and dividend payments (which occurred in the first quarter of 2020).

Our principal financing activities in 2019 included $4.2 billion in debt repayments, consisting of $2.9 billion in scheduled debt repayments and the prepayment of $1.3 billion of secured loans.

1 unchanged sentence

These cash outflows were offset in part by $4.0 billion in proceeds from the issuance of debt, consisting of $3.2 billion in connection with the issuance of equipment notes related to EETCs and the financing of certain aircraft and other flight equipment, as well as the issuance of $750 million aggregate principal amount of 5.000% senior notes.

Our principal financing activities in 2018 included $2.9 billion in debt repayments, consisting of $2.4 billion in scheduled debt repayments and the prepayment of $513 million of secured loans.

We also had $837 million in share repurchases and $186 million in dividend payments.

These cash outflows were offset in part by $2.4 billion in proceeds from the issuance of debt, consisting of $1.9 billion in connection with the issuance of equipment notes related to EETCs and the financing of certain aircraft and pre-delivery purchase deposits, as well as an incremental $500 million on a term loan facility.

2019 Compared to 2018

Operating Activities

American’s net cash provided by operating activities was $2.4 billion and $1.9 billion in 2019 and 2018 , respectively, a year-over-year increase of $486 million .

This increase in operating cash flows was primarily due to higher profitability in 2019 as well as working capital increases principally in American's air traffic liability and loyalty program deferred revenue.

These increases were offset in part by higher contributions to American's defined benefit pension plans in 2019 as compared to 2018 .

American’s net cash used in operating activities was $1.4 billion in 2020 as compared to net cash provided by operating activities of $2.4 billion in 2019.

The $3.9 billion year-over-year decrease in operating cash flows was primarily due to a net loss in 2020, offset in part by intercompany cash receipts from AAG's financing transactions.

Additionally, American received cash proceeds of $3.7 billion in 2020 associated with the PSP1 Financial Assistance.

In 2020, American also recorded a $1.4 billion special charge for salary and medical costs primarily associated with certain team members who opted in to voluntary early retirement programs.

Approximately $365 million of this charge has been paid to team members in 2020.

American expects cash payments under these programs of approximately $600 million in 2021 with the remaining payments in 2022 and beyond.

Investing Activities

American’s net cash used in investing activities was $4.3 billion and $2.1 billion in 2020 and 2019, respectively.

American’s principal investing activities in 2019 included expenditures of $4.2 billion for property and equipment, including 21 Embraer E175 aircraft, 12 Bombardier CRJ900 aircraft, 12 Airbus A321neo aircraft, four Boeing 737 MAX aircraft and two Boeing 787 Family aircraft.

American’s principal investing activities in 2018 included expenditures of $3.7 billion for property and equipment, including 16 Boeing 737 MAX aircraft, six Boeing 787 family aircraft and five Embraer E175 aircraft.

These cash outflows were offset in part by $1.1 billion of proceeds from aircraft sale-leaseback transactions and $293 million in net sales of short-term investments.

American’s principal investing activities in 2020 included $3.1 billion in net purchases of short-term investments, expenditures of $1.9 billion for property and equipment, including 16 Airbus A321neo aircraft, eight Embraer 175 aircraft, three Bombardier CRJ900 aircraft and the harmonization of interior configurations across the mainline fleet as well as a $308 million increase in restricted short-term investments primarily related to cash proceeds from special facility revenue bonds.

American’s principal investing activities in 2019 included expenditures of $4.2 billion for property and equipment, including 21 Embraer 175 aircraft, 12 Bombardier CRJ900 aircraft, 12 Airbus A321neo aircraft, four Boeing 737 MAX Family aircraft and two Boeing 787 Family aircraft.

Financing Activities

American’s net cash used in financing activities was $282 million and $147 million in 2019 and 2018 , respectively.

American’s net cash provided by financing activities was $5.8 billion in 2020 as compared to net cash used in financing activities of $282 million in 2019.

American’s principal financing activities in 2020 included $9.0 billion in proceeds from the issuance of debt, including $2.8 billion borrowed under the 2014 Revolving Facility, the 2013 Revolving Facility and the April 2016 Revolving Facility, $2.5 billion in aggregate principal amount of 11.75% senior secured notes, $1.2 billion in aggregate principal amount of two series of 10.75% senior secured notes due 2026, $1.0 billion under the Delayed Draw Term Loan Credit Facility, $600 million in connection with the issuance of equipment notes related to EETCs and the financing of certain aircraft, $550 million under the Treasury Term Loan Facility and the $360 million issuance of special facility revenue bonds.

These cash inflows were offset in part by $3.0 billion in debt repayments, consisting of approximately $2.0 billion in scheduled debt repayments and the prepayment of the $1.0 billion Delayed Draw Term Loan Credit Facility.

American’s principal financing activities in 2019 included $3.4 billion in debt repayments, consisting of $2.1 billion in scheduled debt repayments and the prepayment of $1.3 billion of secured loans.

These cash outflows were offset in part by $3.2 billion in proceeds from the issuance of debt for equipment notes related to EETCs and the financing of certain aircraft and other flight equipment.

American’s principal financing activities in 2018 included $2.4 billion in debt repayments, consisting of $1.9 billion in scheduled debt repayments and the prepayment of $513 million of secured loans.

These cash outflows were offset by $2.4 billion in proceeds from the issuance of debt, consisting of $1.9 billion in connection with the issuance of equipment notes related to EETCs and the financing of certain aircraft and pre-delivery purchase deposits, as well as an incremental $500 million on a term loan facility.

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

Long-term debt and debt covenants

Employee benefit plans

Commitments, contingencies and guarantees

Long-term debt and debt covenants Note 5 Note 3

Leases Note 6 Note 4

Employee benefit plans Note 10 Note 8

Commitments, contingencies and guarantees Note 12 Note 10

Off-Balance Sheet Arrangements

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however, American concluded it is not the primary beneficiary under these leasing arrangements and accounts for the majority of its EETC leveraged lease financings as operating leases.

American’s total future payments to the trusts of each of the relevant EETCs under these leveraged lease financings are $177 million as of December 31, 2019 .

American’s total future payments to the trusts of each of the relevant EETCs under these leveraged lease financings are $78 million as of December 31, 2020, which are reflected in the operating lease obligations in Note 6 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 4 to American’s Consolidated Financial Statements in Part II, Item 8B .

Letters of Credit and Other

We provide financial assurance, such as letters of credit, surety bonds or restricted cash and investments, primarily to support projected workers’ compensation obligations and airport commitments.

As of December 31, 2019 , we had $572 million of letters of credit and surety bonds securing various obligations.

As of December 31, 2020, we had $476 million of letters of credit and surety bonds securing various obligations, of which $110 million is collateralized with our restricted cash.

The letters of credit and surety bonds that are subject to expiration will expire on various dates through 2024.

Contractual Obligations

The following table provides details of our future cash contractual obligations as of December 31, 2019 .

Except to the extent set forth in the applicable accompanying footnotes, this table does not include commitments that are contingent on events or other factors that are uncertain or unknown at this time.

The following table provides details of our future cash contractual obligations as of December 31, 2020 (in millions).

Except to the extent set forth in the applicable accompanying footnotes, the table does not include commitments that are contingent on events or other factors that are uncertain or unknown at this time.

Payments Due by Period

2025 and Thereafter

2021 2022 2023 2024 2025 2026 and Thereafter Total

Long-term debt:

Principal amount (b), (d) (See Note 3)

$ 2,749 $ 1,672 $ 4,162 $ 4,401 $ 6,421 $ 9,326 $ 28,731

Interest obligations (c), (d)

1,161 1,065 997 900 767 800 5,690

Finance lease obligations (See Note 4) 131 136 114 120 85 89 675

Aircraft and engine purchase commitments (e) (See Note 10(a))

527 1,661 1,592 2,377 3,381 1,742 11,280

Operating lease commitments (See Note 4)

2,036 1,932 1,743 1,352 975 4,194 12,232

Regional capacity purchase agreements (f) (See Note 10(b))

1,120 1,666 1,685 1,663 1,511 3,646 11,291

Minimum pension obligations (g) (See Note 8)

694 553 552 580 264 31 2,674

Retiree medical and other postretirement benefits (See Note 8)

75 71 68 66 63 269 612

Other purchase obligations (h) (See Note 10(a))

2,278 1,282 1,184 242 163 1,047 6,196

Total American Contractual Obligations $ 10,771 $ 10,038 $ 12,097 $ 11,701 $ 13,630 $ 21,144 $ 79,381

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Principal amount (b) (See Note 5)

$ 2 $ 752 $ 2 $ 2 $ 1,503 $ 1,778 $ 4,039

Interest obligations (c)

142 122 103 102 109 274 852

Operating lease commitments (See Note 6) 14 13 11 8 4 16 66

Minimum pension obligations (g) (See Note 10)

3 3 3 3 3 5 20

Total AAG Contractual Obligations $ 10,932 $ 10,928 $ 12,216 $ 11,816 $ 15,249 $ 23,217 $ 84,358

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

Amounts represent contractual amounts due.

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

(b) Amounts represent contractual amounts due.

Excludes $321 million and $428 million of unamortized debt discount, premium and issuance costs as of December 31, 2020 for American and AAG Parent, respectively.

For variable-rate debt, future interest obligations are estimated using the current forward rates at December 31, 2019 .

Includes $11.9 billion of future principal payments and $2.3 billion of future interest payments as of December 31, 2019 , related to EETCs associated with mortgage financings of certain aircraft and spare engines.

See Part I, Item 2.

(c) For variable-rate debt, future interest obligations are estimated using the current forward rates at December 31, 2020.

(d) Includes $11.0 billion of future principal payments and $1.9 billion of future interest payments as of December 31, 2020, related to EETCs associated with mortgage financings of certain aircraft and spare engines.

(e) See Part I, Item 2.

Properties – “Aircraft and Engine Purchase Commitments” for additional information about the firm commitment aircraft delivery schedule, in particular the footnotes to the table thereunder as to potential changes to such delivery schedule.

Due to uncertainty surrounding the timing of delivery of certain aircraft, the amounts in the table represent our current best estimate, including with respect to the delivery of Boeing 737 MAX aircraft;

Due to uncertainty surrounding the timing of delivery of certain aircraft, the amounts in the

table represent our current best estimate;

however, the actual delivery schedule may differ from the table above, potentially materially.

Additionally, the amounts in the table exclude 22 787-8 aircraft to be delivered in 2020 and 2021 for which Boeing has committed to provide sale-leaseback financing (in the form of operating leases).

Additionally, the amounts in the table exclude 19 Boeing 787-8 aircraft to be delivered in 2021 for which we have obtained committed lease financing.

This financing is reflected in the operating lease commitments line above.

Represents minimum payments under capacity purchase agreements with third-party regional carriers.

(f) Represents minimum payments under capacity purchase agreements with third-party regional carriers.

These commitments are estimates of costs based on assumed minimum levels of flying under the capacity purchase agreements and our actual payments could differ materially.

Rental payments under operating leases for certain aircraft flown under these capacity purchase agreements are reflected in the operating lease commitments line above.

Includes minimum pension contributions based on actuarially determined estimates and is based on estimated payments through 2029.

Includes purchase commitments for aircraft fuel, construction projects and information technology support.

(g) Includes minimum pension contributions based on actuarially determined estimates as of December 31, 2020 and is based on estimated payments through 2030.

Pursuant to the CARES Act passed in March 2020, minimum required pension contributions to be made in the calendar year 2020 can be deferred to January 1, 2021, with interest accruing from the original due date to the new payment date.

In January 2021, we made $241 million of required pension contributions, including the $130 million minimum contributions required for 2020.

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

Capital Raising Activity and Other Possible Actions

In light of our significant financial commitments related to, among other things, new flight equipment, the servicing and amortization of existing debt and equipment leasing arrangements, and future pension funding obligations, we and our subsidiaries will regularly consider, and enter into negotiations related to, capital raising activity, which may include the entry into leasing transactions and future issuances of secured or unsecured debt obligations or additional equity securities in public or private offerings or otherwise.

The cash available from operations and these sources, however, may not be sufficient to cover cash contractual obligations because economic factors may reduce the amount of cash generated by operations or increase costs.

For instance, an economic downturn or general global instability caused by military actions, terrorism, disease outbreaks, natural disasters or other causes could reduce the demand for air travel, which would reduce the amount of cash generated by operations.

In light of the cash needs imposed by the current operating losses due to reduced demand in response to the COVID-19 pandemic as well as our significant financial commitments related to, among other things, new flight equipment, the servicing and amortization of existing debt and equipment leasing arrangements, and pension funding obligations, we and our subsidiaries will regularly consider, and enter into negotiations related to, capital raising and liability management activity, which may include the entry into leasing transactions and future issuances of, and transactions designed to manage the timing and amount of, secured or unsecured debt obligations or additional equity securities in public or private offerings or otherwise.

The cash available from operations (if any) and these sources, however, may not be sufficient to cover our cash obligations because economic factors may reduce the amount of cash generated by operations or increase costs.

For instance, an economic downturn or general global instability caused by military actions, terrorism, disease outbreaks (in particular the ongoing global outbreak of COVID-19), natural disasters or other causes could reduce the demand for air travel, which would reduce the amount of cash generated by operations.

See Part I, Item 1A.

Risk Factors – "The outbreak and global spread of COVID-19 has resulted in a severe decline in demand for air travel which has adversely impacted our business, operating results, financial condition and liquidity.

The duration and severity of the COVID-19 pandemic, and similar public health threats that we may face in the future, could result in additional adverse effects on our business, operating results, financial condition and liquidity" for additional discussion.

An increase in costs, either due to an increase in borrowing costs caused by a reduction in credit ratings or a general increase in interest rates, or due to an increase in the cost of fuel, maintenance, aircraft, aircraft engines or parts, could decrease the amount of cash available to cover cash contractual obligations.

Moreover, certain of our financing arrangements contain significant minimum cash balance requirements.

Moreover, certain of our financing arrangements contain significant minimum cash balance or similar liquidity requirements.

As a result, we cannot use all of our available cash to fund operations, capital expenditures and cash obligations without violating these requirements.

See Note 5 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 3 to American’s Consolidated Financial Statements in Part II, Item 8B for information regarding our financing arrangements.

In the past, we have from time to time refinanced, redeemed or repurchased our debt and taken other steps to reduce or otherwise manage the aggregate amount and cost of our debt or lease obligations or otherwise improve our balance sheet.

In the past, we have from time to time refinanced, redeemed or repurchased our debt and taken other steps to reduce or otherwise manage the aggregate amount and cost of our debt, lease and other obligations or otherwise improve our balance sheet.

Going forward, depending on market conditions, our cash position and other considerations, we may continue to take such actions.

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

OTHER INFORMATION

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We have identified the following critical accounting policies that impact the preparation of our consolidated financial statements.

See the “ Basis of Presentation and Summary of Significant Accounting Policies ” included in Note 1 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 1 to American’s Consolidated Financial Statements in Part II, Item 8B for additional discussion of the application of these estimates and other accounting policies.

See the “ Basis of Presentation and Summary of Significant Accounting Policies ” included in Note 1 to each of AAG’s and American’s Consolidated Financial Statements in Part II, Item 8A and 8B, respectively, for additional discussion of the application of these estimates and other accounting policies.

Passenger Revenue

We recognize all revenues generated from transportation on American and our regional flights operated under the brand name American Eagle, including associated baggage fees, ticketing change fees and other inflight services, as passenger revenue when transportation is provided.

We recognize all revenues generated from transportation on American and our regional flights operated under the brand name American Eagle, including associated baggage fees and other inflight services, as passenger revenue when transportation is provided.

Ticket and other related sales for transportation that has not yet been provided are initially deferred and recorded as air traffic liability on our consolidated balance sheets.

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Any adjustments resulting from periodic evaluations of the estimated air traffic liability are included in passenger revenue during the period in which the evaluations are completed.

While the contract duration of passenger tickets is generally one year, in response to the COVID-19 pandemic, we extended the contract duration for certain tickets to December 31, 2021, principally those with travel scheduled from March 1, 2020 through December 31, 2020.

Additionally, we have eliminated change fees for most domestic and international tickets.

As of December 31, 2020, the air traffic liability included approximately $2.6 billion of travel credits related to these unused tickets for travel prior to December 31, 2020.

Accordingly, any revenue associated with these tickets will be recognized within the next 12 months.

Given this change in contract duration and uncertainty surrounding the future demand for air travel, our estimates of revenue that will be recognized from the air traffic liability for future flown or unused tickets as well as our estimates of refunds may be subject to variability and differ from historical experience.

Various taxes and fees assessed on the sale of tickets to end customers are collected by us as an agent and remitted to taxing authorities.

These taxes and fees have been presented on a net basis in the accompanying consolidated statements of operations and recorded as a liability until remitted to the appropriate taxing authority.

The CARES Act provided for a temporary tax holiday from collecting and remitting certain government ticket taxes for tickets purchased between March 28, 2020 and December 31, 2020.

Loyalty Revenue

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For mileage credits earned by AAdvantage loyalty program members, we apply the deferred revenue method.

In response to the COVID-19 pandemic, we suspended the expiration of mileage credits through June 30, 2021 and eliminated mileage reinstatement fees for canceled award tickets.

Mileage credits earned through travel

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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.

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 the miles that will not be redeemed using statistical models based on historical redemption patterns to develop an estimate of the likelihood of future redemption.

Given the inherent uncertainty of the current operating environment due to the COVID-19 pandemic, we will continue to monitor redemption patterns and may adjust our estimates in the future.

For the year ended December 31, 2020, a hypothetical 10% increase in the estimated selling price of miles would have decreased revenues by approximately $40 million as a result of additional amounts deferred from passenger ticket sales to be recognized in future periods.

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We allocate the consideration received from these sales of mileage credits based on the relative selling price of each product or service delivered.

Our most significant partner agreements are our co-branded credit card agreements with Citi and Barclaycard US that we entered into in 2016.

Our most significant partner agreements are our co-branded credit card agreements with Citi and Barclaycard US.

We identified the following revenue elements in these co-branded credit card agreements:

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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.

Our estimates use statistical models based on historical redemption patterns to develop an estimate of the likelihood of future redemption.

For the year ended December 31, 2020, a hypothetical 10% increase in our estimate of miles not expected to be redeemed would have increased revenues by approximately $35 million.

Cargo Revenue

Cargo revenue is recognized when we provide the transportation.

Other Revenue

Other revenue includes revenue associated with our loyalty program, which is comprised principally of the marketing component of mileage sales to co-branded credit card and other partners and other marketing related payments.

The accounting and recognition for the loyalty program marketing services are discussed above in “ Loyalty Revenue .” The remaining amounts included within other revenue relate to airport clubs, advertising and vacation-related services.

Long-lived Assets

Long-lived assets consist of flight equipment, as well as other fixed assets and definite-lived intangible assets such as certain domestic airport slots, customer relationships, marketing agreements, tradenames and airport gate leasehold rights.

Long-lived assets consist of owned flight and ground equipment, ROU assets and definite-lived intangible assets such as certain domestic airport slots and gate leasehold rights, customer relationships and marketing agreements.

In addition to the original cost, the recorded value of our fixed assets is impacted by a number of estimates made, including estimated useful lives, salvage values and our determination as to whether aircraft are temporarily or permanently grounded.

The majority of our aircraft fleet types are depreciated over 25-30 years.

It is possible that the ultimate useful lives of our aircraft will be significantly different than the current estimate due to unforeseen events in the future that impact our fleet plan.

Definite-lived intangible assets are originally recorded at their acquired fair values and are subsequently amortized over their estimated useful lives.

See Note 1 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 1 to American’s Consolidated Financial Statements in Part II, Item 8B for further information.

We assess impairment of long-lived assets used in operations when events and circumstances indicate that the assets may be impaired.

An asset or group of assets is considered impaired when the undiscounted cash flows estimated to be generated by the assets are less than the carrying amount of the assets and the net book value of the assets exceeds their estimated fair value.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Estimates of fair value represent management’s best estimate based on appraisals, industry trends and reference to market rates and transactions.

The majority of American’s aircraft fleet types are depreciated over 25-30 years.

It is possible that the ultimate lives of our aircraft will be significantly different than the current estimate due to unforeseen events in the future that impact our fleet plan.

Accounting Standards Codification (ASC) 360 – Property, Plant and Equipment (ASC 360) requires long-lived assets to be assessed for impairment when events and circumstances indicate that the assets may be impaired.

An impairment of a long-lived asset or group of long-lived assets exists only when the sum of the estimated undiscounted cash flows expected to be generated directly by the assets are less than the carrying value of the assets.

We group assets principally by fleet-type when estimating future cash flows, which is generally the lowest level for which identifiable cash flows exist.

Estimates of future cash flows are based on historical results adjusted to reflect management’s best estimate of future market and operating conditions, including our current fleet plan.

If such assets are impaired, the impairment charge recognized is the amount by which the carrying value of the assets exceeds their fair value.

Fair value reflects management’s best estimate including inputs from published pricing guides and bids from third parties as well as contracted sales agreements when applicable.

In 2020, our operations, liquidity and stock price were significantly impacted by decreased passenger demand and government travel restrictions due to the COVID-19 pandemic.

Additionally, we decided to retire certain mainline aircraft earlier than planned, including Airbus A330-200, Boeing 757, Boeing 767, Airbus A330-300 and Embraer 190 aircraft as well as regional aircraft, including certain Embraer 140 and Bombardier CRJ200 aircraft.

As a result of these events and circumstances, we performed impairment tests for our long-lived assets in the first three quarters of 2020.

As a result of the impairment tests performed on our long-lived assets, we determined the sum of the estimated undiscounted future cash flows exceeded the carrying value for our long-lived assets except for the aircraft being retired earlier than planned as discussed above.

For those aircraft and certain related spare parts, we recorded impairment charges reflecting the difference between the carrying values of these assets and their fair values of $1.5 billion for the year ended December 31, 2020.

Due to the inherent uncertainties of the current operating environment, we will continue to evaluate our current fleet (including aircraft in temporary storage) and may decide to permanently retire additional aircraft.

Goodwill and Indefinite-lived Assets

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired and liabilities assumed.

Goodwill is not amortized but is assessed for impairment annually on October 1 or more frequently if events or circumstances indicate that goodwill may be impaired.

We have one consolidated reporting unit.

Indefinite-lived intangible assets other than goodwill include certain domestic airport slots and international slots and route authorities.

Indefinite-lived intangible assets are not amortized but instead are assessed for impairment annually on October 1 or more frequently if events or circumstances indicate that the asset may be impaired.

Goodwill represents the purchase price in excess of the fair value of the net assets acquired and liabilities assumed in connection with the merger with US Airways Group.

We have one reporting unit.

Indefinite-lived intangible assets other than goodwill consist of certain domestic airport slots and international slots and route authorities.

ASC 350 – Intangibles – Goodwill and Other (ASC 350) requires goodwill and indefinite-lived intangible assets to be assessed for impairment annually or more frequently if events or circumstances indicate that the fair values of goodwill and indefinite-lived intangible assets may be lower than their carrying values.

Our annual assessment date is October 1.

Goodwill and indefinite-lived intangible assets are assessed for impairment by initially performing a qualitative assessment.

Under the qualitative approach, we analyze the following factors, among others, to determine if events and circumstances have affected the fair value of goodwill and indefinite-lived intangible assets:

Under the qualitative approach, we analyze the following factors, among others, to determine if events or circumstances have affected the fair value of goodwill and indefinite-lived intangible assets:

(1) negative trends in our market capitalization, (2) an increase in fuel prices, (3) declining per mile passenger yields, (4) lower passenger demand as a result of a weakened U.S.

and global economy and (5) changes to the regulatory environment.

Based upon our annual assessment, there were no impairments of our goodwill and no material impairments of our indefinite-lived assets in 2019 .

If we determine that it is more likely than not that our goodwill or indefinite-lived intangible assets may be impaired, we use a quantitative approach to assess the asset’s fair value and the amount of the impairment, if any.

In addition to our annual impairment assessment, we performed interim impairment tests in 2020 on our goodwill and indefinite-lived intangible assets as a result of the events and circumstances previously discussed due to the impact of the COVID-19 pandemic on our business.

For goodwill, we performed a quantitative analysis by using a market approach.

Under the market approach, the fair value of the reporting unit was determined based on quoted market prices for equity and the fair value of debt as described in Note 9 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 7 to American’s Consolidated Financial Statements in Part II, Item 8B.

The fair value exceeded the carrying value of the reporting unit, and our $4.1 billion of goodwill was not impaired.

We performed qualitative impairment tests on our $1.8 billion of indefinite-lived intangible assets and determined there was no material impairment.

As discussed above, due to the inherent uncertainties of the current operating environment, we will continue to evaluate our goodwill and indefinite-lived intangible assets for events or circumstances that indicate that their fair values may be lower than their carrying values.

Pensions and Retiree Medical and Other Postretirement Benefits

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We use certain assumptions including, but not limited to, the selection of the:

(1) discount rate, (2) expected return on plan assets and (3) expected health care cost trend rate (as discussed below).

(1) discount rate and (2) expected return on plan assets (as discussed below).

These assumptions as of December 31 were:

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Expected rate of return on plan assets (2)

Weighted average health care cost trend rate assumed for next year (3) :

Ultimate (2027)

(1) When establishing our discount rate to measure our obligations, we match high quality corporate bonds available in the marketplace whose cash flows approximate our projected benefit disbursements.

Lowering the discount rate by 50 basis points as of December 31, 2020 would increase our pension and retiree medical and other postretirement benefits obligations by approximately $1.4 billion and $45 million, respectively, decrease estimated 2021 pension expense by approximately $15 million and increase estimated 2021 retiree medical and other postretirement benefits expense by less than $1 million.

The expected rate of return on plan assets is based upon an evaluation of our historical trends and experience, taking into account current and expected market conditions and our target asset allocation of 26% U.S.

stocks, 16% developed international stocks, 30% fixed income securities, 20% alternative (private) investments and 8% emerging market stocks.

(2) The expected rate of return on plan assets is based upon an evaluation of our historical trends and experience, taking into account current and expected market conditions and our target asset allocation of 30% fixed income securities, 24% U.S.

stocks, 22% alternative (private) investments, 16% developed international stocks and 8% emerging market stocks.

The expected rate of return on plan assets component of our net periodic benefit cost is calculated based on the fair value of plan assets and our target asset allocation.

Lowering the expected long-term rate of return on plan assets by 50 basis points as of December 31, 2020 would increase estimated 2021 pension expense and retiree medical and other postretirement benefits expense by approximately $70 million and $1 million, respectively.

The assumed health care cost trend rate is based upon an evaluation of our historical trends and experience, taking into account current and expected market conditions.

Increasing the assumed health care cost trend rate by 100 basis points would increase estimated 2020 retiree medical and other postretirement benefits expense by approximately $5 million .

During 2020, we reviewed and revised certain economic and demographic assumptions including the pension and retiree medical and other postretirement benefits discount rates and health care cost trend rates.

The net effect of changing these assumptions for the pension plans resulted in an increase of $1.7 billion in the projected benefit obligation at December 31, 2020.

The net effect of changing these assumptions for retiree medical and other postretirement benefits plans resulted in an increase of $71 million in the projected benefit obligation at December 31, 2019 .

We also revised our mortality assumptions to incorporate the new Pri-2012 mortality tables and improvement scale issued by the Society of Actuaries.

This resulted in a decrease in the projected benefit obligations of our pension and retiree medical and other postretirement benefits plans of $127 million and $11 million , respectively.

The net effect of changing these assumptions for retiree medical and other postretirement benefits plans resulted in an increase of $80 million in the accumulated postretirement benefit obligation at December 31, 2020.

We also revised our mortality assumptions to incorporate the new improvement scale issued by the Society of Actuaries.

This resulted in a decrease in our pension and retiree medical and other postretirement benefit obligations by $140 million and $1 million, respectively.

See Note 10 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 8 to American’s Consolidated Financial Statements in Part II, Item 8B for additional information regarding our employee benefit plans.

Recent Accounting Pronouncement

Financial Instruments – Credit Losses (Topic 326)

Income taxes are accounted for under the asset and liability method.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.

Deferred tax assets and liabilities are recorded net as noncurrent deferred income taxes.

Our ability to use our NOL Carryforwards depends on the amount of taxable income generated in future periods.

We provide a valuation allowance for our deferred tax assets when it is more likely than not that some portion, or all of our deferred tax assets, will not be realized.

We consider all available positive and negative evidence and make certain assumptions in evaluating the realizability of our deferred tax assets.

Many factors are considered that impact our assessment of future profitability, including conditions which are beyond our control, such as the health of the economy, the availability and price volatility of aircraft fuel and travel demand.

We presently have a $34 million valuation allowance on certain net deferred tax assets related to state NOL Carryforwards.

There can be no assurance that an additional valuation allowance on our net deferred tax assets will not be required.

Such valuation allowance could be material.

Recent Accounting Pronouncements

Measurement of Credit Losses on Financial Instruments

This ASU requires the use of an expected loss model for certain types of financial instruments and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates.

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For available-for-sale debt securities, an allowance for credit losses will be required rather than a reduction to the carrying value of the asset.

This standard is effective for interim and annual reporting periods beginning after December 15, 2019.

While we have not completed our evaluation of the impact of adoption of this standard, we do not expect it to have a material impact on our consolidated financial statements.

We adopted this accounting standard prospectively as of January 1, 2020, and it did not have a material impact on our consolidated financial statements.

Accounting for Convertible Instruments and Contracts In An Entity's Own Equity (the New Convertible Debt Standard)

The New Convertible Debt Standard simplifies the accounting for certain convertible instruments by removing the separation models for convertible debt with a cash conversion feature and for convertible instruments with a beneficial conversion feature.

As a result, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features.

Additionally, the New Convertible Debt Standard amends the diluted earnings per share calculation for convertible instruments by requiring the use of the if-converted method.

The treasury stock method is no longer available.

Entities may adopt the New Convertible Debt Standard using either a full or modified retrospective approach, and it is effective for interim and annual reporting periods beginning after December 15, 2021.

Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2020.

The New Convertible Debt Standard is applicable to our 6.50% convertible senior notes due 2025.

We early adopted the New Convertible Debt Standard as of January 1, 2021 using the modified retrospective method to recognize our 6.50% convertible senior notes as a single liability instrument.

As of January 1, 2021, we recorded a $415 million ($320 million net of tax) reduction to additional paid-in capital to remove the equity component of the 6.50% convertible senior notes from our balance sheet and a $19 million cumulative effect adjustment credit, net of tax, to retained deficit related to non-cash debt discount amortization recognized in periods prior to adoption resulting in a corresponding reduction of $389 million to the debt discount associated with the 6.50% convertible senior notes.

See Note 5(h) to AAG’s Consolidated Financial Statements in Part II, Item 8A for additional information on our 6.50% convertible senior notes.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis