American Airlines Group Inc. 10-K

ITEM 5. MARKET FOR AMERICAN AIRLINES GROUP’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Stock Exchange Listing Our common stock is listed on The Nasdaq Global Select Market under the trading symbol “AAL.” There is no trading market for the common stock of American, which is a wholly-owned subsidiary of AAG. As of February 12, 2021, the closing price of our common stock was $17.27 and there were 12,527 holders of record. However, because many of the shares of our common stock are held by brokers and other institutions on behalf of stockholders, we believe there are substantially more beneficial holders of our common stock than record holders. Information on securities authorized for issuance under our equity compensation plans will be set forth in our Proxy Statement for the 2021 Annual Meeting of Stockholders of American Airlines Group Inc. (the Proxy Statement) under the caption “Equity Compensation Plan Information” and is incorporated by reference into this Annual Report on Form 10-K. Dividends on Common Stock The total cash payment for dividends during the years ended December 31, 2020 and 2019 was $43 million and $178 million, respectively. In connection with our receipt of financial assistance under PSP1 and PSP2, we agreed not to pay dividends on 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 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. If we determine to make any dividends in the future, such dividends that may be declared and paid from time to time will be subject to market and economic conditions, applicable legal requirements and other relevant factors. We are not obligated to continue a dividend for any fixed period, and the payment of dividends may be suspended or discontinued again at any time at our discretion and without prior notice. Stock Performance Graph The following stock performance graph and related information shall not be deemed “soliciting material” or “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filings under the Securities Act of 1933 or the Exchange Act, each as amended, except to the extent that we specifically incorporate it by reference into such filing. The following stock performance graph compares the cumulative total stockholder returns during the period from December 31, 2015 to December 31, 2020 of our common stock to the New York Stock Exchange (NYSE) ARCA Airline Index and the Standard and Poor’s Financial Services, LLC (S&P) 500 Stock Index. The comparison assumes $100 was invested on December 31, 2015 in our common stock and in each of the foregoing indices and assumes that all dividends were reinvested. The stock performance shown on the following graph represents historical stock performance and is not necessarily indicative of future stock price performance. 57 Table of Contents 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 American Airlines Group Inc. (AAL) $ 100 $ 111 $ 125 $ 78 $ 71 $ 39 NYSE ARCA Airline Index (XAL) 100 128 134 104 126 95 S&P 500 Index (GSPC) 100 110 131 123 158 184 Purchases of Equity Securities by the Issuer and Affiliated Purchasers Since July 2014, as part of our capital deployment program, our Board of Directors had approved seven share repurchase programs aggregating $13.0 billion of authority. The $420 million of remaining authority to repurchase shares under our most recent $2.0 billion share repurchase program expired on December 31, 2020. In connection with our receipt of financial assistance under PSP1 and PSP2, we agreed not to repurchase shares 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 through the date that is one year after the secured loan provided under the Treasury Loan Agreement is fully repaid. 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 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. If we determine to make any share repurchases in the future, such repurchases under our repurchase programs may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades or accelerated share repurchase transactions. These share repurchase programs do not obligate us to acquire any specific number of shares or to repurchase any specific number of shares for any fixed period, and may be suspended again at any time at our discretion and without prior notice. The timing and amount of repurchases, if any, will be subject to market and economic conditions, applicable legal requirements, such as the requirements of the CARES Act, the PSP Extension Law and other relevant factors. Our repurchase of AAG common stock may be limited, suspended or discontinued at any time at our discretion and without prior notice. See Part I, Item 1A. Risk Factors – “ We have ceased making repurchases of our common stock and paying dividends on our common stock as required by the CARES Act and the PSP Extension Law. Following the end of those restrictions, if we do decide to make repurchases of or pay dividends on our common stock, we cannot guarantee that we will continue to do so or that our capital deployment program will enhance long-term stockholder value. ” 58 Table of Contents Ownership Restrictions AAG’s Certificate of Incorporation and Bylaws provide that, consistent with the requirements of Subtitle VII of Title 49 of the United States Code, as amended (the Aviation Act), any persons or entities who are not a “citizen of the United States” (as defined under the Aviation Act and administrative interpretations issued by the DOT, its predecessors and successors, from time to time), including any agent, trustee or representative of such persons or entities (a non-citizen), shall not, in the aggregate, own (beneficially or of record) and/or control more than (a) 24.9% of the aggregate votes of all of our outstanding equity securities or (b) 49.0% of our outstanding equity securities. Our Certificate of Incorporation and Bylaws further specify that it is the duty of each stockholder who is a non-citizen to register his, her or its equity securities on our foreign stock record and provide for remedies applicable to stockholders that exceed the voting and ownership caps described above. In addition, to reduce the risk of a potential adverse effect on our ability to use our NOL Carryforwards and certain other tax attributes for federal income tax purposes, our Certificate of Incorporation contains certain restrictions on the acquisition and disposition of our common stock by substantial stockholders (generally holders of more than 4.75%). This provision is currently scheduled to expire by its terms in December 2021. See Part I, Item 1A. Risk Factors – “AAG’s Certificate of Incorporation and Bylaws include provisions that limit voting and acquisition and disposition of our equity interests.” Also see AAG’s Certification of Incorporation and Bylaws, which are filed as Exhibits 3.1, 3.2 and 3.3 hereto, for the full text of the foregoing restrictions and AAG’s Description of the Registrants’ Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, which is filed as Exhibit 4.1 hereto, for a more detailed description. 59 Table of Contents ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA We adopted three new accounting standards as of January 1, 2018: Accounting Standards Update (ASU) 2016-02: Leases (Topic 842) (the New Lease Standard), ASU 2014-09: Revenue from Contracts with Customers (the New Revenue Standard) and ASU 2017-07: Compensation - Retirement Benefits (the New Retirement Standard). The 2017 and 2016 financial information presented within this Item 6. Selected Consolidated Financial Data has been recast to reflect the impact of the adoption of the New Revenue Standard and the New Retirement Standard. The New Lease Standard did not require the recast of prior periods. See Note 1(b) to each of AAG’s and American’s Consolidated Financial Statements in Part II, Items 8A and 8B, respectively, of AAG’s and American’s Annual Report on Form 10-K for the year ended December 31, 2018, for further information on the impacts of these new accounting standards. Selected Consolidated Financial Data of AAG The selected consolidated financial data presented below under the captions “Consolidated Statements of Operations data” and “Consolidated Balance Sheet data” for the years ended and as of December 31, 2020, 2019, 2018, 2017 and 2016, are derived from AAG’s audited consolidated financial statements. Year Ended December 31, 2020 2019 2018 2017 2016 (In millions, except share and per share amounts) Consolidated Statements of Operations data: Total operating revenues $ 17,337 $ 45,768 $ 44,541 $ 42,622 $ 40,142 Total operating expenses 27,758 42,703 41,885 38,391 35,082 Operating income (loss) (10,421) 3,065 2,656 4,231 5,060 Net income (loss) (8,885) 1,686 1,412 1,282 2,584 Earnings (loss) per common share: Basic $ (18.36) $ 3.80 $ 3.04 $ 2.62 $ 4.68 Diluted (18.36) 3.79 3.03 2.61 4.65 Shares used for computation (in thousands): Basic 483,888 443,363 464,236 489,164 552,308 Diluted 483,888 444,269 465,660 491,692 556,099 Cash dividends declared per common share $ 0.10 $ 0.40 $ 0.40 $ 0.40 $ 0.40 Consolidated Balance Sheet data (at end of period): Total assets $ 62,008 $ 59,995 $ 60,580 $ 52,785 $ 53,610 Debt and finance leases 32,593 24,315 24,473 25,065 24,344 Pension and postretirement obligations (1) 7,131 6,081 6,937 7,596 7,946 Operating lease liabilities 8,428 9,129 9,556 — — Stockholders’ deficit (6,867) (118) (169) (780) (286) (1) Substantially all defined benefit pension plans were frozen effective November 1, 2012. See Note 10 to AAG's Consolidated Financial Statements in Part II, Item 8A for further information on pension and postretirement benefits. Reconciliation of GAAP to Non-GAAP Financial Measures We sometimes use financial measures that are derived from the consolidated financial statements but that are not presented in accordance with accounting principles generally accepted in the U.S. (GAAP) to understand and evaluate our current operating performance and to allow for period-to-period comparisons. We believe these non-GAAP financial measures may also provide useful information to investors and others. These non-GAAP measures may not be comparable to similarly titled non-GAAP measures of other companies, and should be considered in addition to, and not as a substitute for or superior to, any measure of performance, cash flow or liquidity prepared in accordance with GAAP. We are providing a reconciliation of reported non-GAAP financial measures to their comparable financial measures on a GAAP basis. 60 Table of Contents The following table presents the components of our total net special items and the reconciliation of pre-tax income (loss) and net income (loss) (GAAP measures) to pre-tax income (loss) excluding net special items and net income (loss) excluding net special items (non-GAAP measures). Management uses pre-tax income (loss) excluding net special items and net income (loss) excluding net special items to evaluate our current operating performance and to allow for period-to-period comparisons. As net special items may vary from period-to-period in nature and amount, the adjustment to exclude net special items allows management an additional tool to understand our core operating performance. Year Ended December 31, 2020 2019 (In millions) Components of Total Special Items, Net: (1) PSP1 Financial Assistance (2) $ (3,710) $ — Fleet impairment (3) 1,484 213 Severance expenses (4) 1,408 11 Labor contract expenses (5) 228 — Mark-to-market adjustments on bankruptcy obligations, net (6) (49) (11) Fleet restructuring expenses (7) — 271 Merger integration expenses (8) — 191 Litigation reserve adjustments — (53) Other operating special items, net (18) 13 Mainline operating special items, net (657) 635 PSP1 Financial Assistance (2) (444) — Fleet impairment (3) 117 — Severance expenses (4) 18 — Other operating special items, net — 6 Regional operating special items, net (309) 6 Operating special items, net (966) 641 Mark-to-market adjustments on equity and other investments, net (9) 135 (5) Debt refinancing, extinguishment and other, net 35 8 Nonoperating special items, net 170 3 Pre-tax special items, net (796) 644 Total special items, net $ (796) $ 644 Reconciliation of Pre-Tax Income (Loss) Excluding Net Special Items: Pre-tax income (loss) – GAAP $ (11,453) $ 2,256 Adjusted for: Pre-tax special items, net (796) 644 Pre-tax income (loss) excluding net special items $ (12,249) $ 2,900 Reconciliation of Net Income (Loss) Excluding Net Special Items: Net income (loss) – GAAP $ (8,885) $ 1,686 Adjusted for: Total special items, net (796) 644 Adjusted for: Net tax effect of net special items 170 (151) Net income (loss) excluding net special items $ (9,511) $ 2,179 (1) See Note 2 to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information on net special items. (2) 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. 61 Table of Contents (3) 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. (4) 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. (5) 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. (6) Bankruptcy obligations that will be settled in shares of AAG common stock are marked-to-market based on AAG’s stock price. (7) Fleet restructuring expenses principally included accelerated depreciation and rent expense for aircraft and related equipment expected to be retired earlier than planned. (8) Merger integration expenses included costs associated with integration projects, principally our technical operations, flight attendant, human resources and payroll systems. (9) Mark-to-market adjustments on equity and other investments, net primarily related to net unrealized gains and losses associated with our equity investment in China Southern Airlines and certain treasury rate lock derivative instruments. 62 Table of Contents Additionally, 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 aircraft fuel to evaluate our current operating performance and for period-to-period comparisons. The price of fuel, over which we have no control, impacts the comparability of period-to-period financial performance. The adjustment to exclude aircraft fuel and net special items allows management an additional tool to understand and analyze our non-fuel costs and core operating performance. Amounts may not recalculate due to rounding. Year Ended December 31, 2020 2019 Reconciliation of Total Operating Costs per Available Seat Mile (CASM) Excluding Net Special Items and Fuel: (In millions) Total operating expenses – GAAP $ 27,758 $ 42,703 Operating net special items (1) : Mainline operating special items, net 657 (635) Regional operating special items, net 309 (6) Fuel: Aircraft fuel and related taxes – mainline (2,581) (7,526) Aircraft fuel and related taxes – regional (821) (1,869) Total operating expenses, excluding net special items and fuel $ 25,322 $ 32,667 (In millions) Total Available Seat Miles (ASM) 143,167 285,088 (In cents) Total operating CASM 19.39 14.98 Operating net special items per ASM (1) : Mainline operating special items, net 0.46 (0.22) Regional operating special items, net 0.22 — Fuel per ASM: Aircraft fuel and related taxes – mainline (1.80) (2.64) Aircraft fuel and related taxes – regional (0.57) (0.66) Total operating CASM, excluding net special items and fuel 17.69 11.46 (1) See Note 2 to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information on net special items. 63 Table of Contents Selected Consolidated Financial Data of American The selected consolidated financial data presented below under the captions “Consolidated Statements of Operations data” and “Consolidated Balance Sheet data” for the years ended and as of December 31, 2020, 2019, 2018, 2017 and 2016 are derived from American’s audited consolidated financial statements. Year Ended December 31, 2020 2019 2018 2017 2016 (In millions) Consolidated Statements of Operations data: Total operating revenues $ 17,335 $ 45,761 $ 44,530 $ 42,610 $ 40,125 Total operating expenses 27,559 42,714 41,807 38,405 35,045 Operating income (loss) (10,224) 3,047 2,723 4,205 5,080 Net income (loss) (8,450) 1,972 1,658 1,285 2,689 Consolidated Balance Sheet data (at end of period): Total assets $ 69,215 $ 71,890 $ 70,878 $ 61,401 $ 60,428 Debt and finance leases 28,982 23,042 23,197 23,294 22,577 Pension and postretirement obligations (1) 7,089 6,037 6,893 7,550 7,904 Operating lease liabilities 8,380 9,083 9,496 — — Stockholder’s equity 4,348 13,422 11,770 9,888 8,578 (1) Substantially all defined benefit pension plans were frozen effective November 1, 2012. See Note 8 to American's Consolidated Financial Statements in Part II, Item 8B for further information on pension and postretirement benefits. 64 Table of Contents