American Airlines Group Inc. 10-K

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The risk inherent in our market risk sensitive instruments and positions is the potential loss arising from adverse changes in the price of fuel, foreign currency exchange rates and interest rates as discussed below. The sensitivity analyses presented do not consider the effects that such adverse changes may have on overall economic activity, nor do they consider additional actions we may take to mitigate our exposure to such changes. Therefore, actual results may differ. See Note 8 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 6 to American’s Consolidated Financial Statements in Part II, Item 8B for additional discussion regarding risk management matters. Aircraft Fuel Our operating results are materially impacted by changes in the availability, price volatility and cost of aircraft fuel, which represents one of the largest single cost items in our business. Because of the amount of fuel needed to operate our business, even a relatively small increase or decrease in the price of aircraft fuel can have a material effect on our operating results and liquidity. Market prices for aircraft fuel can be volatile, with market spot prices ranging from a low of approximately $0.37 per gallon to a high of approximately $2.35 per gallon during the period from January 1, 2018 to December 31, 2020. As of December 31, 2020, we did not have any fuel hedging contracts outstanding to hedge our fuel consumption. 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. 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. Based on our 2021 forecasted fuel consumption, we estimate that a one cent per gallon increase in the price of aircraft fuel would increase our 2021 annual fuel expense by $38 million. 87 Table of Contents Foreign Currency We are exposed to the effect of foreign exchange rate fluctuations on the U.S. dollar value of foreign currency-denominated transactions. Our largest exposure comes from the British pound sterling, Euro, Canadian dollar and various Latin American currencies, primarily the Brazilian real. We do not currently have a foreign currency hedge program. We estimate a uniform 10% strengthening in the value of the U.S. dollar from 2020 levels relative to each of the currencies in which we have foreign currency exposure would have resulted in a decrease in pre-tax income of approximately $56 million for the year ended December 31, 2020. Generally, fluctuations in foreign currencies, including devaluations, cannot be predicted by us and can significantly affect the value of our assets located outside the United States. These conditions, as well as any further delays, devaluations or imposition of more stringent repatriation restrictions, may materially adversely affect our business, results of operations and financial condition. See Part I, Item 1A. Risk Factors – “We operate a global business with international operations that are subject to economic and political instability and have been, and in the future may continue to be, adversely affected by numerous events, circumstances or government actions beyond our control” for additional discussion of this and other currency risks. Interest Our earnings and cash flow are affected by changes in interest rates due to the impact those changes have on our interest expense from variable-rate debt instruments and our interest income from short-term, interest-bearing investments. Our largest exposure with respect to variable-rate debt comes from changes in LIBOR. We had variable-rate debt instruments representing approximately 40% of our total long-term debt at December 31, 2020. We currently do not have an interest rate hedge program to hedge our exposure to floating interest rates on our variable-rate debt obligations. If annual interest rates increase 100 basis points, based on our December 31, 2020 variable-rate debt and short-term investments balances, annual interest expense on variable-rate debt would increase by approximately $130 million and annual interest income on short-term investments would increase by approximately $70 million. Additionally, the fair value of fixed-rate debt would have decreased by approximately $590 million for AAG and $450 million for American. On July 27, 2017, the U.K. Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The discontinuation date for submission and publication of rates for certain tenors of USD LIBOR (1-month, 3-month, 6-month, and 12-month) is currently under consultation by the ICE Benchmark Administration (the administrator of LIBOR) and may be extended until June 30, 2023. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021. Similarly, it is not possible to predict whether LIBOR will continue to be viewed as an acceptable market benchmark, what rate or rates may become acceptable alternatives to LIBOR, or what effect these changes in views or alternatives may have on financial markets for LIBOR-linked financial instruments. While the U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, has chosen SOFR as the recommended risk-free reference rate for the U.S. (calculated based on repurchase agreements backed by treasury securities), we cannot currently predict the extent to which this index will gain widespread acceptance as a replacement for LIBOR. It is not possible to predict the effect of these changes, other reforms or the establishment of alternative reference rates in the United Kingdom, the United States or elsewhere. We may in the future pursue amendments to our LIBOR-based debt transactions to provide for a transaction mechanism or other reference rate in anticipation of LIBOR’s discontinuation, but we may not be able to reach agreement with our lenders on any such amendments. As of December 31, 2020, we had $12.8 billion of borrowings based on LIBOR. The replacement of LIBOR with a comparable or successor rate could cause the amount of interest payable on our long-term debt to be different or higher than expected. 88 Table of Contents ITEM 8A. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF AMERICAN AIRLINES GROUP INC. Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors American Airlines Group Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of American Airlines Group Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), cash flows, and stockholders’ equity (deficit) for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 17, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 89 Table of Contents Estimate of mileage credits not expected to be redeemed As discussed in Note 1(l) to the consolidated financial statements, the Company’s loyalty program awards mileage credits to passengers for flights on the Company’s airline, flights on partner airlines, or for using the services of other program participants. The Company accounts for such mileage credits earned using the deferred revenue method, which includes an estimate for mileage credits not expected to be redeemed. The Company’s loyalty program liability was $9.2 billion as of December 31, 2020 and the associated passenger revenue for mileage credits redeemed for travel was $1.1 billion for the year ended December 31, 2020. We identified the assessment of the estimated number of mileage credits not expected to be redeemed as a critical audit matter. A high degree of auditor judgment was required to evaluate the applicability of historical data used to develop the estimate. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s loyalty program accounting process, including controls related to the estimation of mileage credits not expected to be redeemed. We assessed the Company’s methodology used to evaluate this estimate and determined it was consistent with historical periods. We developed an independent expectation of mileage credits not expected to be redeemed, which included consideration of industry and historical information. We compared the results of our independent expectation to the Company’s recorded amount of loyalty program liability and the associated passenger revenue. Sufficiency of audit evidence over realizability of operating loss carryforwards As discussed in Notes 1(i) and 7 to the consolidated financial statements, the Company had $4.0 billion of operating loss carryforwards, which are recorded as deferred tax assets at December 31, 2020. Deferred tax assets are recognized related to operating loss carryforwards that will reduce future taxable income. The Company provides a valuation allowance for deferred tax assets when it is more likely than not that some portion, or all the deferred tax assets, will not be realized. In evaluating the need for a valuation allowance, management considers the weighting of all available positive and negative evidence, which includes, among other things, the nature, frequency and severity of current and cumulative taxable income or losses, as well as future projections of profitability. We identified the evaluation of the sufficiency of audit evidence over the realizability of operating loss carryforwards as a critical audit matter. Evaluating the sufficiency of audit evidence required subjective auditor judgment, and the involvement of tax professionals in order to assess the nature and extent of procedures performed in assessing the realizability of the operating loss carryforwards. The following are the primary procedures we performed to address this critical audit matter. We performed risk assessment procedures and applied auditor judgment to determine the nature and extent of procedures to be performed over the income tax accounts and disclosures. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s deferred tax asset valuation allowance process, including controls related to the realizability of operating loss carryforwards. We evaluated positive and negative evidence used in assessing whether the deferred tax assets were more-likely-than-not to be realized in the future, including evaluating the nature, frequency and severity of current and cumulative taxable income or losses, as well as future projections of profitability. We evaluated the reasonableness of management’s future projections of profitability considering (i) historical profitability of the Company, (ii) consistency with industry data and economic trends, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. We involved tax professionals who assisted in the evaluation of the nature, frequency and severity of current and cumulative taxable income or losses. Further, we assessed the sufficiency of audit evidence obtained over the realizability of the operating loss carryforwards by evaluating the cumulative results of the audit procedures, qualitative aspects of the Company’s accounting practices, and potential bias in the accounting estimate. /s/ KPMG LLP We have served as the Company’s auditor since 2014. Dallas, Texas February 17, 2021 90 Table of Contents AMERICAN AIRLINES GROUP INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except share and per share amounts) Year Ended December 31, 2020 2019 2018 Operating revenues: Passenger $ 14,518 $ 42,010 $ 40,676 Cargo 769 863 1,013 Other 2,050 2,895 2,852 Total operating revenues 17,337 45,768 44,541 Operating expenses: Aircraft fuel and related taxes 2,581 7,526 8,053 Salaries, wages and benefits 10,960 12,609 12,251 Regional expenses 4,892 7,501 7,133 Maintenance, materials and repairs 1,583 2,380 2,050 Other rent and landing fees 1,536 2,055 1,900 Aircraft rent 1,341 1,326 1,264 Selling expenses 513 1,602 1,520 Depreciation and amortization 2,040 1,982 1,839 Special items, net ( 657 ) 635 787 Other 2,969 5,087 5,088 Total operating expenses 27,758 42,703 41,885 Operating income (loss) ( 10,421 ) 3,065 2,656 Nonoperating income (expense): Interest income 41 127 118 Interest expense, net ( 1,227 ) ( 1,095 ) ( 1,056 ) Other income, net 154 159 166 Total nonoperating expense, net ( 1,032 ) ( 809 ) ( 772 ) Income (loss) before income taxes ( 11,453 ) 2,256 1,884 Income tax provision (benefit) ( 2,568 ) 570 472 Net income (loss) $ ( 8,885 ) $ 1,686 $ 1,412 Earnings (loss) per common share: Basic $ ( 18.36 ) $ 3.80 $ 3.04 Diluted $ ( 18.36 ) $ 3.79 $ 3.03 Weighted average shares outstanding (in thousands): Basic 483,888 443,363 464,236 Diluted 483,888 444,269 465,660 Cash dividends declared per common share $ 0.10 $ 0.40 $ 0.40 See accompanying notes to consolidated financial statements. 91 Table of Contents AMERICAN AIRLINES GROUP INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In millions) Year Ended December 31, 2020 2019 2018 Net income (loss) $ ( 8,885 ) $ 1,686 $ 1,412 Other comprehensive income (loss), net of tax: Pension, retiree medical and other postretirement benefits ( 772 ) ( 438 ) ( 117 ) Investments — 3 ( 3 ) Total other comprehensive loss, net of tax ( 772 ) ( 435 ) ( 120 ) Total comprehensive income (loss) $ ( 9,657 ) $ 1,251 $ 1,292 See accompanying notes to consolidated financial statements. 92 Table of Contents AMERICAN AIRLINES GROUP INC. CONSOLIDATED BALANCE SHEETS (In millions, except share and par value) December 31, 2020 2019 ASSETS Current assets Cash $ 245 $ 280 Short-term investments 6,619 3,546 Restricted cash and short-term investments 609 158 Accounts receivable, net 1,342 1,750 Aircraft fuel, spare parts and supplies, net 1,614 1,851 Prepaid expenses and other 666 621 Total current assets 11,095 8,206 Operating property and equipment Flight equipment 37,816 42,537 Ground property and equipment 9,194 9,443 Equipment purchase deposits 1,446 1,674 Total property and equipment, at cost 48,456 53,654 Less accumulated depreciation and amortization ( 16,757 ) ( 18,659 ) Total property and equipment, net 31,699 34,995 Operating lease right-of-use assets 8,039 8,737 Other assets Goodwill 4,091 4,091 Intangibles, net of accumulated amortization of $ 745 and $ 704 , respectively 2,029 2,084 Deferred tax asset 3,239 645 Other assets 1,816 1,237 Total other assets 11,175 8,057 Total assets $ 62,008 $ 59,995 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) Current liabilities Current maturities of long-term debt and finance leases $ 2,797 $ 2,861 Accounts payable 1,196 2,062 Accrued salaries and wages 1,716 1,541 Air traffic liability 4,757 4,808 Loyalty program liability 2,033 3,193 Operating lease liabilities 1,651 1,708 Other accrued liabilities 2,419 2,138 Total current liabilities 16,569 18,311 Noncurrent liabilities Long-term debt and finance leases, net of current maturities 29,796 21,454 Pension and postretirement benefits 7,069 6,052 Loyalty program liability 7,162 5,422 Operating lease liabilities 6,777 7,421 Other liabilities 1,502 1,453 Total noncurrent liabilities 52,306 41,802 Commitments and contingencies (Note 12) Stockholders' equity (deficit) Common stock, $ 0.01 par value; 1,750,000,000 shares authorized, 621,479,522 shares issued and outstanding at December 31, 2020; 428,202,506 shares issued and outstanding at December 31, 2019 6 4 Additional paid-in capital 6,894 3,945 Accumulated other comprehensive loss ( 7,103 ) ( 6,331 ) Retained earnings (deficit) ( 6,664 ) 2,264 Total stockholders' deficit ( 6,867 ) ( 118 ) Total liabilities and stockholders’ equity (deficit) $ 62,008 $ 59,995 See accompanying notes to consolidated financial statements. 93 Table of Contents AMERICAN AIRLINES GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) Year Ended December 31, 2020 2019 2018 Cash flows from operating activities: Net income (loss) $ ( 8,885 ) $ 1,686 $ 1,412 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 2,370 2,318 2,159 Net gains from sale of property and equipment and sale-leaseback transactions ( 95 ) ( 112 ) ( 59 ) Special items, net non-cash 1,599 376 458 Pension and postretirement ( 319 ) ( 178 ) ( 300 ) Deferred income tax provision (benefit) ( 2,568 ) 560 440 Share-based compensation 91 94 86 Other, net 47 ( 62 ) ( 97 ) Changes in operating assets and liabilities: Decrease in accounts receivable 538 73 222 Increase in other assets ( 38 ) ( 373 ) ( 390 ) Increase (decrease) in accounts payable and accrued liabilities ( 626 ) 327 ( 147 ) Increase (decrease) in air traffic liability ( 51 ) 469 297 Increase (decrease) in loyalty program liability 580 76 ( 283 ) Contributions to pension plans ( 9 ) ( 1,230 ) ( 475 ) Increase (decrease) in other liabilities 823 ( 209 ) 210 Net cash provided by (used in) operating activities ( 6,543 ) 3,815 3,533 Cash flows from investing activities: Capital expenditures and aircraft purchase deposits ( 1,958 ) ( 4,268 ) ( 3,745 ) Proceeds from sale-leaseback transactions 665 850 1,096 Proceeds from sale of property and equipment 351 54 111 Purchases of short-term investments ( 5,873 ) ( 3,184 ) ( 3,412 ) Sales of short-term investments 2,803 4,144 3,705 Proceeds from vendor 90 250 — Decrease (increase) in restricted short-term investments ( 308 ) ( 3 ) 72 Proceeds from sale of investments 41 — 207 Other investing activities ( 153 ) ( 86 ) ( 7 ) Net cash used in investing activities ( 4,342 ) ( 2,243 ) ( 1,973 ) Cash flows from financing activities: Proceeds from issuance of long-term debt 11,780 3,960 2,354 Payments on long-term debt and finance leases ( 3,535 ) ( 4,190 ) ( 2,941 ) Proceeds from issuance of equity 2,970 — — Deferred financing costs ( 93 ) ( 61 ) ( 59 ) Treasury stock repurchases and shares withheld for taxes pursuant to employee stock plans ( 173 ) ( 1,097 ) ( 837 ) Dividend payments ( 43 ) ( 178 ) ( 186 ) Other financing activities 88 ( 2 ) ( 3 ) Net cash provided by (used in) financing activities 10,994 ( 1,568 ) ( 1,672 ) Net increase (decrease) in cash and restricted cash 109 4 ( 112 ) Cash and restricted cash at beginning of year 290 286 398 Cash and restricted cash at end of year (a) $ 399 $ 290 $ 286 (a) The following table provides a reconciliation of cash and restricted cash to amounts reported within the consolidated balance sheets: Cash $ 245 $ 280 $ 275 Restricted cash included in restricted cash and short-term investments 154 10 11 Total cash and restricted cash $ 399 $ 290 $ 286 See accompanying notes to consolidated financial statements. 94 Table of Contents AMERICAN AIRLINES GROUP INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (In millions, except share amounts) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings (Deficit) Total Balance at December 31, 2017 $ 5 $ 5,714 $ ( 5,776 ) $ ( 723 ) $ ( 780 ) Net income — — — 1,412 1,412 Other comprehensive loss, net — — ( 120 ) — ( 120 ) Issuance of 1,709,140 shares of AAG common stock pursuant to employee stock plans net of shares withheld for cash taxes — ( 37 ) — — ( 37 ) Purchase and retirement of 16,606,157 shares of AAG common stock — ( 799 ) — — ( 799 ) Dividends declared on AAG common stock ($ 0.40 per share) — — — ( 188 ) ( 188 ) Share-based compensation expense — 86 — — 86 Impact of adoption of Accounting Standards Update (ASU) 2016-01 related to financial instruments — — — 60 60 Impact of adoption of ASU 2016-02 related to leases — — — 197 197 Balance at December 31, 2018 5 4,964 ( 5,896 ) 758 ( 169 ) Net income — — — 1,686 1,686 Other comprehensive loss, net — — ( 435 ) — ( 435 ) Issuance of 1,682,202 shares of AAG common stock pursuant to employee stock plans net of shares withheld for cash taxes — ( 25 ) — — ( 25 ) Purchase and retirement of 34,090,566 shares of AAG common stock ( 1 ) ( 1,095 ) — — ( 1,096 ) Dividends declared on AAG common stock ($ 0.40 per share) — — — ( 180 ) ( 180 ) Settlement of single-dip unsecured claims held in Disputed Claims Reserve — 7 — — 7 Share-based compensation expense — 94 — — 94 Balance at December 31, 2019 4 3,945 ( 6,331 ) 2,264 ( 118 ) Net loss — — — ( 8,885 ) ( 8,885 ) Other comprehensive loss, net — — ( 772 ) — ( 772 ) Issuance of PSP1 Warrants (see Note 1(b)) — 63 — — 63 Issuance of Treasury Loan Warrants (see Note 1(b)) — 25 — — 25 Issuance of 1,603,554 shares of AAG common stock pursuant to employee stock plans net of shares withheld for cash taxes — ( 15 ) — — ( 15 ) Issuance of 129,490,000 shares of AAG common stock pursuant to public stock offerings, net of offering costs 1 1,686 — — 1,687 Issuance of 68,561,487 shares of AAG common stock pursuant to an at-the-market offering, net of offering costs 1 868 — — 869 Equity component of convertible debt issued, net of tax and offering costs — 320 — — 320 Purchase and retirement of 6,378,025 shares of AAG common stock — ( 145 ) — — ( 145 ) Dividends declared on AAG common stock ($ 0.10 per share) — — — ( 43 ) ( 43 ) Settlement of single-dip unsecured claims held in Disputed Claims Reserve — 56 — — 56 Share-based compensation expense — 91 — — 91 Balance at December 31, 2020 $ 6 $ 6,894 $ ( 7,103 ) $ ( 6,664 ) $ ( 6,867 ) See accompanying notes to consolidated financial statements. 95 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC. 1. Basis of Presentation and Summary of Significant Accounting Policies (a) Basis of Presentation American Airlines Group Inc. (we, us, our and similar terms, or AAG), a Delaware corporation, is a holding company whose primary business activity is the operation of a major network air carrier, providing scheduled air transportation for passengers and cargo through its mainline operating subsidiary, American Airlines, Inc. (American) and its wholly-owned regional airline subsidiaries, Envoy Aviation Group Inc., PSA Airlines, Inc. and Piedmont Airlines, Inc. that operate under the brand American Eagle. On December 9, 2013, a subsidiary of AMR Corporation (AMR) merged with and into US Airways Group, Inc. (US Airways Group), a Delaware corporation, which survived as a wholly-owned subsidiary of AAG, and AAG emerged from Chapter 11 (the Merger). Upon closing of the Merger and emergence from Chapter 11, AMR changed its name to American Airlines Group Inc. All significant intercompany transactions have been eliminated. The preparation of financial statements in accordance with accounting principles generally accepted in the United States (GAAP) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The most significant areas of judgment relate to passenger revenue recognition, impairment of goodwill, impairment of long-lived and intangible assets, the loyalty program, as well as pension and retiree medical and other postretirement benefits. (b) 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, our business, operations and financial condition in 2020 were 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). 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. 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. Fleet 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) below 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. 96 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . 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 effective December 1, 2020 covered by the financial assistance provided pursuant to the payroll support program (PSP2) established under Subtitle A of Title IV of Division N of the Consolidated Appropriations Act, 2021 (PSP Extension Law) (see Note 18 for further information). Liquidity 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 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), of which we borrowed $ 550 million (see below for additional information on the Treasury Loan Agreement); • 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 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; and 97 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . • 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 the payroll support program (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 below 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. 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 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. PSP1 On April 20, 2020 (the PSP1 Closing Date), American, Envoy Air Inc. (Envoy), Piedmont Airlines, Inc. (Piedmont) and PSA Airlines, Inc. (PSA and together with American, Envoy and Piedmont, the Subsidiaries), entered into a Payroll Support Program Agreement (the PSP1 Agreement) with Treasury, with respect to PSP1 provided pursuant to the CARES Act. In connection with our entry into the PSP1 Agreement, on the PSP1 Closing Date, AAG also entered into a warrant agreement (the PSP1 Warrant Agreement) with Treasury and issued the PSP1 Promissory Note to Treasury, with the Subsidiaries as guarantors (the Guarantors). PSP1 Agreement In connection with PSP1, we are required to comply with the relevant provisions of the CARES Act, including the requirement that funds provided pursuant to the PSP1 Agreement be used exclusively for the continuation of payment of eligible employee wages, salaries and benefits, the requirement against involuntary furloughs and reductions in employee pay rates and benefits, which expired on September 30, 2020, the requirement that certain levels of commercial air service be maintained and the provisions that prohibit the repurchase of AAG common stock, and the payment of common stock dividends through at least September 30, 2021, as well as those that restrict the payment of certain executive compensation until March 24, 2022. The PSP1 Agreement also imposes substantial reporting obligations on us. These provisions were subsequently extended upon our entry into PSP2. See Note 18 for further discussion on PSP2. In addition, we have entered into the Treasury Loan Agreement (as defined below) and, as a result, the stock repurchase, dividend and executive compensation restrictions imposed by the Treasury Loan Agreement will remain in place through the date that is one year after the secured loan provided under the Treasury Loan Agreement is fully repaid. See below for additional information on the Treasury Loan Agreement. 98 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . Pursuant to the PSP1 Agreement, Treasury provided us financial assistance in an aggregate of approximately $ 6.0 billion. As partial compensation to the U.S. Government for the provision of financial assistance under PSP1, AAG issued the PSP1 Promissory Note in an aggregate principal amount of approximately $ 1.8 billion and issued warrants (each a PSP1 Warrant and, collectively, the PSP1 Warrants) to Treasury to purchase up to an aggregate of approximately 14.1 million PSP1 Warrant Shares. See Note 5 for further information on the PSP1 Promissory Note and below for more information on the PSP1 Warrant Agreement and the PSP1 Warrants. For accounting purposes, the $ 6.0 billion of aggregate financial assistance we received pursuant to the PSP1 Agreement is allocated to the PSP1 Promissory Note, the PSP1 Warrants and other PSP1 financial assistance (the PSP1 Financial Assistance). The aggregate principal amount of approximately $ 1.8 billion of the PSP1 Promissory Note was recorded as unsecured long-term debt, and the total fair value of the PSP1 Warrants of $ 63 million, estimated using a Black-Scholes option pricing model, was recorded in stockholders' equity in the consolidated balance sheet. The remaining amount of approximately $ 4.2 billion of PSP1 Financial Assistance was recognized as a credit to special items, net in the consolidated statement of operations in the second and third quarters of 2020, the period over which the continuation of payment of eligible employee wages, salaries and benefits was required. PSP1 Warrant Agreement and PSP1 Warrants As partial compensation to the U.S. Government for the provision of financial assistance under the PSP1 Agreement, and pursuant to the PSP1 Warrant Agreement, AAG agreed to issue warrants to Treasury to purchase up to an aggregate of approximately 14.1 million PSP1 Warrant Shares of AAG common stock. The exercise price of the PSP1 Warrant Shares is $ 12.51 per share (which was the closing price of AAG common stock on The Nasdaq Global Select Market on April 9, 2020) subject to certain anti-dilution provisions provided for in the PSP1 Warrants. Pursuant to the PSP1 Warrant Agreement, on each of the PSP1 Closing Date, May 29, 2020, June 30, 2020, July 30, 2020 and September 30, 2020, AAG issued to Treasury a PSP1 Warrant to purchase up to an aggregate of approximately 6.7 million shares, 2.8 million shares, 2.8 million shares, 1.4 million shares and 0.4 million shares, respectively, of AAG common stock based on the terms described herein. The PSP1 Warrants do not have any voting rights and are freely transferrable, with registration rights. Each PSP1 Warrant expires on the fifth anniversary of the date of issuance of such PSP1 Warrant. The PSP1 Warrants will be exercisable either through net share settlement or cash, at our option. The PSP1 Warrants were issued solely as compensation to the U.S. Government related to entry into the PSP1 Agreement. No separate proceeds (apart from the financial assistance described above) were received upon issuance of the PSP1 Warrants or will be received upon exercise thereof. Treasury Loan Agreement On September 25, 2020 (the Treasury Loan Closing Date), AAG and American entered into a Loan and Guarantee Agreement (the Treasury Loan Agreement) with Treasury, which provided for a secured term loan facility (the Treasury Term Loan Facility) that permitted American to borrow up to $ 5.5 billion. Subsequently, on October 21, 2020, AAG and American entered into an amendment to the Treasury Loan Agreement, which increased the borrowing amount to up to $ 7.5 billion. The Treasury Loan Agreement will involve the issuance of additional warrants to purchase up to an aggregate of approximately 60.0 million shares of AAG common stock, assuming the Treasury Term Loan Facility is fully drawn. As of December 31, 2020, American had borrowed $ 550 million under the Treasury Term Loan Facility, which is scheduled to mature on June 30, 2025, and issued warrants to Treasury to purchase up to an aggregate of approximately 4.4 million shares of AAG common stock. See Note 5 for further information on the Treasury Loan Agreement and below for more information on the Treasury Loan Warrant Agreement and Treasury Loan Warrants. Treasury Loan Warrant Agreement and Warrants In connection with the Treasury Loan Agreement, AAG also entered into a warrant agreement (the Treasury Loan Warrant Agreement) with Treasury. Pursuant to the Treasury Loan Warrant Agreement, AAG agreed to issue warrants (each a Treasury Loan Warrant and, collectively, the Treasury Loan Warrants) to Treasury to purchase up to an aggregate of approximately 60.0 million shares (the Treasury Loan Warrant Shares) of AAG's common stock based on the $ 7.5 billion commitment amount under the Treasury Term Loan Facility. The exercise price of the Treasury Loan Warrant Shares is $ 12.51 per share, subject to certain anti-dilution provisions provided for in the Treasury Loan Warrant Agreement. For accounting purposes, the fair value for the Treasury Loan Warrant Shares is estimated using a Black-Scholes option pricing model and recorded in stockholders' equity with an offsetting debt discount to the Treasury Term Loan Facility in the consolidated balance sheet. 99 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . Pursuant to the Treasury Loan Warrant Agreement, on the Treasury Loan Closing Date, AAG issued to Treasury a Treasury Loan Warrant to purchase up to an aggregate of approximately 4.4 million Treasury Loan Warrant Shares based on the terms described herein. On the date of each additional borrowing under the Treasury Loan Agreement, AAG will issue to Treasury an additional Treasury Loan Warrant for a number of Treasury Loan Warrant Shares equal to 10 % of such borrowing, divided by $ 12.51 , the exercise price of such shares. The Treasury Loan Warrants do not have any voting rights and are freely transferrable, with registration rights. Each Treasury Loan Warrant expires on the fifth anniversary of the date of issuance of such Treasury Loan Warrant. The Treasury Loan Warrants will be exercisable either through net share settlement or cash, at AAG's option. The Treasury Loan Warrants were issued solely as compensation to the U.S. Government related to entry into the Treasury Loan Agreement. No separate proceeds were received upon issuance of the Treasury Loan Warrants or will be received upon exercise thereof. (c) Recent Accounting Pronouncements ASU 2016-13: 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. For trade receivables, loans and held-to - maturity debt securities, an estimate of lifetime expected credit losses is required. 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. We adopted this accounting standard prospectively as of January 1, 2020, and it did not have a material impact on our consolidated financial statements. ASU 2020-06: Accounting for Convertible Instruments and Contracts In An Entity's Own Equity (the New Convertible Debt Standard) The New Convertible Debt Standard simplifies the accounting for certain convertible instruments by removing the separation models for convertible debt with a cash conversion feature and for convertible instruments with a beneficial conversion feature. As a result, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. Additionally, the New Convertible Debt Standard amends the diluted earnings per share calculation for convertible instruments by requiring the use of the if-converted method. The treasury stock method is no longer available. Entities may adopt the New Convertible Debt Standard using 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) for additional information on our 6.50 % convertible senior notes. (d) Short-term Investments Short-term investments are classified as available-for-sale and stated at fair value. Realized gains and losses are recorded in nonoperating expense on our consolidated statements of operations. Unrealized gains and losses are recorded in accumulated other comprehensive loss on our consolidated balance sheets. For investments in an unrealized loss position, we determine whether a credit loss exists by considering information about the collectability of the instrument, current market conditions and reasonable and supportable forecasts of economic conditions. There have been no credit losses. (e) Restricted Cash and Short-term Investments We have restricted cash and short-term investments related primarily to money market funds to be used to finance a substantial portion of the cost of the renovation and expansion of Terminal 8 at JFK and collateral held to support workers’ compensation obligations. 100 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . (f) Aircraft Fuel, Spare Parts and Supplies, Net Aircraft fuel is recorded on a first-in, first-out basis. Spare parts and supplies are recorded at average costs less an allowance for obsolescence. These items are expensed when used. (g) Operating Property and Equipment Operating property and equipment is recorded at cost and depreciated or amortized to residual values over the asset’s estimated useful life or the lease term, whichever is less, using the straight-line method. Residual values for aircraft, engines and related rotable parts are generally 5 % to 10 % of original cost. Costs of major improvements that enhance the usefulness of the asset are capitalized and depreciated or amortized over the estimated useful life of the asset or the lease term, whichever is less. The estimated useful lives for the principal property and equipment classifications are as follows: Principal Property and Equipment Classification Estimated Useful Life Aircraft, engines and related rotable parts 20 – 30 years Buildings and improvements 5 – 30 years Furniture, fixtures and other equipment 3 – 10 years Capitalized software 5 – 10 years Total depreciation and amortization expense was $ 2.4 billion, $ 2.6 billion and $ 2.4 billion for the years ended December 31, 2020, 2019 and 2018, respectively. We assess impairment of operating property and equipment when events and circumstances indicate that the assets may be impaired. An impairment of an asset or group of 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 exceed their fair value. Fair value reflects management’s best estimate including inputs from published pricing guides and bids from third parties as well as contracted sales agreements when applicable. In 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 certain 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, we determined the sum of the estimated undiscounted future cash flows exceeded the carrying value except for the aircraft being retired earlier than planned as discussed above. For those aircraft and certain related spare parts, we recorded $ 1.5 billion in non-cash special impairment charges reflecting the difference between the carrying values of these assets and their fair values for the year ended December 31, 2020. At December 31, 2020, prepaid expense and other on the consolidated balance sheet included $ 164 million of these retired aircraft that are expected to be sold in the next year, and other assets on the consolidated balance sheet included $ 401 million of nonoperating retired aircraft. 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. (h) Leases We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (ROU) assets, current operating lease liabilities and noncurrent operating lease liabilities in our consolidated balance sheet. Finance leases are included in property and equipment, current maturities of long-term debt and finance leases and long-term debt and finance leases, net of current maturities, in our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. 101 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . We use our estimated incremental borrowing rate, which is derived from information available at the lease commencement date , in determining the present value of lease payments. We give consideration to our recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates. Our lease term includes options to extend the lease when it is reasonably certain that we will exercise that option. Leases with a term of 12 months or less are not recorded on the balance sheet. Our lease agreements do not contain any residual value guarantees. Under certain of our capacity purchase agreements with third-party regional carriers, we do not own the underlying aircraft. However, since we control the marketing, scheduling, ticketing, pricing and seat inventories of these aircraft and therefore control the asset, the aircraft is deemed to be leased for accounting purposes. For these capacity purchase agreements, we account for the lease and non-lease components separately. The lease component consists of the aircraft and the non-lease components consist of services, such as the crew and maintenance. We allocate the consideration in the capacity purchase agreements to the lease and non-lease components using their estimated relative standalone prices. See Note 12(b) for additional information on our capacity purchase agreements . For real estate, we account for the lease and non-lease components as a single lease component. (i) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are recorded net as noncurrent deferred income taxes. We provide a valuation allowance for our deferred tax assets when it is more likely than not that some portion, or all of our deferred tax assets, will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. We consider all available positive and negative evidence and make certain assumptions in evaluating the realizability of our deferred tax assets. Many factors are considered that impact our assessment of future profitability, including conditions which are beyond our control, such as the health of the economy, the availability and price volatility of aircraft fuel and travel demand. (j) Goodwill 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. We assess goodwill for impairment annually or more frequently if events or circumstances indicate that the fair value of goodwill may be lower than the carrying value. Our annual assessment date is October 1. Goodwill is assessed for impairment by initially performing a qualitative assessment. If we determine that it is more likely than not that our goodwill may be impaired, we use a quantitative approach to assess the asset’s fair value and the amount of the impairment, if any. In addition to our annual impairment assessment, we performed interim impairment tests in 2020 on our goodwill as a result of the events and circumstances previously discussed due to the impact of the COVID-19 pandemic on our business. 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. The fair value exceeded the carrying value of the reporting unit, and our goodwill was not impaired. The carrying value of our goodwill on our consolidated balance sheets was $ 4.1 billion as of December 31, 2020 and 2019. As discussed above, due to the inherent uncertainties of the current operating environment, we will continue to evaluate our goodwill for events and circumstances that indicate that the fair value of the reporting unit may be lower than the carrying value. (k) Other Intangibles, Net Intangible assets consist primarily of certain domestic airport slots and gate leasehold rights, customer relationships, marketing agreements, international slots and route authorities and tradenames. 102 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . Definite-Lived Intangible Assets Definite-lived intangible assets are originally recorded at their acquired fair values, subsequently amortized over their respective estimated useful lives and are assessed for impairment whenever events and circumstances indicate that the assets may be impaired. The following table provides information relating to our amortizable intangible assets as of December 31, 2020 and 2019 (in millions): December 31, 2020 2019 Domestic airport slots $ 365 $ 365 Customer relationships 300 300 Marketing agreements 105 105 Tradenames 35 35 Airport gate leasehold rights 137 137 Accumulated amortization ( 745 ) ( 704 ) Total $ 197 $ 238 Certain domestic airport slots and airport gate leasehold rights are amortized on a straight-line basis over 25 years. The customer relationships and marketing agreements were identified as intangible assets subject to amortization and are amortized on a straight-line basis over approximately nine years and 30 years, respectively. Tradenames are fully amortized. We recorded amortization expense related to these intangible assets of $ 41 million for each of the years ended December 31, 2020, 2019 and 2018. We expect to record annual amortization expense for these intangible assets as follows (in millions): 2021 $ 41 2022 41 2023 7 2024 7 2025 7 2026 and thereafter 94 Total $ 197 Indefinite-Lived Intangible Assets Indefinite-lived intangible assets include certain domestic airport slots and international slots and route authorities. We assess indefinite-lived intangible assets for impairment annually or more frequently if events or circumstances indicate that the fair values of indefinite-lived intangible assets may be lower than their carrying values. Our annual assessment date is October 1. Indefinite-lived intangible assets are assessed for impairment by initially performing a qualitative assessment. If we determine that it is more likely than not that our 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 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. We performed qualitative impairment tests on our indefinite-lived intangible assets and determined there was no material impairment. We had $ 1.8 billion of indefinite-lived intangible assets on our consolidated balance sheets at each of December 31, 2020 and 2019. As discussed above, due to the inherent uncertainties of the current operating environment, we will continue to evaluate our indefinite-lived intangible assets for events and circumstances that indicate that their fair values may be lower than the carrying values. 103 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . (l) Revenue Recognition Revenue The following are the significant categories comprising our reported operating revenues (in millions): Year Ended December 31, 2020 2019 2018 Passenger revenue: Passenger travel $ 13,456 $ 38,831 $ 37,457 Loyalty revenue - travel (1) 1,062 3,179 3,219 Total passenger revenue 14,518 42,010 40,676 Cargo 769 863 1,013 Other: Loyalty revenue - marketing services 1,825 2,361 2,352 Other revenue 225 534 500 Total other revenue 2,050 2,895 2,852 Total operating revenues $ 17,337 $ 45,768 $ 44,541 (1) Loyalty revenue included in passenger revenue is principally comprised of mileage credit redemptions, which were earned from travel or co-branded credit card and other partners. See “ Loyalty Revenue ” below for further discussion on these mileage credits. The following is our total passenger revenue by geographic region (in millions): Year Ended December 31, 2020 2019 2018 Domestic $ 11,765 $ 30,881 $ 29,573 Latin America 1,852 5,047 5,125 Atlantic 654 4,624 4,376 Pacific 247 1,458 1,602 Total passenger revenue $ 14,518 $ 42,010 $ 40,676 We attribute passenger revenue by geographic region based upon the origin and destination of each flight segment. 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 and other inflight services, as passenger revenue when transportation is provided. Ticket and other related sales for transportation that has not yet been provided are initially deferred and recorded as air traffic liability on our consolidated balance sheets. The air traffic liability principally represents tickets sold for future travel on American and partner airlines, as well as estimated future refunds and exchanges of tickets sold for past travel. The majority of tickets sold are nonrefundable. A small percentage of tickets, some of which are partially used tickets, expire unused. Due to complex pricing structures, refund and exchange policies, and interline agreements with other airlines, certain amounts are recognized in passenger revenue using estimates regarding both the timing of the revenue recognition and the amount of revenue to be recognized. These estimates are generally based on the analysis of our historical data. We have consistently applied this accounting method to estimate revenue from unused tickets at the date of travel. Estimated future refunds and exchanges included in the air traffic liability are routinely evaluated based on subsequent activity to validate the accuracy of our estimates. Any adjustments resulting from periodic evaluations of the estimated air traffic liability are included in passenger revenue during the period in which the evaluations are completed. 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 104 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . 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 We currently operate the loyalty program, AAdvantage. This program awards mileage credits to passengers who fly on American, any one world airline or other partner airlines, or by using the services of other program participants, such as the Citi and Barclaycard US co-branded credit cards, and certain hotels and car rental companies. Mileage credits can be redeemed for travel on American and other participating partner airlines, as well as other non-air travel awards such as hotels and rental cars. For mileage credits earned by AAdvantage loyalty program members, we apply the deferred revenue method. In 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 For mileage credits earned through travel, we apply a relative selling price approach whereby the total amount collected from each passenger ticket sale is allocated between the air transportation and the mileage credits earned. The portion of each passenger ticket sale attributable to mileage credits earned is initially deferred and then recognized in passenger revenue when mileage credits are redeemed and transportation is provided. The estimated selling price of mileage credits is determined using an equivalent ticket value approach, which uses historical data, including award redemption patterns by geographic region and class of service, as well as similar fares as those used to settle award redemptions. The estimated selling price of miles is adjusted for an estimate of 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. Mileage credits sold to co-branded credit cards and other partners We sell mileage credits to participating airline partners and non-airline business partners, including our co-branded credit card partners, under contracts with terms extending generally for one to seven years . Consideration received from the sale of mileage credits is variable and payment terms typically are within 30 days subsequent to the month of mileage sale. Sales of mileage credits to non-airline business partners are comprised of two components, transportation and marketing. We allocate the consideration received from these sales of mileage credits based on the relative selling price of each product or service delivered. Our most significant partner agreements are our co-branded credit card agreements with Citi and Barclaycard US. We identified the following revenue elements in these co-branded credit card agreements: the transportation component; and the use of intellectual property, including the American brand and access to loyalty program member lists, which is the predominant element in the agreements, as well as advertising (collectively, the marketing component). Accordingly, we recognize the marketing component in other revenue in the period of the mileage sale following the sales-based royalty method. The transportation component represents the estimated selling price of future travel awards and is determined using the same equivalent ticket value approach described above. The portion of each mileage credit sold attributable to transportation is initially deferred and then recognized in passenger revenue when mileage credits are redeemed and transportation is provided. For the portion of our outstanding mileage credits that we estimate will not be redeemed, we recognize the associated value proportionally as the remaining mileage credits are redeemed. Our estimates use statistical models based on historical redemption patterns to develop an estimate of the likelihood of future redemption. 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. Loyalty revenue included in other revenue was $ 1.8 billion for the year ended December 31, 2020 and $ 2.4 billion for both 2019 and 2018. The accounting and recognition for the loyalty program marketing services are discussed above in “ Loyalty 105 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . Revenue .” The remaining amounts included within other revenue relate to airport clubs, advertising and vacation-related services. Contract Balances Our significant contract liabilities are comprised of (1) outstanding loyalty program mileage credits that may be redeemed for future travel and other non-air travel awards, reported as loyalty program liability on our consolidated balance sheets and (2) ticket sales for transportation that has not yet been provided, reported as air traffic liability on our consolidated balance sheets. December 31, 2020 2019 (in millions) Loyalty program liability $ 9,195 $ 8,615 Air traffic liability 4,757 4,808 Total $ 13,952 $ 13,423 The balance of the loyalty program liability fluctuates based on seasonal patterns, which impact the volume of mileage credits issued through travel or sold to co-branded credit card and other partners (deferral of revenue) and mileage credits redeemed (recognition of revenue). Changes in loyalty program liability are as follows (in millions): Balance at December 31, 2019 $ 8,615 Deferral of revenue 1,812 Recognition of revenue (1) ( 1,232 ) Balance at December 31, 2020 (2) $ 9,195 (1) Principally relates to revenue recognized from the redemption of mileage credits for both air and non-air travel awards. Mileage credits are combined in one homogenous pool and are not separately identifiable. As such, the revenue is comprised of miles that were part of the loyalty program deferred revenue balance at the beginning of the period, as well as miles that were issued during the period. (2) Mileage credits can be redeemed at any time and generally do not expire as long as that AAdvantage member has any type of qualifying activity at least every 18 months. As previously discussed, 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. As of December 31, 2020, our current loyalty program liability was $ 2.0 billion and represents our current estimate of revenue expected to be recognized in the next 12 months based on historical as well as projected trends, with the balance reflected in long-term loyalty program liability expected to be recognized as revenue in periods thereafter. Given the inherent uncertainty of the current operating environment due to the COVID-19 pandemic, we will continue to monitor redemption patterns and may adjust our estimates in the future. The air traffic liability principally represents tickets sold for future travel on American and partner airlines, as well as estimated future refunds and exchanges of tickets sold for past travel. The balance in our air traffic liability also fluctuates with seasonal travel patterns. The contract duration of passenger tickets is generally one year . Accordingly, any revenue associated with tickets sold for future travel will be recognized within 12 months. For 2020, $ 2.8 billion of revenue was recognized in passenger revenue that was included in our air traffic liability at December 31, 2019. 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. Our ticket contract receivables relate to ticket sales to individual passengers primarily through the use of major credit cards and are reflected as accounts receivable, net on the accompanying consolidated balance sheets. These receivables are short-term, mostly settled within seven days after sale. All accounts receivable are reported net of an allowance for 106 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . credit losses, which have been minimal in the past. We consider past and future financial and qualitative factors when establishing the allowance for credit losses. (m) Maintenance, Materials and Repairs Maintenance and repair costs for owned and leased flight equipment are charged to operating expense as incurred, except costs incurred for maintenance and repair under flight hour maintenance contract agreements, which are accrued based on contractual terms when an obligation exists. (n) Selling Expenses Selling expenses include credit card fees, commissions, computerized reservations systems fees and advertising. Selling expenses associated with passenger revenue are expensed when the transportation or service is provided. Advertising costs are expensed as incurred. Advertising expense was $ 50 million, $ 129 million and $ 128 million for the years ended December 31, 2020, 2019 and 2018, respectively. (o) Share-based Compensation We account for our share-based compensation expense based on the fair value of the stock award at the time of grant, which is recognized ratably over the vesting period of the stock award. The majority of our stock awards are time vested restricted stock units, and the fair value of such awards is based on the market price of the underlying shares of AAG common stock on the date of grant. See Note 15 for further discussion of share-based compensation. (p) Foreign Currency Gains and Losses Foreign currency gains and losses are recorded as part of other income, net within total nonoperating expense, net in our consolidated statements of operations. For the years ended December 31, 2020, 2019 and 2018, respectively, foreign currency losses were $ 24 million, $ 32 million and $ 55 million. (q) Other Operating Expenses Other operating expenses includes costs associated with ground and cargo handling, crew travel, aircraft food and catering, aircraft cleaning, passenger accommodation, airport security, international navigation fees and certain general and administrative expenses. (r) Regional Expenses Expenses associated with American Eagle operations are classified as regional expenses on our consolidated statements of operations. Regional expenses consist of the following (in millions): Year Ended December 31, 2020 2019 2018 Aircraft fuel and related taxes $ 821 $ 1,869 $ 1,843 Salaries, wages and benefits 1,591 1,781 1,591 Capacity purchases from third-party regional carriers (1) 1,054 1,398 1,431 Maintenance, materials and repairs 314 403 340 Other rent and landing fees 496 651 610 Aircraft rent 13 29 32 Selling expenses 153 402 369 Depreciation and amortization 325 336 318 Special items, net ( 309 ) 6 6 Other 434 626 593 Total regional expenses $ 4,892 $ 7,501 $ 7,133 (1) In 2020 , 2019, and 2018, we recognized $ 438 million, $ 590 million and $ 565 million, respectively, of expense under our capacity purchase agreement with Republic Airways Inc. (Republic). We hold a 25 % equity interest in Republic Airways Holdings Inc. (Republic Holdings), the parent company of Republic. 107 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . 2. Special Items, Net Special items, net on our consolidated statements of operations consisted of the following (in millions): Year Ended December 31, 2020 2019 2018 PSP1 Financial Assistance (1) $ ( 3,710 ) $ — $ — Fleet impairment (2) 1,484 213 — Severance expenses (3) 1,408 11 58 Labor contract expenses (4) 228 — 13 Mark-to-market adjustments on bankruptcy obligations, net (5) ( 49 ) ( 11 ) ( 76 ) Fleet restructuring expenses (6) — 271 422 Merger integration expenses (7) — 191 268 Litigation reserve adjustments — ( 53 ) 45 Intangible asset impairment (8) — — 26 Other operating special items, net ( 18 ) 13 31 Mainline operating special items, net ( 657 ) 635 787 PSP1 Financial Assistance (1) ( 444 ) — — Fleet impairment (2) 117 — — Severance expenses (3) 18 — — Other operating special items, net — 6 6 Regional operating special items, net ( 309 ) 6 6 Operating special items, net ( 966 ) 641 793 Mark-to-market adjustments on equity and other investments, net (9) 135 ( 5 ) 104 Debt refinancing, extinguishment and other, net 35 8 9 Nonoperating special items, net 170 3 113 Income tax special items (10) — — 18 (1) PSP1 Financial Assistance represents recognition of financial assistance received from Treasury pursuant to the PSP1 Agreement. See Note 1(b) 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 ROU assets and lease return costs. See Note 1(g) 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 and 2018 severance expenses primarily included costs associated with reductions of management and support staff team members. 108 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . (4) The 2020 labor contract expenses primarily related to one-time charges resulting from the ratification of a new contract with the Transport Workers Union and International Association of Machinists & Aerospace Workers (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. (8) Intangible asset impairment included a non-cash charge to write-off our Brazil route authority as a result of the U.S.-Brazil open skies agreement. (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 Company Limited (China Southern Airlines) and certain treasury rate lock derivative instruments. (10) Income tax special items included an $ 18 million charge related to an international income tax matter. 3. Earnings (Loss) Per Common Share The following table sets forth the computation of basic and diluted earnings (loss) per common share (EPS) (in millions, except share and per share amounts): Year Ended December 31, 2020 2019 2018 Basic EPS: Net income (loss) $ ( 8,885 ) $ 1,686 $ 1,412 Weighted average common shares outstanding (in thousands) 483,888 443,363 464,236 Basic EPS $ ( 18.36 ) $ 3.80 $ 3.04 Diluted EPS: Net income (loss) for purposes of computing diluted EPS $ ( 8,885 ) $ 1,686 $ 1,412 Share computation for diluted EPS (in thousands): Basic weighted average common shares outstanding 483,888 443,363 464,236 Dilutive effect of stock awards — 906 1,424 Diluted weighted average common shares outstanding 483,888 444,269 465,660 Diluted EPS $ ( 18.36 ) $ 3.79 $ 3.03 Securities that could potentially dilute EPS in the future, and which were excluded from the calculation of diluted EPS because inclusion of such shares would be antidilutive, are as follows (in thousands): Year Ended December 31, 2020 2019 2018 6.50% convertible senior notes 31,882 — — Restricted stock unit awards 4,584 2,520 1,266 PSP1 Warrants 349 — — Treasury Loan Warrants 107 — — 109 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . 4. Share Repurchase Programs and Dividends 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 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. 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 . In 2018, we repurchased 16.6 million shares of AAG common stock for $ 800 million at a weighted average cost per share of $ 48.15 . Our Board of Directors declared quarterly cash dividends of $ 0.10 per share totaling $ 43 million, $ 178 million and $ 186 million for 2020, 2019 and 2018, respectively. 110 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . 5. Debt Long-term debt included on our consolidated balance sheets consisted of (in millions): December 31, 2020 2019 Secured 2013 Term Loan Facility, variable interest rate of 1.90 %, installments through 2025 (a) $ 1,788 $ 1,807 2013 Revolving Facility, variable interest rate of 2.15 %, due 2024 (a) 750 — 2014 Term Loan Facility, variable interest rate of 1.90 %, installments through 2027 (a) 1,220 1,202 2014 Revolving Facility, variable interest rate of 2.15 %, due 2024 (a) 1,643 — April 2016 Term Loan Facility, variable interest rate of 2.15 %, installments through 2023 (a) 960 970 April 2016 Revolving Facility, variable interest rate of 2.15 %, due 2024 (a) 450 — December 2016 Term Loan Facility, variable interest rate of 2.16 %, installments through 2023 (a) 1,200 1,213 11.75 % senior secured notes, interest only payments until due in July 2025 (b) 2,500 — 10.75 % senior secured IP notes, interest only payments until due in February 2026 (b) 1,000 — 10.75 % senior secured LGA/DCA notes, interest only payments until due in February 2026 (b) 200 — Treasury Term Loan Facility, variable interest rate of 3.73 %, interest only payments until due June 2025 (c) 550 — Enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 3.00 % to 8.39 %, averaging 3.98 %, maturing from 2021 to 2032 (d) 11,013 11,933 Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.32 % to 5.83 %, averaging 1.88 %, maturing from 2021 to 2032 (e) 4,417 4,727 Special facility revenue bonds, fixed interest rates ranging from 5.00 % to 8.00 %, maturing from 2021 to 2036 (f) 1,064 754 28,755 22,606 Unsecured PSP1 Promissory Note (g) 1,765 — 6.50 % convertible senior notes, interest only payments until due in July 2025 (h) 1,000 — 5.000 % senior notes, interest only payments until due in June 2022 (i) 750 750 3.75 % senior notes, interest only payments until due in March 2025 (i) 500 — 4.625 % senior notes — 500 4,015 1,250 Total long-term debt 32,770 23,856 Less: Total unamortized debt discount, premium and issuance costs 749 211 Less: Current maturities 2,697 2,749 Long-term debt, net of current maturities $ 29,324 $ 20,896 As of December 31, 2020, the maximum availability under our Treasury Term Loan Facility and other facilities is as follows (in millions): Treasury Term Loan Facility $ 6,950 Short-term Revolving and Other Facilities 446 Total $ 7,396 111 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . Pursuant to the Treasury Loan Agreement, at December 31, 2020, American had a $ 7.5 billion Treasury Term Loan Facility of which it has drawn $ 550 million. In addition, American has an undrawn $ 400 million short-term revolving credit facility it entered into in December 2019, which was set to expire at the end of December 2020 but which has been extended through the beginning of July 2021. American also currently has approximately $ 46 million of available borrowing base under a cargo receivables facility that was entered into in December 2020. The December 2016 Credit Facilities provide for a revolving credit facility that may be established thereunder in the future. Secured financings are collateralized by assets, consisting primarily of aircraft, engines, simulators, aircraft spare parts, airport gate leasehold rights, route authorities, airport slots and certain pre-delivery payments, as well as certain intellectual property and loyalty program assets. At December 31, 2020, the maturities of long-term debt are as follows (in millions): 2021 $ 2,751 2022 2,424 2023 4,164 2024 4,403 2025 7,924 2026 and thereafter 11,104 Total $ 32,770 (a) 2013, 2014, April 2016 and December 2016 Credit Facilities 2013 Credit Facilities In November 2019, American and AAG entered into the Sixth Amendment to Amended and Restated Credit and Guaranty Agreement, amending the Amended and Restated Credit and Guaranty Agreement dated as of May 21, 2015 (as previously amended, the 2013 Credit Agreement; the revolving credit facility established thereunder, the 2013 Revolving Facility; the term loan facility established thereunder, the 2013 Term Loan Facility; and the 2013 Revolving Facility together with the 2013 Term Loan Facility, the 2013 Credit Facilities), which reduced the total aggregate commitments under the 2013 Revolving Facility to $ 750 million from $ 1.0 billion. In addition, certain lenders party to the 2013 Credit Agreement extended the maturity date of their commitments under the 2013 Revolving Facility to October 2024 from October 2023. In April 2020, American borrowed $ 750 million under the 2013 Revolving Facility. The 2013 Revolving Facility bears interest at LIBOR plus a margin of 2.00 % and has a final maturity date of October 2024. Following the April draw, American had no remaining borrowing capacity available under the 2013 Revolving Facility. 2014 Credit Facilities In November 2019, American and AAG entered into the Seventh Amendment to Amended and Restated Credit and Guaranty Agreement, amending the Amended and Restated Credit and Guaranty Agreement dated as of April 20, 2015 (as previously amended, the 2014 Credit Agreement; the revolving credit facility established thereunder, the 2014 Revolving Facility; the term loan facility established thereunder, the 2014 Term Loan Facility; and the 2014 Revolving Facility together with the 2014 Term Loan Facility, the 2014 Credit Facilities), which increased the total aggregate commitments under the 2014 Revolving Facility to $ 1.6 billion from $ 1.5 billion. In addition, certain lenders party to the 2014 Credit Agreement extended the maturity date of their commitments under the 2014 Revolving Facility to October 2024 from October 2023. In January 2020, American and AAG entered into the Eighth Amendment to the 2014 Credit Agreement, pursuant to which American refinanced the 2014 Term Loan Facility, increasing the total aggregate principal amount outstanding to $ 1.2 billion, reducing the LIBOR margin from 2.00 % to 1.75 %, with a LIBOR floor of 0 %, and reducing the base rate margin from 1.00 % to 0.75 %. In addition, the maturity date for the 2014 Term Loan Facility was extended to January 2027 from October 2021. In April and May 2020, American borrowed, in aggregate, $ 1.6 billion under the 2014 Revolving Facility. The 2014 Revolving Facility bears interest at LIBOR plus a margin of 2.00 % and has a final maturity date of October 2024. Following the April and May draws, American had no remaining borrowing capacity available under the 2014 Revolving Facility. 112 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . April 2016 Credit Facilities In November 2019, American and AAG entered into the Fifth Amendment to Credit and Guaranty Agreement, amending the Credit and Guaranty Agreement dated as of April 29, 2016 (as previously amended, the April 2016 Credit Agreement; the revolving credit facility established thereunder, the April 2016 Revolving Facility; the term loan facility established thereunder, the 2016 Term Loan Facility; and the April 2016 Revolving Facility together with the 2016 Term Loan Facility, the April 2016 Credit Facilities), which increased the total aggregate commitments under the April 2016 Revolving Facility to $ 450 million from $ 300 million. In addition, certain lenders party to the April 2016 Credit Agreement extended the maturity date of their commitments under the April 2016 Revolving Facility to October 2024 from October 2023. In April 2020, American borrowed $ 450 million under the April 2016 Revolving Facility. The April 2016 Revolving Facility bears interest at LIBOR plus a margin of 2.00 % and has a final maturity date of October 2024. Following the April draw, American had no remaining borrowing capacity available under the April 2016 Revolving Facility. December 2016 Credit Facilities In December 2016, American and AAG entered into the Amended and Restated Credit and Guaranty Agreement, dated as of December 15, 2016 (as amended, the December 2016 Credit Agreement; the term loan facility established thereunder, the December 2016 Term Loan Facility; and together with the revolving credit facility that may be established thereunder in the future, the December 2016 Credit Facilities). Certain details of our 2013 Credit Facilities, 2014 Credit Facilities, April 2016 Credit Facilities and December 2016 Credit Facilities (collectively referred to as the Credit Facilities) are shown in the table below as of December 31, 2020: 2013 Credit Facilities 2014 Credit Facilities April 2016 Credit Facilities December 2016 Credit Facilities 2013 Term Loan 2013 Revolving Facility 2014 Term Loan 2014 Revolving Facility April 2016 Term Loan April 2016 Revolving Facility December 2016 Term Loan Aggregate principal issued or credit facility availability (in millions) $ 1,919 $ 750 $ 1,280 $ 1,643 $ 1,000 $ 450 $ 1,250 Principal outstanding or drawn (in millions) $ 1,788 $ 750 $ 1,220 $ 1,643 $ 960 $ 450 $ 1,200 Maturity date June 2025 October 2024 January 2027 October 2024 April 2023 October 2024 December 2023 LIBOR margin 1.75 % 2.00 % 1.75 % 2.00 % 2.00 % 2.00 % 2.00 % The term loans under each of the Credit Facilities are repayable in annual installments in an amount equal to 1.00 % of the aggregate principal amount issued, with any unpaid balance due on the respective maturity dates. Voluntary prepayments may be made by American at any time. The 2013 Revolving Facility, 2014 Revolving Facility and April 2016 Revolving Facility provide that American may from time to time borrow, repay and reborrow loans thereunder. The 2013 Revolving Facility and 2014 Revolving Facility have the ability to issue letters of credit thereunder in an aggregate amount outstanding at any time up to $ 100 million and $ 200 million, respectively. The 2013 Revolving Facility, 2014 Revolving Facility and April 2016 Revolving Facility are each subject to an undrawn annual fee of 0.63 %. Subject to certain limitations and exceptions, the Credit Facilities are secured by collateral, including certain spare parts, slots, route authorities, simulators and leasehold rights. American has the ability to make future modifications to the collateral pledged, subject to certain restrictions. American’s obligations under the Credit Facilities are guaranteed by AAG. American is required to maintain a certain minimum ratio of appraised value of the collateral to the outstanding loans as further described below in “Certain Covenants.” The Credit Facilities contain events of default customary for similar financings, including cross default to other material indebtedness. Upon the occurrence of an event of default, the outstanding obligations may be accelerated and become due and payable immediately. In addition, if a “change of control” occurs, American will (absent an amendment or waiver) be required to repay at par the loans outstanding under the Credit Facilities and terminate the 2013 Revolving Facility, 2014 Revolving Facility and April 2016 Revolving Facility and any revolving credit facility established under the December 113 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . 2016 Credit Facilities. The Credit Facilities also include covenants that, among other things, require AAG 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 limit the ability of AAG and its restricted subsidiaries to pay dividends and make certain other payments, make certain investments, incur additional indebtedness, incur liens on the collateral, dispose of the collateral, enter into certain affiliate transactions and engage in certain business activities, in each case subject to certain exceptions. Delayed Draw Term Loan Credit Facility In March 2020, American and AAG entered into a Credit and Guaranty Agreement which provided for a $ 1.0 billion senior secured delayed draw term loan credit facility (the Delayed Draw Term Loan Credit Facility), which was scheduled to be due and payable in a single installment on the maturity date in March 2021. In connection with the issuance of the 11.75 % senior secured notes due 2025, as described below, the Delayed Draw Term Loan Credit Facility was repaid and the Delayed Draw Term Loan Credit Facility and all of the security documents and other loan documents related thereto were terminated as of June 30, 2020. (b) Senior Secured Notes 11.75 % Senior Secured Notes In June 2020, American issued $ 2.5 billion aggregate principal amount of 11.75 % senior secured notes due 2025 (the 11.75 % Senior Secured Notes) at a price equal to 99 % of their aggregate principal amount. The 11.75 % Senior Secured Notes bear interest at a rate of 11.75 % per annum (subject to increase if the collateral coverage ratio described below is not met). Interest on the 11.75 % Senior Secured Notes is payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2021. The 11.75 % Senior Secured Notes will mature on July 15, 2025. The obligations of American under the 11.75 % Senior Secured Notes are fully and unconditionally guaranteed on a senior unsecured basis by AAG. The proceeds from the 11.75 % Senior Secured Notes were used to repay and terminate the Delayed Draw Term Loan Credit Facility (and to terminate all security documents and all other loan documents related thereto) with the remaining amount for general corporate purposes and to enhance our liquidity position. The 11.75 % Senior Secured Notes were issued pursuant to an indenture, dated as of June 30, 2020 (the 11.75 % Senior Secured Notes Indenture), by and among American, AAG and Wilmington Trust, National Association, as trustee (the 11.75 % Senior Secured Notes Trustee). The 11.75 % Senior Secured Notes are American’s senior secured obligations. Subject to certain limitations and exceptions, the 11.75 % Senior Secured Notes are secured on a first-lien basis by security interests in certain assets, rights and properties utilized by American in providing its scheduled air carrier services to and from certain airports in the United States and certain airports in Australia, Canada, the Caribbean, Central America, China, Hong Kong, Japan, Mexico, South Korea, and Switzerland (collectively, the First Lien 11.75 % Senior Secured Notes Collateral). American’s obligations with respect to the 11.75 % Senior Secured Notes are also secured on a second-lien basis by security interests in certain assets, rights and properties utilized by American in providing its scheduled air carrier services to and from certain airports in the United States and certain airports in the European Union and the United Kingdom (collectively, the Second Lien 11.75 % Senior Secured Notes Collateral and together with the First Lien 11.75 % Senior Secured Notes Collateral, the 11.75 % Senior Secured Notes Collateral). American may be required to pledge additional collateral in the future under the terms of the 11.75 % Senior Secured Notes, and in certain circumstances may elect to pledge additional collateral as a replacement for existing collateral. The Second Lien 11.75 % Senior Secured Notes Collateral also secures the 2014 Credit Facilities on a first-lien basis. American may redeem the 11.75 % Senior Secured Notes, in whole at any time or in part from time to time, at a redemption price equal to 100 % of the principal amount of the 11.75 % Senior Secured Notes being redeemed plus a make whole premium, together with accrued and unpaid interest thereon, if any, to (but not including) the redemption date. In the event of a specified change of control, each holder of 11.75 % Senior Secured Notes may require American to repurchase its 11.75 % Senior Secured Notes in whole or in part at a repurchase price of 101 % of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, if any, to (but not including) the repurchase date. 114 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . American is required to deliver an appraisal of the First Lien 11.75 % Senior Secured Notes Collateral and officer’s certificate on a semi-annual basis demonstrating the calculation of a collateral coverage ratio in relation to the First Lien 11.75 % Senior Secured Notes Collateral as of the end of each semi-annual period based on such appraisal. If American fails to deliver the officer’s certificate in a timely manner or the collateral coverage ratio is less than 1.6 to 1.0 as of the end of the semi-annual period, then, subject to an opportunity to cure the deficiency in the collateral coverage ratio, American will be required to pay special interest in an additional amount equal to 2.0 % per annum of the outstanding principal amount of the 11.75 % Senior Secured Notes until the collateral coverage ratio is established to be at least 1.6 to 1.0. The 11.75 % Senior Secured Notes Indenture contains covenants that, among other things, restrict the ability of AAG and the ability of its restricted subsidiaries (including American) to: (i) pay dividends, redeem or repurchase stock or make other distributions or restricted payments, (ii) incur liens on the 11.75 % Senior Secured Notes Collateral and dispose of or release the 11.75 % Senior Secured Notes Collateral, (iii) repay subordinated indebtedness, (iv) make certain loans and investments, (v) incur indebtedness or issue preferred stock, (vi) merge, consolidate or sell assets, (vii) undergo certain change of control transactions, and (viii) designate subsidiaries as unrestricted. These covenants are subject to a number of important exceptions and qualifications set forth in the 11.75 % Senior Secured Notes Indenture. Upon the occurrence of any event of default (other than certain bankruptcy or insolvency or reorganization events affecting AAG or certain of its subsidiaries, including American), the 11.75 % Senior Secured Notes may be declared to be due and payable immediately. Upon the occurrence of certain bankruptcy, insolvency or reorganization events affecting American or certain of its subsidiaries (including American), all outstanding 11.75 % Senior Secured Notes will become due and payable immediately without further action or notice on the part of the 11.75 % Senior Secured Notes Trustee or any holder of the 11.75 % Senior Secured Notes. 10.75 % Senior Secured Notes On September 25, 2020 (the 10.75 % Senior Secured Notes Closing Date), American issued $ 1.0 billion in initial principal amount of senior secured IP notes (the IP Notes) and $ 200 million in initial principal amount of senior secured LGA/DCA notes (the LGA/DCA Notes and together with the IP Notes, the 10.75 % Senior Secured Notes). The obligations of American under the 10.75 % Senior Secured Notes are fully and unconditionally guaranteed (the 10.75 % Senior Secured Notes Guarantees) on a senior unsecured basis by AAG. The 10.75 % Senior Secured Notes bear interest at a rate of 10.75 % per annum in cash. For any interest period on or prior to September 1, 2022, American may, at its election, pay interest at a rate of 12.00 % per annum payable one-half in cash and one-half in kind. Interest on the 10.75 % Senior Secured Notes is payable semiannually in arrears on September 1 and March 1 of each year, beginning on March 1, 2021. The 10.75 % Senior Secured Notes will mature on February 15, 2026. The proceeds from the 10.75 % Senior Secured Notes were used to pay transaction-related fees and expenses and for general corporate purposes. The 10.75 % Senior Secured Notes were each issued pursuant to a separate indenture, dated as of September 25, 2020 (individually, the IP Notes Indenture and the LGA/DCA Notes Indenture and collectively, the 10.75 % Senior Secured Notes Indentures), by and among American, AAG and Wilmington Trust, National Association, as trustee and as collateral trustee (the 10.75 % Senior Secured Notes Trustee). The IP Notes are secured by a first lien security interest on certain intellectual property of American, including the “American Airlines” trademark and the “aa.com” domain name in the United States and certain foreign jurisdictions (the IP Collateral), and a second lien on certain slots related to American’s operations at New York LaGuardia and Ronald Reagan Washington National airports and certain other assets (the LGA/DCA Collateral and together with the IP Collateral, the 10.75 % Senior Secured Notes Collateral). Subject to certain conditions, American will be permitted to incur up to $ 4.0 billion of additional pari passu debt and unlimited second lien debt secured by the IP Collateral securing the IP Notes. The LGA/DCA Notes are secured by a first lien security interest in the LGA/DCA Collateral. American may be required to pledge additional collateral in the future under the terms of the 10.75 % Senior Secured Notes, and in certain circumstances may elect to pledge additional collateral including as a replacement for existing collateral. The LGA/DCA Collateral also secures on a first-lien basis the December 2016 Credit Facilities. On or prior to the fourth anniversary of the 10.75 % Senior Secured Notes Closing Date, American may redeem all or any part of the 10.75 % Senior Secured Notes, at its option, at a redemption price equal to 100 % of the principal amount of the 10.75 % Senior Secured Notes redeemed plus a make whole premium, together with accrued and unpaid interest thereon, if any. After the fourth anniversary of the 10.75 % Senior Secured Notes Closing Date and on or prior to the fifth anniversary of the 10.75 % Senior Secured Notes Closing Date, American may redeem all or any part of the 10.75 % Senior Secured Notes, at its option, at a redemption price equal to 105.375 % of the principal amount of the 10.75 % Senior 115 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . Secured Notes redeemed, together with accrued and unpaid interest thereon, if any. After the fifth anniversary of the 10.75 % Senior Secured Notes Closing Date, American may redeem all or any part of the 10.75 % Senior Secured Notes, at its option, at par, together with accrued and unpaid interest thereon, if any. In the event of a specified change of control, each holder of 10.75 % Senior Secured Notes may require American to repurchase its 10.75 % Senior Secured Notes, in whole or in part, at a repurchase price of 101 % of the aggregate principal amount of the 10.75 % Senior Secured Notes so repurchased, plus accrued and unpaid interest thereon, if any, to (but not including) the repurchase date. The 10.75 % Senior Secured Notes Indentures contain covenants that, among other things, restrict the ability of AAG and the ability of its restricted subsidiaries (including American) to: (i) pay dividends, redeem or repurchase stock or make other distributions or restricted payments, (ii) incur liens on the 10.75 % Senior Secured Notes Collateral and dispose of or release the 10.75 % Senior Secured Notes Collateral, (iii) repay subordinated indebtedness, (iv) make certain loans and investments, (v) incur indebtedness or issue preferred stock, (vi) merge, consolidate or sell assets, and (vii) designate subsidiaries as unrestricted. In addition, the 10.75 % Senior Secured Notes Indentures include covenants that require AAG to maintain (a) an aggregate of at least $ 2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities and (b) a certain minimum ratio of appraised value of the collateral to outstanding debt secured thereby on a first lien basis as further described below in “Certain Covenants.” These covenants are subject to a number of important exceptions and qualifications set forth in the 10.75 % Senior Secured Notes Indentures. Upon the occurrence of any event of default (other than certain bankruptcy or insolvency or reorganization events affecting AAG or certain of its subsidiaries, including American), the 10.75 % Senior Secured Notes may be declared to be due and payable immediately. Upon the occurrence of certain bankruptcy, insolvency or reorganization events affecting AAG or certain of its subsidiaries (including American), all outstanding 10.75 % Senior Secured Notes will become due and payable immediately without further action or notice on the part of the 10.75 % Senior Secured Notes Trustee or any holder of the 10.75 % Senior Secured Notes. (c) Treasury Loan Agreement On September 25, 2020, American and AAG entered into a Loan and Guarantee Agreement (the Treasury Loan Agreement) with Treasury, which provided for a secured term loan facility (the Treasury Term Loan Facility) that permitted American to borrow up to $ 5.5 billion. Subsequently, on October 21, 2020, American and AAG entered into an amendment to the Treasury Loan Agreement, which increased the borrowing amount to up to $ 7.5 billion. As of December 31, 2020, American had borrowed $ 550 million under the Treasury Term Loan Facility and may, at its option, borrow additional amounts in up to two subsequent borrowings until March 26, 2021. Subsequently, on January 15, 2021, American and AAG entered into an amendment to the Treasury Loan Agreement, which extended this deadline to May 28, 2021. The proceeds from the Treasury Term Loan Facility were, and will be, used for certain general corporate purposes and operating expenses in accordance with the terms and conditions of the Treasury Loan Agreement and the applicable provisions of the CARES Act. The Treasury Term Loan Facility bears interest at a variable rate per annum equal to (a)(i) the LIBOR rate divided by (ii) one minus the Eurodollar Reserve Percentage plus (b) 3.50 %. Accrued interest on the loans will be payable in arrears on the first business day following the 14 th day of each March, June, September and December, beginning with September 15, 2021, and on June 30, 2025 (the Treasury Term Loan Maturity Date). As of December 31, 2020, the applicable interest rate for the $ 550 million loan drawn under the Treasury Term Loan Facility was 3.73 % per annum through September 15, 2021, at which time the interest rate will reset. All advances under the Treasury Term Loan Facility will be in the form of term loans, all of which will mature and be due and payable in a single installment on the Treasury Term Loan Maturity Date. American may, at any time and from time to time, voluntarily prepay amounts outstanding under the Treasury Loan Agreement, in whole or in part, without penalty or premium. Amounts prepaid may not be reborrowed. Mandatory prepayments of loans under the Treasury Term Loan Facility are required, without penalty or premium, to the extent necessary to comply with American's covenants regarding the expiry of certain agreements constituting Treasury Collateral (as defined below), the debt service coverage ratio, certain dispositions of Treasury Collateral, certain debt issuances secured by liens on the Treasury Collateral and certain indemnity, termination, liquidated damages or insurance payments related to the Treasury Collateral, in addition to the occurrence of a change in control of AAG. 116 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . American's obligations under the Treasury Loan Agreement are secured by a first priority security interest on American's rights under U.S. co-branded credit card agreements and certain other loyalty program partner participation agreements (including rights to receive cash flows thereunder), documents, deposit accounts, securities accounts, books and records and intellectual property related to American's AAdvantage loyalty program and all proceeds, accessions, rents or profits related to the foregoing (collectively, the Treasury Collateral). American is permitted under the Treasury Loan Agreement to add certain types of assets to the Treasury Collateral and, subject to certain conditions, release Treasury Collateral, in each case from time to time at its discretion. The Treasury Loan Agreement requires American, under certain circumstances, including within 10 business days prior to the last business day of March and September of each year, beginning March 2021, to appraise the value of the Treasury Collateral and recalculate the collateral coverage ratio. If the calculated collateral coverage ratio is less than 1.6 to 1.0, American will be required either to provide additional Treasury Collateral (which may include cash collateral) to secure its obligations under the Treasury Loan Agreement or repay the term loans under the Treasury Term Loan Facility, in such amounts that the recalculated collateral coverage ratio, after giving effect to any such additional Treasury Collateral or repayment, is at least 1.6 to 1.0. The Treasury Loan Agreement also requires American to calculate the debt service coverage ratio on a quarterly basis. If the calculated debt service coverage ratio is less than 1.75 to 1.00, then AAG and its subsidiaries will be required to place an amount equal to at least 50 % of certain revenues received from the AAdvantage loyalty program (the Loyalty Program Revenues) into a blocked account to be held for the benefit of the lenders who may choose to use such funds to prepay the outstanding term loans until the debt service coverage ratio is recalculated to be greater than or equal to 1.75 to 1.00. If the calculated debt service coverage ratio is less than or equal to 1.50 to 1.00, but greater than 1.25 to 1.00, then all amounts previously deposited into the blocked account will be used to prepay outstanding term loans and an amount equal to at least 50 % of all future Loyalty Program Revenues will be transferred into the payment account and used to prepay outstanding term loans until the debt service coverage ratio is recalculated to be greater than 1.50 to 1.00. If the calculated debt service coverage ratio is less than or equal to 1.25 to 1.00, then all amounts previously deposited into the blocked account will be used to prepay outstanding term loans and an amount equal to at least 75 % of all future Loyalty Program Revenues will be transferred into the payment account and used to prepay outstanding term loans until the debt service coverage ratio is recalculated to be greater than 1.25 to 1.00. The Treasury Loan Agreement also includes affirmative, negative and financial covenants that, among other things, limit AAG's ability to pay dividends, repurchase common stock of AAG or make certain other payments, make certain investments, incur liens on the Treasury Collateral, dispose of the Treasury Collateral, amend material AAdvantage loyalty program agreements, enter into certain affiliate transactions and engage in certain business activities, in each case subject to certain exceptions. In addition, under the Treasury Loan Agreement, AAG must maintain a minimum aggregate liquidity of $ 2.0 billion. The Treasury Loan Agreement requires AAG and American to comply with the relevant provisions of the CARES Act and the Treasury Loan Agreement, including, but not limited to, the provisions that prohibit the repurchase of AAG’s common stock, the payment of common stock dividends and those that restrict the payment of certain executive compensation, in each case, through the date that is 12 months after the date on which all amounts of loan outstanding under the Treasury Term Loan Facility have been repaid in full. The Treasury Loan Agreement contains events of default, including cross-default with respect to acceleration or failure to pay at maturity other material indebtedness. Upon the occurrence of an event of default and subject to certain grace periods, the outstanding obligations under the Treasury Loan Agreement may be accelerated and become due and payable immediately. (d) EETCs 2019-1 Aircraft EETCs In August 2019, American created three pass-through trusts which issued approximately $ 1.1 billion aggregate face amount of Series 2019-1 Class AA, Class A and Class B EETCs (the 2019-1 Aircraft EETCs) in connection with the financing of 35 aircraft (the 2019-1 Aircraft). In 2019, $ 804 million of the proceeds had been used to purchase equipment notes issued by American in connection with the financing of 28 aircraft under the 2019-1 Aircraft EETCs, of which $ 608 million was used to repay existing indebtedness. In 2020, the remaining $ 293 million of the proceeds had been used to purchase equipment notes issued by American in connection with the financing of seven aircraft under the 2019-1 Aircraft EETCs. Interest and principal payments on equipment notes issued in connection with the 2019-1 Aircraft EETCs are payable semiannually in February and August of each year, which interest payments began in February 2020 and which 117 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . principal payments began or are scheduled to begin (i) in the case of equipment notes with respect to any 2019-1 Aircraft owned by American at the time of issuance of the 2019-1 Aircraft EETCs, in February 2020 and (ii) in the case of equipment notes with respect to the Embraer 175 aircraft and the Airbus A321neo aircraft scheduled to be delivered after the issuance of the 2019-1 Aircraft EETCs, in August 2020 and August 2021, respectively. Certain information regarding the 2019-1 Aircraft EETC equipment notes, as of December 31, 2020, is set forth in the table below. 2019-1 Aircraft EETCs Series AA Series A Series B Aggregate principal issued $ 579 million $ 289 million $ 229 million Fixed interest rate per annum 3.15 % 3.50 % 3.85 % Maturity date February 2032 February 2032 February 2028 (e) Equipment Loans and Other Notes Payable Issued in 2020 In 2020, American entered into agreements under which it borrowed $ 307 million in connection with the financing or refinancing, as the case may be, of certain aircraft and other flight equipment, of which $ 17 million was used to repay existing indebtedness. Debt incurred under these agreements matures in 2029 through 2032 and bears interest at variable rates (comprised of LIBOR plus an applicable margin) averaging 2.28 % at December 31, 2020. (f) Special Facility Revenue Bonds Issued in 2020 In January 2020, American and British Airways announced the start of construction on a $ 344 million investment to upgrade New York's John F. Kennedy International Airport (JFK) Terminal 8. In June 2020, the New York Transportation Development Corporation (NYTDC) issued approximately $ 360 million of special facility revenue bonds (the 2020 JFK Bonds) on behalf of American. A portion of the net proceeds from the 2020 JFK Bonds have been or will be used to fund costs of issuance of the 2020 JFK Bonds, to fund a substantial portion of the cost of the renovation and expansion of a passenger terminal facility (the Terminal) leased and utilized by American at JFK and to fund the August 2020 maturity of the outstanding bonds issued by NYTDC on behalf of American in 2016 (the 2016 JFK Bonds). American is required to pay debt service on the 2020 JFK Bonds through payments under a loan agreement with NYTDC (as amended), and American and AAG guarantee the 2020 JFK Bonds. American continues to pay debt service on the outstanding 2016 JFK Bonds and American and AAG continue to guarantee the 2016 JFK Bonds. American’s and AAG’s obligations under these guarantees are secured by a leasehold mortgage on American’s lease of the Terminal and related property from the Port Authority of New York and New Jersey. The 2020 JFK Bonds, in aggregate, were priced at approximately 98 % of par value. The gross proceeds from the issuance of the 2020 JFK Bonds were approximately $ 353 million. Of this amount, approximately $ 8 million was used to fund the costs of issuance of the 2020 JFK Bonds, approximately $ 47 million was used to fund the redemption of the 2016 JFK Bonds due August 2020 and approximately $ 17 million was reimbursed to American for the Terminal construction costs incurred, with the remaining amount of proceeds received to be held in restricted cash and short-term investments on the consolidated balance sheet and to be used to finance a substantial portion of the cost of the renovation and expansion of the Terminal. The 2020 JFK Bonds are comprised of term bonds, $ 214 million of which bear interest at 5.25 % per annum and mature on August 1, 2031, and $ 146 million of which bear interest at 5.375 % per annum and mature on August 1, 2036. (g) PSP1 Promissory Note In April 2020, as partial compensation to the U.S. Government for the provision of financial assistance under the PSP1 Agreement, AAG issued the PSP1 Promissory Note to Treasury, which provides for our unconditional promise to pay to Treasury 30 % of the total amount of financial assistance disbursed under the PSP1 Agreement, and the guarantee of our obligations by the Subsidiaries. The total financial assistance we received pursuant to the PSP1 Agreement is approximately $ 6.0 billion. As of December 31, 2020, the principal amount of the PSP1 Promissory Note was approximately $ 1.8 billion. 118 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . The PSP1 Promissory Note bears interest on the outstanding principal amount at a rate equal to 1.00 % per annum until the fifth anniversary of the PSP1 Closing Date and 2.00 % plus an interest rate based on the secured overnight financing rate per annum or other benchmark replacement rate consistent with customary market conventions (but not to be less than 0.00 %) thereafter until the tenth anniversary of the PSP1 Closing Date (the PSP1 Maturity Date), and interest accrued thereon will be payable in arrears on the last business day of March and September of each year, which began on September 30, 2020. The aggregate principal amount outstanding under the PSP1 Promissory Note, together with all accrued and unpaid interest thereon and all other amounts payable under the PSP1 Promissory Note, will be due and payable on the PSP1 Maturity Date. We may, at any time and from time to time, voluntarily prepay amounts outstanding under the PSP1 Promissory Note, in whole or in part, without penalty or premium. Within 30 days of the occurrence of certain change of control triggering events, we are required to prepay the aggregate outstanding principal amount of the PSP1 Promissory Note at such time, together with any accrued interest or other amounts owing under the PSP1 Promissory Note at such time. The PSP1 Promissory Note is our senior unsecured obligation and each guarantee of the PSP1 Promissory Note is the senior unsecured obligation of each of the Subsidiaries, respectively. The PSP1 Promissory Note contains events of default, including cross-default with respect to acceleration or failure to pay at maturity other material indebtedness. Upon the occurrence of an event of default and subject to certain grace periods, the outstanding obligations under the PSP1 Promissory Note may, and in certain circumstances will automatically, be accelerated and become due and payable immediately. (h) 6.50 % Convertible Senior Notes In June 2020, AAG completed the public offering of $ 1.0 billion aggregate principal amount of AAG’s 6.50 % convertible senior notes due 2025 (the Convertible Notes). The Convertible Notes are fully and unconditionally guaranteed by American on a senior unsecured basis (the Convertible Notes Guarantee). The net proceeds to us from the Convertible Notes were approximately $ 970 million, after deducting the underwriters’ discounts and commissions and our estimated offering expenses. The net proceeds from the Convertible Notes are being used for general corporate purposes and to enhance our liquidity position. The Convertible Notes were priced to investors in the offering at 100 % of their principal amount. The Convertible Notes were issued pursuant to an indenture, dated as of June 25, 2020 (the Base Indenture), between AAG and Wilmington Trust, National Association as trustee (the Convertible Notes Trustee), as supplemented by that certain first supplemental indenture, dated as of June 25, 2020, among AAG, American and the Convertible Notes Trustee (the Convertible Notes Supplemental Indenture and, together with the Base Indenture, the Convertible Notes Indenture). The Convertible Notes bear interest at a rate of 6.50 % per annum. Interest on the Convertible Notes is payable semiannually in arrears on January 1 and July 1 of each year, beginning on January 1, 2021. The Convertible Notes will mature on July 1, 2025, unless earlier converted or redeemed or repurchased by us. Upon conversion, AAG will pay or deliver, as the case may be, cash, shares of AAG common stock or a combination of cash and shares of AAG common stock, at AAG’s election. The initial conversion rate is 61.7284 shares of AAG common stock per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $ 16.20 per share of AAG common stock). The conversion rate is subject to adjustment in some events as described in the Convertible Notes Indenture. Holders may convert their Convertible Notes at their option only in the following circumstances: (1) during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ending on September 30, 2020, if the last reported sale price per share of AAG common stock exceeds 130 % of the conversion price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the measurement period) in which the trading price per $1,000 principal amount of Convertible Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price per share of AAG common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on AAG common stock; (4) if AAG calls such Convertible Notes for redemption; and (5) at any time from, and including, April 1, 2025 until the close of business on the scheduled trading day immediately before the maturity date of the Convertible Notes. 119 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . In addition, following certain corporate events that occur prior to the maturity date or upon AAG’s issuance of a notice of redemption, AAG will increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such corporate event or during the related redemption period in certain circumstances by a specified number of shares of AAG common stock as described in the Convertible Notes Indenture. AAG will not have the right to redeem the Convertible Notes prior to July 5, 2023. On or after July 5, 2023 and on or before the 20th scheduled trading day immediately before the maturity date, AAG may redeem the Convertible Notes, in whole or in part, if the last reported sale price of AAG common stock has been at least 130 % of the conversion price then in effect on (1) each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the trading day immediately before the date AAG sends the related redemption notice; and (2) the trading day immediately before the date AAG sends such notice. In the case of any optional redemption, AAG will redeem the Convertible Notes at a redemption price equal to 100 % of the principal amount of such Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If AAG undergoes a fundamental change described in the Convertible Notes Indenture prior to the maturity date of the Convertible Notes, except as described in the Convertible Notes Indenture, holders of the Convertible Notes may require AAG to repurchase for cash all or part of their Convertible Notes at a repurchase price equal to 100 % of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The Convertible Notes Indenture provides for customary terms and covenants, including that upon certain events of default, either the Convertible Notes Trustee or the holders of not less than 25 % in aggregate principal amount of the Convertible Notes then outstanding may declare the unpaid principal amount of the Convertible Notes and accrued and unpaid interest, if any, thereon immediately due and payable. In the case of certain events of bankruptcy, insolvency or reorganization, the principal amount of the Convertible Notes together with accrued and unpaid interest thereon, if any, will automatically become and be immediately due and payable. As the Convertible Notes can be settled in cash upon conversion, for accounting purposes, the Convertible Notes were bifurcated into a debt component that was recorded at fair value and an equity component. The following table details the debt and equity components recognized related to the Convertible Notes as of December 31, 2020 (in millions): December 31, 2020 Principal amount of 6.50% convertible senior notes $ 1,000 Unamortized debt discount ( 417 ) Net carrying amount of 6.50% convertible senior notes 583 Additional paid-in capital 415 The effective interest rate on the liability component approximates 20 %. We recognized $ 61 million of interest expense in 2020 including $ 28 million of non-cash amortization of the debt discount and $ 33 million of contractual coupon interest. The remaining period over which the unamortized debt discount will be recognized as non-cash interest expense is five years as follows: $ 63 million in 2021, $ 77 million in 2022, $ 95 million in 2023, $ 116 million in 2024 and $ 66 million in 2025. As previously discussed in Note 1(c), as of January 1, 2021, we early adopted the New Convertible Debt Standard. Accordingly, our unamortized debt discount as of January 1, 2021 was reduced by $ 389 million and the adjusted non-cash interest expense to be recognized over the next five years is as follows: $ 5 million in 2021, $ 6 million in 2022, $ 6 million in 2023, $ 7 million in 2024 and $ 4 million in 2025. At December 31, 2020, the if-converted value of the Convertible Notes did not exceed the principal amount. (i) Unsecured Senior Notes 5.000 % Senior Notes In May 2019, AAG issued $ 750 million aggregate principal amount of 5.000 % senior notes due 2022 (the 5.000 % Senior Notes). The 5.000 % Senior Notes bear interest at a rate of 5.000 % per annum, payable semi-annually in arrears on June 1 and December 1 of each year, which began on December 1, 2019. The 5.000 % Senior Notes mature in June 2022. 120 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . 3.75 % Senior Notes In February 2020, AAG issued $ 500 million aggregate principal amount of 3.75 % senior notes due 2025 (the 3.75 % Senior Notes). The 3.75 % Senior Notes bear interest at a rate of 3.75 % per annum, payable semiannually in arrears in March and September of each year, which began in September 2020. The 3.75 % Senior Notes mature in March 2025. The details of our 5.000 % and 3.75 % Senior Notes are shown in the table below as of December 31, 2020: 5.000% Senior Notes 3.75% Senior Notes Aggregate principal issued and outstanding $ 750 million $ 500 million Maturity date June 2022 March 2025 Fixed interest rate per annum 5.000 % 3.75 % Interest payments Semi-annually in arrears in June and December Semi-annually in arrears in March and September The 5.000 % and 3.75 % Senior Notes are senior unsecured obligations of AAG. These Senior Notes are fully and unconditionally guaranteed by American. The indentures for these Senior Notes contain covenants and events of default generally customary for similar financings. In addition, if we experience specific kinds of changes of control, we must offer to repurchase these Senior Notes in whole or in part at a price of 101 % of the principal amount plus accrued and unpaid interest thereon, if any, to (but not including) the repurchase date. Upon the occurrence of certain events of default, these Senior Notes may be accelerated and become due and payable. Guarantees As of December 31, 2020, AAG had issued guarantees covering approximately $ 15.0 billion of American’s secured debt (and interest thereon), including the Credit Facilities and certain EETC financings and $ 1.0 billion of American’s special facility revenue bonds (and interest thereon). 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. 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. 121 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . Specifically, we are required to meet certain collateral coverage tests for our Credit Facilities, 10.75 % Senior Secured Notes, 11.75 % Senior Secured Notes and Treasury Loan Agreement, as described below: 2013 Credit Facilities 2014 Credit Facilities April 2016 Credit Facilities December 2016 Credit Facilities 10.75% Senior Secured Notes 11.75% Senior Secured Notes Treasury Loan Agreement Frequency of Appraisals of Appraised Collateral Annual Annual Annual Annual Annual Semi-Annual Semi-Annual LTV Requirement 1.6 x Collateral valuation to amount of debt outstanding ( 62.5 % LTV) LTV as of Last Measurement Date 53.1 % 44.3 % 48.0 % 61.2 % 61.2 % 35.2 % De Minimis Collateral Description Generally, certain slots, route authorities and airport gate leasehold rights used by American to operate all services between the U.S. and South America Generally, certain slots, route authorities and airport gate leasehold rights used by American to operate certain services between the U.S. and European Union (including London Heathrow) Generally, certain spare parts Generally, certain Ronald Reagan Washington National Airport (DCA) slots, certain La Guardia Airport (LGA) slots, certain simulators and certain leasehold rights Generally, certain DCA slots, certain LGA slots, certain simulators and certain leasehold rights and, in the case of the IP Notes, certain intellectual property of American Generally, certain slots, route authorities and airport gate leasehold rights used by American to operate certain services between the U.S. and the Caribbean, Central America and various other countries Generally, certain rights under U.S. co-branded credit card agreements and certain other loyalty program agreements and intellectual property related to AAdvantage At December 31, 2020, we were in compliance with the applicable collateral coverage tests as of the most recent measurement dates. 6. Leases We lease certain aircraft and engines, including aircraft under capacity purchase agreements. As of December 31, 2020, we had 641 leased aircraft, with remaining terms ranging from less than one year to 12 years. At each airport where we conduct flight operations, we have agreements, generally with a governmental unit or authority, for the use of passenger, operations and baggage handling space as well as runways and taxiways. These agreements, particularly in the U.S., often contain provisions for periodic adjustments to rates and charges applicable under such agreements. These rates and charges also vary with our level of operations and the operations of the airport. Because of the variable nature of these rates, these leases are not recorded on our balance sheet as a ROU asset or a lease liability. Additionally, at our hub locations and in certain other cities we serve, we lease administrative offices, catering, cargo, training, maintenance and other facilities. The components of lease expense were as follows (in millions): Year Ended December 31, 2020 2019 2018 Operating lease cost $ 1,957 $ 2,027 $ 1,907 Finance lease cost: Amortization of assets 92 79 78 Interest on lease liabilities 38 43 48 Variable lease cost 1,801 2,558 2,353 Total net lease cost $ 3,888 $ 4,707 $ 4,386 Included in the table above is $ 172 million, $ 236 million and $ 226 million of operating lease cost under our capacity purchase agreement with Republic for the years ended December 31, 2020, 2019 and 2018, respectively. We hold a 25 % equity interest in Republic Holdings, the parent company of Republic. 122 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . Additionally, not included in the table above, we recognized $ 109 million in cash special charges in 2020 related to the impairment of ROU assets and lease return costs resulting from our decision to retire certain leased aircraft earlier than planned driven by the severe decline in air travel due to the COVID-19 pandemic. Supplemental balance sheet information related to leases was as follows (in millions, except lease term and discount rate): December 31, 2020 2019 Operating leases: Operating lease ROU assets $ 8,039 $ 8,737 Current operating lease liabilities $ 1,651 $ 1,708 Noncurrent operating lease liabilities 6,777 7,421 Total operating lease liabilities $ 8,428 $ 9,129 Finance leases: Property and equipment, at cost $ 1,021 $ 954 Accumulated amortization ( 539 ) ( 447 ) Property and equipment, net $ 482 $ 507 Current finance lease liabilities $ 100 $ 112 Noncurrent finance lease liabilities 472 558 Total finance lease liabilities $ 572 $ 670 Weighted average remaining lease term (in years): Operating leases 7.4 7.4 Finance leases 5.4 6.2 Weighted average discount rate: Operating leases 5.6 % 4.7 % Finance leases 6.3 % 6.2 % Supplemental cash flow and other information related to leases was as follows (in millions): Year Ended December 31, 2020 2019 2018 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 2,028 $ 2,013 $ 1,931 Operating cash flows from finance leases 39 43 48 Financing cash flows from finance leases 114 83 78 Non-cash transactions: ROU assets acquired through operating leases 917 1,145 1,292 Operating lease conversion to finance lease 5 41 — Property and equipment acquired through finance leases 11 20 — Gain on sale leaseback transactions, net 107 107 59 123 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . Maturities of lease liabilities were as follows (in millions): December 31, 2020 Operating Leases Finance Leases 2021 $ 1,946 $ 131 2022 1,777 136 2023 1,586 114 2024 1,192 120 2025 812 85 2026 and thereafter 3,307 89 Total lease payments 10,620 675 Less: Imputed interest ( 2,192 ) ( 103 ) Total lease obligations 8,428 572 Less: Current obligations ( 1,651 ) ( 100 ) Long-term lease obligations $ 6,777 $ 472 As of December 31, 2020, we have additional operating lease commitments that have not yet commenced of approximately $ 1.7 billion for 19 Boeing 787-8 aircraft to be delivered in 2021 with lease terms of 10 years. 7. Income Taxes The significant components of the income tax provision (benefit) were (in millions): Year Ended December 31, 2020 2019 2018 Current income tax provision (benefit): State and Local $ — $ 2 $ 3 Foreign — 8 29 Current income tax provision (benefit) — 10 32 Deferred income tax provision (benefit): Federal ( 2,335 ) 498 390 State and Local ( 233 ) 62 50 Deferred income tax provision (benefit) ( 2,568 ) 560 440 Total income tax provision (benefit) $ ( 2,568 ) $ 570 $ 472 The income tax provision (benefit) differed from amounts computed at the statutory federal income tax rate as follows (in millions): Year Ended December 31, 2020 2019 2018 Statutory income tax provision (benefit) $ ( 2,405 ) $ 474 $ 396 State income tax provision (benefit), net of federal tax effect ( 183 ) 47 44 Book expenses not deductible for tax purposes 22 31 12 Foreign income taxes, net of federal tax effect — 8 23 Change in valuation allowance — 4 ( 6 ) Other, net ( 2 ) 6 3 Income tax provision (benefit) $ ( 2,568 ) $ 570 $ 472 124 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . The components of our deferred tax assets and liabilities were (in millions): December 31, 2020 2019 Deferred tax assets: Operating loss carryforwards and other credits $ 4,027 $ 2,103 Loyalty program liability 1,977 1,755 Leases 1,913 2,077 Pensions 1,405 1,229 Postretirement benefits other than pensions 203 145 Rent expense 96 126 Reorganization items 28 30 Alternative minimum tax (AMT) credit carryforwards — 90 Other 847 613 Total deferred tax assets 10,496 8,168 Valuation allowance ( 34 ) ( 34 ) Net deferred tax assets 10,462 8,134 Deferred tax liabilities: Accelerated depreciation and amortization ( 5,028 ) ( 5,196 ) Leases ( 1,818 ) ( 1,979 ) Other ( 386 ) ( 343 ) Total deferred tax liabilities ( 7,232 ) ( 7,518 ) Net deferred tax asset $ 3,230 $ 616 At December 31, 2020, we had approximately $ 16.5 billion of federal net operating losses (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 (NOL Carryforwards). 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. 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, which include our NOLs, 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. Our ability to deduct our NOL Carryforwards and to utilize certain other available tax attributes can be substantially constrained under the general annual limitation rules of Section 382 where an “ownership change” has occurred. Substantially all of our remaining federal NOL Carryforwards attributable to US Airways Group are subject to limitation under Section 382; however, our ability to utilize such NOL Carryforwards is not anticipated to be effectively constrained as a result of such limitation. Similar limitations may apply for state income tax purposes. Our ability to utilize any new NOL Carryforwards arising after the ownership changes is not affected by the annual limitation rules imposed by Section 382 unless another ownership change occurs. Under the Section 382 limitation, cumulative stock ownership changes among material stockholders exceeding 50% during a rolling three-year period can potentially limit our future use of NOLs and tax credits. At December 31, 2019, we had an AMT credit carryforward of approximately $ 170 million available for federal income tax purposes, which was fully refunded in 2020 as a result of the CARES Act. In 2020, we recorded an income tax benefit of $ 2.6 billion, with an effective rate of approximately 22 %, which was substantially non-cash. Substantially all of our income before income taxes is attributable to the United States. 125 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . We file our tax returns as prescribed by the tax laws of the jurisdictions in which we operate. Our 2017 through 2019 tax years are still subject to examination by the Internal Revenue Service. Various state and foreign jurisdiction tax years remain open to examination and we are under examination, in administrative appeals, or engaged in tax litigation in certain jurisdictions. We believe that the effect of any assessments will not be material to our consolidated financial statements. The amount of, and changes to, our uncertain tax positions were not material in any of the years presented. We accrue interest and penalties related to unrecognized tax benefits in interest expense and operating expense, respectively. 8. Risk Management Our economic prospects are heavily dependent upon two variables we cannot control: general economic conditions and the price of fuel. Due to the discretionary nature of business and leisure travel spending and the highly competitive nature of the airline industry, our revenues are heavily influenced by the condition of the U.S. economy and economies in other regions of the world. Unfavorable conditions in these broader economies have resulted, and may result in the future, in decreased passenger demand for air travel, changes in booking practices and related reactions by our competitors, all of which in turn have had, and may have in the future, a strong negative effect on our business. In particular, the ongoing COVID-19 pandemic and associated decline in economic activity and increase in unemployment levels are expected to have a severe and prolonged effect on the global economy generally and, in turn, is expected to depress demand for air travel into the foreseeable future. Due to the uncertainty surrounding the duration and severity of this pandemic, we can provide no assurance as to when and at what pace demand for air travel will return to pre-COVID-19 pandemic levels, if at all. Accordingly, we cannot predict the ultimate impact of the COVID-19 pandemic on our business, financial condition and results of operations. In addition, during challenging economic times, actions by our competitors to increase their revenues can have an adverse impact on our revenues. Our operating results are materially impacted by changes in the availability, price volatility and cost of aircraft fuel, which represents one of the largest single cost items in our business. Aircraft fuel prices have in the past, and may in the future, experience substantial volatility. Because of the amount of fuel needed to operate our business, even a relatively small increase or decrease in the price of aircraft fuel can have a material effect on our operating results and liquidity. These additional factors could impact our results of operations, financial performance and liquidity: (a) Credit Risk Our accounts receivable relate primarily to our contracts with airline and non-airline business partners, including our co-branded credit card partners, and to tickets sold to individual passengers primarily through the use of major credit cards. Receivables from our business partners are typically settled within 30 days. Receivables from ticket sales are short-term, mostly settled within seven days after sale. All accounts receivable are reported net of an allowance for credit losses, which have been minimal in the past. We consider past and future financial and qualitative factors when establishing the allowance for credit losses. We do not believe we are subject to any significant concentration of credit risk. (b) Interest Rate Risk We have exposure to market risk associated with changes in interest rates related primarily to our LIBOR variable-rate debt obligations. Interest rates on $ 12.8 billion principal amount of long-term debt as of December 31, 2020 are subject to adjustment to reflect changes in floating interest rates. The weighted average effective interest rate on our variable-rate debt was 2.0 % at December 31, 2020. We currently do not have an interest rate hedge program to hedge our exposure to floating interest rates on our variable-rate debt obligations. On July 27, 2017, the U.K. Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The discontinuation date for submission and publication of rates for certain tenors of USD LIBOR (1-month, 3-month, 6-month, and 12-month) is currently under consultation by the ICE Benchmark Administration (the administrator of LIBOR) and may be extended until June 30, 2023. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021. Similarly, it is not possible to predict whether LIBOR will continue to be viewed as an acceptable market benchmark, what rate or rates may become acceptable alternatives to LIBOR, or what effect these changes in views or alternatives may 126 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . have on financial markets for LIBOR-linked financial instruments. The replacement of LIBOR with a comparable or successor rate could cause the amount of interest payable on our long-term debt to be different or higher than expected. (c) Foreign Currency Risk We are exposed to the effect of foreign exchange rate fluctuations on the U.S. dollar value of foreign currency-denominated transactions. Our largest exposure comes from the British pound sterling, Euro, Canadian dollar and various Latin American currencies, primarily the Brazilian real. We do not currently have a foreign currency hedge program. 9. Fair Value Measurements and Other Investments Assets Measured at Fair Value on a Recurring Basis Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability (i.e. an exit price) on the measurement date in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability. Accounting standards include disclosure requirements around fair values used for certain financial instruments and establish a fair value hierarchy. The hierarchy prioritizes valuation inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of three levels: • Level 1 – Observable inputs such as quoted prices in active markets; • Level 2 – Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and • Level 3 – Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. When available, we use quoted market prices to determine the fair value of our financial assets. If quoted market prices are not available, we measure fair value using valuation techniques that use, when possible, current market-based or independently-sourced market parameters, such as interest rates and currency rates. We utilize the market approach to measure the fair value of our financial assets. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. Our short-term investments classified as Level 2 primarily utilize broker quotes in a non-active market for valuation of these securities. No changes in valuation techniques or inputs occurred during the year ended December 31, 2020. Assets measured at fair value on a recurring basis are summarized below (in millions): Fair Value Measurements as of December 31, 2020 Total Level 1 Level 2 Level 3 Short-term investments (1), (2) : Money market funds $ 247 $ 247 $ — $ — Corporate obligations 3,449 — 3,449 — Bank notes/certificates of deposit/time deposits 2,168 — 2,168 — Repurchase agreements 755 — 755 — 6,619 247 6,372 — Restricted cash and short-term investments (1), (3) 609 448 161 — Long-term investments (4) 161 161 — — Total $ 7,389 $ 856 $ 6,533 $ — 127 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . Fair Value Measurements as of December 31, 2019 Total Level 1 Level 2 Level 3 Short-term investments (1) : Money market funds $ 333 $ 333 $ — $ — Bank notes/certificates of deposit/time deposits 2,107 — 2,107 — Corporate obligations 1,021 — 1,021 — Repurchase agreements 85 — 85 — 3,546 333 3,213 — Restricted cash and short-term investments (1) 158 10 148 — Long-term investments (4) 204 204 — — Total $ 3,908 $ 547 $ 3,361 $ — (1) All short-term investments are classified as available-for-sale and stated at fair value. Unrealized gains and losses are recorded in accumulated other comprehensive loss at each reporting period. There were no credit losses. (2) Our short-term investments as of December 31, 2020 mature in one year or less except for $ 235 million of bank notes/certificates of deposit/time deposits. (3) Restricted cash and short-term investments primarily include money market funds to be used to finance a substantial portion of the cost of the renovation and expansion of Terminal 8 at JFK and collateral held to support workers' compensation obligations. (4) Long-term investments primarily include our equity investment in China Southern Airlines, in which we presently own a 1.8 % equity interest, and are classified in other assets on the consolidated balance sheets. Fair Value of Debt The fair value of our long-term debt was estimated using quoted market prices or discounted cash flow analyses, based on our current estimated incremental borrowing rates for similar types of borrowing arrangements. If our long-term debt was measured at fair value, it would have been classified as Level 2 except for $ 2.3 billion which would have been classified as Level 3 in the fair value hierarchy. The carrying value and estimated fair value of our long-term debt, including current maturities, were as follows (in millions): December 31, 2020 December 31, 2019 Carrying Value Fair Value Carrying Value Fair Value Long-term debt, including current maturities $ 32,021 $ 30,454 $ 23,645 $ 24,508 Other Investments We have an approximate 25 % ownership interest in Republic Holdings, which we received in 2017 in consideration for our unsecured claim in the Republic Holdings bankruptcy case. This ownership interest is accounted for under the equity method and our portion of Republic Holdings’ financial results is recognized within other, net on the consolidated statements of operations and the investment is reflected within other assets on our consolidated balance sheets. 128 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . 10. Employee Benefit Plans We sponsor defined benefit and defined contribution pension plans for eligible employees. The defined benefit pension plans provide benefits for participating employees based on years of service and average compensation for a specified period of time before retirement. Effective November 1, 2012, substantially all of our defined benefit pension plans were frozen and we began providing enhanced benefits under our defined contribution pension plans for certain employee groups. We use a December 31 measurement date for all of our defined benefit pension plans. We also provide certain retiree medical and other postretirement benefits, including health care and life insurance benefits, to retired employees. Effective November 1, 2012, we modified our retiree medical and other postretirement benefits plans to eliminate the company subsidy for employees who retire on or after November 1, 2012. As a result of modifications to our retiree medical and other postretirement benefits plans in 2012, we recognized a negative plan amendment of $ 1.9 billion, which was included as a component of prior service benefit in accumulated other comprehensive income (loss) (AOCI) and was amortized over the future service life of the active plan participants for whom the benefit was eliminated. As of December 31, 2020, this prior service benefit was fully amortized. Effective January 1, 2021, health coverage under our retiree medical benefit program that is currently provided to certain retirees age 65 and over who retired prior to November 1, 2012, transitioned from a self-insured plan to a fully-insured Medicare Advantage plan. Benefits coverage has not been reduced and cost shared has not changed as a result of this transition. Due to this transition, as of December 31, 2020, we recognized a negative plan amendment of $ 313 million to reduce our benefit obligation, which was included as a component of prior service cost in accumulated other comprehensive loss and will be amortized over the average remaining life expectancy of all retirees, or approximately 13.3 years. Benefit Obligations, Fair Value of Plan Assets and Funded Status The following tables provide a reconciliation of the changes in the pension and retiree medical and other postretirement benefits obligations, fair value of plan assets and a statement of funded status as of December 31, 2020 and 2019: Pension Benefits Retiree Medical and Other Postretirement Benefits 2020 2019 2020 2019 (In millions) Benefit obligation at beginning of period $ 18,358 $ 16,378 $ 824 $ 837 Service cost 2 2 8 3 Interest cost 615 703 30 33 Actuarial loss (1), (2) 1,613 1,965 46 20 Special termination benefits (3) — — 410 — Plan amendments (4) — — ( 195 ) — Settlements ( 36 ) ( 2 ) — — Benefit payments ( 740 ) ( 689 ) ( 77 ) ( 74 ) Other — 1 — 5 Benefit obligation at end of period $ 19,812 $ 18,358 $ 1,046 $ 824 Fair value of plan assets at beginning of period $ 12,897 $ 10,053 $ 204 $ 225 Actual return on plan assets 1,427 2,305 13 41 Employer contributions (5) 9 1,230 30 12 Settlements ( 36 ) ( 2 ) — — Benefit payments ( 740 ) ( 689 ) ( 77 ) ( 74 ) Fair value of plan assets at end of period $ 13,557 $ 12,897 $ 170 $ 204 Funded status at end of period $ ( 6,255 ) $ ( 5,461 ) $ ( 876 ) $ ( 620 ) (1) The 2020 and 2019 pension actuarial loss primarily relates to the change in our weighted average discount rate assumption and, additionally, in 2019, the change to our mortality assumption. 129 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . (2) The 2020 retiree medical and other postretirement benefits actuarial loss primarily relates to the change in our weighted average discount rate assumption. The 2019 retiree medical and other postretirement benefits actuarial loss primarily relates to changes in our weighted average discount rate assumption and plan experience adjustments. (3) During the third quarter of 2020, we remeasured our retiree medical and other postretirement benefits to account for enhanced healthcare benefits provided to eligible 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. During the third quarter of 2020, we recognized a $ 410 million special charge for these enhanced healthcare benefits and increased our postretirement benefits obligation by $ 410 million. (4) Principally relates to the transition of our retiree medical benefit program from a self-insured plan to a fully-insured Medicare Advantage plan as discussed above. (5) Pursuant to the CARES Act, minimum required 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. During 2019, we contributed $ 1.2 billion to our defined benefit pension plans, including a $ 786 million minimum required contribution and supplemental contributions of $ 444 million. Balance Sheet Position Pension Benefits Retiree Medical and Other Postretirement Benefits 2020 2019 2020 2019 (In millions) As of December 31, Current liability $ 7 $ 5 $ 55 $ 24 Noncurrent liability 6,248 5,456 821 596 Total liabilities $ 6,255 $ 5,461 $ 876 $ 620 Net actuarial loss (gain) $ 6,700 $ 5,680 $ ( 358 ) $ ( 426 ) Prior service cost (benefit) 75 104 ( 181 ) ( 120 ) Total accumulated other comprehensive loss (income), pre-tax $ 6,775 $ 5,784 $ ( 539 ) $ ( 546 ) Plans with Projected Benefit Obligations Exceeding Fair Value of Plan Assets Pension Benefits 2020 2019 (In millions) Projected benefit obligation $ 19,812 $ 18,327 Fair value of plan assets 13,557 12,862 Plans with Accumulated Benefit Obligations Exceeding Fair Value of Plan Assets Pension Benefits Retiree Medical and Other Postretirement Benefits 2020 2019 2020 2019 (In millions) Accumulated benefit obligation (ABO) $ 19,799 $ 18,315 $ — $ — Accumulated postretirement benefit obligation — — 1,046 824 Fair value of plan assets 13,557 12,862 170 204 130 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . Net Periodic Benefit Cost (Income) Pension Benefits Retiree Medical and Other Postretirement Benefits 2020 2019 2018 2020 2019 2018 (In millions) Defined benefit plans: Service cost $ 2 $ 2 $ 3 $ 8 $ 3 $ 5 Interest cost 615 703 674 30 33 35 Expected return on assets ( 1,010 ) ( 815 ) ( 905 ) ( 11 ) ( 15 ) ( 24 ) Special termination benefits — — — 410 — — Settlements 12 — — — — — Amortization of: Prior service cost (benefit) 30 28 28 ( 135 ) ( 236 ) ( 236 ) Unrecognized net loss (gain) 164 150 141 ( 24 ) ( 31 ) ( 21 ) Net periodic benefit cost (income) $ ( 187 ) $ 68 $ ( 59 ) $ 278 $ ( 246 ) $ ( 241 ) The service cost component of net periodic benefit cost (income) is included in operating expenses, the cost for the special termination benefits is included in special items, net and the other components of net periodic benefit cost (income) are included in nonoperating other income (expense), net in our consolidated statements of operations. Assumptions The following actuarial assumptions were used to determine our benefit obligations and net periodic benefit cost (income) for the periods presented: Pension Benefits Retiree Medical and Other Postretirement Benefits 2020 2019 2020 2019 Benefit obligations: Weighted average discount rate 2.7 % 3.4 % 2.4 % 3.3 % Pension Benefits Retiree Medical and Other Postretirement Benefits 2020 2019 2018 2020 2019 2018 Net periodic benefit cost (income): Weighted average discount rate 3.4 % 4.4 % 3.8 % 3.2 % 4.3 % 3.6 % Weighted average expected rate of return on plan assets 8.0 % 8.0 % 8.0 % 8.0 % 8.0 % 8.0 % Weighted average health care cost trend rate assumed for next year (1) N/A N/A N/A 4.0 % 3.7 % 3.9 % (1) The weighted average health care cost trend rate at December 31, 2020 is assumed to decline gradually to 3.4 % by 2027 and remain level thereafter. As of December 31, 2020, our estimate of the long-term rate of return on plan assets was 8.0 % based on the target asset allocation. Expected returns on long duration bonds are based on yields to maturity of the bonds held at year-end. Expected returns on other assets are based on a combination of long-term historical returns, actual returns on plan assets achieved over the last ten years, current and expected market conditions, and expected value to be generated through active management and securities lending programs. Minimum Contributions We are required to make minimum contributions to our defined benefit pension plans under the minimum funding requirements of the Employee Retirement Income Security Act of 1974 (ERISA) and various other laws for U.S. based plans as well as underfunding rules specific to countries where we maintain defined benefit plans. Based on current 131 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . funding assumptions, we have minimum required contributions of $ 697 million for 2021 including contributions to defined benefit plans for our wholly-owned regional subsidiaries and $ 130 million of minimum contributions required for 2020 that were deferred pursuant to the CARES Act as discussed above. In January 2021, we made $ 241 million of required pension contributions, including the $ 130 million minimum contributions required for 2020. Our funding obligations will depend on the performance of our investments held in trust by the pension plans, interest rates for determining liabilities, the amount of and timing of any supplemental contributions and our actuarial experience. Benefit Payments The following benefit payments, which reflect expected future service as appropriate, are expected to be paid (approximately, in millions): 2021 2022 2023 2024 2025 2026-2030 Pension benefits $ 790 $ 830 $ 872 $ 914 $ 952 $ 5,150 Retiree medical and other postretirement benefits 102 93 89 86 82 356 Plan Assets The objectives of our investment policies are to: maintain sufficient income and liquidity to pay retirement benefits; produce a long-term rate of return that meets or exceeds the assumed rate of return for plan assets; limit the volatility of asset performance and funded status; and diversify assets among asset classes and investment managers. Based on these investment objectives, a long-term strategic asset allocation has been established. This strategic allocation seeks to balance the potential benefit of improving the funded position with the potential risk that the funded position would decline. The current strategic target asset allocation is as follows: Asset Class/Sub-Class Allowed Range Equity 45 % - 80 % Public: U.S. Large 10 % - 40 % U.S. Small/Mid 2 % - 10 % International 10 % - 25 % International Small/Mid 0 % - 10 % Emerging Markets 2 % - 15 % Alternative Investments 5 % - 30 % Fixed Income 20 % - 55 % Public: U.S. Long Duration 15 % - 45 % High Yield and Emerging Markets 0 % - 10 % Private Income 0 % - 15 % Other 0 % - 5 % Cash Equivalents 0 % - 20 % U.S. long duration bonds are used to partially hedge the assets from declines in interest rates. Public equity as well as high yield fixed income securities are used to provide diversification and are expected to generate higher returns over the long-term than U.S. long duration bonds. Alternative (private) investments are used to provide expected returns in excess of the public markets over the long-term. The pension plan’s master trust also participates in securities lending programs to generate additional income by loaning plan assets to borrowers on a fully collateralized basis. These programs are subject to market risk. 132 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . Investments in securities traded on recognized securities exchanges are valued at the last reported sales price on the last business day of the year. Securities traded in the over-the-counter market are valued at the last bid price. Investments in limited partnerships are carried at estimated net asset value as determined by and reported by the general partners of the partnerships and represent the proportionate share of the estimated fair value of the underlying assets of the limited partnerships. Common/collective trusts are valued at net asset value based on the fair values of the underlying investments of the trusts as determined by the sponsor of the trusts. No changes in valuation techniques or inputs occurred during the year. Benefit Plan Assets Measured at Fair Value on a Recurring Basis The fair value of our pension plan assets at December 31, 2020 and 2019, by asset category, were as follows (in millions): Fair Value Measurements as of December 31, 2020 Asset Category Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Cash and cash equivalents $ 40 $ — $ — $ 40 Equity securities: International markets (a), (b) 2,282 — — 2,282 Large-cap companies (b) 2,085 — — 2,085 Mid-cap companies (b) 428 — — 428 Small-cap companies (b) 73 1 — 74 Mutual funds (c) 80 — — 80 Fixed income: Corporate debt (d) — 3,026 — 3,026 Government securities (e) — 1,010 — 1,010 U.S. municipal securities — 30 — 30 Alternative instruments: Private market partnerships (f) — — 15 15 Private market partnerships measured at net asset value (f), (g) — — — 1,791 Common/collective trusts (h) — 259 — 259 Common/collective trusts measured at net asset value (g), (h) — — — 2,384 Insurance group annuity contracts — — 2 2 Dividend and interest receivable 49 — — 49 Due from brokers for sale of securities – net 1 — — 1 Other receivables – net 1 — — 1 Total $ 5,039 $ 4,326 $ 17 $ 13,557 (a) Holdings are diversified as follows: 11 % Switzerland, 11 % Ireland, 10 % United Kingdom, 9 % France, 8 % Japan, 7 % Germany, 6 % Netherlands, 13 % emerging markets and the remaining 25 % with no concentration greater than 5% in any one country. (b) There are no significant concentrations of holdings by company or industry. (c) Investment includes mutual funds invested 39 % in equity securities of large-cap, mid-cap and small-cap U.S. companies, 35 % in U.S. treasuries and corporate bonds and 26 % in equity securities of international companies. (d) Includes approximately 77 % investments in corporate debt with a S&P rating lower than A and 23 % investments in corporate debt with a S&P rating A or higher. Holdings include 89 % U.S. companies, 9 % international companies and 2 % emerging market companies. 133 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . (e) Includes approximately 89 % investments in U.S. domestic government securities, 9 % in emerging market government securities and 2 % in international government securities. There are no significant foreign currency risks within this classification. (f) Includes limited partnerships that invest primarily in domestic private equity and private income opportunities. The pension plan’s master trust does not have the right to redeem its limited partnership investment at its net asset value, but rather receives distributions as the underlying assets are liquidated. It is estimated that the underlying assets of these funds will be gradually liquidated over the next one to ten years . Additionally, the pension plan’s master trust has future funding commitments of approximately $ 1.6 billion over the next ten years . (g) Certain investments that are measured using net asset value per share (or its equivalent) as a practical expedient for fair value have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the notes to the consolidated financial statements. (h) Investment includes 34 % in a common/collective trust investing in large market capitalization equity securities within the U.S., 30 % in three common/collective trusts investing in emerging country equity securities, 21 % in a common/collective trust investing in equity securities of companies located outside the U.S., 9 % in a collective interest trust investing primarily in short-term securities, 5 % in a common/collective trust investing in smaller market capitalization equity securities within the U.S. and 1 % in Canadian segregated balanced value, income growth and diversified pooled funds. For some trusts, requests for withdrawals must meet specific requirements with advance notice of redemption preferred. Fair Value Measurements as of December 31, 2019 Asset Category Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Cash and cash equivalents $ 20 $ — $ — $ 20 Equity securities: International markets (a), (b) 2,769 — — 2,769 Large-cap companies (b) 2,312 — — 2,312 Mid-cap companies (b) 543 — — 543 Small-cap companies (b) 97 — — 97 Mutual funds (c) 68 — — 68 Fixed income: Corporate debt (d) — 2,804 — 2,804 Government securities (e) — 923 — 923 U.S. municipal securities — 51 — 51 Mortgage backed securities — 4 — 4 Alternative instruments: Private market partnerships (f) — — 10 10 Private market partnerships measured at net asset value (f), (g) — — — 1,464 Common/collective trusts (h) — 358 — 358 Common/collective trusts and 103-12 Investment Trust measured at net asset value (g), (h) — — — 1,423 Insurance group annuity contracts — — 2 2 Dividend and interest receivable 53 — — 53 Due to brokers for sale of securities – net ( 4 ) — — ( 4 ) Total $ 5,858 $ 4,140 $ 12 $ 12,897 (a) Holdings are diversified as follows: 14 % United Kingdom, 8 % Switzerland, 8 % Ireland, 7 % Japan, 7 % France, 6 % 134 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . South Korea, 6 % Canada, 18 % emerging markets and the remaining 26 % with no concentration greater than 5% in any one country. (b) There are no significant concentrations of holdings by company or industry. (c) Investment includes mutual funds invested 40 % in equity securities of large-cap, mid-cap and small-cap U.S. companies, 33 % in U.S. treasuries and corporate bonds and 27 % in equity securities of international companies. (d) Includes approximately 76 % investments in corporate debt with a S&P rating lower than A and 24 % investments in corporate debt with a S&P rating A or higher. Holdings include 86 % U.S. companies, 11 % international companies and 3 % emerging market companies. (e) Includes approximately 79 % investments in U.S. domestic government securities, 13 % in emerging market government securities and 8 % in international government securities. There are no significant foreign currency risks within this classification. (f) Includes limited partnerships that invest primarily in domestic private equity and private income opportunities. The pension plan’s master trust does not have the right to redeem its limited partnership investment at its net asset value, but rather receives distributions as the underlying assets are liquidated. It is estimated that the underlying assets of these funds will be gradually liquidated over the next one to ten years . Additionally, the pension plan’s master trust has future funding commitments of approximately $ 1.4 billion over the next ten years . (g) Certain investments that are measured using net asset value per share (or its equivalent) as a practical expedient for fair value have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the notes to the consolidated financial statements. (h) Investment includes 36 % in a common/collective trust investing in securities of larger companies within the U.S., 29 % in a common/collective trust investing in securities of smaller companies located outside the U.S., 16 % in a collective interest trust investing primarily in short-term securities, 15 % in an emerging market 103-12 Investment Trust with investments in emerging country equity securities and 4 % in Canadian segregated balanced value, income growth and diversified pooled funds. For some trusts, requests for withdrawals must meet specific requirements with advance notice of redemption preferred. Changes in fair value measurements of Level 3 investments during the year ended December 31, 2020, were as follows (in millions): Private Market Partnerships Insurance Group Annuity Contracts Beginning balance at December 31, 2019 $ 10 $ 2 Actual gain on plan assets: Relating to assets still held at the reporting date 1 — Purchases 4 — Ending balance at December 31, 2020 $ 15 $ 2 Changes in fair value measurements of Level 3 investments during the year ended December 31, 2019, were as follows (in millions): Private Market Partnerships Insurance Group Annuity Contracts Beginning balance at December 31, 2018 $ 7 $ 2 Purchases 3 — Ending balance at December 31, 2019 $ 10 $ 2 135 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . The fair value of our retiree medical and other postretirement benefits plans assets by asset category, were as follows (in millions): Fair Value Measurements as of December 31, 2020 Asset Category Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Money market fund $ 4 $ — $ — $ 4 Mutual funds – AAL Class — 166 — 166 Total $ 4 $ 166 $ — $ 170 Fair Value Measurements as of December 31, 2019 Asset Category Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Money market fund $ 4 $ — $ — $ 4 Mutual funds – AAL Class — 200 — 200 Total $ 4 $ 200 $ — $ 204 Investments in the retiree medical and other postretirement benefits plans’ mutual funds are valued by quoted prices on the active market, which is fair value, and represents the net asset value of the shares of such funds as of the close of business at the end of the period. Net asset value is based on the fair market value of the funds’ underlying assets and liabilities at the date of determination. The AAL Class mutual funds are offered only to benefit plans of American, therefore, trading is restricted only to American, resulting in a fair value classification of Level 2. Investments included approximately 25 % and 24 % of investments in non-U.S. common stocks in 2020 and 2019, respectively. Defined Contribution and Multiemployer Plans The costs associated with our defined contribution plans were $ 860 million for each of the years ended December 31, 2020 and 2019 and $ 846 million for the year ended December 31, 2018. We participate in the International Association of Machinists & Aerospace Workers (IAM) National Pension Fund, Employer Identification No. 51-6031295 and Plan No. 002 (the IAM Pension Fund). Our contributions to the IAM Pension Fund were $ 40 million, $ 32 million and $ 31 million for the years ended December 31, 2020, 2019 and 2018, respectively. The IAM Pension Fund reported $ 510 million in employers’ contributions for the year ended December 31, 2019, which is the most recent year for which such information is available. For 2019, our contributions represented more than 5 % of total contributions to the IAM Pension Fund. On March 29, 2019, the actuary for the IAM Pension Fund certified that the fund was in “endangered” status despite reporting a funded status of over 80 %. Additionally, the IAM Pension Fund’s Board voluntarily elected to enter into “critical” status on April 17, 2019. Upon entry into critical status, the IAM Pension Fund was required by law to adopt a rehabilitation plan aimed at restoring the financial health of the pension plan and did so on April 17, 2019 (the Rehabilitation Plan). Under the Rehabilitation Plan, we were subject to an immaterial contribution surcharge, which ceased to apply June 14, 2019 upon our mandatory adoption of a contribution schedule under the Rehabilitation Plan. The contribution schedule requires 2.5 % annual increases to our contribution rate. This contribution schedule will remain in effect through the earlier of December 31, 2031 or the date the IAM Pension Fund emerges from critical status. Profit Sharing Program We accrue 5 % of our pre-tax income excluding net special items for our profit sharing program. As a result of our pre-tax loss excluding net special items, there will not be a payout for 2020 under our profit sharing program. 136 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . 11. Accumulated Other Comprehensive Loss The components of AOCI are as follows (in millions): Pension, Retiree Medical and Other Postretirement Benefits Unrealized Gain on Investments Income Tax Benefit (Provision) (1) Total Balance at December 31, 2018 $ ( 4,673 ) $ ( 5 ) $ ( 1,218 ) $ ( 5,896 ) Other comprehensive income (loss) before reclassifications ( 476 ) 3 107 ( 366 ) Amounts reclassified from AOCI ( 89 ) — 20 (2) ( 69 ) Net current-period other comprehensive income (loss) ( 565 ) 3 127 ( 435 ) Balance at December 31, 2019 ( 5,238 ) ( 2 ) ( 1,091 ) ( 6,331 ) Other comprehensive income (loss) before reclassifications ( 1,045 ) — 236 ( 809 ) Amounts reclassified from AOCI 47 — ( 10 ) (2) 37 Net current-period other comprehensive income (loss) ( 998 ) — 226 ( 772 ) Balance at December 31, 2020 $ ( 6,236 ) $ ( 2 ) $ ( 865 ) $ ( 7,103 ) (1) Relates principally to pension, retiree medical and other postretirement benefits obligations that will not be recognized in net income (loss) until the obligations are fully extinguished. (2) Relates to pension, retiree medical and other postretirement benefits obligations and is recognized within the income tax provision (benefit) on our consolidated statements of operations. Reclassifications out of AOCI for the years ended December 31, 2020 and 2019 are as follows (in millions): Amounts reclassified from AOCI Affected line items on the consolidated statements of operations Year Ended December 31, AOCI Components 2020 2019 Amortization of pension, retiree medical and other postretirement benefits: Prior service benefit $ ( 81 ) $ ( 162 ) Nonoperating other income, net Actuarial loss 118 93 Nonoperating other income, net Total reclassifications for the period, net of tax $ 37 $ ( 69 ) Amounts allocated to other comprehensive income for income taxes as further described in Note 7 will remain in AOCI until we cease all related activities, such as termination of the pension plan. 12. Commitments, Contingencies and Guarantees (a) Aircraft, Engine and Other Purchase Commitments Under all of our aircraft and engine purchase agreements, our total future commitments as of December 31, 2020 are expected to be as follows (approximately, in millions): 2021 2022 2023 2024 2025 2026 and Thereafter Total Payments for aircraft commitments and certain engines (1) $ 527 $ 1,661 $ 1,592 $ 2,377 $ 3,381 $ 1,742 $ 11,280 (1) These amounts are net of purchase deposits currently held by the manufacturers. We have granted a security interest in certain of our purchase deposits with Boeing to secure certain obligations to Boeing and third-party financing sources. Our purchase deposits held by all manufacturers totaled $ 1.4 billion as of December 31, 2020. 137 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . On March 13, 2019, a directive from the Federal Aviation Administration (FAA) grounded all U.S.-registered Boeing 737 MAX Family aircraft and, as a result, all deliveries of Boeing 737 MAX Family aircraft were suspended. Since the time of the FAA recertification of the Boeing 737 MAX Family aircraft on November 18, 2020, deliveries have resumed and we accepted delivery of 10 Boeing 737 MAX Family aircraft during the period between the date of recertification and December 31, 2020. We have rights to defer one Boeing 737 MAX Family aircraft from delivery in 2021 to 2023 and rights to defer 10 Boeing 737 MAX Family aircraft from delivery in 2022 to 2023-2024. Due to the 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. The amounts in the table exclude 19 Boeing 787-8 aircraft to be delivered in 2021 for which we have obtained committed lease financing. See Note 6 for information regarding this operating lease commitment. Additionally, we have purchase commitments related to aircraft fuel, flight equipment maintenance, construction projects and information technology support as follows (approximately): $ 2.3 billion in 2021, $ 1.3 billion in 2022, $ 1.2 billion in 2023, $ 242 million in 2024, $ 163 million in 2025 and $ 1.0 billion in 2026 and thereafter. (b) Capacity Purchase Agreements with Third-Party Regional Carriers American has capacity purchase agreements with third-party regional carriers. The capacity purchase agreements provide that all revenues, including passenger, in-flight, ancillary, mail and freight revenues, go to American. American controls marketing, scheduling, ticketing, pricing and seat inventories. In return, American agrees to pay predetermined fees to these airlines for operating an agreed-upon number of aircraft, without regard to the number of passengers on board. In addition, these agreements provide that American either reimburses or pays 100 % of certain variable costs, such as airport landing fees, fuel and passenger liability insurance. As of December 31, 2020, American’s capacity purchase agreements with third-party regional carriers had expiration dates ranging from 2021 to 2027, with rights of American to extend the respective terms of certain agreements. As of December 31, 2020, American’s minimum obligations under its capacity purchase agreements with third-party regional carriers are as follows (approximately, in millions): 2021 2022 2023 2024 2025 2026 and Thereafter Total Minimum obligations under capacity purchase agreements with third-party regional carriers (1) $ 1,120 $ 1,666 $ 1,685 $ 1,663 $ 1,511 $ 3,646 $ 11,291 (1) Represents minimum payments under capacity purchase agreements with third-party regional carriers, which are estimates of costs based on assumed minimum levels of flying under the capacity purchase agreements and American’s actual payments could differ materially. Excludes payments for the lease of certain aircraft under capacity purchase agreements, which are reflected in the operating lease obligations in Note 6. (c) Airport Redevelopment Los Angeles International Airport (LAX) From time to time, airports where we have operations engage in construction projects, often substantial, that result in new or improved facilities that are ultimately funded through increases in the rent and other occupancy costs payable by airlines using the airport. Unlike this construction and funding model, we are managing a project at LAX where we have legal title to the assets during construction. In 2018, we executed a lease agreement with Los Angeles World Airports (LAWA), which owns and operates LAX, in connection with a $ 1.6 billion modernization project related to LAX Terminals 4 and 5. Construction, which started in October 2018 and is expected to be completed in 2028, will occur in a phased approach. The modernization project will include a unified departure hall to the entranceway of Terminals 4 and 5, reconfigured ticket counter and check-in areas with seamless access to security screening areas, 10 new security screening lanes with automated technology in addition to the existing Terminal 5 lanes, and a new Terminal 4 South concourse with more open and upgraded amenities at gate areas. The project will also include renovated break rooms, multi-use meeting rooms and team gathering spaces throughout the terminals to support our team members at LAX. 138 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . As each phase is completed, the assets will be sold and transferred to LAWA, including the site improvements and non-proprietary improvements. As we control the assets during construction, they are recognized on our balance sheet until legal title has transferred. As of December 31, 2020, we have incurred approximately $ 223 million in costs relating to the LAX modernization project, of which $ 114 million were incurred during 2020, and have been included within operating property and equipment on our consolidated balance sheet. As of December 31, 2020, we have sold and transferred $ 111 million of non-proprietary improvements to LAWA, all of which occurred during 2020. (d) Off-Balance Sheet Arrangements Aircraft and Engines American currently operates 350 owned aircraft and 24 leased aircraft, and owns 62 spare aircraft engines, which in each case were financed with EETCs issued by pass-through trusts. These trusts are off-balance sheet entities, the primary purpose of which is to finance the acquisition of flight equipment or to permit issuance of debt backed by existing flight equipment. In the case of aircraft EETCs, rather than finance each aircraft separately when such aircraft is purchased, delivered or refinanced, these trusts allow American to raise the financing for a number of aircraft at one time and, if applicable, place such funds in escrow pending a future purchase, delivery or refinancing of the relevant aircraft. Similarly, in the case of the spare engine EETCs, the trusts allow American to use its existing pool of spare engines to raise financing under a single facility. The trusts have also been structured to provide for certain credit enhancements, such as liquidity facilities to cover certain interest payments, that reduce the risks to the purchasers of the trust certificates and, as a result, reduce the cost of aircraft financing to American. Each trust covers a set number of aircraft or spare engines scheduled to be delivered, financed or refinanced upon the issuance of the EETC or within a specific period of time thereafter. At the time of each covered aircraft or spare engine financing, the relevant trust used the proceeds of the issuance of the EETC (which may have been available at the time of issuance thereof or held in escrow until financing of the applicable aircraft following its delivery) to purchase equipment notes relating to the financed aircraft or engines. The equipment notes are issued, at American’s election, in connection with a mortgage financing of the aircraft or spare engines or, in certain cases, by a separate owner trust in connection with a leveraged lease financing of the aircraft. In the case of a leveraged lease financing, the owner trust then leases the aircraft to American. In both cases, the equipment notes are secured by a security interest in the aircraft or engines, as applicable. The pass-through trust certificates are not direct obligations of, nor are they guaranteed by, AAG or American. However, in the case of mortgage financings, the equipment notes issued to the trusts are direct obligations of American and, in certain instances, have been guaranteed by AAG. As of December 31, 2020, $ 11.0 billion associated with these mortgage financings is reflected as debt in the accompanying consolidated balance sheet. With respect to leveraged leases, American evaluated whether the leases had characteristics of a variable interest entity. American concluded the leasing entities met the criteria for variable interest entities; 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 $ 78 million as of December 31, 2020, which are reflected in the operating lease obligations in Note 6. 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, 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. (e) Legal Proceedings Chapter 11 Cases . On November 29, 2011, AMR, American, and certain of AMR’s other direct and indirect domestic subsidiaries (the Debtors) filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court). On October 21, 2013, the Bankruptcy Court entered an order approving and confirming the Debtors’ fourth amended joint plan of reorganization (as amended, the Plan). On the Effective Date, December 9, 2013, the Debtors consummated their reorganization pursuant to the Plan and completed the Merger. 139 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . Pursuant to rulings of the Bankruptcy Court, the Plan established the Disputed Claims Reserve to hold shares of AAG common stock reserved for issuance to disputed claimholders at the Effective Date that ultimately become holders of allowed claims. The shares of AAG common stock issued to the Disputed Claims Reserve were originally issued on December 13, 2013 and have at all times since been included in the number of shares issued and outstanding as reported from time to time in our quarterly and annual reports, including for calculating earnings per common share. As disputed claims are resolved, the claimants receive distributions of shares from the Disputed Claims Reserve. We are not required to distribute additional shares above the limits contemplated by the Plan, even if the shares remaining for distribution in the Disputed Claims Reserve are not sufficient to fully pay any additional allowed unsecured claims. If any of the reserved shares remain undistributed upon resolution of all remaining disputed claims, such shares will not be returned to us but rather will be distributed to former AMR stockholders and former convertible noteholders treated as stockholders under the Plan. In February 2020, 2.2 million shares of AAG common stock were distributed from the Disputed Claims Reserve. After giving effect to this distribution, as of December 31, 2020, the Disputed Claims Reserve held approximately 4.8 million shares of AAG common stock. Private Party Antitrust Action Related to Passenger Capacity. We, along with Delta Air Lines, Inc., Southwest Airlines Co., United Airlines, Inc. and, in the case of litigation filed in Canada, Air Canada, were named as defendants in approximately 100 putative class action lawsuits alleging unlawful agreements with respect to air passenger capacity. The U.S. lawsuits were consolidated in the Federal District Court for the District of Columbia (the DC Court). On June 15, 2018, we reached a settlement agreement with the plaintiffs in the amount of $ 45 million to resolve all class claims in the U.S. lawsuits. That settlement was approved by the DC Court on May 13, 2019, however three parties who objected to the settlement have appealed that decision to the United States Court of Appeals for the District of Columbia. We believe these appeals are without merit and intend to vigorously defend against them. Private Party Antitrust Action Related to the Merger . On August 6, 2013, a lawsuit captioned Carolyn Fjord, et al., v. AMR Corporation, et al., was filed in the Bankruptcy Court. The complaint named as defendants US Airways Group, US Airways, AMR and American, alleged that the effect of the Merger may be to create a monopoly in violation of Section 7 of the Clayton Antitrust Act, and sought injunctive relief and/or divestiture. On November 27, 2013, the Bankruptcy Court denied plaintiffs’ motion to preliminarily enjoin the Merger. On August 29, 2018, the Bankruptcy Court denied in part defendants' motion for summary judgment, and fully denied plaintiffs' cross-motion for summary judgment. The parties' evidentiary cases were presented before the Bankruptcy Court in a bench trial in March 2019 and the parties submitted proposed findings of fact and conclusions of law and made closing arguments in April 2019. On January 29, 2021, the Bankruptcy Court published its decision finding in our favor. We expect the plaintiffs to appeal this ruling. We believe this lawsuit is without merit and intend to continue to vigorously defend against the allegations, including in respect of any appeal of the January 29, 2021 ruling. General . In addition to the specifically identified legal proceedings, we and our subsidiaries are also engaged in other legal proceedings from time to time. Legal proceedings can be complex and take many months, or even years, to reach resolution, with the final outcome depending on a number of variables, some of which are not within our control. Therefore, although we will vigorously defend ourselves in each of the actions described above and such other legal proceedings, their ultimate resolution and potential financial and other impacts on us are uncertain but could be material. (f) Guarantees and Indemnifications We are party to many routine contracts in which we provide general indemnities in the normal course of business to third parties for various risks. We are not able to estimate the potential amount of any liability resulting from the indemnities. These indemnities are discussed in the following paragraphs. In our aircraft financing agreements, we generally indemnify the financing parties, trustees acting on their behalf and other relevant parties against liabilities (including certain taxes) resulting from the financing, manufacture, design, ownership, operation and maintenance of the aircraft regardless of whether these liabilities (including certain taxes) relate to the negligence of the indemnified parties. Our loan agreements and other LIBOR-based financing transactions (including certain leveraged aircraft leases) generally obligate us to reimburse the applicable lender for incremental costs due to a change in law that imposes (i) any reserve or special deposit requirement against assets of, deposits with or credit extended by such lender related to the loan, (ii) any tax, duty or other charge with respect to the loan (except standard income tax) or (iii) capital adequacy requirements. In addition, our loan agreements and other financing arrangements typically contain a withholding tax provision that requires us to pay additional amounts to the applicable lender or other financing party, generally if withholding taxes are imposed on such lender or other financing party as a result of a change in the applicable tax law. 140 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . In certain transactions, including certain aircraft financing leases and loans, the lessors, lenders and/or other parties have rights to terminate the transaction based on changes in foreign tax law, illegality or certain other events or circumstances. In such a case, we may be required to make a lump sum payment to terminate the relevant transaction. We have general indemnity clauses in many of our airport and other real estate leases where we as lessee indemnify the lessor (and related parties) against liabilities related to our use of the leased property. Generally, these indemnifications cover liabilities resulting from the negligence of the indemnified parties, but not liabilities resulting from the gross negligence or willful misconduct of the indemnified parties. In addition, we provide environmental indemnities in many of these leases for contamination related to our use of the leased property. Under certain contracts with third parties, we indemnify the third-party against legal liability arising out of an action by the third-party, or certain other parties. The terms of these contracts vary and the potential exposure under these indemnities cannot be determined. We have liability insurance protecting us for some of the obligations we have undertaken under these indemnities. American is required to make principal and interest payments for certain special facility revenue bonds issued by municipalities primarily to build or improve airport facilities and purchase equipment, which are leased to American. The payment of principal and interest of certain special facility revenue bonds is guaranteed by AAG. As of December 31, 2020, the remaining lease payments through 2035 guaranteeing the principal and interest on these bonds are $ 572 million and the current carrying amount of the associated operating lease liability in the accompanying consolidated balance sheet is $ 321 million. As of December 31, 2020, AAG had issued guarantees covering approximately $ 15.0 billion of American’s secured debt (and interest thereon), including the Credit Facilities and certain EETC financings and $ 1.0 billion of American’s special facility revenue bonds (and interest thereon). (g) Credit Card Processing Agreements We have agreements with companies that process customer credit card transactions for the sale of air travel and other services. Our agreements allow these credit card processing companies, under certain conditions, to hold an amount of our cash (referred to as a holdback) equal to a portion of advance ticket sales that have been processed by that company, but for which we have not yet provided the air transportation. Additional holdback requirements in the event of material adverse changes in our financial condition will reduce our liquidity in the form of unrestricted cash by the amount of the holdbacks. These credit card processing companies are not currently entitled to maintain any holdbacks pursuant to these requirements. (h) Labor Negotiations As of December 31, 2020, we employed approximately 102,700 active full-time equivalent (FTE) employees, of which 24,400 were employed by our wholly-owned regional subsidiaries. Of the total active FTE employees, 84 % are covered by collective bargaining agreements (CBAs) with various labor unions and 43 % are covered by CBAs that are currently amendable or that will become amendable within one year. Joint collective bargaining agreements (JCBAs) have been reached with post-Merger employee groups, including a new five-year JCBA ratified with the TWU-IAM Association, which represents our mainline mechanics and related, fleet service, stock clerks, maintenance control technicians and maintenance training instructors. Additionally, the post-Merger JCBAs covering our pilots and flight attendants are now amendable. The JCBA covering our passenger service employees and CBAs covering certain employee groups at our wholly-owned regional subsidiaries are also amendable. 141 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . 13. Supplemental Cash Flow Information Supplemental disclosure of cash flow information and non-cash investing and financing activities are as follows (in millions): Year Ended December 31, 2020 2019 2018 Non-cash investing and financing activities: Settlement of bankruptcy obligations $ 56 $ 7 $ — Supplemental information: Interest paid, net 944 1,111 1,091 Income taxes paid 6 8 18 14. Operating Segments and Related Disclosures We are managed as a single business unit that provides air transportation for passengers and cargo. This allows us to benefit from an integrated revenue pricing and route network that includes American and our wholly-owned and third-party regional carriers that fly under capacity purchase agreements operating as American Eagle. The flight equipment of all these carriers is combined to form one fleet that is deployed through a single route scheduling system. Financial information and annual operational plans and forecasts are prepared and reviewed by the chief operating decision maker at the consolidated level. When making operational decisions, the chief operating decision maker evaluates flight profitability data, which considers aircraft type and route economics, but is indifferent to the results of the individual regional carriers. The objective in making operational decisions is to maximize consolidated financial results, not the individual results of American or American Eagle. See Note 1(l) for our passenger revenue by geographic region. Our tangible assets consist primarily of flight equipment, which are mobile across geographic markets and, therefore, have not been allocated. 15. Share-based Compensation The 2013 AAG Incentive Award Plan (the 2013 Plan) provides that awards may be in the form of an option, restricted stock award, restricted stock unit award, performance award, dividend equivalent award, deferred stock award, deferred stock unit award, stock payment award or stock appreciation right. The 2013 Plan initially authorized the grant of awards for the issuance of up to 40 million shares. Any shares underlying awards granted under the 2013 Plan that are forfeited, terminate or are settled in cash (in whole or in part) without the delivery of shares will again be available for grant. For the years ended December 31, 2020, 2019 and 2018, we recorded $ 91 million, $ 95 million and $ 88 million, respectively, of share-based compensation costs principally in salaries, wages and benefits expense on our consolidated statements of operations. During 2020, 2019 and 2018, we withheld approximately 0.7 million, 0.8 million and 0.8 million shares of AAG common stock, respectively, and paid approximately $ 15 million, $ 25 million and $ 37 million, respectively, in satisfaction of certain tax withholding obligations associated with employee equity awards. Restricted Stock Unit Awards (RSUs) The majority of our RSUs have service conditions (time vested primarily over three years ). The grant-date fair value of these RSUs is equal to the market price of the underlying shares of AAG common stock on the date of grant. The expense for these RSUs is recognized on a straight-line basis over the vesting period for the entire award. RSUs are classified as equity awards as the vesting results in the issuance of shares of AAG common stock. 142 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . RSU award activity for all plans for the years ended December 31, 2020, 2019 and 2018 is as follows: Number of Shares Weighted Average Grant Date Fair Value (In thousands) Outstanding at December 31, 2017 4,324 $ 46.94 Granted 2,194 47.65 Vested and released ( 1,999 ) 44.99 Forfeited ( 199 ) 45.72 Outstanding at December 31, 2018 4,320 $ 44.29 Granted 3,206 34.00 Vested and released ( 2,002 ) 44.90 Forfeited ( 337 ) 42.55 Outstanding at December 31, 2019 5,187 $ 37.01 Granted 5,883 22.07 Vested and released ( 2,268 ) 39.46 Forfeited ( 920 ) 29.78 Outstanding at December 31, 2020 7,882 $ 23.66 As of December 31, 2020, there was $ 107 million of unrecognized compensation cost related to RSUs. These costs are expected to be recognized over a weighted average period of one year . The total fair value of RSUs vested during the years ended December 31, 2020, 2019 and 2018 was $ 51 million, $ 68 million and $ 91 million, respectively. 16. Valuation and Qualifying Accounts (in millions) Balance at Beginning of Year Additions Charged to Statement of Operations Accounts Deductions Balance at End of Year Allowance for obsolescence of spare parts Year ended December 31, 2020 $ 784 $ 100 $ ( 394 ) $ 490 Year ended December 31, 2019 814 91 ( 121 ) 784 Year ended December 31, 2018 769 70 ( 25 ) 814 Allowance for credit losses on accounts receivable Year ended December 31, 2020 $ 31 $ 27 $ ( 22 ) $ 36 Year ended December 31, 2019 29 19 ( 17 ) 31 Year ended December 31, 2018 24 42 ( 37 ) 29 143 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . 17. Quarterly Financial Data (Unaudited) Unaudited summarized financial data by quarter for 2020 and 2019 (in millions, except share and per share amounts): First Quarter Second Quarter Third Quarter Fourth Quarter 2020 Operating revenues $ 8,515 $ 1,622 $ 3,173 $ 4,027 Operating expenses 11,064 4,108 6,044 6,542 Operating loss ( 2,549 ) ( 2,486 ) ( 2,871 ) ( 2,515 ) Net loss ( 2,241 ) ( 2,067 ) ( 2,399 ) ( 2,178 ) Loss per share: Basic and diluted $ ( 5.26 ) $ ( 4.82 ) $ ( 4.71 ) $ ( 3.81 ) Shares used for computation (in thousands): Basic and diluted 425,713 428,807 509,049 571,984 2019 Operating revenues $ 10,584 $ 11,960 $ 11,911 $ 11,313 Operating expenses 10,209 10,807 11,103 10,584 Operating income 375 1,153 808 729 Net income 185 662 425 414 Earnings per share: Basic $ 0.41 $ 1.49 $ 0.96 $ 0.95 Diluted $ 0.41 $ 1.49 $ 0.96 $ 0.95 Shares used for computation (in thousands): Basic 451,951 445,008 441,915 434,578 Diluted 453,429 445,587 442,401 435,659 Our fourth quarter 2020 results included $ 36 million of total pre-tax net special items driven principally by mark-to-market net unrealized gains and losses associated with certain equity investments and treasury rate lock derivative instruments. Our fourth quarter 2019 results included $ 108 million of total pre-tax net special items that principally included $ 85 million of merger integration expenses and $ 39 million of fleet restructuring expenses, offset in part by $ 42 million of mark-to-market net unrealized gains associated with certain equity investments and treasury rate lock derivative instruments. 18. Subsequent Events PSP2 On January 15, 2021 (the PSP2 Closing Date), the Subsidiaries entered into a Payroll Support Program Extension Agreement (the PSP2 Agreement) with Treasury, with respect to PSP2 provided pursuant to the PSP Extension Law. In connection with our entry into the PSP2 Agreement, on the PSP2 Closing Date, AAG also entered into a warrant agreement (the PSP2 Warrant Agreement) with Treasury and issued the PSP2 Promissory Note to Treasury, with the Subsidiaries as guarantors. PSP2 Agreement In connection with PSP2, we are required to comply with the relevant provisions of the PSP Extension Law, which are substantially similar as the restrictions contained in the PSP1 Agreement, but are in effect for a longer time period. These provisions include the requirement that funds provided pursuant to the PSP2 Agreement be used exclusively for the continuation of payment of eligible employee wages, salaries and benefits, the requirement against involuntary furloughs and reductions in employee pay rates and benefits through March 31, 2021, the provisions that prohibit the repurchase of AAG common stock, and the payment of common stock dividends through at least March 31, 2022, the provisions that restrict the payment of certain executive compensation until October 1, 2022, as well as a requirement to recall employees involuntarily terminated or furloughed after September 30, 2020. As was the case with PSP1, the PSP2 Agreement also imposes substantial reporting obligations on us. 144 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . Pursuant to the PSP2 Agreement, Treasury is to provide us financial assistance to be paid in installments (each, an Installment) expected to total at least $ 3.0 billion in the aggregate, of which $ 1.5 billion was received on January 15, 2021. As partial compensation to the U.S. Government for the provision of financial assistance under PSP2, and assuming a total principal sum of approximately $ 3.0 billion, we expect AAG to issue a PSP2 Promissory Note in the aggregate principal amount of approximately $ 896 million and issue warrants (each a PSP2 Warrant and, collectively, the PSP2 Warrants) to Treasury to purchase up to an aggregate of approximately 5.7 million shares of AAG common stock. PSP2 Promissory Note As partial compensation to the U.S. Government for the provision of financial assistance under the PSP2 Agreement, AAG issued the PSP2 Promissory Note to Treasury, which provides for our unconditional promise to pay to Treasury the initial principal sum of approximately $ 433 million, subject to an increase equal to 30 % of the amount of each additional Installment disbursed under the PSP2 Agreement after the PSP2 Closing Date, and the guarantee of the Company’s obligations by the Subsidiaries. Assuming the total Installments to be paid pursuant to the PSP2 Agreement aggregate approximately $ 3.0 billion, the PSP2 Promissory Note will have a total principal sum of approximately $ 896 million. The PSP2 Promissory Note bears interest on the outstanding principal amount at a rate equal to 1.00 % per annum until the fifth anniversary of the PSP2 Closing Date and 2.00 % plus an interest rate based on the secured overnight financing rate per annum or other benchmark replacement rate consistent with customary market conventions (but not to be less than 0.00 %) thereafter until the tenth anniversary of the PSP2 Closing Date (the PSP2 Maturity Date), and interest accrued thereon will be payable in arrears on the last business day of March and September of each year, beginning on March 31, 2021. The aggregate principal amount outstanding under the PSP2 Promissory Note, together with all accrued and unpaid interest thereon and all other amounts payable under the PSP2 Promissory Note, will be due and payable on the PSP2 Maturity Date. We may, at any time and from time to time, voluntarily prepay amounts outstanding under the PSP2 Promissory Note, in whole or in part, without penalty or premium. Within 30 days of the occurrence of certain change of control triggering events, we are required to prepay the aggregate outstanding principal amount of the PSP2 Promissory Note at such time, together with any accrued interest or other amounts owing under the PSP2 Promissory Note at such time. The PSP2 Promissory Note is our senior unsecured obligation and each guarantee of the PSP2 Promissory Note is the senior unsecured obligation of each of the Subsidiaries, respectively. The PSP2 Promissory Note contains events of default, including cross-default with respect to acceleration or failure to pay at maturity other material indebtedness. Upon the occurrence of an event of default and subject to certain grace periods, the outstanding obligations under the PSP2 Promissory Note may, and in certain circumstances will automatically, be accelerated and become due and payable immediately. PSP2 Warrant Agreement and PSP2 Warrants As partial compensation to the U.S. Government for the provision of financial assistance under the PSP2 Agreement, and pursuant to the PSP2 Warrant Agreement, AAG agreed to issue warrants to Treasury to purchase PSP2 Warrant Shares. The exercise price of the PSP2 Warrant Shares is $ 15.66 per share (which was the closing price of the AAG common stock on The Nasdaq Global Select Market on December 24, 2020), subject to certain anti-dilution provisions provided for in the PSP2 Warrants. Pursuant to the PSP2 Warrant Agreement, (a) on the PSP2 Closing Date, AAG issued to Treasury a PSP2 Warrant to purchase up to an aggregate of approximately 2.8 million shares of Common Stock based on the terms described herein and (b) on the date of each increase of the principal amount of the PSP2 Promissory Note in connection with the disbursement of an additional Installment under the PSP2 Agreement, AAG will issue to Treasury an additional PSP2 Warrant for a number of shares of AAG common stock equal to 10 % of such increase of the principal amount of the PSP2 Promissory Note, divided by $ 15.66 , the exercise price of such shares. Assuming the total Installments to be paid pursuant to the PSP2 Agreement aggregate approximately $ 3.0 billion, the total number of PSP2 Warrant Shares issuable is approximately 5.7 million, subject to certain anti-dilution provisions, provided for in the PSP2 Warrants. 145 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC . The PSP2 Warrants do not have any voting rights and are freely transferrable, with registration rights. Each PSP2 Warrant expires on the fifth anniversary of the date of issuance of such PSP2 Warrant. The PSP2 Warrants will be exercisable either through net share settlement or cash, at our option. The PSP2 Warrants were and will be issued solely as compensation to the U.S. Government related to entry into the PSP2 Agreement. No separate proceeds (apart from the financial assistance described above) were received upon issuance of the PSP2 Warrants or will be received upon exercise thereof. At the Market Offering On October 22, 2020, AAG entered into an Equity Distribution Agreement (Prior ATM) relating to the issuance and sale of shares of AAG common stock pursuant to an at-the-market offering up to an aggregate value of $ 1.0 billion. Since the inception of the Prior ATM through January 28, 2021, we issued 68.6 million shares of AAG common stock at an average price of $ 12.87 per share for net proceeds of $ 869 million. We provided notice to terminate the Prior ATM effective as of January 28, 2021 with $ 118 million of shares of AAG common stock available for issuance. On January 29, 2021, AAG entered into a new Equity Distribution Agreement (ATM Offering) relating to the issuance and sale of shares of AAG common stock pursuant to an at-the-market offering up to an aggregate value of $ 1.1 billion. The net proceeds from the sale of shares of AAG common stock related to the ATM Offering will be used for general corporate purposes and to enhance our liquidity position. Since the inception of the ATM Offering through February 16, 2021, we have issued 18.2 million shares of AAG common stock at an average price of $ 17.59 per share for proceeds of $ 320 million. 146 Table of Contents ITEM 8B. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF AMERICAN AIRLINES, INC. Report of Independent Registered Public Accounting Firm To the Stockholder and Board of Directors American Airlines, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of American Airlines, Inc. and subsidiaries (American) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), cash flows, and stockholder’s equity for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of American as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), American’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 17, 2021 expressed an unqualified opinion on the effectiveness of American’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of American’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to American in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 147 Table of Contents Estimate of mileage credits not expected to be redeemed As discussed in Note 1(l) to the consolidated financial statements, American’s loyalty program awards mileage credits to passengers for flights on American, flights on partner airlines, or for using the services of other program participants. American accounts for such mileage credits earned using the deferred revenue method, which includes an estimate for mileage credits not expected to be redeemed. American’s loyalty program liability was $9.2 billion as of December 31, 2020 and the associated passenger revenue for mileage credits redeemed for travel was $1.1 billion for the year ended December 31, 2020. We identified the assessment of the estimated number of mileage credits not expected to be redeemed as a critical audit matter. A high degree of auditor judgment was required to evaluate the applicability of historical data used to develop the estimate. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over American’s loyalty program accounting process, including controls related to the estimation of mileage credits not expected to be redeemed. We assessed American’s methodology used to evaluate this estimate and determined it was consistent with historical periods. We developed an independent expectation of mileage credits not expected to be redeemed, which included consideration of industry and historical information. We compared the results of our independent expectation to American’s recorded amount of loyalty program liability and the associated passenger revenue. Sufficiency of audit evidence over realizability of operating loss carryforwards As discussed in Notes 1(i) and 5 to the consolidated financial statements, American had $3.9 billion of operating loss carryforwards, which are recorded as deferred tax assets at December 31, 2020. Deferred tax assets are recognized related to operating loss carryforwards that will reduce future taxable income. American provides a valuation allowance for deferred tax assets when it is more likely than not that some portion, or all the deferred tax assets, will not be realized. In evaluating the need for a valuation allowance, management considers the weighting of all available positive and negative evidence, which includes, among other things, the nature, frequency and severity of current and cumulative taxable income or losses, as well as future projections of profitability. We identified the evaluation of the sufficiency of audit evidence over the realizability of operating loss carryforwards as a critical audit matter. Evaluating the sufficiency of audit evidence required subjective auditor judgment, and the involvement of tax professionals in order to assess the nature and extent of procedures performed in assessing the realizability of the operating loss carryforwards. The following are the primary procedures we performed to address this critical audit matter. We performed risk assessment procedures and applied auditor judgment to determine the nature and extent of procedures to be performed over the income tax accounts and disclosures. We evaluated the design and tested the operating effectiveness of certain internal controls over American’s deferred tax asset valuation allowance process, including controls related to the realizability of operating loss carryforwards. We evaluated positive and negative evidence used in assessing whether the deferred tax assets were more-likely-than-not to be realized in the future, including evaluating the nature, frequency and severity of current and cumulative taxable income or losses, as well as future projections of profitability. We evaluated the reasonableness of management’s future projections of profitability considering (i) historical profitability of American, (ii) consistency with industry data and economic trends, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. We involved tax professionals who assisted in the evaluation of the nature, frequency and severity of current and cumulative taxable income or losses. Further, we assessed the sufficiency of audit evidence obtained over the realizability of the operating loss carryforwards by evaluating the cumulative results of the audit procedures, qualitative aspects of American’s accounting practices, and potential bias in the accounting estimate. /s/ KPMG LLP We have served as American’s auditor since 2014. Dallas, Texas February 17, 2021 148 Table of Contents AMERICAN AIRLINES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In millions) Year Ended December 31, 2020 2019 2018 Operating revenues: Passenger $ 14,518 $ 42,010 $ 40,676 Cargo 769 863 1,013 Other 2,048 2,888 2,841 Total operating revenues 17,335 45,761 44,530 Operating expenses: Aircraft fuel and related taxes 2,581 7,526 8,053 Salaries, wages and benefits 10,955 12,600 12,240 Regional expenses 4,676 7,518 7,064 Maintenance, materials and repairs 1,583 2,380 2,050 Other rent and landing fees 1,536 2,055 1,900 Aircraft rent 1,341 1,326 1,264 Selling expenses 513 1,602 1,520 Depreciation and amortization 2,040 1,982 1,839 Special items, net ( 657 ) 635 787 Other 2,991 5,090 5,090 Total operating expenses 27,559 42,714 41,807 Operating income (loss) ( 10,224 ) 3,047 2,723 Nonoperating income (expense): Interest income 337 515 330 Interest expense, net ( 1,171 ) ( 1,109 ) ( 1,028 ) Other income, net 155 152 167 Total nonoperating expense, net ( 679 ) ( 442 ) ( 531 ) Income (loss) before income taxes ( 10,903 ) 2,605 2,192 Income tax provision (benefit) ( 2,453 ) 633 534 Net income (loss) $ ( 8,450 ) $ 1,972 $ 1,658 See accompanying notes to consolidated financial statements. 149 Table of Contents AMERICAN AIRLINES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In millions) Year Ended December 31, 2020 2019 2018 Net income (loss) $ ( 8,450 ) $ 1,972 $ 1,658 Other comprehensive income (loss), net of tax: Pension, retiree medical and other postretirement benefits ( 771 ) ( 434 ) ( 116 ) Investments — 3 ( 3 ) Total other comprehensive loss, net of tax ( 771 ) ( 431 ) ( 119 ) Total comprehensive income (loss) $ ( 9,221 ) $ 1,541 $ 1,539 See accompanying notes to consolidated financial statements. 150 Table of Contents AMERICAN AIRLINES, INC. CONSOLIDATED BALANCE SHEETS (In millions, except share and par value) December 31, 2020 2019 ASSETS Current assets Cash $ 231 $ 267 Short-term investments 6,617 3,543 Restricted cash and short-term investments 609 158 Accounts receivable, net 1,334 1,770 Receivables from related parties, net 7,877 12,451 Aircraft fuel, spare parts and supplies, net 1,520 1,754 Prepaid expenses and other 633 584 Total current assets 18,821 20,527 Operating property and equipment Flight equipment 37,485 42,213 Ground property and equipment 8,836 9,089 Equipment purchase deposits 1,446 1,674 Total property and equipment, at cost 47,767 52,976 Less accumulated depreciation and amortization ( 16,393 ) ( 18,335 ) Total property and equipment, net 31,374 34,641 Operating lease right-of-use assets 7,994 8,694 Other assets Goodwill 4,091 4,091 Intangibles, net of accumulated amortization of $ 745 and $ 704 , respectively 2,029 2,084 Deferred tax asset 3,235 689 Other assets 1,671 1,164 Total other assets 11,026 8,028 Total assets $ 69,215 $ 71,890 LIABILITIES AND STOCKHOLDER’S EQUITY Current liabilities Current maturities of long-term debt and finance leases $ 2,800 $ 2,358 Accounts payable 1,116 1,990 Accrued salaries and wages 1,661 1,461 Air traffic liability 4,757 4,808 Loyalty program liability 2,033 3,193 Operating lease liabilities 1,641 1,695 Other accrued liabilities 2,300 2,055 Total current liabilities 16,308 17,560 Noncurrent liabilities Long-term debt and finance leases, net of current maturities 26,182 20,684 Pension and postretirement benefits 7,027 6,008 Loyalty program liability 7,162 5,422 Operating lease liabilities 6,739 7,388 Other liabilities 1,449 1,406 Total noncurrent liabilities 48,559 40,908 Commitments and contingencies (Note 10) Stockholder’s equity Common stock, $ 1.00 par value; 1,000 shares authorized, issued and outstanding — — Additional paid-in capital 17,050 16,903 Accumulated other comprehensive loss ( 7,194 ) ( 6,423 ) Retained earnings (deficit) ( 5,508 ) 2,942 Total stockholder’s equity 4,348 13,422 Total liabilities and stockholder’s equity $ 69,215 $ 71,890 See accompanying notes to consolidated financial statements. 151 Table of Contents AMERICAN AIRLINES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) Year Ended December 31, 2020 2019 2018 Cash flows from operating activities: Net income (loss) $ ( 8,450 ) $ 1,972 $ 1,658 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 2,313 2,267 2,108 Net gains from sale of property and equipment and sale-leaseback transactions ( 98 ) ( 109 ) ( 57 ) Special items, net non-cash 1,588 384 458 Pension and postretirement ( 319 ) ( 178 ) ( 302 ) Deferred income tax provision (benefit) ( 2,453 ) 623 503 Share-based compensation 91 94 86 Other, net 14 ( 56 ) ( 102 ) Changes in operating assets and liabilities: Decrease in accounts receivable 595 130 232 Decrease (increase) in other assets 42 ( 321 ) ( 354 ) Increase (decrease) in accounts payable and accrued liabilities ( 619 ) 273 ( 171 ) Increase (decrease) in air traffic liability ( 51 ) 469 297 Decrease (increase) in receivables from related parties, net 4,134 ( 1,772 ) ( 1,849 ) Increase (decrease) in loyalty program liability 580 76 ( 283 ) Contributions to pension plans ( 6 ) ( 1,224 ) ( 472 ) Increase (decrease) in other liabilities 1,210 ( 199 ) 191 Net cash provided by (used in) operating activities ( 1,429 ) 2,429 1,943 Cash flows from investing activities: Capital expenditures and aircraft purchase deposits ( 1,922 ) ( 4,156 ) ( 3,677 ) Proceeds from sale-leaseback transactions 665 850 1,096 Proceeds from sale of property and equipment 351 49 106 Purchases of short-term investments ( 5,874 ) ( 3,184 ) ( 3,412 ) Sales of short-term investments 2,803 4,144 3,705 Proceeds from vendor 90 250 — Decrease (increase) in restricted short-term investments ( 308 ) ( 3 ) 72 Proceeds from sale of investments 41 — 207 Other investing activities ( 154 ) ( 96 ) ( 7 ) Net cash used in investing activities ( 4,308 ) ( 2,146 ) ( 1,910 ) Cash flows from financing activities: Proceeds from issuance of long-term debt 8,959 3,210 2,354 Payments on long-term debt and finance leases ( 3,029 ) ( 3,440 ) ( 2,442 ) Deferred financing costs ( 85 ) ( 52 ) ( 59 ) Net cash provided by (used in) financing activities 5,845 ( 282 ) ( 147 ) Net increase (decrease) in cash and restricted cash 108 1 ( 114 ) Cash and restricted cash at beginning of year 277 276 390 Cash and restricted cash at end of year (a) $ 385 $ 277 $ 276 (a) The following table provides a reconciliation of cash and restricted cash to amounts reported within the consolidated balance sheets: Cash $ 231 $ 267 $ 265 Restricted cash included in restricted cash and short-term investments 154 10 11 Total cash and restricted cash $ 385 $ 277 $ 276 See accompanying notes to consolidated financial statements. 152 Table of Contents AMERICAN AIRLINES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY (In millions) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings (Deficit) Total Balance at December 31, 2017 $ — $ 16,716 $ ( 5,873 ) $ ( 955 ) $ 9,888 Net income — — — 1,658 1,658 Other comprehensive loss, net — — ( 119 ) — ( 119 ) Share-based compensation expense — 86 — — 86 Impact of adoption of Accounting Standards Update (ASU) 2016-01 related to financial instruments — — — 60 60 Impact of adoption of ASU 2016-02 related to leases — — — 197 197 Balance at December 31, 2018 — 16,802 ( 5,992 ) 960 11,770 Net income — — — 1,972 1,972 Other comprehensive loss, net — — ( 431 ) — ( 431 ) Share-based compensation expense — 94 — — 94 Intercompany equity transfer — 7 — 10 17 Balance at December 31, 2019 — 16,903 ( 6,423 ) 2,942 13,422 Net loss — — — ( 8,450 ) ( 8,450 ) Other comprehensive loss, net — — ( 771 ) — ( 771 ) Share-based compensation expense — 91 — — 91 Intercompany equity transfer — 56 — — 56 Balance at December 31, 2020 $ — $ 17,050 $ ( 7,194 ) $ ( 5,508 ) $ 4,348 See accompanying notes to consolidated financial statements. 153 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. 1. Basis of Presentation and Summary of Significant Accounting Policies (a) Basis of Presentation American Airlines, Inc. (American) is a Delaware corporation whose primary business activity is the operation of a major network air carrier, providing scheduled air transportation for passengers and cargo. American is the principal wholly-owned subsidiary of American Airlines Group Inc. (AAG), which owns all of American’s outstanding common stock, par value $ 1.00 per share. On December 9, 2013, a subsidiary of AMR Corporation (AMR) merged with and into US Airways Group, Inc. (US Airways Group), a Delaware corporation, which survived as a wholly-owned subsidiary of AAG, and AAG emerged from Chapter 11 (the Merger). Upon closing of the Merger and emergence from Chapter 11, AMR changed its name to American Airlines Group Inc. All significant intercompany transactions have been eliminated. The preparation of financial statements in accordance with accounting principles generally accepted in the United States (GAAP) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The most significant areas of judgment relate to passenger revenue recognition, impairment of goodwill, impairment of long-lived and intangible assets, the loyalty program, as well as pension and retiree medical and other postretirement benefits. (b) 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, American has experienced an unprecedented decline in the demand for air travel, which has resulted in a material deterioration in its revenues. While American's business performed largely as expected in January and February of 2020, a severe reduction in air travel starting in March 2020 resulted in its 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, American's business, operations and financial condition in 2020 were severely impacted. American has taken aggressive actions to mitigate the effects of the COVID-19 pandemic on its business including deep capacity reductions, structural changes to its fleet, cost reductions, and steps to preserve cash and improve its overall liquidity position. American remains extremely focused on taking all self-help measures available to manage its business during this unprecedented time, consistent with the terms of the financial assistance it has received from the U.S. Government under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Capacity Reductions American has significantly reduced its 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. The demand environment continues to be uncertain as COVID-19 cases have continued to fluctuate in jurisdictions to which American flies and travel restrictions have generally remained in place. Due to this uncertainty, American will continue to adjust its future capacity to match observed booking trends for future travel and make further adjustments to its capacity as needed. Fleet To better align American’s network with lower passenger demand, American 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 American’s operation and bring forward cost savings and efficiencies associated with operating fewer aircraft types. See Note 1(g) below for further information on the accounting for American's fleet retirements. Due to the inherent uncertainties of the current operating environment, American will continue to evaluate its current fleet and may decide to permanently retire additional aircraft. In addition, American has placed a number of Boeing 737-800 and certain regional aircraft into temporary storage. 154 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. Cost Reductions American moved quickly to better align its costs with its reduced schedule. In aggregate, American estimates that it has reduced its 2020 operating and capital expenditures by more than $ 17 billion. These savings were achieved primarily through capacity reductions. In addition, American 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. American 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 its 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, American has 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, American involuntarily furloughed certain team members starting October 1, 2020, and subsequently recalled the team members effective December 1, 2020 covered by the financial assistance provided pursuant to the payroll support program (PSP2) established under Subtitle A of Title IV of Division N of the Consolidated Appropriations Act, 2021 (PSP Extension Law) (see Note 17 for further information). Liquidity As of December 31, 2020, American 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, American completed the following financing transactions (see Note 3 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; • 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 $ 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 American 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), of which American borrowed $ 550 million (see below for additional information on the Treasury Loan Agreement); • issued $ 1.2 billion in aggregate principal amount of two series of 10.75 % senior secured notes due 2026 secured by various collateral; • raised $ 665 million principally from aircraft sale-leaseback transactions as well as $ 351 million from asset sales primarily related to previously parked aircraft; and • 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, AAG and the Subsidiaries (as defined below) received an aggregate of $ 6.0 billion in financial assistance through the payroll support program (PSP1) established under the CARES Act, all of which was received by the end of September 2020. In connection with the receipt by AAG and the Subsidiaries 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 below for further discussion on PSP1. 155 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. In January 2021, AAG and the Subsidiaries received $ 1.5 billion (of an expected total of at least $ 3.0 billion) in financial assistance through PSP2. In connection with the receipt by AAG and the Subsidiaries 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 17 for further discussion on PSP2. Also, American is permitted to, and has, 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 $ 325 million in additional liquidity during 2020. Additionally, AAG has suspended its 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. American continues to evaluate future financing opportunities and work with third-party appraisers on valuations of its remaining unencumbered assets. A significant portion of American’s debt financing agreements contain covenants requiring it to maintain an aggregate of at least $ 2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities and/or contain loan to value, collateral coverage and/or debt service coverage ratio covenants. Given the above actions and American’s 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, American expects to meet its cash obligations as well as remain in compliance with the debt covenants in its existing financing agreements for the next 12 months based on its current level of unrestricted cash and short-term investments, its 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. PSP1 On April 20, 2020 (the PSP1 Closing Date), American, Envoy Air Inc. (Envoy), Piedmont Airlines, Inc. (Piedmont) and PSA Airlines, Inc. (PSA and together with American, Envoy and Piedmont, the Subsidiaries), entered into a Payroll Support Program Agreement (the PSP1 Agreement) with Treasury, with respect to PSP1 provided pursuant to the CARES Act. In connection with the Subsidiaries' entry into the PSP1 Agreement, on the PSP1 Closing Date, AAG also entered into a warrant agreement (the PSP1 Warrant Agreement) with Treasury and issued the PSP1 Promissory Note to Treasury, with the Subsidiaries as guarantors. PSP1 Agreement In connection with PSP1, AAG and the Subsidiaries are required to comply with the relevant provisions of the CARES Act, including the requirement that funds provided pursuant to the PSP1 Agreement be used exclusively for the continuation of payment of eligible employee wages, salaries and benefits, the requirement against involuntary furloughs and reductions in employee pay rates and benefits, which expired on September 30, 2020, the requirement that certain levels of commercial air service be maintained and the provisions that prohibit the repurchase of AAG common stock, and the payment of common stock dividends through at least September 30, 2021, as well as those that restrict the payment of certain executive compensation until March 24, 2022. The PSP1 Agreement also imposes substantial reporting obligations on AAG and the Subsidiaries. These provisions were subsequently extended upon the entry of AAG and its Subsidiaries into PSP2. See Note 17 for further discussion on PSP2. In addition, AAG and the Subsidiaries have entered into the Treasury Loan Agreement (as defined below) and, as a result, the stock repurchase, dividend and executive compensation restrictions imposed by the Treasury Loan Agreement will remain in place through the date that is one year after the secured loan provided under the Treasury Loan Agreement is fully repaid. See below for additional information on the Treasury Loan Agreement. Pursuant to the PSP1 Agreement, Treasury provided to AAG and the Subsidiaries financial assistance in an aggregate of approximately $ 6.0 billion. As partial compensation to the U.S. Government for the provision of financial assistance under PSP1, AAG issued the PSP1 Promissory Note in an aggregate principal amount of approximately $ 1.8 billion and issued warrants (each a PSP1 Warrant and, collectively, the PSP1 Warrants) to Treasury to purchase up to an aggregate of approximately 14.1 million PSP1 Warrant Shares. See below for more information on the PSP1 Warrant Agreement and the PSP1 Warrants. 156 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. For accounting purposes, the $ 6.0 billion of aggregate financial assistance AAG and the Subsidiaries received pursuant to the PSP1 Agreement is allocated to the PSP1 Promissory Note, the PSP1 Warrants and other PSP1 financial assistance (the PSP1 Financial Assistance). The aggregate principal amount of approximately $ 1.8 billion of the PSP1 Promissory Note was recorded as unsecured long-term debt, and the total fair value of the PSP1 Warrants of $ 63 million, estimated using a Black-Scholes option pricing model, was recorded in stockholders' equity in AAG's consolidated balance sheet. The remaining amount of approximately $ 4.2 billion of PSP1 Financial Assistance was recognized as a credit to special items, net in the consolidated statement of operations in the second and third quarters of 2020, the period over which the continuation of payment of eligible employee wages, salaries and benefits was required. PSP1 Warrant Agreement and PSP1 Warrants As partial compensation to the U.S. Government for the provision of financial assistance under the PSP1 Agreement, and pursuant to the PSP1 Warrant Agreement, AAG agreed to issue warrants to Treasury to purchase up to an aggregate of approximately 14.1 million PSP1 Warrant Shares of AAG common stock. The exercise price of the PSP1 Warrant Shares is $ 12.51 per share (which was the closing price of AAG common stock on The Nasdaq Global Select Market on April 9, 2020) subject to certain anti-dilution provisions provided for in the PSP1 Warrants. Pursuant to the PSP1 Warrant Agreement, on each of the PSP1 Closing Date, May 29, 2020, June 30, 2020, July 30, 2020 and September 30, 2020, AAG issued to Treasury a PSP1 Warrant to purchase up to an aggregate of approximately 6.7 million shares, 2.8 million shares, 2.8 million shares, 1.4 million shares and 0.4 million shares, respectively, of AAG common stock based on the terms described herein. The PSP1 Warrants do not have any voting rights and are freely transferrable, with registration rights. Each PSP1 Warrant expires on the fifth anniversary of the date of issuance of such PSP1 Warrant. The PSP1 Warrants will be exercisable either through net share settlement or cash, at AAG's option. The PSP1 Warrants were issued solely as compensation to the U.S. Government related to entry into the PSP1 Agreement. No separate proceeds (apart from the financial assistance described above) were received upon issuance of the PSP1 Warrants or will be received upon exercise thereof. Treasury Loan Agreement On September 25, 2020 (the Treasury Loan Closing Date), AAG and American entered into a Loan and Guarantee Agreement (the Treasury Loan Agreement) with Treasury, which provided for a secured term loan facility (the Treasury Term Loan Facility) that permitted American to borrow up to $ 5.5 billion. Subsequently, on October 21, 2020, AAG and American entered into an amendment to the Treasury Loan Agreement, which increased the borrowing amount to up to $ 7.5 billion. The Treasury Loan Agreement will involve the issuance of additional warrants to purchase up to an aggregate of approximately 60.0 million shares of AAG common stock, assuming the Treasury Term Loan Facility is fully drawn. As of December 31, 2020, American had borrowed $ 550 million under the Treasury Term Loan Facility, which is scheduled to mature on June 30, 2025, and issued warrants to Treasury to purchase up to an aggregate of approximately 4.4 million shares of AAG common stock. See Note 3 for further information on the Treasury Loan Agreement and below for more information on the Treasury Loan Warrant Agreement and Treasury Loan Warrants. Treasury Loan Warrant Agreement and Warrants In connection with the Treasury Loan Agreement, AAG also entered into a warrant agreement (the Treasury Loan Warrant Agreement) with Treasury. Pursuant to the Treasury Loan Warrant Agreement, AAG agreed to issue warrants (each a Treasury Loan Warrant and, collectively, the Treasury Loan Warrants) to Treasury to purchase up to an aggregate of approximately 60.0 million shares (the Treasury Loan Warrant Shares) of AAG's common stock based on the $ 7.5 billion commitment amount under the Treasury Term Loan Facility. The exercise price of the Treasury Loan Warrant Shares is $ 12.51 per share subject to certain anti-dilution provisions provided for in the Treasury Loan Warrant Agreement. For accounting purposes, the fair value for the Treasury Loan Warrant Shares is estimated using a Black-Scholes option pricing model and recorded in stockholders' equity in AAG's consolidated balance sheet with an offsetting debt discount to the Treasury Term Loan Facility in American’s consolidated balance sheet. Pursuant to the Treasury Loan Warrant Agreement, on the Treasury Loan Closing Date, AAG issued to Treasury a Treasury Loan Warrant to purchase up to an aggregate of approximately 4.4 million Treasury Loan Warrant Shares based on the terms described herein. On the date of each additional borrowing under the Treasury Loan Agreement, AAG will issue to Treasury an additional Treasury Loan Warrant for a number of Treasury Loan Warrant Shares equal to 10 % of such borrowing, divided by $ 12.51 , the exercise price of such shares. 157 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. The Treasury Loan Warrants do not have any voting rights and are freely transferrable, with registration rights. Each Treasury Loan Warrant expires on the fifth anniversary of the date of issuance of such Treasury Loan Warrant. The Treasury Loan Warrants will be exercisable either through net share settlement or cash, at AAG's option. The Treasury Loan Warrants were issued solely as compensation to the U.S. Government related to entry into the Treasury Loan Agreement. No separate proceeds were received upon issuance of the Treasury Loan Warrants or will be received upon exercise thereof. (c) Recent Accounting Pronouncement ASU 2016-13: 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. For trade receivables, loans and held-to-maturity debt securities, an estimate of lifetime expected credit losses is required. 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. American adopted this accounting standard prospectively as of January 1, 2020, and it did not have a material impact on American's consolidated financial statements. (d) Short-term Investments Short-term investments are classified as available-for-sale and stated at fair value. Realized gains and losses are recorded in nonoperating expense on American’s consolidated statements of operations. Unrealized gains and losses are recorded in accumulated other comprehensive loss on American’s consolidated balance sheets. For investments in an unrealized loss position, American determines whether a credit loss exists by considering information about the collectability of the instrument, current market conditions and reasonable and supportable forecasts of economic conditions. There have been no credit losses. (e) Restricted Cash and Short-term Investments American has restricted cash and short-term investments related primarily to money market funds to be used to finance a substantial portion of the cost of the renovation and expansion of Terminal 8 at JFK and collateral held to support workers’ compensation obligations. (f) Aircraft Fuel, Spare Parts and Supplies, Net Aircraft fuel is recorded on a first-in, first-out basis. Spare parts and supplies are recorded at average costs less an allowance for obsolescence. These items are expensed when used. (g) Operating Property and Equipment Operating property and equipment is recorded at cost and depreciated or amortized to residual values over the asset’s estimated useful life or the lease term, whichever is less, using the straight-line method. Residual values for aircraft, engines and related rotable parts are generally 5 % to 10 % of original cost. Costs of major improvements that enhance the usefulness of the asset are capitalized and depreciated or amortized over the estimated useful life of the asset or the lease term, whichever is less. The estimated useful lives for the principal property and equipment classifications are as follows: Principal Property and Equipment Classification Estimated Useful Life Aircraft, engines and related rotable parts 20 – 30 years Buildings and improvements 5 – 30 years Furniture, fixtures and other equipment 3 – 10 years Capitalized software 5 – 10 years Total depreciation and amortization expense was $ 2.3 billion, $ 2.5 billion and $ 2.4 billion for the years ended December 31, 2020, 2019 and 2018, respectively. American assesses impairment of operating property and equipment when events and circumstances indicate that the assets may be impaired. An impairment of an asset or group of 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. American groups assets principally by fleet-type when estimating future cash flows, which is generally the lowest level for 158 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. which identifiable cash flows exist. Estimates of future cash flows are based on historical results adjusted to reflect management’s best estimate of future market and operating conditions, including American’s current fleet plan. If such assets are impaired, the impairment charge recognized is the amount by which the carrying value of the assets exceed their fair value. Fair value reflects management’s best estimate including inputs from published pricing guides and bids from third parties as well as contracted sales agreements when applicable. In 2020, American’s operations, liquidity and stock price were significantly impacted by decreased passenger demand and government travel restrictions due to the COVID-19 pandemic. Additionally, American 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 certain regional aircraft, including certain Embraer 140 and Bombardier CRJ200 aircraft. As a result of these events and circumstances, American performed impairment tests for its long-lived assets in the first three quarters of 2020. As a result of the impairment tests performed, American determined the sum of the estimated undiscounted future cash flows exceeded the carrying value except for the aircraft being retired earlier than planned as discussed above. For those aircraft and certain related spare parts, American recorded $ 1.5 billion in non-cash special impairment charges reflecting the difference between the carrying values of these assets and their fair values for the year ended December 31, 2020. At December 31, 2020, prepaid expense and other on the consolidated balance sheet included $ 164 million of these retired aircraft that are expected to be sold in the next year, and other assets on the consolidated balance sheet included $ 400 million of nonoperating retired aircraft. Due to the inherent uncertainties of the current operating environment, American will continue to evaluate its current fleet (including aircraft in temporary storage) and may decide to permanently retire additional aircraft. (h) Leases American determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (ROU) assets, current operating lease liabilities and noncurrent operating lease liabilities in American’s consolidated balance sheet. Finance leases are included in property and equipment, current maturities of long-term debt and finance leases and long-term debt and finance leases, net of current maturities, in American’s consolidated balance sheets. ROU assets represent American’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. American uses its estimated incremental borrowing rate, which is derived from information available at the lease commencement date , in determining the present value of lease payments. American gives consideration to its recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating its incremental borrowing rates. American’s lease term includes options to extend the lease when it is reasonably certain that it will exercise that option. Leases with a term of 12 months or less are not recorded on the balance sheet. American’s lease agreements do not contain any residual value guarantees. Under certain of American’s capacity purchase agreements with third-party regional carriers, American does not own the underlying aircraft. However, since American controls the marketing, scheduling, ticketing, pricing and seat inventories of these aircraft and therefore control the asset, the aircraft is deemed to be leased for accounting purposes. For these capacity purchase agreements, American accounts for the lease and non-lease components separately. The lease component consists of the aircraft and the non-lease components consist of services, such as the crew and maintenance. American allocates the consideration in the capacity purchase agreements to the lease and non-lease components using their estimated relative standalone prices. See Note 10(b) for additional information on its capacity purchase agreements . For real estate, American accounts for the lease and non-lease components as a single lease component. (i) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are recorded net as noncurrent deferred income taxes. 159 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. American provides a valuation allowance for its deferred tax assets when it is more likely than not that some portion, or all of its deferred tax assets, will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. American considers all available positive and negative evidence and makes certain assumptions in evaluating the realizability of its deferred tax assets. Many factors are considered that impact American’s assessment of future profitability, including conditions which are beyond American’s control, such as the health of the economy, the availability and price volatility of aircraft fuel and travel demand. (j) Goodwill 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. American has one reporting unit. American assesses goodwill for impairment annually or more frequently if events or circumstances indicate that the fair value of goodwill may be lower than the carrying value. American’s annual assessment date is October 1. Goodwill is assessed for impairment by initially performing a qualitative assessment. If American determines that it is more likely than not that its goodwill may be impaired, it uses a quantitative approach to assess the asset’s fair value and the amount of the impairment, if any. In addition to American’s annual impairment assessment, it performed interim impairment tests in 2020 on its goodwill as a result of the events and circumstances previously discussed due to the impact of the COVID-19 pandemic on American’s business. American 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 7. The fair value exceeded the carrying value of the reporting unit, and American’s goodwill was not impaired. The carrying value of American’s goodwill on its consolidated balance sheets was $ 4.1 billion as of December 31, 2020 and 2019. As discussed above, due to the inherent uncertainties of the current operating environment, American will continue to evaluate its goodwill for events and circumstances that indicate that the fair value of the reporting unit may be lower than the carrying value. (k) Other Intangibles, Net Intangible assets consist primarily of certain domestic airport slots and gate leasehold rights, customer relationships, marketing agreements, international slots and route authorities and tradenames. Definite-Lived Intangible Assets Definite-lived intangible assets are originally recorded at their acquired fair values, subsequently amortized over their respective estimated useful lives and are assessed for impairment whenever events and circumstances indicate that the assets may be impaired. The following table provides information relating to American’s amortizable intangible assets as of December 31, 2020 and 2019 (in millions): December 31, 2020 2019 Domestic airport slots $ 365 $ 365 Customer relationships 300 300 Marketing agreements 105 105 Tradenames 35 35 Airport gate leasehold rights 137 137 Accumulated amortization ( 745 ) ( 704 ) Total $ 197 $ 238 Certain domestic airport slots and airport gate leasehold rights are amortized on a straight-line basis over 25 years. The customer relationships and marketing agreements were identified as intangible assets subject to amortization and are amortized on a straight-line basis over approximately nine years and 30 years, respectively. Tradenames are fully amortized. 160 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. American recorded amortization expense related to these intangible assets of $ 41 million for each of the years ended December 31, 2020, 2019 and 2018. American expects to record annual amortization expense for these intangible assets as follows (in millions): 2021 $ 41 2022 41 2023 7 2024 7 2025 7 2026 and thereafter 94 Total $ 197 Indefinite-Lived Intangible Assets Indefinite-lived intangible assets include certain domestic airport slots and international slots and route authorities. American assesses indefinite-lived intangible assets for impairment annually or more frequently if events or circumstances indicate that the fair values of indefinite-lived intangible assets may be lower than their carrying values. American’s annual assessment date is October 1. Indefinite-lived intangible assets are assessed for impairment by initially performing a qualitative assessment. If American determines that it is more likely than not that its indefinite-lived intangible assets may be impaired, American uses a quantitative approach to assess the asset’s fair value and the amount of the impairment, if any. In addition to its annual impairment assessment, American performed interim impairment tests in 2020 on its indefinite-lived intangible assets as a result of the events and circumstances previously discussed due to the impact of the COVID-19 pandemic on American’s business. American performed qualitative impairment tests on its indefinite-lived intangible assets and determined there was no material impairment. American had $ 1.8 billion of indefinite-lived intangible assets on its consolidated balance sheets at each of December 31, 2020 and 2019. As discussed above, due to the inherent uncertainties of the current operating environment, American will continue to evaluate its indefinite-lived intangible assets for events and circumstances that indicate that their fair values may be lower than the carrying values. (l) Revenue Recognition Revenue The following are the significant categories comprising American’s reported operating revenues (in millions): Year Ended December 31, 2020 2019 2018 Passenger revenue: Passenger travel $ 13,456 $ 38,831 $ 37,457 Loyalty revenue - travel (1) 1,062 3,179 3,219 Total passenger revenue 14,518 42,010 40,676 Cargo 769 863 1,013 Other: Loyalty revenue - marketing services 1,825 2,361 2,352 Other revenue 223 527 489 Total other revenue 2,048 2,888 2,841 Total operating revenues $ 17,335 $ 45,761 $ 44,530 (1) Loyalty revenue included in passenger revenue is principally comprised of mileage credit redemptions, which were earned from travel or co-branded credit card and other partners. See “ Loyalty Revenue” below for further discussion on these mileage credits. 161 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. The following is American’s total passenger revenue by geographic region (in millions): Year Ended December 31, 2020 2019 2018 Domestic $ 11,765 $ 30,881 $ 29,573 Latin America 1,852 5,047 5,125 Atlantic 654 4,624 4,376 Pacific 247 1,458 1,602 Total passenger revenue $ 14,518 $ 42,010 $ 40,676 American attributes passenger revenue by geographic region based upon the origin and destination of each flight segment. Passenger Revenue American recognizes all revenues generated from transportation on American and its regional flights operated under the brand name American Eagle, including associated baggage fees and other inflight services, as passenger revenue when transportation is provided. Ticket and other related sales for transportation that has not yet been provided are initially deferred and recorded as air traffic liability on American’s consolidated balance sheets. The air traffic liability principally represents tickets sold for future travel on American and partner airlines, as well as estimated future refunds and exchanges of tickets sold for past travel. The majority of tickets sold are nonrefundable. A small percentage of tickets, some of which are partially used tickets, expire unused. Due to complex pricing structures, refund and exchange policies, and interline agreements with other airlines, certain amounts are recognized in passenger revenue using estimates regarding both the timing of the revenue recognition and the amount of revenue to be recognized. These estimates are generally based on the analysis of American’s historical data. American has consistently applied this accounting method to estimate revenue from unused tickets at the date of travel. Estimated future refunds and exchanges included in the air traffic liability are routinely evaluated based on subsequent activity to validate the accuracy of American’s estimates. Any adjustments resulting from periodic evaluations of the estimated air traffic liability are included in passenger revenue during the period in which the evaluations are completed. Various taxes and fees assessed on the sale of tickets to end customers are collected by American as an agent and remitted to taxing authorities. These taxes and fees have been presented on a net basis in the accompanying consolidated statements of operations and recorded as a liability until remitted to the appropriate taxing authority. 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 American currently operates the loyalty program, AAdvantage. This program awards mileage credits to passengers who fly on American, any one world airline or other partner airlines, or by using the services of other program participants, such as the Citi and Barclaycard US co-branded credit cards, and certain hotels and car rental companies. Mileage credits can be redeemed for travel on American and other participating partner airlines, as well as other non-air travel awards such as hotels and rental cars. For mileage credits earned by AAdvantage loyalty program members, American applies the deferred revenue method. In response to the COVID-19 pandemic, American suspended the expiration of mileage credits through June 30, 2021 and eliminated mileage reinstatement fees for canceled award tickets. Mileage credits earned through travel For mileage credits earned through travel, American applies a relative selling price approach whereby the total amount collected from each passenger ticket sale is allocated between the air transportation and the mileage credits earned. The portion of each passenger ticket sale attributable to mileage credits earned is initially deferred and then recognized in passenger revenue when mileage credits are redeemed and transportation is provided. The estimated selling price of mileage credits is determined using an equivalent ticket value approach, which uses historical data, including award redemption patterns by geographic region and class of service, as well as similar fares as those used to settle award redemptions. The estimated selling price of miles is adjusted for an estimate of 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. 162 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. Given the inherent uncertainty of the current operating environment due to the COVID-19 pandemic, American will continue to monitor redemption patterns and may adjust its estimates in the future. Mileage credits sold to co-branded credit cards and other partners American sells mileage credits to participating airline partners and non-airline business partners, including American’s co-branded credit card partners, under contracts with terms extending generally for one to seven years . Consideration received from the sale of mileage credits is variable and payment terms typically are within 30 days subsequent to the month of mileage sale. Sales of mileage credits to non-airline business partners are comprised of two components, transportation and marketing. American allocates the consideration received from these sales of mileage credits based on the relative selling price of each product or service delivered. American’s most significant partner agreements are its co-branded credit card agreements with Citi and Barclaycard US. American identified the following revenue elements in these co-branded credit card agreements: the transportation component; and the use of intellectual property, including the American brand and access to loyalty program member lists, which is the predominant element in the agreements, as well as advertising (collectively, the marketing component). Accordingly, American recognizes the marketing component in other revenue in the period of the mileage sale following the sales-based royalty method. The transportation component represents the estimated selling price of future travel awards and is determined using the same equivalent ticket value approach described above. The portion of each mileage credit sold attributable to transportation is initially deferred and then recognized in passenger revenue when mileage credits are redeemed and transportation is provided. For the portion of American’s outstanding mileage credits that it estimates will not be redeemed, American recognizes the associated value proportionally as the remaining mileage credits are redeemed. American’s estimates use statistical models based on historical redemption patterns to develop an estimate of the likelihood of future redemption. Cargo Revenue Cargo revenue is recognized when American provides the transportation. Other Revenue Other revenue includes revenue associated with American’s loyalty program, which is comprised principally of the marketing component of mileage sales to co-branded credit card and other partners and other marketing related payments. Loyalty revenue included in other revenue was $ 1.8 billion for the year ended December 31, 2020 and $ 2.4 billion for both 2019 and 2018. The accounting and recognition for the loyalty program marketing services are discussed above in “ Loyalty Revenue .” The remaining amounts included within other revenue relate to airport clubs, advertising and vacation-related services. Contract Balances American’s significant contract liabilities are comprised of (1) outstanding loyalty program mileage credits that may be redeemed for future travel and other non-air travel awards, reported as loyalty program liability on American’s consolidated balance sheets and (2) ticket sales for transportation that has not yet been provided, reported as air traffic liability on American’s consolidated balance sheets. December 31, 2020 2019 (in millions) Loyalty program liability $ 9,195 $ 8,615 Air traffic liability 4,757 4,808 Total $ 13,952 $ 13,423 163 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. The balance of the loyalty program liability fluctuates based on seasonal patterns, which impact the volume of mileage credits issued through travel or sold to co-branded credit card and other partners (deferral of revenue) and mileage credits redeemed (recognition of revenue). Changes in loyalty program liability are as follows (in millions): Balance at December 31, 2019 $ 8,615 Deferral of revenue 1,812 Recognition of revenue (1) ( 1,232 ) Balance at December 31, 2020 (2) $ 9,195 (1) Principally relates to revenue recognized from the redemption of mileage credits for both air and non-air travel awards. Mileage credits are combined in one homogenous pool and are not separately identifiable. As such, the revenue is comprised of miles that were part of the loyalty program deferred revenue balance at the beginning of the period, as well as miles that were issued during the period. (2) Mileage credits can be redeemed at any time and generally do not expire as long as that AAdvantage member has any type of qualifying activity at least every 18 months. As previously discussed, in response to the COVID-19 pandemic, American suspended the expiration of mileage credits through June 30, 2021 and eliminated mileage reinstatement fees for canceled award tickets. As of December 31, 2020, American’s current loyalty program liability was $ 2.0 billion and represents American’s current estimate of revenue expected to be recognized in the next 12 months based on historical as well as projected trends, with the balance reflected in long-term loyalty program liability expected to be recognized as revenue in periods thereafter. Given the inherent uncertainty of the current operating environment due to the COVID-19 pandemic, American will continue to monitor redemption patterns and may adjust its estimates in the future. The air traffic liability principally represents tickets sold for future travel on American and partner airlines, as well as estimated future refunds and exchanges of tickets sold for past travel. The balance in American’s air traffic liability also fluctuates with seasonal travel patterns. The contract duration of passenger tickets is generally one year . Accordingly, any revenue associated with tickets sold for future travel will be recognized within 12 months. For 2020, $ 2.8 billion of revenue was recognized in passenger revenue that was included in American’s air traffic liability at December 31, 2019. In response to the COVID-19 pandemic, American 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, American has 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, American's estimates of revenue that will be recognized from the air traffic liability for future flown or unused tickets as well as American's estimates of refunds may be subject to variability and differ from historical experience. American’s ticket contract receivables relate to ticket sales to individual passengers primarily through the use of major credit cards and are reflected as accounts receivable, net on the accompanying consolidated balance sheets. These receivables are short-term, mostly settled within seven days after sale. All accounts receivable are reported net of an allowance for credit losses, which have been minimal in the past. American considers past and future financial and qualitative factors when establishing the allowance for credit losses. (m) Maintenance, Materials and Repairs Maintenance and repair costs for owned and leased flight equipment are charged to operating expense as incurred, except costs incurred for maintenance and repair under flight hour maintenance contract agreements, which are accrued based on contractual terms when an obligation exists. (n) Selling Expenses Selling expenses include credit card fees, commissions, computerized reservations systems fees and advertising. Selling expenses associated with passenger revenue are expensed when the transportation or service is provided. Advertising costs are expensed as incurred. Advertising expense was $ 50 million, $ 129 million and $ 128 million for the years ended December 31, 2020, 2019 and 2018, respectively. 164 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. (o) Share-based Compensation American accounts for its share-based compensation expense based on the fair value of the stock award at the time of grant, which is recognized ratably over the vesting period of the stock award. The majority of American’s stock awards are time vested restricted stock units, and the fair value of such awards is based on the market price of the underlying shares of AAG common stock on the date of grant. See Note 13 for further discussion of share-based compensation. (p) Foreign Currency Gains and Losses Foreign currency gains and losses are recorded as part of other income, net within total nonoperating expense, net in American’s consolidated statements of operations. For the years ended December 31, 2020 , 2019 and 2018, respectively, foreign currency losses were $ 24 million, $ 32 million and $ 54 million. (q) Other Operating Expenses Other operating expenses includes costs associated with ground and cargo handling, crew travel, aircraft food and catering, aircraft cleaning, passenger accommodation, airport security, international navigation fees and certain general and administrative expenses. (r) Regional Expenses Expenses associated with American Eagle operations are classified as regional expenses on American’s consolidated statements of operations. Regional expenses consist of the following (in millions): Year Ended December 31, 2020 2019 2018 Aircraft fuel and related taxes $ 821 $ 1,869 $ 1,843 Salaries, wages and benefits 275 325 338 Capacity purchases from third-party regional carriers (1) 2,750 3,562 3,267 Maintenance, materials and repairs 3 30 8 Other rent and landing fees 468 621 583 Aircraft rent 13 29 27 Selling expenses 153 402 369 Depreciation and amortization 273 286 267 Special items, net ( 338 ) — — Other 258 394 362 Total regional expenses $ 4,676 $ 7,518 $ 7,064 (1) In 2020, 2019, and 2018, American recognized $ 438 million, $ 590 million and $ 565 million, respectively, of expense under its capacity purchase agreement with Republic Airways Inc. (Republic). American holds a 25 % equity interest in Republic Airways Holdings Inc. (Republic Holdings), the parent company of Republic. 165 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. 2. Special Items, Net Special items, net on American’s consolidated statements of operations consisted of the following (in millions): Year Ended December 31, 2020 2019 2018 PSP1 Financial Assistance (1) $ ( 3,710 ) $ — $ — Fleet impairment (2) 1,484 213 — Severance expenses (3) 1,408 11 58 Labor contract expenses (4) 228 — 13 Mark-to-market adjustments on bankruptcy obligations, net (5) ( 49 ) ( 11 ) ( 76 ) Fleet restructuring expenses (6) — 271 422 Merger integration expenses (7) — 191 268 Litigation reserve adjustments — ( 53 ) 45 Intangible asset impairment (8) — — 26 Other operating special items, net ( 18 ) 13 31 Mainline operating special items, net ( 657 ) 635 787 PSP1 Financial Assistance (1) ( 444 ) — — Fleet impairment (2) 106 — — Regional operating special items, net ( 338 ) — — Operating special items, net ( 995 ) 635 787 Mark-to-market adjustments on equity and other investments, net (9) 135 ( 5 ) 104 Debt refinancing, extinguishment and other, net 35 16 9 Nonoperating special items, net 170 11 113 Income tax special items (10) — — 18 (1) PSP1 Financial Assistance represents recognition of financial assistance received from Treasury pursuant to the PSP1 Agreement. See Note 1(b) 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) 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. (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 American's 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 and 2018 severance expenses primarily included costs associated with reductions of management and support staff team members. (4) The 2020 labor contract expenses primarily related to one-time charges resulting from the ratification of a new contract with the Transport Workers Union and International Association of Machinists & Aerospace Workers (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. 166 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. (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 American's technical operations, flight attendant, human resources and payroll systems. (8) Intangible asset impairment included a non-cash charge to write-off American’s Brazil route authority as a result of the U.S.-Brazil open skies agreement. (9) Mark-to-market adjustments on equity and other investments, net primarily related to net unrealized gains and losses associated with American’s equity investment in China Southern Airlines Company Limited (China Southern Airlines) and certain treasury rate lock derivative instruments. (10) Income tax special items included an $ 18 million charge related to an international income tax matter. 3. Debt Long-term debt included on American’s consolidated balance sheets consisted of (in millions): December 31, 2020 2019 Secured 2013 Term Loan Facility, variable interest rate of 1.90 %, installments through 2025 (a) $ 1,788 $ 1,807 2013 Revolving Facility, variable interest rate of 2.15 %, due 2024 (a) 750 — 2014 Term Loan Facility, variable interest rate of 1.90 %, installments through 2027 (a) 1,220 1,202 2014 Revolving Facility, variable interest rate of 2.15 %, due 2024 (a) 1,643 — April 2016 Term Loan Facility, variable interest rate of 2.15 %, installments through 2023 (a) 960 970 April 2016 Revolving Facility, variable interest rate of 2.15 %, due 2024 (a) 450 — December 2016 Term Loan Facility, variable interest rate of 2.16 %, installments through 2023 (a) 1,200 1,213 11.75 % senior secured notes, interest only payments until due in July 2025 (b) 2,500 — 10.75 % senior secured IP notes, interest only payments until due in February 2026 (b) 1,000 — 10.75 % senior secured LGA/DCA notes, interest only payments until due in February 2026 (b) 200 — Treasury Term Loan Facility, variable interest rate of 3.73 %, interest only payments until due June 2025 (c) 550 — Enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 3.00 % to 8.39 %, averaging 3.98 %, maturing from 2021 to 2032 (d) 11,013 11,933 Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.32 % to 5.83 %, averaging 1.88 %, maturing from 2021 to 2032 (e) 4,417 4,727 Special facility revenue bonds, fixed interest rates ranging from 5.00 % to 5.38 %, maturing from 2021 to 2036 (f) 1,040 725 Total long-term debt 28,731 22,577 Less: Total unamortized debt discount, premium and issuance costs 321 205 Less: Current maturities 2,700 2,246 Long-term debt, net of current maturities $ 25,710 $ 20,126 167 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. As of December 31, 2020, the maximum availability under American’s Treasury Term Loan Facility and other facilities is as follows (in millions): Treasury Term Loan Facility $ 6,950 Short-term Revolving and Other Facilities 446 Total $ 7,396 Pursuant to the Treasury Loan Agreement, at December 31, 2020, American had a $ 7.5 billion Treasury Term Loan Facility of which it has drawn $ 550 million. In addition, American has an undrawn $ 400 million short-term revolving credit facility it entered into in December 2019, which was set to expire at the end of December 2020 but which has been extended through the beginning of July 2021. American also currently has approximately $ 46 million of available borrowing base under a cargo receivables facility that was entered into in December 2020. The December 2016 Credit Facilities provide for a revolving credit facility that may be established thereunder in the future. Secured financings are collateralized by assets, consisting primarily of aircraft, engines, simulators, aircraft spare parts, airport gate leasehold rights, route authorities, airport slots and certain pre-delivery payments, as well as certain intellectual property and loyalty program assets. At December 31, 2020, the maturities of long-term debt are as follows (in millions): 2021 $ 2,749 2022 1,672 2023 4,162 2024 4,401 2025 6,421 2026 and thereafter 9,326 Total $ 28,731 (a) 2013, 2014, April 2016 and December 2016 Credit Facilities 2013 Credit Facilities In November 2019, American and AAG entered into the Sixth Amendment to Amended and Restated Credit and Guaranty Agreement, amending the Amended and Restated Credit and Guaranty Agreement dated as of May 21, 2015 (as previously amended, the 2013 Credit Agreement; the revolving credit facility established thereunder, the 2013 Revolving Facility; the term loan facility established thereunder, the 2013 Term Loan Facility; and the 2013 Revolving Facility together with the 2013 Term Loan Facility, the 2013 Credit Facilities), which reduced the total aggregate commitments under the 2013 Revolving Facility to $ 750 million from $ 1.0 billion. In addition, certain lenders party to the 2013 Credit Agreement extended the maturity date of their commitments under the 2013 Revolving Facility to October 2024 from October 2023. In April 2020, American borrowed $ 750 million under the 2013 Revolving Facility. The 2013 Revolving Facility bears interest at LIBOR plus a margin of 2.00 % and has a final maturity date of October 2024. Following the April draw, American had no remaining borrowing capacity available under the 2013 Revolving Facility. 2014 Credit Facilities In November 2019, American and AAG entered into the Seventh Amendment to Amended and Restated Credit and Guaranty Agreement, amending the Amended and Restated Credit and Guaranty Agreement dated as of April 20, 2015 (as previously amended, the 2014 Credit Agreement; the revolving credit facility established thereunder, the 2014 Revolving Facility; the term loan facility established thereunder, the 2014 Term Loan Facility; and the 2014 Revolving Facility together with the 2014 Term Loan Facility, the 2014 Credit Facilities), which increased the total aggregate commitments under the 2014 Revolving Facility to $ 1.6 billion from $ 1.5 billion. In addition, certain lenders party to the 2014 Credit Agreement extended the maturity date of their commitments under the 2014 Revolving Facility to October 2024 from October 2023. 168 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. In January 2020, American and AAG entered into the Eighth Amendment to the 2014 Credit Agreement, pursuant to which American refinanced the 2014 Term Loan Facility, increasing the total aggregate principal amount outstanding to $ 1.2 billion, reducing the LIBOR margin from 2.00 % to 1.75 %, with a LIBOR floor of 0 %, and reducing the base rate margin from 1.00 % to 0.75 %. In addition, the maturity date for the 2014 Term Loan Facility was extended to January 2027 from October 2021. In April and May 2020, American borrowed, in aggregate, $ 1.6 billion under the 2014 Revolving Facility. The 2014 Revolving Facility bears interest at LIBOR plus a margin of 2.00 % and has a final maturity date of October 2024. Following the April and May draws, American had no remaining borrowing capacity available under the 2014 Revolving Facility. April 2016 Credit Facilities In November 2019, American and AAG entered into the Fifth Amendment to Credit and Guaranty Agreement, amending the Credit and Guaranty Agreement dated as of April 29, 2016 (as previously amended, the April 2016 Credit Agreement; the revolving credit facility established thereunder, the April 2016 Revolving Facility; the term loan facility established thereunder, the 2016 Term Loan Facility; and the April 2016 Revolving Facility together with the 2016 Term Loan Facility, the April 2016 Credit Facilities), which increased the total aggregate commitments under the April 2016 Revolving Facility to $ 450 million from $ 300 million. In addition, certain lenders party to the April 2016 Credit Agreement extended the maturity date of their commitments under the April 2016 Revolving Facility to October 2024 from October 2023. In April 2020, American borrowed $ 450 million under the April 2016 Revolving Facility. The April 2016 Revolving Facility bears interest at LIBOR plus a margin of 2.00 % and has a final maturity date of October 2024. Following the April draw, American had no remaining borrowing capacity available under the April 2016 Revolving Facility. December 2016 Credit Facilities In December 2016, American and AAG entered into the Amended and Restated Credit and Guaranty Agreement, dated as of December 15, 2016 (as amended, the December 2016 Credit Agreement; the term loan facility established thereunder, the December 2016 Term Loan Facility; and together with the revolving credit facility that may be established thereunder in the future, the December 2016 Credit Facilities). Certain details of American’s 2013 Credit Facilities, 2014 Credit Facilities, April 2016 Credit Facilities and December 2016 Credit Facilities (collectively referred to as the Credit Facilities) are shown in the table below as of December 31, 2020: 2013 Credit Facilities 2014 Credit Facilities April 2016 Credit Facilities December 2016 Credit Facilities 2013 Term Loan 2013 Revolving Facility 2014 Term Loan 2014 Revolving Facility April 2016 Term Loan April 2016 Revolving Facility December 2016 Term Loan Aggregate principal issued or credit facility availability (in millions) $ 1,919 $ 750 $ 1,280 $ 1,643 $ 1,000 $ 450 $ 1,250 Principal outstanding or drawn (in millions) $ 1,788 $ 750 $ 1,220 $ 1,643 $ 960 $ 450 $ 1,200 Maturity date June 2025 October 2024 January 2027 October 2024 April 2023 October 2024 December 2023 LIBOR margin 1.75 % 2.00 % 1.75 % 2.00 % 2.00 % 2.00 % 2.00 % The term loans under each of the Credit Facilities are repayable in annual installments in an amount equal to 1.00 % of the aggregate principal amount issued, with any unpaid balance due on the respective maturity dates. Voluntary prepayments may be made by American at any time. The 2013 Revolving Facility, 2014 Revolving Facility and April 2016 Revolving Facility provide that American may from time to time borrow, repay and reborrow loans thereunder. The 2013 Revolving Facility and 2014 Revolving Facility have the ability to issue letters of credit thereunder in an aggregate amount outstanding at any time up to $ 100 million and $ 200 million, respectively. The 2013 Revolving Facility, 2014 Revolving Facility and April 2016 Revolving Facility are each subject to an undrawn annual fee of 0.63 %. 169 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. Subject to certain limitations and exceptions, the Credit Facilities are secured by collateral, including certain spare parts, slots, route authorities, simulators and leasehold rights. American has the ability to make future modifications to the collateral pledged, subject to certain restrictions. American’s obligations under the Credit Facilities are guaranteed by AAG. American is required to maintain a certain minimum ratio of appraised value of the collateral to the outstanding loans as further described below in “Certain Covenants.” The Credit Facilities contain events of default customary for similar financings, including cross default to other material indebtedness. Upon the occurrence of an event of default, the outstanding obligations may be accelerated and become due and payable immediately. In addition, if a “change of control” occurs, American will (absent an amendment or waiver) be required to repay at par the loans outstanding under the Credit Facilities and terminate the 2013 Revolving Facility, 2014 Revolving Facility and April 2016 Revolving Facility and any revolving credit facility established under the December 2016 Credit Facilities. The Credit Facilities also include covenants that, among other things, require AAG to maintain 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 limit the ability of AAG and its restricted subsidiaries to pay dividends and make certain other payments, make certain investments, incur additional indebtedness, incur liens on the collateral, dispose of the collateral, enter into certain affiliate transactions and engage in certain business activities, in each case subject to certain exceptions. Delayed Draw Term Loan Credit Facility In March 2020, American and AAG entered into a Credit and Guaranty Agreement which provided for a $ 1.0 billion senior secured delayed draw term loan credit facility (the Delayed Draw Term Loan Credit Facility), which was scheduled to be due and payable in a single installment on the maturity date in March 2021. In connection with the issuance of the 11.75 % senior secured notes due 2025, as described below, the Delayed Draw Term Loan Credit Facility was repaid and the Delayed Draw Term Loan Credit Facility and all of the security documents and other loan documents related thereto were terminated as of June 30, 2020. (b) Senior Secured Notes 11.75 % Senior Secured Notes In June 2020, American issued $ 2.5 billion aggregate principal amount of 11.75 % senior secured notes due 2025 (the 11.75 % Senior Secured Notes) at a price equal to 99 % of their aggregate principal amount. The 11.75 % Senior Secured Notes bear interest at a rate of 11.75 % per annum (subject to increase if the collateral coverage ratio described below is not met). Interest on the 11.75 % Senior Secured Notes is payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2021. The 11.75 % Senior Secured Notes will mature on July 15, 2025. The obligations of American under the 11.75 % Senior Secured Notes are fully and unconditionally guaranteed on a senior unsecured basis by AAG. The proceeds from the 11.75 % Senior Secured Notes were used to repay and terminate the Delayed Draw Term Loan Credit Facility (and to terminate all security documents and all other loan documents related thereto) with the remaining amount for general corporate purposes and to enhance American’s liquidity position. The 11.75 % Senior Secured Notes were issued pursuant to an indenture, dated as of June 30, 2020 (the 11.75 % Senior Secured Notes Indenture), by and among American, AAG and Wilmington Trust, National Association, as trustee (the 11.75 % Senior Secured Notes Trustee). The 11.75 % Senior Secured Notes are American’s senior secured obligations. Subject to certain limitations and exceptions, the 11.75 % Senior Secured Notes are secured on a first-lien basis by security interests in certain assets, rights and properties utilized by American in providing its scheduled air carrier services to and from certain airports in the United States and certain airports in Australia, Canada, the Caribbean, Central America, China, Hong Kong, Japan, Mexico, South Korea, and Switzerland (collectively, the First Lien 11.75 % Senior Secured Notes Collateral). American’s obligations with respect to the 11.75 % Senior Secured Notes are also secured on a second-lien basis by security interests in certain assets, rights and properties utilized by American in providing its scheduled air carrier services to and from certain airports in the United States and certain airports in the European Union and the United Kingdom (collectively, the Second Lien 11.75 % Senior Secured Notes Collateral and together with the First Lien 11.75 % Senior Secured Notes Collateral, the 11.75 % Senior Secured Notes Collateral). American may be required to pledge additional collateral in the future under the terms of the 11.75 % Senior Secured Notes, and in certain circumstances may elect to pledge additional collateral as a replacement for existing collateral. The Second Lien 11.75 % Senior Secured Notes Collateral also secures the 2014 Credit Facilities on a first-lien basis. American may redeem the 11.75 % Senior Secured Notes, in whole at any time or in part from time to time, at a redemption price equal to 100 % of the principal amount of the 11.75 % Senior Secured Notes being redeemed plus a make whole premium, together with accrued and unpaid interest thereon, if any, to (but not including) the redemption date. 170 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. In the event of a specified change of control, each holder of 11.75 % Senior Secured Notes may require American to repurchase its 11.75 % Senior Secured Notes in whole or in part at a repurchase price of 101 % of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, if any, to (but not including) the repurchase date. American is required to deliver an appraisal of the First Lien 11.75 % Senior Secured Notes Collateral and officer’s certificate on a semi-annual basis demonstrating the calculation of a collateral coverage ratio in relation to the First Lien 11.75 % Senior Secured Notes Collateral as of the end of each semi-annual period based on such appraisal. If American fails to deliver the officer’s certificate in a timely manner or the collateral coverage ratio is less than 1.6 to 1.0 as of the end of the semi-annual period, then, subject to an opportunity to cure the deficiency in the collateral coverage ratio, American will be required to pay special interest in an additional amount equal to 2.0 % per annum of the outstanding principal amount of the 11.75 % Senior Secured Notes until the collateral coverage ratio is established to be at least 1.6 to 1.0. The 11.75 % Senior Secured Notes Indenture contains covenants that, among other things, restrict the ability of AAG and the ability of its restricted subsidiaries (including American) to: (i) pay dividends, redeem or repurchase stock or make other distributions or restricted payments, (ii) incur liens on the 11.75 % Senior Secured Notes Collateral and dispose of or release the 11.75 % Senior Secured Notes Collateral, (iii) repay subordinated indebtedness, (iv) make certain loans and investments, (v) incur indebtedness or issue preferred stock, (vi) merge, consolidate or sell assets, (vii) undergo certain change of control transactions, and (viii) designate subsidiaries as unrestricted. These covenants are subject to a number of important exceptions and qualifications set forth in the 11.75 % Senior Secured Notes Indenture. Upon the occurrence of any event of default (other than certain bankruptcy or insolvency or reorganization events affecting AAG or certain of its subsidiaries, including American), the 11.75 % Senior Secured Notes may be declared to be due and payable immediately. Upon the occurrence of certain bankruptcy, insolvency or reorganization events affecting American or certain of its subsidiaries (including American), all outstanding 11.75 % Senior Secured Notes will become due and payable immediately without further action or notice on the part of the 11.75 % Senior Secured Notes Trustee or any holder of the 11.75 % Senior Secured Notes. 10.75 % Senior Secured Notes On September 25, 2020 (the 10.75 % Senior Secured Notes Closing Date), American issued $ 1.0 billion in initial principal amount of senior secured IP notes (the IP Notes) and $ 200 million in initial principal amount of senior secured LGA/DCA notes (the LGA/DCA Notes and together with the IP Notes, the 10.75 % Senior Secured Notes). The obligations of American under the 10.75 % Senior Secured Notes are fully and unconditionally guaranteed (the 10.75 % Senior Secured Notes Guarantees) on a senior unsecured basis by AAG. The 10.75 % Senior Secured Notes bear interest at a rate of 10.75 % per annum in cash. For any interest period on or prior to September 1, 2022, American may, at its election, pay interest at a rate of 12.00 % per annum payable one-half in cash and one-half in kind. Interest on the 10.75 % Senior Secured Notes is payable semiannually in arrears on September 1 and March 1 of each year, beginning on March 1, 2021. The 10.75 % Senior Secured Notes will mature on February 15, 2026. The proceeds from the 10.75 % Senior Secured Notes were used to pay transaction-related fees and expenses and for general corporate purposes. The 10.75 % Senior Secured Notes were each issued pursuant to a separate indenture, dated as of September 25, 2020 (individually, the IP Notes Indenture and the LGA/DCA Notes Indenture and collectively, the 10.75 % Senior Secured Notes Indentures), by and among American, AAG and Wilmington Trust, National Association, as trustee and as collateral trustee (the 10.75 % Senior Secured Notes Trustee). The IP Notes are secured by a first lien security interest on certain intellectual property of American, including the “American Airlines” trademark and the “aa.com” domain name in the United States and certain foreign jurisdictions (the IP Collateral), and a second lien on certain slots related to American’s operations at New York LaGuardia and Ronald Reagan Washington National airports and certain other assets (the LGA/DCA Collateral and together with the IP Collateral, the 10.75 % Senior Secured Notes Collateral). Subject to certain conditions, American will be permitted to incur up to $ 4.0 billion of additional pari passu debt and unlimited second lien debt secured by the IP Collateral securing the IP Notes. The LGA/DCA Notes are secured by a first lien security interest in the LGA/DCA Collateral. American may be required to pledge additional collateral in the future under the terms of the 10.75 % Senior Secured Notes, and in certain circumstances may elect to pledge additional collateral including as a replacement for existing collateral. The LGA/DCA Collateral also secures on a first-lien basis the December 2016 Credit Facilities. 171 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. On or prior to the fourth anniversary of the 10.75 % Senior Secured Notes Closing Date, American may redeem all or any part of the 10.75 % Senior Secured Notes, at its option, at a redemption price equal to 100 % of the principal amount of the 10.75 % Senior Secured Notes redeemed plus a make whole premium, together with accrued and unpaid interest thereon, if any. After the fourth anniversary of the 10.75 % Senior Secured Notes Closing Date and on or prior to the fifth anniversary of the 10.75 % Senior Secured Notes Closing Date, American may redeem all or any part of the 10.75 % Senior Secured Notes, at its option, at a redemption price equal to 105.375 % of the principal amount of the 10.75 % Senior Secured Notes redeemed, together with accrued and unpaid interest thereon, if any. After the fifth anniversary of the 10.75 % Senior Secured Notes Closing Date, American may redeem all or any part of the 10.75 % Senior Secured Notes, at its option, at par, together with accrued and unpaid interest thereon, if any. In the event of a specified change of control, each holder of 10.75 % Senior Secured Notes may require American to repurchase its 10.75 % Senior Secured Notes, in whole or in part, at a repurchase price of 101 % of the aggregate principal amount of the 10.75 % Senior Secured Notes so repurchased, plus accrued and unpaid interest thereon, if any, to (but not including) the repurchase date. The 10.75 % Senior Secured Notes Indentures contain covenants that, among other things, restrict the ability of AAG and the ability of its restricted subsidiaries (including American) to: (i) pay dividends, redeem or repurchase stock or make other distributions or restricted payments, (ii) incur liens on the 10.75 % Senior Secured Notes Collateral and dispose of or release the 10.75 % Senior Secured Notes Collateral, (iii) repay subordinated indebtedness, (iv) make certain loans and investments, (v) incur indebtedness or issue preferred stock, (vi) merge, consolidate or sell assets, and (vii) designate subsidiaries as unrestricted. In addition, the 10.75 % Senior Secured Notes Indentures include covenants that require AAG to maintain (a) an aggregate of at least $ 2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities and (b) a certain minimum ratio of appraised value of the collateral to outstanding debt secured thereby on a first lien basis as further described below in “Certain Covenants.” These covenants are subject to a number of important exceptions and qualifications set forth in the 10.75 % Senior Secured Notes Indentures. Upon the occurrence of any event of default (other than certain bankruptcy or insolvency or reorganization events affecting AAG or certain of its subsidiaries, including American), the 10.75 % Senior Secured Notes may be declared to be due and payable immediately. Upon the occurrence of certain bankruptcy, insolvency or reorganization events affecting AAG or certain of its subsidiaries (including American), all outstanding 10.75 % Senior Secured Notes will become due and payable immediately without further action or notice on the part of the 10.75 % Senior Secured Notes Trustee or any holder of the 10.75 % Senior Secured Notes. (c) Treasury Loan Agreement On September 25, 2020, American and AAG entered into a Loan and Guarantee Agreement (the Treasury Loan Agreement) with Treasury, which provided for a secured term loan facility (the Treasury Term Loan Facility) that permitted American to borrow up to $ 5.5 billion. Subsequently, on October 21, 2020, American and AAG entered into an amendment to the Treasury Loan Agreement, which increased the borrowing amount to up to $ 7.5 billion. As of December 31, 2020, American had borrowed $ 550 million under the Treasury Term Loan Facility and may, at its option, borrow additional amounts in up to two subsequent borrowings until March 26, 2021. Subsequently, on January 15, 2021, American and AAG entered into an amendment to the Treasury Loan Agreement, which extended this deadline to May 28, 2021. The proceeds from the Treasury Term Loan Facility were, and will be, used for certain general corporate purposes and operating expenses in accordance with the terms and conditions of the Treasury Loan Agreement and the applicable provisions of the CARES Act. The Treasury Term Loan Facility bears interest at a variable rate per annum equal to (a)(i) the LIBOR rate divided by (ii) one minus the Eurodollar Reserve Percentage plus (b) 3.50 %. Accrued interest on the loans will be payable in arrears on the first business day following the 14 th day of each March, June, September and December, beginning with September 15, 2021, and on June 30, 2025 (the Treasury Term Loan Maturity Date). As of December 31, 2020, the applicable interest rate for the $ 550 million loan drawn under the Treasury Term Loan Facility was 3.73 % per annum through September 15, 2021, at which time the interest rate will reset. 172 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. All advances under the Treasury Term Loan Facility will be in the form of term loans, all of which will mature and be due and payable in a single installment on the Treasury Term Loan Maturity Date. American may, at any time and from time to time, voluntarily prepay amounts outstanding under the Treasury Loan Agreement, in whole or in part, without penalty or premium. Amounts prepaid may not be reborrowed. Mandatory prepayments of loans under the Treasury Term Loan Facility are required, without penalty or premium, to the extent necessary to comply with American's covenants regarding the expiry of certain agreements constituting Treasury Collateral (as defined below), the debt service coverage ratio, certain dispositions of Treasury Collateral, certain debt issuances secured by liens on the Treasury Collateral and certain indemnity, termination, liquidated damages or insurance payments related to the Treasury Collateral, in addition to the occurrence of a change in control of AAG. American's obligations under the Treasury Loan Agreement are secured by a first priority security interest on American's rights under U.S. co-branded credit card agreements and certain other loyalty program partner participation agreements (including rights to receive cash flows thereunder), documents, deposit accounts, securities accounts, books and records and intellectual property related to American's AAdvantage loyalty program and all proceeds, accessions, rents or profits related to the foregoing (collectively, the Treasury Collateral). American is permitted under the Treasury Loan Agreement to add certain types of assets to the Treasury Collateral and, subject to certain conditions, release Treasury Collateral, in each case from time to time at its discretion. The Treasury Loan Agreement requires American, under certain circumstances, including within 10 business days prior to the last business day of March and September of each year, beginning March 2021, to appraise the value of the Treasury Collateral and recalculate the collateral coverage ratio. If the calculated collateral coverage ratio is less than 1.6 to 1.0, American will be required either to provide additional Treasury Collateral (which may include cash collateral) to secure its obligations under the Treasury Loan Agreement or repay the term loans under the Treasury Term Loan Facility, in such amounts that the recalculated collateral coverage ratio, after giving effect to any such additional Treasury Collateral or repayment, is at least 1.6 to 1.0. The Treasury Loan Agreement also requires American to calculate the debt service coverage ratio on a quarterly basis. If the calculated debt service coverage ratio is less than 1.75 to 1.00, then AAG and its subsidiaries will be required to place an amount equal to at least 50 % of certain revenues received from the AAdvantage loyalty program (the Loyalty Program Revenues) into a blocked account to be held for the benefit of the lenders who may choose to use such funds to prepay the outstanding term loans until the debt service coverage ratio is recalculated to be greater than or equal to 1.75 to 1.00. If the calculated debt service coverage ratio is less than or equal to 1.50 to 1.00, but greater than 1.25 to 1.00, then all amounts previously deposited into the blocked account will be used to prepay outstanding term loans and an amount equal to at least 50 % of all future Loyalty Program Revenues will be transferred into the payment account and used to prepay outstanding term loans until the debt service coverage ratio is recalculated to be greater than 1.50 to 1.00. If the calculated debt service coverage ratio is less than or equal to 1.25 to 1.00, then all amounts previously deposited into the blocked account will be used to prepay outstanding term loans and an amount equal to at least 75 % of all future Loyalty Program Revenues will be transferred into the payment account and used to prepay outstanding term loans until the debt service coverage ratio is recalculated to be greater than 1.25 to 1.00. The Treasury Loan Agreement also includes affirmative, negative and financial covenants that, among other things, limit AAG's ability to pay dividends, repurchase common stock of AAG or make certain other payments, make certain investments, incur liens on the Treasury Collateral, dispose of the Treasury Collateral, amend material AAdvantage loyalty program agreements, enter into certain affiliate transactions and engage in certain business activities, in each case subject to certain exceptions. In addition, under the Treasury Loan Agreement, AAG must maintain a minimum aggregate liquidity of $ 2.0 billion. The Treasury Loan Agreement requires AAG and American to comply with the relevant provisions of the CARES Act and the Treasury Loan Agreement, including, but not limited to, the provisions that prohibit the repurchase of AAG’s common stock, the payment of common stock dividends and those that restrict the payment of certain executive compensation, in each case, through the date that is 12 months after the date on which all amounts of loan outstanding under the Treasury Term Loan Facility have been repaid in full. The Treasury Loan Agreement contains events of default, including cross-default with respect to acceleration or failure to pay at maturity other material indebtedness. Upon the occurrence of an event of default and subject to certain grace periods, the outstanding obligations under the Treasury Loan Agreement may be accelerated and become due and payable immediately. 173 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. (d) EETCs 2019-1 Aircraft EETCs In August 2019, American created three pass-through trusts which issued approximately $ 1.1 billion aggregate face amount of Series 2019-1 Class AA, Class A and Class B EETCs (the 2019-1 Aircraft EETCs) in connection with the financing of 35 aircraft (the 2019-1 Aircraft). In 2019, $ 804 million of the proceeds had been used to purchase equipment notes issued by American in connection with the financing of 28 aircraft under the 2019-1 Aircraft EETCs, of which $ 608 million was used to repay existing indebtedness. In 2020, the remaining $ 293 million of the proceeds had been used to purchase equipment notes issued by American in connection with the financing of seven aircraft under the 2019-1 Aircraft EETCs. Interest and principal payments on equipment notes issued in connection with the 2019-1 Aircraft EETCs are payable semiannually in February and August of each year, which interest payments began in February 2020 and which principal payments began or are scheduled to begin (i) in the case of equipment notes with respect to any 2019-1 Aircraft owned by American at the time of issuance of the 2019-1 Aircraft EETCs, in February 2020 and (ii) in the case of equipment notes with respect to the Embraer 175 aircraft and the Airbus A321neo aircraft scheduled to be delivered after the issuance of the 2019-1 Aircraft EETCs, in August 2020 and August 2021, respectively. Certain information regarding the 2019-1 Aircraft EETC equipment notes, as of December 31, 2020, is set forth in the table below. 2019-1 Aircraft EETCs Series AA Series A Series B Aggregate principal issued $ 579 million $ 289 million $ 229 million Fixed interest rate per annum 3.15 % 3.50 % 3.85 % Maturity date February 2032 February 2032 February 2028 (e) Equipment Loans and Other Notes Payable Issued in 2020 In 2020, American entered into agreements under which it borrowed $ 307 million in connection with the financing or refinancing, as the case may be, of certain aircraft and other flight equipment, of which $ 17 million was used to repay existing indebtedness. Debt incurred under these agreements matures in 2029 through 2032 and bears interest at variable rates (comprised of LIBOR plus an applicable margin) averaging 2.28 % at December 31, 2020. (f) Special Facility Revenue Bonds Issued in 2020 In January 2020, American and British Airways announced the start of construction on a $ 344 million investment to upgrade New York's John F. Kennedy International Airport (JFK) Terminal 8. In June 2020, the New York Transportation Development Corporation (NYTDC) issued approximately $ 360 million of special facility revenue bonds (the 2020 JFK Bonds) on behalf of American. A portion of the net proceeds from the 2020 JFK Bonds have been or will be used to fund costs of issuance of the 2020 JFK Bonds, to fund a substantial portion of the cost of the renovation and expansion of a passenger terminal facility (the Terminal) leased and utilized by American at JFK and to fund the August 2020 maturity of the outstanding bonds issued by NYTDC on behalf of American in 2016 (the 2016 JFK Bonds). American is required to pay debt service on the 2020 JFK Bonds through payments under a loan agreement with NYTDC (as amended), and American and AAG guarantee the 2020 JFK Bonds. American continues to pay debt service on the outstanding 2016 JFK Bonds and American and AAG continue to guarantee the 2016 JFK Bonds. American’s and AAG’s obligations under these guarantees are secured by a leasehold mortgage on American’s lease of the Terminal and related property from the Port Authority of New York and New Jersey. The 2020 JFK Bonds, in aggregate, were priced at approximately 98 % of par value. The gross proceeds from the issuance of the 2020 JFK Bonds were approximately $ 353 million. Of this amount, approximately $ 8 million was used to fund the costs of issuance of the 2020 JFK Bonds, approximately $ 47 million was used to fund the redemption of the 2016 JFK Bonds due August 2020 and approximately $ 17 million was reimbursed to American for the Terminal construction costs incurred, with the remaining amount of proceeds received to be held in restricted cash and short-term investments on the consolidated balance sheet and to be used to finance a substantial portion of the cost of the renovation and expansion of the Terminal. The 2020 JFK Bonds are comprised of term bonds, $ 214 million of which bear interest at 5.25 % per annum and mature on August 1, 2031, and $ 146 million of which bear interest at 5.375 % per annum and mature on August 1, 2036. 174 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. Guarantees As of December 31, 2020, American had issued guarantees covering AAG’s $ 1.8 billion aggregate principal amount of the PSP1 Promissory Note due April 2030, $ 1.0 billion aggregate principal amount of 6.50 % convertible senior notes due July 2025, $ 750 million aggregate principal amount of 5.000 % senior notes due June 2022 and $ 500 million aggregate principal amount of 3.75 % senior notes due March 2025. Certain Covenants Certain of American’s debt financing agreements (including its secured notes, term loans, revolving credit facilities and spare engine EETCs) contain loan to value (LTV) or collateral coverage ratio covenants and require American 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, American is 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. Additionally, a significant portion of American’s debt financing agreements contain covenants requiring it to maintain an aggregate of at least $ 2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities, and its 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. Specifically, American is required to meet certain collateral coverage tests for its Credit Facilities, 10.75 % Senior Secured Notes, 11.75 % Senior Secured Notes and Treasury Loan Agreement, as described below: 2013 Credit Facilities 2014 Credit Facilities April 2016 Credit Facilities December 2016 Credit Facilities 10.75% Senior Secured Notes 11.75% Senior Secured Notes Treasury Loan Agreement Frequency of Appraisals of Appraised Collateral Annual Annual Annual Annual Annual Semi-Annual Semi-Annual LTV Requirement 1.6 x Collateral valuation to amount of debt outstanding ( 62.5 % LTV) LTV as of Last Measurement Date 53.1 % 44.3 % 48.0 % 61.2 % 61.2 % 35.2 % De Minimis Collateral Description Generally, certain slots, route authorities and airport gate leasehold rights used by American to operate all services between the U.S. and South America Generally, certain slots, route authorities and airport gate leasehold rights used by American to operate certain services between the U.S. and European Union (including London Heathrow) Generally, certain spare parts Generally, certain Ronald Reagan Washington National Airport (DCA) slots, certain La Guardia Airport (LGA) slots, certain simulators and certain leasehold rights Generally, certain DCA slots, certain LGA slots, certain simulators and certain leasehold rights and, in the case of the IP Notes, certain intellectual property of American Generally, certain slots, route authorities and airport gate leasehold rights used by American to operate certain services between the U.S. and the Caribbean, Central America and various other countries Generally, certain rights under U.S. co-branded credit card agreements and certain other loyalty program agreements and intellectual property related to AAdvantage At December 31, 2020, American was in compliance with the applicable collateral coverage tests as of the most recent measurement dates. 175 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. 4. Leases American leases certain aircraft and engines, including aircraft under capacity purchase agreements. As of December 31, 2020, American had 641 leased aircraft, with remaining terms ranging from less than one year to 12 years. At each airport where American conducts flight operations, American has agreements, generally with a governmental unit or authority, for the use of passenger, operations and baggage handling space as well as runways and taxiways. These agreements, particularly in the U.S., often contain provisions for periodic adjustments to rates and charges applicable under such agreements. These rates and charges also vary with American’s level of operations and the operations of the airport. Because of the variable nature of these rates, these leases are not recorded on American’s balance sheet as a ROU asset or a lease liability. Additionally, at American’s hub locations and in certain other cities it serves, American leases administrative offices, catering, cargo, training, maintenance and other facilities. The components of lease expense were as follows (in millions): Year Ended December 31, 2020 2019 2018 Operating lease cost $ 1,943 $ 2,012 $ 1,889 Finance lease cost: Amortization of assets 92 79 78 Interest on lease liabilities 38 43 48 Variable lease cost 1,786 2,542 2,353 Total net lease cost $ 3,859 $ 4,676 $ 4,368 Included in the table above is $ 172 million, $ 236 million and $ 226 million of operating lease cost under American’s capacity purchase agreement with Republic for the years ended December 31, 2020, 2019 and 2018, respectively. American holds a 25 % equity interest in Republic Holdings, the parent company of Republic. Additionally, not included in the table above, American recognized $ 109 million in cash special charges in 2020 related to the impairment of ROU assets and lease return costs resulting from its decision to retire certain leased aircraft earlier than planned driven by the severe decline in air travel due to the COVID-19 pandemic. 176 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. Supplemental balance sheet information related to leases was as follows (in millions, except lease term and discount rate): December 31, 2020 2019 Operating leases: Operating lease ROU assets $ 7,994 $ 8,694 Current operating lease liabilities $ 1,641 $ 1,695 Noncurrent operating lease liabilities 6,739 7,388 Total operating lease liabilities $ 8,380 $ 9,083 Finance leases: Property and equipment, at cost $ 1,021 $ 954 Accumulated amortization ( 539 ) ( 447 ) Property and equipment, net $ 482 $ 507 Current finance lease liabilities $ 100 $ 112 Noncurrent finance lease liabilities 472 558 Total finance lease liabilities $ 572 $ 670 Weighted average remaining lease term (in years): Operating leases 7.4 7.4 Finance leases 5.4 6.2 Weighted average discount rate: Operating leases 5.6 % 4.7 % Finance leases 6.3 % 6.2 % Supplemental cash flow and other information related to leases was as follows (in millions): Year Ended December 31, 2020 2019 2018 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 2,015 $ 1,996 $ 1,914 Operating cash flows from finance leases 39 43 48 Financing cash flows from finance leases 114 83 78 Non-cash transactions: ROU assets acquired through operating leases 898 1,144 1,258 Operating lease conversion to finance lease 5 41 — Property and equipment acquired through finance leases 11 20 — Gain on sale leaseback transactions, net 107 107 59 177 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. Maturities of lease liabilities were as follows (in millions): December 31, 2020 Operating Leases Finance Leases 2021 $ 1,932 $ 131 2022 1,764 136 2023 1,575 114 2024 1,184 120 2025 808 85 2026 and thereafter 3,291 89 Total lease payments 10,554 675 Less: Imputed interest ( 2,174 ) ( 103 ) Total lease obligations 8,380 572 Less: Current obligations ( 1,641 ) ( 100 ) Long-term lease obligations $ 6,739 $ 472 As of December 31, 2020, American has additional operating lease commitments that have not yet commenced of approximately $ 1.7 billion for 19 Boeing 787-8 aircraft to be delivered in 2021 with lease terms of 10 years. 5. Income Taxes The significant components of the income tax provision (benefit) were (in millions): Year Ended December 31, 2020 2019 2018 Current income tax provision (benefit): State and Local $ — $ 2 $ 3 Foreign — 8 28 Current income tax provision (benefit) — 10 31 Deferred income tax provision (benefit): Federal ( 2,224 ) 567 453 State and Local ( 229 ) 56 50 Deferred income tax provision (benefit) ( 2,453 ) 623 503 Total income tax provision (benefit) $ ( 2,453 ) $ 633 $ 534 The income tax provision (benefit) differed from amounts computed at the statutory federal income tax rate as follows (in millions): Year Ended December 31, 2020 2019 2018 Statutory income tax provision (benefit) $ ( 2,290 ) $ 547 $ 460 State income tax provision (benefit), net of federal tax effect ( 181 ) 41 46 Book expenses not deductible for tax purposes 20 29 10 Foreign income taxes, net of federal tax effect — 8 22 Change in valuation allowance — 5 ( 6 ) Other, net ( 2 ) 3 2 Income tax provision (benefit) $ ( 2,453 ) $ 633 $ 534 178 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. The components of American’s deferred tax assets and liabilities were (in millions): December 31, 2020 2019 Deferred tax assets: Operating loss carryforwards and other credits $ 3,944 $ 2,115 Loyalty program liability 1,977 1,755 Leases 1,904 2,067 Pensions 1,397 1,219 Postretirement benefits other than pensions 203 145 Rent expense 96 126 Reorganization items 28 30 Alternative minimum tax (AMT) credit carryforwards — 118 Other 796 569 Total deferred tax assets 10,345 8,144 Valuation allowance ( 24 ) ( 24 ) Net deferred tax assets 10,321 8,120 Deferred tax liabilities: Accelerated depreciation and amortization ( 4,992 ) ( 5,153 ) Leases ( 1,809 ) ( 1,968 ) Other ( 294 ) ( 340 ) Total deferred tax liabilities ( 7,095 ) ( 7,461 ) Net deferred tax asset $ 3,226 $ 659 At December 31, 2020, American had approximately $ 16.5 billion of federal net operating losses (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 (NOL Carryforwards). American is a member of AAG’s consolidated federal and certain state income tax returns. 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. American’s ability to use its NOL Carryforwards depends on the amount of taxable income generated in future periods. American provides a valuation allowance for its deferred tax assets, which include the NOLs, when it is more likely than not that some portion, or all of its deferred tax assets, will not be realized. American considers all available positive and negative evidence and makes certain assumptions in evaluating the realizability of its deferred tax assets. Many factors are considered that impact American’s assessment of future profitability, including conditions which are beyond its control, such as the health of the economy, the availability and price volatility of aircraft fuel and travel demand. American presently has a $ 24 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 American’s net deferred tax assets will not be required. Such valuation allowance could be material. American’s ability to deduct its NOL Carryforwards and to utilize certain other available tax attributes can be substantially constrained under the general annual limitation rules of Section 382 where an “ownership change” has occurred. Substantially all of American’s remaining federal NOL Carryforwards attributable to US Airways Group are subject to limitation under Section 382; however, American’s ability to utilize such NOL Carryforwards is not anticipated to be effectively constrained as a result of such limitation. Similar limitations may apply for state income tax purposes. American’s ability to utilize any new NOL Carryforwards arising after the ownership changes is not affected by the annual limitation rules imposed by Section 382 unless another ownership change occurs. Under the Section 382 limitation, cumulative stock ownership changes among material stockholders exceeding 50% during a rolling three-year period can potentially limit American’s future use of NOLs and tax credits. At December 31, 2019, American had an AMT credit carryforward of approximately $ 226 million available for federal income tax purposes, which was fully refunded in 2020 as a result of the CARES Act. 179 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. In 2020, American recorded an income tax benefit of $ 2.5 billion, with an effective rate of approximately 22 %, which was substantially non-cash. Substantially all of American’s income before income taxes is attributable to the United States. American files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. American’s 2017 through 2019 tax years are still subject to examination by the Internal Revenue Service. Various state and foreign jurisdiction tax years remain open to examination and American is under examination, in administrative appeals, or engaged in tax litigation in certain jurisdictions. American believes that the effect of any assessments will not be material to its consolidated financial statements. The amount of, and changes to, American’s uncertain tax positions were not material in any of the years presented. American accrues interest and penalties related to unrecognized tax benefits in interest expense and operating expense, respectively. 6. Risk Management American’s economic prospects are heavily dependent upon two variables it cannot control: general economic conditions and the price of fuel. Due to the discretionary nature of business and leisure travel spending and the highly competitive nature of the airline industry, American’s revenues are heavily influenced by the condition of the U.S. economy and economies in other regions of the world. Unfavorable conditions in these broader economies have resulted, and may result in the future, in decreased passenger demand for air travel, changes in booking practices and related reactions by American’s competitors, all of which in turn have had, and may have in the future, a strong negative effect on American’s business. In particular, the ongoing COVID-19 pandemic and associated decline in economic activity and increase in unemployment levels are expected to have a severe and prolonged effect on the global economy generally and, in turn, is expected to depress demand for air travel into the foreseeable future. Due to the uncertainty surrounding the duration and severity of this pandemic, American can provide no assurance as to when and at what pace demand for air travel will return to pre-COVID-19 pandemic levels, if at all. Accordingly, American cannot predict the ultimate impact of the COVID-19 pandemic on its business, financial condition and results of operations. In addition, during challenging economic times, actions by its competitors to increase their revenues can have an adverse impact on American’s revenues. American’s operating results are materially impacted by changes in the availability, price volatility and cost of aircraft fuel, which represents one of the largest single cost items in American’s business. Aircraft fuel prices have in the past, and may in the future, experience substantial volatility. Because of the amount of fuel needed to operate American’s business, even a relatively small increase or decrease in the price of aircraft fuel can have a material effect on American’s operating results and liquidity. These additional factors could impact American’s results of operations, financial performance and liquidity: (a) Credit Risk American’s accounts receivable relate primarily to its contracts with airline and non-airline business partners, including its co-branded credit card partners, and to tickets sold to individual passengers primarily through the use of major credit cards. Receivables from American’s business partners are typically settled within 30 days. Receivables from ticket sales are short-term, mostly settled within seven days after sale. All accounts receivable are reported net of an allowance for credit losses, which have been minimal in the past. American considers past and future financial and qualitative factors when establishing the allowance for credit losses. American does not believe it is subject to any significant concentration of credit risk. (b) Interest Rate Risk American has exposure to market risk associated with changes in interest rates related primarily to its LIBOR variable-rate debt obligations. Interest rates on $ 12.8 billion principal amount of long-term debt as of December 31, 2020 are subject to adjustment to reflect changes in floating interest rates. The weighted average effective interest rate on American’s variable-rate debt was 2.0 % at December 31, 2020. American currently does not have an interest rate hedge program to hedge its exposure to floating interest rates on its variable-rate debt obligations. 180 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. On July 27, 2017, the U.K. Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The discontinuation date for submission and publication of rates for certain tenors of USD LIBOR (1-month, 3-month, 6-month, and 12-month) is currently under consultation by the ICE Benchmark Administration (the administrator of LIBOR) and may be extended until June 30, 2023. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021. Similarly, it is not possible to predict whether LIBOR will continue to be viewed as an acceptable market benchmark, what rate or rates may become acceptable alternatives to LIBOR, or what effect these changes in views or alternatives may have on financial markets for LIBOR-linked financial instruments. The replacement of LIBOR with a comparable or successor rate could cause the amount of interest payable on American’s long-term debt to be different or higher than expected. (c) Foreign Currency Risk American is exposed to the effect of foreign exchange rate fluctuations on the U.S. dollar value of foreign currency-denominated transactions. American’s largest exposure comes from the British pound sterling, Euro, Canadian dollar and various Latin American currencies, primarily the Brazilian real. American does not currently have a foreign currency hedge program. 7. Fair Value Measurements and Other Investments Assets Measured at Fair Value on a Recurring Basis Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability (i.e. an exit price) on the measurement date in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability. Accounting standards include disclosure requirements around fair values used for certain financial instruments and establish a fair value hierarchy. The hierarchy prioritizes valuation inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of three levels: • Level 1 – Observable inputs such as quoted prices in active markets; • Level 2 – Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and • Level 3 – Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. When available, American uses quoted market prices to determine the fair value of its financial assets. If quoted market prices are not available, American measures fair value using valuation techniques that use, when possible, current market-based or independently-sourced market parameters, such as interest rates and currency rates. American utilizes the market approach to measure the fair value of its financial assets. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. American’s short-term investments classified as Level 2 primarily utilize broker quotes in a non-active market for valuation of these securities. No changes in valuation techniques or inputs occurred during the year ended December 31, 2020. Assets measured at fair value on a recurring basis are summarized below (in millions): Fair Value Measurements as of December 31, 2020 Total Level 1 Level 2 Level 3 Short-term investments (1), (2) : Money market funds $ 245 $ 245 $ — $ — Corporate obligations 3,449 — 3,449 — Bank notes/certificates of deposit/time deposits 2,168 — 2,168 — Repurchase agreements 755 — 755 — 6,617 245 6,372 — Restricted cash and short-term investments (1), (3) 609 448 161 — Long-term investments (4) 161 161 — — Total $ 7,387 $ 854 $ 6,533 $ — 181 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. Fair Value Measurements as of December 31, 2019 Total Level 1 Level 2 Level 3 Short-term investments (1) : Money market funds $ 331 $ 331 $ — $ — Bank notes/certificates of deposit/time deposits 2,106 — 2,106 — Corporate obligations 1,021 — 1,021 — Repurchase agreements 85 — 85 — 3,543 331 3,212 — Restricted cash and short-term investments (1) 158 10 148 — Long-term investments (4) 204 204 — — Total $ 3,905 $ 545 $ 3,360 $ — (1) All short-term investments are classified as available-for-sale and stated at fair value. Unrealized gains and losses are recorded in accumulated other comprehensive loss at each reporting period. There were no credit losses. (2) American’s short-term investments as of December 31, 2020 mature in one year or less except for $ 235 million of bank notes/certificates of deposit/time deposits. (3) Restricted cash and short-term investments primarily include money market funds to be used to finance a substantial portion of the cost of the renovation and expansion of Terminal 8 at JFK and collateral held to support workers' compensation obligations. (4) Long-term investments primarily include American's equity investment in China Southern Airlines, in which American presently owns a 1.8 % equity interest, and are classified in other assets on the consolidated balance sheets. Fair Value of Debt The fair value of American’s long-term debt was estimated using quoted market prices or discounted cash flow analyses, based on American’s current estimated incremental borrowing rates for similar types of borrowing arrangements. If American’s long-term debt was measured at fair value, it would have been classified as Level 2 except for $ 550 million which would have been classified as Level 3 in the fair value hierarchy. The carrying value and estimated fair value of American’s long-term debt, including current maturities, were as follows (in millions): December 31, 2020 December 31, 2019 Carrying Value Fair Value Carrying Value Fair Value Long-term debt, including current maturities $ 28,410 $ 27,193 $ 22,372 $ 23,196 Other Investments American has an approximate 25 % ownership interest in Republic Holdings, which it received in 2017 in consideration for its unsecured claim in the Republic Holdings bankruptcy case. This ownership interest is accounted for under the equity method and American’s portion of Republic Holdings’ financial results is recognized within other, net on the consolidated statements of operations and the investment is reflected within other assets on its consolidated balance sheets. 182 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. 8. Employee Benefit Plans American sponsors defined benefit and defined contribution pension plans for eligible employees. The defined benefit pension plans provide benefits for participating employees based on years of service and average compensation for a specified period of time before retirement. Effective November 1, 2012, substantially all of American’s defined benefit pension plans were frozen and American began providing enhanced benefits under its defined contribution pension plans for certain employee groups. American uses a December 31 measurement date for all of its defined benefit pension plans. American also provides certain retiree medical and other postretirement benefits, including health care and life insurance benefits, to retired employees. Effective November 1, 2012, American modified its retiree medical and other postretirement benefits plans to eliminate the company subsidy for employees who retire on or after November 1, 2012. As a result of modifications to its retiree medical and other postretirement benefits plans in 2012, American recognized a negative plan amendment of $ 1.9 billion, which was included as a component of prior service benefit in accumulated other comprehensive income (loss) (AOCI) and was amortized over the future service life of the active plan participants for whom the benefit was eliminated. As of December 31, 2020, this prior service benefit was fully amortized. Effective January 1, 2021, health coverage under American’s retiree medical benefit program that is currently provided to certain retirees age 65 and over who retired prior to November 1, 2012, transitioned from a self-insured plan to a fully-insured Medicare Advantage plan. Benefits coverage has not been reduced and cost shared has not changed as a result of this transition. Due to this transition, as of December 31, 2020, American recognized a negative plan amendment of $ 313 million to reduce its benefit obligation, which was included as a component of prior service cost in accumulated other comprehensive loss and will be amortized over the average remaining life expectancy of all retirees, or approximately 13.3 years. Benefit Obligations, Fair Value of Plan Assets and Funded Status The following tables provide a reconciliation of the changes in the pension and retiree medical and other postretirement benefits obligations, fair value of plan assets and a statement of funded status as of December 31, 2020 and 2019: Pension Benefits Retiree Medical and Other Postretirement Benefits 2020 2019 2020 2019 (In millions) Benefit obligation at beginning of period $ 18,246 $ 16,282 $ 824 $ 837 Service cost 2 2 8 3 Interest cost 611 699 30 33 Actuarial loss (1), (2) 1,603 1,951 46 20 Special termination benefits (3) — — 410 — Plan amendments (4) — — ( 195 ) — Settlements ( 36 ) ( 2 ) — — Benefit payments ( 736 ) ( 686 ) ( 77 ) ( 74 ) Other — — — 5 Benefit obligation at end of period $ 19,690 $ 18,246 $ 1,046 $ 824 Fair value of plan assets at beginning of period $ 12,829 $ 10,001 $ 204 $ 225 Actual return on plan assets 1,414 2,292 13 41 Employer contributions (5) 6 1,224 30 12 Settlements ( 36 ) ( 2 ) — — Benefit payments ( 736 ) ( 686 ) ( 77 ) ( 74 ) Fair value of plan assets at end of period $ 13,477 $ 12,829 $ 170 $ 204 Funded status at end of period $ ( 6,213 ) $ ( 5,417 ) $ ( 876 ) $ ( 620 ) (1) The 2020 and 2019 pension actuarial loss primarily relates to the change in American’s weighted average discount rate assumption and, additionally, in 2019, the change to American’s mortality assumption. (2) The 2020 retiree medical and other postretirement benefits actuarial loss primarily relates to the change in American’s weighted average discount rate assumption. 183 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. The 2019 retiree medical and other postretirement benefits actuarial loss primarily relates to changes in American’s weighted average discount rate assumption and plan experience adjustments. (3) During the third quarter of 2020, American remeasured its retiree medical and other postretirement benefits to account for enhanced healthcare benefits provided to eligible team members who opted in to voluntary early retirement programs offered as a result of reductions to its operation due to the COVID-19 pandemic. During the third quarter of 2020, American recognized a $ 410 million special charge for these enhanced healthcare benefits and increased its postretirement benefits obligation by $ 410 million. (4) Principally relates to the transition of American’s retiree medical benefit program from a self-insured plan to a fully-insured Medicare Advantage plan as discussed above. (5) Pursuant to the CARES Act, minimum required 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. During 2019, American contributed $ 1.2 billion to its defined benefit pension plans, including a $ 780 million minimum required contribution and supplemental contributions of $ 444 million. Balance Sheet Position Pension Benefits Retiree Medical and Other Postretirement Benefits 2020 2019 2020 2019 (In millions) As of December 31, Current liability $ 7 $ 5 $ 55 $ 24 Noncurrent liability 6,206 5,412 821 596 Total liabilities $ 6,213 $ 5,417 $ 876 $ 620 Net actuarial loss (gain) $ 6,679 $ 5,662 $ ( 358 ) $ ( 426 ) Prior service cost (benefit) 75 102 ( 181 ) ( 120 ) Total accumulated other comprehensive loss (income), pre-tax $ 6,754 $ 5,764 $ ( 539 ) $ ( 546 ) Plans with Projected Benefit Obligations Exceeding Fair Value of Plan Assets Pension Benefits 2020 2019 (In millions) Projected benefit obligation $ 19,690 $ 18,215 Fair value of plan assets 13,477 12,794 Plans with Accumulated Benefit Obligations Exceeding Fair Value of Plan Assets Pension Benefits Retiree Medical and Other Postretirement Benefits 2020 2019 2020 2019 (In millions) Accumulated benefit obligation (ABO) $ 19,678 $ 18,204 $ — $ — Accumulated postretirement benefit obligation — — 1,046 824 Fair value of plan assets 13,477 12,794 170 204 184 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. Net Periodic Benefit Cost (Income) Pension Benefits Retiree Medical and Other Postretirement Benefits 2020 2019 2018 2020 2019 2018 (In millions) Defined benefit plans: Service cost $ 2 $ 2 $ 2 $ 8 $ 3 $ 5 Interest cost 611 699 670 30 33 35 Expected return on assets ( 1,005 ) ( 811 ) ( 901 ) ( 11 ) ( 15 ) ( 24 ) Special termination benefits — — — 410 — — Settlements 12 — — — — — Amortization of: Prior service cost (benefit) 29 28 28 ( 135 ) ( 236 ) ( 236 ) Unrecognized net loss (gain) 164 150 140 ( 24 ) ( 31 ) ( 21 ) Net periodic benefit cost (income) $ ( 187 ) $ 68 $ ( 61 ) $ 278 $ ( 246 ) $ ( 241 ) The service cost component of net periodic benefit cost (income) is included in operating expenses, the cost for the special termination benefits is included in special items, net and the other components of net periodic benefit cost (income) are included in nonoperating other income (expense), net in American’s consolidated statements of operations. Assumptions The following actuarial assumptions were used to determine American’s benefit obligations and net periodic benefit cost (income) for the periods presented: Pension Benefits Retiree Medical and Other Postretirement Benefits 2020 2019 2020 2019 Benefit obligations: Weighted average discount rate 2.7 % 3.4 % 2.4 % 3.3 % Pension Benefits Retiree Medical and Other Postretirement Benefits 2020 2019 2018 2020 2019 2018 Net periodic benefit cost (income): Weighted average discount rate 3.4 % 4.4 % 3.8 % 3.2 % 4.3 % 3.6 % Weighted average expected rate of return on plan assets 8.0 % 8.0 % 8.0 % 8.0 % 8.0 % 8.0 % Weighted average health care cost trend rate assumed for next year (1) N/A N/A N/A 4.0 % 3.7 % 3.9 % (1) The weighted average health care cost trend rate at December 31, 2020 is assumed to decline gradually to 3.4 % by 2027 and remain level thereafter. As of December 31, 2020, American’s estimate of the long-term rate of return on plan assets was 8.0 % based on the target asset allocation. Expected returns on long duration bonds are based on yields to maturity of the bonds held at year-end. Expected returns on other assets are based on a combination of long-term historical returns, actual returns on plan assets achieved over the last ten years, current and expected market conditions, and expected value to be generated through active management and securities lending programs. 185 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. Minimum Contributions American is required to make minimum contributions to its defined benefit pension plans under the minimum funding requirements of the Employee Retirement Income Security Act of 1974 (ERISA) and various other laws for U.S. based plans as well as underfunding rules specific to countries where American maintains defined benefit plans. Based on current funding assumptions, American has minimum required contributions of $ 694 million for 2021 including $ 130 million of minimum contributions required for 2020 that were deferred pursuant to the CARES Act as discussed above. In January 2021, American made $ 241 million of required pension contributions, including the $ 130 million minimum contributions required for 2020. American’s funding obligations will depend on the performance of American’s investments held in trust by the pension plans, interest rates for determining liabilities, the amount of and timing of any supplemental contributions and American’s actuarial experience. Benefit Payments The following benefit payments, which reflect expected future service as appropriate, are expected to be paid (approximately, in millions): 2021 2022 2023 2024 2025 2026-2030 Pension benefits $ 786 $ 825 $ 868 $ 909 $ 947 $ 5,120 Retiree medical and other postretirement benefits 102 93 89 86 82 356 Plan Assets The objectives of American’s investment policies are to: maintain sufficient income and liquidity to pay retirement benefits; produce a long-term rate of return that meets or exceeds the assumed rate of return for plan assets; limit the volatility of asset performance and funded status; and diversify assets among asset classes and investment managers. Based on these investment objectives, a long-term strategic asset allocation has been established. This strategic allocation seeks to balance the potential benefit of improving the funded position with the potential risk that the funded position would decline. The current strategic target asset allocation is as follows: Asset Class/Sub-Class Allowed Range Equity 45 % - 80 % Public: U.S. Large 10 % - 40 % U.S. Small/Mid 2 % - 10 % International 10 % - 25 % International Small/Mid 0 % - 10 % Emerging Markets 2 % - 15 % Alternative Investments 5 % - 30 % Fixed Income 20 % - 55 % Public: U.S. Long Duration 15 % - 45 % High Yield and Emerging Markets 0 % - 10 % Private Income 0 % - 15 % Other 0 % - 5 % Cash Equivalents 0 % - 20 % U.S. long duration bonds are used to partially hedge the assets from declines in interest rates. Public equity as well as high yield fixed income securities are used to provide diversification and are expected to generate higher returns over the long-term than U.S. long duration bonds. Alternative (private) investments are used to provide expected returns in excess of the public markets over the long-term. The pension plan’s master trust also participates in securities lending programs to generate additional income by loaning plan assets to borrowers on a fully collateralized basis. These programs are subject to market risk. 186 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. Investments in securities traded on recognized securities exchanges are valued at the last reported sales price on the last business day of the year. Securities traded in the over-the-counter market are valued at the last bid price. Investments in limited partnerships are carried at estimated net asset value as determined by and reported by the general partners of the partnerships and represent the proportionate share of the estimated fair value of the underlying assets of the limited partnerships. Common/collective trusts are valued at net asset value based on the fair values of the underlying investments of the trusts as determined by the sponsor of the trusts. No changes in valuation techniques or inputs occurred during the year. Benefit Plan Assets Measured at Fair Value on a Recurring Basis The fair value of American’s pension plan assets at December 31, 2020 and 2019, by asset category, were as follows (in millions): Fair Value Measurements as of December 31, 2020 Asset Category Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Cash and cash equivalents $ 40 $ — $ — $ 40 Equity securities: International markets (a), (b) 2,282 — — 2,282 Large-cap companies (b) 2,085 — — 2,085 Mid-cap companies (b) 428 — — 428 Small-cap companies (b) 73 1 — 74 Fixed income: Corporate debt (c) — 3,026 — 3,026 Government securities (d) — 1,010 — 1,010 U.S. municipal securities — 30 — 30 Alternative instruments: Private market partnerships (e) — — 15 15 Private market partnerships measured at net asset value (e), (f) — — — 1,791 Common/collective trusts (g) — 259 — 259 Common/collective trusts measured at net asset value (f), (g) — — — 2,384 Insurance group annuity contracts — — 2 2 Dividend and interest receivable 49 — — 49 Due from brokers for sale of securities – net 1 — — 1 Other receivables – net 1 — — 1 Total $ 4,959 $ 4,326 $ 17 $ 13,477 (a) Holdings are diversified as follows: 11 % Switzerland, 11 % Ireland, 10 % United Kingdom, 9 % France, 8 % Japan, 7 % Germany, 6 % Netherlands, 13 % emerging markets and the remaining 25 % with no concentration greater than 5% in any one country. (b) There are no significant concentrations of holdings by company or industry. (c) Includes approximately 77 % investments in corporate debt with a S&P rating lower than A and 23 % investments in corporate debt with a S&P rating A or higher. Holdings include 89 % U.S. companies, 9 % international companies and 2 % emerging market companies. (d) Includes approximately 89 % investments in U.S. domestic government securities, 9 % in emerging market government securities and 2 % in international government securities. There are no significant foreign currency risks within this classification. 187 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. (e) Includes limited partnerships that invest primarily in domestic private equity and private income opportunities. The pension plan’s master trust does not have the right to redeem its limited partnership investment at its net asset value, but rather receives distributions as the underlying assets are liquidated. It is estimated that the underlying assets of these funds will be gradually liquidated over the next one to ten years . Additionally, the pension plan’s master trust has future funding commitments of approximately $ 1.6 billion over the next ten years . (f) Certain investments that are measured using net asset value per share (or its equivalent) as a practical expedient for fair value have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the notes to the consolidated financial statements. (g) Investment includes 34 % in a common/collective trust investing in large market capitalization equity securities within the U.S., 30 % in three common/collective trusts investing in emerging country equity securities, 21 % in a common/collective trust investing in equity securities of companies located outside the U.S., 9 % in a collective interest trust investing primarily in short-term securities, 5 % in a common/collective trust investing in smaller market capitalization equity securities within the U.S. and 1 % in Canadian segregated balanced value, income growth and diversified pooled funds. For some trusts, requests for withdrawals must meet specific requirements with advance notice of redemption preferred. Fair Value Measurements as of December 31, 2019 Asset Category Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Cash and cash equivalents $ 20 $ — $ — $ 20 Equity securities: International markets (a), (b) 2,769 — — 2,769 Large-cap companies (b) 2,312 — — 2,312 Mid-cap companies (b) 543 — — 543 Small-cap companies (b) 97 — — 97 Fixed income: Corporate debt (c) — 2,804 — 2,804 Government securities (d) — 923 — 923 U.S. municipal securities — 51 — 51 Mortgage backed securities — 4 — 4 Alternative instruments: Private market partnerships (e) — — 10 10 Private market partnerships measured at net asset value (e), (f) — — — 1,464 Common/collective trusts (g) — 358 — 358 Common/collective trusts and 103-12 Investment Trust measured at net asset value (f), (g) — — — 1,423 Insurance group annuity contracts — — 2 2 Dividend and interest receivable 53 — — 53 Due to brokers for sale of securities – net ( 4 ) — — ( 4 ) Total $ 5,790 $ 4,140 $ 12 $ 12,829 (a) Holdings are diversified as follows: 14 % United Kingdom, 8 % Switzerland, 8 % Ireland, 7 % Japan, 7 % France, 6 % South Korea, 6 % Canada, 18 % emerging markets and the remaining 26 % with no concentration greater than 5% in any one country. (b) There are no significant concentrations of holdings by company or industry. 188 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. (c) Includes approximately 76 % investments in corporate debt with a S&P rating lower than A and 24 % investments in corporate debt with a S&P rating A or higher. Holdings include 86 % U.S. companies, 11 % international companies and 3 % emerging market companies. (d) Includes approximately 79 % investments in U.S. domestic government securities, 13 % in emerging market government securities and 8 % in international government securities. There are no significant foreign currency risks within this classification. (e) Includes limited partnerships that invest primarily in domestic private equity and private income opportunities. The pension plan’s master trust does not have the right to redeem its limited partnership investment at its net asset value, but rather receives distributions as the underlying assets are liquidated. It is estimated that the underlying assets of these funds will be gradually liquidated over the next one to ten years . Additionally, the pension plan’s master trust has future funding commitments of approximately $ 1.4 billion over the next ten years . (f) Certain investments that are measured using net asset value per share (or its equivalent) as a practical expedient for fair value have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the notes to the consolidated financial statements. (g) Investment includes 36 % in a common/collective trust investing in securities of larger companies within the U.S., 29 % in a common/collective trust investing in securities of smaller companies located outside the U.S., 16 % in a collective interest trust investing primarily in short-term securities, 15 % in an emerging market 103-12 Investment Trust with investments in emerging country equity securities and 4 % in Canadian segregated balanced value, income growth and diversified pooled funds. For some trusts, requests for withdrawals must meet specific requirements with advance notice of redemption preferred. Changes in fair value measurements of Level 3 investments during the year ended December 31, 2020, were as follows (in millions): Private Market Partnerships Insurance Group Annuity Contracts Beginning balance at December 31, 2019 $ 10 $ 2 Actual gain on plan assets: Relating to assets still held at the reporting date 1 — Purchases 4 — Ending balance at December 31, 2020 $ 15 $ 2 Changes in fair value measurements of Level 3 investments during the year ended December 31, 2019, were as follows (in millions): Private Market Partnerships Insurance Group Annuity Contracts Beginning balance at December 31, 2018 $ 7 $ 2 Purchases 3 — Ending balance at December 31, 2019 $ 10 $ 2 The fair value of American’s retiree medical and other postretirement benefits plans assets by asset category, were as follows (in millions): Fair Value Measurements as of December 31, 2020 Asset Category Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Money market fund $ 4 $ — $ — $ 4 Mutual funds – AAL Class — 166 — 166 Total $ 4 $ 166 $ — $ 170 189 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. Fair Value Measurements as of December 31, 2019 Asset Category Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Money market fund $ 4 $ — $ — $ 4 Mutual funds – AAL Class — 200 — 200 Total $ 4 $ 200 $ — $ 204 Investments in the retiree medical and other postretirement benefits plans’ mutual funds are valued by quoted prices on the active market, which is fair value, and represents the net asset value of the shares of such funds as of the close of business at the end of the period. Net asset value is based on the fair market value of the funds’ underlying assets and liabilities at the date of determination. The AAL Class mutual funds are offered only to benefit plans of American, therefore, trading is restricted only to American, resulting in a fair value classification of Level 2. Investments included approximately 25 % and 24 % of investments in non-U.S. common stocks in 2020 and 2019, respectively. Defined Contribution and Multiemployer Plans The costs associated with American’s defined contribution plans were $ 835 million, $ 836 million and $ 825 million for the years ended December 31, 2020, 2019 and 2018, respectively. American participates in the International Association of Machinists & Aerospace Workers (IAM) National Pension Fund, Employer Identification No. 51-6031295 and Plan No. 002 (the IAM Pension Fund). American’s contributions to the IAM Pension Fund were $ 40 million, $ 32 million and $ 31 million for the years ended December 31, 2020, 2019 and 2018, respectively. The IAM Pension Fund reported $ 510 million in employers’ contributions for the year ended December 31, 2019, which is the most recent year for which such information is available. For 2019, American’s contributions represented more than 5 % of total contributions to the IAM Pension Fund. On March 29, 2019, the actuary for the IAM Pension Fund certified that the fund was in “endangered” status despite reporting a funded status of over 80 %. Additionally, the IAM Pension Fund’s Board voluntarily elected to enter into “critical” status on April 17, 2019. Upon entry into critical status, the IAM Pension Fund was required by law to adopt a rehabilitation plan aimed at restoring the financial health of the pension plan and did so on April 17, 2019 (the Rehabilitation Plan). Under the Rehabilitation Plan, American was subject to an immaterial contribution surcharge, which ceased to apply June 14, 2019 upon American’s mandatory adoption of a contribution schedule under the Rehabilitation Plan. The contribution schedule requires 2.5 % annual increases to its contribution rate. This contribution schedule will remain in effect through the earlier of December 31, 2031 or the date the IAM Pension Fund emerges from critical status. Profit Sharing Program American accrues 5 % of its pre-tax income excluding net special items for its profit sharing program. As a result of American’s pre-tax loss excluding net special items, there will not be a payout for 2020 under its profit sharing program. 190 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. 9. Accumulated Other Comprehensive Loss The components of AOCI are as follows (in millions): Pension, Retiree Medical and Other Postretirement Benefits Unrealized Gain on Investments Income Tax Benefit (Provision) (1) Total Balance at December 31, 2018 $ ( 4,658 ) $ ( 5 ) $ ( 1,329 ) $ ( 5,992 ) Other comprehensive income (loss) before reclassifications ( 471 ) 3 106 ( 362 ) Amounts reclassified from AOCI ( 89 ) — 20 (2) ( 69 ) Net current-period other comprehensive income (loss) ( 560 ) 3 126 ( 431 ) Balance at December 31, 2019 ( 5,218 ) ( 2 ) ( 1,203 ) ( 6,423 ) Other comprehensive income (loss) before reclassifications ( 1,043 ) — 236 ( 807 ) Amounts reclassified from AOCI 46 — ( 10 ) (2) 36 Net current-period other comprehensive income (loss) ( 997 ) — 226 ( 771 ) Balance at December 31, 2020 $ ( 6,215 ) $ ( 2 ) $ ( 977 ) $ ( 7,194 ) (1) Relates principally to pension, retiree medical and other postretirement benefits obligations that will not be recognized in net income (loss) until the obligations are fully extinguished. (2) Relates to pension, retiree medical and other postretirement benefits obligations and is recognized within the income tax provision (benefit) on American’s consolidated statements of operations. Reclassifications out of AOCI for the years ended December 31, 2020 and 2019 are as follows (in millions): Amounts reclassified from AOCI Affected line items on the consolidated statements of operations Year Ended December 31, AOCI Components 2020 2019 Amortization of pension, retiree medical and other postretirement benefits: Prior service benefit $ ( 82 ) $ ( 162 ) Nonoperating other income, net Actuarial loss 118 93 Nonoperating other income, net Total reclassifications for the period, net of tax $ 36 $ ( 69 ) Amounts allocated to other comprehensive income for income taxes as further described in Note 5 will remain in AOCI until American ceases all related activities, such as termination of the pension plan. 10. Commitments, Contingencies and Guarantees (a) Aircraft, Engine and Other Purchase Commitments Under all of American’s aircraft and engine purchase agreements, its total future commitments as of December 31, 2020 are expected to be as follows (approximately, in millions): 2021 2022 2023 2024 2025 2026 and Thereafter Total Payments for aircraft commitments and certain engines (1) $ 527 $ 1,661 $ 1,592 $ 2,377 $ 3,381 $ 1,742 $ 11,280 (1) These amounts are net of purchase deposits currently held by the manufacturers. American has granted a security interest in certain of its purchase deposits with Boeing to secure certain obligations to Boeing and third-party financing sources. American’s purchase deposits held by all manufacturers totaled $ 1.4 billion as of December 31, 2020. 191 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. On March 13, 2019, a directive from the Federal Aviation Administration (FAA) grounded all U.S.-registered Boeing 737 MAX Family aircraft and, as a result, all deliveries of Boeing 737 MAX Family aircraft were suspended. Since the time of the FAA recertification of the Boeing 737 MAX Family aircraft on November 18, 2020, deliveries have resumed and American accepted delivery of 10 Boeing 737 MAX Family aircraft during the period between the date of recertification and December 31, 2020. American has rights to defer one Boeing 737 MAX Family aircraft from delivery in 2021 to 2023 and rights to defer 10 Boeing 737 MAX Family aircraft from delivery in 2022 to 2023-2024. Due to the uncertainty surrounding the timing of delivery of certain aircraft, the amounts in the table represent American’s current best estimate; however, the actual delivery schedule may differ from the table above, potentially materially. The amounts in the table exclude 19 Boeing 787-8 aircraft to be delivered in 2021 for which American has obtained committed lease financing. See Note 4 for information regarding this operating lease commitment. Additionally, American has purchase commitments related to aircraft fuel, flight equipment maintenance, construction projects and information technology support as follows (approximately): $ 2.3 billion in 2021, $ 1.3 billion in 2022, $ 1.2 billion in 2023, $ 242 million in 2024, $ 163 million in 2025 and $ 1.0 billion in 2026 and thereafter. (b) Capacity Purchase Agreements with Third-Party Regional Carriers American has capacity purchase agreements with third-party regional carriers. The capacity purchase agreements provide that all revenues, including passenger, in-flight, ancillary, mail and freight revenues, go to American. American controls marketing, scheduling, ticketing, pricing and seat inventories. In return, American agrees to pay predetermined fees to these airlines for operating an agreed-upon number of aircraft, without regard to the number of passengers on board. In addition, these agreements provide that American either reimburses or pays 100 % of certain variable costs, such as airport landing fees, fuel and passenger liability insurance. As of December 31, 2020, American’s capacity purchase agreements with third-party regional carriers had expiration dates ranging from 2021 to 2027, with rights of American to extend the respective terms of certain agreements. As of December 31, 2020, American’s minimum obligations under its capacity purchase agreements with third-party regional carriers are as follows (approximately, in millions): 2021 2022 2023 2024 2025 2026 and Thereafter Total Minimum obligations under capacity purchase agreements with third-party regional carriers (1) $ 1,120 $ 1,666 $ 1,685 $ 1,663 $ 1,511 $ 3,646 $ 11,291 (1) Represents minimum payments under capacity purchase agreements with third-party regional carriers, which are estimates of costs based on assumed minimum levels of flying under the capacity purchase agreements and American’s actual payments could differ materially. Excludes payments for the lease of certain aircraft under capacity purchase agreements, which are reflected in the operating lease obligations in Note 4. (c) Airport Redevelopment Los Angeles International Airport (LAX) From time to time, airports where American has operations engage in construction projects, often substantial, that result in new or improved facilities that are ultimately funded through increases in the rent and other occupancy costs payable by airlines using the airport. Unlike this construction and funding model, American is managing a project at LAX where it has legal title to the assets during construction. In 2018, American executed a lease agreement with Los Angeles World Airports (LAWA), which owns and operates LAX, in connection with a $ 1.6 billion modernization project related to LAX Terminals 4 and 5. Construction, which started in October 2018 and is expected to be completed in 2028, will occur in a phased approach. The modernization project will include a unified departure hall to the entranceway of Terminals 4 and 5, reconfigured ticket counter and check-in areas with seamless access to security screening areas, 10 new security screening lanes with automated technology in addition to the existing Terminal 5 lanes, and a new Terminal 4 South concourse with more open and upgraded amenities at gate areas. The project will also include renovated break rooms, multi-use meeting rooms and team gathering spaces throughout the terminals to support American’s team members at LAX. 192 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. As each phase is completed, the assets will be sold and transferred to LAWA, including the site improvements and non-proprietary improvements. As American controls the assets during construction, they are recognized on its balance sheet until legal title has transferred. As of December 31, 2020, American has incurred approximately $ 223 million in costs relating to the LAX modernization project, of which $ 114 million were incurred during 2020, and have been included within operating property and equipment on its consolidated balance sheet. As of December 31, 2020, American has sold and transferred $ 111 million of non-proprietary improvements to LAWA, all of which occurred during 2020. (d) Off-Balance Sheet Arrangements Aircraft and Engines American currently operates 350 owned aircraft and 24 leased aircraft, and owns 62 spare aircraft engines, which in each case were financed with EETCs issued by pass-through trusts. These trusts are off-balance sheet entities, the primary purpose of which is to finance the acquisition of flight equipment or to permit issuance of debt backed by existing flight equipment. In the case of aircraft EETCs, rather than finance each aircraft separately when such aircraft is purchased, delivered or refinanced, these trusts allow American to raise the financing for a number of aircraft at one time and, if applicable, place such funds in escrow pending a future purchase, delivery or refinancing of the relevant aircraft. Similarly, in the case of the spare engine EETCs, the trusts allow American to use its existing pool of spare engines to raise financing under a single facility. The trusts have also been structured to provide for certain credit enhancements, such as liquidity facilities to cover certain interest payments, that reduce the risks to the purchasers of the trust certificates and, as a result, reduce the cost of aircraft financing to American. Each trust covers a set number of aircraft or spare engines scheduled to be delivered, financed or refinanced upon the issuance of the EETC or within a specific period of time thereafter. At the time of each covered aircraft or spare engine financing, the relevant trust used the proceeds of the issuance of the EETC (which may have been available at the time of issuance thereof or held in escrow until financing of the applicable aircraft following its delivery) to purchase equipment notes relating to the financed aircraft or engines. The equipment notes are issued, at American’s election, in connection with a mortgage financing of the aircraft or spare engines or, in certain cases, by a separate owner trust in connection with a leveraged lease financing of the aircraft. In the case of a leveraged lease financing, the owner trust then leases the aircraft to American. In both cases, the equipment notes are secured by a security interest in the aircraft or engines, as applicable. The pass-through trust certificates are not direct obligations of, nor are they guaranteed by, AAG or American. However, in the case of mortgage financings, the equipment notes issued to the trusts are direct obligations of American and, in certain instances, have been guaranteed by AAG. As of December 31, 2020, $ 11.0 billion associated with these mortgage financings is reflected as debt in the accompanying consolidated balance sheet. With respect to leveraged leases, American evaluated whether the leases had characteristics of a variable interest entity. American concluded the leasing entities met the criteria for variable interest entities; 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 $ 78 million as of December 31, 2020, which are reflected in the operating lease obligations in Note 4. Letters of Credit and Other American provides 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, 2020, American had $ 476 million of letters of credit and surety bonds securing various obligations, of which $ 110 million is collateralized with American’s restricted cash. The letters of credit and surety bonds that are subject to expiration will expire on various dates through 2024. (e) Legal Proceedings Chapter 11 Cases . On November 29, 2011, AMR, American, and certain of AMR’s other direct and indirect domestic subsidiaries (the Debtors) filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court). On October 21, 2013, the Bankruptcy Court entered an order approving and confirming the Debtors’ fourth amended joint plan of reorganization (as amended, the Plan). On the Effective Date, December 9, 2013, the Debtors consummated their reorganization pursuant to the Plan and completed the Merger. 193 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. Pursuant to rulings of the Bankruptcy Court, the Plan established the Disputed Claims Reserve to hold shares of AAG common stock reserved for issuance to disputed claimholders at the Effective Date that ultimately become holders of allowed claims. The shares of AAG common stock issued to the Disputed Claims Reserve were originally issued on December 13, 2013 and have at all times since been included in the number of shares issued and outstanding as reported by AAG from time to time in its quarterly and annual reports, including for calculating earnings per common share. As disputed claims are resolved, the claimants receive distributions of shares from the Disputed Claims Reserve. American is not required to distribute additional shares above the limits contemplated by the Plan, even if the shares remaining for distribution in the Disputed Claims Reserve are not sufficient to fully pay any additional allowed unsecured claims. If any of the reserved shares remain undistributed upon resolution of all remaining disputed claims, such shares will not be returned to AAG but rather will be distributed to former AMR stockholders and former convertible noteholders treated as stockholders under the Plan. In February 2020, 2.2 million shares of AAG common stock were distributed from the Disputed Claims Reserve. After giving effect to this distribution, as of December 31, 2020, the Disputed Claims Reserve held approximately 4.8 million shares of AAG common stock. Private Party Antitrust Action Related to Passenger Capacity. American, along with Delta Air Lines, Inc., Southwest Airlines Co., United Airlines, Inc. and, in the case of litigation filed in Canada, Air Canada, were named as defendants in approximately 100 putative class action lawsuits alleging unlawful agreements with respect to air passenger capacity. The U.S. lawsuits were consolidated in the Federal District Court for the District of Columbia (the DC Court). On June 15, 2018, American reached a settlement agreement with the plaintiffs in the amount of $ 45 million to resolve all class claims in the U.S. lawsuits. That settlement was approved by the DC Court on May 13, 2019, however three parties who objected to the settlement have appealed that decision to the United States Court of Appeals for the District of Columbia. American believes these appeals are without merit and intends to vigorously defend against them. Private Party Antitrust Action Related to the Merger . On August 6, 2013, a lawsuit captioned Carolyn Fjord, et al., v. AMR Corporation, et al., was filed in the Bankruptcy Court. The complaint named as defendants US Airways Group, US Airways, AMR and American, alleged that the effect of the Merger may be to create a monopoly in violation of Section 7 of the Clayton Antitrust Act, and sought injunctive relief and/or divestiture. On November 27, 2013, the Bankruptcy Court denied plaintiffs’ motion to preliminarily enjoin the Merger. On August 29, 2018, the Bankruptcy Court denied in part defendants' motion for summary judgment, and fully denied plaintiffs' cross-motion for summary judgment. The parties' evidentiary cases were presented before the Bankruptcy Court in a bench trial in March 2019 and the parties submitted proposed findings of fact and conclusions of law and made closing arguments in April 2019. On January 29, 2021, the Bankruptcy Court published its decision finding in American’s favor. American expects the plaintiffs to appeal this ruling. American believes this lawsuit is without merit and intends to continue to vigorously defend against the allegations, including in respect of any appeal of the January 29, 2021 ruling. General . In addition to the specifically identified legal proceedings, American and its subsidiaries are also engaged in other legal proceedings from time to time. Legal proceedings can be complex and take many months, or even years, to reach resolution, with the final outcome depending on a number of variables, some of which are not within American’s control. Therefore, although American will vigorously defend itself in each of the actions described above and such other legal proceedings, their ultimate resolution and potential financial and other impacts on American are uncertain but could be material. (f) Guarantees and Indemnifications American is a party to many routine contracts in which it provides general indemnities in the normal course of business to third parties for various risks. American is not able to estimate the potential amount of any liability resulting from the indemnities. These indemnities are discussed in the following paragraphs. In its aircraft financing agreements, American generally indemnifies the financing parties, trustees acting on their behalf and other relevant parties against liabilities (including certain taxes) resulting from the financing, manufacture, design, ownership, operation and maintenance of the aircraft regardless of whether these liabilities (including certain taxes) relate to the negligence of the indemnified parties. American’s loan agreements and other LIBOR-based financing transactions (including certain leveraged aircraft leases) generally obligate American to reimburse the applicable lender for incremental costs due to a change in law that imposes (i) any reserve or special deposit requirement against assets of, deposits with or credit extended by such lender related to the loan, (ii) any tax, duty or other charge with respect to the loan (except standard income tax) or (iii) capital adequacy requirements. In addition, American’s loan agreements and other financing arrangements typically contain a withholding tax provision that require