What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2022-02-22 compared with 2021-02-17 · 943 added, 1054 removed, 2416 unchanged (45% of the section changed)

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As of December 31, 2021, 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.

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.

Based on our 2022 forecasted fuel consumption, we estimate that a one cent per gallon increase in the price of aircraft fuel would increase our 2022 annual fuel expense by approximately $40 million.

Foreign Currency

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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.

Our largest exposure comes from the British pound sterling, Euro, Chinese yuan, 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.

dollar from 2021 levels relative to each of the currencies in which we have foreign currency exposure would have resulted in an increase in pre-tax loss of approximately $90 million for the year ended December 31, 2021.

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.

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If annual interest rates increase 100 basis points, based on our December 31, 2021 variable-rate debt and short-term investments balances, annual interest expense on variable-rate debt would increase by approximately $109 million and annual interest income on short-term investments would increase by approximately $124 million.

Additionally, the fair value of fixed-rate debt would have decreased by approximately $590 million for AAG and $450 million for American.

Additionally, the fair value of fixed-rate debt would have decreased by approximately $1.1 billion for AAG and $860 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.

The discontinuation date for submission and publication of rates for certain tenors of USD LIBOR (1-month, 3-month, 6-month, and 12-month) was subsequently extended by the ICE Benchmark Administration (the administrator of LIBOR) until June 30, 2023.

It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2023.

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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.

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 a partner airline, or for using the services of other program participants.

The Company uses a statistical model based on historical redemption patterns to develop an estimate of mileage credits not expected to be redeemed.

The associated value of mileage credits not expected to be redeemed is recognized as revenue proportionally as the remaining mileage credits are redeemed.

The Company’s loyalty program liability was $9.1 billion as of December 31, 2021 and the associated passenger revenue for mileage credits redeemed for travel was $2.2 billion for the year ended December 31, 2021.

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.

We identified the evaluation of the estimation of mileage credits not expected to be redeemed as a critical audit matter.

Evaluating the application of the statistical model used to develop the estimate involved complex auditor judgment and the use of actuarial professionals with specialized skills and knowledge.

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.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s loyalty program accounting process, including a control related to the evaluation of the application of the statistical model used to develop the estimate of mileage credits not expected to be redeemed.

We involved actuarial professionals with specialized skills and knowledge, who assisted in developing a statistical model to derive an independent expectation of mileage credits not expected to be redeemed.

We compared this independent expectation to the Company’s estimate to evaluate the appropriateness of the amount of the loyalty program liability and associated passenger revenue.

Sufficiency of audit evidence over realizability of tax operating loss and other carryforwards

As discussed in Notes 1(i) and 6 to the consolidated financial statements, the Company had $4.6 billion of tax operating loss and other carryforwards, which are recorded as deferred tax assets at December 31, 2021.

Deferred tax assets are recognized related to tax operating loss and other 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 of 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.

We identified the evaluation of the sufficiency of audit evidence over the realizability of tax operating loss and other carryforwards as a critical audit matter.

Evaluating the sufficiency of audit evidence required subjective auditor judgment in order to assess the extent of procedures performed in assessing the realizability of the tax operating loss and other 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.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s deferred tax asset valuation allowance process, including controls related to the realizability of tax operating loss and other carryforwards.

We evaluated positive and negative evidence used in assessing whether the tax operating loss and other carryforwards were more likely than not to be realized in the future.

We evaluated the reasonableness of management’s projections of future profitability considering historical profitability of the Company, and consistency with industry data and economic trends.

We involved tax professionals with specialized skills and knowledge, who assisted in evaluating the application of tax law.

We assessed the sufficiency of audit evidence obtained over the realizability of the tax operating loss and other carryforwards by evaluating the cumulative results of the audit procedures.

We have served as the Company’s auditor since 2014.

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Investments — — 3

Total other comprehensive loss, net of tax ( 772 ) ( 435 ) ( 120 )

Total other comprehensive income (loss), net of tax 1,161 ( 772 ) ( 435 )

Total comprehensive income (loss) $ ( 832 ) $ ( 9,657 ) $ 1,251

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Accumulated other comprehensive loss ( 5,942 ) ( 7,103 )

Retained earnings (deficit) ( 6,664 ) 2,264

Retained deficit ( 8,638 ) ( 6,664 )

Total stockholders' deficit ( 7,340 ) ( 6,867 )

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Net income (loss) $ ( 1,993 ) $ ( 8,885 ) $ 1,686

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization 2,335 2,370 2,318

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Changes in operating assets and liabilities:

Decrease in accounts receivable 538 73 222

Decrease (increase) in accounts receivable ( 304 ) 538 73

Increase in other assets ( 402 ) ( 38 ) ( 373 )

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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

Capital expenditures, net of aircraft purchase deposit returns ( 208 ) ( 1,958 ) ( 4,268 )

Airport construction projects, net of reimbursements ( 204 ) ( 173 ) ( 98 )

Proceeds from sale of property and equipment 193 351 54

Proceeds from sale-leaseback transactions 181 665 850

Purchases of short-term investments ( 19,454 ) ( 5,873 ) ( 3,184 )

Sales of short-term investments 13,923 2,803 4,144

Increase in restricted short-term investments ( 401 ) ( 308 ) ( 3 )

Purchase of equity investment ( 28 ) — —

Proceeds on sale of equity investment 5 41 —

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 10 20 12

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Net cash provided by (used in) financing activities 5,288 10,994 ( 1,568 )

Net increase (decrease) in cash and restricted cash 109 4 ( 112 )

Net increase in cash and restricted cash 9 109 4

Cash and restricted cash at beginning of year 399 290 286

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— — — ( 180 ) ( 180 )

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

Settlement of single-dip unsecured claims held in Disputed Claims Reserve (DCR) — 7 — — 7

Share-based compensation expense — 94 — — 94

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— — — ( 43 ) ( 43 )

Settlement of single-dip unsecured claims held in Disputed Claims Reserve — 56 — — 56

Settlement of single-dip unsecured claims held in DCR — 56 — — 56

Share-based compensation expense — 91 — — 91

Balance at December 31, 2020 6 6,894 ( 7,103 ) ( 6,664 ) ( 6,867 )

Net loss — — — ( 1,993 ) ( 1,993 )

Other comprehensive income, net — — 1,161 — 1,161

Issuance of 24,150,764 shares of AAG common stock pursuant to an at-the-market offering, net of offering costs

— 460 — — 460

Impact of adoption of Accounting Standards Update (ASU) 2020-06 related to convertible instruments (see Note 1(c)) — ( 320 ) — 19 ( 301 )

Issuance of PSP2 and PSP3 Warrants (see Note 1(b)) — 121 — — 121

Issuance of 2,357,187 shares of AAG common stock pursuant to employee stock plans net of shares withheld for cash taxes

— ( 18 ) — — ( 18 )

Settlement of single-dip unsecured claims held in DCR and retirement of 259,878 shares of AAG common stock

— ( 1 ) — — ( 1 )

Share-based compensation expense — 98 — — 98

Balance at December 31, 2021 $ 6 $ 7,234 $ ( 5,942 ) $ ( 8,638 ) $ ( 7,340 )

See accompanying notes to consolidated financial statements.

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(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.

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.

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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.

The most significant areas of judgment relate to passenger revenue recognition, the loyalty program, deferred tax assets, as well as pension and retiree medical and other postretirement benefits.

Certain prior period amounts have been reclassified to conform to the current year presentation.

See (r) Regional Expenses below for further information.

(b) Impact of Coronavirus (COVID-19)

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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).

Ongoing global vaccination efforts and the corresponding lifting of government restrictions in and between many markets resulted in a partial recovery in demand for air travel in 2021, which improved our revenues as compared to 2020.

However, the return of demand was weaker than previous expectations and the speed and strength of this recovery remain uncertain, primarily due to the global rise in COVID-19 cases associated with the delta and omicron variants and the potential for continuation or reimposition of restrictions on global travel.

The continued impact of the COVID-19 pandemic, including any increases in infection rates, new variants and renewed governmental action to slow the spread of COVID-19 cannot be estimated.

We have taken aggressive actions since the beginning of the COVID-19 pandemic to mitigate its effects on our business, including capacity reductions, structural changes to our fleet, cost reductions including implementing voluntary leave and early retirement programs, and steps to preserve cash and improve our overall liquidity position, 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), Subtitle A of Title IV of Division N of the Consolidated Appropriations Act, 2021 (PSP Extension Law) and Section 7301 of the American Rescue Plan Act of 2021 (the ARP).

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.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Our capacity (as measured by available seat miles) continues to be reduced compared to pre-COVID-19 pandemic levels, with total capacity in 2021 down 24.7 % as compared to 2019.

Domestic capacity in 2021 was down 14.5 % while international capacity was down 44.9 % as compared to 2019.

While demand for domestic and short-haul international markets has largely recovered to 2019 levels, uncertainty remains regarding the timing of a full recovery.

We will continue to match our forward capacity with observed booking trends for future travel and make further adjustments to our capacity as needed.

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).

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;

We have reduced our 2021 operating expenditures as a result of permanent non-volume cost reductions and other efficiency measures.

These reductions include labor productivity enhancements, management salaries and benefits and other permanent cost reductions.

Also, during the first quarter of 2021, approximately 1,600 represented team members opted into a voluntary early retirement program.

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.

As of December 31, 2021, we had $ 15.8 billion in total available liquidity, consisting of $ 12.4 billion in unrestricted cash and short-term investments, $ 2.8 billion in undrawn capacity under revolving credit facilities and a total of $ 568 million in undrawn short-term revolving and other facilities.

During 2021, we completed the following financing transactions (see Note 4 for further information):

• issued $ 3.5 billion in aggregate principal amount of 5.50 % Senior Secured Notes due 2026 and $ 3.0 billion in aggregate principal amount of 5.75 % Senior Secured Notes due 2029 and entered into the $ 3.5 billion AAdvantage Term Loan Facility of which the full amount of term loans was drawn at closing;

• repaid in full $ 750 million under the 2013 Revolving Facility, $ 1.6 billion under the 2014 Revolving Facility and $ 450 million under the April 2016 Revolving Facility, all of which was borrowed in the second quarter of 2020 in response to the COVID-19 pandemic;

• repaid the $ 550 million of outstanding loans under, and terminated, the $ 7.5 billion secured term loan facility with the U.S.

Department of the Treasury (Treasury) (the Treasury Loan Agreement);

• issued 24.2 million shares of AAG common stock at an average price of $ 19.26 per share pursuant to an at-the-market offering for net proceeds of $ 460 million (approximately $ 650 million of at-the-market authorization remains available at December 31, 2021);

• issued approximately $ 150 million in special facility revenue bonds related to John F.

Kennedy International Airport (JFK), of which $ 62 million was used to fund the redemption of other bonds related to JFK;

• repaid in full $ 950 million of the outstanding balance under, and terminated, the April 2016 Spare Parts Term Loan Facility;

• received approximately $ 94 million in proceeds from enhanced equipment trust certificates (EETCs) and other aircraft and flight equipment financing, all of which was used to repay existing indebtedness;

• received approximately $ 193 million of cash proceeds from the sale of property and equipment primarily related to aircraft fleets retired in 2020 and raised $ 181 million principally from aircraft sale-leaseback transactions.

In addition to the foregoing financings, during 2021, we received an aggregate of approximately $ 3.5 billion in financial assistance through the payroll support program (PSP2) established under the PSP Extension Law.

In connection with our receipt of this financial assistance, AAG issued a promissory note (the PSP2 Promissory Note) to Treasury for $ 1.0 billion in aggregate principal amount and warrants to purchase up to an aggregate of approximately 6.6 million shares (the PSP2 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.

Also in 2021, we received an aggregate of approximately $ 3.3 billion in financial assistance through the payroll support program (PSP3) established under the ARP.

In connection with our receipt of this financial assistance, AAG issued a promissory note (the PSP3 Promissory Note) to Treasury for $ 946 million in aggregate principal amount and warrants to purchase up to an aggregate of approximately 4.4 million shares (the PSP3 Warrant Shares) of AAG common stock.

See below for further discussion on PSP2 and PSP3.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

On April 20, 2020 (the PSP1 Closing Date), American, Envoy Air Inc.

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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.

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 prohibition 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 the provisions 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.

These provisions were subsequently extended upon our entry into PSP2 and PSP3.

See below for additional information on the Treasury Loan Agreement.

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.

Government for the provision of financial assistance under PSP1, AAG issued the PSP1 Promissory Note in the aggregate principal amount of $ 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 shares (the PSP1 Warrant Shares) of AAG common stock for an exercise price of $ 12.51 per share, subject to adjustment.

See Note 4(g) 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 $ 1.8 billion aggregate principal amount of the PSP1 Promissory Note was recorded as unsecured long-term debt, and the $ 63 million total fair value of the PSP1 Warrants, estimated using a Black-Scholes option pricing model, was recorded in stockholders' deficit 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.

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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.

Government for the provision of financial assistance under the PSP1 Agreement, and pursuant to the PSP1 Warrant Agreement, AAG issued the PSP1 Warrants to Treasury to purchase PSP1 Warrant Shares.

The exercise price of the PSP1 Warrant Shares is $ 12.51 per share, subject to certain anti-dilution provisions provided for in the PSP1 Warrants.

Pursuant to the PSP1 Warrant Agreement, AAG issued to Treasury PSP1 Warrants to purchase up to an aggregate of approximately 14.1 million shares of AAG common stock for an exercise price of $ 12.51 per share, subject to adjustment.

The PSP1 Warrants do not have any voting rights and are freely transferrable, with registration rights.

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Treasury Loan Agreement

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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.

In connection with our entry into the Treasury Loan Agreement, on the Treasury Loan Closing Date, AAG also entered into a warrant agreement (the Treasury Loan Warrant Agreement) with Treasury.

In September 2020, American borrowed $ 550 million under the Treasury Term Loan Facility and on March 24, 2021, used proceeds from the AAdvantage Financing to prepay in full the $ 550 million of outstanding loans under the Treasury Term Loan Facility.

Pursuant to the Treasury Loan Agreement, AAG issued to Treasury warrants (Treasury Loan Warrants) to purchase up to an aggregate of approximately 4.4 million shares of AAG common stock (the Treasury Loan Warrant Shares).

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.

The provisions of the Treasury Loan Warrants are substantially similar to the PSP1 Warrants.

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 as 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 to the restrictions contained in the Payroll Support Program Agreement entered into by the Subsidiaries with Treasury in connection with the payroll support program established under the CARES Act (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 prohibition against involuntary furloughs and reductions in employee pay rates and benefits, which expired on 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 at least October 1, 2022, and 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.

Pursuant to the PSP2 Agreement, Treasury provided us financial assistance in an aggregate of approximately $ 3.5 billion.

As partial compensation to the U.S.

Government for the provision of financial assistance under PSP2, AAG issued the PSP2 Promissory Note in the aggregate principal amount of $ 1.0 billion and issued warrants (each a PSP2 Warrant and, collectively, the PSP2 Warrants) to Treasury to purchase up to an aggregate of approximately 6.6 million shares of AAG common stock for an exercise price of $ 15.66 per share, subject to adjustment.

See Note 4(g) for further information on the PSP2 Promissory Note and below for more information on the PSP2 Warrant Agreement and PSP2 Warrants.

For accounting purposes, the $ 3.5 billion of aggregate financial assistance we received pursuant to the PSP2 Agreement is allocated to the PSP2 Promissory Note, the PSP2 Warrants and other PSP2 financial assistance (the PSP2 Financial Assistance).

The $ 1.0 billion aggregate principal amount of the PSP2 Promissory Note was recorded as unsecured long-term debt, and the $ 76 million total fair value of the PSP2 Warrants, estimated using a Black-Scholes option pricing model, was recorded in stockholders' deficit in the consolidated balance sheet.

The remaining amount of approximately $ 2.4 billion of PSP2 Financial Assistance was recognized as a credit to special items, net in the consolidated statement of operations in the first and second quarters of 2021, the period over which the continuation of payment of eligible employee wages, salaries and benefits was required.

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.

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 issued the PSP2 Warrants to Treasury to purchase PSP2 Warrant Shares.

The exercise price of the PSP2 Warrant Shares is $ 15.66 per share, subject to certain anti-dilution provisions provided for in the PSP2 Warrants.

Pursuant to the PSP2 Warrant Agreement, AAG issued to Treasury PSP2 Warrants to purchase up to an aggregate of approximately 6.6 million shares of AAG common stock for an exercise price of $ 15.66 per share, subject to adjustment.

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 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.

On April 23, 2021 (the PSP3 Closing Date), the Subsidiaries, entered into a Payroll Support Program 3 Agreement (the PSP3 Agreement) with Treasury, with respect to PSP3 as provided pursuant to the ARP.

In connection with our entry into the PSP3 Agreement, on the PSP3 Closing Date, AAG also entered into a warrant agreement (the PSP3 Warrant Agreement) with Treasury and issued the PSP3 Promissory Note to Treasury, with the Subsidiaries as guarantors.

PSP3 Agreement

In connection with PSP3, we are required to comply with the relevant provisions of the ARP, which are substantially similar to 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 PSP3 Agreement be used exclusively for the continuation of payment of eligible employee wages, salaries and benefits, the prohibition against involuntary furloughs and reductions in employee pay rates and benefits, which expired on September 30, 2021, the provisions that prohibit the repurchase of AAG common stock and the payment of common stock dividends through at least September 30, 2022, and the provisions that restrict the payment of certain executive compensation until April 1, 2023.

As was the case with PSP1 and PSP2, the PSP3 Agreement also imposes substantial reporting obligations on us.

Pursuant to the PSP3 Agreement, Treasury provided us financial assistance in an aggregate of approximately $ 3.3 billion.

As partial compensation to the U.S.

Government for the provision of financial assistance under PSP3, AAG issued the PSP3 Promissory Note in the aggregate principal amount of $ 946 million and issued warrants (each a PSP3 Warrant and, collectively, the PSP3 Warrants) to Treasury to purchase up to an aggregate of approximately 4.4 million shares of AAG common stock for an exercise price of $ 21.75 per share, subject to adjustment.

See Note 4(g) for further information on the PSP3 Promissory Note and below for more information on the PSP3 Warrant Agreement and PSP3 Warrants.

For accounting purposes, the $ 3.3 billion of aggregate financial assistance we received pursuant to the PSP3 Agreement is allocated to the PSP3 Promissory Note, the PSP3 Warrants and other PSP3 financial assistance (the PSP3 Financial Assistance).

The $ 946 million aggregate principal amount of the PSP3 Promissory Note was recorded as unsecured long-term debt, and the $ 46 million total fair value of the PSP3 Warrants, estimated using a Black-Scholes option pricing model, was recorded in stockholders' deficit in the consolidated balance sheet.

The remaining amount of approximately $ 2.3 billion of PSP3 Financial Assistance was recognized as a credit to special items, net in the consolidated statements of operations in the second and third quarters of 2021, the period over which the continuation of payment of eligible employee wages, salaries and benefits was required.

PSP3 Warrant Agreement and PSP3 Warrants

As partial compensation to the U.S.

Government for the provision of financial assistance under the PSP3 Agreement, and pursuant to the PSP3 Warrant Agreement, AAG issued the PSP3 Warrants to Treasury to purchase PSP3 Warrant Shares.

The exercise price of the PSP3 Warrant Shares is $ 21.75 per share, subject to certain anti-dilution provisions provided for in the PSP3 Warrants.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Pursuant to the PSP3 Warrant Agreement, AAG issued to Treasury PSP3 Warrants to purchase up to an aggregate of approximately 4.4 million shares of AAG common stock for an exercise price of $ 21.75 per share, subject to adjustment.

The PSP3 Warrants do not have any voting rights and are freely transferrable, with registration rights.

Each PSP3 Warrant expires on the fifth anniversary of the date of issuance of such PSP3 Warrant.

The PSP3 Warrants will be exercisable either through net share settlement or cash, at our option.

The PSP3 Warrants were issued solely as compensation to the U.S.

Government related to entry into the PSP3 Agreement.

No separate proceeds (apart from the financial assistance described above) were received upon issuance of the PSP3 Warrants or will be received upon exercise thereof.

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.

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

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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.

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

We early adopted the New Convertible Debt Standard as of January 1, 2021 using the modified retrospective method to recognize the Convertible 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 Convertible Notes from our consolidated 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 Convertible Notes.

See Note 4(h) for additional information on the Convertible Notes.

Simplifying the Accounting for Income Taxes (Topic 740)

This standard simplifies the accounting and disclosure requirements for income taxes by clarifying the existing guidance to improve consistency in the application of Accounting Standards Codification 740.

This standard also removed the requirement to calculate income tax expense for the stand-alone financial statements of wholly-owned subsidiaries that are not subject to income tax.

We adopted this standard effective January 1, 2021, and it did not have a material impact on our consolidated financial statements.

Disclosures by Business Entities about Government Assistance (Topic 832)

This standard provides guidance on the disclosure requirements for business entities receiving government assistance.

Specifically, entities are required to disclose information about the nature of the assistance received, including the related accounting, the affected line items on the financial statements and amounts, and the significant terms and conditions, including any commitments and contingencies.

This standard is effective for annual periods beginning after December 15, 2021, and early adoption is permitted.

We adopted this standard as of December 31, 2021.

See (b) Impact of COVID-19 above for disclosure related to the financial assistance we have received from Treasury.

(d) Investments

Short-term investments primarily include debt securities and 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.

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Equity investments are accounted for under the equity method if we are able to exercise significant influence over an investee.

Equity investments for which we do not have significant influence are recorded at fair value or at cost, if fair value is not readily determinable, with adjustments for observable changes in price or impairments (referred to as the measurement alternative).

Our share of equity method investee’s financial results and changes in fair value are recorded in nonoperating other income, net on the consolidated statements of operations.

See Note 8 for additional information related to our investments.

(e) Restricted Cash and Short-term Investments

We have restricted cash and short-term investments related primarily to collateral held to support workers’ compensation obligations, collateral associated with the payment of interest for the AAdvantage Financing and money market funds to be used to finance a substantial portion of the cost of the renovation and expansion of the Terminal at JFK.

(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.

Spare parts and supplies are recorded at average costs less an allowance for obsolescence, which is recognized over the weighted average remaining useful life of the related fleet.

We also provide an allowance for spare parts and supplies identified as excess or obsolete to reduce the carrying cost to the lower of cost or net realizable value.

Aircraft fuel, spare parts and supplies are expensed when used.

(g) Operating Property and Equipment

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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.

In 2021, we retired our remaining Embraer 140 fleet and recorded $ 27 million in non-cash special impairment charges reflecting the difference between the carrying values of these assets and their fair values.

At December 31, 2021 and 2020, prepaid expense and other on the consolidated balance sheets included $ 29 million and $ 164 million, respectively, of retired aircraft that are expected to be sold in the next year, and other assets on the consolidated balance sheets included $ 383 million and $ 401 million, respectively, of nonoperating retired aircraft.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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.

Operating leases are included in operating lease right-of-use (ROU) assets, current operating lease liabilities and noncurrent operating lease liabilities on 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.

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.

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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.

Leases with a term of 12 months or less are not recorded on our consolidated balance sheets.

Our lease agreements do not contain any residual value guarantees.

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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.

Based upon our annual assessment, there was no goodwill impairment in 2021.

The carrying value of our goodwill on our consolidated balance sheets was $ 4.1 billion as of December 31, 2021 and 2020.

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

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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.

Based upon our annual assessment, there were no indefinite-lived intangible asset impairments in 2021.

We had $ 1.8 billion of indefinite-lived intangible assets on our consolidated balance sheets as of December 31, 2021 and 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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Loyalty revenue - marketing services (2)

2,166 1,825 2,361

Other revenue 339 225 534

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See “ Loyalty Revenue ” below for further discussion on these mileage credits.

(2) During the years ended December 31, 2021, 2020 and 2019, cash payments from co-branded credit card and other partners were $ 3.4 billion, $ 2.9 billion and $ 3.9 billion, respectively.

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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

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.

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 our 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.

In response to the COVID-19 pandemic, we suspended the expiration of mileage credits through March 31, 2022 and eliminated mileage reinstatement fees for canceled award tickets.

Mileage credits earned through travel

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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.

The estimated selling price of miles is adjusted for an estimate of mileage credits that will not be redeemed using a statistical model 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.

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For the portion of our outstanding mileage credits that we estimate will not be redeemed, we recognize the associated value proportionally as the remaining mileage credits are redeemed.

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

Our estimates use a statistical model 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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

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.

Loyalty revenue included in other revenue was $ 2.2 billion, $ 1.8 billion and $ 2.4 billion for the years ended December 31, 2021, 2020 and 2019, respectively.

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

Contract Balances

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(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.

In response to the COVID-19 pandemic, we suspended the expiration of mileage credits through March 31, 2022 and eliminated mileage reinstatement fees for canceled award tickets.

As of December 31, 2021, our current loyalty program liability was $ 2.9 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.

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For 2021, $ 1.7 billion of revenue was recognized in passenger revenue that was included in our air traffic liability at December 31, 2020.

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.

In response to the COVID-19 pandemic, we extended the contract duration for certain tickets to March 31, 2022, principally those tickets which were scheduled to expire from March 1, 2020 through March 31, 2021.

Additionally, tickets to certain international destinations have extended contract duration to December 31, 2022.

We also have eliminated change fees for most domestic and international tickets providing more flexibility for customers to change travel plans.

Given these changes and the 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

credit losses, which have been minimal in the past.

All accounts receivable are reported net of an allowance for credit losses, which have been minimal.

We consider past and future financial and qualitative factors when establishing the allowance for credit losses.

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(n) Selling Expenses

Selling expenses include credit card fees, commissions, computerized reservations systems fees and advertising.

Selling expenses include credit card fees, commissions, third party distribution channel fees and advertising.

Selling expenses associated with passenger revenue are expensed when the transportation or service is provided.

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(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.

Foreign currency gains and losses are recorded as part of other income, net within total nonoperating expense, net on our consolidated statements of operations.

For the years ended December 31, 2021, 2020 and 2019, respectively, foreign currency losses were $ 4 million, $ 24 million and $ 32 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.

Other operating expenses includes costs associated with ground and cargo handling, crew travel, aircraft food and catering, aircraft cleaning, passenger accommodation, 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

Our regional carriers provide scheduled air transportation under the brand name “American Eagle.” The American Eagle carriers include our wholly-owned regional carriers as well as third-party regional carriers.

Substantially all of our regional carrier arrangements are in the form of capacity purchase agreements.

Expenses associated with American Eagle operations are classified as regional expenses on the consolidated statements of operations.

Beginning in the first quarter of 2021, aircraft fuel and related taxes as well as certain salaries, wages and benefits, other rent and landing fees, selling and other expenses are no longer allocated to regional expenses on our consolidated statements of operations.

The 2020 consolidated statement of operations has been recast to conform to the 2021 presentation.

This statement of operations presentation change has no impact on total operating expenses or net loss.

Regional expenses for the years ended December 31, 2021 , 2020, and 2019 include $ 316 million, $ 325 million and $ 336 million of depreciation and amortization, respectively, and $ 6 million, $ 13 million and $ 29 million of aircraft rent, respectively.

In 2021 , 2020, and 2019, we recognized $ 495 million, $ 438 million and $ 590 million, respectively, of expense under our capacity purchase agreement with Republic Airways Inc.

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$ ( 4,162 ) $ ( 3,710 ) $ —

Fleet impairment (2)

Severance expenses (2)

Labor contract expenses (4)

Litigation reserve adjustments ( 19 ) — ( 53 )

Mark-to-market adjustments on bankruptcy obligations, net (3)

( 3 ) ( 49 ) ( 11 )

Fleet impairment (4)

Labor contract expenses (5)

Fleet restructuring expenses (6)

Merger integration expenses (7)

Litigation reserve adjustments — ( 53 ) 45

Intangible asset impairment (8)

Other operating special items, net 10 ( 18 ) 13

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PSP Financial Assistance (1)

( 539 ) ( 444 ) —

Regional pilot retention program (8)

Fleet impairment (4)

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Mark-to-market adjustments on equity and other investments, net (9)

135 ( 5 ) 104

Debt refinancing, extinguishment and other, net 29 35 8

Nonoperating special items, net 60 170 3

Income tax special items (10)

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

(1) The 2021 PSP Financial Assistance represents recognition of a portion of the financial assistance received from Treasury pursuant to the PSP2 and PSP3 Agreements.

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.

The 2020 PSP Financial Assistance represents recognition of a portion of the financial assistance received from Treasury pursuant to the PSP1 Agreement.

(2) The 2021 and 2020 severance expenses include salary and medical costs primarily associated with certain team members who opted into voluntary early retirement programs offered as a result of reductions to our operation due to the COVID-19 pandemic.

Cash payments primarily associated with our voluntary early retirement programs were approximately $ 520 million and $ 365 million in 2021 and 2020, respectively.

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

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

(4) Fleet impairment charges resulted from the retirement of certain aircraft earlier than planned driven by the severe decline in air travel due to the COVID-19 pandemic.

In 2021, we retired our remaining Embraer 140 fleet resulting in a non-cash write-down of these regional aircraft.

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.

In 2020, we retired our entire Airbus A330-200, Boeing 757, Boeing 767, Airbus A330-300 and Embraer 190 fleets as well as certain Embraer 140 and Bombardier CRJ200 aircraft resulting in a $ 1.5 billion non-cash write-down of mainline and regional aircraft and associated spare parts and $ 109 million in cash charges primarily for impairment of ROU assets and lease return costs.

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.

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

(5) The 2020 labor contract expenses primarily related to one-time charges due to 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.

(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.

(8) Our regional pilot retention program provides for, among other things, a cash retention bonus paid in the fourth quarter of 2021 to eligible captains at our wholly-owned regional airlines included on the pilot seniority list as of September 1, 2021.

(9) Mark-to-market adjustments on equity and other investments, net primarily related to net unrealized gains and losses associated with our equity investments in China Southern Airlines Company Limited (China Southern Airlines) and in 2021, Vertical Aerospace Ltd.

(Vertical), and certain treasury rate lock derivative instruments.

Earnings (Loss) Per Common Share

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Basic weighted average common shares outstanding 644,015 483,888 443,363

Dilutive effect of stock awards — 906 1,424

Dilutive effect of stock awards and warrants — — 906

Diluted weighted average common shares outstanding 644,015 483,888 444,269

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6.50% convertible senior notes 61,728 31,882 —

Restricted stock unit awards 4,584 2,520 1,266

PSP1 Warrants 5,392 349 —

Restricted stock unit awards 3,420 4,584 2,520

Treasury Loan Warrants 1,681 107 —

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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.

PSP2 Warrants 1,300 — —

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

2 unchanged sentences

$ 1,770 $ 1,788

2013 Revolving Facility, variable interest rate of 2.15 %, due 2024 (a)

2013 Revolving Facility (a)

2014 Term Loan Facility, variable interest rate of 1.85 %, installments through 2027 (a)

2014 Revolving Facility, variable interest rate of 2.15 %, due 2024 (a)

April 2016 Term Loan Facility, variable interest rate of 2.15 %, installments through 2023 (a)

April 2016 Revolving Facility, variable interest rate of 2.15 %, due 2024 (a)

2014 Revolving Facility (a)

April 2016 Spare Parts Term Loan Facility (a)

April 2016 Revolving Facility (a)

December 2016 Term Loan Facility, variable interest rate of 2.11 %, installments through 2023 (a)

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10.75 % senior secured LGA/DCA notes, interest only payments until due in February 2026 (b)

Treasury Term Loan Facility, variable interest rate of 3.73 %, interest only payments until due June 2025 (c)

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)

Treasury Term Loan Facility (c)

5.50 % senior secured notes, installments beginning in July 2023 until due in April 2026 (d)

5.75 % senior secured notes, installments beginning in July 2026 until due in April 2029 (d)

AAdvantage Term Loan Facility, variable interest rate of 5.50 %, installments beginning in July 2023 through April 2028 (d)

Enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 2.88 % to 8.39 %, averaging 3.84 %, maturing from 2022 to 2034 (e)

Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.27 % to 4.64 %, averaging 1.82 %, maturing from 2022 to 2032

Special facility revenue bonds, fixed interest rates ranging from 2.25 % to 5.38 %, maturing from 2026 to 2036 (f)

31,785 28,755

PSP1 Promissory Note (g)

PSP1 Promissory Note, interest only payments until due in April 2030 (g)

PSP2 Promissory Note, interest only payments until due in January 2031 (g)

PSP3 Promissory Note, interest only payments until due in April 2031 (g)

6.50 % convertible senior notes, interest only payments until due in July 2025 (h)

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3.75 % senior notes, interest only payments until due in March 2025 (i)

4.625 % senior notes

Total long-term debt 37,781 32,770

2 unchanged sentences

Long-term debt, net of current maturities $ 35,008 $ 29,324

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

As of December 31, 2021, the maximum availability under our revolving credit and other facilities is as follows (in millions):

2013 Revolving Facility $ 750

2014 Revolving Facility 1,643

April 2016 Revolving Facility 450

Short-term Revolving and Other Facilities 568

Total $ 3,411

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.

American has an undrawn $ 500 million short-term revolving credit facility, which was set to expire at the beginning of January 2022 but which has been extended through the beginning of January 2023.

Beginning January 2, 2022, the available amount thereunder decreased to $ 150 million.

American also currently has approximately $ 68 million of available borrowing base under a cargo receivables facility that was entered into in December 2020 and is set to expire in December 2022.

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.

Secured financings, including revolving credit and other facilities, are collateralized by assets, consisting primarily of aircraft, engines, simulators, aircraft spare parts, airport gate leasehold rights, route authorities, airport slots, certain receivables, certain intellectual property and certain loyalty program assets.

At December 31, 2021, the maturities of long-term debt are as follows (in millions):

8 unchanged sentences

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.

In March 2021, American repaid in full the $ 750 million of outstanding revolving loans under the 2013 Revolving Facility that was drawn in April 2020.

Following the March 2021 repayment, American is able to draw upon the commitment under the 2013 Revolving Facility again as needed upon the terms of the 2013 Credit Agreement or leave it undrawn, in each case, until such commitment expires, which is currently scheduled to occur in October 2024.

As of December 31, 2021, there were no borrowings or letters of credit outstanding under the 2013 Revolving Facility.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

2014 Credit Facilities

6 unchanged sentences

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

In March 2021, American repaid in full the $ 1.6 billion of outstanding revolving loans under the 2014 Revolving Facility that was drawn in April and May 2020.

Following the March 2021 repayment, American is able to draw upon the commitment under the 2014 Revolving Facility again as needed upon the terms of the 2014 Credit Agreement or leave it undrawn, in each case, until such commitment expires, which is currently scheduled to occur in October 2024.

As of December 31, 2021, there were no borrowings or letters of credit outstanding under the 2014 Revolving Facility.

April 2016 Credit Facilities

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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.

the term loan facility established thereunder, the April 2016 Spare Parts Term Loan Facility;

and the April 2016 Revolving Facility together with the April 2016 Spare Parts 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.

In March 2021, American repaid in full the $ 450 million of outstanding revolving loans under the April 2016 Revolving Facility that was drawn in April 2020.

Following the March 2021 repayment, American is able to draw upon the commitment under the April 2016 Revolving Facility again as needed upon the terms of the April 2016 Credit Agreement or leave it undrawn, in each case, until such commitment expires, which is currently scheduled to occur in October 2024.

On July 22, 2021, American repaid in full the $ 950 million aggregate principal amount of outstanding term loans under, and terminated, the April 2016 Spare Parts Term Loan Facility.

The April 2016 Revolving Facility, in an available aggregate principal amount of $ 450 million, remains in place.

As of December 31, 2021, there were no borrowings outstanding under the April 2016 Revolving Facility.

December 2016 Credit Facilities

2 unchanged sentences

and together with the revolving credit facility that may be established thereunder in the future, the December 2016 Credit Facilities).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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, 2021:

2 unchanged sentences

Revolving Facility 2014 Term Loan 2014

Facility April 2016 Term Loan April 2016

Facility April 2016

Facility December 2016 Term Loan

4 unchanged sentences

drawn (in millions) $ 1,770 $ — $ 1,208 $ — $ — $ 1,188

Maturity date June 2025 October 2024 January 2027 October 2024 April 2023 October 2024 December 2023

Maturity date June 2025 October 2024 January 2027 October 2024 October 2024 December 2023

LIBOR margin 1.75 % 2.00 % 1.75 % 2.00 % 2.00 % 2.00 %

10 unchanged sentences

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

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

2 unchanged sentences

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.

Interest on the 11.75 % Senior Secured Notes is payable semiannually in arrears on January 15 and July 15 of each year, which began 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.

The 11.75 % Senior Secured Notes are American’s senior secured

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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).

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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.

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.

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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.

Interest on the 10.75 % Senior Secured Notes is payable semiannually in arrears on September 1 and March 1 of each year, which began 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).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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).

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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

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.

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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.

In September 2020, American borrowed $ 550 million under the Treasury Term Loan Facility, and on March 24, 2021, used proceeds from the AAdvantage Financing to prepay in full the $ 550 million of outstanding loans under the Treasury Term Loan Facility and terminated the Treasury Loan Agreement.

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.

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.

(d) AAdvantage Financing

On March 24, 2021 (the AAdvantage Financing Closing Date), American and AAdvantage Loyalty IP Ltd., a Cayman Islands exempted company incorporated with limited liability and an indirect wholly-owned subsidiary of American (Loyalty Issuer and, together with American, the AAdvantage Issuers), completed the offering of $ 3.5 billion aggregate principal amount of 5.50 % Senior Secured Notes due 2026 (the 2026 Notes) and $ 3.0 billion aggregate principal amount of 5.75 % Senior Secured Notes due 2029 (the 2029 Notes, and together with the 2026 Notes, the AAdvantage Notes).

The AAdvantage Notes are fully and unconditionally guaranteed (the AAdvantage Note Guarantees) on a senior unsecured basis by AAG and fully and unconditionally guaranteed on a senior secured basis, jointly and severally, by AAdvantage Holdings 1, Ltd., a Cayman Islands exempted company incorporated with limited liability and a direct wholly-owned subsidiary of American, and AAdvantage Holdings 2, Ltd., a Cayman Islands exempted company incorporated with limited liability and an indirect wholly-owned subsidiary of American and the direct parent of Loyalty Issuer (HoldCo2, and together with AAdvantage Holdings 1, Ltd., the Original SPV Guarantors), and as of August 27, 2021, certain Luxembourg limited liability companies and partnerships that are direct or indirect subsidiaries of Loyalty Issuer including Madrid IP Lux HoldCo SCS, a Luxembourg common limited partnership (Madrid IP SCS) (collectively, the Madrid SPV Guarantors and, together with the Original SPV Guarantors, the SPV Guarantors, and the SPV Guarantors together with AAG, the AAdvantage Guarantors).

The AAdvantage Notes were issued pursuant to an indenture, dated as of March 24, 2021 (the AAdvantage Indenture), by and among the AAdvantage Issuers, the AAdvantage Guarantors and Wilmington Trust, National Association, as trustee and as collateral custodian.

Concurrent with the issuance of the AAdvantage Notes, the AAdvantage Issuers, as co-borrowers, entered into a term loan credit and guaranty agreement, dated March 24, 2021, with Barclays Bank PLC, as administrative agent, Wilmington Trust, National Association, as collateral administrator, and the lenders party thereto, providing for a $ 3.5 billion term loan facility (the AAdvantage Term Loan Facility and collectively with the AAdvantage Notes, the AAdvantage Financing) and pursuant to which the full $ 3.5 billion of term loans (the AAdvantage Loans) were drawn on the AAdvantage Financing Closing Date.

The AAdvantage Loans are fully and unconditionally guaranteed (together with the AAdvantage Note Guarantees, the AAdvantage Guarantees) by the AAdvantage Guarantors.

Subject to certain permitted liens and other exceptions, the AAdvantage Notes, AAdvantage Loans and AAdvantage Guarantees provided by the SPV Guarantors will be secured by a first-priority security interest in, and pledge of, various agreements with respect to the AAdvantage program (the AAdvantage Agreements) (including all payments thereunder) and certain IP Licenses (as defined below), certain deposit accounts that will receive cash under the AAdvantage Agreements, certain reserve accounts, the equity of each of Loyalty Issuer and the SPV Guarantors and substantially all other assets of Loyalty Issuer and the SPV Guarantors including Transferred AAdvantage IP (as defined below) (collectively, the AAdvantage Collateral).

Payment Terms of the AAdvantage Notes and AAdvantage Loans under the AAdvantage Term Loan Facility

Interest on the AAdvantage Notes is payable in cash, quarterly in arrears on the 20th day of each January, April, July and October (each, an AAdvantage Payment Date), which began on July 20, 2021.

The 2026 Notes will mature on April 20, 2026, and the 2029 Notes will mature on April 20, 2029.

The outstanding principal on the 2026 Notes will be repaid in quarterly installments of $ 292 million on each AAdvantage Payment Date, beginning on July 20, 2023.

The outstanding principal on the 2029 Notes will be repaid in quarterly installments of $ 250 million on each AAdvantage Payment Date, beginning on July 20, 2026.

The AAdvantage Issuers may redeem the AAdvantage Notes, at their option, 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 AAdvantage Notes redeemed plus a “make-whole” premium, together with accrued and unpaid interest to the date of redemption.

The scheduled maturity date of the AAdvantage Loans under the AAdvantage Term Loan Facility is April 20, 2028.

The AAdvantage Loans bear interest at a variable rate equal to LIBOR (but not less than 0.75 % per annum), plus a margin of 4.75 % per annum, payable on each AAdvantage Payment Date.

The outstanding principal on the AAdvantage Loans will be repaid in quarterly installments of $ 175 million, on each AAdvantage Payment Date beginning with the AAdvantage Payment Date in July 2023.

These amortization payments (as well as those for the AAdvantage Notes) will be subject to the occurrence of certain early amortization events, including the failure to satisfy a minimum debt service coverage ratio at specified determination dates.

Prepayment of some or all of the AAdvantage Loans outstanding under the AAdvantage Term Loan Facility is permitted, although payment of an applicable premium is required as specified in the AAdvantage Term Loan Facility.

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.

The AAdvantage Indenture and the AAdvantage Term Loan Facility contain mandatory prepayment provisions triggered upon (i) the issuance or incurrence by Loyalty Issuer or the SPV Guarantors of certain indebtedness or (ii) the receipt by American or its subsidiaries of net proceeds from pre-paid frequent flyer (i.e., AAdvantage) mile sales exceeding $ 505 million.

Each of these prepayments would also require payment of an applicable premium.

Certain other events, including the occurrence of a change of control with respect to AAG and certain AAdvantage Collateral sales exceeding a specified threshold, will also trigger mandatory repurchase or mandatory prepayment provisions under the AAdvantage Indenture and the AAdvantage Term Loan Facility, respectively.

Other Terms of the AAdvantage Indenture and the AAdvantage Term Loan Facility

The AAdvantage Indenture and the AAdvantage Term Loan Facility contain certain covenants that limit the ability of Loyalty Issuer, the SPV Guarantors and, in certain circumstances, American and AAG, to among other things, (i) incur additional indebtedness and make restricted payments, (ii) incur certain liens on the AAdvantage Collateral, (iii) merge, consolidate or sell substantially all of their assets, (iv) dispose of the AAdvantage Collateral, (v) sell pre-paid frequent flyer (i.e.

AAdvantage) miles in excess of $ 550 million in the aggregate, and (vi) terminate, amend, waive, supplement or modify the IP Licenses, or exercise rights and remedies thereunder, except under certain circumstances.

American and Loyalty Issuer are also prohibited from substantially reducing the AAdvantage program business or modifying the terms of the AAdvantage program in a manner that would reasonably be expected to materially impair repayment of the AAdvantage Financing obligations (described as a Payment Material Adverse Effect in each of the AAdvantage Indenture and the AAdvantage Term Loan Facility), and AAG and its subsidiaries are prohibited from changing the policies and procedures of the AAdvantage program in a manner that would reasonably be expected to have a Payment Material Adverse Effect or operating a competing loyalty program.

Notwithstanding these restrictions, the AAdvantage program is expected to operate as it has in the past, and the entry into the AAdvantage Financing is not expected to have any impact on the benefits offered to AAdvantage members.

The AAdvantage Indenture and the AAdvantage Term Loan Facility also require the AAdvantage Issuers to comply with certain affirmative covenants, including the requirement to use commercially reasonable efforts to cause sufficient counterparties to AAdvantage Agreements to direct at least 90 % of payments with respect to the AAdvantage program on a quarterly basis into a collections account, for application to the payment of fees, principal and interest on the AAdvantage Notes and the AAdvantage Loans pursuant to a payment waterfall described in the AAdvantage Indenture and the AAdvantage Term Loan Facility, respectively.

In addition, the AAdvantage Indenture and the AAdvantage Term Loan Facility require AAG to maintain minimum liquidity, defined as the sum of (a) unrestricted cash and cash equivalents and (b) the aggregate principal amount committed and available to be drawn under all of AAG's revolving credit and other facilities, at the close of any business day of at least $ 2.0 billion.

Subject to certain materiality thresholds, qualifications, exceptions, “baskets” and grace and cure periods, the AAdvantage Indenture and the AAdvantage Term Loan Facility contain various events of default, including payment defaults, covenant defaults, cross-defaults to certain other indebtedness, termination of certain agreements related to the AAdvantage program, bankruptcy events of Loyalty Issuer or any SPV Guarantor, and a change of control of Loyalty Issuer or any SPV Guarantor.

A bankruptcy event of American is not itself an event of default;

following an American bankruptcy, an event of default would only occur if American failed to satisfy certain enumerated bankruptcy case milestones, including an assumption of the AAdvantage Financing by a certain date.

Upon the occurrence of an event of default, the outstanding obligations under the AAdvantage Indenture and the AAdvantage Term Loan Facility may (or, with respect to the bankruptcy events noted above, shall) be accelerated and become due and payable immediately.

Terms of Certain Intercompany Agreements Related to the AAdvantage Financing

In connection with the issuance of the AAdvantage Notes and entry into the AAdvantage Term Loan Facility, American, Loyalty Issuer and the SPV Guarantors entered into a series of transactions that resulted in the transfer to Loyalty Issuer or Madrid IP SCS of, among other things, American’s rights to certain data and other intellectual property used in the AAdvantage program (subject to certain exceptions) (such assets, the Transferred AAdvantage IP) and certain rights of American under specified AAdvantage Agreements.

Loyalty Issuer, the SPV Guarantors and American have entered into a series of intercompany license agreements (collectively, the IP Licenses) pursuant to which Loyalty Issuer has indirectly granted to American an exclusive, irrevocable (subject to certain termination rights), perpetual, worldwide, royalty-bearing sublicense to use the Transferred AAdvantage IP.

The IP Licenses would be terminated, and American’s right to use the Transferred AAdvantage IP would cease, upon specified termination events, including, but not limited to, the occurrence of an event of default under the AAdvantage Indenture or the AAdvantage Term Loan Facility.

In certain circumstances, such a termination would trigger a liquidated damages payment in an amount that is greater than the initial principal amount of the AAdvantage Notes and the AAdvantage Loans.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

In addition, proceeds from the AAdvantage Financing were loaned by Loyalty Issuer to American pursuant to an intercompany note that was guaranteed by AAG.

The borrowings under this intercompany note are payable on demand by Loyalty Issuer or, after the occurrence and during the continuance of an event of default under the AAdvantage Financing, by the master collateral agent under the AAdvantage Financing.

2021-1 Aircraft EETCs

In November 2021, American created two pass-through trusts which issued approximately $ 960 million aggregate face amount of Series 2021-1 Class A and Class B EETCs (the 2021-1 Aircraft EETCs) in connection with the financing of 26 aircraft previously delivered or to be delivered to American through September 2022 (the 2021-1 Aircraft).

As of December 31, 2021, approximately $ 94 million of the proceeds had been used to purchase equipment notes issued by American in connection with the financing of five aircraft under the 2021-1 Aircraft EETCs, all of which was used to repay existing indebtedness.

Interest and principal payments on equipment notes issued in connection with the 2021-1 Aircraft EETCs are payable semi-annually in January and July each year, with interest payments scheduled to begin in July 2022 and with principal payments scheduled to begin in January 2023.

The remaining proceeds of approximately $ 866 million as of December 31, 2021 were being held in escrow with a depositary for the benefit of the holders of the 2021-1 Aircraft EETCs until such time as American issues additional equipment notes with respect to the remaining 2021-1 Aircraft to the pass-through trusts, which will purchase such additional equipment notes with the escrowed funds.

These escrowed funds are not guaranteed by American and are not reported as debt on its consolidated balance sheet because the proceeds held by the depositary for the benefit of the holders of the 2021-1 Aircraft EETCs are not American’s assets.

Certain information regarding the 2021-1 Aircraft EETC equipment notes, as of December 31, 2021, is set forth in the table below.

2021-1 Aircraft EETCs

Series AA Series A Series B

Aggregate principal issued $ 579 million $ 289 million $ 229 million

Series A Series B

Aggregate principal issued $ 758 million $ 202 million

Remaining escrowed proceeds $ 684 million $ 182 million

Fixed interest rate per annum 2.875 % 3.95 %

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).

Maturity date July 2034 July 2030

(f) Special Facility Revenue Bonds

In January 2020, American and British Airways announced the start of construction projects to upgrade New York's JFK Terminal 8 (the Terminal).

The construction project is currently scheduled to be completed in 2023 and is estimated to cost $ 439 million, of which $ 298 million was funded with proceeds of the special facility revenue bonds issued by the New York Transportation Development Corporation (NYTDC) on behalf of American in June 2020 (the 2020 JFK Bonds) and approximately $ 84 million of which was funded with proceeds of the approximately $ 150 million of special facility revenue bonds NYTDC issued in June 2021 (the 2021 JFK Bonds).

American is required to pay debt service on the 2021 JFK Bonds through payments under a loan agreement with NYTDC (as amended), and American and AAG guarantee the 2021 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 continues to pay debt service on the outstanding bonds issued by NYTDC on behalf of American in 2016 and 2020 (the 2016 and 2020 JFK Bonds) and American and AAG continue to guarantee the 2016 and 2020 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 2021 JFK Bonds, in aggregate, were priced at par value.

The gross proceeds from the issuance of the 2021 JFK Bonds were approximately $ 150 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.

Of this amount, $ 4 million was used to fund the costs of issuance of the 2021 JFK Bonds, $ 62 million was used to fund the redemption of the 2016 and 2020 JFK Bonds due August 2021, 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 portion of the cost of the renovation and expansion of the Terminal.

The 2021 JFK Bonds are comprised of term bonds, $ 70 million of which bear interest at 2.25 % per annum and mature on August 1, 2026, and $ 80 million of which bear interest at 3.00 % per annum and mature on August 1, 2031.

(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.

As of December 31, 2021, $ 236 million of proceeds funded by the issuance of the 2020 and 2021 JFK Bonds are included in restricted cash and short-term investments on the accompanying consolidated balance sheet.

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.

(g) PSP Promissory Notes

PSP1 Promissory Note

On April 20, 2020 (the PSP1 Closing Date), as partial compensation to the U.S.

Government for the provision of financial assistance under the PSP1 Agreement, AAG issued a promissory note (the PSP1 Promissory Note) to Treasury, which provides for our unconditional promise to pay to Treasury the principal sum of $ 1.8 billion, and the guarantee of our obligations under the PSP1 Promissory Note by the Subsidiaries.

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 (SOFR) 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.

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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.

PSP2 Promissory Note

As partial compensation to the U.S.

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 SOFR 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, which began 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, 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

PSP3 Promissory Note

As partial compensation to the U.S.

Government for the provision of financial assistance under the PSP3 Agreement, AAG issued the PSP3 Promissory Note to Treasury, which provides for our unconditional promise to pay to Treasury the principal sum of $ 946 million, and the guarantee of our obligations under the PSP3 Promissory Note by the Subsidiaries.

The PSP3 Promissory Note bears interest on the outstanding principal amount at a rate equal to 1.00 % per annum until the fifth anniversary of the PSP3 Closing Date and 2.00 % plus an interest rate based on SOFR 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 PSP3 Closing Date (the PSP3 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, 2021.

The aggregate principal amount outstanding under the PSP3 Promissory Note, together with all accrued and unpaid interest thereon and all other amounts payable under the PSP3 Promissory Note, will be due and payable on the PSP3 Maturity Date.

We may, at any time and from time to time, voluntarily prepay amounts outstanding under the PSP3 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 PSP3 Promissory Note, together with any accrued interest or other amounts owing under the PSP3 Promissory Note at such time.

The PSP3 Promissory Note is our senior unsecured obligation and each guarantee of the PSP3 Promissory Note is the senior unsecured obligation of each of the Subsidiaries, respectively.

The PSP3 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 PSP3 Promissory Note may, and in certain circumstances will automatically, be accelerated and become due and payable immediately.

(h) 6.50 % Convertible Senior Notes

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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.

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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.

Interest on the Convertible Notes is payable semiannually in arrears on January 1 and July 1 of each year, which began on January 1, 2021.

The Convertible Notes will mature on July 1, 2025, unless earlier converted or redeemed or repurchased by us.

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(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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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.

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.

6 unchanged sentences

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.

Accordingly, our unamortized debt discount as of January 1, 2021 was reduced by $ 389 million, increasing the liability and decreasing the effective interest rate on the Convertible Notes from approximately 20 % at December 31, 2020 to approximately 7 % at December 31, 2021.

We recognized $ 70 million of interest expense in 2021 including $ 5 million of non-cash amortization of the debt discount and $ 65 million of contractual coupon interest.

As of December 31, 2021, our unamortized debt discount on the Convertible Notes was $ 22 million.

At December 31, 2021, the if-converted value of the Convertible Notes exceeded the principal amount by $ 114 million.

The last reported sale price per share of our common stock (as defined in the Convertible Notes Indenture) did not exceed 130 % of the conversion price of the Convertible Notes for at least 20 of the 30 consecutive trading days ending on December 31, 2021.

Accordingly, pursuant to the terms of the Convertible Notes Indenture, the holders of the Convertible Notes cannot convert at their option at any time during the quarter ending March 31, 2022.

Each $1,000 principal amount of Convertible Notes is convertible at a rate of 61.7284 shares of our common stock, subject to adjustment as provided in the Convertible Notes Indenture.

We may settle conversions by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.

(i) Unsecured Senior Notes

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The 5.000 % Senior Notes mature in June 2022.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

3.75 % Senior Notes

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The 3.75 % Senior Notes mature in March 2025.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

The details of our 5.000 % and 3.75 % Senior Notes are shown in the table below as of December 31, 2021:

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Upon the occurrence of certain events of default, these Senior Notes may be accelerated and become due and payable.

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).

As of December 31, 2021, AAG had issued guarantees covering approximately $ 19.8 billion of American’s secured debt (and interest thereon), including the Credit Facilities, the AAdvantage Financing, certain EETC financings and $ 1.1 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.

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

Pursuant to such agreements, if the applicable LTV, collateral coverage or peak debt service coverage ratio exceeds or falls below a specified threshold, as the case may be, we will be required, as applicable, to pledge additional qualifying collateral (which in some cases may include cash or investment securities), withhold additional cash in certain accounts, or to pay down such financing, in whole or in part, or the interest rate for the relevant financing 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 AAdvantage Financing contains a peak debt service coverage ratio, pursuant to which failure to comply with a certain threshold may result in early repayment, in whole or in part, of the AAdvantage Financing.

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:

Specifically, we are required to meet certain collateral coverage tests for our Credit Facilities, 10.75 % Senior Secured Notes and 11.75 % Senior Secured Notes, as described below:

Facilities 2014 Credit

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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

Credit Facilities 10.75% Senior Secured Notes 11.75% Senior Secured Notes

Frequency of Appraisals of Appraised Collateral Annual Annual Annual Annual 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

LTV as of Last Measurement Date 38.4 % 18.0 % Not Applicable 53.5 % 53.5 % 33.5 %

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

and European Union (including London Heathrow) Generally, certain spare parts Generally, certain Ronald Reagan Washington National Airport (DCA) slots, certain LaGuardia 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

At December 31, 2021, we were in compliance with the applicable collateral coverage tests as of the most recent measurement dates.

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.

As of December 31, 2021, we operated 696 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.

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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.

Because of the variable nature of these rates, these leases are not recorded on our consolidated balance sheets 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.

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ROU assets acquired through operating leases 1,386 917 1,145

Operating lease conversion to finance lease 5 41 —

Property and equipment acquired through finance leases 180 11 20

Operating lease conversion to finance lease 102 5 41

Gain on sale leaseback transactions, net 25 107 107

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Long-term lease obligations $ 6,610 $ 563

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.

As of December 31, 2021, we had additional operating lease commitments that have not yet commenced of approximately $ 1.8 billion for 18 Boeing 787 Family aircraft scheduled to be delivered in 2022 through 2024 with lease terms of 10 years.

The significant components of the income tax provision (benefit) were (in millions):

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2021 2020 2019

Current income tax provision (benefit):

Current income tax provision:

State and Local $ — $ — $ 2

Foreign — — 8

Current income tax provision (benefit) — 10 32

Current income tax provision — — 10

Deferred income tax provision (benefit):

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Deferred tax assets:

Operating loss carryforwards and other credits $ 4,027 $ 2,103

Operating loss and other carryforwards $ 4,612 $ 4,027

Loyalty program liability 1,903 1,977

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Reorganization items 24 28

Alternative minimum tax (AMT) credit carryforwards — 90

Other 760 847

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Net deferred tax asset $ 3,547 $ 3,230

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).

At December 31, 2021, we had approximately $ 17.2 billion of gross federal net operating losses (NOLs) and $ 3.0 billion of other carryforwards available to reduce future federal taxable income, of which $ 6.9 billion will expire beginning in 2024 if unused and $ 13.3 billion can be carried forward indefinitely.

We also had approximately $ 6.0 billion of NOL carryforwards to reduce future state taxable income at December 31, 2021, which will expire in taxable years 2021 through 2041 if unused.

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

Our ability to use our NOLs and other 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.

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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.

In 2021, we recorded an income tax benefit of $ 555 million, with an effective rate of approximately 22 %, which was substantially non-cash.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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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.

In particular, the ongoing COVID-19 pandemic and associated decline in economic activity and increase in unemployment levels have had and are expected to continue 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.

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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.

All accounts receivable are reported net of an allowance for credit losses, which have been minimal.

We consider past and future financial and qualitative factors when establishing the allowance for credit losses.

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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.

It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2023.

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

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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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.

Our largest exposure comes from the British pound sterling, Euro, Chinese yuan, Canadian dollar and various Latin American currencies, primarily the Brazilian real.

We do not currently have a foreign currency hedge program.

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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.

Our short-term investments, restricted cash and restricted 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, 2021.

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Money market funds $ 247 $ 247 $ — $ —

Bank notes/certificates of deposit/time deposits 2,107 — 2,107 —

Corporate obligations 3,449 — 3,449 —

Bank notes/certificates of deposit/time deposits 2,168 — 2,168 —

Repurchase agreements 755 — 755 —

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Restricted cash and short-term investments (1), (3)

609 448 161 —

Long-term investments (4)

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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.

(2) Our short-term investments as of December 31, 2021 mature in one year or less.

(3) Restricted cash and short-term investments primarily include collateral held to support workers' compensation obligations and money market funds to be used to finance a substantial portion of the cost of the renovation and expansion of the Terminal at JFK, and as of December 31, 2021, also include collateral associated with the payment of interest for the AAdvantage Financing.

(4) Long-term investments primarily include our equity investment in China Southern Airlines and as of December 31, 2021, our long-term investments also include Vertical.

These investments are reflected in other assets on our consolidated balance sheets.

See “Other Investments” below for further information on our equity investments.

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.

If our long-term debt was measured at fair value, it would have been classified as Level 2 except for $ 3.7 billion and $ 2.3 billion as of December 31, 2021 and December 31, 2020, respectively, which would have been classified as Level 3 in the fair value hierarchy.

The fair value of the Convertible Notes, which would have been classified as Level 2, was $ 1.4 billion and $ 1.2 billion as of December 31, 2021 and December 31, 2020, respectively.

The carrying value and estimated fair value of our long-term debt, including current maturities, were as follows (in millions):

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Other Investments

An important part of our strategy to expand our network has been to initiate or expand our commercial relationships with other airlines, such as by entering into global alliance, joint business and codeshare relationships, and, in certain instances, by making an equity investment in another airline or other companies.

Republic Holdings

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.

This ownership interest is accounted for under the equity method and our portion of Republic Holdings’ financial results is recognized within nonoperating other income, net on the consolidated statements of operations and the investment is reflected within other assets on our consolidated balance sheets.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

China Southern

In the third quarter of 2017, we acquired 2.7 % of the outstanding shares of China Southern for $ 203 million.

At December 31, 2021, we owned a 1.8 % equity interest in China Southern.

This ownership interest is accounted for at fair value based on China Southern’s stock price and mark-to-market adjustments are recorded to nonoperating other income, net on the consolidated statement of operations.

In the fourth quarter of 2021, we invested $ 25 million to acquire 5.4 %, or 11.25 million, of the outstanding shares of Vertical with an initial aggregate value of $ 113 million, of which $ 88 million was non-cash.

In connection with this investment, we entered into a memorandum of understanding (MOU) with Vertical to pre-order (subject to certain conditions and future agreed upon milestones) up to 250 electric vertical take-off and landing (eVTOL) aircraft, with an option to order an additional 100 eVTOL aircraft.

Pursuant to the MOU, we received warrants to purchase 1.75 million shares of Vertical common stock at $ 0.0001 per share, each time we place a legally binding commitment for 50 eVTOL aircraft, up to a maximum aggregate amount of 8.75 million shares.

Our investment in Vertical is reflected within other assets on our consolidated balance sheet.

The $ 88 million non-cash portion of the fair value of equity securities received from Vertical is included as a deferred credit within other liabilities on the consolidated balance sheet and will be recognized as a reduction to the cost of eVTOL aircraft received in future periods or, if no legally binding commitment for eVTOL aircraft is entered into, will be recognized into income.

Our investment in Vertical is accounted for at fair value based on Vertical’s stock price and mark-to-market adjustments are recorded to nonoperating other income, net on the consolidated statement of operations.

Employee Benefit Plans

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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.

This prior service benefit was fully amortized as of December 31, 2020.

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.

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 AOCI and will be amortized over the average remaining life expectancy of all retirees, or approximately 13 years.

As of December 31, 2021, $ 195 million of prior service cost remains to be amortized.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Benefit Obligations, Fair Value of Plan Assets and Funded Status

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Interest cost 526 615 30 30

Actuarial loss (1), (2)

Actuarial (gain) loss (1), (2)

( 609 ) 1,613 ( 57 ) 46

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Benefit payments ( 822 ) ( 740 ) ( 72 ) ( 77 )

Other — 1 — 5

Benefit obligation at end of period $ 18,910 $ 19,812 $ 1,098 $ 1,046

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Employer contributions (5)

9 1,230 30 12

Settlements ( 1 ) ( 36 ) — —

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Funded status at end of period $ ( 4,219 ) $ ( 6,255 ) $ ( 931 ) $ ( 876 )

(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.

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.

(1) The 2021 and 2020 pension actuarial (gain) loss primarily relates to the change in our weighted average discount rate assumption.

(2) The 2021 and 2020 retiree medical and other postretirement benefits actuarial (gain) loss primarily relates to the change in our weighted average discount rate assumption and, in 2021, plan experience adjustments.

(3) During the first quarter of 2021 and 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 into voluntary early retirement programs offered as a result of reductions to our operation due to the COVID-19 pandemic.

As a result, during 2021, we recognized a $ 139 million special charge for these enhanced healthcare benefits and increased our postretirement benefits obligation by $ 139 million, and during 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.

(5) In January 2021, we made $ 241 million in contributions to our pension plans, including a contribution of $ 130 million for the 2020 calendar year that was permitted to be deferred to January 4, 2021 as provided under the CARES Act.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Balance Sheet Position

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(In millions)

Accumulated benefit obligation (ABO) $ 19,799 $ 18,315 $ — $ —

Accumulated benefit obligation $ 18,899 $ 19,799 $ — $ —

Accumulated postretirement benefit obligation

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Fair value of plan assets 14,691 13,557 167 170

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Net Periodic Benefit Cost (Income)

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Net periodic benefit cost (income) $ ( 314 ) $ ( 187 ) $ 68 $ 132 $ 278 $ ( 246 )

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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, net on our consolidated statements of operations.

The following actuarial assumptions were used to determine our benefit obligations and net periodic benefit cost (income) for the periods presented:

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based plans as well as underfunding rules specific to countries where we maintain defined benefit plans.

Based on current

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.

On March 11, 2021, the ARP was enacted, which included funding relief provisions benefiting single employer qualified retirement benefit pension plans such as those sponsored by us.

Based on the ARP provisions applicable to our pension plans, we will have no additional funding requirements until 2023.

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.

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Retiree medical and other postretirement benefits 114 109 103 99 95 390

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

The objectives of our investment policies are to:

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These programs are subject to market risk.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Investments in securities traded on recognized securities exchanges are valued at the last reported sales price on the last business day of the year.

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No changes in valuation techniques or inputs occurred during the year.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Benefit Plan Assets Measured at Fair Value on a Recurring Basis

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Small-cap companies (b)

Mutual funds (c)

Mutual funds/exchange traded funds (c)

Fixed income:

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Insurance group annuity contracts — — 2 2

Other investments — 3 — 3

Dividend and interest receivable 45 — — 45

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(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.

14 % United Kingdom, 10 % Ireland, 10 % Japan, 9 % Switzerland, 7 % France, 6 % Germany, 12 % emerging markets and the remaining 32 % with no concentration greater than 5% in any one country.

(b) There are no significant concentrations of holdings by company or industry.

companies, 35 % in U.S.

treasuries and corporate bonds and 26 % in equity securities of international companies.

treasuries and corporate bonds, 17 % in equity securities of international companies and 13 % in equity securities of large-cap, mid-cap and small-cap U.S.

(d) Includes approximately 81 % investments in corporate debt with a S&P rating lower than A and 19 % investments in corporate debt with a S&P rating A or higher.

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companies, 12 % international companies and 2 % emerging market companies.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

(e) Includes approximately 94 % investments in U.S.

domestic government securities, 9 % in emerging market government securities and 2 % in international government securities.

domestic government securities and 6 % in emerging market government securities.

There are no significant foreign currency risks within this classification.

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Additionally, the pension plan’s master trust has future funding commitments of approximately $ 1.6 billion over the next ten years .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

(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.

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Government securities (e)

— 1,010 — 1,010

municipal securities — 30 — 30

Mortgage backed securities — 4 — 4

Alternative instruments:

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Common/collective trusts (h)

Common/collective trusts and 103-12 Investment Trust measured at net asset value (g), (h)

Common/collective trusts measured at net asset value (g), (h)

Insurance group annuity contracts — — 2 2

Dividend and interest receivable 49 — — 49

Due to brokers for sale of securities – net ( 4 ) — — ( 4 )

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:

14 % United Kingdom, 8 % Switzerland, 8 % Ireland, 7 % Japan, 7 % France, 6 %

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.

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companies, 9 % international companies and 2 % emerging market companies.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

(e) Includes approximately 89 % investments in U.S.

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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.

(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.

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

Changes in fair value measurements of Level 3 investments during the years ended December 31, 2021 and 2020, were as follows (in millions):

Balance at beginning of year $ 17 $ 12

Actual gain on plan assets:

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Purchases 32 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Sales ( 1 ) —

Balance at end of year $ 58 $ 17

The fair value of our retiree medical and other postretirement benefits plans’ assets by asset category, were as follows (in millions):

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Total $ 4 $ 166 $ — $ 170

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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.

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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.

The costs associated with our defined contribution plans were $ 920 million for the year ended December 31, 2021 and $ 860 million for each of the years ended December 31, 2020 and 2019.

We participate in the International Association of Machinists & Aerospace Workers (IAM) National Pension Fund, Employer Identification No.

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As a result of our pre-tax loss excluding net special items, there will not be a payout for 2021 under our profit sharing program.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Accumulated Other Comprehensive Loss

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Postretirement

Benefits Unrealized Gain on Investments Income Tax

Benefits Unrealized Loss on Investments Income Tax

(Provision) (1)

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Balance at December 31, 2021 $ ( 4,736 ) $ ( 2 ) $ ( 1,204 ) $ ( 5,942 )

(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.

(1) Relates principally to pension, retiree medical and other postretirement benefits obligations that will not be recognized in net 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 benefit on our consolidated statements of operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Reclassifications out of AOCI for the years ended December 31, 2021 and 2020 are as follows (in millions):

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Amortization of pension, retiree medical and other postretirement benefits:

Prior service benefit $ ( 81 ) $ ( 162 ) Nonoperating other income, net

Prior service cost (benefit) $ 11 $ ( 81 ) Nonoperating other income, net

Actuarial loss 146 118 Nonoperating other income, net

Total reclassifications for the period, net of tax $ 157 $ 37

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.

Amounts allocated to other comprehensive income (loss) for income taxes will remain in AOCI until we cease all related activities, such as termination of the pension plan.

Commitments, Contingencies and Guarantees

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2022 2023 2024 2025 2026 2027 and Thereafter Total

Payments for aircraft commitments and certain engines (1)

Payments for aircraft and

engine commitments (1)

$ 1,987 $ 1,851 $ 3,358 $ 3,535 $ 1,663 $ 688 $ 13,082

(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.

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;

Our purchase deposits held by all manufacturers totaled $ 517 million and $ 1.4 billion as of December 31, 2021 and December 31, 2020, respectively.

Due to the uncertainty surrounding the timing of delivery of certain aircraft, the amounts in the table represent our most current 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.

On January 31, 2022, we entered into an amended purchase agreement with The Boeing Company (Boeing) pursuant to which we agreed to purchase 23 additional Boeing 737 MAX Family aircraft through the conversion of existing purchase options.

We also intend to exercise purchase options for an additional seven aircraft in 2022, bringing our total incremental firm order of Boeing 737 MAX Family aircraft to 30 , with 15 of such aircraft scheduled to be delivered in 2023 and 15 scheduled to be delivered in 2024.

In addition, we entered into an amended purchase agreement with Boeing to defer the delivery of certain Boeing 787 Family aircraft previously scheduled to be delivered beginning in January 2023.

Pursuant to this amendment, deliveries of these aircraft are now scheduled to commence in the fourth quarter of 2023 and will continue into 2027.

The table above reflects our purchase commitments after giving effect to these amendments and assumes our exercise of the seven 737 MAX Family aircraft purchase options mentioned above.

Additionally, the amounts in the table exclude 10 and three Boeing 787-8 aircraft scheduled to be delivered in 2022 and 2023, respectively, and four and one Boeing 787-9 aircraft scheduled to be delivered in 2023 and 2024, respectively, for which we have obtained committed lease financing.

See Note 5 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.

$ 4.4 billion in 2022, $ 1.8 billion in 2023, $ 1.4 billion in 2024, $ 154 million in 2025, $ 610 million in 2026 and $ 942 million in 2027 and thereafter.

(b) Capacity Purchase Agreements with Third-Party Regional Carriers

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

As of December 31, 2021, American’s capacity purchase agreements with third-party regional carriers had expiration dates ranging from 2022 to 2033, with rights of American to extend the respective terms of certain agreements.

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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.

As each phase is completed and ready for use, 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 the assets are sold and transferred to LAWA.

As of December 31, 2021, we have incurred approximately $ 338 million in costs relating to the LAX modernization project, of which $ 112 million, $ 114 million and $ 98 million were incurred during 2021, 2020 and 2019, respectively, and have been included within operating property and equipment on our consolidated balance sheets and included within airport construction projects, net of reimbursements on our consolidated statements of cash flows.

As of December 31, 2021, we have sold and transferred $ 132 million of non-proprietary improvements to LAWA, of which $ 21 million occurred during 2021.

For non-proprietary improvements which are not yet ready for use, any cash payments received from LAWA will be reflected as a financial liability.

As of December 31, 2021, we have received $ 88 million in cash proceeds for non-proprietary improvements which are not yet ready for use, and therefore have not been sold and transferred back to LAWA.

These proceeds are currently included in other accrued liabilities on our consolidated balance sheet and are reflected as financing activities on our consolidated statement of cash flows.

In January 2020, American and British Airways announced the start of construction projects to upgrade New York's JFK Terminal 8 (the Terminal).

The renovation projects at the Terminal include:

(i) the reconfiguration or elimination of certain existing gates and the construction of widebody gates, (ii) the construction of approximately 51,000 square feet of new terminal building space and the refurbishment of 73,300 square feet of existing terminal space, (iii) the expansion of the baggage system capacity of the Terminal, (iv) improvements to the premium passenger lounges, check-in and, potentially, security access areas, and (v) bathroom refreshment, new signage, and other upgrades.

The construction project is currently scheduled to be completed in 2023 and is estimated to cost $ 439 million.

In 2021, $ 118 million was spent on construction projects to upgrade the Terminal and has been included in airport construction projects, net of reimbursements on our consolidated statement of cash flows.

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.

Pass-Through Trusts

American currently has 344 owned aircraft, 11 leased aircraft and 60 owned 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.

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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.

The Plan established a DCR 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 DCR 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 DCR.

We are not required to distribute additional shares above the limits contemplated by the Plan, even if the shares remaining for distribution in the DCR are not sufficient to pay any additional allowed unsecured claims.

On November 29, 2021, the Bankruptcy Court granted our motion to close the bankruptcy case.

The motion authorized us to settle various bankruptcy-related claims, distribute excess reserved funds held in the DCR, excluding shares set aside for an earlier settlement of a claim that cannot be distributed until all appeals are final, and to close the Chapter 11 cases.

On December 7, 2021, in accordance with the approval granted by the Bankruptcy Court, we distributed approximately 4.5 million shares of AAG common stock from the DCR to former AMR stockholders, to former convertible noteholders treated as stockholders under the Plan and to claimants.

As of December 31, 2021, 0.3 million shares of AAG common stock remain in the DCR to be available to resolve an outstanding claim.

Private Party Antitrust Action Related to Passenger Capacity.

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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.

The complaint named as defendants US Airways Group, US Airways, Inc., 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.

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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.

The plaintiffs have appealed this ruling to the U.S.

District Court, which remains pending.

We believe this lawsuit is without merit and intend to continue to vigorously defend against it, including against plaintiffs' appeal of the Bankruptcy Court's January 29, 2021 ruling.

Government Antitrust Action Related to the Northeast Alliance.

On September 21, 2021, the United States Department of Justice (DOJ), joined by Attorneys General from six states and the District of Columbia, filed an antitrust complaint against American and JetBlue Airways Corporation (JetBlue) alleging that American and JetBlue violated U.S.

antitrust laws in connection with the previously disclosed Northeast Alliance (NEA) arrangement.

We believe the complaint is without merit and intend to defend against it vigorously.

Also on September 21, 2021, the United States Department of Transportation (DOT) published a Clarification Notice relating to the agreement that had been reached between the DOT, American, and JetBlue in January 2021, at the conclusion of the DOT’s review of the NEA (DOT Agreement) .

The DOT Clarification Notice stated, among other things, that the DOT Agreement remains in force during the pendency of the DOJ action against the NEA and, while the DOT retains independent statutory authority to prohibit unfair methods of competition in air transportation, the DOT intends to defer to DOJ to resolve the antitrust concerns that DOJ has identified with respect to the NEA.

The DOT simultaneously published a Notice Staying Proceeding in relation to a complaint by Spirit Airlines, Inc.

regarding the NEA, pending resolution of the DOJ action described above.

In addition to the specifically identified legal proceedings, we and our subsidiaries are also engaged in other legal proceedings from time to time.

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

(f) Guarantees and Indemnifications

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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.

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.

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As of December 31, 2021, the remaining lease payments through 2035 guaranteeing the principal and interest on these bonds are $ 555 million and the current carrying amount of the associated operating lease liability in the accompanying consolidated balance sheet is $ 321 million.

(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.

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 all or a portion of advance ticket sales that have been processed by that company, but for which we have not yet provided the air transportation.

These holdback requirements can be modified at the discretion of the credit card processing companies upon the occurrence of specific events, including material adverse changes in our financial condition or the triggering of a liquidity covenant.

These credit card processing companies are not currently entitled to maintain any holdbacks.

The imposition of holdback requirements would reduce our liquidity.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

(h) Labor Negotiations

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Of the total active FTE employees, 86 % are covered by collective bargaining agreements (CBAs) with various labor unions and 45 % 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Joint collective bargaining agreements covering our mainline pilots, flight attendants, passenger service, flight simulator engineers and dispatchers are now amendable.

The CBAs covering certain employee groups at our wholly-owned regional subsidiaries are also amendable.

Supplemental Cash Flow Information

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Non-cash investing and financing activities:

Equity investment $ 88 $ — $ —

Settlement of bankruptcy obligations ( 1 ) 56 7

Deferred financing costs paid through issuance of debt — 17 —

Supplemental information:

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During 2021, 2020 and 2019, we withheld approximately 1.0 million, 0.7 million and 0.8 million shares of AAG common stock, respectively, and paid approximately $ 18 million, $ 15 million and $ 25 million, respectively, in satisfaction of certain tax withholding obligations associated with employee equity awards.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Restricted Stock Unit Awards (RSUs)

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RSUs are classified as equity awards as the vesting results in the issuance of shares of AAG common stock.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

RSU award activity for all plans for the years ended December 31, 2021, 2020 and 2019 is as follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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

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

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.

Subsequent Events

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.

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.

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.

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.

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.

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.

Subsequent Event

On January 31, 2022, we entered into an amended purchase agreement with Boeing, pursuant to which we agreed to purchase 23 additional Boeing 737 MAX Family aircraft through the conversion of existing purchase options.

In addition, we entered into an amended purchase agreement with Boeing to defer the delivery of certain Boeing 787 Family aircraft previously scheduled to be delivered beginning in January 2023.

Pursuant to this amendment, deliveries of these aircraft are now scheduled to commence in the fourth quarter of 2023 and will continue into 2027.

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF AMERICAN AIRLINES, INC.

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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.

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 a partner airline, or for using the services of other program participants.

American uses a statistical model based on historical redemption patterns to develop an estimate of mileage credits not expected to be redeemed.

The associated value of mileage credits not expected to be redeemed is recognized as revenue proportionally as the remaining mileage credits are redeemed.

American’s loyalty program liability was $9.1 billion as of December 31, 2021 and the associated passenger revenue for mileage credits redeemed for travel was $2.2 billion for the year ended December 31, 2021.

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.

We identified the evaluation of the estimation of mileage credits not expected to be redeemed as a critical audit matter.

Evaluating the application of the statistical model used to develop the estimate involved complex auditor judgment and the use of actuarial professionals with specialized skills and knowledge.

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.

We identified the evaluation of the sufficiency of audit evidence over the realizability of operating loss carryforwards as a critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls over American’s loyalty program accounting process, including a control related to the evaluation of the application of the statistical model used to develop the estimate of mileage credits not expected to be redeemed.

We compared this independent expectation to American’s estimate to evaluate the appropriateness of the amount of the loyalty program liability and associated passenger revenue.

Sufficiency of audit evidence over realizability of tax operating loss and other carryforwards

As discussed in Notes 1(i) and 5 to the consolidated financial statements, American had $4.5 billion of tax operating loss and other carryforwards, which are recorded as deferred tax assets at December 31, 2021.

Deferred tax assets are recognized related to tax operating loss and other 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 of 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.

We identified the evaluation of the sufficiency of audit evidence over the realizability of tax operating loss and other carryforwards as a critical audit matter.

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 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.

We evaluated the design and tested the operating effectiveness of certain internal controls related to American’s deferred tax asset valuation allowance process, including controls related to the realizability of tax operating loss and other carryforwards.

We evaluated positive and negative evidence used in assessing whether the tax operating loss and other carryforwards were more likely than not to be realized in the future.

We evaluated the reasonableness of management’s projections of future profitability considering historical profitability of American, and consistency with industry data and economic trends.

We involved tax professionals with specialized skills and knowledge, who assisted in evaluating the application of tax law.

We assessed the sufficiency of audit evidence obtained over the realizability of the tax operating loss and other carryforwards by evaluating the cumulative results of the audit procedures.

We have served as American’s auditor since 2014.

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Investments — — 3

Total other comprehensive loss, net of tax ( 771 ) ( 431 ) ( 119 )

Total other comprehensive income (loss), net of tax 1,153 ( 771 ) ( 431 )

Total comprehensive income (loss) $ ( 624 ) $ ( 9,221 ) $ 1,541

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Accumulated other comprehensive loss ( 6,041 ) ( 7,194 )

Retained earnings (deficit) ( 5,508 ) 2,942

Retained deficit ( 7,285 ) ( 5,508 )

Total stockholder’s equity 3,826 4,348

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Net income (loss) $ ( 1,777 ) $ ( 8,450 ) $ 1,972

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization 2,282 2,313 2,267

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Changes in operating assets and liabilities:

Decrease in accounts receivable 595 130 232

Decrease (increase) in accounts receivable ( 290 ) 595 130

Decrease (increase) in other assets ( 370 ) 42 ( 321 )

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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

Capital expenditures, net of aircraft purchase deposit returns ( 169 ) ( 1,922 ) ( 4,156 )

Airport construction projects, net of reimbursements ( 204 ) ( 173 ) ( 98 )

Proceeds from sale of property and equipment 192 351 49

Proceeds from sale-leaseback transactions 181 665 850

Purchases of short-term investments ( 19,454 ) ( 5,874 ) ( 3,184 )

Sales of short-term investments 13,923 2,803 4,144

Increase in restricted short-term investments ( 401 ) ( 308 ) ( 3 )

Purchase of equity investment ( 28 ) — —

Proceeds on sale of equity investment 5 41 —

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 10 19 2

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Deferred financing costs ( 207 ) ( 85 ) ( 52 )

Other financing activities 88 — —

Net cash provided by (used in) financing activities 2,770 5,845 ( 282 )

Net increase (decrease) in cash and restricted cash 108 1 ( 114 )

Net increase in cash and restricted cash 15 108 1

Cash and restricted cash at beginning of year 385 277 276

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Share-based compensation expense — 94 — — 94

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

Intercompany equity transfer — 7 — 10 17

Balance at December 31, 2019 — 16,903 ( 6,423 ) 2,942 13,422

Net income — — — 1,972 1,972

Net loss — — — ( 8,450 ) ( 8,450 )

Other comprehensive loss, net — — ( 771 ) — ( 771 )

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Net loss — — — ( 1,777 ) ( 1,777 )

Other comprehensive loss, net — — ( 771 ) — ( 771 )

Other comprehensive income, net — — 1,153 — 1,153

Share-based compensation expense — 95 — — 95

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Actual results could differ from those estimates.

The most significant areas of judgment relate to passenger revenue recognition, the loyalty program, deferred tax assets, as well as pension and retiree medical and other postretirement benefits.

Certain prior period amounts have been reclassified to conform to the current year presentation.

See (r) Regional Expenses below for further information.

(b) Impact of Coronavirus (COVID-19)

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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).

The continued impact of the COVID-19 pandemic, including any increases in infection rates, new variants and renewed governmental action to slow the spread of COVID-19 cannot be estimated.

American has taken aggressive actions since the beginning of the COVID-19 pandemic to mitigate its effects on its business, including capacity reductions, structural changes to its fleet, cost reductions including implementing voluntary leave and early retirement programs, and steps to preserve cash and improve its overall liquidity position, consistent with the terms of the financial assistance it has received from the U.S.

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.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

American's capacity (as measured by available seat miles) continues to be reduced compared to pre-COVID-19 pandemic levels, with total capacity in 2021 down 24.7 % as compared to 2019.

Domestic capacity in 2021 was down 14.5 % while international capacity was down 44.9 % as compared to 2019.

While demand for domestic and short-haul international markets has largely recovered to 2019 levels, uncertainty remains regarding the timing of a full recovery.

American will continue to match its forward capacity with observed booking trends for future travel and make further adjustments to American’s capacity as needed.

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).

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 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;

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.

American has reduced its 2021 operating expenditures as a result of permanent non-volume cost reductions and other efficiency measures.

These reductions include labor productivity enhancements, management salaries and benefits and other permanent cost reductions.

Also, during the first quarter of 2021, approximately 1,600 represented team members opted into a voluntary early retirement program.

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.

As of December 31, 2021, American had $ 15.8 billion in total available liquidity, consisting of $ 12.4 billion in unrestricted cash and short-term investments, $ 2.8 billion in undrawn capacity under revolving credit facilities and a total of $ 568 million in undrawn short-term revolving and other facilities.

During 2021, American completed the following financing transactions (see Note 3 for further information):

• repaid the $ 550 million of outstanding loans under, and terminated, the $ 7.5 billion secured term loan facility with the U.S.

Department of the Treasury (Treasury) (the Treasury Loan Agreement);

• issued approximately $ 150 million in special facility revenue bonds related to John F.

Kennedy International Airport (JFK), of which $ 62 million was used to fund the redemption of other bonds related to JFK;

• repaid in full $ 950 million of the outstanding balance under, and terminated, the April 2016 Spare Parts Term Loan Facility;

• received approximately $ 192 million of cash proceeds from the sale of property and equipment primarily related to aircraft fleets retired in 2020 and raised $ 181 million principally from aircraft sale-leaseback transactions.

In addition to the foregoing financings, during 2021, AAG and the Subsidiaries (as defined below) received an aggregate of approximately $ 3.5 billion in financial assistance through the payroll support program (PSP2) established under the PSP Extension Law.

In connection with AAG and the Subsidiaries receipt of this financial assistance, AAG issued a promissory note (the PSP2 Promissory Note) to Treasury for $ 1.0 billion in aggregate principal amount and warrants to purchase up to an aggregate of approximately 6.6 million shares (the PSP2 Warrant Shares) of AAG common stock.

Also in 2021, AAG and the Subsidiaries received an aggregate of approximately $ 3.3 billion in financial assistance through the payroll support program (PSP3) established under the ARP.

In connection with AAG and the Subsidiaries receipt of this financial assistance, AAG issued a promissory note (the PSP3 Promissory Note) to Treasury for $ 946 million in aggregate principal amount and warrants to purchase up to an aggregate of approximately 4.4 million shares (the PSP3 Warrant Shares) of AAG common stock.

See below for further discussion on PSP2 and PSP3.

On April 20, 2020 (the PSP1 Closing Date), American, Envoy Air Inc.

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(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.

In connection with AAG and 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 (the Guarantors).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

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.

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 prohibition 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 the provisions 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.

These provisions were subsequently extended upon the entry of AAG and its Subsidiaries into PSP2 and PSP3.

See below for additional information on the Treasury Loan Agreement.

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As partial compensation to the U.S.

See below for more information on the PSP1 Warrant Agreement and the PSP1 Warrants.

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).

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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 issued the PSP1 Warrants to Treasury to purchase PSP1 Warrant Shares.

The exercise price of the PSP1 Warrant Shares is $ 12.51 per share, subject to certain anti-dilution provisions provided for in the PSP1 Warrants.

The PSP1 Warrants do not have any voting rights and are freely transferrable, with registration rights.

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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.

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.

In connection with AAG’s entry into the Treasury Loan Agreement, on the Treasury Loan Closing Date, AAG also entered into a warrant agreement (the Treasury Loan Warrant Agreement) with Treasury.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

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.

The provisions of the Treasury Loan Warrants are substantially similar to the PSP1 Warrants.

In connection with AAG and the Subsidiaries’ 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, AAG and the Subsidiaries are required to comply with the relevant provisions of the PSP Extension Law, which are substantially similar to the restrictions contained in the Payroll Support Program Agreement entered into by the Subsidiaries with Treasury in connection with the payroll support program established under the CARES Act (the PSP1 Agreement), but are in effect for a longer time period.

As was the case with PSP1, the PSP2 Agreement also imposes substantial reporting obligations on AAG and its Subsidiaries.

Pursuant to the PSP2 Agreement, Treasury provided AAG and its Subsidiaries financial assistance in an aggregate of approximately $ 3.5 billion.

As partial compensation to the U.S.

See below for more information on the PSP2 Warrant Agreement and PSP2 Warrants.

For accounting purposes, the $ 3.5 billion of aggregate financial assistance AAG and the Subsidiaries received pursuant to the PSP2 Agreement is allocated to the PSP2 Promissory Note, the PSP2 Warrants and other PSP2 financial assistance (the PSP2 Financial Assistance).