American Airlines Group Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Part I, Item 2 of this report should be read in conjunction with Part II, Item 7 of AAG’s and American’s Annual Report on Form 10-K for the year ended December 31, 2021 (the 2021 Form 10-K). The information contained herein is not a comprehensive discussion and analysis of the financial condition and results of operations of AAG and American, but rather updates disclosures made in the 2021 Form 10-K. Financial Overview Impact of Coronavirus (COVID-19) COVID-19 has been declared a global health pandemic by the World Health Organization. COVID-19 has surfaced in nearly all regions of the world, which has driven the implementation of significant, government-imposed measures to prevent or reduce its spread. Ongoing global vaccination efforts and the corresponding lifting of government restrictions in and between many markets resulted in a significant and rapid recovery in demand for air travel which continued into the third quarter of 2022. 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 will continue to match our forward capacity with observed booking trends for future travel and make further adjustments to our capacity as needed. Liquidity As of September 30, 2022, we had $14.3 billion in total available liquidity, consisting of $11.2 billion in unrestricted cash and short-term investments, $2.8 billion in undrawn capacity under revolving credit facilities and a total of $220 million in undrawn short-term revolving and other facilities. During the first nine months of 2022, we completed the following financing transactions (see Note 5 to AAG’s Condensed Consolidated Financial Statements in Part I, Item 1A for further information): • received $699 million in proceeds from enhanced equipment trust certificates (EETCs); and • repurchased $349 million of unsecured notes on the open market. 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 covenants requiring us to meet certain loan to value, collateral coverage and/or peak debt service coverage ratios. Given 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 projected cash flows from operations. 45 Table of Contents AAG’s Third Quarter 2022 Results The selected financial data presented below is derived from AAG’s unaudited condensed consolidated financial statements included in Part I, Item 1A of this report and should be read in conjunction with those financial statements and the related notes thereto. Three Months Ended September 30, Increase (Decrease) Percent Increase (Decrease) (2) 2022 2021 (In millions, except percentage changes) Passenger revenue $ 12,396 $ 7,957 $ 4,439 55.8 Cargo revenue 279 332 (53) (15.9) Other operating revenue 787 680 107 15.8 Total operating revenues 13,462 8,969 4,493 50.1 Aircraft fuel and related taxes 3,847 1,952 1,895 97.1 Salaries, wages and benefits 3,384 3,018 366 12.1 Total operating expenses 12,532 8,374 4,158 49.7 Operating income 930 595 335 56.3 Pre-tax income 658 206 452 nm (3) Income tax provision 175 37 138 nm Net income 483 169 314 nm Pre-tax income – GAAP $ 658 $ 206 $ 452 nm Adjusted for: pre-tax net special items (1) (18) (1,039) 1,021 nm Pre-tax income (loss) excluding net special items $ 640 $ (833) $ 1,473 nm (1) See below “Reconciliation of GAAP to Non-GAAP Financial Measures” and Note 2 to AAG’s Condensed Consolidated Financial Statements in Part I, Item 1A for details on the components of net special items. (2) Fluctuations may not be meaningful due to the volatility caused by the COVID-19 pandemic. (3) Not meaningful or greater than 100% change. Pre-Tax Income and Net Income Pre-tax income and net income were $658 million and $483 million, respectively, in the third quarter of 2022. This compares to third quarter 2021 pre-tax income and net income of $206 million and $169 million, respectively. The quarter-over-quarter improvement in our pre-tax income on a GAAP basis was driven by a significant recovery in demand for air travel and a 12.2% increase in capacity as compared to the third quarter of 2021, resulting in higher passenger revenue, offset in part by higher aircraft fuel and related taxes, due to an increase in the average price per gallon of aircraft fuel, and other increases in operating expenses. The third quarter of 2021 also included the recognition of $1.0 billion of net pre-tax special credits principally related to PSP Financial Assistance. See Note 2 to AAG's Condensed Consolidated Financial Statement in Part I, Item 1A for further information on net special items. Excluding the effects of pre-tax net special items, pre-tax income was $640 million in the third quarter of 2022 and pre-tax loss was $833 million in the third quarter of 2021. The quarter-over-quarter improvement in our pre-tax income excluding pre-tax net special items was primarily due to higher passenger revenue, offset in part by higher aircraft fuel and related taxes and other increases in operating expenses, as described above. Revenue In the third quarter of 2022, we reported total operating revenues of $13.5 billion, an increase of $4.5 billion, or 50.1%, as compared to the third quarter of 2021. Passenger revenue was $12.4 billion in the third quarter of 2022, an increase of $4.4 billion, or 55.8%, as compared to the third quarter of 2021. The increase in passenger revenue in the third quarter of 2022 was due to a 28.0% increase in passenger yield and a 21.7% increase in revenue passenger miles (RPMs), driven by a significant recovery in demand for air travel domestically and in the Atlantic and Latin America regions, resulting in an 85.3% load factor in the third quarter of 2022. 46 Table of Contents Cargo revenue decreased $53 million, or 15.9%, in the third quarter of 2022 from the third quarter of 2021 primarily due to a 10.3% decrease in cargo yield and a 6.2% decrease in cargo ton miles as a result of lower demand and increased global air freight capacity. Other operating revenue increased $107 million, or 15.8%, as compared to the third quarter of 2021, driven primarily by higher revenue associated with our loyalty program. During the three months ended September 30, 2022 and 2021, cash payments from co-branded credit card and other partners were $1.0 billion and $835 million, respectively. Our total revenue per available seat mile (TRASM) was 19.63 cents in the third quarter of 2022, a 33.8% increase as compared to 14.68 cents in the third quarter of 2021. Fuel Aircraft fuel expense was $3.8 billion in the third quarter of 2022, which was $1.9 billion, or 97.1%, higher as compared to the third quarter of 2021. This increase was primarily driven by a 79.9% increase in the average price per gallon of aircraft fuel including related taxes to $3.73 in the third quarter of 2022 from $2.07 in the third quarter of 2021 and a 9.5% increase in gallons of fuel consumed due to increased capacity. As of September 30, 2022, we did not have any fuel hedging contracts outstanding to hedge our fuel consumption. Our current policy is not to enter into transactions to hedge our fuel consumption, although we review that policy from time to time based on market conditions and other factors. 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. Other Costs We remain committed to actively managing our cost structure, which we believe is necessary in an industry whose economic prospects are heavily dependent upon two variables we cannot control: general economic conditions and the price of fuel. In particular, the onset of the COVID-19 pandemic resulted in a very rapid deterioration in general economic conditions, and the subsequent rapid economic expansion resulted in significant inflationary pressures, including on the cost of fuel. Our 2022 third quarter total operating cost per available seat mile (CASM) was 18.28 cents, an increase of 33.4%, from 13.70 cents in the third quarter of 2021. This increase in CASM was primarily driven by higher aircraft fuel and related taxes in the third quarter of 2022, as described above, and the recognition of $1.1 billion of operating net special credits in the third quarter of 2021 principally related to PSP Financial Assistance. Our 2022 third quarter CASM excluding net special items and fuel was 12.61 cents, an increase of 3.0%, from 12.24 cents in the third quarter of 2021. For a reconciliation of CASM to CASM excluding net special items and fuel, see below “Reconciliation of GAAP to Non-GAAP Financial Measures.” 47 Table of Contents Reconciliation of GAAP to Non-GAAP Financial Measures We sometimes use financial measures that are derived from the condensed consolidated financial statements but that are not presented in accordance with accounting principles generally accepted in the U.S. (GAAP) to understand and evaluate our current operating performance and to allow for period-to-period comparisons. We believe these non-GAAP financial measures may also provide useful information to investors and others. These non-GAAP measures may not be comparable to similarly titled non-GAAP measures of other companies, and should be considered in addition to, and not as a substitute for or superior to, any measure of performance, cash flow or liquidity prepared in accordance with GAAP. We are providing a reconciliation of reported non-GAAP financial measures to their comparable financial measures on a GAAP basis. The following table presents the reconciliation of pre-tax income (loss) (GAAP measure) to pre-tax income (loss) excluding net special items (non-GAAP measure). Management uses this non-GAAP financial measure to evaluate our current operating performance and to allow for period-to-period comparisons. As net special items may vary from period-to-period in nature and amount, the adjustment to exclude net special items allows management an additional tool to understand our core operating performance. Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (In millions) Reconciliation of Pre-Tax Income (Loss) Excluding Net Special Items: Pre-tax income (loss) – GAAP $ 658 $ 206 $ (824) $ (1,357) Pre-tax net special items (1) : Operating special items, net 39 (1,057) 191 (4,435) Nonoperating special items, net (57) 18 34 31 Total pre-tax net special items (18) (1,039) 225 (4,404) Pre-tax income (loss) excluding net special items $ 640 $ (833) $ (599) $ (5,761) (1) See Note 2 to AAG’s Condensed Consolidated Financial Statements in Part I, Item 1A for further information on net special items. 48 Table of Contents Additionally, the table below presents the reconciliation of total operating costs (GAAP measure) to total operating costs excluding net special items and fuel (non-GAAP measure) and CASM to CASM excluding net special items and fuel. Management uses total operating costs excluding net special items and fuel and CASM excluding net special items and fuel to evaluate our current operating performance and for period-to-period comparisons. The price of fuel, over which we have no control, impacts the comparability of period-to-period financial performance. The adjustment to exclude fuel and net special items allows management an additional tool to understand and analyze our non-fuel costs and core operating performance. Amounts may not recalculate due to rounding. Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Reconciliation of CASM Excluding Net Special Items and Fuel: (In millions) Total operating expenses – GAAP $ 12,532 $ 8,374 $ 35,558 $ 20,734 Operating net special items (1) : Mainline operating special items, net (37) 990 (189) 3,986 Regional operating special items, net (2) 67 (2) 449 Aircraft fuel and related taxes (3,847) (1,952) (10,369) (4,596) Total operating expenses, excluding net special items and fuel $ 8,646 $ 7,479 $ 24,998 $ 20,573 Total Available Seat Miles (ASM) 68,567 61,111 194,264 153,431 (In cents) CASM 18.28 13.70 18.30 13.51 Operating net special items per ASM (1) : Mainline operating special items, net (0.05) 1.62 (0.10) 2.60 Regional operating special items, net — 0.11 — 0.29 Aircraft fuel and related taxes per ASM (5.61) (3.19) (5.34) (3.00) CASM, excluding net special items and fuel 12.61 12.24 12.87 13.41 (1) See Note 2 to AAG’s Condensed Consolidated Financial Statements in Part I, Item 1A for further information on net special items. 49 Table of Contents AAG’s Results of Operations Operating Statistics The table below sets forth selected operating data for the three and nine months ended September 30, 2022 and 2021. Amounts may not recalculate due to rounding. Three Months Ended September 30, Increase Nine Months Ended September 30, Increase 2022 2021 2022 2021 Revenue passenger miles (millions) (a) 58,499 48,069 21.7% 160,305 112,555 42.4% Available seat miles (millions) (b) 68,567 61,111 12.2% 194,264 153,431 26.6% Passenger load factor (percent) (c) 85.3 78.7 6.6pts 82.5 73.4 9.1pts Yield (cents) (d) 21.19 16.55 28.0% 20.23 15.71 28.8% Passenger revenue per available seat mile (cents) (e) 18.08 13.02 38.8% 16.70 11.52 44.9% Total revenue per available seat mile (cents) (f) 19.63 14.68 33.8% 18.42 13.33 38.2% Fuel consumption (gallons in millions) 1,031 941 9.5% 2,922 2,393 22.1% Average aircraft fuel price including related taxes (dollars per gallon) 3.73 2.07 79.9% 3.55 1.92 84.8% Total operating cost per available seat mile (cents) (g) 18.28 13.70 33.4% 18.30 13.51 35.5% Aircraft at end of period (h) 1,461 1,414 3.3% 1,461 1,414 3.3% Full-time equivalent employees at end of period 129,700 119,800 8.3% 129,700 119,800 8.3% (a) Revenue passenger mile (RPM) – A basic measure of sales volume. One RPM represents one passenger flown one mile. (b) Available seat mile (ASM) – A basic measure of production. One ASM represents one seat flown one mile. (c) Passenger load factor – The percentage of available seats that are filled with revenue passengers. (d) Yield – A measure of airline revenue derived by dividing passenger revenue by RPMs. (e) Passenger revenue per available seat mile (PRASM) – Passenger revenue divided by ASMs. (f) Total revenue per available seat mile (TRASM) – Total revenues divided by ASMs. (g) Total operating cost per available seat mile (CASM) – Total operating expenses divided by ASMs. (h) Includes aircraft owned and leased by American as well as aircraft operated by third-party regional carriers under capacity purchase agreements. Excludes 14 mainline aircraft and 53 regional aircraft that are in temporary storage at September 30, 2022 as follows: 14 Boeing 737-800, 30 Embraer 145, 13 Bombardier CRJ 700, five Bombardier CRJ 900 and five Embraer 170. 50 Table of Contents Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021 Operating Revenues Three Months Ended September 30, Increase (Decrease) Percent Increase (Decrease) 2022 2021 (In millions, except percentage changes) Passenger $ 12,396 $ 7,957 $ 4,439 55.8 Cargo 279 332 (53) (15.9) Other 787 680 107 15.8 Total operating revenues $ 13,462 $ 8,969 $ 4,493 50.1 This table presents our passenger revenue and the quarter-over-quarter change in certain operating statistics: Increase vs. Three Months Ended September 30, 2021 Three Months Ended September 30, 2022 RPMs ASMs Load Factor Passenger Yield PRASM (In millions) Passenger revenue $ 12,396 21.7% 12.2% 6.6pts 28.0% 38.8% Passenger revenue increased $4.4 billion, or 55.8%, in the third quarter of 2022 from the third quarter of 2021 primarily due to a 28.0% increase in passenger yield and a 21.7% increase in RPMs, driven by a significant recovery in demand for air travel domestically and in the Atlantic and Latin America regions, resulting in an 85.3% load factor in the third quarter of 2022. Cargo revenue decreased $53 million, or 15.9%, in the third quarter of 2022 from the third quarter of 2021 primarily due to a 10.3% decrease in cargo yield and a 6.2% decrease in cargo ton miles as a result of lower demand and increased global air freight capacity. Other operating revenue increased $107 million, or 15.8%, as compared to the third quarter of 2021, driven primarily by higher revenue associated with our loyalty program. Total operating revenues in the third quarter of 2022 increased $4.5 billion, or 50.1%, from the third quarter of 2021 driven principally by the increase in passenger revenue as described above. Our TRASM increased 33.8% to 19.63 cents in the third quarter of 2022 from 14.68 cents in the third quarter of 2021. Operating Expenses Three Months Ended September 30, Increase (Decrease) Percent Increase (Decrease) 2022 2021 (In millions, except percentage changes) Aircraft fuel and related taxes $ 3,847 $ 1,952 $ 1,895 97.1 Salaries, wages and benefits 3,384 3,018 366 12.1 Regional expenses 1,174 887 287 32.3 Maintenance, materials and repairs 685 548 137 25.1 Other rent and landing fees 710 694 16 2.3 Aircraft rent 347 358 (11) (3.0) Selling expenses 495 318 177 55.7 Depreciation and amortization 491 480 11 2.1 Mainline operating special items, net 37 (990) 1,027 nm Other 1,362 1,109 253 22.9 Total operating expenses $ 12,532 $ 8,374 $ 4,158 49.7 51 Table of Contents Total operating expenses increased $4.2 billion, or 49.7%, in the third quarter of 2022 from the third quarter of 2021 driven by higher aircraft fuel and related taxes and other expenses as a result of an increase in the average price per gallon of aircraft fuel and increased capacity. The third quarter of 2021 total operating expenses also included $1.1 billion of net operating special credits principally related to the PSP Financial Assistance. See further discussion of operating special items, net below. Aircraft fuel and related taxes increased $1.9 billion, or 97.1%, in the third quarter of 2022 from the third quarter of 2021 primarily due to a 79.9% increase in the average price per gallon of aircraft fuel including related taxes to $3.73 in the third quarter of 2022 from $2.07 in the third quarter of 2021 and a 9.5% increase in gallons of fuel consumed due to increased capacity. Salaries, wages and benefits increased $366 million, or 12.1%, in the third quarter of 2022 from the third quarter of 2021 primarily due to an 8.7% increase in mainline full-time equivalent employees subsequent to the third quarter of 2021. Regional expenses increased $287 million, or 32.3%, in the third quarter of 2022 from the third quarter of 2021 primarily due to pay rate increases and retention bonuses offered at our wholly-owned regional carriers as well as contractual rate increases with our third-party regional carriers. The third quarter of 2021 also included the recognition of $128 million of PSP Financial Assistance as a regional operating special credit. Maintenance, materials and repairs increased $137 million, or 25.1%, in the third quarter of 2022 from the third quarter of 2021 primarily due to increased capacity and an increase in the volume of engine overhauls performed under time and material contracts where expense is incurred and recognized as maintenance is performed. Selling expenses increased $177 million, or 55.7%, in the third quarter of 2022 from the third quarter of 2021 primarily due to higher credit card fees and commission expense driven by the overall increase in passenger revenues. Other operating expenses increased $253 million, or 22.9%, in the third quarter of 2022 from the third quarter of 2021 primarily as a result of increased capacity and expenses associated with improving our product offerings, customer experience and operational reliability. Operating Special Items, Net Three Months Ended September 30, 2022 2021 (In millions) Litigation reserve adjustments $ 37 $ — PSP Financial Assistance (1) — (992) Mark-to-market adjustments on bankruptcy obligations, net — (1) Other operating special items, net — 3 Mainline operating special items, net 37 (990) PSP Financial Assistance (1) — (128) Regional pilot retention program (2) — 61 Other operating special items, net 2 — Regional operating special items, net 2 (67) Operating special items, net $ 39 $ (1,057) (1) The PSP Financial Assistance represents recognition of a portion of the financial assistance received from the U.S. Department of Treasury (Treasury) pursuant to the payroll support program established under the PSP Extension Law (PSP2) and the American Rescue Plan Act of 2021 (ARP) (PSP3). (2) 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. 52 Table of Contents Nonoperating Results Three Months Ended September 30, Increase (Decrease) Percent Increase (Decrease) 2022 2021 (In millions, except percentage changes) Interest income $ 70 $ 5 $ 65 nm Interest expense, net (499) (476) (23) 4.8 Other income, net 157 82 75 91.1 Total nonoperating expense, net $ (272) $ (389) $ 117 (30.0) Interest income increased in the third quarter of 2022 compared to the third quarter of 2021 primarily as a result of higher returns on our short-term investments. In the third quarter of 2022, other nonoperating income, net primarily included $103 million of non-service related pension and other postretirement benefit plan income and $57 million of net special credits for mark-to-market net unrealized gains principally associated with our equity investments in Vertical Aerospace Ltd. (Vertical), China Southern Airlines Company Limited (China Southern Airlines) and GOL Linhas Aéreas Inteligentes S.A. (GOL). In the third quarter of 2021, other nonoperating income, net included $80 million of non-service related pension and other postretirement benefit plan income. Income Taxes In the third quarter of 2022, we recorded an income tax provision of $175 million. Substantially all of our income or loss before income taxes is attributable to the United States. See Note 6 to AAG’s Condensed Consolidated Financial Statements in Part I, Item 1A for additional information on income taxes. Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021 Operating Revenues Nine Months Ended September 30, Increase (Decrease) Percent Increase (Decrease) 2022 2021 (In millions, except percentage changes) Passenger $ 32,438 $ 17,682 $ 14,756 83.5 Cargo 970 973 (3) (0.3) Other 2,375 1,800 575 31.9 Total operating revenues $ 35,783 $ 20,455 $ 15,328 74.9 This table presents our passenger revenue and the period-over-period change in certain operating statistics: Increase vs. Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2022 RPMs ASMs Load Factor Passenger Yield PRASM (In millions) Passenger revenue $ 32,438 42.4% 26.6% 9.1pts 28.8% 44.9% Passenger revenue increased $14.8 billion, or 83.5%, in the first nine months of 2022 from the first nine months of 2021 primarily due to a 42.4% increase in RPMs, driven by a significant recovery in demand for air travel domestically and in the Atlantic and Latin America regions, resulting in an 82.5% load factor in the first nine months of 2022, and a 28.8% increase in passenger yield. 53 Table of Contents Other operating revenue increased $575 million, or 31.9%, in the first nine months of 2022 from the first nine months of 2021, driven primarily by higher revenue associated with our loyalty program. Total operating revenues in the first nine months of 2022 increased $15.3 billion, or 74.9%, from the first nine months of 2021 driven principally by the increase in passenger revenue as described above. Our TRASM increased 38.2% to 18.42 cents in the first nine months of 2022 from 13.33 cents in the first nine months of 2021. Operating Expenses Nine Months Ended September 30, Increase (Decrease) Percent Increase (Decrease) 2022 2021 (In millions, except percentage changes) Aircraft fuel and related taxes $ 10,369 $ 4,596 $ 5,773 nm Salaries, wages and benefits 9,773 8,611 1,162 13.5 Regional expenses 3,298 2,148 1,150 53.5 Maintenance, materials and repairs 1,949 1,383 566 40.9 Other rent and landing fees 2,081 1,950 131 6.8 Aircraft rent 1,045 1,064 (19) (1.8) Selling expenses 1,331 745 586 78.7 Depreciation and amortization 1,486 1,439 47 3.2 Mainline operating special items, net 189 (3,986) 4,175 nm Other 4,037 2,784 1,253 45.1 Total operating expenses $ 35,558 $ 20,734 $ 14,824 71.5 Total operating expenses increased $14.8 billion, or 71.5%, in the first nine months of 2022 from the first nine months of 2021 driven by higher aircraft fuel and related taxes and other expenses as a result of an increase in the average price per gallon of aircraft fuel and increased capacity. The first nine months of 2021 total operating expenses also included $4.4 billion of net operating special credits principally related to the PSP Financial Assistance. See further discussion of operating special items, net below. Aircraft fuel and related taxes increased $5.8 billion in the first nine months of 2022 from the first nine months of 2021 primarily due to an 84.8% increase in the average price per gallon of aircraft fuel including related taxes to $3.55 in the first nine months of 2022 from $1.92 in the first nine months of 2021 and a 22.1% increase in gallons of fuel consumed due to increased capacity. Salaries, wages and benefits increased $1.2 billion, or 13.5%, in the first nine months of 2022 from the first nine months of 2021 primarily due to an 8.7% increase in mainline full-time equivalent employees subsequent to the third quarter of 2021. Regional expenses increased $1.2 billion, or 53.5%, in the first nine months of 2022 from the first nine months of 2021 primarily due to pay rate increases and retention bonuses offered at our wholly-owned regional carriers, as well as contractual rate increases with our third-party regional carriers. The first nine months of 2021 also included the recognition of $539 million of PSP Financial Assistance as a regional operating special credit. Maintenance, materials and repairs increased $566 million, or 40.9%, in the first nine months of 2022 from the first nine months of 2021 primarily due to increased capacity and an increase in the volume of engine overhauls performed under time and material contracts where expense is incurred and recognized as maintenance is performed. Other rent and landing fees increased $131 million, or 6.8%, in the first nine months of 2022 from the first nine months of 2021 primarily due to an increase in landing fees as a result of increased departures. Selling expenses increased $586 million, or 78.7%, in the first nine months of 2022 from the first nine months of 2021 primarily due to higher credit card fees and commission expense driven by the overall increase in passenger revenues. 54 Table of Contents Other operating expenses increased $1.3 billion, or 45.1%, in the first nine months of 2022 from the first nine months of 2021 primarily as a result of increased capacity and expenses associated with improving our product offerings, customer experience and operational reliability. Operating Special Items, Net Nine Months Ended September 30, 2022 2021 (In millions) Fleet impairment (1) $ 149 $ — Litigation reserve adjustments 37 — PSP Financial Assistance (2) — (4,162) Severance expenses (3) — 168 Mark-to-market adjustments on bankruptcy obligations, net — 5 Other operating special items, net 3 3 Mainline operating special items, net 189 (3,986) PSP Financial Assistance (2) — (539) Regional pilot retention program (4) — 61 Fleet impairment (1) — 27 Severance expenses (3) — 2 Other operating special items, net 2 — Regional operating special items, net 2 (449) Operating special items, net $ 191 $ (4,435) (1) Fleet impairment for the nine months ended September 30, 2022 included a non-cash impairment charge to write down the carrying value of our retired Airbus A330 fleet to the estimated fair value due to the market conditions for certain used aircraft. We retired our Airbus A330 fleet in 2020 as a result of the decline in demand for air travel due to the COVID-19 pandemic. Fleet impairment for the nine months ended September 30, 2021 included a non-cash impairment charge to write down regional aircraft resulting from the retirement of the remaining Embraer 140 fleet earlier than planned. (2) The PSP Financial Assistance represents recognition of a portion of the financial assistance received from Treasury pursuant to the payroll support program established under PSP2 and PSP3. (3) 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 related to our voluntary early retirement programs for the nine months ended September 30, 2022 and 2021 were approximately $180 million and $480 million, respectively. (4) 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. 55 Table of Contents Nonoperating Results Nine Months Ended September 30, Increase (Decrease) Percent Increase (Decrease) 2022 2021 (In millions, except percentage changes) Interest income $ 107 $ 13 $ 94 nm Interest expense, net (1,430) (1,332) (98) 7.4 Other income, net 274 241 33 14.1 Total nonoperating expense, net $ (1,049) $ (1,078) $ 29 (2.7) Interest income increased in the first nine months of 2022 compared to the first nine months of 2021 primarily as a result of higher returns on our short-term investments. Interest expense, net increased in the first nine months of 2022 compared to the first nine months of 2021 primarily due to the impact of the AAdvantage Financing issued at the end of the first quarter of 2021, which improved our liquidity position in response to the COVID-19 pandemic. In the first nine months of 2022, other nonoperating income, net primarily included $315 million of non-service related pension and other postretirement benefit plan income, offset in part by $34 million of net special charges principally for mark-to-market net unrealized losses associated with our equity investments in GOL, Vertical and China Southern Airlines. In the first nine months of 2021, other nonoperating income, net included $252 million of non-service related pension and other postretirement benefit plan income, offset in part by $31 million of net special charges principally for non-cash charges associated with debt refinancings and extinguishments. Income Taxes In the first nine months of 2022, we recorded an income tax benefit of $148 million. Substantially all of our income or loss before income taxes is attributable to the United States. See Note 6 to AAG’s Condensed Consolidated Financial Statements in Part I, Item 1A for additional information on income taxes. American’s Results of Operations Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021 Operating Revenues Three Months Ended September 30, Increase (Decrease) Percent Increase (Decrease) 2022 2021 (In millions, except percentage changes) Passenger $ 12,396 $ 7,957 $ 4,439 55.8 Cargo 279 332 (53) (15.9) Other 786 679 107 15.7 Total operating revenues $ 13,461 $ 8,968 $ 4,493 50.1 Passenger revenue increased $4.4 billion, or 55.8%, in the third quarter of 2022 from the third quarter of 2021 primarily due to an increase in passenger yield and an increase in RPMs, driven by a significant recovery in demand for air travel domestically and in the Atlantic and Latin America regions, resulting in an increased load factor in the third quarter of 2022. Cargo revenue decreased $53 million, or 15.9%, in the third quarter of 2022 from the third quarter of 2021 primarily due to a decrease in cargo yield and cargo ton miles as a result of lower demand and increased global air freight capacity. Other operating revenue increased $107 million, or 15.7%, as compared to the third quarter of 2021, driven primarily by higher revenue associated with American's loyalty program. 56 Table of Contents Total operating revenues in the third quarter of 2022 increased $4.5 billion, or 50.1%, from the third quarter of 2021 driven principally by the increase in passenger revenue as described above. Operating Expenses Three Months Ended September 30, Increase (Decrease) Percent Increase (Decrease) 2022 2021 (In millions, except percentage changes) Aircraft fuel and related taxes $ 3,847 $ 1,952 $ 1,895 97.1 Salaries, wages and benefits 3,382 3,017 365 12.1 Regional expenses 1,172 789 383 48.5 Maintenance, materials and repairs 685 548 137 25.1 Other rent and landing fees 710 694 16 2.3 Aircraft rent 347 358 (11) (3.0) Selling expenses 495 318 177 55.7 Depreciation and amortization 488 480 8 1.7 Mainline operating special items, net 37 (990) 1,027 nm Other 1,363 1,109 254 22.9 Total operating expenses $ 12,526 $ 8,275 $ 4,251 51.4 Total operating expenses increased $4.3 billion, or 51.4%, in the third quarter of 2022 from the third quarter of 2021 driven by higher aircraft fuel and related taxes and other expenses as a result of an increase in the average price per gallon of aircraft fuel and increased capacity. The third quarter of 2021 total operating expenses also included $1.1 billion of net operating special credits principally related to the PSP Financial Assistance. See further discussion of operating special items, net below. Aircraft fuel and related taxes increased $1.9 billion, or 97.1%, in the third quarter of 2022 from the third quarter of 2021 primarily due to a 79.9% increase in the average price per gallon of aircraft fuel including related taxes to $3.73 in the third quarter of 2022 from $2.07 in the third quarter of 2021 and a 9.5% increase in gallons of fuel consumed due to increased capacity. Salaries, wages and benefits increased $365 million, or 12.1%, in the third quarter of 2022 from the third quarter of 2021 primarily due to an 8.7% increase in mainline full-time equivalent employees subsequent to the third quarter of 2021. Regional expenses increased $383 million, or 48.5%, in the third quarter of 2022 from the third quarter of 2021 primarily due to contractual rate increases with American's third-party regional carriers. The third quarter of 2021 also included the recognition of $128 million of PSP Financial Assistance as a regional operating special credit. Maintenance, materials and repairs increased $137 million, or 25.1%, in the third quarter of 2022 from the third quarter of 2021 primarily due to increased capacity and an increase in the volume of engine overhauls performed under time and material contracts where expense is incurred and recognized as maintenance is performed. Selling expenses increased $177 million, or 55.7%, in the third quarter of 2022 from the third quarter of 2021 primarily due to higher credit card fees and commission expense driven by the overall increase in passenger revenues. Other operating expenses increased $254 million, or 22.9%, in the third quarter of 2022 from the third quarter of 2021 primarily as a result of increased capacity and expenses associated with improving American's product offerings, customer experience and operational reliability. 57 Table of Contents Operating Special Items, Net Three Months Ended September 30, 2022 2021 (In millions) Litigation reserve adjustments $ 37 $ — PSP Financial Assistance (1) — (992) Mark-to-market adjustments on bankruptcy obligations, net — (1) Other operating special items, net — 3 Mainline operating special items, net 37 (990) PSP Financial Assistance (1) — (128) Regional operating special items, net — (128) Operating special items, net $ 37 $ (1,118) (1) The PSP Financial Assistance represents recognition of a portion of the financial assistance received from Treasury pursuant to the payroll support program established under PSP2 and PSP3. Nonoperating Results Three Months Ended September 30, Increase (Decrease) Percent Increase (Decrease) 2022 2021 (In millions, except percentage changes) Interest income $ 111 $ 8 $ 103 nm Interest expense, net (482) (435) (47) 10.8 Other income, net 156 82 74 90.9 Total nonoperating expense, net $ (215) $ (345) $ 130 (37.6) Interest income increased in the third quarter of 2022 compared to the third quarter of 2021 primarily as a result of higher returns on American's short-term investments. In the third quarter of 2022, other nonoperating income, net primarily included $103 million of non-service related pension and other postretirement benefit plan income and $57 million of net special credits for mark-to-market net unrealized gains principally associated with American's equity investments in Vertical, China Southern Airlines and GOL. In the third quarter of 2021, other nonoperating income, net included $80 million of non-service related pension and other postretirement benefit plan income. Income Taxes American is a member of AAG's consolidated federal and certain state income tax returns. In the third quarter of 2022, American recorded an income tax provision of $180 million. Substantially all of American’s income or loss before income taxes is attributable to the United States. See Note 5 to American’s Condensed Consolidated Financial Statements in Part I, Item 1B for additional information on income taxes. 58 Table of Contents Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021 Operating Revenues Nine Months Ended September 30, Increase (Decrease) Percent Increase (Decrease) 2022 2021 (In millions, except percentage changes) Passenger $ 32,438 $ 17,682 $ 14,756 83.5 Cargo 970 973 (3) (0.3) Other 2,370 1,799 571 31.7 Total operating revenues $ 35,778 $ 20,454 $ 15,324 74.9 Passenger revenue increased $14.8 billion, or 83.5%, in the first nine months of 2022 from the first nine months of 2021 primarily due to an increase in RPMs, driven by a significant recovery in demand for air travel domestically and in the Atlantic and Latin America regions, resulting in an increased load factor in the first nine months of 2022, and an increase in passenger yield. Other operating revenue increased $571 million, or 31.7%, in the first nine months of 2022 from the first nine months of 2021, driven primarily by higher revenue associated with American's loyalty program. Total operating revenues in the first nine months of 2022 increased $15.3 billion, or 74.9%, from the first nine months of 2021 driven principally by the increase in passenger revenue as described above. Operating Expenses Nine Months Ended September 30, Increase (Decrease) Percent Increase (Decrease) 2022 2021 (In millions, except percentage changes) Aircraft fuel and related taxes $ 10,369 $ 4,596 $ 5,773 nm Salaries, wages and benefits 9,768 8,607 1,161 13.5 Regional expenses 3,253 2,053 1,200 58.4 Maintenance, materials and repairs 1,949 1,383 566 40.9 Other rent and landing fees 2,081 1,950 131 6.8 Aircraft rent 1,045 1,064 (19) (1.8) Selling expenses 1,331 745 586 78.7 Depreciation and amortization 1,480 1,439 41 2.9 Mainline operating special items, net 189 (3,986) 4,175 nm Other 4,039 2,785 1,254 45.1 Total operating expenses $ 35,504 $ 20,636 $ 14,868 72.1 Total operating expenses increased $14.9 billion, or 72.1%, in the first nine months of 2022 from the first nine months of 2021 driven by higher aircraft fuel and related taxes and other expenses as a result of an increase in the average price per gallon of aircraft fuel and increased capacity. The first nine months of 2021 total operating expenses also included $4.5 billion of net operating special credits principally related to the PSP Financial Assistance. See further discussion of operating special items, net below. Aircraft fuel and related taxes increased $5.8 billion in the first nine months of 2022 from the first nine months of 2021 primarily due to an 84.8% increase in the average price per gallon of aircraft fuel including related taxes to $3.55 in the first nine months of 2022 from $1.92 in the first nine months of 2021 and a 22.1% increase in gallons of fuel consumed due to increased capacity. Salaries, wages and benefits increased $1.2 billion, or 13.5%, in the first nine months of 2022 from the first nine months of 2021 primarily due to an 8.7% increase in mainline full-time equivalent employees subsequent to the third quarter of 2021. 59 Table of Contents Regional expenses increased $1.2 billion, or 58.4%, in the first nine months of 2022 from the first nine months of 2021 primarily due to contractual rate increases with American's third-party regional carriers. The first nine months of 2021 also included the recognition of $539 million of PSP Financial Assistance as a regional operating special credit. Maintenance, materials and repairs increased $566 million, or 40.9%, in the first nine months of 2022 from the first nine months of 2021 primarily due to increased capacity and an increase in the volume of engine overhauls performed under time and material contracts where expense is incurred and recognized as maintenance is performed. Other rent and landing fees increased $131 million, or 6.8%, in the first nine months of 2022 from the first nine months of 2021 primarily due to an increase in landing fees as a result of increased departures. Selling expenses increased $586 million, or 78.7%, in the first nine months of 2022 from the first nine months of 2021 primarily due to higher credit card fees and commission expense driven by the overall increase in passenger revenues. Other operating expenses increased $1.3 billion, or 45.1%, in the first nine months of 2022 from the first nine months of 2021 primarily as a result of increased capacity and expenses associated with improving American's product offerings, customer experience and operational reliability. Operating Special Items, Net Nine Months Ended September 30, 2022 2021 (In millions) Fleet impairment (1) $ 149 $ — Litigation reserve adjustments 37 — PSP Financial Assistance (2) — (4,162) Severance expenses (3) — 168 Mark-to-market adjustments on bankruptcy obligations, net — 5 Other operating special items, net 3 3 Mainline operating special items, net 189 (3,986) PSP Financial Assistance (2) — (539) Fleet impairment (1) — 27 Regional operating special items, net — (512) Operating special items, net $ 189 $ (4,498) (1) Fleet impairment for the nine months ended September 30, 2022 included a non-cash impairment charge to write down the carrying value of American's retired Airbus A330 fleet to the estimated fair value due to the market conditions for certain used aircraft. American retired its Airbus A330 fleet in 2020 as a result of the decline in demand for air travel due to the COVID-19 pandemic. Fleet impairment for the nine months ended September 30, 2021 included a non-cash impairment charge to write down regional aircraft resulting from the retirement of the remaining Embraer 140 fleet earlier than planned. (2) The PSP Financial Assistance represents recognition of a portion of the financial assistance received from Treasury pursuant to the payroll support program established under PSP2 and PSP3. (3) 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 American's operation due to the COVID-19 pandemic. Cash payments related to American's voluntary early retirement programs for the nine months ended September 30, 2022 and 2021 were approximately $180 million and $480 million, respectively. 60 Table of Contents Nonoperating Results Nine Months Ended September 30, Increase (Decrease) Percent Increase (Decrease) 2022 2021 (In millions, except percentage changes) Interest income $ 162 $ 26 $ 136 nm Interest expense, net (1,342) (1,214) (128) 10.5 Other income, net 274 239 35 14.6 Total nonoperating expense, net $ (906) $ (949) $ 43 (4.6) Interest income increased in the first nine months of 2022 compared to the first nine months of 2021 primarily as a result of higher returns on American's short-term investments. Interest expense, net increased in the first nine months of 2022 compared to the first nine months of 2021 primarily due to the impact of the AAdvantage Financing issued at the end of the first quarter of 2021, which improved American's liquidity position in response to the COVID-19 pandemic. In the first nine months of 2022, other nonoperating income, net primarily included $314 million of non-service related pension and other postretirement benefit plan income, offset in part by $32 million of net special charges principally for mark-to-market net unrealized losses associated with American's equity investments in GOL, Vertical and China Southern Airlines. In the first nine months of 2021, other nonoperating income, net included $251 million of non-service related pension and other postretirement benefit plan income, offset in part by $31 million of net special charges principally for non-cash charges associated with debt refinancings and extinguishments. Income Taxes American is a member of AAG's consolidated federal and certain state income tax returns. In the first nine months of 2022, American recorded an income tax benefit of $115 million. Substantially all of American’s income or loss before income taxes is attributable to the United States. See Note 5 to American’s Condensed Consolidated Financial Statements in Part I, Item 1B for additional information on income taxes. Liquidity and Capital Resources Liquidity At September 30, 2022, AAG had $14.3 billion in total available liquidity and $953 million in restricted cash and short-term investments. Additional detail regarding our available liquidity is provided in the table below (in millions): AAG American September 30, 2022 December 31, 2021 September 30, 2022 December 31, 2021 Cash $ 332 $ 273 $ 327 $ 265 Short-term investments 10,900 12,158 10,898 12,155 Undrawn facilities 3,063 3,411 3,063 3,411 Total available liquidity $ 14,295 $ 15,842 $ 14,288 $ 15,831 Given the actions we have taken in response to the COVID-19 pandemic and our assumptions about its future impact on travel demand, which could be materially different due to the 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 projected cash flows from operations . 61 Table of Contents In the ordinary course of our business, we or our affiliates may, at any time and from time to time, seek to prepay, retire or repurchase our outstanding debt through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases, prepayments, retirements or exchanges, if any, will be conducted on such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. For further information regarding our debt repurchases during the first nine months of 2022, see Note 5 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A. 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), 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 pay down such financing, in whole or in part, or the interest rate for the relevant financing will be increased. As of the most recent applicable measurement dates, we were in compliance with each of the foregoing LTV, collateral coverage and peak debt service coverage tests. Additionally, a significant portion of our debt financing agreements contain covenants requiring us to maintain an aggregate of at least $2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities, and our 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. Sources and Uses of Cash AAG Operating Activities Our net cash provided by operating activities was $2.3 billion and $1.9 billion for the first nine months of 2022 and 2021, respectively, a $427 million period-over-period increase. In the first nine months of 2021, we received cash proceeds of approximately $4.7 billion associated with the PSP Financial Assistance. Excluding the PSP Financial Assistance, our operating cash flows increased $5.1 billion compared to the first nine months of 2021 primarily due to higher profitability. In addition, during the first nine months of 2022, we made approximately $180 million in cash payments associated with our voluntary early retirement programs. Excluding the enhanced healthcare benefits provided to eligible team members, we estimate cash payments under these programs to be approximately $20 million in the remainder of 2022 and approximately $20 million in 2023. Investing Activities Our net cash used in investing activities was $916 million and $7.7 billion for the first nine months of 2022 and 2021, respectively. Our principal investing activities in the first nine months of 2022 included $1.9 billion of capital expenditures, which primarily related to the purchase of 17 Airbus A321neo aircraft and 12 spare engines, and the purchase of $205 million of equity investments, principally related to GOL. Additionally, we incurred $274 million related to airport construction projects, net of reimbursements, principally in connection with the renovation and expansion of Terminal 8 at John F. Kennedy International Airport (JFK) and the modernization of Terminals 4 and 5 at Los Angeles International Airport (LAX). These cash outflows were offset in part by $1.3 billion in net sales of short-term investments. Our principal investing activities in the first nine months of 2021 included $7.6 billion in net purchases of short-term investments as well as a $330 million increase in restricted short-term investments primarily related to collateral for the AAdvantage Financing. Additionally, we incurred $110 million related to airport construction projects, net of reimbursements, principally in connection with the renovation and expansion of Terminal 8 at JFK and the modernization of Terminals 4 and 5 at LAX. These cash outflows were offset in part by $181 million of proceeds from the sale of property and equipment principally related to our retired fleet and $168 million of proceeds primarily from aircraft sale-leaseback transactions. Additionally, aircraft purchase deposit returns of $874 million offset our capital expenditures for the first nine months of 2021, which expenditures were principally related to the harmonization of interior configurations across our mainline fleet and the purchase of two Airbus A321neo aircraft. 62 Table of Contents Financing Activities Our net cash used in financing activities was $1.3 billion for the first nine months of 2022 as compared to net cash provided by financing activities of $5.8 billion for the first nine months of 2021. Our principal financing activities in the first nine months of 2022 included $2.0 billion in repayments of debt and finance lease obligations, consisting of $1.7 billion of scheduled debt repayments including the repayment of $401 million in connection with the maturity of our 5.000% unsecured notes, and the repurchase of $349 million of unsecured notes on the open market. These cash outflows were offset in part by $699 million of long-term debt proceeds from the issuance of equipment notes related to the 2021-1 Aircraft EETCs. Our principal financing activities in the first nine months of 2021 included $12.1 billion in proceeds from the issuance of debt, including approximately $10.0 billion associated with the AAdvantage Financing, $1.0 billion in aggregate principal amount under the PSP2 Promissory Note, $946 million in aggregate principal amount under the PSP3 Promissory Note and the $150 million issuance of special facility revenue bonds related to JFK. We also received $460 million in net proceeds from the issuance of equity pursuant to an at-the-market offering. These cash inflows were offset in part by $6.6 billion in debt repayments, including prepayments totaling $2.8 billion for our revolving credit facilities, $950 million for the April 2016 Spare Parts Term Loan Facility, $550 million of outstanding loans under the Treasury Loan Agreement and $2.3 billion in scheduled debt repayments. In addition, we had $176 million of deferred financing cost cash outflows. American Operating Activities American’s net cash provided by operating activities was $1.5 billion and $4.4 billion for the first nine months of 2022 and 2021, respectively, a $2.9 billion period-over-period decrease. American had a $2.8 billion net decrease in intercompany cash receipts principally from AAG's financing transactions. Additionally, in the first nine months of 2021, American received cash proceeds of approximately $4.2 billion associated with the PSP Financial Assistance. Excluding the PSP Financial Assistance and the decrease in AAG's financing transactions, American's operating cash flows increased $4.1 billion compared to the first nine months of 2021 primarily due to higher profitability. Also, during the first nine months of 2022, American made approximately $180 million in cash payments associated with its voluntary early retirement programs. Excluding the enhanced healthcare benefits provided to eligible team members, American estimates cash payments under these programs to be approximately $20 million in the remainder of 2022 and approximately $20 million in 2023. Investing Activities American’s net cash used in investing activities was $874 million and $7.7 billion for the first nine months of 2022 and 2021, respectively. American’s principal investing activities in the first nine months of 2022 included $1.8 billion of capital expenditures, which primarily related to the purchase of 17 Airbus A321neo aircraft and 12 spare engines, and the purchase of $205 million of equity investments, principally related to GOL. Additionally, American incurred $274 million related to airport construction projects, net of reimbursements, principally in connection with the renovation and expansion of Terminal 8 at JFK and the modernization of Terminals 4 and 5 at LAX. These cash outflows were offset in part by $1.3 billion in net sales of short-term investments. American’s principal investing activities in the first nine months of 2021 included $7.6 billion in net purchases of short-term investments as well as a $330 million increase in restricted short-term investments primarily related to collateral for the AAdvantage Financing. Additionally, American incurred $110 million related to airport construction projects, net of reimbursements, principally in connection with the renovation and expansion of Terminal 8 at JFK and the modernization of Terminals 4 and 5 at LAX. These cash outflows were offset in part by $181 million of proceeds from the sale of property and equipment principally related to American's retired fleet and $168 million of proceeds primarily from aircraft sale-leaseback transactions. Additionally, aircraft purchase deposit returns of $874 million offset American's capital expenditures for the first nine months of 2021, which expenditures were principally related to the harmonization of interior configurations across its mainline fleet and the purchase of two Airbus A321neo aircraft. Financing Activities American’s net cash used in financing activities was $570 million for the first nine months of 2022 as compared to net cash provided by financing activities of $3.3 billion for the first nine months of 2021. 63 Table of Contents American’s principal financing activities in the first nine months of 2022 included $1.3 billion in repayments of debt and finance lease obligations, offset in part by $699 million of long-term debt proceeds from the issuance of equipment notes related to the 2021-1 Aircraft EETCs. American’s principal financing activities in the first nine months of 2021 included $10.1 billion in proceeds from the issuance of debt, including approximately $10.0 billion associated with the AAdvantage Financing and the $150 million issuance of special facility revenue bonds related to JFK. These cash inflows were offset in part by $6.6 billion in debt repayments, including prepayments totaling $2.8 billion for American's revolving credit facilities, $950 million for the April 2016 Spare Parts Term Loan Facility, $550 million of outstanding loans under the Treasury Loan Agreement and $2.3 billion in scheduled debt repayments. In addition, American had $174 million of deferred financing cost cash outflows. Commitments Significant Indebtedness As of September 30, 2022, AAG had $36.6 billion in long-term debt, including current maturities of $2.6 billion. As of September 30, 2022, American had $31.3 billion in long-term debt, including current maturities of $2.6 billion. All material changes in our significant indebtedness since our 2021 Form 10-K are discussed in Note 5 to AAG’s Condensed Consolidated Financial Statements in Part I, Item 1A and Note 4 to American’s Condensed Consolidated Financial Statements in Part I, Item 1B. Aircraft and Engine Purchase Commitments As of September 30, 2022, we had definitive purchase agreements for the acquisition of the following aircraft (1) : Remainder of 2022 2023 2024 2025 2026 2027 and Thereafter Total Airbus A320neo Family 8 1 9 22 22 5 67 Boeing 737 MAX Family — 19 29 20 20 — 88 787 Family 5 4 12 9 4 5 39 Embraer 175 3 — — — — — 3 Total 16 24 50 51 46 10 197 (1) Delivery schedule represents our best estimate as of the date of this report as described in footnote (d) to the " Contractual Obligations " table below. Actual delivery dates are subject to change, which could be material, based on various potential factors including production delays by the manufacturer and regulatory concerns. We also have agreements for 52 spare engines to be delivered in 2022 and beyond. We currently have financing commitments in place for all aircraft on order and scheduled to be delivered in 2022 and 2023, except for 14 Boeing 737 MAX Family aircraft scheduled to be delivered in 2023. Our ability to draw on the financing commitments we have in place is subject to (1) the satisfaction of various terms and conditions, including in some cases, on our acquisition of the aircraft by a certain date and (2) the performance by the counterparty providing such financing commitments of its obligations thereunder. We do not have financing commitments in place for any of the aircraft scheduled to be delivered in 2024 and beyond, except for five Boeing 787 Family aircraft scheduled to be delivered in 2024. Off-Balance Sheet Arrangements An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or that engages in leasing, hedging or research and development arrangements with us. There have been no material changes in our off-balance sheet arrangements as discussed in our 2021 Form 10-K. 64 Table of Contents Contractual Obligations The following table provides details of our estimated material cash requirements from contractual obligations as of September 30, 2022 (in millions). The table does not include commitments that are contingent on events or other factors that are uncertain or unknown at this time and is subject to other conventions as set forth in the applicable accompanying footnotes. Payments Due by Period Remainder of 2022 2023 2024 2025 2026 2027 and Thereafter Total American Long-term debt: Principal amount (a), (c) $ 466 $ 4,210 $ 3,510 $ 7,792 $ 4,455 $ 10,880 $ 31,313 Interest obligations (b), (c) 348 1,913 1,607 1,311 703 898 6,780 Finance lease obligations 88 247 195 131 106 126 893 Aircraft and engine purchase commitments (d) 501 1,642 3,168 3,711 2,736 1,024 12,782 Operating lease commitments 494 1,926 1,656 1,342 1,078 5,256 11,752 Regional capacity purchase agreements (e) 409 1,865 2,010 1,865 1,296 2,342 9,787 Minimum pension obligations (f) — 31 23 — — — 54 Retiree medical and other postretirement benefits 24 89 84 81 78 312 668 Other purchase obligations (g) 1,973 6,024 3,296 1,397 198 971 13,859 Total American Contractual Obligations 4,303 17,947 15,549 17,630 10,650 21,809 87,888 AAG Parent and Other AAG Subsidiaries Long-term debt: Principal amount (a) — — — 1,500 — 3,746 5,246 Interest obligations (b) — 121 121 146 159 765 1,312 Finance lease obligations — 10 10 — — — 20 Operating lease commitments 6 21 14 10 8 32 91 Minimum pension obligations (f) — 1 — — — 1 2 Total AAG Contractual Obligations $ 4,309 $ 18,100 $ 15,694 $ 19,286 $ 10,817 $ 26,353 $ 94,559 (a) Amounts represent contractual amounts due. Excludes $378 million and $23 million of unamortized debt discount, premium and issuance costs as of September 30, 2022 for American and AAG Parent, respectively. For additional information, see Note 5 and Note 4 to AAG’s and American’s Condensed Consolidated Financial Statements in Part I, Items 1A and 1B, respectively. (b) For variable-rate debt, future interest obligations are estimated using the current forward rates at September 30, 2022. (c) Includes $9.4 billion of future principal payments and $1.4 billion of future interest payments as of September 30, 2022, related to EETCs associated with mortgage financings of certain aircraft and spare engines. (d) See " Aircraft and Engine Purchase Commitments " in Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information about the firm commitment aircraft delivery schedule, in particular the footnotes to the table thereunder as to potential changes to such delivery schedule. Due to uncertainty surrounding the timing of delivery of certain aircraft, the amounts in the table represent our most current estimate based on contractual delivery schedules adjusted for updates and revisions to such schedules communicated to management by the applicable equipment manufacturer. However, the actual delivery schedule may differ from the table above, potentially materially, based on various potential factors including production delays by the manufacturer and regulatory concerns. Additionally, the amounts in the table exclude five and four Boeing 787-8 aircraft to be delivered in 2022 and 2023, respectively, as well as five Boeing 787-9 aircraft to be delivered in 2024, in each case, for which we have obtained committed lease financing. This financing is reflected in the operating lease commitments line above. 65 Table of Contents (e) Represents minimum payments under capacity purchase agreements with third-party regional carriers. These commitments are estimates of costs based on assumed minimum levels of flying under the capacity purchase agreements and our actual payments could differ materially. Rental payments under operating leases for certain aircraft flown under these capacity purchase agreements are reflected in the operating lease commitments line above. (f) Represents minimum pension contributions based on actuarially determined estimates as of December 31, 2021 and is based on estimated payments through 2031. (g) Includes purchase commitments for aircraft fuel, flight equipment maintenance, construction projects and information technology support and excludes obligations under certain fuel offtake agreements subject to material contingencies, such as the construction of a production facility. Capital Raising Activity and Other Possible Actions In light of our significant cash needs, in particular during periods in which we incur operating losses (such as during the COVID-19 pandemic), as well as our significant financial commitments related to, among other things, the servicing and amortization of existing debt and equipment leasing arrangements and new flight equipment, we and our subsidiaries will regularly consider, and enter into negotiations related to, capital raising and liability management activity, which may include the entry into leasing transactions and future issuances of, and transactions designed to manage the timing and amount of, secured or unsecured debt obligations or additional equity securities in public or private offerings or otherwise. The cash available from operations (if any) and these sources, however, may not be sufficient to cover our cash obligations because economic factors may reduce the amount of cash generated by operations or increase costs. For instance, an economic downturn or general global instability caused by military actions, terrorism, disease outbreaks (in particular the ongoing impact of the COVID-19 pandemic), natural disasters or other causes could reduce the demand for air travel, which would reduce the amount of cash generated by operations. An increase in costs, either due to an increase in borrowing costs caused by a reduction in credit ratings or a general increase in interest rates, or due to an increase in the cost of fuel, maintenance, aircraft, aircraft engines or parts, could decrease the amount of cash available to cover cash contractual obligations. Moreover, certain of our financing arrangements contain significant minimum cash balance or similar liquidity requirements. As a result, we cannot use all of our available cash to fund operations, capital expenditures and cash obligations without violating these requirements. See Note 5 and Note 4 to AAG's and American's Condensed Consolidated Financial Statements in Part I, Items 1A and 1B, respectively. In the past, we have from time to time refinanced, redeemed or repurchased our debt and taken other steps to reduce or otherwise manage the aggregate amount and cost of our debt, lease and other obligations or otherwise improve our balance sheet. Going forward, depending on market conditions, our cash position and other considerations, we may continue to take such actions. Critical Accounting Policies and Estimates For information regarding our critical accounting policies and estimates, see disclosures in the Consolidated Financial Statements and accompanying notes contained in our 2021 Form 10-K.