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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2023-02-22 compared with 2022-02-22 · 960 added, 1397 removed, 1962 unchanged (55% of the section changed)

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Therefore, actual results may differ.

See Note 7 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 6 to American’s Consolidated Financial Statements in Part II, Item 8B for additional discussion regarding risk management matters.

Aircraft Fuel

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Because of the amount of fuel needed to operate our business, even a relatively small increase or decrease in the price of aircraft fuel can have a material effect on our operating results and liquidity.

Market prices for aircraft fuel can be volatile, with market spot prices ranging from a low of approximately $0.37 per gallon to a high of approximately $2.35 per gallon during the period from January 1, 2019 to December 31, 2021.

Market prices for aircraft fuel have fluctuated substantially over the past several years and prices continue to be highly volatile, with market spot prices ranging from a low of approximately $0.37 per gallon to a high of approximately $4.40 per gallon during the period from January 1, 2020 to December 31, 2022.

As of December 31, 2022, we did not have any fuel hedging contracts outstanding to hedge our fuel consumption.

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dollar value of foreign currency-denominated transactions.

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

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

dollar from 2022 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 $175 million for the year ended December 31, 2022.

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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Our earnings and cash flow are affected by changes in interest rates due to the impact those changes have on our interest expense from variable-rate debt instruments and our interest income from short-term, interest-bearing investments.

Our largest exposure with respect to variable-rate debt comes from changes in LIBOR.

We had variable-rate debt instruments representing approximately 30% of our total long-term debt at December 31, 2021.

Our largest exposure with respect to variable-rate debt comes from changes in the relevant benchmark rate underlying such debt financings, principally LIBOR and SOFR.

We had variable-rate debt instruments representing 27% of our total long-term debt at December 31, 2022.

We currently do not have an interest rate hedge program to hedge our exposure to floating interest rates on our variable-rate debt obligations.

If annual interest rates increase 100 basis points, based on our December 31, 2022 variable-rate debt and short-term investments balances, annual interest expense on variable-rate debt would increase by approximately $95 million and annual interest income on short-term investments would increase by approximately $90 million.

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

Additionally, the fair value of fixed-rate debt would have decreased by approximately $670 million for AAG and $480 million for American.

On July 27, 2017, the U.K.

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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.

Similarly, it is not possible to predict whether LIBOR will continue to be viewed as an acceptable market benchmark, what rate or rates may become acceptable alternatives to LIBOR, or what effect these changes in views or alternatives may have on financial markets for LIBOR-linked financial instruments.

It is not possible to predict what rate or rates may become the predominant alternative to LIBOR, or what effect these changes in views or alternatives may have on financial markets for LIBOR-linked financial instruments.

While the U.S.

Federal Reserve, in conjunction with the Alternative Reference Rates Committee, has chosen SOFR as the recommended risk-free reference rate for the U.S.

Federal Reserve, in conjunction with the Alternative Reference Rates Committee, has chosen SOFR, and specifically Term SOFR, as the recommended risk-free reference rate for the U.S.

(calculated based on repurchase agreements backed by treasury securities), we cannot currently predict the extent to which this index will gain widespread acceptance as a replacement for LIBOR.

It is not possible to predict the effect of these changes, other reforms or the establishment of alternative reference rates in the United Kingdom, the United States or elsewhere.

We may in the future pursue amendments to our LIBOR-based debt transactions to provide for a transaction mechanism or other reference rate in anticipation of LIBOR’s discontinuation, but we may not be able to reach agreement with our lenders on any such amendments.

As of December 31, 2021, we had $10.9 billion of borrowings based on LIBOR.

The replacement of LIBOR with a comparable or successor rate could cause the amount of interest payable on our long-term debt to be different or higher than expected.

As of December 31, 2022, we had $9.2 billion of borrowings with interest rates linked to LIBOR.

We have commenced the process of amending our LIBOR-based financing agreements to transition them to successor reference rates in anticipation of LIBOR’s discontinuation, but we may not be able to reach agreements with all affected lenders, or to do so on favorable terms.

Additionally, 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.

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

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

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 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 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 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.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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.

As discussed in Notes 1(j) and 6 to the consolidated financial statements, the Company had $4.7 billion of tax operating loss and other carryforwards, which are recorded as deferred tax assets at December 31, 2022.

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.

In evaluating the need for a valuation allowance, management considers 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.

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

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

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Diluted 655,122 644,015 483,888

Cash dividends declared per common share $ — $ 0.10 $ 0.40

See accompanying notes to consolidated financial statements.

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CONSOLIDATED BALANCE SHEETS

(In millions, except share and par value)

(In millions, except share and par value amounts)

Current assets

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Depreciation and amortization 2,298 2,335 2,370

Net gains from sale of property and equipment and sale-leaseback transactions ( 22 ) ( 95 ) ( 112 )

Special items, net non-cash 229 83 1,599

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Share-based compensation 78 98 91

Net gains from sale of property and equipment and sale-leaseback transactions — ( 22 ) ( 95 )

Other, net ( 37 ) 38 47

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Airport construction projects, net of reimbursements ( 360 ) ( 204 ) ( 173 )

Proceeds from sale of property and equipment 193 351 54

Proceeds from sale-leaseback transactions 86 181 665

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

Proceeds from sale of property and equipment 61 193 351

Sales of short-term investments 14,972 13,923 2,803

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

Purchases of short-term investments ( 11,257 ) ( 19,454 ) ( 5,873 )

Decrease (increase) in restricted short-term investments 1 ( 401 ) ( 308 )

Purchase of equity investments ( 321 ) ( 28 ) —

Other investing activities — 15 151

Net cash used in investing activities ( 5,983 ) ( 4,342 ) ( 2,243 )

Net cash provided by (used in) investing activities 636 ( 5,983 ) ( 4,342 )

Cash flows from financing activities:

Proceeds from issuance of long-term debt 12,190 11,780 3,960

Payments on long-term debt and finance leases ( 3,752 ) ( 7,343 ) ( 3,535 )

Proceeds from issuance of equity 460 2,970 —

Proceeds from issuance of long-term debt 1,069 12,190 11,780

Deferred financing costs ( 4 ) ( 209 ) ( 93 )

Treasury stock repurchases and shares withheld for taxes pursuant to employee stock plans ( 18 ) ( 173 ) ( 1,097 )

Shares withheld for taxes pursuant to employee stock plans and treasury stock repurchases ( 21 ) ( 18 ) ( 173 )

Proceeds from issuance of equity — 460 2,970

Dividend payments — — ( 43 )

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Balance at December 31, 2019 $ 4 $ 3,945 $ ( 6,331 ) $ 2,264 $ ( 118 )

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 (DCR) — 7 — — 7

Share-based compensation expense — 94 — — 94

Balance at December 31, 2019 4 3,945 ( 6,331 ) 2,264 ( 118 )

Net loss — — — ( 8,885 ) ( 8,885 )

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— — — ( 43 ) ( 43 )

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

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

Share-based compensation expense — 91 — — 91

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— 460 — — 460

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

Impact of adoption of Accounting Standards Update (ASU) 2020-06 related to convertible instruments — ( 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

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

Net income — — — 127 127

Other comprehensive income, net — — 1,357 — 1,357

Issuance of 2,914,866 shares of AAG common stock pursuant to employee stock plans net of shares withheld for cash taxes

— ( 21 ) — — ( 21 )

Share-based compensation expense — 78 — — 78

Balance at December 31, 2022 $ 6 $ 7,291 $ ( 4,585 ) $ ( 8,511 ) $ ( 5,799 )

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.

On December 9, 2013, a subsidiary of AMR Corporation (AMR) merged with and into US Airways Group, Inc.

(US Airways Group), a Delaware corporation, which survived as a wholly-owned subsidiary of AAG, and AAG emerged from Chapter 11 (the Merger).

Upon closing of the Merger and emergence from Chapter 11, AMR changed its name to American Airlines Group Inc.

(PSA) and Piedmont Airlines, Inc.

(Piedmont), that operate under the brand American Eagle.

All significant intercompany transactions have been eliminated.

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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)

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

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

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

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 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 .

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.

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.

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 peak 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 projected cash flows from operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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

(Envoy), Piedmont Airlines, Inc.

(Piedmont) and PSA Airlines, Inc.

(PSA and together with American, Envoy and Piedmont, the Subsidiaries), entered into a Payroll Support Program Agreement (the PSP1 Agreement) with Treasury, with respect to PSP1 provided pursuant to the CARES Act.

In connection with our entry into the PSP1 Agreement, on the PSP1 Closing Date, AAG also entered into a warrant agreement (the PSP1 Warrant Agreement) with Treasury and issued the PSP1 Promissory Note to Treasury, with the Subsidiaries as guarantors (the Guarantors).

PSP1 Agreement

In connection with PSP1, we are required to comply with the relevant provisions of the CARES Act, including the requirement that funds provided pursuant to the PSP1 Agreement be used exclusively for the continuation of payment of eligible employee wages, salaries and benefits, the 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 and PSP3.

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, which was in March 2021.

See below for additional information on the Treasury Loan Agreement.

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 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 $ 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.

PSP1 Warrant Agreement and PSP1 Warrants

As partial compensation to the U.S.

Government for the provision of financial assistance under the PSP1 Agreement, and pursuant to the PSP1 Warrant Agreement, AAG 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.

Each PSP1 Warrant expires on the fifth anniversary of the date of issuance of such PSP1 Warrant.

The PSP1 Warrants will be exercisable either through net share settlement or cash, at our option.

The PSP1 Warrants were issued solely as compensation to the U.S.

Government related to entry into the PSP1 Agreement.

No separate proceeds (apart from the financial assistance described above) were received upon issuance of the PSP1 Warrants or will be received upon exercise thereof.

(b) Government Assistance

Payroll Support Programs

During 2020 and 2021, American, Envoy Air Inc.

(Envoy), Piedmont and PSA (together with American, Envoy and Piedmont, the Subsidiaries) entered into payroll support program agreements (PSP Agreements) with the U.S.

Department of Treasury (Treasury) pursuant to the payroll support program established under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (PSP1), the payroll support program established under the Subtitle A of Title IV of Division N of the Consolidated Appropriations Act, 2021 (PSP Extension Law) (PSP2) and the payroll support program established under the American Rescue Plan Act of 2021 (ARP) (PSP3).

The aggregate amount of financial assistance received was approximately $ 12.8 billion, and as partial compensation to the U.S.

Government for the provision of financial assistance provided under each of these programs, AAG issued promissory notes and warrants to Treasury.

The table below provides a summary of the financial assistance received and the promissory notes and the warrants issued under each program (in millions, except exercise price amounts):

Program Closing Date PSP Financial Assistance Promissory Notes (1)

PSP Warrants Total Warrants Issued (Shares) (2)

Exercise Price of Warrants

PSP1 April 20, 2020 $ 4,138 $ 1,757 $ 63 $ 5,958 14.0 $ 12.51

PSP2 January 15, 2021 2,427 1,030 76 3,533 6.6 15.66

PSP3 April 23, 2021 2,290 959 46 3,295 4.4 21.75

Total $ 8,855 $ 3,746 $ 185 $ 12,786 25.0

(1) See Note 4 for further information on the promissory notes issued.

(2) The payroll support program warrants (PSP Warrants) are subject to certain anti-dilution provisions, do not have any voting rights and are freely transferable, with registration rights.

Each warrant expires on the fifth anniversary of the date of issuance, with expiration dates ranging from April 2025 to June 2026, and will be exercisable either through net share settlement or cash, at our option.

The warrants were issued solely as compensation to the U.S.

Government related to entry into the PSP Agreements.

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

In connection with the PSP Agreements entered into with Treasury, we were required to comply with the relevant provisions of the CARES Act, the PSP Extension Law, and the ARP, which included the requirement that funds provided pursuant to these programs 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, the requirement that certain levels of commercial air service be maintained, provisions that prohibited the repurchase of AAG common stock and the payment of common stock dividends as well as provisions that restrict the payment of certain executive

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

compensation.

As of December 31, 2022, all of these provisions have expired except for those related to the payment of certain executive compensation, which expire on April 1, 2023.

For accounting purposes, the $ 12.8 billion of aggregate financial assistance received pursuant to the PSP Agreements was allocated to the promissory notes, warrants and other financial assistance (PSP Financial Assistance).

The aggregate principal amount of the promissory notes was recorded as unsecured long-term debt and the total fair value of the warrants, estimated using a Black-Scholes option pricing model, was recorded in stockholders’ deficit in the consolidated balance sheets.

The remaining amounts were recognized in 2020 and 2021 as a credit to special items, net in the consolidated statements of operations over the period which the continuation of payment of eligible employee wages, salaries and benefits was required.

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.

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).

In connection with 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 a portion of the 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.

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.

For accounting purposes, the fair value for the Treasury Loan Warrant Shares, estimated using a Black-Scholes option pricing model, was recorded in stockholders' deficit 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 PSP 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 .

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.

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

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

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

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

The treasury stock method is no longer available.

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

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

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

Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting and ASU 2022-06:

Deferral of the Sunset Date of Topic 848

ASU 2020-04 provides optional temporary guidance for applying GAAP to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform.

Topic 848 is effective as of March 12, 2020 through December 31, 2022;

however, because the intended cessation date of LIBOR was deferred to June 30, 2023, ASU 2022-06 was issued in December 2022 to extend the current relief in Topic 848 through December 31, 2024.

We will adopt Topic 848 when our relevant contracts are modified upon transition to alternative reference rates and we do not expect the application of Topic 848 to have a material impact on our consolidated financial statements.

(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.

Unrealized gains and losses are recorded in accumulated other comprehensive loss on our consolidated balance sheets.

Realized gains and losses are recorded in nonoperating other income, net on our consolidated statements of operations.

Unrealized gains and losses are recorded as a component of accumulated other comprehensive loss on our consolidated balance sheets.

For investments in an unrealized loss position, we determine whether a credit loss exists by considering information about the collectability of the instrument, current market conditions and reasonable and supportable forecasts of economic conditions.

There have been no credit losses.

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.

Our share of equity method investees’ 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 equity investments.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

(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

We have restricted cash and short-term investments related primarily to collateral held to support workers’ compensation obligations, collateral associated with the AAdvantage Financing and money market funds to be used to finance a substantial portion of the cost of the renovation and expansion of Terminal 8 at John F.

Kennedy International Airport (JFK).

(f) Accounts Receivable, Net

Accounts receivable primarily consist of amounts due from credit card processing companies for tickets sold to individual passengers, amounts due from airline and non-airline business partners, including our co-branded credit card partners and cargo customers.

Receivables from ticket sales are short-term, mostly settled within seven days after sale.

Receivables from our business partners are typically settled within 30 days.

All accounts receivable are reported net of an allowance for credit losses, which was not material as of December 31, 2022 and 2021.

We consider past and future financial and qualitative factors, including aging, payment history and other credit monitoring indicators, when establishing the allowance for credit losses.

(g) Aircraft Fuel, Spare Parts and Supplies, Net

Aircraft fuel is recorded on a first-in, first-out basis.

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

(g) Operating Property and Equipment

(h) Operating Property and Equipment

Operating property and equipment is recorded at cost and depreciated or amortized to residual values over the asset’s estimated useful life or the lease term, whichever is less, using the straight-line method.

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Capitalized software 5 – 10 years

Total depreciation and amortization expense was $ 2.3 billion, $ 2.4 billion and $ 2.6 billion for the years ended December 31, 2021, 2020 and 2019, respectively.

Total depreciation and amortization expense was $ 2.3 billion for each of the years ended December 31, 2022 and 2021 and $ 2.4 billion for the year ended December 31, 2020.

We assess impairment of operating property and equipment when events and circumstances indicate that the assets may be impaired.

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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 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 .

In 2022, we recorded $ 149 million in non-cash special impairment charges 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 determine if an arrangement is a lease at inception.

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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, on our consolidated balance sheets.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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.

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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.

Under certain of our capacity purchase agreements with third-party regional carriers, we do not own the underlying aircraft.

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For real estate, we account for the lease and non-lease components as a single lease component.

(i) Income Taxes

(j) Income Taxes

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

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

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

We have determined that positive factors outweigh negative factors in the determination of the realizability of our deferred tax assets.

Goodwill represents the purchase price in excess of the fair value of the net assets acquired and liabilities assumed in connection with the 2013 merger with US Airways Group, Inc.

(US Airways Group).

We have one reporting unit.

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The carrying value of our goodwill on our consolidated balance sheets was $ 4.1 billion as of December 31, 2022 and 2021.

(k) Other Intangibles, Net

Intangible assets consist primarily of certain domestic airport slots and gate leasehold rights, customer relationships, marketing agreements, international slots and route authorities and tradenames.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

(l) Other Intangibles, Net

Intangible assets consist primarily of certain domestic airport slots and gate leasehold rights, customer relationships, marketing agreements, commercial agreements, international slots and route authorities and tradenames.

Definite-Lived Intangible Assets

Definite-lived intangible assets are originally recorded at their acquired fair values, subsequently amortized over their respective estimated useful lives and are assessed for impairment whenever events and circumstances indicate that the assets may be impaired.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

The following table provides information relating to our amortizable intangible assets as of December 31, 2022 and 2021 (in millions):

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Certain domestic airport slots and airport gate leasehold rights are amortized on a straight-line basis over 25 years.

The customer relationships and marketing agreements were identified as intangible assets subject to amortization and are amortized on a straight-line basis over approximately nine years and 30 years, respectively.

Tradenames are fully amortized.

Certain marketing agreements were identified as intangible assets subject to amortization and are amortized on a straight-line basis over approximately 30 years.

Customer relationships and tradenames are fully amortized.

We recorded amortization expense related to these intangible assets of $ 41 million for each of the years ended December 31, 2022, 2021 and 2020.

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Indefinite-Lived Intangible Assets

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

Indefinite-lived intangible assets include certain domestic airport slots, international slots and route authorities and in 2022, our commercial agreement with GOL Linhas Aéreas Inteligentes S.A.

We assess indefinite-lived intangible assets for impairment annually or more frequently if events or circumstances indicate that the fair values of indefinite-lived intangible assets may be lower than their carrying values.

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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.

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.

Based upon our annual assessment, there were no material indefinite-lived intangible asset impairments in 2022.

We had $ 1.9 billion and $ 1.8 billion of indefinite-lived intangible assets on our consolidated balance sheets as of December 31, 2022 and 2021, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

(l) Revenue Recognition

The following are the significant categories comprising our reported operating revenues (in millions):

(m) Revenue Recognition

The following are the significant categories comprising our operating revenues (in millions):

Year Ended December 31,

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Loyalty revenue - marketing services 2,657 2,166 1,825

2,166 1,825 2,361

Other revenue 513 339 225

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

The air traffic liability principally represents tickets sold for future travel on American and partner airlines, as well as estimated future refunds and exchanges of tickets sold for past travel.

The air traffic liability principally represents tickets sold for future travel on American and partner airlines.

The majority of tickets sold are nonrefundable.

A small percentage of tickets, some of which are partially used tickets, expire unused.

Due to complex pricing structures, refund and exchange policies, and interline agreements with other airlines, certain amounts are recognized in passenger revenue using estimates regarding both the timing of the revenue recognition and the amount of revenue to be recognized.

These estimates are generally based on the analysis of our historical data.

We have consistently applied this accounting method to estimate revenue from unused tickets at the date of travel.

Estimated future refunds and exchanges included in the air traffic liability are routinely evaluated based on subsequent activity to validate the accuracy of our estimates.

The estimate for tickets expected to expire unused is generally based on an analysis of our historical data.

We have consistently applied this accounting method to estimate and recognize revenue from unused tickets at the date of travel.

This estimate is periodically evaluated based on subsequent activity to validate its accuracy.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Loyalty Revenue

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

In response to the COVID-19 pandemic, we suspended the expiration of mileage credits through 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 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.

The estimated selling price of mileage credits 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.

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 five years .

We sell mileage credits to participating airline partners and non-airline business partners, including our co-branded credit card partners, under contracts with remaining terms generally from one to seven years as of December 31, 2022.

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

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

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

the transportation component;

and the use of intellectual property, including the American brand and access to loyalty program member lists, which is the predominant element in the agreements, as well as advertising (collectively, the marketing component).

Accordingly, we recognize the marketing component in other revenue in the period of the mileage sale following the sales-based royalty method.

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

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

the transportation component and the marketing component.

The transportation component represents the estimated selling price of future travel awards and is determined using the same equivalent ticket value approach described above.

The portion of each mileage credit sold attributable to transportation is initially deferred and then recognized in passenger revenue when mileage credits are redeemed and transportation is provided.

The marketing component includes the use of intellectual property, including the American brand and access to loyalty program member lists, which is the predominant element in these agreements, as well as advertising.

We recognize the marketing component in other revenue in the period of the mileage credit sale following the sales-based royalty method.

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.

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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 $ 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.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Contract Balances

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Mileage credits are combined in one homogenous pool and are not separately identifiable.

As such, the revenue is comprised of miles that were part of the loyalty program deferred revenue balance at the beginning of the period, as well as miles that were issued during the period.

(2) Mileage credits can be redeemed at any time and generally do not expire as long as that AAdvantage member has any type of qualifying activity at least every 18 months.

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 such, the revenue is comprised of mileage credits that were part of the loyalty program deferred revenue balance at the beginning of the period, as well as mileage credits that were issued during the period.

(2) Mileage credits can be redeemed at any time and generally do not expire as long as that AAdvantage member has any type of qualifying activity at least every 24 months or if the AAdvantage member is the primary holder of a co-branded credit card.

As of December 31, 2022, our current loyalty program liability was $ 3.2 billion and represents our current estimate of revenue expected to be recognized in the next 12 months based on historical as well as projected trends, with the balance reflected in long-term loyalty program liability expected to be recognized as revenue in periods thereafter.

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

The air traffic liability principally represents tickets sold for future travel on American and partner airlines, as well as estimated future refunds and exchanges of tickets sold for past travel.

The air traffic liability principally represents tickets sold for future travel on American and partner airlines.

The balance in our air traffic liability also fluctuates with seasonal travel patterns.

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Accordingly, any revenue associated with tickets sold for future travel will be recognized within 12 months.

In response to the COVID-19 pandemic, we extended the contract duration for certain tickets to September 30, 2022, principally those tickets which were issued in 2020 and 2021.

Additionally, we extended the contract duration to December 31, 2022 for tickets to certain international destinations.

For 2022, $ 4.8 billion of revenue was recognized in passenger revenue that was included in our air traffic liability at December 31, 2021.

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 credit losses, which have been minimal.

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

(m) Maintenance, Materials and Repairs

Maintenance and repair costs for owned and leased flight equipment are charged to operating expense as incurred, except costs incurred for maintenance and repair under flight hour maintenance contract agreements, which are accrued based on contractual terms when an obligation exists.

(n) Selling Expenses

Tickets issued in 2022 and thereafter are no longer subject to change fees which provides more flexibility for customers to change travel plans.

Given this new flexibility offered to our customers, our estimate of revenue that will be recognized from the air traffic liability for future flown or unused tickets may be subject to variability and differ from historical experience.

(n) Maintenance, Materials and Repairs

Maintenance and repair costs for owned and leased flight equipment are charged to operating expense as incurred, except costs incurred for maintenance and repair under certain flight hour maintenance contract agreements, which are accrued based on contractual terms when an obligation exists.

(o) Selling Expenses

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

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Advertising costs are expensed as incurred.

Advertising expense was $ 105 million, $ 57 million and $ 144 million for the years ended December 31, 2021, 2020 and 2019, respectively.

(o) Share-based Compensation

Advertising expense was $ 105 million for each of the years ended December 31, 2022 and 2021 and $ 57 million for the year ended December 31, 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

(p) Share-based Compensation

We account for our share-based compensation expense based on the fair value of the stock award at the time of grant, which is recognized ratably over the vesting period of the stock award.

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See Note 14 for further discussion of share-based compensation.

(p) Foreign Currency Gains and Losses

(q) Foreign Currency Gains and Losses

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, 2022, 2021 and 2020, respectively, foreign currency losses were $ 38 million, $ 4 million and $ 24 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, international navigation fees and certain general and administrative expenses.

(r) Regional Expenses

(r) Other Operating Expenses

Other operating expenses includes costs associated with aircraft food and catering, crew travel, ground and cargo handling, passenger accommodation, international navigation fees, aircraft cleaning and certain general and administrative expenses.

(s) Regional Expenses

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.

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, 2022 , 2021, and 2020 include $ 321 million, $ 316 million and $ 325 million of depreciation and amortization, respectively, and $ 5 million, $ 6 million and $ 13 million of aircraft rent, respectively.

7 unchanged sentences

2022 2021 2020

Fleet impairment (1)

$ 149 $ — $ 1,484

Litigation reserve adjustments 37 ( 19 ) —

PSP Financial Assistance (2)

1 unchanged sentence

Severance expenses (3)

Litigation reserve adjustments ( 19 ) — ( 53 )

Mark-to-market adjustments on bankruptcy obligations, net — ( 3 ) ( 49 )

( 3 ) ( 49 ) ( 11 )

Fleet impairment (4)

Labor contract expenses (4)

Fleet restructuring expenses (6)

Merger integration expenses (7)

Other operating special items, net 7 10 ( 18 )

11 unchanged sentences

Nonoperating special items, net 74 60 170

(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.

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.

Income tax special items, net ( 9 ) — —

(1) Fleet impairment for 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.

Fleet impairment for 2021 and 2020 included charges resulting 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.

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.

(2) The PSP Financial Assistance represents recognition of a portion of the financial assistance received from Treasury pursuant to the payroll support programs established by the U.S.

See Note 1(b) for further information.

(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.

(4) 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.

(5) 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 carriers included on the pilot seniority list as of September 1, 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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) 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.

(6) Mark-to-market adjustments on equity and other investments, net principally included net unrealized gains and losses associated with certain equity investments and certain other investments.

See Note 8 for further information related to our equity investments.

Earnings (Loss) Per Common Share

The following table sets forth the computation of basic and diluted earnings (loss) per common share (EPS) (in millions, except share and per share amounts):

The following table provides the computation of basic and diluted earnings (loss) per common share (EPS) (in millions, except share and per share amounts):

Year Ended December 31,

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Basic weighted average common shares outstanding 650,345 644,015 483,888

Dilutive effect of stock awards and warrants — — 906

Dilutive effect of restricted stock unit awards 1,579 — —

Dilutive effect of certain PSP Warrants and Treasury Loan Warrants 3,198 — —

Diluted weighted average common shares outstanding 655,122 644,015 483,888

Diluted EPS $ 0.19 $ ( 3.09 ) $ ( 18.36 )

Securities that could potentially dilute EPS in the future, and which were excluded from the calculation of diluted EPS because inclusion of such shares would be antidilutive, are as follows (in thousands):

The following were excluded from the calculation of diluted EPS because inclusion of such shares would be antidilutive (in thousands):

Year Ended December 31,

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6.50 % convertible senior notes

PSP1 Warrants 5,392 349 —

61,728 61,728 31,882

Restricted stock unit awards 3,987 3,420 4,584

Treasury Loan Warrants 1,681 107 —

PSP2 Warrants 1,300 — —

In addition, certain shares underlying our PSP Warrants and Treasury Loan Warrants for the years ended December 31, 2022, 2021 and 2020, were excluded from the calculation of diluted EPS because inclusion of such shares would be antidilutive.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

2 unchanged sentences

$ 1,752 $ 1,770

2013 Revolving Facility (a)

2014 Term Loan Facility, variable interest rate of 6.14 %, installments through 2027 (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)

December 2016 Term Loan Facility (a)

11.75 % senior secured notes, interest only payments until due in July 2025 (b)

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

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

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

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

AAdvantage Term Loan Facility, variable interest rate of 8.99 %, installments beginning in July 2023 through April 2028 (c)

Enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 2.88 % to 7.13 %, averaging 3.74 %, maturing from 2023 to 2034 (d)

Equipment loans and other notes payable, fixed and variable interest rates ranging from 3.33 % to 8.01 %, averaging 5.95 %, maturing from 2023 to 2034 (e)

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

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

5.000 % senior notes, interest only payments until due in June 2022 (i)

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

5.000 % senior notes

Total long-term debt 35,289 37,781

2 unchanged sentences

Long-term debt, net of current maturities $ 31,844 $ 35,008

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

As of December 31, 2022, the maximum availability under our revolving credit and other facilities is as follows (in millions):

4 unchanged sentences

Total $ 3,033

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

As of December 31, 2022, American had an undrawn $ 150 million short-term revolving credit facility which expired in January 2023.

American also had $ 70 million of available borrowing base under cargo receivables facility that was set to expire in December 2022, but which has been extended through December 2023.

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.

2 unchanged sentences

Total $ 35,289

(a) 2013, 2014, April 2016 and December 2016 Credit Facilities

(a) 2013 and 2014 Credit Facilities, April 2016 Revolving Facility and December 2016 Credit Facilities

2013 Credit Facilities

3 unchanged sentences

and the 2013 Revolving Facility together with the 2013 Term Loan Facility, the 2013 Credit Facilities), which reduced the total aggregate commitments under the 2013 Revolving Facility to $ 750 million from $ 1.0 billion.

In addition, certain lenders party to the 2013 Credit Agreement extended the maturity date of their commitments under the 2013 Revolving Facility to October 2024 from October 2023.

In 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.

In addition, certain lenders party to the 2013 Credit Agreement extended the maturity date of a substantial portion of their commitments under the 2013 Revolving Facility to October 2024 from October 2023.

As of December 31, 2022, 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

3 unchanged sentences

and the 2014 Revolving Facility together with the 2014 Term Loan Facility, the 2014 Credit Facilities), which increased the total aggregate commitments under the 2014 Revolving Facility to $ 1.6 billion from $ 1.5 billion.

In addition, certain lenders party to the 2014 Credit Agreement extended the maturity date of their commitments under the 2014 Revolving Facility to October 2024 from October 2023.

In addition, certain lenders party to the 2014 Credit Agreement extended the maturity date of a substantial portion of their commitments under the 2014 Revolving Facility to October 2024 from October 2023.

In January 2020, American and AAG entered into the Eighth Amendment to the 2014 Credit Agreement, pursuant to which American refinanced the 2014 Term Loan Facility, increasing the total aggregate principal amount outstanding to $ 1.2 billion, reducing the LIBOR margin from 2.00 % to 1.75 %, with a LIBOR floor of 0 %, and reducing the base rate margin from 1.00 % to 0.75 %.

In addition, the maturity date for the 2014 Term Loan Facility was extended to January 2027 from October 2021.

In 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, 2022, there were no borrowings or letters of credit outstanding under the 2014 Revolving Facility.

April 2016 Credit Facilities

April 2016 Revolving Facility

In November 2019, American and AAG entered into the Fifth Amendment to Credit and Guaranty Agreement, amending the Credit and Guaranty Agreement dated as of April 29, 2016 (as previously amended, the April 2016 Credit Agreement;

the revolving credit facility established thereunder, the April 2016 Revolving Facility;

the term loan facility established thereunder, the 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 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.

the revolving credit facility established thereunder, the April 2016 Revolving Facility), 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 a substantial portion of their commitments under the April 2016 Revolving Facility to October 2024 from October 2023.

As of December 31, 2022, there were no borrowings outstanding under the April 2016 Revolving Facility.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

December 2016 Credit Facilities

1 unchanged sentence

the term loan facility established thereunder, the December 2016 Term Loan Facility;

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

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:

2013 Credit Facilities 2014 Credit Facilities April 2016 Credit Facilities December 2016 Credit Facilities

and together with the revolving credit facility contemplated but never established thereunder, the December 2016 Credit Facilities).

In December 2022, American repaid in full the $ 1.2 billion aggregate principal amount of outstanding term loans under the December 2016 Term Loan Facility which was due to mature in December 2023 and terminated the December 2016 Credit Facilities.

Certain details of our 2013 and 2014 Credit Facilities (collectively referred to as the Credit Facilities) and April 2016 Revolving Facility are shown in the table below as of December 31, 2022:

2013 Credit Facilities 2014 Credit Facilities

2013 Term Loan 2013

1 unchanged sentence

Facility April 2016

Facility December 2016 Term Loan

Aggregate principal issued

3 unchanged sentences

drawn (in millions) $ 1,752 $ — $ 1,196 $ — $ —

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

Maturity date June

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

4 unchanged sentences

The 2013 Revolving Facility, 2014 Revolving Facility and April 2016 Revolving Facility are each subject to an undrawn annual fee of 0.63 %.

Subject to certain limitations and exceptions, the Credit Facilities are secured by collateral, including certain spare parts, slots, route authorities, simulators and leasehold rights.

Subject to certain limitations and exceptions, the Credit Facilities and April 2016 Revolving Facility are secured by collateral, including certain spare parts, slots, route authorities, simulators and leasehold rights.

American has the ability to make future modifications to the collateral pledged, subject to certain restrictions.

American’s obligations under the Credit Facilities are guaranteed by AAG.

American is required to maintain a certain minimum ratio of appraised value of the collateral to the outstanding loans as further described below in “Certain Covenants.”

The Credit Facilities contain events of default customary for similar financings, including cross default to other material indebtedness.

Upon the occurrence of an event of default, the outstanding obligations may be accelerated and become due and payable immediately.

In addition, if a “change of control” occurs, American will (absent an amendment or waiver) be required to repay at par the loans outstanding under the Credit Facilities and terminate the 2013 Revolving Facility, 2014 Revolving Facility and April 2016 Revolving Facility and any revolving credit facility established under the December 2016 Credit Facilities.

The Credit Facilities also include covenants that, among other things, require AAG to maintain an aggregate of at least $ 2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities and limit the ability of AAG and its restricted subsidiaries to pay dividends and make certain other payments, make certain investments, incur additional indebtedness, incur liens on the collateral, dispose of the collateral, enter into certain affiliate transactions and engage in certain business activities, in each case subject to certain exceptions.

American’s obligations under the Credit Facilities and April 2016 Revolving Facility are guaranteed by AAG.

The Credit Facilities and April 2016 Revolving Facility contain events of default customary for similar financings, including cross default and cross-acceleration to other material indebtedness.

(b) Senior Secured Notes

5 unchanged sentences

The obligations of American under the 11.75 % Senior Secured Notes are fully and unconditionally guaranteed on a senior unsecured basis by AAG.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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

Subject to certain limitations and exceptions, the 11.75 % Senior Secured Notes are secured on a first-lien basis by security interests in certain assets, rights and properties utilized by American in providing its scheduled air carrier services to and from certain airports in the United States and certain airports in Australia, Canada, the Caribbean, Central America, China, Hong Kong, Japan, Mexico, South Korea, and Switzerland (collectively, the First Lien 11.75 % Senior Secured Notes Collateral).

American’s obligations with respect to the 11.75 % Senior Secured Notes are also secured on a second-lien basis by security interests in certain assets, rights and properties utilized by American in providing its scheduled air carrier services to and from certain airports in the United States and certain airports in the European Union and the United Kingdom (collectively, the Second Lien 11.75 % Senior Secured Notes Collateral and together with the First Lien 11.75 % Senior Secured Notes Collateral, the 11.75 % Senior Secured Notes Collateral).

American may be required to pledge additional collateral in the future under the terms of the 11.75 % Senior Secured Notes, and in certain circumstances may elect to pledge additional collateral as a replacement for existing collateral.

American’s obligations with respect to the 11.75 % Senior Secured Notes are also secured on a second-lien basis by security interests

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

in certain assets, rights and properties utilized by American in providing its scheduled air carrier services to and from certain airports in the United States and certain airports in the European Union and the United Kingdom (collectively, the Second Lien 11.75 % Senior Secured Notes Collateral and together with the First Lien 11.75 % Senior Secured Notes Collateral, the 11.75 % Senior Secured Notes Collateral).

The Second Lien 11.75 % Senior Secured Notes Collateral also secures the 2014 Credit Facilities on a first-lien basis.

American may redeem the 11.75 % Senior Secured Notes, in whole at any time or in part from time to time, at a redemption price equal to 100 % of the principal amount of the 11.75 % Senior Secured Notes being redeemed plus a make whole premium, together with accrued and unpaid interest thereon, if any, to (but not including) the redemption date.

In the event of a specified change of control, each holder of 11.75 % Senior Secured Notes may require American to repurchase its 11.75 % Senior Secured Notes in whole or in part at a repurchase price of 101 % of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, if any, to (but not including) the repurchase date.

American is required to deliver an appraisal of the First Lien 11.75 % Senior Secured Notes Collateral and officer’s certificate on a semi-annual basis demonstrating the calculation of a collateral coverage ratio in relation to the First Lien 11.75 % Senior Secured Notes Collateral as of the end of each semi-annual period based on such appraisal.

If American fails to deliver the officer’s certificate in a timely manner or the collateral coverage ratio is less than 1.6 to 1.0 as of the end of the semi-annual period, then, subject to an opportunity to cure the deficiency in the collateral coverage ratio, American will be required to pay special interest in an additional amount equal to 2.0 % per annum of the outstanding principal amount of the 11.75 % Senior Secured Notes until the collateral coverage ratio is established to be at least 1.6 to 1.0.

The 11.75 % Senior Secured Notes Indenture contains covenants that, among other things, restrict the ability of AAG and the ability of its restricted subsidiaries (including American) to:

(i) pay dividends, redeem or repurchase stock or make other distributions or restricted payments, (ii) incur liens on the 11.75 % Senior Secured Notes Collateral and dispose of or release the 11.75 % Senior Secured Notes Collateral, (iii) repay subordinated indebtedness, (iv) make certain loans and investments, (v) incur indebtedness or issue preferred stock, (vi) merge, consolidate or sell assets, (vii) undergo certain change of control transactions, and (viii) designate subsidiaries as unrestricted.

These covenants are subject to a number of important exceptions and qualifications set forth in the 11.75 % Senior Secured Notes Indenture.

Upon the occurrence of any event of default (other than certain bankruptcy or insolvency or reorganization events affecting AAG or certain of its subsidiaries, including American), the 11.75 % Senior Secured Notes may be declared to be due and payable immediately.

Upon the occurrence of certain bankruptcy, insolvency or reorganization events affecting American or certain of its subsidiaries (including American), all outstanding 11.75 % Senior Secured Notes will become due and payable immediately without further action or notice on the part of the 11.75 % Senior Secured Notes Trustee or any holder of the 11.75 % Senior Secured Notes.

10.75 % Senior Secured Notes

2 unchanged sentences

The 10.75 % Senior Secured Notes bear interest at a rate of 10.75 % per annum in cash.

For any interest period on or prior to September 1, 2022, American may, at its election, pay interest at a rate of 12.00 % per annum payable one-half in cash and one-half in kind.

Interest on the 10.75 % Senior Secured Notes is payable semiannually in arrears on September 1 and March 1 of each year, which began on March 1, 2021.

The 10.75 % Senior Secured Notes will mature on February 15, 2026.

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

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).

1 unchanged sentence

The LGA/DCA Notes are secured by a first lien security interest in the LGA/DCA Collateral.

American may be required to pledge additional collateral in the future under the terms of the 10.75 % Senior Secured Notes, and in certain circumstances may elect to pledge additional collateral including as a replacement for existing collateral.

The LGA/DCA Collateral also secures on a first-lien basis the December 2016 Credit Facilities.

On or prior to the fourth anniversary of the 10.75 % Senior Secured Notes Closing Date, American may redeem all or any part of the 10.75 % Senior Secured Notes, at its option, at a redemption price equal to 100 % of the principal amount of the 10.75 % Senior Secured Notes redeemed plus a make whole premium, together with accrued and unpaid interest thereon, if any.

1 unchanged sentence

After the fifth anniversary of the 10.75 % Senior Secured Notes Closing Date, American may redeem all or any part of the 10.75 % Senior Secured Notes, at its option, at par, together with accrued and unpaid interest thereon, if any.

In the event of a specified change of control, each holder of 10.75 % Senior Secured Notes may require American to repurchase its 10.75 % Senior Secured Notes, in whole or in part, at a repurchase price of 101 % of the aggregate principal amount of the 10.75 % Senior Secured Notes so repurchased, plus accrued and unpaid interest thereon, if any, to (but not including) the repurchase date.

The 10.75 % Senior Secured Notes Indentures contain covenants that, among other things, restrict the ability of AAG and the ability of its restricted subsidiaries (including American) to:

(i) pay dividends, redeem or repurchase stock or make other distributions or restricted payments, (ii) incur liens on the 10.75 % Senior Secured Notes Collateral and dispose of or release the 10.75 % Senior Secured Notes Collateral, (iii) repay subordinated indebtedness, (iv) make certain loans and investments, (v) incur indebtedness or issue preferred stock, (vi) merge, consolidate or sell assets, and (vii) designate subsidiaries as unrestricted.

In addition, the 10.75 % Senior Secured Notes Indentures include covenants that require AAG to maintain (a) an aggregate of at least $ 2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities and (b) a certain minimum ratio of appraised value of the collateral to outstanding debt secured thereby on a first lien basis as further described below in “Certain Covenants.” These covenants are subject to a number of important exceptions and qualifications set forth in the 10.75 % Senior Secured Notes Indentures.

Upon the occurrence of any event of default (other than certain bankruptcy or insolvency or reorganization events affecting AAG or certain of its subsidiaries, including American), the 10.75 % Senior Secured Notes may be declared to be due and payable immediately.

Upon the occurrence of certain bankruptcy, insolvency or reorganization events affecting AAG or certain of its subsidiaries (including American), all outstanding 10.75 % Senior Secured Notes will become due and payable immediately without further action or notice on the part of the 10.75 % Senior Secured Notes Trustee or any holder of the 10.75 % Senior Secured Notes.

On September 25, 2020, American and AAG entered into a Loan and Guarantee Agreement (the Treasury Loan Agreement) with Treasury, which provided for a secured term loan facility (the Treasury Term Loan Facility) that permitted American to borrow up to $ 5.5 billion.

Subsequently, on October 21, 2020, American and AAG entered into an amendment to the Treasury Loan Agreement, which increased the borrowing amount to up to $ 7.5 billion.

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 .

(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).

The AAdvantage Notes are fully and unconditionally guaranteed on a senior unsecured basis by the SPV Guarantors and AAG.

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, 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 SPV Guarantors and AAG.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Subject to certain permitted liens and other exceptions, the AAdvantage Notes, AAdvantage Loans and AAdvantage Guarantees provided by the SPV Guarantors are 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, 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 American’s rights to certain data and other intellectual property used in the AAdvantage program (subject to certain exceptions) (collectively, the AAdvantage Collateral).

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

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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 .

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.

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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.

In November 2021, American created two pass-through trusts which issued $ 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 originally scheduled to be delivered to American through September 2022 (the 2021-1 Aircraft).

In 2021, $ 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.

During 2022, $ 866 million of proceeds had been used to purchase equipment notes issued by American in connection with the financing of 21 aircraft under the 2021-1 Aircraft EETCs.

As of December 31, 2022, there are no remaining proceeds held in escrow, and all proceeds have been used to purchase equipment notes issued by American.

Interest and principal payments on equipment notes issued in connection with the 2021-1 Aircraft EETCs are payable semi-annually in January and July of each year.

Interest payments began in July 2022 and principal payments began in January 2023.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Certain information regarding the 2021-1 Aircraft EETC equipment notes, as of December 31, 2022, is set forth in the table below:

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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 July 2034 July 2030

(e) Equipment Loans and Other Notes Payable Issued in 2022

In 2022, American entered into agreements under which it borrowed $ 205 million in connection with the financing of certain aircraft.

Debt incurred under these agreements mature in 2034 and bear interest at variable rates (comprised of the Secured Overnight Financing Rate (SOFR) plus an applicable margin) averaging 6.77 % as of December 31, 2022.

(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).

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

The construction project is expected to be fully completed in early 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 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.

American’s and AAG’s obligations under these guarantees are secured by a leasehold mortgage on American’s lease of Terminal 8 and related property from the Port Authority of New York and New Jersey.

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, $ 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.

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 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 Terminal 8.

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.

As of December 31, 2022, $ 72 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 .

(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.

We may, at any time and from time to time, voluntarily prepay amounts outstanding under the PSP1 Promissory Note, in whole or in part, without penalty or premium.

Within 30 days of the occurrence of certain change of control triggering events, we are required to prepay the aggregate outstanding principal amount of the PSP1 Promissory Note at such time, together with any accrued interest or other amounts owing under the PSP1 Promissory Note at such time.

The PSP1 Promissory Note is our senior unsecured obligation and each guarantee of the PSP1 Promissory Note is the senior unsecured obligation of each of the Subsidiaries, respectively.

The PSP1 Promissory Note contains events of default, including cross-default with respect to acceleration or failure to pay at maturity other material indebtedness.

Upon the occurrence of an event of default and subject to certain grace periods, the outstanding obligations under the PSP1 Promissory Note may, and in certain circumstances will automatically, be accelerated and become due and payable immediately.

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 principal sum of $ 1.0 billion, and the guarantee of our obligations under the PSP2 Promissory Note by the Subsidiaries.

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.

Government for the provision of financial assistance under the PSP Agreements, AAG issued promissory notes to Treasury (PSP1 Promissory Note, PSP2 Promissory Note and PSP3 Promissory Note, collectively the PSP Promissory Notes), in the aggregate principal sum of $ 3.7 billion which provides for the guarantee of our obligations under the PSP Promissory Notes by the Subsidiaries.

The PSP Promissory Notes bear interest on the outstanding principal amount at a rate equal to 1.00 % per annum until the fifth anniversary of the applicable PSP 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 applicable PSP closing date, and interest accrued thereon will be payable in arrears on the last business day of March and September of each year.

The aggregate principal amount outstanding under the PSP Promissory Notes, together with all accrued and unpaid interest thereon and all other amounts payable under the PSP Promissory Notes, will be due and payable on the maturity date.

The PSP Promissory Notes are our senior unsecured obligation and each guarantee of the PSP Promissory Notes is the senior unsecured obligation of each of the Subsidiaries, respectively.

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.

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

(h) 6.50 % Convertible Senior Notes

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The Convertible Notes are fully and unconditionally guaranteed by American on a senior unsecured basis (the Convertible Notes Guarantee).

The net proceeds to us from the Convertible Notes were approximately $ 970 million, after deducting the underwriters’ discounts and commissions and our estimated offering expenses.

The Convertible Notes were priced to investors in the offering at 100 % of their principal amount.

The Convertible Notes were issued pursuant to an indenture, dated as of June 25, 2020 (the Base Indenture), between AAG and Wilmington Trust, National Association as trustee (the Convertible Notes Trustee), as supplemented by that certain first supplemental indenture, dated as of June 25, 2020, among AAG, American and the Convertible Notes Trustee (the Convertible Notes Supplemental Indenture and, together with the Base Indenture, the Convertible Notes Indenture).

The net proceeds from the Convertible Notes were approximately $ 970 million, after deducting the underwriters’ discounts and commissions and our estimated offering expenses.

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, which began on January 1, 2021.

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

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

Upon conversion, AAG will pay or deliver, as the case may be, cash, shares of AAG common stock or a combination of cash and shares of AAG common stock, at AAG’s election.

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(3) upon the occurrence of certain corporate events or distributions on AAG common stock;

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

AAG calls such Convertible Notes for redemption;

(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.

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In the case of any optional redemption, AAG will redeem the Convertible Notes at a redemption price equal to 100 % of the principal amount of such Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

If AAG undergoes a fundamental change described in the Convertible Notes Indenture prior to the maturity date of the Convertible Notes, except as described in the Convertible Notes Indenture, holders of the Convertible Notes may require AAG to repurchase for cash all or part of their Convertible Notes at a repurchase price equal to 100 % of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The Convertible Notes Indenture provides for customary terms and covenants, including that upon certain events of default, either the Convertible Notes Trustee or the holders of not less than 25 % in aggregate principal amount of the Convertible Notes then outstanding may declare the unpaid principal amount of the Convertible Notes and accrued and unpaid interest, if any, thereon immediately due and payable.

In the case of certain events of bankruptcy, insolvency or reorganization, the principal amount of the Convertible Notes together with accrued and unpaid interest thereon, if any, will automatically become and be immediately due and payable.

As previously discussed in Note 1(c), as of January 1, 2021, we early adopted the New Convertible Debt Standard.

The following table provides information relating to the Convertible Notes as of December 31, 2022 and 2021 (in millions):

Principal amount $ 1,000 $ 1,000

Unamortized debt discount ( 16 ) ( 22 )

Net carrying amount $ 984 $ 978

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

The effective interest rate for the Convertible Notes was 7 % for each of the years ended December 31, 2022 and 2021, and 20 % for the year ended December 31, 2020.

As of January 1, 2021, we early adopted ASU 2020-06 related to convertible instruments.

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.

Interest recognized for the Convertible Notes is as follows (in millions):

Year Ended December 31,

2022 2021 2020

Contractual coupon interest $ 65 $ 65 $ 33

Non-cash amortization of debt discount 6 5 28

Total interest expense $ 71 $ 70 $ 61

At December 31, 2022, the if-converted value of the Convertible Notes did not exceed the principal amount.

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, 2022.

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3.75 % Senior Notes

In May 2019, AAG issued $ 750 million aggregate principal amount of 5.000 % senior notes due 2022 (the 5.000 % Senior Notes).

The 5.000 % Senior Notes bear interest at a rate of 5.000 % per annum, payable semi-annually in arrears on June 1 and December 1 of each year, which began on December 1, 2019.

The 5.000 % Senior Notes mature in June 2022.

3.75 % Senior Notes

In February 2020, AAG issued $ 500 million aggregate principal amount of 3.75 % senior notes due 2025 (the 3.75 % Senior Notes).

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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:

5.000% Senior Notes 3.75% Senior Notes

Aggregate principal issued and outstanding $ 750 million $ 500 million

Maturity date June 2022 March 2025

Fixed interest rate per annum 5.000 % 3.75 %

Interest payments Semi-annually in arrears in June and December Semi-annually in arrears in March and September

The 5.000 % and 3.75 % Senior Notes are senior unsecured obligations of AAG.

The 3.75 % Senior Notes are senior unsecured obligations of AAG.

These Senior Notes are fully and unconditionally guaranteed by American.

The indentures for these Senior Notes contain covenants and events of default generally customary for similar financings.

In addition, if we experience specific kinds of changes of control, we must offer to repurchase these Senior Notes in whole or in part at a price of 101 % of the principal amount plus accrued and unpaid interest thereon, if any, to (but not including) the repurchase date.

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

Other Financing Activities

During the year ended December 31, 2022, we repurchased $ 349 million of unsecured notes in the open market.

As of December 31, 2022, AAG had issued guarantees covering approximately $ 18.3 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

Our debt agreements contain customary terms and conditions as well as various affirmative, negative and financial covenants that, among other things, may restrict the ability of us and our subsidiaries to incur additional indebtedness, pay dividends or repurchase stock.

Our debt agreements also contain customary change of control provisions, which may require us to repay or redeem such indebtedness upon certain events constituting a change of control under the relevant agreement, in certain cases at a premium.

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.

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.

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 and 11.75 % Senior Secured Notes, as described below:

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.

Specifically, we are required to meet certain collateral coverage tests for our Credit Facilities, April 2016 Revolving Facility, 10.75 % Senior Secured Notes and 11.75 % Senior Secured Notes, as described below:

Facilities 2014 Credit

Facilities April 2016

Credit Facilities December 2016

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

Revolving Facility 10.75 % Senior Secured Notes

11.75 % Senior Secured Notes

Frequency of Appraisals of Appraised Collateral Annual Annual Annual Annual Semi-Annual

LTV Requirement 1.6 x Collateral valuation to amount of debt outstanding ( 62.5 % LTV)

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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 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 European Union (including London Heathrow) Generally, certain spare parts 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

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We hold a 25 % equity interest in Republic Holdings, the parent company of Republic.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Additionally, not included in the table above, we recognized $ 109 million in cash special charges in 2020 related to the impairment of ROU assets and lease return costs resulting from our decision to retire certain leased aircraft earlier than planned driven by the severe decline in air travel due to the COVID-19 pandemic.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Supplemental balance sheet information related to leases was as follows (in millions, except lease term and discount rate):

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Operating lease conversion to finance lease 107 102 5

Finance lease conversion to operating lease 3 — —

Gain on sale leaseback transactions, net 2 25 107

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Long-term lease obligations $ 6,559 $ 545

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.

As of December 31, 2022, we had additional operating lease commitments that have not yet commenced of approximately $ 1.1 billion for nine Boeing 787 Family aircraft scheduled to be delivered in 2023 through 2024 with lease terms of 10 years.

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

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2022 2021 2020

Current income tax provision:

State and Local $ — $ — $ 2

Foreign — — 8

Current income tax provision — — 10

Current income tax benefit:

State, local and foreign $ ( 6 ) $ — $ —

Deferred income tax provision (benefit):

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Statutory income tax provision (benefit) $ 39 $ ( 535 ) $ ( 2,405 )

State income tax provision (benefit), net of federal tax effect ( 37 ) ( 183 ) 47

State, local and foreign income tax benefit, net of federal tax effect — ( 37 ) ( 183 )

Book expenses not deductible for tax purposes 22 23 22

Foreign income taxes, net of federal tax effect — — 8

Change in valuation allowance — — 4

Other, net ( 2 ) ( 6 ) ( 2 )

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Rent expense 130 92

Reorganization items 24 28

Other 742 784

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

We have determined that positive factors outweigh negative factors in the determination of the realizability of our deferred tax assets.

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

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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.

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.

In 2022, we recorded an income tax provision of $ 59 million, with an effective rate of approximately 32 %, which was substantially non-cash.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

The Inflation Reduction Act (IRA) was enacted on August 16, 2022, which among other provisions, introduced a corporate minimum tax on certain corporations with average adjusted financial statement income over a three-tax year period in excess of $1.0 billion, an excise tax on certain stock repurchases by certain covered corporations for taxable years beginning after December 31, 2022, and several tax incentives to promote clean energy.

Based on our current analysis and pending future guidance to be issued by the U.S.

Department of Treasury, we do not believe these provisions will have a material impact on our consolidated financial statements.

We file our tax returns as prescribed by the tax laws of the jurisdictions in which we operate.

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We accrue interest and penalties related to unrecognized tax benefits in interest expense and operating expense, respectively.

Risk Management

Our economic prospects are heavily dependent upon two variables we cannot control:

general economic conditions and the price of fuel.

Due to the discretionary nature of business and leisure travel spending and the highly competitive nature of the airline industry, our revenues are heavily influenced by the condition of the U.S.

economy and economies in other regions of the world.

Unfavorable conditions in these broader economies have resulted, and may result in the future, in decreased passenger demand for air travel, changes in booking practices and related reactions by our competitors, all of which in turn have had, and may have in the future, a strong negative effect on our business.

In particular, the ongoing COVID-19 pandemic and associated decline in economic activity and increase in unemployment levels 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.

Accordingly, we cannot predict the ultimate impact of the COVID-19 pandemic on our business, financial condition and results of operations.

In addition, during challenging economic times, actions by our competitors to increase their revenues can have an adverse impact on our revenues.

Our operating results are materially impacted by changes in the availability, price volatility and cost of aircraft fuel, which represents one of the largest single cost items in our business.

Aircraft fuel prices have in the past, and may in the future, experience substantial volatility.

These additional factors could impact our results of operations, financial performance and liquidity:

(a) Credit Risk

Our accounts receivable relate primarily to our contracts with airline and non-airline business partners, including our co-branded credit card partners, and to tickets sold to individual passengers primarily through the use of major credit cards.

Receivables from our business partners are typically settled within 30 days.

Receivables from ticket sales are short-term, mostly settled within seven days after sale.

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

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

We do not believe we are subject to any significant concentration of credit risk.

(b) Interest Rate Risk

We have exposure to market risk associated with changes in interest rates related primarily to our LIBOR variable-rate debt obligations.

Interest rates on $ 10.9 billion principal amount of long-term debt as of December 31, 2021 are subject to adjustment to reflect changes in floating interest rates.

The weighted average effective interest rate on our variable-rate debt was 3.0 % at December 31, 2021.

We currently do not have an interest rate hedge program to hedge our exposure to floating interest rates on our variable-rate debt obligations.

On July 27, 2017, the U.K.

Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021.

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

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 .

We are exposed to the effect of foreign exchange rate fluctuations on the U.S.

dollar value of foreign currency-denominated transactions.

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

We do not currently have a foreign currency hedge program.

Fair Value Measurements and Other Investments

Fair Value Measurements

Assets Measured at Fair Value on a Recurring Basis

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(2) Our short-term investments as of December 31, 2022 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.

(3) Restricted cash and short-term investments primarily include 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 Terminal 8 at JFK.

(4) Long-term investments include our equity investments in China Southern Airlines Company Limited (China Southern Airlines) and Vertical Aerospace Ltd.

(Vertical) and as of December 31, 2022, our long-term investments also include GOL.

See Note 8 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 $ 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.

If our long-term debt was measured at fair value, it would have been classified as Level 2 except for $ 3.7 billion as of December 31, 2022 and December 31, 2021, 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 $ 1.1 billion and $ 1.4 billion as of December 31, 2022 and December 31, 2021, respectively.

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Long-term debt, including current maturities $ 34,903 $ 32,569 $ 37,323 $ 38,567

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 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.

To help expand our network and as part of our ongoing commitment to sustainability, we enter into various commercial relationships or other strategic partnerships, including equity investments, with other airlines and companies.

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

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

Our equity investments ownership interest and carrying value were:

Ownership Interest Carrying Value (in millions)

December 31, December 31,

Accounting Treatment 2022 2021 2022 2021

Republic Holdings Equity Method 25.0 % 25.0 % $ 222 $ 202

China Southern Airlines Fair Value 1.5 % 1.8 % 176 163

Other investments (a)

Various 212 83

Total $ 610 $ 448

(a) Other investments

Other investments primarily include our investment in Vertical, which is accounted for at fair value, and in 2022, our investments in JetSmart Airlines SpA (JetSMART) and GOL.

In April 2022, we completed an investment agreement with GOL, a Brazilian low-cost airline, and invested $ 200 million in 22.2 million of newly issued preferred shares.

The total consideration of $ 200 million was allocated on our consolidated balance sheet as follows based on relative fair values:

$ 81 million to the preferred shares, which is reflected within other assets, and $ 119 million to the indefinite-lived intangible asset derived from the related commercial agreements.

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

In December 2022, we completed an investment agreement with JetSMART, an ultra-low-cost carrier operating in South America, representing a 35.4 % ownership.

This ownership interest is accounted for under the equity method and our portion of JetSMART’s financial results is recognized within nonoperating other income, net on the consolidated statement of operations.

Employee Benefit Plans

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We also provide certain retiree medical and other postretirement benefits, including health care and life insurance benefits, to retired employees.

Effective November 1, 2012, we modified our retiree medical and other postretirement benefits plans to eliminate the company subsidy for employees who retire on or after November 1, 2012.

As a result of modifications to our retiree medical and other postretirement benefits plans in 2012, we recognized a negative plan amendment of $ 1.9 billion, which was included as a component of prior service benefit in accumulated other comprehensive income (loss) (AOCI) and was amortized over the future service life of the active plan participants for whom the benefit was eliminated.

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 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.

Due to this transition, as of December 31, 2020, we recognized a negative plan amendment to reduce our benefit obligation, which was included as a component of prior service benefit in accumulated other comprehensive income (loss) (AOCI) and will be amortized over the average remaining life expectancy of all retirees.

As of December 31, 2022, $ 179 million of prior service benefit remains to be amortized over a remaining period of approximately 11 years.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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Interest cost 556 526 30 30

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

Actuarial gain (1), (2)

( 4,563 ) ( 609 ) ( 167 ) ( 57 )

Special termination benefits (3)

Plan amendments (4)

— — — ( 195 )

Settlements ( 1 ) ( 36 ) — —

Other — ( 1 ) 3 —

Benefit payments ( 869 ) ( 822 ) ( 74 ) ( 72 )

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Fair value of plan assets at beginning of period $ 14,691 $ 13,557 $ 167 $ 170

Actual return on plan assets 1,710 1,427 21 13

Actual return (loss) on plan assets ( 1,943 ) 1,710 ( 18 ) 21

Employer contributions (4)

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Funded status at end of period $ ( 2,153 ) $ ( 4,219 ) $ ( 773 ) $ ( 931 )

(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.

(1) The 2022 and 2021 pension actuarial gain primarily relates to the change in our weighted average discount rate assumption.

(2) The 2022 and 2021 retiree medical and other postretirement benefits actuarial gain 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, 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.

(4) 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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Total liabilities $ 2,153 $ 4,219 $ 773 $ 931

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Pension Benefits Retiree Medical and

Other Postretirement Benefits

2022 2021 2022 2021

(In millions)

Net actuarial loss (gain) $ 3,613 $ 5,252 $ ( 505 ) $ ( 396 )

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Net periodic benefit cost (income) $ ( 395 ) $ ( 314 ) $ ( 187 ) $ ( 10 ) $ 132 $ 278

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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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Expected returns on long duration bonds are based on yields to maturity of the bonds held at year-end.

Expected returns on other assets are based on a combination of long-term historical returns, actual returns on plan assets achieved over the last ten years, current and expected market conditions, and expected value to be generated through active management and securities lending programs.

Expected returns on other assets are based on a combination of long-term historical returns, actual returns on plan assets achieved over the last 10 years, current and expected market conditions, and expected value to be generated through active management and securities lending programs.

Minimum Contributions

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

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.

Based on current funding assumptions, we have minimum required contributions of $ 69 million for 2023 including contributions to defined benefit plans for our wholly-owned subsidiaries.

Our funding obligations will depend on the performance of our investments held in a trust by the pension plans, interest rates for determining liabilities, the amount of and timing of any supplemental contributions and our actuarial experience.

Benefit Payments

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Emerging Markets 2 % - 15 %

Alternative Investments 5 % - 30 %

Private Equity 5 % - 30 %

Fixed Income 20 % - 55 %

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Cash Equivalents 0 % - 20 %

long duration bonds are used to partially hedge the assets from declines in interest rates.

Public equity as well as high yield fixed income securities are used to provide diversification and are expected to generate higher returns over the long-term than U.S.

long duration bonds.

Alternative (private) investments are used to provide expected returns in excess of the public markets over the long-term.

The pension plan’s master trust also participates in securities lending programs to generate additional income by loaning plan assets to borrowers on a fully collateralized basis.

These programs are subject to market risk.

Public equity investments are intended to provide a real return over a full market cycle and, therefore, to contribute to the pension plan’s long-term objective.

Public fixed income investments are intended to provide income to the plan and offer the potential for long term capital appreciation.

Private investments, such as private equity and private income, are used to provide higher expected returns than public markets over the long-term by assuming reduced levels of liquidity and higher levels of risk.

The pension plan’s master trust participates in securities lending programs to generate additional income by loaning plan assets to borrowers on a fully collateralized basis.

The pension plan’s master trust will also engage in derivative instruments to equitize residual levels of cash as well as hedge the pension plan’s exposure to interest rates.

Such programs are subject to market risk and counterparty risk.

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

Securities traded in the over-the-counter market are valued at the last bid price.

Investments in limited partnerships are carried at estimated net asset value as determined by and reported by the general partners of the partnerships and represent the proportionate share of the estimated fair value of the underlying assets of the limited partnerships.

Common/collective trusts are valued at net asset value based on the fair values of the underlying investments of the trusts as determined by the sponsor of the trusts.

Investments in limited partnerships are carried at estimated net asset value (NAV) as determined by and reported by the general partners of the partnerships and represent the proportionate share of the estimated fair value of the underlying assets of the limited partnerships.

Mutual funds are valued once daily through a NAV calculation provided at the end of each trade day.

Common/collective trusts are valued at NAV based on the fair values of the underlying investments of the trusts as determined by the sponsor of the trusts.

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

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The fair value of our pension plan assets at December 31, 2022 and 2021, by asset category, were as follows (in millions) (1) :

Fair Value Measurements as of December 31, 2021

Asset Category Quoted Prices in

Active Markets

for Identical

(Level 1) Significant

(Level 2) Significant

(Level 3) Total

Cash and cash equivalents $ 76 $ — $ — $ 76

Equity securities:

International markets (a), (b)

2,166 — 4 2,170

Large-cap companies (b)

December 31, 2022 December 31, 2021

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

$ 3,097 $ — $ — $ 3,097 $ 4,639 $ 2 $ 4 $ 4,645

Mid-cap companies (b)

Small-cap companies (b)

Mutual funds/exchange traded funds (c)

Fixed income (3)

Corporate debt (d)

227 2,917 — 3,144 183 3,994 — 4,177

Government securities (e)

74 278 75 427 134 340 54 528

municipal securities — 19 — 19

Alternative instruments:

Private market partnerships (f)

Private market partnerships measured at net asset value (f), (g)

Common/collective trusts (h)

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

Insurance group annuity contracts — — 2 2

Other investments — 3 — 3

Dividend and interest receivable 45 — — 45

Due from brokers for sale of securities – net 10 — — 10

Other receivables – net 3 — — 3

Total $ 4,956 $ 4,336 $ 58 $ 14,691

(a) Holdings are diversified as follows:

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.

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.

Holdings include 86 % U.S.

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

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

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

There are no significant foreign currency risks within this classification.

(f) Includes limited partnerships that invest primarily in domestic private equity and private income opportunities.

The pension plan’s master trust does not have the right to redeem its limited partnership investment at its net asset value, but rather receives distributions as the underlying assets are liquidated.

It is estimated that the underlying assets of these funds will be gradually liquidated over the next one to ten years .

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

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.

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 31 % in a common/collective trust investing in large market capitalization equity securities within the U.S., 29 % in three common/collective trusts investing in emerging country equity securities, 22 % in a common/collective trust investing in equity securities of companies located outside the U.S., 11 % in a collective interest trust investing primarily in short-term securities, 6 % in a common/collective trust investing in smaller market capitalization equity securities within the U.S.

and 1 % in Canadian segregated balanced value, income growth and diversified pooled funds.

For some trusts, requests for withdrawals must meet specific requirements with advance notice of redemption preferred.

Fair Value Measurements as of December 31, 2020

Asset Category Quoted Prices in

Active Markets

for Identical

(Level 1) Significant

(Level 2) Significant

(Level 3) Total

Cash and cash equivalents $ 40 $ — $ — $ 40

Equity securities:

International markets (a), (b)

2,282 — — 2,282

Large-cap companies (b)

2,085 — — 2,085

Mid-cap companies (b)

Small-cap companies (b)

Mutual funds (c)

Fixed income:

Corporate debt (d)

Measured at NAV (5) :

Common collective trusts (6)

— — — 1,694 — — — 2,514

Government securities (e)

Private investments (7)

— — — 3,522 — — — 2,827

municipal securities — 30 — 30

Alternative instruments:

Private market partnerships (f)

Private market partnerships measured at net asset value (f), (g)

Common/collective trusts (h)

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

Insurance group annuity contracts — — 2 2

Dividend and interest receivable 49 — — 49

Due from brokers for sale of securities – net 1 — — 1

Other receivables – net 1 — — 1

Total $ 5,039 $ 4,326 $ 17 $ 13,557

(a) Holdings are diversified as follows:

11 % Switzerland, 11 % Ireland, 10 % United Kingdom, 9 % France, 8 % Japan, 7 % Germany, 6 % Netherlands, 13 % emerging markets and the remaining 25 % with no concentration greater than 5% in any one country.

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

companies, 35 % in U.S.

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

(d) Includes approximately 77 % investments in corporate debt with a S&P rating lower than A and 23 % investments in corporate debt with a S&P rating A or higher.

Holdings include 89 % U.S.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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

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

There are no significant foreign currency risks within this classification.

(f) Includes limited partnerships that invest primarily in domestic private equity and private income opportunities.

It is estimated that the underlying assets of these funds will be gradually liquidated over the next one to ten years .

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

(g) Certain investments that are measured using net asset value per share (or its equivalent) as a practical expedient for fair value have not been classified in the fair value hierarchy.

The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the notes to the consolidated financial statements.

(h) Investment includes 34 % in a common/collective trust investing in large market capitalization equity securities within the U.S., 30 % in three common/collective trusts investing in emerging country equity securities, 21 % in a common/collective trust investing in equity securities of companies located outside the U.S., 9 % in a collective interest trust investing primarily in short-term securities, 5 % in a common/collective trust investing in smaller market capitalization equity securities within the U.S.

and 1 % in Canadian segregated balanced value, income growth and diversified pooled funds.

Total plan assets $ 3,398 $ 3,195 $ 75 $ 11,884 $ 4,956 $ 4,336 $ 58 $ 14,691

(1) See Note 7 for a description of the levels within the fair value hierarchy.

(2) Equity investments include domestic and international common stock, preferred stock, mutual funds and exchange traded funds invested in equity securities.

(3) Fixed income investments include corporate, government and U.S.

municipal bonds, as well as mutual funds invested in fixed income securities.

(4) Other primarily includes a short-term investment fund, cash and cash equivalents, and net receivables and payables of the master trust for dividends, interest and amounts due to or from the sale and purchase of securities.

(5) Includes investments that were measured at NAV per share (or its equivalent) as a practical expedient that have not been classified in the fair value hierarchy.

(6) Common collective trusts include commingled funds primarily invested in equity securities.

For some trusts, requests for withdrawals must meet specific requirements with advance notice of redemption preferred.

(7) Private investments include limited partnerships that invest primarily in domestic private equity and private income opportunities.

The pension plan’s master trust does not have the right to redeem its limited partnership investment at its NAV, but rather receives distributions as the underlying assets are liquidated.

It is estimated that the underlying assets of these funds will be gradually liquidated over the next 10 years.

As of December 31, 2022, the pension plan’s master trust has future funding commitments to these limited partnerships of approximately $ 1.5 billion over the next five years .

Changes in fair value measurements of Level 3 investments during the years ended December 31, 2022 and 2021, were as follows (in millions):

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Sales ( 9 ) ( 1 )

Transfers out ( 4 ) —

Balance at end of year $ 75 $ 58

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

Fair Value Measurements as of December 31, 2021

Asset Category Quoted Prices in

Active Markets for Identical Assets

(Level 1) Significant

(Level 2) Significant

(Level 3) Total

Money market fund $ 4 $ — $ — $ 4

Mutual funds – AAL Class — 163 — 163

Total $ 4 $ 163 $ — $ 167

Fair Value Measurements as of December 31, 2020

Asset Category Quoted Prices in

Active Markets for Identical Assets

(Level 1) Significant

(Level 2) Significant

(Level 3) Total

Money market fund $ 4 $ — $ — $ 4

Mutual funds – AAL Class — 166 — 166

Total $ 4 $ 166 $ — $ 170

Plan assets in the retiree medical and other postretirement benefits plans’ are primarily Level 2 mutual funds valued by quoted prices on the active market, which is fair value, and represents the NAV of the shares of such funds as of the close of business at the end of the period.

NAV is based on the fair market value of the funds’ underlying assets and liabilities at the date of determination.

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.

Net asset value is based on the fair market value of the funds’ underlying assets and liabilities at the date of determination.

The AAL Class mutual funds are offered only to benefit plans of American, therefore, trading is restricted only to American, resulting in a fair value classification of Level 2.

Investments included approximately 24 % and 25 % of investments in non-U.S.

common stocks in 2021 and 2020, respectively.

Defined Contribution and Multiemployer Plans

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.

The costs associated with our defined contribution plans were $ 949 million, $ 920 million and $ 860 million for the years ended December 31, 2022, 2021 and 2020, respectively.

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

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This contribution schedule will remain in effect through the earlier of December 31, 2031 or the date the IAM Pension Fund emerges from critical status.

Profit Sharing Program

We accrue 5 % of our pre-tax income excluding net special items for our profit sharing program.

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

Accumulated Other Comprehensive Loss

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Balance at December 31, 2022 $ ( 2,978 ) $ ( 6 ) $ ( 1,601 ) $ ( 4,585 )

(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 .

(1) Relates principally to pension, retiree medical and other postretirement benefits obligations that will not be recognized in net income (loss) until the obligations are fully extinguished.

(2) Relates to pension, retiree medical and other postretirement benefits obligations and is recognized within the income tax provision (benefit) on our consolidated statements of operations.

Reclassifications out of AOCI for the years ended December 31, 2022 and 2021 are as follows (in millions):

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Amortization of pension, retiree medical and other postretirement benefits:

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

Prior service cost $ 11 $ 11 Nonoperating other income, net

Actuarial loss 97 146 Nonoperating other income, net

Total reclassifications for the period, net of tax $ 108 $ 157

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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.

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(1) These amounts are net of purchase deposits currently held by the manufacturers.

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.

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.

Our purchase deposits held by all manufacturers totaled $ 613 million and $ 517 million as of December 31, 2022 and 2021, respectively.

Due to the 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, potentially materially, based on various potential factors including production delays by the manufacturer and regulatory concerns.

Additionally, the amounts in the table exclude four Boeing 787-8 aircraft scheduled to be delivered in 2023 and five Boeing 787-9 aircraft scheduled to be delivered in 2024, 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):

Additionally, we have purchase commitments related to aircraft fuel, flight equipment maintenance, information technology support and construction projects as follows (approximately):

$ 5.7 billion in 2023, $ 3.0 billion in 2024, $ 1.7 billion in 2025, $ 231 million in 2026, $ 126 million in 2027 and $ 941 million in 2028 and thereafter.

These amounts exclude obligations under certain fuel offtake agreements or other agreements for which the timing of the related expenditure is uncertain, or which are subject to material contingencies, such as the construction of a production facility.

(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, 2022, American’s capacity purchase agreements with third-party regional carriers had expiration dates ranging from 2023 to 2033, with rights of American to extend the respective terms of certain agreements.

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$ 1,791 $ 1,950 $ 1,866 $ 1,298 $ 944 $ 1,399 $ 9,248

(1) Represents minimum payments under capacity purchase agreements with third-party regional carriers, which are estimates of costs based on assumed minimum levels of flying under the capacity purchase agreements and American’s actual payments could differ materially.

Excludes payments for the lease of certain aircraft under capacity purchase agreements, which are reflected in the operating lease obligations in Note 5.

(1) 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 American’s actual payments could differ materially.

Excludes rental payments under operating leases for certain aircraft flown under these capacity purchase agreements, which are reflected in the operating lease obligations in Note 5.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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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.

In 2022, American completed construction of the Terminal 4 and 5 core, which provides a central location between the terminals and allows direct access to the check-in lobby and baggage claim in Terminal 5.

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, 2022, we have incurred approximately $ 579 million in costs relating to the LAX modernization project, of which $ 241 million were incurred in 2022 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, 2022, we have sold and transferred $ 176 million of non-proprietary improvements to LAWA, of which $ 44 million occurred during 2022.

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As of December 31, 2022, we have received $ 141 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 .

These proceeds are currently included in other accrued liabilities and noncurrent other 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 renovation projects at Terminal 8 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 Terminal 8, (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 substantially complete and remaining construction on the baggage handling system expansion and bathroom refurbishments are expected to be fully completed in early 2023.

As of December 31, 2022, we have incurred $ 348 million in construction costs to upgrade Terminal 8, of which $ 172 million was incurred in 2022.

These costs have been included in airport construction projects, net of reimbursements on our consolidated statements of cash flows.

(d) Off-Balance Sheet Arrangements

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.

American currently has 352 owned 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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The trusts have also been structured to provide for certain credit enhancements, such as liquidity facilities to cover certain interest payments, that reduce the risks to the purchasers of the trust certificates and, as a result, reduce the cost of aircraft financing to American.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Each trust covers a set number of aircraft or spare engines scheduled to be delivered, financed or refinanced upon the issuance of the EETC or within a specific period of time thereafter.

At the time of each covered aircraft or spare engine financing, the relevant trust used the proceeds of the issuance of the EETC (which may have been available at the time of issuance thereof or held in escrow until financing of the applicable aircraft following its delivery) to purchase equipment notes relating to the financed aircraft or engines.

The equipment notes are issued, at American’s election, in connection with a mortgage financing of the aircraft or spare engines or, in certain cases, by a separate owner trust in connection with a leveraged lease financing of the aircraft.

In the case of a leveraged lease financing, the owner trust then leases the aircraft to American.

In both cases, the equipment notes are secured by a security interest in the aircraft or engines, as applicable.

The equipment notes are issued, at American’s election, in connection with a mortgage financing of the aircraft or spare engines.

The equipment notes are secured by a security interest in the aircraft or engines, as applicable.

The pass-through trust certificates are not direct obligations of, nor are they guaranteed by, AAG or American.

However, in the case of mortgage financings, the equipment notes issued to the trusts are direct obligations of American and, in certain instances, have been guaranteed by AAG.

However, the equipment notes issued to the trusts are direct obligations of American and, in certain instances, have been guaranteed by AAG.

As of December 31, 2022, $ 9.2 billion associated with these mortgage financings is reflected as debt in the accompanying consolidated balance sheet.

With respect to leveraged leases, American evaluated whether the leases had characteristics of a variable interest entity.

American concluded the leasing entities met the criteria for variable interest entities;

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

American’s total future payments to the trusts of each of the relevant EETCs under these leveraged lease financings are $ 20 million as of December 31, 2021, which are reflected in the operating lease obligations in Note 5.

Letters of Credit and Other

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

We provide financial assurance, such as letters of credit and surety bonds, primarily to support airport commitments.

As of December 31, 2022, we had $ 218 million of letters of credit and surety bonds securing various obligations, of which $ 100 million is collateralized with our restricted cash.

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(e) Legal Proceedings

Chapter 11 Cases .

On November 29, 2011, AMR, American, and certain of AMR’s other direct and indirect domestic subsidiaries (the Debtors) filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court).

On October 21, 2013, the Bankruptcy Court entered an order approving and confirming the Debtors’ fourth amended joint plan of reorganization (as amended, the Plan).

On the Effective Date, December 9, 2013, the Debtors consummated their reorganization pursuant to the Plan and completed the Merger.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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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On August 6, 2013, a lawsuit captioned Carolyn Fjord, et al., v.

AMR Corporation, et al., was filed in the Bankruptcy Court.

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

AMR Corporation, et al., was filed in the United States Bankruptcy Court for the Southern District of New York (Bankruptcy Court).

The complaint named as defendants US Airways Group, US Airways, Inc., AMR Corporation and American, alleged that the effect of the merger of US Airways Group and AMR Corporation (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.

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.

On March 25, 2022, the U.S.

District Court for the Southern District of New York entered judgment affirming the Bankruptcy Court's decision.

On April 21, 2022, plaintiffs appealed that decision to the United States Court of Appeals for the Second Circuit.

The appeal is fully briefed and scheduled for oral argument on March 13, 2023.

We believe this lawsuit is without merit and intend to continue to vigorously defend against it, including against any further appeals by the plaintiffs.

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.

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

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

The parties presented their respective cases in a bench trial that commenced on September 27, 2022.

Closing arguments from both parties were presented on November 18, 2022.

A decision is expected in the first quarter of 2023.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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 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 the DOJ to resolve the antitrust concerns that the 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.

On September 30, 2022, the DOT issued a further statement referencing the prior Clarification Notice and, among other things, indicating its intention to continue working with the DOJ in its efforts to resolve the ongoing proceedings regarding the NEA.

Private Party Antitrust Actions Related to the Northeast Alliance.

On December 5, 2022 and December 7, 2022, two private party plaintiffs filed putative class action antitrust complaints against American and JetBlue in the Eastern District of New York alleging that American and JetBlue violated U.S.

antitrust law in connection with the previously disclosed NEA.

These actions were consolidated on January 10, 2023.

The private party plaintiffs filed an amended consolidated complaint on February 3, 2023.

In February 2023, private party plaintiffs filed two additional putative class action antitrust complaints against American and JetBlue in the District of Massachusetts and the Eastern District of New York, respectively.

We believe these lawsuits are without merit and are defending against them vigorously.

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 our aircraft financing agreements, we generally indemnify the financing parties, trustees acting on their behalf and other relevant parties against liabilities (including certain taxes) resulting from the financing, manufacture, design, ownership, operation and maintenance of the aircraft regardless of whether these liabilities (including certain taxes) relate to the negligence of the indemnified parties.

Our loan agreements and other LIBOR-based financing transactions (including certain leveraged aircraft leases) generally obligate us to reimburse the applicable lender for incremental costs due to a change in law that imposes (i) any reserve or special deposit requirement against assets of, deposits with or credit extended by such lender related to the loan, (ii) any tax, duty or other charge with respect to the loan (except standard income tax) or (iii) capital adequacy requirements.

Our loan agreements and certain other financing transactions may obligate us to reimburse the applicable lender for incremental costs due to a change in law that imposes (i) any reserve or special deposit requirement against assets of, deposits with or credit extended by such lender related to the loan, (ii) any tax, duty or other charge with respect to the loan (except standard income tax) or (iii) capital adequacy requirements.

In addition, our loan agreements and other financing arrangements typically contain a withholding tax provision that requires us to pay additional amounts to the applicable lender or other financing party, generally if withholding taxes are imposed on such lender or other financing party as a result of a change in the applicable tax law.

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We have liability insurance protecting us for some of the obligations we have undertaken under these indemnities.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

American is required to make principal and interest payments for certain special facility revenue bonds issued by municipalities primarily to build or improve airport facilities and purchase equipment, which are leased to American.

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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 holdback requirements can be implemented 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, 87 % are covered by collective bargaining agreements (CBAs) with various labor unions and 48 % are covered by CBAs that are currently amendable or that will become amendable within one year.

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

CBAs covering our mainline pilots, flight attendants and passenger service are now amendable.

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

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Non-cash investing and financing activities:

Equity investment $ 88 $ — $ —

Equity investments $ 12 $ 88 $ —

Settlement of bankruptcy obligations — ( 1 ) 56

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Income taxes paid 2 3 6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Operating Segments and Related Disclosures

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The objective in making operational decisions is to maximize consolidated financial results, not the individual results of American or American Eagle.

See Note 1(l) for our passenger revenue by geographic region.

See Note 1(m) for our passenger revenue by geographic region.

Our tangible assets consist primarily of flight equipment, which are mobile across geographic markets and, therefore, have not been allocated.

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During 2022, 2021 and 2020, we withheld approximately 1.2 million, 1.0 million and 0.7 million shares of AAG common stock, respectively, and paid approximately $ 21 million, $ 18 million and $ 15 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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Outstanding at December 31, 2022 10,263 $ 17.51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

As of December 31, 2022, there was $ 99 million of unrecognized compensation cost related to RSUs.

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Year ended December 31, 2020 784 100 ( 394 ) 490

Allowance for credit losses on accounts receivable

Year ended December 31, 2021 $ 36 $ 22 $ ( 24 ) $ 34

Year ended December 31, 2020 31 27 ( 22 ) 36

Year ended December 31, 2019 29 19 ( 17 ) 31

Subsequent Events

2013 Term Loan Facility Refinancing

In February 2023, American and AAG entered into the Seventh Amendment to Amended and Restated Credit and Guaranty Agreement (the Seventh Amendment) to the 2013 Credit Agreement, pursuant to which American extended the maturity date of all remaining term loans outstanding under the 2013 Term Loan Facility to February 2028 from June 2025.

The Seventh Amendment also amended certain other terms of the 2013 Credit Agreement, including the interest rate for the 2013 Term Loan Facility, amortization schedule, the requirements for delivery of appraisals and certain covenants relating to dispositions of collateral.

Additionally, the Seventh Amendment transitioned the benchmark interest rate from LIBOR to SOFR.

As a result, the 2013 Term Loan Facility bears interest at a base rate (subject to a floor of 1.00 %) plus an applicable margin of 1.75 % or, at American’s option, the SOFR rate for a tenor of one, three or six months, depending on the interest period selected by American (subject to a floor of 0.00 %), plus the SOFR adjustment applicable to such interest period and an applicable margin of 2.75 %.

After giving effect to the issuance of the 7.25 % Senior Secured Notes (as discussed below) and the application of the proceeds therefrom, there was $ 1.0 billion aggregate principal outstanding under the 2013 Term Loan Facility.

7.25 % Senior Secured Notes

In February 2023, American issued $ 750 million aggregate principal amount of 7.25 % senior secured notes due 2028 (the 7.25 % Senior Secured Notes).

The 7.25 % Senior Secured Notes bear interest at a rate of 7.25 % per annum (subject to increase if the collateral coverage ratio described below is not met).

Interest on the 7.25 % Senior Secured Notes is payable semiannually in arrears on February 15 and August 15 of each year, beginning on August 15, 2023.

The 7.25 % Senior Secured Notes will mature on February 15, 2028.

The obligations of American under the 7.25 % Senior Secured Notes are fully and unconditionally guaranteed on a senior unsecured basis by AAG.

American used the proceeds from the offering of the 7.25 % Senior Secured Notes, together with cash on hand, to repay a portion of the term loans outstanding under the 2013 Term Loan Facility and to pay related fees and expenses.

The 7.25 % Senior Secured Notes were issued pursuant to an indenture, dated as of February 15, 2023 (the 7.25 % Senior Secured Notes Indenture), by and among American, AAG and Wilmington Trust, National Association, as trustee and collateral agent (the 7.25 % Senior Secured Notes Trustee).

The 7.25 % Senior Secured Notes are American’s senior secured obligations and are secured on a first lien basis by security interests in certain assets, rights and properties that American uses to provide non-stop scheduled air carrier services between certain airports in the United States and airports in countries in South America and New Zealand (the 7.25 % Senior Secured Notes Collateral).

The 7.25 % Senior Secured Notes Collateral presently secures (and will continue to secure), on a first lien, pari passu basis with the 7.25 % Senior Secured Notes, the 2013 Credit Facilities under the 2013 Credit Agreement.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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.

American may redeem the 7.25 % Senior Secured Notes, in whole at any time or in part from time to time prior to February 15, 2025, at a redemption price equal to 100 % of the principal amount of the 7.25 % Senior Secured Notes to be redeemed, plus a “make-whole” premium, plus any accrued and unpaid interest thereon to but excluding the date of redemption.

At any time on or after February 15, 2025, American may redeem all or any of the 7.25 % Senior Secured Notes in whole at any time, or in part from time to time, at the redemption prices described under the 7.25 % Senior Secured Notes Indenture, plus any accrued and unpaid interest thereon to but excluding the date of redemption.

In addition, at any time prior to February 15, 2025, American may redeem up to 40 % of the original aggregate principal amount of the 7.25 % Senior Secured Notes (calculated after giving effect to any issuance of additional notes) with the net cash proceeds of certain equity offerings, at a redemption price equal to 107.250 % of the aggregate principal amount of the 7.25 % Senior Secured Notes to be redeemed, plus any accrued and unpaid interest thereon to but excluding the date of redemption.

Further, if certain change of control transactions occur, each holder of 7.25 % Senior Secured Notes may require American to repurchase the 7.25 % 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, if any, to but not including the repurchase date.

American is required to deliver an appraisal of the 7.25 % Senior Secured Notes Collateral and officer’s certificate twice a year demonstrating the calculation of a collateral coverage ratio in relation to the 7.25 % Senior Secured Notes Collateral (the 7.25 % Senior Secured Notes Collateral Coverage Ratio) as of the date of delivery of the appraisal for the applicable period.

If the 7.25 % Senior Secured Notes Collateral Coverage Ratio is less than 1.6 to 1.0 as of the date of delivery of the appraisal for the applicable period, then, subject to a cure period in which additional collateral can be provided or debt repaid such that American meets the required 7.25 % Senior Secured Notes Collateral Coverage Ratio, American will be required to pay special interest in an additional amount equal to 2.0 % per annum of the principal amount of the 7.25 % Senior Secured Notes until the 7.25 % Senior Secured Notes Collateral Coverage Ratio is established to be at least 1.6 to 1.0.

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

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

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 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 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 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.

Critical Audit Matter

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

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.

As discussed in Notes 1(j) 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, 2022.

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.

In evaluating the need for a valuation allowance, management considers 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.

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

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

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CONSOLIDATED BALANCE SHEETS

(In millions, except share and par value)

(In millions, except share and par value amounts)

Current assets

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Depreciation and amortization 2,238 2,282 2,313

Net gains from sale of property and equipment and sale-leaseback transactions ( 26 ) ( 98 ) ( 109 )

Special items, net non-cash 227 83 1,588

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Share-based compensation 75 95 91

Net gains from sale of property and equipment and sale-leaseback transactions ( 3 ) ( 26 ) ( 98 )

Other, net ( 45 ) 24 14

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Airport construction projects, net of reimbursements ( 360 ) ( 204 ) ( 173 )

Proceeds from sale of property and equipment 192 351 49

Proceeds from sale-leaseback transactions 86 181 665

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

Proceeds from sale of property and equipment 61 192 351

Sales of short-term investments 14,972 13,923 2,803

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

Purchases of short-term investments ( 11,257 ) ( 19,454 ) ( 5,874 )

Decrease (increase) in restricted short-term investments 1 ( 401 ) ( 308 )

Purchase of equity investments ( 321 ) ( 28 ) —

Other investing activities — 15 150

Net cash used in investing activities ( 5,945 ) ( 4,308 ) ( 2,146 )

Net cash provided by (used in) investing activities 693 ( 5,945 ) ( 4,308 )

Cash flows from financing activities:

Proceeds from issuance of long-term debt 10,209 8,959 3,210

Payments on long-term debt and finance leases ( 2,991 ) ( 7,320 ) ( 3,029 )

Proceeds from issuance of long-term debt 1,069 10,209 8,959

Deferred financing costs ( 2 ) ( 207 ) ( 85 )

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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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Balance at December 31, 2021 — 17,152 ( 6,041 ) ( 7,285 ) 3,826

Net loss — — — ( 1,777 ) ( 1,777 )

Net income — — — 338 338

Other comprehensive income, net — — 1,351 — 1,351

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(AAG), which owns all of American’s outstanding common stock, par value $ 1.00 per share.

On December 9, 2013, a subsidiary of AMR Corporation (AMR) merged with and into US Airways Group, Inc.

(US Airways Group), a Delaware corporation, which survived as a wholly-owned subsidiary of AAG, and AAG emerged from Chapter 11 (the Merger).

Upon closing of the Merger and emergence from Chapter 11, AMR changed its name to American Airlines Group Inc.

All significant intercompany transactions have been eliminated.

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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)

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

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'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 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.

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.

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 peak 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 projected cash flows from operations.

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

(b) Government Assistance

Payroll Support Programs

During 2020 and 2021, American, Envoy Air Inc.

(Envoy), Piedmont Airlines, Inc.

(Piedmont) and PSA Airlines, Inc.

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).

(PSA and together with American, Envoy and Piedmont, the Subsidiaries) entered into payroll support program agreements (PSP Agreements) with the U.S.

The aggregate amount of financial assistance received was approximately $ 12.8 billion, and as partial compensation to the U.S.

Government for the provision of financial assistance provided under each of these programs, AAG issued promissory notes and warrants to Treasury.

The table below provides a summary of the financial assistance received and the promissory notes and the warrants issued under each program (in millions, except exercise price amounts):

Program Closing Date PSP Financial Assistance Promissory Notes (1)

PSP Warrants Total Warrants Issued (Shares) (2)

Exercise Price of Warrants

PSP1 April 20, 2020 $ 4,138 $ 1,757 $ 63 $ 5,958 14.0 $ 12.51

PSP2 January 15, 2021 2,427 1,030 76 3,533 6.6 15.66

PSP3 April 23, 2021 2,290 959 46 3,295 4.4 21.75

Total $ 8,855 $ 3,746 $ 185 $ 12,786 25.0

(1) See Note 3 for further information on the promissory notes issued.

(2) The payroll support program warrants (PSP Warrants) are subject to certain anti-dilution provisions, do not have any voting rights and are freely transferable, with registration rights.

The warrants were issued solely as compensation to the U.S.

Government related to entry into the PSP Agreements.

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

In connection with the PSP Agreements entered into with Treasury, AAG and the Subsidiaries were required to comply with the relevant provisions of the CARES Act, the PSP Extension Law, and the ARP, which included the requirement that funds provided pursuant to these programs 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, the requirement that certain levels of commercial air service be maintained, provisions that prohibited the repurchase of AAG common stock and the payment of common stock dividends as well as provisions that restrict the

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 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 and PSP3.

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, which was in March 2021.

See below for additional information on the Treasury Loan Agreement.

Pursuant to the PSP1 Agreement, Treasury provided to AAG and the Subsidiaries financial assistance in an aggregate of approximately $ 6.0 billion.

As partial compensation to the U.S.

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

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).

PSP1 Warrant Agreement and PSP1 Warrants

As partial compensation to the U.S.

Government for the provision of financial assistance under the PSP1 Agreement, and pursuant to the PSP1 Warrant Agreement, AAG 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.

Each PSP1 Warrant expires on the fifth anniversary of the date of issuance of such PSP1 Warrant.

The PSP1 Warrants will be exercisable either through net share settlement or cash, at AAG’s option.

The PSP1 Warrants were issued solely as compensation to the U.S.

Government related to entry into the PSP1 Agreement.

No separate proceeds (apart from the financial assistance described above) were received upon issuance of the PSP1 Warrants or will be received upon exercise thereof.

payment of certain executive compensation.

As of December 31, 2022, all of these provisions have expired except for those related to the payment of certain executive compensation, which expire on April 1, 2023.

Treasury Loan Agreement

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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, estimated using a Black-Scholes option pricing model, was recorded in stockholders' deficit 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 PSP 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).

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, 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 AAG’s 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.

In connection with AAG and the Subsidiaries’ 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, AAG and the Subsidiaries 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.

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

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

As partial compensation to the U.S.

See below for more information on the PSP3 Warrant Agreement and PSP3 Warrants.

For accounting purposes, the $ 3.3 billion of aggregate financial assistance AAG and the Subsidiaries 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).

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.

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 AAG’s 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Accounting Standards Update (ASU) 2020-04:

Simplifying the Accounting for Income Taxes (Topic 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.

American adopted this standard effective January 1, 2021, and it did not have a material impact on its 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.

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

American adopted this standard as of December 31, 2021.

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

Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting and ASU 2022-06:

Deferral of the Sunset Date of Topic 848

Topic 848 is effective as of March 12, 2020 through December 31, 2022;

however, because the intended cessation date of LIBOR was deferred to June 30, 2023, ASU 2022-06 was issued in December 2022 to extend the current relief in Topic 848 through December 31, 2024.

American will adopt Topic 848 when its relevant contracts are modified upon transition to alternative reference rates and American does not expect the application of Topic 848 to have a material impact on its consolidated financial statements.

(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 American’s consolidated statements of operations.

Unrealized gains and losses are recorded in accumulated other comprehensive loss on American’s consolidated balance sheets.

Realized gains and losses are recorded in nonoperating other income, net on American’s consolidated statements of operations.

Unrealized gains and losses are recorded as a component of accumulated other comprehensive loss on American’s consolidated balance sheets.

For investments in an unrealized loss position, American determines whether a credit loss exists by considering information about the collectability of the instrument, current market conditions and reasonable and supportable forecasts of economic conditions.

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Equity investments for which American does 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).

American’s 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 7 for additional information related to American’s investments.

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

See Note 7 for additional information related to American’s equity investments.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

(e) Restricted Cash and Short-term Investments

American has 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

American has restricted cash and short-term investments related primarily to collateral held to support workers’ compensation obligations, collateral associated with the AAdvantage Financing and money market funds to be used to finance a substantial portion of the cost of the renovation and expansion of Terminal 8 at John F.

Kennedy International Airport (JFK).

(f) Accounts Receivable, Net

Accounts receivable primarily consist of amounts due from credit card processing companies for tickets sold to individual passengers, amounts due from airline and non-airline business partners, including American’s co-branded credit card partners and cargo customers.

Receivables from ticket sales are short-term, mostly settled within seven days after sale.

Receivables from American’s business partners are typically settled within 30 days.

All accounts receivable are reported net of an allowance for credit losses, which was not material as of December 31, 2022 and 2021.

American considers past and future financial and qualitative factors, including aging, payment history and other credit monitoring indicators, when establishing the allowance for credit losses.

(g) Aircraft Fuel, Spare Parts and Supplies, Net

Aircraft fuel is recorded on a first-in, first-out basis.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

(g) Operating Property and Equipment

(h) Operating Property and Equipment

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Capitalized software 5 – 10 years

Total depreciation and amortization expense was $ 2.3 billion for each of the years ended December 31, 2021 and 2020, and $ 2.5 billion for the year ended December 31, 2019.

Total depreciation and amortization expense was $ 2.2 billion for the year ended December 31, 2022 and $ 2.3 billion for each of the years ended December 31, 2021 and 2020.

American assesses impairment of operating property and equipment when events and circumstances indicate that the assets may be impaired.

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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 2021, American retired its 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 $ 382 million and $ 400 million, respectively, of nonoperating retired aircraft.

In 2022, American recorded $ 149 million in non-cash special impairment charges to write down the carrying value of its retired Airbus A330 fleet to the estimated fair value due to the market conditions for certain used aircraft.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

American determines if an arrangement is a lease at inception.

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

American’s lease agreements do not contain any residual value guarantees.

Under certain of American’s capacity purchase agreements with third-party regional carriers, American does not own the underlying aircraft.

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For these capacity purchase agreements, American accounts for the lease and non-lease components separately.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

component consists of the aircraft and the non-lease components consist of services, such as the crew and maintenance.

The lease component consists of the aircraft and the non-lease components consist of services, such as the crew and maintenance.

American allocates the consideration in the capacity purchase agreements to the lease and non-lease components using their estimated relative standalone prices.

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For real estate, American accounts for the lease and non-lease components as a single lease component.

(i) Income Taxes

(j) Income Taxes

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

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

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

American has determined that positive factors outweigh negative factors in the determination of the realizability of its deferred tax assets.

Goodwill represents the purchase price in excess of the fair value of the net assets acquired and liabilities assumed in connection with the 2013 merger with US Airways Group, Inc.

(US Airways Group).

American has one reporting unit.

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The carrying value of American’s goodwill on its consolidated balance sheets was $ 4.1 billion as of December 31, 2022 and 2021.

(k) Other Intangibles, Net

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

(l) Other Intangibles, Net

Definite-Lived Intangible Assets

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Total $ 115 $ 156

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Certain domestic airport slots and airport gate leasehold rights are amortized on a straight-line basis over 25 years.

Tradenames are fully amortized.

Certain marketing agreements were identified as intangible assets subject to amortization and are amortized on a straight-line basis over approximately 30 years.

Customer relationships and tradenames are fully amortized.

American recorded amortization expense related to these intangible assets of $ 41 million for each of the years ended December 31, 2022, 2021 and 2020.

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Indefinite-Lived Intangible Assets

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

Indefinite-lived intangible assets include certain domestic airport slots, international slots and route authorities and in 2022, American’s commercial agreement with GOL Linhas Aéreas Inteligentes S.A.

American assesses indefinite-lived intangible assets for impairment annually or more frequently if events or circumstances indicate that the fair values of indefinite-lived intangible assets may be lower than their carrying values.

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If American determines that it is more likely than not that its indefinite-lived intangible assets may be impaired, American uses a quantitative approach to assess the asset’s fair value and the amount of the impairment, if any.

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

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

(l) Revenue Recognition

The following are the significant categories comprising American’s reported operating revenues (in millions):

Based upon American’s annual assessment, there were no material indefinite-lived intangible asset impairments in 2022.

American had $ 1.9 billion and $ 1.8 billion of indefinite-lived intangible assets on its consolidated balance sheets as of December 31, 2022 and 2021, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

(m) Revenue Recognition

The following are the significant categories comprising American’s operating revenues (in millions):

Year Ended December 31,

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Loyalty revenue - marketing services 2,657 2,166 1,825

2,166 1,825 2,361

Other revenue 507 337 223

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

The following is American’s total passenger revenue by geographic region (in millions):

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

The air traffic liability principally represents tickets sold for future travel on American and partner airlines, as well as estimated future refunds and exchanges of tickets sold for past travel.

The air traffic liability principally represents tickets sold for future travel on American and partner airlines.

The majority of tickets sold are nonrefundable.

A small percentage of tickets, some of which are partially used tickets, expire unused.

These estimates are generally based on the analysis of American’s historical data.

American has consistently applied this accounting method to estimate revenue from unused tickets at the date of travel.

Estimated future refunds and exchanges included in the air traffic liability are routinely evaluated based on subsequent activity to validate the accuracy of American’s estimates.

The estimate for tickets expected to expire unused is generally based on an analysis of American’s historical data.

American has consistently applied this accounting method to estimate and recognize revenue from unused tickets at the date of travel.

This estimate is periodically evaluated based on subsequent activity to validate its accuracy.

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.

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Loyalty Revenue

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For mileage credits earned by AAdvantage loyalty program members, American applies the deferred revenue method.

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

Mileage credits earned through travel

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Mileage credits sold to co-branded credit cards and other partners

American sells mileage credits to participating airline partners and non-airline business partners, including American’s co-branded credit card partners, under contracts with terms extending generally for one to five 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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American allocates the consideration received from these sales of mileage credits based on the relative selling price of each product or service delivered.

American’s most significant partner agreements are its co-branded credit card agreements with Citi and Barclaycard US.

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

the transportation component;

Accordingly, American recognizes the marketing component in other revenue in the period of the mileage sale following the sales-based royalty method.

American’s most significant mileage credit partner agreements are its co-branded credit card agreements with Citi and Barclaycard US.

American identified two revenue elements in these co-branded credit card agreements:

the transportation component and the marketing component.

The transportation component represents the estimated selling price of future travel awards and is determined using the same equivalent ticket value approach described above.

The portion of each mileage credit sold attributable to transportation is initially deferred and then recognized in passenger revenue when mileage credits are redeemed and transportation is provided.

American recognizes the marketing component in other revenue in the period of the mileage credit sale following the sales-based royalty method.

For the portion of American’s outstanding mileage credits that it estimates will not be redeemed, American recognizes the associated value proportionally as the remaining mileage credits are redeemed.

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Other Revenue

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

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Contract Balances

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Total $ 15,890 $ 15,222

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

The balance of the loyalty program liability fluctuates based on seasonal patterns, which impact the volume of mileage credits issued through travel or sold to co-branded credit card and other partners (deferral of revenue) and mileage credits redeemed (recognition of revenue).

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Mileage credits are combined in one homogenous pool and are not separately identifiable.

As such, the revenue is comprised of miles that were part of the loyalty program deferred revenue balance at the beginning of the period, as well as miles that were issued during the period.

(2) Mileage credits can be redeemed at any time and generally do not expire as long as that AAdvantage member has any type of qualifying activity at least every 18 months.

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

As of December 31, 2022, American’s current loyalty program liability was $ 3.2 billion and represents American’s current estimate of revenue expected to be recognized in the next 12 months based on historical as well as projected trends, with the balance reflected in long-term loyalty program liability expected to be recognized as revenue in periods thereafter.

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

The air traffic liability principally represents tickets sold for future travel on American and partner airlines, as well as estimated future refunds and exchanges of tickets sold for past travel.

The air traffic liability principally represents tickets sold for future travel on American and partner airlines.

The balance in American’s air traffic liability also fluctuates with seasonal travel patterns.

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Accordingly, any revenue associated with tickets sold for future travel will be recognized within 12 months.

In response to the COVID-19 pandemic, American extended the contract duration for certain tickets to September 30, 2022, principally those tickets which were issued in 2020 and 2021.

Additionally, American extended the contract duration to December 31, 2022 for tickets to certain international destinations.

For 2022, $ 4.8 billion of revenue was recognized in passenger revenue that was included in American’s air traffic liability at December 31, 2021.

In response to the COVID-19 pandemic, American 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.

American also has 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, American’s estimates of revenue that will be recognized from the air traffic liability for future flown or unused tickets as well as its estimates of refunds may be subject to variability and differ from historical experience.

American’s ticket contract receivables relate to ticket sales to individual passengers primarily through the use of major credit cards and are reflected as accounts receivable, net on the accompanying consolidated balance sheets.

These receivables are short-term, mostly settled within seven days after sale.

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

American considers past and future financial and qualitative factors when establishing the allowance for credit losses.

(m) Maintenance, Materials and Repairs

(n) Selling Expenses

Tickets issued in 2022 and thereafter are no longer subject to change fees which provides more flexibility for customers to change travel plans.

Given this new flexibility offered to its customers, American’s estimate of revenue that will be recognized from the air traffic liability for future flown or unused tickets may be subject to variability and differ from historical experience.

(n) Maintenance, Materials and Repairs

(o) Selling Expenses

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

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Advertising costs are expensed as incurred.

Advertising expense was $ 105 million, $ 57 million and $ 144 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Advertising expense was $ 105 million for each of the years ended December 31, 2022 and 2021 and $ 57 million for the year ended December 31, 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

(o) Share-based Compensation

(p) Share-based Compensation

American accounts for its share-based compensation expense based on the fair value of the stock award at the time of grant, which is recognized ratably over the vesting period of the stock award.

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See Note 13 for further discussion of share-based compensation.

(p) Foreign Currency Gains and Losses

(q) Foreign Currency Gains and Losses

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

For the years ended December 31, 2022 , 2021 and 2020, respectively, foreign currency losses were $ 38 million, $ 4 million and $ 24 million.

(q) Other Operating Expenses

(r) Regional Expenses

(r) Other Operating Expenses

(s) Regional Expenses

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

Substantially all of American's regional carrier arrangements are in the form of capacity purchase agreements.

American's 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.

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, 2022 , 2021, and 2020 include $ 269 million, $ 263 million and $ 273 million of depreciation and amortization, respectively, and $ 5 million, $ 6 million and $ 13 million of aircraft rent, respectively.

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2022 2021 2020

Fleet impairment (1)

$ 149 $ — $ 1,484

Litigation reserve adjustments 37 ( 19 ) —

PSP Financial Assistance (2)

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Severance expenses (3)

Litigation reserve adjustments ( 19 ) — ( 53 )

Mark-to-market adjustments on bankruptcy obligations, net — ( 3 ) ( 49 )

( 3 ) ( 49 ) ( 11 )

Fleet impairment (4)

Labor contract expenses (4)

Fleet restructuring expenses (6)

Merger integration expenses (7)

Other operating special items, net 7 10 ( 18 )

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Nonoperating special items, net 72 60 170

(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.

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

Cash payments primarily associated with American's 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 AAG common stock are marked-to-market based on AAG’s 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.

Income tax special items, net ( 9 ) — —

(1) Fleet impairment for 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.

Fleet impairment for 2021 and 2020 included charges resulting 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, American retired its 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.

In 2020, American retired its 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.

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

(2) The PSP Financial Assistance represents recognition of a portion of the financial assistance received from Treasury pursuant to the payroll support programs established by the U.S.

See Note 1(b) for further information.

(4) 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 American’s maintenance and fleet service team members, including signing bonuses and adjustments to vacation accruals resulting from pay rate increases.

(5) Mark-to-market adjustments on equity and other investments, net principally included net unrealized gains and losses associated with certain equity investments and certain other investments.

See Note 7 for further information related to American’s equity investments.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Association) for American's 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 American's technical operations, flight attendant, human resources and payroll systems.

(8) Mark-to-market adjustments on equity and other investments, net primarily related to net unrealized gains and losses associated with American’s 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.

Long-term debt included on American’s consolidated balance sheets consisted of (in millions):