What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-04-27 compared with 2022-10-20 · 164 added, 376 removed, 242 unchanged (69% of the section changed)

3 unchanged sentences

Financial Overview

Impact of Coronavirus (COVID-19)

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

COVID-19 has surfaced in nearly all regions of the world, which has driven the implementation of significant, government-imposed measures to prevent or reduce its spread.

Ongoing global vaccination efforts and the corresponding lifting of government restrictions in and between many markets resulted in a significant and rapid recovery in demand for air travel which continued into the third quarter of 2022.

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

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

As of September 30, 2022, we had $14.3 billion in total available liquidity, consisting of $11.2 billion in unrestricted cash and short-term investments, $2.8 billion in undrawn capacity under revolving credit facilities and a total of $220 million in undrawn short-term revolving and other facilities.

During the first nine months of 2022, we completed the following financing transactions (see Note 5 to AAG’s Condensed Consolidated Financial Statements in Part I, Item 1A for further information):

• received $699 million in proceeds from enhanced equipment trust certificates (EETCs);

• repurchased $349 million of unsecured notes on the open market.

A significant portion of our debt financing agreements contain covenants requiring us to maintain an aggregate of at least $2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities and/or contain covenants requiring us to meet certain loan to value, collateral coverage and/or peak debt service coverage ratios.

Given our current assumptions about the future impact of the COVID-19 pandemic on travel demand, which could be materially different due to the inherent uncertainties of the current operating environment, we expect to meet our cash obligations as well as remain in compliance with the debt covenants in our existing financing agreements for the next 12 months based on our current level of unrestricted cash and short-term investments, our anticipated access to liquidity (including via proceeds from financings) and projected cash flows from operations.

AAG’s Third Quarter 2022 Results

AAG’s First Quarter 2023 Results

The selected financial data presented below is derived from AAG’s unaudited condensed consolidated financial statements included in Part I, Item 1A of this report and should be read in conjunction with those financial statements and the related notes thereto.

Three Months Ended September 30, Increase

Three Months Ended March 31, Increase

(Decrease) Percent

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Total operating expenses 11,751 10,622 1,129 10.6

Operating income 930 595 335 56.3

Pre-tax income 658 206 452 nm (3)

Income tax provision 175 37 138 nm

Net income 483 169 314 nm

Pre-tax income – GAAP $ 658 $ 206 $ 452 nm

Operating income (loss) 438 (1,723) 2,161 nm (2)

Pre-tax income (loss) 17 (2,086) 2,103 nm

Income tax provision (benefit) 7 (451) 458 nm

Net income (loss) 10 (1,635) 1,645 nm

Pre-tax income (loss) – GAAP $ 17 $ (2,086) $ 2,103 nm

Adjusted for:

pre-tax net special items (1)

(18) (1,039) 1,021 nm

28 160 (132) (82.0)

Pre-tax income (loss) excluding net special items $ 45 $ (1,926) $ 1,971 nm

(1) See below “Reconciliation of GAAP to Non-GAAP Financial Measures” and Note 2 to AAG’s Condensed Consolidated Financial Statements in Part I, Item 1A for details on the components of net special items.

(2) Fluctuations may not be meaningful due to the volatility caused by the COVID-19 pandemic.

(1) See “Reconciliation of GAAP to Non-GAAP Financial Measures” below and Note 2 to AAG’s Condensed Consolidated Financial Statements in Part I, Item 1A for details on the components of net special items.

(2) Not meaningful or greater than 100% change.

Pre-Tax Income and Net Income

Pre-tax income and net income were $658 million and $483 million, respectively, in the third quarter of 2022.

This compares to third quarter 2021 pre-tax income and net income of $206 million and $169 million, respectively.

The quarter-over-quarter improvement in our pre-tax income on a GAAP basis was driven by a significant recovery in demand for air travel and a 12.2% increase in capacity as compared to the third quarter of 2021, resulting in higher passenger revenue, offset in part by higher aircraft fuel and related taxes, due to an increase in the average price per gallon of aircraft fuel, and other increases in operating expenses.

The third quarter of 2021 also included the recognition of $1.0 billion of net pre-tax special credits principally related to PSP Financial Assistance.

See Note 2 to AAG's Condensed Consolidated Financial Statement in Part I, Item 1A for further information on net special items.

Excluding the effects of pre-tax net special items, pre-tax income was $640 million in the third quarter of 2022 and pre-tax loss was $833 million in the third quarter of 2021.

The quarter-over-quarter improvement in our pre-tax income excluding pre-tax net special items was primarily due to higher passenger revenue, offset in part by higher aircraft fuel and related taxes and other increases in operating expenses, as described above.

In the third quarter of 2022, we reported total operating revenues of $13.5 billion, an increase of $4.5 billion, or 50.1%, as compared to the third quarter of 2021.

Passenger revenue was $12.4 billion in the third quarter of 2022, an increase of $4.4 billion, or 55.8%, as compared to the third quarter of 2021.

The increase in passenger revenue in the third quarter of 2022 was due to a 28.0% increase in passenger yield and a 21.7% increase in revenue passenger miles (RPMs), driven by a significant recovery in demand for air travel domestically and in the Atlantic and Latin America regions, resulting in an 85.3% load factor in the third quarter of 2022.

Cargo revenue decreased $53 million, or 15.9%, in the third quarter of 2022 from the third quarter of 2021 primarily due to a 10.3% decrease in cargo yield and a 6.2% decrease in cargo ton miles as a result of lower demand and increased global air freight capacity.

Other operating revenue increased $107 million, or 15.8%, as compared to the third quarter of 2021, driven primarily by higher revenue associated with our loyalty program.

During the three months ended September 30, 2022 and 2021, cash payments from co-branded credit card and other partners were $1.0 billion and $835 million, respectively.

Our total revenue per available seat mile (TRASM) was 19.63 cents in the third quarter of 2022, a 33.8% increase as compared to 14.68 cents in the third quarter of 2021.

Aircraft fuel expense was $3.8 billion in the third quarter of 2022, which was $1.9 billion, or 97.1%, higher as compared to the third quarter of 2021.

This increase was primarily driven by a 79.9% increase in the average price per gallon of aircraft fuel including related taxes to $3.73 in the third quarter of 2022 from $2.07 in the third quarter of 2021 and a 9.5% increase in gallons of fuel consumed due to increased capacity.

As of September 30, 2022, we did not have any fuel hedging contracts outstanding to hedge our fuel consumption.

Pre-Tax Income (Loss) and Net Income (Loss)

Pre-tax income and net income were $17 million and $10 million, respectively, in the first quarter of 2023.

This compares to first quarter of 2022 pre-tax loss and net loss of $2.1 billion and $1.6 billion, respectively.

Excluding the effects of pre-tax net special items, pre-tax income was $45 million in the first quarter of 2023 and pre-tax loss was $1.9 billion in the first quarter of 2022.

The quarter-over-quarter improvement in our pre-tax income, on both a GAAP basis and excluding pre-tax net special items, was driven by the continued strength in demand for air travel and a 9.2% increase in capacity as compared to the first quarter of 2022.

This resulted in higher operating revenues, which was offset in part by higher aircraft fuel and related taxes due to a 17.3% increase in the average price per gallon of aircraft fuel as well as 7.9% more gallons consumed, as compared to the first quarter of 2022.

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In the first quarter of 2023, we reported total operating revenues of $12.2 billion, an increase of $3.3 billion, or 37.0%, as compared to the first quarter of 2022.

Passenger revenue was $11.1 billion in the first quarter of 2023, an increase of $3.3 billion, or 42.0%, as compared to the first quarter of 2022.

The increase in passenger revenue in the first quarter of 2023 was primarily due to a 20.9% increase in passenger yield and a 17.4% increase in revenue passenger miles (RPMs), driven by the continued strength in demand for air travel, resulting in an 80.0% load factor in the first quarter of 2023.

Cargo revenue decreased $141 million, or 38.7%, in the first quarter of 2023 from the first quarter of 2022 primarily due to a 22.2% decrease in cargo yield and a 21.2% decrease in cargo ton miles driven by lower demand.

Other operating revenue increased $146 million, or 20.4%, as compared to the first quarter of 2022, driven primarily by higher revenue associated with our loyalty program.

During the first quarter of 2023 and 2022, cash payments from co-branded credit card and other partners were $1.6 billion and $1.4 billion, respectively.

Our total revenue per available seat mile (TRASM) was 18.75 cents in the first quarter of 2023, a 25.4% increase as compared to 14.95 cents in the first quarter of 2022, driven primarily by the increase in passenger revenue as described above.

Aircraft fuel expense was $3.2 billion in the first quarter of 2023, which was $665 million, or 26.6%, higher as compared to the first quarter of 2022.

This increase was primarily due to a 17.3% increase in the average price per gallon of aircraft fuel including related taxes to $3.28 in the first quarter of 2023 from $2.80 in the first quarter of 2022 and a 7.9% increase in gallons of fuel consumed due to increased capacity.

As of March 31, 2023, we did not have any fuel hedging contracts outstanding to hedge our fuel consumption.

Our current policy is not to enter into transactions to hedge our fuel consumption, although we review that policy from time to time based on market conditions and other factors.

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general economic conditions and the price of fuel.

In particular, the onset of the COVID-19 pandemic resulted in a very rapid deterioration in general economic conditions, and the subsequent rapid economic expansion resulted in significant inflationary pressures, including on the cost of fuel.

Our 2022 third quarter total operating cost per available seat mile (CASM) was 18.28 cents, an increase of 33.4%, from 13.70 cents in the third quarter of 2021.

This increase in CASM was primarily driven by higher aircraft fuel and related taxes in the third quarter of 2022, as described above, and the recognition of $1.1 billion of operating net special credits in the third quarter of 2021 principally related to PSP Financial Assistance.

Our 2022 third quarter CASM excluding net special items and fuel was 12.61 cents, an increase of 3.0%, from 12.24 cents in the third quarter of 2021.

For a reconciliation of CASM to CASM excluding net special items and fuel, see below “Reconciliation of GAAP to Non-GAAP Financial Measures.”

Our 2023 first quarter total operating cost per available seat mile (CASM) was 18.08 cents, an increase of 1.3%, from 17.84 cents in the first quarter of 2022.

Our 2023 first quarter CASM excluding net special items and fuel was 13.18 cents, a decrease of 1.4%, from 13.38 cents in the first quarter of 2022.

For a reconciliation of CASM to CASM excluding net special items and fuel, see “Reconciliation of GAAP to Non-GAAP Financial Measures” below.

As of March 31, 2023, we had $14.4 billion in total available liquidity, consisting of $11.5 billion in unrestricted cash and short-term investments, $2.9 billion in total undrawn capacity under revolving credit and other short-term facilities.

During the first quarter of 2023, we completed the following financing transactions (see Note 5 to AAG’s Condensed Consolidated Financial Statements in Part 1, Item 1A for further information):

• refinanced approximately $1.8 billion in aggregate principal amount of term loans outstanding under the 2013 Term Loan Facility by extending the maturity of $1.0 billion in term loans under the 2013 Term Loan Facility and issuing $750 million in aggregate principal amount of 7.25% Senior Secured Notes;

• extended $2.2 billion of aggregate commitments under the 2013, 2014 and April 2016 Revolving Facilities through October 2026.

The $2.8 billion of aggregate commitments currently under the 2013, 2014 and April 2016 Revolving Facilities will continue through October 2024;

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• issued $94 million of equipment loans and other notes payable in connection with the financing of certain aircraft.

Reconciliation of GAAP to Non-GAAP Financial Measures

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As net special items may vary from period-to-period in nature and amount, the adjustment to exclude net special items allows management an additional tool to understand our core operating performance.

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Three Months Ended March 31,

(In millions)

7 unchanged sentences

(1) See Note 2 to AAG’s Condensed Consolidated Financial Statements in Part I, Item 1A for further information on net special items.

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Additionally, the table below presents the reconciliation of total operating costs (GAAP measure) to total operating costs excluding net special items and fuel (non-GAAP measure) and CASM to CASM excluding net special items and fuel.

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The price of fuel, over which we have no control, impacts the comparability of period-to-period financial performance.

The adjustment to exclude fuel and net special items allows management an additional tool to understand and analyze our non-fuel costs and core operating performance.

The adjustment to exclude net special items and fuel allows management an additional tool to understand and analyze our non-fuel costs and core operating performance.

Amounts may not recalculate due to rounding.

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Reconciliation of CASM Excluding Net Special Items and Fuel:

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Mainline operating special items, net (13) (157)

Regional operating special items, net

(2) 67 (2) 449

Aircraft fuel and related taxes (3,167) (2,502)

4 unchanged sentences

Mainline operating special items, net (0.02) (0.26)

Regional operating special items, net — 0.11 — 0.29

Aircraft fuel and related taxes per ASM (4.87) (4.20)

1 unchanged sentence

(1) See Note 2 to AAG’s Condensed Consolidated Financial Statements in Part I, Item 1A for further information on net special items.

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AAG’s Results of Operations

Operating Statistics

The table below sets forth selected operating data for the three and nine months ended September 30, 2022 and 2021.

The table below sets forth selected operating data for the three months ended March 31, 2023 and 2022.

Amounts may not recalculate due to rounding.

Three Months Ended

September 30, Increase Nine Months Ended

September 30, Increase

2022 2021 2022 2021

Three Months Ended March 31, Increase

Revenue passenger miles (millions) (a)

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Passenger load factor (percent) (c)

85.3 78.7 6.6pts 82.5 73.4 9.1pts

80.0 74.4 5.6pts

Yield (cents) (d)

5 unchanged sentences

Fuel consumption (gallons in millions)

1,031 941 9.5% 2,922 2,393 22.1%

Average aircraft fuel price including related taxes (dollars per gallon)

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(h) Includes aircraft owned and leased by American as well as aircraft operated by third-party regional carriers under capacity purchase agreements.

Excludes 14 mainline aircraft and 53 regional aircraft that are in temporary storage at September 30, 2022 as follows:

14 Boeing 737-800, 30 Embraer 145, 13 Bombardier CRJ 700, five Bombardier CRJ 900 and five Embraer 170.

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

Excluded from the aircraft count above are six mainline aircraft and 70 regional aircraft that are in temporary storage at March 31, 2023 as follows:

six Boeing 737-800, 41 Embraer 145, 19 Bombardier CRJ 700, five Embraer 170, four Bombardier CRJ 900 and one Embraer 175.

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Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Operating Revenues

Three Months Ended

September 30, Increase

Three Months Ended March 31, Increase

(Decrease) Percent

5 unchanged sentences

This table presents our passenger revenue and the quarter-over-quarter change in certain operating statistics:

Three Months Ended September 30, 2021

Three Months Ended March 31, 2022

Three Months Ended

September 30, 2022 RPMs ASMs Load

March 31, 2023 RPMs ASMs Load

(In millions)

Passenger revenue $ 11,103 17.4% 9.2% 5.6pts 20.9% 30.1%

Passenger revenue increased $4.4 billion, or 55.8%, in the third quarter of 2022 from the third quarter of 2021 primarily due to a 28.0% increase in passenger yield and a 21.7% increase in RPMs, driven by a significant recovery in demand for air travel domestically and in the Atlantic and Latin America regions, resulting in an 85.3% load factor in the third quarter of 2022.

Other operating revenue increased $107 million, or 15.8%, as compared to the third quarter of 2021, driven primarily by higher revenue associated with our loyalty program.

Total operating revenues in the third quarter of 2022 increased $4.5 billion, or 50.1%, from the third quarter of 2021 driven principally by the increase in passenger revenue as described above.

Our TRASM increased 33.8% to 19.63 cents in the third quarter of 2022 from 14.68 cents in the third quarter of 2021.

Passenger revenue increased $3.3 billion, or 42.0%, in the first quarter of 2023 from the first quarter of 2022 primarily due to a 20.9% increase in passenger yield and a 17.4% increase in RPMs, driven by the continued strength in demand for air travel, resulting in an 80.0% load factor in the first quarter of 2023.

Other operating revenue increased $146 million, or 20.4%, as compared to the first quarter of 2022, driven primarily by higher revenue associated with our loyalty program.

During the first quarter of 2023 and 2022, cash payments from co-branded credit card and other partners were $1.6 billion and $1.4 billion, respectively.

Total operating revenues in the first quarter of 2023 increased $3.3 billion, or 37.0%, from the first quarter of 2022 and our TRASM increased 25.4% to 18.75 cents in the first quarter of 2023 from 14.95 cents in the first quarter of 2022, driven primarily by the increase in passenger revenue as described above.

Operating Expenses

Three Months Ended

September 30, Increase

Three Months Ended March 31, Increase

(Decrease) Percent

8 unchanged sentences

Depreciation and amortization 486 492 (6) (1.2)

Mainline operating special items, net 37 (990) 1,027 nm

Other 1,362 1,109 253 22.9

Total operating expenses $ 12,532 $ 8,374 $ 4,158 49.7

Total operating expenses increased $4.2 billion, or 49.7%, in the third quarter of 2022 from the third quarter of 2021 driven by higher aircraft fuel and related taxes and other expenses as a result of an increase in the average price per gallon of aircraft fuel and increased capacity.

The third quarter of 2021 total operating expenses also included $1.1 billion of net operating special credits principally related to the PSP Financial Assistance.

See further discussion of operating special items, net below.

Aircraft fuel and related taxes increased $1.9 billion, or 97.1%, in the third quarter of 2022 from the third quarter of 2021 primarily due to a 79.9% increase in the average price per gallon of aircraft fuel including related taxes to $3.73 in the third quarter of 2022 from $2.07 in the third quarter of 2021 and a 9.5% increase in gallons of fuel consumed due to increased capacity.

Salaries, wages and benefits increased $366 million, or 12.1%, in the third quarter of 2022 from the third quarter of 2021 primarily due to an 8.7% increase in mainline full-time equivalent employees subsequent to the third quarter of 2021.

Regional expenses increased $287 million, or 32.3%, in the third quarter of 2022 from the third quarter of 2021 primarily due to pay rate increases and retention bonuses offered at our wholly-owned regional carriers as well as contractual rate increases with our third-party regional carriers.

The third quarter of 2021 also included the recognition of $128 million of PSP Financial Assistance as a regional operating special credit.

Maintenance, materials and repairs increased $137 million, or 25.1%, in the third quarter of 2022 from the third quarter of 2021 primarily due to increased capacity and an increase in the volume of engine overhauls performed under time and material contracts where expense is incurred and recognized as maintenance is performed.

Selling expenses increased $177 million, or 55.7%, in the third quarter of 2022 from the third quarter of 2021 primarily due to higher credit card fees and commission expense driven by the overall increase in passenger revenues.

Other operating expenses increased $253 million, or 22.9%, in the third quarter of 2022 from the third quarter of 2021 primarily as a result of increased capacity and expenses associated with improving our product offerings, customer experience and operational reliability.

Operating Special Items, Net

Three Months Ended September 30,

(In millions)

Litigation reserve adjustments $ 37 $ —

PSP Financial Assistance (1)

Mark-to-market adjustments on bankruptcy obligations, net — (1)

Other operating special items, net — 3

Mainline operating special items, net 13 157 (144) (91.4)

PSP Financial Assistance (1)

Regional pilot retention program (2)

Other operating special items, net 2 —

Regional operating special items, net 2 (67)

Operating special items, net $ 39 $ (1,057)

(1) The PSP Financial Assistance represents recognition of a portion of the financial assistance received from the U.S.

Department of Treasury (Treasury) pursuant to the payroll support program established under the PSP Extension Law (PSP2) and the American Rescue Plan Act of 2021 (ARP) (PSP3).

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

Nonoperating Results

Three Months Ended

September 30, Increase

(In millions, except percentage changes)

Interest income $ 70 $ 5 $ 65 nm

Interest expense, net (499) (476) (23) 4.8

Other income, net 157 82 75 91.1

Total nonoperating expense, net $ (272) $ (389) $ 117 (30.0)

Interest income increased in the third quarter of 2022 compared to the third quarter of 2021 primarily as a result of higher returns on our short-term investments.

In the third quarter of 2022, other nonoperating income, net primarily included $103 million of non-service related pension and other postretirement benefit plan income and $57 million of net special credits for mark-to-market net unrealized gains principally associated with our equity investments in Vertical Aerospace Ltd.

(Vertical), China Southern Airlines Company Limited (China Southern Airlines) and GOL Linhas Aéreas Inteligentes S.A.

In the third quarter of 2021, other nonoperating income, net included $80 million of non-service related pension and other postretirement benefit plan income.

In the third quarter of 2022, we recorded an income tax provision of $175 million.

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

See Note 6 to AAG’s Condensed Consolidated Financial Statements in Part I, Item 1A for additional information on income taxes.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Operating Revenues

Nine Months Ended

September 30,

(Decrease) Percent

(In millions, except percentage changes)

Passenger $ 32,438 $ 17,682 $ 14,756 83.5

Cargo 970 973 (3) (0.3)

Other 1,460 1,285 175 13.5

Total operating revenues $ 35,783 $ 20,455 $ 15,328 74.9

This table presents our passenger revenue and the period-over-period change in certain operating statistics:

Nine Months Ended September 30, 2021

Nine Months Ended

September 30, 2022 RPMs ASMs Load

(In millions)

Passenger revenue $ 32,438 42.4% 26.6% 9.1pts 28.8% 44.9%

Passenger revenue increased $14.8 billion, or 83.5%, in the first nine months of 2022 from the first nine months of 2021 primarily due to a 42.4% increase in RPMs, driven by a significant recovery in demand for air travel domestically and in the Atlantic and Latin America regions, resulting in an 82.5% load factor in the first nine months of 2022, and a 28.8% increase in passenger yield.

Other operating revenue increased $575 million, or 31.9%, in the first nine months of 2022 from the first nine months of 2021, driven primarily by higher revenue associated with our loyalty program.

Total operating revenues in the first nine months of 2022 increased $15.3 billion, or 74.9%, from the first nine months of 2021 driven principally by the increase in passenger revenue as described above.

Our TRASM increased 38.2% to 18.42 cents in the first nine months of 2022 from 13.33 cents in the first nine months of 2021.

Operating Expenses

Nine Months Ended

September 30, Increase

(Decrease) Percent

(In millions, except percentage changes)

Aircraft fuel and related taxes $ 10,369 $ 4,596 $ 5,773 nm

Salaries, wages and benefits 9,773 8,611 1,162 13.5

Regional expenses 3,298 2,148 1,150 53.5

Maintenance, materials and repairs 1,949 1,383 566 40.9

Other rent and landing fees 2,081 1,950 131 6.8

Aircraft rent 1,045 1,064 (19) (1.8)

Selling expenses 1,331 745 586 78.7

Depreciation and amortization 1,486 1,439 47 3.2

Mainline operating special items, net 189 (3,986) 4,175 nm

Other 4,037 2,784 1,253 45.1

Total operating expenses $ 11,751 $ 10,622 $ 1,129 10.6

Total operating expenses increased $14.8 billion, or 71.5%, in the first nine months of 2022 from the first nine months of 2021 driven by higher aircraft fuel and related taxes and other expenses as a result of an increase in the average price per gallon of aircraft fuel and increased capacity.

The first nine months of 2021 total operating expenses also included $4.4 billion of net operating special credits principally related to the PSP Financial Assistance.

See further discussion of operating special items, net below.

Aircraft fuel and related taxes increased $5.8 billion in the first nine months of 2022 from the first nine months of 2021 primarily due to an 84.8% increase in the average price per gallon of aircraft fuel including related taxes to $3.55 in the first nine months of 2022 from $1.92 in the first nine months of 2021 and a 22.1% increase in gallons of fuel consumed due to increased capacity.

Salaries, wages and benefits increased $1.2 billion, or 13.5%, in the first nine months of 2022 from the first nine months of 2021 primarily due to an 8.7% increase in mainline full-time equivalent employees subsequent to the third quarter of 2021.

Regional expenses increased $1.2 billion, or 53.5%, in the first nine months of 2022 from the first nine months of 2021 primarily due to pay rate increases and retention bonuses offered at our wholly-owned regional carriers, as well as contractual rate increases with our third-party regional carriers.

The first nine months of 2021 also included the recognition of $539 million of PSP Financial Assistance as a regional operating special credit.

Maintenance, materials and repairs increased $566 million, or 40.9%, in the first nine months of 2022 from the first nine months of 2021 primarily due to increased capacity and an increase in the volume of engine overhauls performed under time and material contracts where expense is incurred and recognized as maintenance is performed.

Other rent and landing fees increased $131 million, or 6.8%, in the first nine months of 2022 from the first nine months of 2021 primarily due to an increase in landing fees as a result of increased departures.

Selling expenses increased $586 million, or 78.7%, in the first nine months of 2022 from the first nine months of 2021 primarily due to higher credit card fees and commission expense driven by the overall increase in passenger revenues.

Other operating expenses increased $1.3 billion, or 45.1%, in the first nine months of 2022 from the first nine months of 2021 primarily as a result of increased capacity and expenses associated with improving our product offerings, customer experience and operational reliability.

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Significant changes in the components of our total operating expenses are as follows:

Aircraft fuel and related taxes increased $665 million, or 26.6%, in the first quarter of 2023 from the first quarter of 2022 primarily due to a 17.3% increase in the average price per gallon of aircraft fuel including related taxes to $3.28 in the first quarter of 2023 from $2.80 in the first quarter of 2022, and a 7.9% increase in gallons of fuel consumed due to increased capacity.

Regional expenses increased $90 million, or 8.6%, in the first quarter of 2023 from the first quarter of 2022 primarily due to pay rate increases offered at our wholly-owned regional carriers effective subsequent to the first quarter of 2022.

Maintenance, materials and repairs increased $95 million, or 15.4%, in the first quarter of 2023 from the first quarter of 2022 primarily due to increased costs for engine overhauls and airframe heavy checks driven by higher volume and flight hours.

Selling expenses increased $106 million, or 31.8%, in the first quarter of 2023 from the first quarter of 2022 primarily due to higher credit card fees and commission expense driven by the overall increase in passenger revenues.

Other operating expenses increased $175 million, or 13.5%, in the first quarter of 2023 from the first quarter of 2022 primarily driven by the increase in flight operations, including increased costs for aircraft food and catering, crew travel, airport lounge operations and ground handling, as well as certain general and administrative expenses.

Operating Special Items, Net

Nine Months Ended September 30,

Three Months Ended March 31,

(In millions)

Fleet impairment (1)

Litigation reserve adjustments 37 —

PSP Financial Assistance (2)

Severance expenses (1)

Mark-to-market adjustments on bankruptcy obligations, net — 5

Other operating special items, net 3 3

Mainline operating special items, net 189 (3,986)

PSP Financial Assistance (2)

Regional pilot retention program (4)

Fleet impairment (2)

Severance expenses (3)

Other operating special items, net (8) 8

Regional operating special items, net 2 (449)

Operating special items, net $ 191 $ (4,435)

(1) Fleet impairment for the nine months ended September 30, 2022 included a non-cash impairment charge to write down the carrying value of our retired Airbus A330 fleet to the estimated fair value due to the market conditions for certain used aircraft.

Mainline operating special items, net $ 13 $ 157

(1) Severance expenses in the first quarter of 2023 primarily included costs associated with headcount reductions in certain corporate functions.

(2) Fleet impairment in the first quarter of 2022 included a non-cash impairment charge to write down the carrying value of our retired Airbus A330 fleet to the estimated fair value due to the market conditions for certain used aircraft.

We retired our Airbus A330 fleet in 2020 as a result of the decline in demand for air travel due to the COVID-19 pandemic.

Fleet impairment for the nine months ended September 30, 2021 included a non-cash impairment charge to write down regional aircraft resulting from the retirement of the remaining Embraer 140 fleet earlier than planned.

(2) The PSP Financial Assistance represents recognition of a portion of the financial assistance received from Treasury pursuant to the payroll support program established under PSP2 and PSP3.

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

Cash payments related to our voluntary early retirement programs for the nine months ended September 30, 2022 and 2021 were approximately $180 million and $480 million, respectively.

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

Nonoperating Results

Nine Months Ended

September 30, Increase

(Decrease) Percent

Three Months Ended March 31, Increase

(In millions, except percentage changes)

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Interest expense, net (540) (463) (77) 16.6

Other income, net 274 241 33 14.1

Other income (expense), net (6) 92 (98) nm

Total nonoperating expense, net $ (421) $ (363) $ (58) 16.0

Interest income increased in the first nine months of 2022 compared to the first nine months of 2021 primarily as a result of higher returns on our short-term investments.

Interest expense, net increased in the first nine months of 2022 compared to the first nine months of 2021 primarily due to the impact of the AAdvantage Financing issued at the end of the first quarter of 2021, which improved our liquidity position in response to the COVID-19 pandemic.

In the first nine months of 2022, other nonoperating income, net primarily included $315 million of non-service related pension and other postretirement benefit plan income, offset in part by $34 million of net special charges principally for mark-to-market net unrealized losses associated with our equity investments in GOL, Vertical and China Southern Airlines.

In the first nine months of 2021, other nonoperating income, net included $252 million of non-service related pension and other postretirement benefit plan income, offset in part by $31 million of net special charges principally for non-cash charges associated with debt refinancings and extinguishments.

In the first nine months of 2022, we recorded an income tax benefit of $148 million.

Interest income increased in the first quarter of 2023 compared to the first quarter of 2022 primarily as a result of higher returns on our short-term investments.

Interest expense, net increased in the first quarter of 2023 compared to the first quarter of 2022 primarily due to higher interest rates on our variable-rate debt instruments.

In the first quarter of 2023, other nonoperating expense, net primarily included $15 million of net special charges principally associated with debt refinancings and extinguishments, offset in part by $8 million of non-service related pension and other postretirement benefit plan income.

In the first quarter of 2022, other nonoperating income, net primarily included $106 million of non-service related pension and other postretirement benefit plan income.

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The decrease in non-service related pension and other postretirement benefit plan income in the first quarter of 2023 as compared to the first quarter of 2022 is principally due to an increase in interest cost for the pension and other postretirement benefit obligations and a decrease in expected return on pension plan assets.

In the first quarter of 2023, we recorded an income tax provision of $7 million.

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

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American’s Results of Operations

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Operating Revenues

Three Months Ended

September 30, Increase

Three Months Ended March 31, Increase

(Decrease) Percent

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Total operating revenues $ 12,188 $ 8,896 $ 3,292 37.0

Passenger revenue increased $4.4 billion, or 55.8%, in the third quarter of 2022 from the third quarter of 2021 primarily due to an increase in passenger yield and an increase in RPMs, driven by a significant recovery in demand for air travel domestically and in the Atlantic and Latin America regions, resulting in an increased load factor in the third quarter of 2022.

Cargo revenue decreased $53 million, or 15.9%, in the third quarter of 2022 from the third quarter of 2021 primarily due to a decrease in cargo yield and cargo ton miles as a result of lower demand and increased global air freight capacity.

Other operating revenue increased $107 million, or 15.7%, as compared to the third quarter of 2021, driven primarily by higher revenue associated with American's loyalty program.

Total operating revenues in the third quarter of 2022 increased $4.5 billion, or 50.1%, from the third quarter of 2021 driven principally by the increase in passenger revenue as described above.

Passenger revenue increased $3.3 billion, or 42.0%, in the first quarter of 2023 from the first quarter of 2022 primarily due to an increase in passenger yield and RPMs, driven by the continued strength in demand for air travel, resulting in an increased load factor in the first quarter of 2023.

Cargo revenue decreased $141 million, or 38.7%, in the first quarter of 2023 from the first quarter of 2022 primarily due to a decrease in cargo yield and cargo ton miles driven by lower demand.

Other operating revenue increased $148 million, or 20.8%, as compared to the first quarter of 2022, driven primarily by higher revenue associated with American’s loyalty program.

During the first quarter of 2023 and 2022, cash payments from co-branded credit card and other partners were $1.6 billion and $1.4 billion, respectively.

Total operating revenues in the first quarter of 2023 increased $3.3 billion, or 37.0%, from the first quarter of 2022 driven primarily by the increase in passenger revenue as described above.

Operating Expenses

Three Months Ended

September 30, Increase

Three Months Ended March 31, Increase

(Decrease) Percent

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Depreciation and amortization 484 492 (8) (1.5)

Mainline operating special items, net 37 (990) 1,027 nm

Other 1,363 1,109 254 22.9

Total operating expenses $ 12,526 $ 8,275 $ 4,251 51.4

Total operating expenses increased $4.3 billion, or 51.4%, in the third quarter of 2022 from the third quarter of 2021 driven by higher aircraft fuel and related taxes and other expenses as a result of an increase in the average price per gallon of aircraft fuel and increased capacity.

The third quarter of 2021 total operating expenses also included $1.1 billion of net operating special credits principally related to the PSP Financial Assistance.

See further discussion of operating special items, net below.

Salaries, wages and benefits increased $365 million, or 12.1%, in the third quarter of 2022 from the third quarter of 2021 primarily due to an 8.7% increase in mainline full-time equivalent employees subsequent to the third quarter of 2021.

Regional expenses increased $383 million, or 48.5%, in the third quarter of 2022 from the third quarter of 2021 primarily due to contractual rate increases with American's third-party regional carriers.

The third quarter of 2021 also included the recognition of $128 million of PSP Financial Assistance as a regional operating special credit.

Other operating expenses increased $254 million, or 22.9%, in the third quarter of 2022 from the third quarter of 2021 primarily as a result of increased capacity and expenses associated with improving American's product offerings, customer experience and operational reliability.

Operating Special Items, Net

Three Months Ended September 30,

(In millions)

Litigation reserve adjustments $ 37 $ —

PSP Financial Assistance (1)

Mark-to-market adjustments on bankruptcy obligations, net — (1)

Other operating special items, net — 3

Mainline operating special items, net 13 157 (144) (91.4)

PSP Financial Assistance (1)

Regional operating special items, net — (128)

Operating special items, net $ 37 $ (1,118)

(1) The PSP Financial Assistance represents recognition of a portion of the financial assistance received from Treasury pursuant to the payroll support program established under PSP2 and PSP3.

Nonoperating Results

Three Months Ended

September 30, Increase

(In millions, except percentage changes)

Interest income $ 111 $ 8 $ 103 nm

Interest expense, net (482) (435) (47) 10.8

Other income, net 156 82 74 90.9

Total nonoperating expense, net $ (215) $ (345) $ 130 (37.6)

Interest income increased in the third quarter of 2022 compared to the third quarter of 2021 primarily as a result of higher returns on American's short-term investments.

In the third quarter of 2021, other nonoperating income, net included $80 million of non-service related pension and other postretirement benefit plan income.

American is a member of AAG's consolidated federal and certain state income tax returns.

In the third quarter of 2022, American recorded an income tax provision of $180 million.

Substantially all of American’s income or loss before income taxes is attributable to the United States.

See Note 5 to American’s Condensed Consolidated Financial Statements in Part I, Item 1B for additional information on income taxes.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Operating Revenues

Nine Months Ended

September 30,

(Decrease) Percent

Increase (Decrease)

(In millions, except percentage changes)

Passenger $ 32,438 $ 17,682 $ 14,756 83.5

Cargo 970 973 (3) (0.3)

Other 1,460 1,286 174 13.5

Total operating revenues $ 35,778 $ 20,454 $ 15,324 74.9

Passenger revenue increased $14.8 billion, or 83.5%, in the first nine months of 2022 from the first nine months of 2021 primarily due to an increase in RPMs, driven by a significant recovery in demand for air travel domestically and in the Atlantic and Latin America regions, resulting in an increased load factor in the first nine months of 2022, and an increase in passenger yield.

Other operating revenue increased $571 million, or 31.7%, in the first nine months of 2022 from the first nine months of 2021, driven primarily by higher revenue associated with American's loyalty program.

Operating Expenses

Nine Months Ended

September 30, Increase

(Decrease) Percent

(In millions, except percentage changes)

Aircraft fuel and related taxes $ 10,369 $ 4,596 $ 5,773 nm

Salaries, wages and benefits 9,768 8,607 1,161 13.5

Regional expenses 3,253 2,053 1,200 58.4

Maintenance, materials and repairs 1,949 1,383 566 40.9

Other rent and landing fees 2,081 1,950 131 6.8

Aircraft rent 1,045 1,064 (19) (1.8)

Selling expenses 1,331 745 586 78.7

Depreciation and amortization 1,480 1,439 41 2.9

Mainline operating special items, net 189 (3,986) 4,175 nm

Other 4,039 2,785 1,254 45.1

Total operating expenses $ 11,749 $ 10,592 $ 1,157 10.9

Total operating expenses increased $14.9 billion, or 72.1%, in the first nine months of 2022 from the first nine months of 2021 driven by higher aircraft fuel and related taxes and other expenses as a result of an increase in the average price per gallon of aircraft fuel and increased capacity.

The first nine months of 2021 total operating expenses also included $4.5 billion of net operating special credits principally related to the PSP Financial Assistance.

See further discussion of operating special items, net below.

Regional expenses increased $1.2 billion, or 58.4%, in the first nine months of 2022 from the first nine months of 2021 primarily due to contractual rate increases with American's third-party regional carriers.

The first nine months of 2021 also included the recognition of $539 million of PSP Financial Assistance as a regional operating special credit.

Other operating expenses increased $1.3 billion, or 45.1%, in the first nine months of 2022 from the first nine months of 2021 primarily as a result of increased capacity and expenses associated with improving American's product offerings, customer experience and operational reliability.

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Significant changes in the components of American’s total operating expenses are as follows:

Regional expenses increased $120 million, or 11.8%, in the first quarter of 2023 from the first quarter of 2022 primarily due to contractual rate increases with American’s third-party regional carriers effective subsequent to the first quarter of 2022.

Other operating expenses increased $174 million, or 13.5%, in the first quarter of 2023 from the first quarter of 2022 primarily driven by the increase in flight operations, including increased costs for aircraft food and catering, crew travel, airport lounge operations and ground handling, as well as certain general and administrative expenses.

Operating Special Items, Net

Nine Months Ended September 30,

Three Months Ended March 31,

(In millions)

Fleet impairment (1)

Litigation reserve adjustments 37 —

PSP Financial Assistance (2)

Severance expenses (1)

Mark-to-market adjustments on bankruptcy obligations, net — 5

Fleet impairment (2)

Other operating special items, net (8) 8

Mainline operating special items, net $ 13 $ 157

PSP Financial Assistance (2)

Fleet impairment (1)

Regional operating special items, net — (512)

Operating special items, net $ 189 $ (4,498)

(1) Fleet impairment for the nine months ended September 30, 2022 included a non-cash impairment charge to write down the carrying value of American's retired Airbus A330 fleet to the estimated fair value due to the market conditions for certain used aircraft.

(1) Severance expenses in the first quarter of 2023 primarily included costs associated with headcount reductions in certain corporate functions.

(2) Fleet impairment in the first quarter of 2022 included a non-cash impairment charge to write down the carrying value of American’s retired Airbus A330 fleet to the estimated fair value due to the market conditions for certain used aircraft.

American retired its Airbus A330 fleet in 2020 as a result of the decline in demand for air travel due to the COVID-19 pandemic.

(2) The PSP Financial Assistance represents recognition of a portion of the financial assistance received from Treasury pursuant to the payroll support program established under PSP2 and PSP3.

Cash payments related to American's voluntary early retirement programs for the nine months ended September 30, 2022 and 2021 were approximately $180 million and $480 million, respectively.

Nonoperating Results

Nine Months Ended

September 30, Increase

(Decrease) Percent

Three Months Ended March 31, Increase

(In millions, except percentage changes)

1 unchanged sentence

Interest expense, net (550) (424) (126) 29.7

Other income, net 274 239 35 14.6

Other income (expense), net (6) 95 (101) nm

Total nonoperating expense, net $ (325) $ (318) $ (7) 1.9

Interest income increased in the first nine months of 2022 compared to the first nine months of 2021 primarily as a result of higher returns on American's short-term investments.

Interest expense, net increased in the first nine months of 2022 compared to the first nine months of 2021 primarily due to the impact of the AAdvantage Financing issued at the end of the first quarter of 2021, which improved American's liquidity position in response to the COVID-19 pandemic.

In the first nine months of 2022, other nonoperating income, net primarily included $314 million of non-service related pension and other postretirement benefit plan income, offset in part by $32 million of net special charges principally for mark-to-market net unrealized losses associated with American's equity investments in GOL, Vertical and China Southern Airlines.

In the first nine months of 2021, other nonoperating income, net included $251 million of non-service related pension and other postretirement benefit plan income, offset in part by $31 million of net special charges principally for non-cash charges associated with debt refinancings and extinguishments.

Interest income increased in the first quarter of 2023 compared to the first quarter of 2022 primarily as a result of higher returns on American’s short-term investments.

Interest expense, net increased in the first quarter of 2023 compared to the first quarter of 2022 primarily due to higher interest rates on American’s variable-rate debt instruments.

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In the first quarter of 2022, other nonoperating income, net primarily included $105 million of non-service related pension and other postretirement benefit plan income.

American is a member of AAG’s consolidated federal and certain state income tax returns.

In the first nine months of 2022, American recorded an income tax benefit of $115 million.

In the first quarter of 2023, American recorded an income tax provision of $29 million.

Substantially all of American’s income or loss before income taxes is attributable to the United States.

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Liquidity and Capital Resources

At September 30, 2022, AAG had $14.3 billion in total available liquidity and $953 million in restricted cash and short-term investments.

At March 31, 2023, AAG had $14.4 billion in total available liquidity and $955 million in restricted cash and short-term investments.

Additional detail regarding our available liquidity is provided in the table below (in millions):

September 30, 2022 December 31, 2021 September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022

Cash $ 452 $ 440 $ 443 $ 429

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Total available liquidity $ 14,370 $ 11,998 $ 14,359 $ 11,985

Given the actions we have taken in response to the COVID-19 pandemic and our assumptions about its future impact on travel demand, which could be materially different due to the inherent uncertainties of the current operating environment, we expect to meet our cash obligations as well as remain in compliance with the debt covenants in our existing financing agreements for the next 12 months based on our current level of unrestricted cash and short-term investments, our anticipated access to liquidity (including via proceeds from financings) and projected cash flows from operations .

In the ordinary course of our business, we or our affiliates may, at any time and from time to time, seek to prepay, retire or repurchase our outstanding debt through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise.

Such repurchases, prepayments, retirements or exchanges, if any, will be conducted on such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

The amounts involved may be material.

For further information regarding our debt repurchases during the first nine months of 2022, see Note 5 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A.

Certain Covenants

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

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.

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

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

As of the most recent applicable measurement dates, we were in compliance with each of the foregoing LTV, collateral coverage and peak debt service coverage tests.

Additionally, a significant portion of our debt financing agreements contain covenants requiring us to maintain an aggregate of at least $2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities, and our AAdvantage Financing contains a peak debt service coverage ratio, pursuant to which failure to comply with a certain threshold may result in early repayment, in whole or in part, of the AAdvantage Financing.

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 5.50% senior secured notes due 2026, 5.75% senior secured notes due 2029 and $3.5 billion term loan facility (collectively, the 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.

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Sources and Uses of Cash

Operating Activities

Our net cash provided by operating activities was $2.3 billion and $1.9 billion for the first nine months of 2022 and 2021, respectively, a $427 million period-over-period increase.

In the first nine months of 2021, we received cash proceeds of approximately $4.7 billion associated with the PSP Financial Assistance.

Excluding the PSP Financial Assistance, our operating cash flows increased $5.1 billion compared to the first nine months of 2021 primarily due to higher profitability.

In addition, during the first nine months of 2022, we made approximately $180 million in cash payments associated with our voluntary early retirement programs.

Excluding the enhanced healthcare benefits provided to eligible team members, we estimate cash payments under these programs to be approximately $20 million in the remainder of 2022 and approximately $20 million in 2023.

Our net cash provided by operating activities was $3.3 billion and $1.2 billion for the first quarter of 2023 and 2022, respectively, a $2.1 billion period-over-period increase primarily due to a return to profitability.

Investing Activities

Our net cash used in investing activities was $916 million and $7.7 billion for the first nine months of 2022 and 2021, respectively.

Our principal investing activities in the first nine months of 2022 included $1.9 billion of capital expenditures, which primarily related to the purchase of 17 Airbus A321neo aircraft and 12 spare engines, and the purchase of $205 million of equity investments, principally related to GOL.

Additionally, we incurred $274 million related to airport construction projects, net of reimbursements, principally in connection with the renovation and expansion of Terminal 8 at John F.

Kennedy International Airport (JFK) and the modernization of Terminals 4 and 5 at Los Angeles International Airport (LAX).

These cash outflows were offset in part by $1.3 billion in net sales of short-term investments.

Our principal investing activities in the first nine months of 2021 included $7.6 billion in net purchases of short-term investments as well as a $330 million increase in restricted short-term investments primarily related to collateral for the AAdvantage Financing.

Additionally, we incurred $110 million related to airport construction projects, net of reimbursements, principally in connection with the renovation and expansion of Terminal 8 at JFK and the modernization of Terminals 4 and 5 at LAX.

These cash outflows were offset in part by $181 million of proceeds from the sale of property and equipment principally related to our retired fleet and $168 million of proceeds primarily from aircraft sale-leaseback transactions.

Additionally, aircraft purchase deposit returns of $874 million offset our capital expenditures for the first nine months of 2021, which expenditures were principally related to the harmonization of interior configurations across our mainline fleet and the purchase of two Airbus A321neo aircraft.

Our net cash used in investing activities was $2.8 billion and $771 million for the first quarter of 2023 and 2022, respectively.

Our principal investing activities in the first quarter of 2023 included $2.5 billion in net purchases of short-term investments.

Additionally, we had $505 million of capital expenditures, which primarily related to the purchase of two Airbus A321neo aircraft, two Embraer 175 aircraft and five spare engines.

Our principal investing activities in the first quarter of 2022 included $807 million of capital expenditures, which principally related to the purchase of nine Airbus A321neo aircraft.

Financing Activities

Our net cash used in financing activities was $1.3 billion for the first nine months of 2022 as compared to net cash provided by financing activities of $5.8 billion for the first nine months of 2021.

Our principal financing activities in the first nine months of 2022 included $2.0 billion in repayments of debt and finance lease obligations, consisting of $1.7 billion of scheduled debt repayments including the repayment of $401 million in connection with the maturity of our 5.000% unsecured notes, and the repurchase of $349 million of unsecured notes on the open market.

These cash outflows were offset in part by $699 million of long-term debt proceeds from the issuance of equipment notes related to the 2021-1 Aircraft EETCs.

Our principal financing activities in the first nine months of 2021 included $12.1 billion in proceeds from the issuance of debt, including approximately $10.0 billion associated with the AAdvantage Financing, $1.0 billion in aggregate principal amount under the PSP2 Promissory Note, $946 million in aggregate principal amount under the PSP3 Promissory Note and the $150 million issuance of special facility revenue bonds related to JFK.

We also received $460 million in net proceeds from the issuance of equity pursuant to an at-the-market offering.

These cash inflows were offset in part by $6.6 billion in debt repayments, including prepayments totaling $2.8 billion for our revolving credit facilities, $950 million for the April 2016 Spare Parts Term Loan Facility, $550 million of outstanding loans under the Treasury Loan Agreement and $2.3 billion in scheduled debt repayments.

In addition, we had $176 million of deferred financing cost cash outflows.

Our net cash used in financing activities was $539 million and $310 million for the first quarter of 2023 and 2022, respectively.

Our principal financing activities in the first quarter of 2023 included $502 million in net repayments of debt and finance lease obligations.

We refinanced approximately $1.8 billion in aggregate principal amount of term loans outstanding under the 2013 Term Loan Facility by extending the maturity of $1.0 billion in term loans under the 2013 Term Loan Facility and issuing $750 million in aggregate principal amount of the 7.25% Senior Secured Notes.

Our principal financing activities in the first quarter of 2022 included $661 million in debt repayments, including $344 million in scheduled debt repayments and the repurchase of $317 million of unsecured notes in the open market.

These cash outflows were offset in part by $367 million of long-term debt proceeds from the issuance of equipment notes related to enhanced equipment trust certificates (EETCs).

Operating Activities

American’s net cash provided by operating activities was $1.5 billion and $4.4 billion for the first nine months of 2022 and 2021, respectively, a $2.9 billion period-over-period decrease.

American had a $2.8 billion net decrease in intercompany cash receipts principally from AAG's financing transactions.

Additionally, in the first nine months of 2021, American received cash proceeds of approximately $4.2 billion associated with the PSP Financial Assistance.

Excluding the PSP Financial Assistance and the decrease in AAG's financing transactions, American's operating cash flows increased $4.1 billion compared to the first nine months of 2021 primarily due to higher profitability.

Also, during the first nine months of 2022, American made approximately $180 million in cash payments associated with its voluntary early retirement programs.

Excluding the enhanced healthcare benefits provided to eligible team members, American estimates cash payments under these programs to be approximately $20 million in the remainder of 2022 and approximately $20 million in 2023.

American’s net cash provided by operating activities was $3.3 billion and $810 million for the first quarter of 2023 and 2022, respectively, a $2.5 billion period-over-period increase primarily due to a return to profitability.

Investing Activities

American’s net cash used in investing activities was $874 million and $7.7 billion for the first nine months of 2022 and 2021, respectively.

American’s principal investing activities in the first nine months of 2022 included $1.8 billion of capital expenditures, which primarily related to the purchase of 17 Airbus A321neo aircraft and 12 spare engines, and the purchase of $205 million of equity investments, principally related to GOL.

Additionally, American incurred $274 million related to airport construction projects, net of reimbursements, principally in connection with the renovation and expansion of Terminal 8 at JFK and the modernization of Terminals 4 and 5 at LAX.

These cash outflows were offset in part by $1.3 billion in net sales of short-term investments.

American’s principal investing activities in the first nine months of 2021 included $7.6 billion in net purchases of short-term investments as well as a $330 million increase in restricted short-term investments primarily related to collateral for the AAdvantage Financing.

Additionally, American incurred $110 million related to airport construction projects, net of reimbursements, principally in connection with the renovation and expansion of Terminal 8 at JFK and the modernization of Terminals 4 and 5 at LAX.

These cash outflows were offset in part by $181 million of proceeds from the sale of property and equipment principally related to American's retired fleet and $168 million of proceeds primarily from aircraft sale-leaseback transactions.

Additionally, aircraft purchase deposit returns of $874 million offset American's capital expenditures for the first nine months of 2021, which expenditures were principally related to the harmonization of interior configurations across its mainline fleet and the purchase of two Airbus A321neo aircraft.

American’s net cash used in investing activities was $2.8 billion and $741 million for the first quarter of 2023 and 2022, respectively.

American’s principal investing activities in the first quarter of 2023 included $2.5 billion in net purchases of short-term investments.

Additionally, American had $494 million of capital expenditures, which primarily related to the purchase of two Airbus A321neo aircraft, two Embraer 175 aircraft and five spare engines.

American’s principal investing activities in the first quarter of 2022 included $790 million of capital expenditures, which principally related to the purchase of nine Airbus A321neo aircraft.

Financing Activities

American’s net cash used in financing activities was $570 million for the first nine months of 2022 as compared to net cash provided by financing activities of $3.3 billion for the first nine months of 2021.

American’s principal financing activities in the first nine months of 2022 included $1.3 billion in repayments of debt and finance lease obligations, offset in part by $699 million of long-term debt proceeds from the issuance of equipment notes related to the 2021-1 Aircraft EETCs.

American’s principal financing activities in the first nine months of 2021 included $10.1 billion in proceeds from the issuance of debt, including approximately $10.0 billion associated with the AAdvantage Financing and the $150 million issuance of special facility revenue bonds related to JFK.

These cash inflows were offset in part by $6.6 billion in debt repayments, including prepayments totaling $2.8 billion for American's revolving credit facilities, $950 million for the April 2016 Spare Parts Term Loan Facility, $550 million of outstanding loans under the Treasury Loan Agreement and $2.3 billion in scheduled debt repayments.

In addition, American had $174 million of deferred financing cost cash outflows.

American’s net cash used in financing activities was $521 million for the first quarter of 2023 as compared to net cash provided by financing activities of $28 million for the first quarter of 2022.

American’s principal financing activities in the first quarter of 2023 included $500 million in net repayments of debt and finance lease obligations.

American refinanced approximately $1.8 billion in aggregate principal amount of term loans outstanding under the 2013 Term Loan Facility by extending the maturity of $1.0 billion in term loans under the 2013 Term Loan Facility and issuing $750 million in aggregate principal amount of the 7.25% Senior Secured Notes.

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American’s principal financing activities in the first quarter of 2022 included $367 million of long-term debt proceeds from the issuance of equipment notes related to EETCs offset in part by $339 million in scheduled debt repayments.

Significant Indebtedness

As of September 30, 2022, AAG had $36.6 billion in long-term debt, including current maturities of $2.6 billion.

As of September 30, 2022, American had $31.3 billion in long-term debt, including current maturities of $2.6 billion.

As of March 31, 2023, AAG had $34.9 billion in long-term debt, including current maturities of $3.4 billion.

As of March 31, 2023, American had $29.6 billion in long-term debt, including current maturities of $3.4 billion.

All material changes in our significant indebtedness since our 2022 Form 10-K are discussed in Note 5 to AAG’s Condensed Consolidated Financial Statements in Part I, Item 1A and Note 4 to American’s Condensed Consolidated Financial Statements in Part I, Item 1B.

Aircraft and Engine Purchase Commitments

As of September 30, 2022, we had definitive purchase agreements for the acquisition of the following aircraft (1) :

of 2022 2023 2024 2025 2026 2027 and Thereafter Total

As of March 31, 2023, we had definitive purchase agreements for the acquisition of the following aircraft (1) :

of 2023 2024 2025 2026 2027 Total

A320neo Family — 2 22 29 5 58

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787 Family 3 11 10 4 5 33

175 3 — — — — — 3

Total 20 35 60 54 10 179

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We also have agreements for 47 spare engines to be delivered in 2023 and beyond.

We currently have financing commitments in place for all aircraft on order and scheduled to be delivered in 2022 and 2023, except for 14 Boeing 737 MAX Family aircraft scheduled to be delivered in 2023.

Our ability to draw on the financing commitments we have in place is subject to (1) the satisfaction of various terms and conditions, including in some cases, on our acquisition of the aircraft by a certain date and (2) the performance by the counterparty providing such financing commitments of its obligations thereunder.

In addition, as of March 31, 2023, we have committed to purchase four used Embraer 175 aircraft which are currently flown under a capacity purchase agreement with a third-party regional carrier and are already included in our aircraft count.

We currently have financing commitments in place for all aircraft on order and scheduled to be delivered in 2023 except for 10 Boeing 737 MAX Family aircraft.

Our ability to draw on the financing commitments we have in place is subject to (1) the satisfaction of various terms and conditions including, in some cases, on our acquisition of the aircraft by a certain date and (2) the performance by the relevant financing counterparty of its obligations thereunder.

We do not have financing commitments in place for any of the aircraft scheduled to be delivered in 2024 and beyond, except for five Boeing 787 Family aircraft scheduled to be delivered in 2024.

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There have been no material changes in our off-balance sheet arrangements as discussed in our 2022 Form 10-K.

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Contractual Obligations

The following table provides details of our estimated material cash requirements from contractual obligations as of September 30, 2022 (in millions).

The following table provides details of our estimated material cash requirements from contractual obligations as of March 31, 2023 (in millions).

The table does not include commitments that are contingent on events or other factors that are uncertain or unknown at this time and is subject to other conventions as set forth in the applicable accompanying footnotes.

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1,242 2,516 4,219 3,245 1,008 65 12,295

Operating lease commitments 494 1,926 1,656 1,342 1,078 5,256 11,752

Regional capacity purchase agreements (e)

Operating lease commitments (e)

1,479 1,728 1,434 1,169 979 4,544 11,333

Minimum pension obligations (f)

Regional capacity purchase agreements (f)

1,579 2,136 2,036 1,406 1,031 1,647 9,835

Minimum pension obligations (g)

— 301 328 385 305 603 1,922

Retiree medical and other postretirement benefits

65 85 81 82 81 350 744

Other purchase obligations (g)

Other purchase obligations (h)

3,977 2,861 1,549 546 128 925 9,986

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Operating lease commitments 16 15 11 10 5 29 86

Minimum pension obligations (f)

Minimum pension obligations (g)

2 2 2 2 2 8 18

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(a) Amounts represent contractual amounts due.

Excludes $378 million and $23 million of unamortized debt discount, premium and issuance costs as of September 30, 2022 for American and AAG Parent, respectively.

Excludes $377 million and $19 million of unamortized debt discount, premium and issuance costs as of March 31, 2023 for American and AAG Parent, respectively.

For additional information, see Note 5 and Note 4 to AAG’s and American’s Condensed Consolidated Financial Statements in Part I, Items 1A and 1B, respectively.

(b) For variable-rate debt, future interest obligations are estimated using the current forward rates at September 30, 2022.

(c) Includes $9.4 billion of future principal payments and $1.4 billion of future interest payments as of September 30, 2022, related to EETCs associated with mortgage financings of certain aircraft and spare engines.

(d) See " Aircraft and Engine Purchase Commitments " in Part I, Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information about the firm commitment aircraft delivery schedule, in particular the footnotes to the table thereunder as to potential changes to such delivery schedule.

(b) For variable-rate debt, future interest obligations are estimated using the current forward rates at March 31, 2023.

(c) Includes $8.8 billion of future principal payments and $1.3 billion of future interest payments as of March 31, 2023, related to EETCs associated with mortgage financings of certain aircraft and spare engines.

(d) See “ Aircraft and Engine Purchase Commitments” above for additional information about the firm commitment aircraft delivery schedule, in particular the footnote to the table thereunder as to potential changes to such delivery schedule.

Due to uncertainty surrounding the timing of delivery of certain aircraft, the amounts in the table represent our most current estimate based on contractual delivery schedules adjusted for updates and revisions to such schedules communicated to management by the applicable equipment manufacturer.

However, the actual delivery schedule may differ from the table above, potentially materially, based on various potential factors including production delays by the manufacturer and regulatory concerns.

Additionally, the amounts in the table exclude five and four Boeing 787-8 aircraft to be delivered in 2022 and 2023, respectively, as well as five Boeing 787-9 aircraft to be delivered in 2024, in each case, for which we have obtained committed lease financing.

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 three 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.

This financing is reflected in the operating lease commitments line above.

(e) Represents minimum payments under capacity purchase agreements with third-party regional carriers.

These commitments are estimates of costs based on assumed minimum levels of flying under the capacity purchase agreements and our actual payments could differ materially.

(e) Operating lease commitments include rental payments for four Embraer 175 aircraft which are currently flown under a capacity purchase agreement with a third-party regional carrier but which we have committed to purchase during

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2023, at which time the associated rental payments will be removed from the operating lease commitments line above.

(f) 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.

Rental payments under operating leases for certain aircraft flown under these capacity purchase agreements are reflected in the operating lease commitments line above.

(f) Represents minimum pension contributions based on actuarially determined estimates as of December 31, 2021 and is based on estimated payments through 2031.

(g) Includes purchase commitments for aircraft fuel, flight equipment maintenance, construction projects and information technology support and excludes obligations under certain fuel offtake agreements subject to material contingencies, such as the construction of a production facility.

(g) Represents minimum pension contributions based on actuarially determined estimates as of December 31, 2022 and is based on estimated payments through 2032.

During the first three months of 2023, we made required contributions of $67 million to our defined benefit pension plans.

(h) Includes purchase commitments for aircraft fuel, flight equipment maintenance, information technology support and construction projects and excludes 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.

Capital Raising Activity and Other Possible Actions

In light of our significant cash needs, in particular during periods in which we incur operating losses (such as during the COVID-19 pandemic), as well as our significant financial commitments related to, among other things, the servicing and amortization of existing debt and equipment leasing arrangements and new flight equipment, we and our subsidiaries will regularly consider, and enter into negotiations related to, capital raising and liability management activity, which may include the entry into leasing transactions and future issuances of, and transactions designed to manage the timing and amount of, secured or unsecured debt obligations or additional equity securities in public or private offerings or otherwise.

In light of our significant financial commitments related to, among other things, the servicing and amortization of existing debt and equipment leasing arrangements and new flight equipment, we and our subsidiaries will regularly consider, and enter into negotiations related to, capital raising and liability management activity, which may include the entry into leasing transactions and future issuances of, and transactions designed to manage the timing and amount of, secured or unsecured debt obligations or additional equity or equity-linked securities in public or private offerings or otherwise.

The cash available from operations (if any) and these sources, however, may not be sufficient to cover our cash obligations because economic factors may reduce the amount of cash generated by operations or increase costs.

For instance, an economic downturn or general global instability caused by military actions, terrorism, disease outbreaks (in particular the ongoing impact of the COVID-19 pandemic), natural disasters or other causes could reduce the demand for air travel, which would reduce the amount of cash generated by operations.

For instance, an economic downturn or general global instability caused by military actions, terrorism, disease outbreaks (such as occurred during the COVID-19 pandemic), natural disasters or other causes could reduce the demand for air travel, which would reduce the amount of cash generated by operations.

An increase in costs, either due to an increase in borrowing costs caused by a reduction in credit ratings or a general increase in interest rates, or due to an increase in the cost of fuel, maintenance, aircraft, aircraft engines or parts, could decrease the amount of cash available to cover cash contractual obligations.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis